INTELLON CORP, S-1, 2000-08-31

INTELLON CORP
S-1, 2000-08-31

Previous: PLANET SWEEP INC, 10SB12G, EX-27, 2000-08-31

Next: INTELLON CORP, S-1, EX-3.1, 2000-08-31

<PAGE> 1

AS FILED WITH THE U.S. SECURITIES AND EXCHANGE COMMISSION ON AUGUST 31, 2000

REGISTRATION NO. 333-
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------

FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------

INTELLON CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------

<TABLE>
<S> <C> <C>
FLORIDA 3674 59-2744155
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>

5100 WEST SILVER SPRINGS BOULEVARD
OCALA, FLORIDA 34482
(352) 237-7416
(ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------

HORST G. SANDFORT
PRESIDENT AND CHIEF EXECUTIVE OFFICER
INTELLON CORPORATION
5100 WEST SILVER SPRINGS BOULEVARD
OCALA, FLORIDA 34482
(352) 237-7416
(NAME, ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
AGENT FOR SERVICE)
------------------------

COPIES OF COMMUNICATIONS TO:

<TABLE>
<S> <C>
PETER W. ROTHBERG ROBERT EVANS III
WILLIAM W. BARKER ERIN E. ZYKO
NIXON PEABODY LLP SHEARMAN & STERLING
437 MADISON AVENUE 599 LEXINGTON AVENUE
NEW YORK, NEW YORK 10022 NEW YORK, NEW YORK 10022
TELEPHONE: (212) 940-3100 TELEPHONE: (212) 848-4000
FACSIMILE: (212) 940-3111 FACSIMILE: (212) 848-7179
WWW.NIXONPEABODY.COM WWW.SHEARMAN.COM
</TABLE>

------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after this registration statement becomes effective.

If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: [ ]

If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: [ ]

If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [ ]

If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [ ]

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [ ]
------------------------

CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------
TITLE OF EACH CLASS OF PROPOSED MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Common stock, $0.01 par value........................... $86,250,000 $22,770
--------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1) Estimated pursuant to Rule 457(o) under the Securities Act solely for the
purpose of calculating the registration fee.
------------------------

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE
ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY
DETERMINE.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE> 2

THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE
MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS
NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO
BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITTED.

SUBJECT TO COMPLETION

PRELIMINARY PROSPECTUS DATED AUGUST 31, 2000

PROSPECTUS

[INTELLON LOGO]

COMMON STOCK

----------------------

This is Intellon Corporation's initial public offering.

We expect the public offering price to be between $ and $ per
share. Currently, no public market exists for the shares. We have applied for
quotation of the shares on the Nasdaq National Market under the symbol "ILON."

INVESTING IN THE COMMON STOCK INVOLVES RISKS THAT ARE DESCRIBED IN THE
"RISK FACTORS" SECTION BEGINNING ON PAGE 5 OF THIS PROSPECTUS.

----------------------

<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- -----
<S> <C> <C>
Public offering price...................................... $ $
Underwriting discount...................................... $ $
Proceeds, before expenses, to Intellon..................... $ $
</TABLE>

The underwriters may also purchase up to an additional shares from
Intellon at the public offering price, less the underwriting discount, within 30
days from the date of this prospectus to cover over-allotments.

Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.

The shares will be ready for delivery on or about , 2000.

----------------------

MERRILL LYNCH & CO.
BEAR, STEARNS & CO. INC.
WIT SOUNDVIEW
----------------------

The date of this prospectus is , 2000.
<PAGE> 3

[INSIDE FRONT COVER PAGE
GRAPHICS TO BE DETERMINED]

ii
<PAGE> 4

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.......................................... 1
Risk Factors................................................ 5
Forward-Looking Statements.................................. 12
Use of Proceeds............................................. 13
Dividend Policy............................................. 13
Capitalization.............................................. 14
Dilution.................................................... 15
Selected Financial Information.............................. 16
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 17
Business.................................................... 23
Management.................................................. 35
Principal Shareholders...................................... 41
Description of Capital Stock................................ 43
Shares Eligible for Future Sale............................. 45
Underwriting................................................ 46
Legal Matters............................................... 49
Experts..................................................... 49
Where You Can Find Additional Information................... 49
Index to Financial Statements............................... F-1
</TABLE>

------------------------

You should rely only on the information contained in this prospectus. We
have not, and the underwriters have not, authorized any other person to provide
you with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not, and the
underwriters are not, making an offer to sell these securities in any
jurisdiction where the offer or sale is not permitted. You should assume that
the information appearing in this prospectus is accurate only as of the date on
the front cover of this prospectus. Our business, financial condition, results
of operations and prospects may have changed since that date.

------------------------

Intellon(R), PowerPacket(TM) and Spread Spectrum Carrier(TM) are trademarks
of Intellon Corporation.

iii
<PAGE> 5

PROSPECTUS SUMMARY

This summary highlights selected information contained elsewhere in this
prospectus. You should read the entire prospectus carefully, including the
financial statements and related notes, before making an investment decision.

INTELLON CORPORATION

We design, develop and market digital, analog and mixed-signal integrated
circuits for the home connectivity market. The rapid proliferation of new
content, services and applications available over the Internet, coupled with the
deployment of broadband delivery technologies, is driving increased Internet
usage among consumers. In addition, consumers increasingly own multiple personal
computers and are beginning to access the Internet through new types of consumer
electronics such as digital audio players, personal video recorders, gaming
consoles, video distribution systems, set-top boxes, Internet appliances and
personal digital assistants. These trends are driving the emergence of the
digital home, throughout which broadband content is distributed to enable a
broad range of new entertainment, communications, productivity enhancement and
control applications. However, despite expanded broadband delivery to the home,
a medium for the high-performance, cost-effective distribution of broadband
content within the home has not been available until now.

Every communication service connection to the home, or home gateway, needs
electric power to operate. Every electric or electronic device, including
televisions, games, personal computers and telephones, also needs power to
operate. Therefore, since all of these devices are already plugged into the
powerline, we believe the powerline represents the most attractive opportunity
for a home connectivity solution. Because the powerline is the most ubiquitous
wired network in the home, consumers can avoid the expense and inconvenience of
installing new wiring. Powerline connectivity is also easy to use. Consumers can
achieve reliable, secure communications simply by plugging devices into
electrical outlets. Furthermore, many of the difficulties associated with
powerline communications that historically have prevented the achievement of
high data transmission rates can be overcome with our technology. As a result,
industry-leading original equipment manufacturers, or OEMs, technology suppliers
and retailers have embraced powerline technology as a viable connectivity
solution, as evidenced by the formation of the HomePlug Powerline Alliance, or
HomePlug, an independent trade association promoting powerline home
connectivity, whose founding members are Advanced Micro Devices, Cisco Systems,
Compaq, Conexant, Enikia, Intel, Motorola, Panasonic, Radio Shack Corporation,
S3/Diamond Multimedia, Texas Instruments, 3Com and Intellon. HomePlug is driving
the creation of an industry standard for home connectivity over the powerline to
accelerate the demand for related products and services.

Our PowerPacket integrated circuits enable high-speed communications over
the home powerline. We are a leader in powerline connectivity technology due to
our development of proprietary mathematical models and signal processing
algorithms that enhance orthogonal frequency division multiplexing technology
for use on the powerline. Our PowerPacket integrated circuits currently support
data transmission rates of up to 14 megabits per second, which is sufficient to
accommodate high-bandwidth communications of voice, video, audio and data. Due
to our substantial digital, analog and mixed-signal design expertise and use of
complementary metal oxide semiconductor, or CMOS, manufacturing processes, we
integrate many highly complex system functions, which makes our PowerPacket
integrated circuits cost-effective. Additionally, we provide customers with
complete solutions that include hardware, software and applications support,
thereby facilitating system integration and reducing our customers' time to
market and our customers' development costs.

In June 2000, following an extensive evaluation of proposals from leading
technology suppliers, HomePlug selected our PowerPacket technology as the
baseline for its 1.0 standard specification. As a result, we believe our
PowerPacket technology is well-positioned to become the industry standard for
home connectivity over the powerline. To date, we have achieved design wins with
industry-leading OEMs in multiple market segments, including Fujitsu, Motorola,
Nortel/NETGEAR, Philips, Phonex Broadband, S3/Diamond Multimedia and 3Com.
1
<PAGE> 6

Our objective is to be the leading provider of advanced communications
integrated circuits and technology for home connectivity without the
installation of new wires. Our strategies for achieving this objective include:

- Focusing on high-growth home connectivity applications;

- Broadening relationships with market-leading OEMs;

- Maintaining and expanding our technology leadership;

- Leveraging our core technology to improve existing applications and
create new applications;

- Facilitating broad OEM and consumer adoption of the Intellon home
connectivity solution; and

- Expanding into new markets and wireless.

We were incorporated in 1986 as Aero Technologies, Inc. and changed our
name to Intellon in 1989 when we refocused our business on integrated circuits.
From 1989 to 1998, we were a development stage company and generated most of our
revenue from sales of our Spread Spectrum Carrier products and from development
and licensing activities. Going forward, we expect that sales of our PowerPacket
integrated circuits will generate a substantial portion of our revenue.

Our principal executive offices are located at 5100 West Silver Springs
Boulevard, Ocala, Florida 34482, and our telephone number is (352) 237-7416.

2
<PAGE> 7

THE OFFERING

Common stock offered by Intellon........ shares

Common stock to be outstanding after
this offering........................... shares

Use of proceeds......................... To pay accrued dividends owed to
preferred shareholders and for
general corporate purposes,
principally working capital and
capital expenditures. See "Use of
Proceeds."

Risk factors............................ See "Risk Factors" and other
information included in this
prospectus for a discussion of
factors you should carefully
consider before deciding to invest
in shares of our common stock.

Proposed Nasdaq National Market
symbol.................................. ILON

The number of shares of common stock outstanding after this offering
referred to above is based on 28,073,203 shares outstanding as of June 30, 2000,
and gives effect to the issuance of 700,000 shares of preferred stock to
S3/Diamond Multimedia in July 2000 upon the exercise of a warrant outstanding at
June 30, 2000 and the issuance of 1,375,000 shares of preferred stock to
Motorola in August 2000. The information in this prospectus does not assume the
exercise of a total of 7,293,692 shares of common stock, at a weighted average
exercise price of $2.56 per share, issuable upon the exercise of all options and
warrants outstanding as of June 30, 2000, including a warrant to purchase
500,000 shares of common stock issued to Motorola in August 2000.
------------------------

Unless otherwise indicated, all pro forma information in this prospectus
assumes:

- no exercise of the underwriters' over-allotment option;

- conversion of all outstanding preferred stock into 23,007,626 shares of
common stock at closing of this offering; and

- conversion of all outstanding warrants to acquire 248,147 shares of
preferred stock into warrants to acquire 248,147 shares of common stock
at closing of this offering.

3
<PAGE> 8

SUMMARY FINANCIAL DATA

The following summary financial data should be read together with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our financial statements and the related notes included
elsewhere in this prospectus. The statements of operations data for the years
ended December 31, 1997, 1998 and 1999 were derived from audited financial
statements included elsewhere in this prospectus. The statements of operations
data for the years ended December 31, 1995 and 1996 were derived from audited
financial statements not included elsewhere in this prospectus. The statements
of operations data for the six month periods ended June 30, 1999 and 2000 and
the balance sheet data as of June 30, 2000 were derived from unaudited financial
statements included elsewhere in this prospectus. Our unaudited financial
statements were prepared by our management on the same basis as the audited
financial statements appearing elsewhere in this prospectus and, in management's
opinion, include adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation in accordance with accounting principles
generally accepted in the United States. Historical results are not necessarily
indicative of results that may be expected for any future period.

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------------------------- ----------------
1995 1996 1997 1998 1999 1999 2000
------- ------- ------- ------- ------- ------ -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenue.......................... $ 1,244 $ 1,984 $ 1,553 $ 4,815 $ 6,727 $4,028 $ 3,118
Gross profit..................... 105 865 866 3,205 6,353 3,781 2,988
Loss from operations............. (3,856) (5,052) (5,926) (3,655) (3,174) (421) (3,431)
Net loss......................... (3,831) (4,569) (5,492) (3,453) (3,029) (362) (3,275)
Net loss attributable to common
shareholders................... (4,829) (7,212) (8,567) (6,528) (6,121) (1,899) (5,165)
Basic and diluted net loss per
common share................... $ (1.05) $ (1.57) $ (1.85) $ (1.41) $ (1.31) $(0.41) $ (1.08)
Basic and diluted weighted
average common shares
outstanding.................... 4,601 4,605 4,625 4,633 4,682 4,679 4,782
</TABLE>

<TABLE>
<CAPTION>
JUNE 30, 2000
-----------------------
ACTUAL AS ADJUSTED
-------- -----------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 6,074
Working capital............................................. 5,463
Total assets................................................ 8,655
Redeemable convertible preferred stock excluding
dividends................................................. 36,320
Total shareholders' deficit................................. (43,053)
</TABLE>

4
<PAGE> 9

RISK FACTORS

You should consider carefully the following risks before you decide to buy
our common stock. Additional risks and uncertainties not presently known to us
or that we currently believe are not important may also impair our business
operations. If any of the following risks actually occur, our business,
financial condition or results of operations could be materially adversely
affected, the value of our common stock could decline and you could lose all or
part of your investment.

OUR LIMITED OPERATING HISTORY SELLING PRODUCTS TO THE HOME CONNECTIVITY MARKET
MAKES IT DIFFICULT TO EVALUATE OUR BUSINESS AND FUTURE PROSPECTS.

Historically, we derived most of our revenue from development and licensing
activities, sales of Spread Spectrum Carrier, or SSC, products and not from
sales of PowerPacket products. Our total revenue in 1997, 1998, 1999 and for the
six months ended June 30, 2000 were $1.6 million, $4.8 million, $6.7 million and
$3.1 million. Of this revenue, 84.7%, 25.9%, 11.2% and 8.2% was attributed to
sales of SSC products and 15.3%, 74.1%, 88.8% and 91.8% were attributed to
development and licensing activities. Going forward, we expect sales of our
PowerPacket products to generate a substantial portion of our sales. However,
because we have not yet begun volume shipments of our PowerPacket products, it
is difficult to evaluate our future prospects. You must consider our prospects
in light of the risks and difficulties we will encounter competing in a new and
rapidly evolving market. We may not successfully address any or all of these
risks.

WE HAVE A HISTORY OF LOSSES, AND WE EXPECT TO SUSTAIN LOSSES FOR THE FORESEEABLE
FUTURE, WHICH MAY CAUSE OUR STOCK PRICE TO BE VOLATILE.

We have not reported an operating profit for any year since our
incorporation. We have experienced losses from operations of $5.9 million, $3.7
million, $3.2 million and $3.4 million in 1997, 1998, 1999 and for the six
months ended June 30, 2000. We cannot assure you that losses will not continue,
which may cause our stock price to be volatile.

IF CONSUMER DEMAND FOR HOME CONNECTIVITY DOES NOT INCREASE AS EXPECTED, OUR
BUSINESS MAY SUFFER.

OEM acceptance of our PowerPacket products depends in part on the consumer
demand for home connectivity. To the extent that consumer demand for home
connectivity does not increase as anticipated, our products may gain acceptance
more slowly, or not at all, and our business may suffer. Factors affecting the
speed at which the home connectivity market may expand include:

- the introduction of new content and products that capture consumer
interest;

- the availability and cost of devices that enable home connectivity;

- OEM success in marketing devices that can be interconnected;

- the level of interoperability among multiple vendors' devices; and

- the emergence of a single, predominant industry standard.

IF THE ACCEPTANCE OF POWERLINE HOME CONNECTIVITY DOES NOT OCCUR AS EXPECTED, OUR
BUSINESS MAY SUFFER.

There is no predominant technology in the home connectivity market. It is
still unclear whether powerline, coaxial cable, twisted pair cable or wireless
will become the predominant medium to deliver home connectivity. Communication
products using coaxial cable, twisted pair cable and wireless media are actively
supported by a number of companies and trade associations and currently have
greater market acceptance than do any products using the powerline. Currently,
there is no established market for our PowerPacket products. To the extent that
powerline technology for home connectivity does not achieve market acceptance,
there will be less demand for our products and our business may suffer.

5
<PAGE> 10

IF A POWERLINE INDUSTRY STANDARD BASED ON A TECHNOLOGY OTHER THAN POWERPACKET
BECOMES PREDOMINANT, OR IF MULTIPLE STANDARDS DEVELOP, OUR BUSINESS MAY SUFFER.

The need for industry standardization in the powerline home connectivity
market has resulted in a number of independent efforts to establish an industry
standard. We are a founding member of HomePlug. Our PowerPacket technology has
been selected as the baseline for the HomePlug 1.0 standard specification, which
is undergoing a ratification process. Even if HomePlug ratifies PowerPacket as
the HomePlug 1.0 standard specification, we cannot assure you that HomePlug's
standard will be the predominant standard. To the extent that an effort other
than HomePlug's establishes the predominant industry standard for powerline home
connectivity that is not based on our technology, or if no standard
predominates, our business may suffer.

IF HOMEPLUG FAILS TO RATIFY OUR POWERPACKET TECHNOLOGY AS THE HOMEPLUG 1.0
STANDARD SPECIFICATION OR IF OUR POWERPACKET TECHNOLOGY IS NOT SELECTED AS A
FUTURE HOMEPLUG STANDARD SPECIFICATION, OUR BUSINESS MAY SUFFER.

Selection of PowerPacket as the baseline for the HomePlug 1.0 standard
specification does not guarantee that PowerPacket will be ratified as the
HomePlug 1.0 standard specification. If PowerPacket is not ratified, we will not
be able to sell our products or license our technology as the HomePlug 1.0
standard specification. Since the selection of PowerPacket as the baseline for
the HomePlug 1.0 standard specification is a primary reason why OEMs have chosen
to work with us, our business may suffer if HomePlug does not ratify our
specification. Even if our PowerPacket technology is ratified as the HomePlug
1.0 standard specification, we cannot assure you that future HomePlug
specifications will incorporate our powerline technology to the same extent, or
at all. If our technology is not selected as a future HomePlug standard
specification, our business may suffer.

IF OUR CUSTOMERS' PRODUCTS INCORPORATING OUR POWERPACKET INTEGRATED CIRCUITS, OR
ICS, FAIL TO ACHIEVE HOMEPLUG COMPLIANCE, OUR BUSINESS MAY SUFFER.

Our customers' products which incorporate our PowerPacket ICs, must pass
rigorous tests to establish HomePlug compliance. If these products fail to be
HomePlug compliant, or if achieving HomePlug compliance takes longer than
expected, our ability to sell our PowerPacket ICs may be adversely affected and
our business may suffer.

TO THE EXTENT THAT WE ARE UNABLE TO CONVERT DESIGN WINS INTO VOLUME SALES OF OUR
PRODUCTS, OUR BUSINESS MAY SUFFER.

We have achieved a number of design wins from OEMs. We achieve a design win
when a company with a defined home connectivity market strategy assigns
resources to develop products that meet its strategy, purchases one of our
reference designs and indicates an interest in making volume purchases of our
products. In most cases, achieving a design win with a customer does not create
a binding commitment from that customer to purchase our products. Rather, a
design win is solely an expression of interest by a customer to make volume
purchases. Accordingly, a customer can choose at any time to discontinue using
our products in its design or product development efforts without ever placing
an order. To the extent that we are unable to convert design wins into volume
sales, our business may suffer.

INABILITY TO MANAGE OUR EXPANSION AND ANTICIPATED GROWTH EFFECTIVELY MAY
ADVERSELY AFFECT OUR BUSINESS.

We are actively expanding our operations. This expansion will further
accelerate once we begin volume production and sales of our PowerPacket
products. The growth of our business will continue to place a significant strain
on our managerial, operational and financial resources. To manage our
anticipated growth effectively, we must:

- expand our information, accounting and financial systems, managerial
procedures and controls;

- hire, train, manage and retain personnel throughout all functional areas
of our business; and

6
<PAGE> 11

- effectively manage relationships with our customers, suppliers,
subcontractors and other third parties.

If we are unable to do so effectively, our revenue may not increase, our costs
of operations may increase and our business may suffer.

IF WE ARE UNABLE TO ATTRACT AND RETAIN ENGINEERING AND TECHNICAL SUPPORT
PERSONNEL, OUR BUSINESS MAY SUFFER.

As our business continues to grow, we will need to hire additional analog
and mixed-signal engineers and technical support staff. Hiring engineers and
technical support personnel is very competitive in our industry due to the
limited number of people with the necessary skills and understanding of our
products. To the extent that we cannot attract and retain qualified employees,
our business may suffer.

IF WE DO NOT CONTINUE TO DEVELOP NEW PRODUCTS THAT GAIN MARKET ACCEPTANCE, WE
MAY NOT COMPETE EFFECTIVELY IN THE MARKET FOR HOME CONNECTIVITY. THIS MAY
ADVERSELY AFFECT OUR BUSINESS.

We operate in a highly competitive, rapidly changing environment marked by
rapid new product introductions, technology innovation and price erosion. Our
ability to grow and maintain our profit margin depends on our ability to
develop, introduce and successfully market new products and to enhance our
existing products. Developing new products is a complex process. We may
experience delays in completing their development and introduction. Any one of
the following factors could adversely affect our ability to develop, introduce
and sell new products and could materially harm our business:

- failure to complete new product designs in a timely manner;

- inability to manufacture and test our new products according to design
specifications in a timely manner; and

- inability to deliver our products to our customers in a timely manner.

BECAUSE OF OUR LONG PRODUCT DEVELOPMENT AND SALES CYCLE, WE MAY INCUR
SUBSTANTIAL EXPENSES BEFORE WE EARN REVENUE FROM A NEW PRODUCT, WHICH MAY
ADVERSELY AFFECT OUR BUSINESS.

To develop market acceptance of our products, we must dedicate significant
resources to research and development, production and sales and marketing. We
may develop products based on forecasts of demand, and in that case we could
incur substantial product development expenses before generating associated
revenues. Our customers typically perform extensive tests to evaluate our ICs
before incorporating them into their products. Thus, it can take from two to
nine months or more for a customer to begin volume production of its own
products. Because of this lengthy development and sales cycle, we experience a
delay between the time we incur expenses for research, development, sales and
marketing efforts and the time that we generate revenue, if any. In the event
that we do not generate sales revenue after incurring substantial expenses to
develop and market any of our products, our business may suffer.

WE DEPEND ON OEMs TO CREATE SUCCESSFUL PRODUCTS THAT INCORPORATE OUR POWERPACKET
ICs.

We rely upon OEMs to integrate our ICs into their products. As a result, if
their products are not successful, we may not be able to sell our ICs in volume
quantities, which may harm our business. OEM products may be unsuccessful for
many reasons which are beyond our control.

OUR RELIANCE ON THIRD PARTIES TO FABRICATE AND ASSEMBLE OUR PRODUCTS MAY RESULT
IN INCREASED COSTS OR DELAYS.

We do not own or operate a semiconductor fabrication, assembly or testing
facility. We rely on Chartered Semiconductor, or Chartered, in Singapore, as the
sole source manufacturer of our wafers. United Test and Assembly Center, or
UTAC, in Singapore and California, will assemble and test our PowerPacket ICs.
Singapore Technologies Assembly and Test Services, or STATS, in Singapore, and

7
<PAGE> 12

Amkor Technology, in Kansas, test our SSC ICs. Carsem Semiconductor, or Carsem,
in Malaysia, assembles our SSC ICs. We do not have contracts with these
suppliers guaranteeing the availability of capacity required to manufacture and
test our products. Additionally, their businesses may be adversely affected by
many reasons beyond our control. As a result, we may not obtain products within
the time frames, volumes or costs we require, or at all. Any disruption in the
availability of products, or problems associated with the delivery, quality or
cost of fabrication, assembly and testing of our products may cause our business
to suffer.

OUR TECHNOLOGY SPECIFICATIONS MAY NOT RESULT IN AN ACCEPTABLE MANUFACTURING
YIELDS FROM OUR THIRD PARTY SUPPLIERS, WHICH COULD INCREASE THE COST AND REDUCE
THE SUPPLY OF OUR PRODUCTS.

Our wafers are fabricated by our third party suppliers according to our
specifications. Because we have not begun volume production of our products, we
cannot guarantee that our specifications are capable of reproduction on an
efficient volume basis. As a result, numerous die on our wafers may be
nonfunctional. The proportion of functional die expressed as a percentage of
total die on a wafer is referred to as product "yield." If we do not achieve
expected yields, our product costs will increase. Further, as our products
mature, we may experience yield problems as we instruct our suppliers to migrate
our manufacturing processes to smaller geometries. Yield problems may not be
identified and resolved until all product has been manufactured and can be
analyzed and tested, if ever. As a result, yield problems are often difficult,
time consuming and expensive to correct. Yield problems could hamper our ability
to deliver our products to our customers in a timely manner.

OUR PRODUCTS MAY HAVE DEFECTS, WHICH COULD HARM OUR REPUTATION, DECREASE MARKET
ACCEPTANCE OF OUR PRODUCTS, CAUSE US TO LOSE CUSTOMERS AND REVENUE, AND RESULT
IN LIABILITY TO US.

Highly complex products such as our ICs may contain defects or bugs. These
defects and bugs may not be detected until after products have been shipped. If
any of our products contain defects or have reliability, quality or
compatibility problems, our reputation might be damaged and customers might be
reluctant to buy our products. In addition, these defects could interrupt or
delay sales. We may incur significant expenses to correct these problems. If any
of these problems are not discovered until after we have commenced commercial
production of a new product, we might incur substantial additional development
costs. If we fail to provide solutions to such problems on a timely basis, we
could also incur product recall, repair or replacement costs. Problems like
these might also result in claims against us by our OEM customers or consumers.
In addition, any such problems could divert our technical and other resources
from other development efforts. Moreover, we would likely lose, or experience a
delay in, market acceptance of our products. We could also lose credibility with
our current and prospective customers.

INTENSE COMPETITION IN THE HOME CONNECTIVITY SEMICONDUCTOR AND CONSUMER
ELECTRONICS MARKETS COULD DELAY OR PREVENT US FROM BEING PROFITABLE.

We compete with a number of domestic and international semiconductor
companies that are developing home connectivity ICs using the powerline,
including primarily Adaptive Networks, Cogency Semiconductor, DS2, Enikia, Inari
and Itran. We also compete with other media such as coaxial cable, twisted pair
cable and wireless media, and we may face additional competition from other
technologies of which we currently are not aware. Our market is highly
competitive, and we expect competition to intensify in the future. Some of our
competitors have their own fabrication facilities, longer operating histories,
greater name recognition, better access to larger customer bases, stronger
relationships with our customers and significantly greater financial, sales and
marketing, manufacturing, distribution, technical and other resources. The
demands of the consumer electronics industry often result in intense competition
among participants to be first to market with new and affordable devices. To the
extent that competing ICs can be produced first in commercial quantities or sold
at lower prices, this competition may result in

8
<PAGE> 13

our inability to market our products successfully. In addition, existing or new
competitors may develop technologies that more effectively address the current
market for home connectivity products or that may capture the market for the
next generation of such products, which may render our products obsolete. To the
extent that any of these events occur, our growth may be slowed, and we may not
become profitable.

SEMICONDUCTOR OR CONSUMER ELECTRONICS INDUSTRY DOWNTURNS COULD RESULT IN
SUBSTANTIAL PERIOD-TO-PERIOD FLUCTUATIONS IN DEMAND FOR OUR PRODUCTS, WHICH CAN
ADVERSELY AFFECT WAFER SUPPLY AND PRICES AND MAKE OUR FUTURE PERFORMANCE
DIFFICULT TO PREDICT; AS A RESULT, OUR BUSINESS MAY SUFFER.

The semiconductor industry is cyclical and subject to rapid technological
change. It experiences economic downturns, characterized by decreased product
demand or over-capacity, which may result in over-supply and falling prices.
Perhaps more importantly, we supply ICs to OEMs in the consumer electronics
industry, and demand for our products is also tied to the cyclical nature of our
customers' businesses. As a result, we are likely to experience period-to-period
fluctuations in our operating results due to general semiconductor industry
conditions, changes in demand for our customers' products, overall economic
conditions or other factors, many of which are beyond our control. To the extent
that we are adversely affected by any of these events, our business may suffer.

WE PRESENTLY CANNOT SELL OUR POWERPACKET PRODUCTS FOR USE IN JAPAN OR THE
EUROPEAN UNION, OR EU, WHICH LIMITS OUR INTERNATIONAL EXPANSION OPPORTUNITIES.

Our PowerPacket products operate on frequencies that are currently
restricted by government regulations in Japan and in the EU, which is comprised
of Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy,
Luxembourg, the Netherlands, Portugal, Spain, Sweden and the United Kingdom
including Northern Ireland. As a result, our ICs cannot be used in products used
in Japan and the EU at this time. Our international expansion opportunities will
remain limited unless the existing frequency regulations are changed or until we
develop products that can operate on available frequencies. We cannot assure you
that other countries will not adopt similar restrictions.

FUTURE FEDERAL COMMUNICATIONS COMMISSION, OR FCC, REGULATION MAY RESTRICT SALES
OF OUR PRODUCTS ADVERSELY AFFECTING OUR BUSINESS.

Our PowerPacket products operate on frequencies that are not currently
restricted by FCC regulations. OEM products incorporating our ICs are regulated
by the FCC. Operation of these products currently is not restricted by the FCC
as long as the products do not interfere with other radio frequency, or RF,
bands licensed by the FCC. We cannot assure you that this will continue to be
the case. Should government regulations change in the future, making operation
of our customers' products at their current radio frequency bands subject to
restrictive regulation, or subjecting the frequencies on which our products
operate to restrictions, OEMs' desire to purchase our products could diminish
and our business may suffer.

TO THE EXTENT WE CANNOT ENFORCE AND PROTECT OUR INTELLECTUAL PROPERTY RIGHTS,
OUR BUSINESS MAY SUFFER.

We rely on a combination of patent, copyright and trademark laws, trade
secrets, confidentiality provisions and other contractual provisions to protect
our proprietary rights. However, these measures afford only limited protection.
In addition, if PowerPacket is ratified as the HomePlug 1.0 standard
specification, we will be required to license our technology on a
non-discriminatory basis to all HomePlug members. Our failure to adequately
protect our proprietary rights may adversely affect our business. Despite our
efforts to protect our proprietary rights, unauthorized parties may copy aspects
of our products or obtain and use trade secrets or other information that we
regard as proprietary, and our business may suffer as a result.

9
<PAGE> 14

IF WE CANNOT PRODUCE COMMERCIAL VERSIONS OF POWERPACKET THAT ARE SCALABLE TO
HIGHER DATA RATES, OUR BUSINESS MAY SUFFER.

While we continue to develop PowerPacket, there are a number of
technological challenges that may prevent us from achieving higher data rates.
For example, we may not be able to successfully migrate to finer geometries or
utilize other available frequencies. To the extent that we cannot deliver
products capable of achieving higher data rates, our business may suffer.

OUR ADOPTION OF NEW PROCESS TECHNOLOGIES MAY MAKE CURRENT OR POTENTIAL CUSTOMERS
RELUCTANT TO PURCHASE OUR PRODUCTS, AND OUR BUSINESS MAY SUFFER.

We may adopt new process technologies to manufacture our products.
Prospective customers may be reluctant to purchase these products based on
perceived risks related to the use of these new technologies. These risks may
include high manufacturing costs, low yields and uncertainties about the
relative cost-effectiveness of products produced using these new technologies.
If our products fail to achieve market acceptance, our business may suffer.

OUR RELIANCE ON FOREIGN SUPPLIERS EXPOSES US TO THE ECONOMIC AND POLITICAL RISKS
OF THE COUNTRIES IN WHICH THEY ARE LOCATED.

Our reliance on foreign suppliers subjects us to some of the risks of
conducting business outside the United States. These risks include:

- unexpected changes in, or impositions of, legislative or regulatory
requirements;

- transportation delays;

- tariffs and other trade barriers and restrictions;

- political, social and economic instability; and

- potential hostilities and changes in diplomatic and trade relationships.

In addition, we currently transact business with our foreign suppliers in
U.S. dollars. If the value of the U.S. dollar were to decline relative to
foreign currencies of our suppliers' countries, the price of wafers, packaging
materials and packaging services that we purchase would increase, which could
cause our business to suffer.

THERE HAS BEEN NO PRIOR MARKET FOR OUR COMMON STOCK AND IF ONE DEVELOPS THE
MARKET MAY BE VOLATILE.

Prior to this offering, there has been no public market for shares of our
common stock. There is no assurance that an active trading market will develop
after the completion of this offering or, if one develops, that it will be
sustained. The initial public offering price has been determined through
negotiations between the underwriters and us. The initial public offering price
may not necessarily reflect the market price of the common stock following this
offering. The market for common stock of other semiconductor companies has been
volatile, which may be exacerbated by the general volatility in the market for
high-technology stocks.

INABILITY TO OBTAIN ADDITIONAL FINANCING, IF NEEDED, MAY MAKE IT DIFFICULT FOR
US TO EXECUTE OUR BUSINESS PLAN.

Our ability to succeed depends in part on our ability to finance growth of
our business. We currently anticipate that the net proceeds from this offering,
together with our existing cash balances, will be sufficient to meet our
anticipated needs for working capital for at least the next twelve months. If
the proceeds of this offering, together with our existing cash balances, are not
sufficient to meet our liquidity needs, support our future expansion needs and
achieve our strategic goals, we may require additional funds. If adequate funds
are not available on acceptable terms, we may not be able to take advantage of
market opportunities, develop or enhance new products, pursue acquisitions that
would complement our existing

10
<PAGE> 15

product offerings or enhance our technical capabilities to develop new products
or execute our business strategy.

BECAUSE OUR QUARTERLY RESULTS MAY FLUCTUATE, OUR STOCK PRICE MAY BE VOLATILE.

Our quarterly operating results have fluctuated in the past and may
fluctuate in the future. Some of the factors that may cause our quarterly
results to fluctuate include:

- the timing and size of shipments to our customers;

- the timing of introduction of new or enhanced products;

- the volume and average cost of products manufactured;

- the mix of sales between different products and development and licensing
activities; and

- the timing and size of expenses.

As a result of any of these factors, our operating results may fluctuate, and
our stock price may be volatile. Therefore, quarter-to-quarter comparisons may
not be relevant.

SUBSTANTIAL SALES OF OUR COMMON STOCK BY OUR EXISTING INVESTORS FOLLOWING THIS
OFFERING COULD CAUSE OUR STOCK PRICE TO DECLINE.

Approximately shares owned by officers, directors and existing
stockholders will be subject to lock-up agreements with the underwriters, which
will expire 180 days after the effective date of this offering. When these
lock-up agreements expire, owners of the shares previously subject to the
lock-up may choose to sell some or all of their shares on the public market.
Sales of large numbers of shares in the same time period could cause the market
price for our common stock to decline significantly. These sales also might make
it more difficult for us to sell securities in the future at a time and at a
price that we deem appropriate.

11
<PAGE> 16

FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements. We use words such as
"may," "will," "should," "expects," "plans," "anticipates," "believes,"
"estimates" or similar expressions to identify these forward looking statements.
We have based these forward-looking statements on our current expectations and
projections about future events. These forward-looking statements include, among
other things:

- our anticipated growth strategies;

- development of target markets;

- our intention to introduce products and to seek to scale PowerPacket to
higher data rates;

- anticipated trends in our business, including trends in the digital
entertainment, consumer electronics, broadband access, Internet content,
semiconductor, transportation and home connectivity markets; and

- our ability to continue to control costs, maintain product pricing
strategies and maintain product quality.

The forward-looking statements included in the prospectus are subject to
risks, uncertainties and assumptions about us. Our actual results of operations
may differ materially from the forward-looking statements as a result of, among
other things, the factors described under "Risk Factors." Except as required by
law, we undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
In light of these risks, uncertainties and assumptions, the forward-looking
events discussed in this prospectus might not occur.

12
<PAGE> 17

USE OF PROCEEDS

We estimate the net proceeds from the sale of the shares of
common stock sold by us in this offering will be approximately $ million, or
$ million if the underwriters' over-allotment option is exercised in full,
based on an initial public offering price of $ and after deducting
underwriting discounts and commissions and estimated offering expenses.

We intend to use approximately $ million of the proceeds from this
offering to pay accrued dividends owed to preferred shareholders upon conversion
of their shares into common stock and the balance of the offering proceeds for
general corporate purposes, including working capital and capital expenditures.
We may use a portion of the net proceeds from this offering to acquire or invest
in businesses or technologies that are complementary to our existing business.
However, we have no present plans or commitments and are not engaged in any
negotiations with respect to any transactions of this type. Pending such uses,
we will invest the net proceeds of this offering in short-term, investment
grade, interest-bearing securities.

DIVIDEND POLICY

We have never paid any cash dividends on our common stock and do not expect
to pay any cash dividends for the foreseeable future. We currently intend to
retain future earnings, if any, to finance the growth of our business. Any
future dividends will be at the discretion of our board of directors and will
depend upon factors such as future earnings, capital requirements, financial
condition and general business conditions.

13
<PAGE> 18

CAPITALIZATION

The following table sets forth our capitalization as of June 30, 2000:

- on an actual basis;

- on a pro forma basis to give effect to the conversion of all outstanding
shares of preferred stock into 23,007,626 shares of common stock upon the
completion of this offering;

- on a pro forma as adjusted basis to give effect to our sale and issuance
of shares of common stock in this offering at an initial public
offering price of $ per share and after deducting the payment of
cumulative dividends accreted through the closing date to preferred
shareholders, estimated underwriting discounts and commissions and
estimated offering expenses.

Read this table in conjunction with "Management's Discussion and Analysis
of Financial Condition and Results of Operations," our financial statements and
related notes included elsewhere in this prospectus.

<TABLE>
<CAPTION>
JUNE 30, 2000
------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash and cash equivalents.................................. $ 6,074 $ 15,399 $
======== ======== =======
Redeemable convertible preferred stock, $.01 par value,
35,000,000 shares authorized; 20,932,626 shares issued
and outstanding, actual; none issued and outstanding, pro
forma and pro forma as adjusted.......................... $ 36,320 $ -- $ --
Redeemable convertible preferred stock cumulative
dividends, actual and pro forma; none pro forma as
adjusted................................................. 14,019 14,019
Shareholders' equity (deficit):
Common stock, $.01 par value; 40,000,000 shares
authorized; 5,065,577 shares issued and outstanding,
actual; 28,073,203 shares issued and outstanding pro
forma; and 100,000,000 authorized and issued
and outstanding pro forma as adjusted................. 51 281
Additional paid-in-capital............................... -- 45,415
Accumulated deficit...................................... (43,104) (43,104)
-------- -------- -------
Total shareholders' equity (deficit).................. (43,053) 2,592
-------- -------- -------
Total capitalization................................ $ 7,286 $ 16,611 $
======== ======== =======
</TABLE>

The number of shares of common stock outstanding after this offering is
based on 28,073,203 shares outstanding as of June 30, 2000, and gives effect to
the issuance of 700,000 shares of preferred stock to S3/Diamond Multimedia in
July 2000 upon the exercise of a warrant outstanding at June 30, 2000 and the
issuance of 1,375,000 shares of preferred stock to Motorola in August 2000. The
information in this prospectus does not assume the exercise of a total of
7,293,692 shares of common stock, at a weighted average exercise price of $2.56
per share, issuable upon the exercise of all options and warrants outstanding as
of June 30, 2000, including a warrant to purchase 500,000 shares of common stock
issued to Motorola in August 2000.

14
<PAGE> 19

DILUTION

Our pro forma net tangible book value as of June 30, 2000, after giving
effect to the conversion of all outstanding shares of preferred stock into
common stock, was $ million, or $ per share of common stock. Pro forma
net tangible book value per common share is determined by dividing the number of
outstanding common shares into the net tangible book value (tangible assets less
liabilities). After giving effect to the application of the estimated net
proceeds of this offering (assuming an offering price of $ per common share
and after deducting underwriting discounts and commissions and estimated
offering expenses), our pro forma net tangible book value would have been
$ million, or $ per common share. This is an immediate increase in pro
forma net tangible book value of $ per common share to existing shareholders
and an immediate dilution of $ per common share to new investors purchasing
common shares at the initial public offering price. The following table
illustrates the per common share dilution.

<TABLE>
<S> <C> <C>
Assumed initial public offering price per common share...... $
Pro forma net tangible book value per common share as of
June 30, 2000.......................................... $
Increase per common share attributable to new investors... $
------
Adjusted pro forma net tangible book value per common share
after the offering........................................ $
------
Net tangible book value dilution per common share to new
investors................................................. $
======
</TABLE>

The following table summarizes as of June 30, 2000, on the pro forma basis
described above, the number of common shares we sold in this offering, the total
consideration we received in this offering and the average price per common
share paid by existing shareholders and by investors purchasing common shares in
this offering. The information in the following table assumes conversion of all
shares of preferred stock outstanding as of June 30, 2000 into common stock.

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
----------------- ------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------ ------- ------- -------- ---------
<S> <C> <C> <C> <C> <C>
Existing shareholders........................ % $ % $
New investors................................
----- ----- ------ -----
Total...................................... 100.0% $ 100.0%
===== ===== ====== =====
</TABLE>

If the underwriters' over-allotment is exercised in full, the number of
shares held by new investors in the offering will be increased to , or
%.

15
<PAGE> 20

SELECTED FINANCIAL DATA

Read the following selected financial data in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," and our financial statements and related notes. The statements of
operations data for the years ended December 31, 1997, 1998 and 1999 and the
balance sheet data as of December 31, 1998 and 1999 were derived from the
financial statements that have been audited by Ernst & Young LLP, independent
certified public accountants, and are included elsewhere in this prospectus. The
statement of operations data for the year ended December 31, 1996 and the
balance sheet data as of December 31, 1996 and 1997 were derived from our
financial statements audited by Ernst & Young LLP, independent certified public
accountants, and are not included elsewhere in this prospectus. The statement of
operations data for the year ended December 31, 1995 and the balance sheet data
as of December 31, 1995 were derived from financial statements that have been
audited by other auditors and are not included in this prospectus. The
statements of operations data for the six months ended June 30, 1999 and 2000
and the balance sheet data as of June 30, 2000 were derived from unaudited
condensed financial statements, and are included elsewhere in this prospectus.
Our unaudited financial statements were prepared by our management on the same
basis as the audited financial statements appearing elsewhere in this prospectus
and, in management's opinion, include adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation in accordance with
accounting principles generally accepted in the United States. Historical
results are not necessarily indicative of results that may be expected for any
future period.

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------------------------- ------------------
1995 1996 1997 1998 1999 1999 2000
------- ------- ------- ------- ------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenue............................................. $ 1,244 $ 1,984 $ 1,553 $ 4,815 $ 6,727 $ 4,028 $ 3,118
Cost of revenue..................................... 1,139 1,119 687 1,610 374 247 130
------- ------- ------- ------- ------- ------- --------
Gross profit........................................ 105 865 866 3,205 6,353 3,781 2,988
Operating expenses:
Research and development.......................... 1,591 2,346 3,039 2,767 4,915 2,191 3,331
Selling, general and administrative............... 2,370 3,571 3,753 4,093 4,612 2,011 3,088
------- ------- ------- ------- ------- ------- --------
Total operating expenses........................ 3,961 5,917 6,792 6,860 9,527 4,202 6,419
------- ------- ------- ------- ------- ------- --------
Loss from operations................................ (3,856) (5,052) (5,926) (3,655) (3,174) (421) (3,431)
Other income, net................................... 25 483 434 202 145 59 156
------- ------- ------- ------- ------- ------- --------
Net loss............................................ (3,831) (4,569) (5,492) (3,453) (3,029) (362) (3,275)
Accretion of redeemable convertible preferred stock
to redemption value............................... (998) (2,643) (3,075) (3,075) (3,092) (1,537) (1,890)
------- ------- ------- ------- ------- ------- --------
Net loss attributable to common shareholders........ $(4,829) $(7,212) $(8,567) $(6,528) $(6,121) $(1,899) $ (5,165)
======= ======= ======= ======= ======= ======= ========
Basic and diluted net loss per common share......... $ (1.05) $ (1.57) $ (1.85) $ (1.41) $ (1.31) $ (0.41) $ (1.08)
======= ======= ======= ======= ======= ======= ========
Basic and diluted weighted average common shares
outstanding....................................... 4,601 4,605 4,625 4,633 4,682 4,679 4,782
======= ======= ======= ======= ======= ======= ========
Pro forma basic and diluted net loss per common
share(1).......................................... $ (0.26) $ (0.21)
======= ========
Pro forma basic and diluted weighted average common
shares outstanding(1)............................. 23,193 25,181
======= ========
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------- JUNE 30,
1995 1996 1997 1998 1999 2000
-------- -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................... $ 1,321 $ 5,636 $ 4,370 $ 3,016 $ 5,219 $ 6,074
Working capital......................................... 1,665 11,012 5,892 2,715 5,343 5,463
Total assets............................................ 2,872 13,522 7,901 5,048 7,646 8,655
Redeemable convertible preferred stock.................. 12,982 30,616 33,690 36,764 45,750 50,339
Total shareholders' deficit............................. (10,515) (17,716) (26,267) (32,738) (38,838) (43,053)
</TABLE>

---------------
(1) The pro forma data for the year ended December 31, 1999 and six months ended
June 30, 2000 gives effect to the conversion of 20,161,200 and 20,932,626
shares of preferred stock outstanding at December 31, 1999 and June 30,
2000, respectively.
16
<PAGE> 21

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

The following discussion of our financial condition and results of
operations should be read together with our financial statements and related
notes. This discussion contains forward-looking statements that reflect our
plans, estimates and beliefs and involve risks and uncertainties. Our actual
results may differ materially from those discussed in our forward-looking
statements. Factors that could cause or contribute to such differences include
those discussed below and elsewhere in this prospectus, particularly in the
"Risk Factors" section.

OVERVIEW

We design, develop and market digital, analog and mixed-signal ICs for the
home connectivity and transportation markets. Our ICs enable high-performance,
cost-effective, easy-to-implement communications over powerlines. Current
customers for our home connectivity products include OEMs in multiple market
segments, including broadband access, digital consumer electronics, personal
computers, or PCs, and powerline network adapters for data and voice
communications.

We were incorporated in November 1986 as Aero Technologies and changed our
name to Intellon in 1989 when we refocused our business on ICs. During the
period from 1989 through 1998, we were a development stage company and therefore
had no substantial product revenue until 1999. We began shipping our SSC line of
ICs to OEMs in the home control market in 1992 and to OEMs in the commercial
transportation market in 1997. Over the past three years, we have also derived
revenues from development and licensing activities. We began development of our
home connectivity products in May 1998. We have not yet begun volume shipments
of our PowerPacket home connectivity ICs. However, we have achieved design wins
with a number of OEMs, including Fujitsu, Motorola, Nortel/ NETGEAR, Philips,
Phonex Broadband, S3/Diamond Multimedia and 3Com. We achieve a design win when a
company with a defined home connectivity market strategy assigns resources to
develop products that meet their strategy, purchases one of our reference
designs and indicates an interest in making volume purchases of our products.

At July 31, 2000, we had backlog of $39.6 million. Backlog includes orders
that we believe to be firm, portions of which are cancelable pursuant to our
standard terms and conditions of sale. Backlog includes $8.3 million in orders
that are noncancelable pursuant to contract terms and conditions and $31.3
million in orders that are cancelable with little or no penalty. While we have
long-term contracts with some customers, our products are generally sold through
purchase orders, which can generally be cancelled or rescheduled on short
notice. Consequently, backlog may not be a meaningful indicator of future
results.

Our revenue historically has been derived from development and licensing
activities and, to a lesser extent, the sale of our SSC products. Revenue from
development and licensing activities represented 15.3%, 74.1%, 88.8% and 91.8%
of our revenue in 1997, 1998, 1999 and for the six months ended June 30, 2000.
We have generated a substantial portion of our development and licensing revenue
to date from a limited number of customers. For example, Conexant and Microsoft,
together, accounted for 56.1%, 82.5% and 88.2% of total revenue in 1998 and
1999, and for the six months ended June 30, 2000. In addition, as required by
our membership in HomePlug, we may begin licensing our PowerPacket technology to
other HomePlug members. Going forward, we expect sales of our PowerPacket ICs to
generate a substantial portion of our revenue.

We have focused our initial sales and marketing efforts on North American
broadband access, consumer electronics, PC, transportation and home control
OEMs. As a result, substantially all of our revenue has been and will be derived
from North America for the foreseeable future. We currently sell our products
through our direct sales forces in San Jose, California and Ocala, Florida and
through our independent distributors in Brazil, Germany, Hong Kong, Singapore,
South Africa and Taiwan.

We have a lengthy development and sales cycle. It may take six months or
longer to achieve a design win with a customer. Our customers then complete the
design, testing and evaluation of their systems and

17
<PAGE> 22

begin their marketing process, which typically lasts an additional two to nine
months or longer. Because of these lengthy development and sales cycles, we may
experience a delay between the time we incur expenses for research, development,
sales and marketing efforts and the time we generate revenue, if any.

Revenue. Revenue consists of product revenue generated by sales of our
products and revenue from development and licensing activities pursuant to
contracts with our customers. We expect to continue to license our technology
and enter into development contracts with key customers, but also expect that
development and licensing revenue may fluctuate from quarter to quarter and will
be a decreasing percentage of our revenue in the future.

Gross profit. Gross profit represents revenue less the cost of revenue.
Cost of revenue primarily includes the cost of purchasing the finished silicon
wafers processed by independent foundries, costs associated with the assembly,
test and quality assurance of our products, as well as costs of personnel and
equipment associated with contracted development work. We expect gross profit as
a percentage of revenue to decline in future periods as product sales account
for a larger percentage of revenue.

Research and development expense. Research and development expense
consists primarily of salaries and related costs of employees engaged in
research, design and development activities, costs related to engineering design
tools and subcontracting costs. Continued investment in research and development
is critical for us to achieve our strategic objectives. We expect research and
development expense to continue to increase for the foreseeable future.

Selling, general and administrative expense. Selling, general and
administrative expense consists primarily of personnel related expense, sales
and marketing expense, trade show expense, professional fees and facilities
expense. We expect selling, general and administrative expense to continue to
increase for the foreseeable future in order to expand our customer base,
increase product awareness and support the planned expansion of our operations.

Other income, net. Other income consists primarily of interest earned on
cash and cash equivalents and investment balances.

Strategic alliance. In August 2000, we entered into a development and
promotion agreement with Motorola under which we are required to make a
non-refundable payment to Motorola for the development program. Motorola also
purchased $6.9 million of our Series C convertible preferred stock at $5.00 per
share. We also granted Motorola a warrant to purchase an additional 500,000
shares of our common stock at $5.00 per share. The warrant vests and is
exercisable on the achievement of milestones in the joint marketing and
promotion program. The warrant does not contain a significant economic
disincentive for non-performance as of the grant date and, accordingly, the fair
value of the warrant will be measured upon the achievement of the performance
milestones and vesting of the warrant in accordance with the Emerging Issues
Task Force consensus on Issue No. 96-18. The fair value of the warrant will be
determined on the performance achievement measurement dates using the
Black-Scholes pricing model and the then applicable risk free interest rates,
volatility factors, expected dividend rate and the estimated remaining life of
the warrant.

18
<PAGE> 23

RESULTS OF OPERATIONS

The following table sets forth certain statements of operations data as a
percentage of revenue for the periods indicated:

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
-------------------------------------------- -----------------
1995 1996 1997 1998 1999 1999 2000
------ ------ ------ ----- ----- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue............................ 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenue.................... 91.6 56.4 44.2 33.4 5.6 6.1 4.2
------ ------ ------ ----- ----- ----- ------
Gross profit....................... 8.4 43.6 55.8 66.6 94.4 93.9 95.8
Operating expenses:
Research and development......... 127.9 118.3 195.7 57.5 73.1 54.4 106.8
Selling, general and
administrative................. 190.5 180.0 241.7 85.0 68.6 49.9 99.0
------ ------ ------ ----- ----- ----- ------
Total operating expenses....... 318.4 298.3 437.4 142.5 141.7 104.3 205.8
------ ------ ------ ----- ----- ----- ------
Loss from operations............... (310.0) (254.7) (381.6) (75.9) (47.3) (10.4) (110.0)
Other income, net.................. 2.0 24.3 28.0 4.2 2.2 1.5 5.0
------ ------ ------ ----- ----- ----- ------
Net loss........................... (308.0)% (230.4)% (353.6)% (71.7)% (45.1)% (8.9)% (105.0)%
====== ====== ====== ===== ===== ===== ======
</TABLE>

SIX MONTHS ENDED JUNE 30, 2000 AND 1999

Revenue. Revenue for the six months ended June 30, 2000 was $3.1 million,
a decrease of $0.9 million, or 22.5%, from $4.0 million for the six months ended
June 30, 1999. The decrease in revenue was primarily due to decreased
development and licensing activities during the 2000 period.

Gross profit. Gross profit for the six months ended June 30, 2000 was $3.0
million, a decrease of $0.8 million, or 21.1%, from $3.8 million for the six
months ended June 30, 1999. The decrease was primarily due to lower revenue. Our
gross profit as a percentage of revenue increased to 95.8% for the six months
ended June 30, 2000, from 93.9% for the six months ended June 30, 1999. The
increase in gross profit as a percentage of revenue was primarily due to the
increase in higher margin development and licensing revenue as a percentage of
revenue in the six months ended June 30, 2000.

Research and development expense. Research and development expense for the
six months ended June 30, 2000 was $3.3 million, an increase of $1.1 million, or
50.0%, from $2.2 million for the six months ended June 30, 1999. The increase
was primarily due to the addition of personnel, increased contract services and
research related expenses for the development of new products.

Selling, general and administrative expense. Selling, general and
administrative expense for the six months ended June 30, 2000 was $3.1 million,
an increase of $1.1 million, or 55.0%, from $2.0 million for the six months
ended June 30, 1999. The increase reflected higher costs resulting from the
hiring of marketing personnel, increased marketing activities and trade show
expenses as well as the hiring of senior management and administrative personnel
and increased occupancy, legal and other professional fees.

Other income, net. Other income for the six months ended June 30, 2000 was
$156,000, an increase of $97,000, or 164.4%, from $59,000 for the six months
ended June 30, 1999. This increase was principally due to increased cash
balances available to invest resulting from the sale of shares upon the exercise
of warrants during the six months ended June 30, 2000.

FISCAL YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997

Revenue. Revenue for 1999 was $6.7 million, an increase of $1.9 million,
or 39.6%, from $4.8 million for 1998. Revenue for 1998 was $4.8 million, an
increase of $3.2 million, or 200.0%, from $1.6 million in 1997. In each year,
the increase was primarily due to increased development and licensing
activities.

19
<PAGE> 24

Gross profit. Gross profit for 1999 was $6.4 million, an increase of $3.2
million, or 100.0%, from $3.2 million in 1998. Gross profit in 1998 was $3.2
million, an increase of $2.3 million, or 255.6%, from $0.9 million in 1997. In
each year, the increase was primarily due to increased development and licensing
revenue. Our gross profit as a percentage of revenue was 94.4% for 1999, 66.6%
for 1998 and 55.8% for 1997. In each year, the increase in gross profit as a
percentage of revenue was primarily due to the increase in higher margin
development and licensing revenue as a percentage of revenue.

Research and development expense. Research and development expense for
1999 was $4.9 million, an increase of $2.1 million, or 75.0%, from $2.8 million
in 1998. Research and development expense for 1998 was $2.8 million, a decrease
of $0.2 million, or 6.7%, from $3.0 million in 1997. The increase from 1998 to
1999 was primarily due to the addition of personnel for the development of new
products, increased product development expenses and increased expenses to
outside consultants for specific resources needed in the development process.
The decrease in research and development expense from 1997 to 1998 was primarily
due to decreased new product development activities during 1998.

Selling, general and administrative expense. Selling, general and
administrative expense for 1999 was $4.6 million, an increase of $0.5 million,
or 12.2%, from $4.1 million in 1998. Selling, general and administrative expense
for 1998 was $4.1 million, an increase of $0.3 million, or 7.9%, from $3.8
million in 1997. The increase from 1998 to 1999 was due to higher personnel
related costs resulting from the hiring of senior level management and
administrative personnel and increased occupancy, legal and other professional
fees, offset by a decrease in personnel expense which resulted primarily from
the reduction in personnel after a restructuring of the sales and marketing
departments during the last quarter of 1998. The increase from 1997 to 1998 was
primarily due to higher personnel related costs resulting from the hiring of
senior level management and administrative personnel and increased occupancy,
legal and other professional fees.

Other income, net. Other income in 1999 was $145,000, a decrease of
$57,000, or 28.2%, from $202,000 in 1998. Other income for 1998 was $202,000, a
decrease of $232,000, or 53.5%, from $434,000 in 1997. In each year, the
decrease was primarily due to lower levels of short-term investments and cash
balances.

20
<PAGE> 25

SELECTED QUARTERLY RESULTS OF OPERATIONS

The following table sets forth a summary of our unaudited quarterly results
of operations for each quarter in the two-year period ended December 31, 1999
and in the six-months ended June 30, 2000. This supplemental information is
derived from our unaudited interim financial statements. This information is
prepared on the same basis as financial statements contained elsewhere in this
prospectus and in our opinion includes all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation of the quarterly
information presented. Read this information in conjunction with our financial
statements and the related notes included elsewhere in this prospectus.
Historical results for any quarter are not necessarily indicative of the results
that may be expected for any future period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEP. 30, DEC. 31, MAR. 31, JUNE 30, SEP. 30, DEC. 31,
1998 1998 1998 1998 1999 1999 1999 1999
-------- -------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenue....................... $ 470 $ 516 $ 599 $3,230 $3,843 $ 185 $ 1,298 $ 1,401
Cost of revenue............... 248 701 164 497 182 65 120 7
------- ------- ------- ------ ------ ------- ------- -------
Gross profit.................. 222 (185) 435 2,733 3,661 120 1,178 1,394
Operating expenses:
Research and development.... 736 683 649 699 795 1,396 1,401 1,323
Selling, general and
administrative............ 943 950 1,093 1,107 975 1,036 1,176 1,425
------- ------- ------- ------ ------ ------- ------- -------
Total operating
expenses................ 1,679 1,633 1,742 1,806 1,770 2,432 2,577 2,748
------- ------- ------- ------ ------ ------- ------- -------
Income (loss) from
operations.................. (1,457) (1,818) (1,307) 927 1,891 (2,312) (1,399) (1,354)
Other income, net............. 67 56 38 41 23 36 33 53
------- ------- ------- ------ ------ ------- ------- -------
Net income (loss)............. $(1,390) $(1,762) $(1,269) $ 968 $1,914 $(2,276) $(1,366) $(1,301)
======= ======= ======= ====== ====== ======= ======= =======

<CAPTION>
THREE MONTHS ENDED
-------------------
MAR. 31, JUNE 30,
2000 2000
-------- --------
(IN THOUSANDS)
<S> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenue....................... $2,014 $ 1,104
Cost of revenue............... 70 60
------ -------
Gross profit.................. 1,944 1,044
Operating expenses:
Research and development.... 1,125 2,206
Selling, general and
administrative............ 1,570 1,518
------ -------
Total operating
expenses................ 2,695 3,724
------ -------
Income (loss) from
operations.................. (751) (2,680)
Other income, net............. 68 88
------ -------
Net income (loss)............. $ (683) $(2,592)
====== =======
</TABLE>

LIQUIDITY AND CAPITAL RESOURCES

Since inception, we have financed our operations primarily through private
sales of approximately $37.4 million (net of offering costs) of Series A, Series
B and Series C convertible preferred stock, and the exercise of preferred stock
warrants. We also generated $1.1 million from the exercise of stock options and
common stock warrants. At June 30, 2000, we had $5.5 million in working capital
and $6.1 million in cash and cash equivalents.

Net cash used in operating activities during the years ended December 31,
1997, 1998 and 1999 was $5.3 million, $1.8 million and $2.6 million. Net cash
used in operating activities during the six months ended June 30, 1999 and 2000
was $0.1 million and $2.2 million. During these periods, cash used in operating
activities consisted primarily of cash utilized to fund operating losses and for
working capital.

Net cash provided by investing activities during the years ended December
31, 1997 and 1998 was $4.0 million and $0.4 million. During these periods, cash
provided by investing activities resulted primarily from the net sale of
short-term investments, offset by the purchase of capital equipment. Net cash
used in investing activities was $0.9 million during the year ended December 31,
1999, and $0.2 million and $0.6 million during the six months ended June 30,
1999 and 2000. During these periods, we used cash primarily for the purchase of
capital equipment.

Net cash generated from financing activities during the years ended
December 31, 1997, 1998 and 1999 was $16,000, $4,000 and $5.7 million. The
increase from 1998 to 1999 was due primarily to the sale of $5.9 million in
Series C convertible preferred stock in 1999. During the six months ended June
30, 2000, net cash provided by financing activities was $3.6 million, $2.7
million of which was attributable to the exercise of warrants to purchase Series
C preferred stock and $0.9 million of which was attributable to the exercise of
warrants and options to purchase common stock.

21
<PAGE> 26

During July 2000, we generated $2.5 million from financing activities from
the exercise by S3/Diamond Multimedia of a warrant outstanding at June 30, 2000
to purchase 700,000 shares of Series C convertible preferred stock. We also
generated $6.9 million from the sale of 1,375,000 shares of Series C convertible
preferred stock to Motorola during August 2000.

We expect to devote substantial capital resources to continue our research
and development efforts, to hire and expand our sales, support, marketing, and
product development organizations, to expand marketing programs, to establish
additional facilities and to fund other general corporate activities.

We currently anticipate that the net proceeds from this offering, together
with our existing cash balances, will be sufficient to meet our anticipated
needs for working capital for at least the next twelve months. If the proceeds
of this offering, together with our existing cash balances and cash from future
operations, are not sufficient to meet our liquidity needs, support our future
expansion needs and achieve our strategic goals, we may require additional
funds. If adequate funds are not available on acceptable terms, we may not be
able to take advantage of market opportunities, develop or enhance new products,
pursue acquisitions that would complement our existing product offerings or
enhance our technical capabilities to develop new products or execute our
business strategy.

QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK

The primary objective of our investment activities is to preserve principal
while concurrently maximizing the income we receive from our investments without
significantly increasing risk. Some of the securities that we may invest in may
be subject to market risk. Accordingly, a change in prevailing interest rates
may cause the principal amount of the investment to fluctuate. For example, if
we hold a security that was issued with a fixed interest rate at the
then-prevailing rate and the prevailing interest rate later rises, the current
value of the principal amount of our investment will decline. To minimize this
risk in the future, we intend to maintain our portfolio of cash equivalents and
short-term investments in a variety of securities including commercial paper,
money market funds, U.S. government and investment grade non-government debt
securities and certificates of deposit. In general, money market funds are
subject to only minimal market risk because the interest paid on such funds
fluctuates with the prevailing interest rate. As of June 30, 2000, all of our
cash equivalents were in money market funds or short-term U.S. government
securities.

RECENT ACCOUNTING PRONOUNCEMENTS

In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, or SFAS 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS 133 establishes accounting methods for
derivative financial instruments and hedging activities related to those
instruments, as well as other hedging activities. We will be required to adopt
SFAS 133 for the year ending December 31, 2001. Because we do not currently hold
any derivative instruments and do not engage in hedging activities, we do not
believe that the adoption of SFAS 133 will have a material effect on our
financial position, results of operations or cash flows.

In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-5, or SOP 98-5, Reporting on the Cost of
Start-Up Activities. SOP 98-5, which is effective for fiscal years beginning
after December 15, 1999, provides guidance on the financial reporting of
start-up and organization costs. It requires costs of start-up activities and
organization costs to be expensed as incurred. As we have historically expensed
these costs, the adoption of this standard will not have a material effect on
our financial position, results of operations or cash flows.

In December 1999, the SEC issued Staff Accounting Bulletin 101, or SAB 101,
Revenue Recognition in Financial Statements. SAB 101 summarizes the SEC's view
regarding the application of generally accepted accounting principles to revenue
recognition in financial statements. We will be required to adopt the provisions
of SAB 101 in the fourth quarter of fiscal 2000. We do not believe that adoption
of SAB 101 will have a material effect on our financial position, results of
operations or cash flows.

22
<PAGE> 27

BUSINESS

We design, develop and market digital, analog and mixed-signal ICs for the
home connectivity market. Our PowerPacket ICs enable high-speed communications
over the home powerline. We are a leader in powerline connectivity technology
due to our development of proprietary mathematical models and signal processing
algorithms that enhance orthogonal frequency division multiplexing, or OFDM,
technology for use on the powerline. Our PowerPacket ICs currently support data
transmission rates of up to 14 megabits per second, or Mbps, which is sufficient
to accommodate high-bandwidth communications of voice, video, audio and data.
Due to our substantial digital, analog and mixed-signal design expertise and use
of CMOS manufacturing process we integrate many highly complex system functions,
which makes our PowerPacket ICs cost-effective. Additionally, we provide
customers with complete solutions that include hardware, software and
applications support, thereby facilitating system integration and reducing our
customers' time to market and development costs.

INDUSTRY BACKGROUND

The Broadband Access Revolution

The volume of information transmitted over communications networks has
increased significantly in the past few years. Fueled by the increased
deployment of broadband delivery technologies such as digital subscriber line,
or DSL, cable modems, satellite and wireless systems and the proliferation of
PCs, the Internet enables millions of people and businesses to access and share
information, communicate and conduct business electronically. International Data
Corporation, or IDC, estimates that 102 million people in the United States
accessed the Internet in 1999, and that number is estimated to grow to 197
million in 2003. We believe that the growing number of Internet users, coupled
with increasing availability of broadband access technologies, will lead to a
growth in usage of content-rich services such as digital audio technologies like
MP3. For example, Dataquest estimates the market for MP3 devices will increase
from 850,000 in 1999 to 7.5 million in 2003, representing a 72% compound annual
growth rate. As a result, leading providers of broadband content such as America
Online, WebTV and Excite@Home have greatly expanded their offerings of
high-bandwidth content such as streaming video and audio and other services and
applications.

The increasing availability of Internet content and broadband access is
driving the emergence of new types of consumer electronics used for information
sharing and entertainment applications. Traditional appliances such as the
television are being transformed from passive devices into interactive broadband
gateways through digital networks. New types of devices are also being developed
to better harness the entertainment and communications capabilities now
available. Digital audio players, personal video recorders, gaming consoles,
video distributions systems, set-top boxes, Internet appliances and personal
digital assistants, or PDAs, are enabling new levels of Internet connectivity
and use. Furthermore, due to the increased availability and affordability of
these devices and the marketing efforts of broadband content providers, we
expect service offerings will increasingly be bundled with consumer devices. For
example, on-line music services may be bundled with a digital audio device
similar to cable television service being provided with an accompanying set-top
box.

We believe that Internet connectivity, primarily the domain of the PC at
present, will extend to additional consumer electronics devices and, ultimately,
to most electronic devices in the home. The combination of broadband access and
multiple PCs in the home and the establishment of an ever-growing number of home
offices has created an initial wave of products centered on sharing Internet
access. Additionally, the emergence of Internet audio has spurred the creation
of a variety of connectable digital

23
<PAGE> 28

audio devices, and we expect a broad range of new entertainment and
communications products and services such as voice over Internet protocol, or
VoIP, and personalized television to emerge. Driven by consumer demand for
greater convenience, control and access to information and entertainment
content, shipments of potentially networkable devices in North America, as
estimated by HomePlug, are expected to grow from nearly 300 million devices in
2000 to over 480 million devices by 2004. We believe that home connectivity is a
catalyst for this growth.

Emergence of the Digital Home

Many technology and consumer trends are converging to create the digital
home. We define the digital home as a home in which connectivity allows the
distribution of broadband content throughout the home, enabling a broad range of
new entertainment, communications, productivity enhancement and control
applications for all electronic devices. Telecommunications service providers,
as previously discussed, are aggressively deploying broadband delivery to the
home. IDC estimates that the number of U.S. households subscribing to some type
of broadband service will grow from approximately two million in 1999 to over 22
million by 2003, representing a compound annual growth rate of over 80%.
Furthermore, PC OEMs are increasingly building products that incorporate network
access capability, and new configuration standards such as Hewlett-Packard's
Chai, Sun Microsystems' Jini and Microsoft's Universal Plug and Play have been
developed to simplify interoperability and establish electronic device networks.
Perhaps the most important development, however, has been the creation of home
connectivity technologies.

Telecommunications service providers are now able to deliver broadband
content over the "last mile" to a home gateway. However, the emergence of the
digital home has been slowed by the lack of a low-cost, high-performance medium
for the distribution of broadband content within the home, which we call the
"last 100 meters." The emerging need for shared Internet access provides a good
example. More and more homes have multiple PCs, and multiple PCs in the home
create a need to share Internet access and be interconnected. However, consumers
most often access the Internet by means of a dedicated modem connection that
cannot be easily shared by multiple devices. Two obstacles have to be overcome
to address this problem. First, there must be an easy means to interconnect
devices within the home. Second, to attain interoperability between digital
devices from different OEMs, it is essential to establish an industry standard.
Without an industry standard, OEMs may not design products to operate with other
devices on the network.

The Evolution of Home Connectivity

Home connectivity technologies are rapidly evolving. Initial home
connectivity technologies such as Intellon's CEBus and Echelon's LONworks were
limited in scope and met with little success. Early products focused on home
control applications such as security, lighting and other home automation
systems. Later home networking technologies, which are most widely used today,
simply replicate office networks tailored to enterprise applications. For
example, networking a multiple-PC household required each computer to be fitted
with network interface cards and to be connected to the other computers via
dedicated twisted pair Ethernet cable that must be specially installed either by
homeowners or by professionals. We believe that approaches requiring the
installation of new wires have not been widely adopted because they are
expensive and difficult to implement. Recently, new generations of home
connectivity technologies have been developed that offer higher performance
while avoiding costly and inconvenient new wiring. For example, the HomePNA
standard specification is a phone line home connectivity standard supported by
the Home Phoneline Networking Alliance. In addition, a number of wireless
solutions such as HomeRF and 802.11 have been developed.

24
<PAGE> 29

While each of these technologies provides unique benefits, we believe that
none meet all of the primary requirements for successful and widespread home
connectivity. The digital home requires an industry standard connectivity
solution that is:

- Pervasive: able to use a connectivity medium that is ubiquitous and
available at a multitude of locations throughout the home;

- Cost effective: able to achieve connectivity without the expense of
professionally installing new equipment or wiring;

- Easy to use: able to achieve connectivity without difficulty such as
simply plugging a device into an electrical socket;

- Reliable: able to maintain the quality of service that consumers demand
at any time and under all conditions;

- High performance: able to connect network devices at data rates that can
accommodate the high-bandwidth content delivered to the home; and

- Secure: able to provide levels of security comparable to those offered by
other technologies.

The Promise of Powerline -- Just Plug It In

The powerline is the most ubiquitous wired network in the home and
therefore is a natural choice for a home connectivity medium. Dataquest
estimates that a typical home in the United States contains an average of 40
electrical sockets compared to an average of only three telephone jacks. Most
importantly, powerline connectivity does not require the installation of new
wires. This means that consumers are not required to incur the added expense and
inconvenience of installing new wiring to achieve connectivity throughout their
homes. Instead, consumers can network devices by simply plugging them into
electrical sockets.

Historically, many formidable obstacles stood in the way of achieving
reliable, high-speed communications over the powerline. Powerlines were
originally intended to carry only electricity. As a consequence, the powerline
is a harsh environment for communications characterized by unpredictable noise,
interference, resistance and too much delay. Furthermore, since it is a shared
network, the powerline has traditionally been perceived as less secure than
other media. However, these challenges have been overcome through recent
technological developments in powerline connectivity to provide reliable, high-
performance and secure communications.

The HomePlug Alliance: Driving the Creation of a Powerline Standard
Specification

Industry-leading OEMs, technology suppliers and retailers are embracing
powerline technology as a viable home connectivity solution. However, there
remains a need for an industry standard and further consumer education. In
response to this need, HomePlug was formed in January 2000 as an independent
trade association whose founding members are Advanced Micro Devices, Cisco
Systems, Compaq, Conexant, Enikia, Intel, Motorola, Panasonic, Radio Shack
Corporation, S3/Diamond Multimedia, Texas Instruments, 3Com and Intellon. The
mission of HomePlug is to create open specifications for high-speed home
powerline connectivity products and services. HomePlug seeks to accelerate the
demand for these products and services through the sponsorship of market and
user education programs. HomePlug is growing rapidly and now has 52 members,
adding 39 members since its founding, including Analog Services, Broadcom,
Ericsson, France Telecom, Hewlett-Packard, Sharp and Siemens.

Intellon's PowerPacket Technology: Selected as HomePlug's Baseline Standard
Specification

HomePlug defined requirements for powerline connectivity which included
performance and reliability characteristics it deems necessary for voice, data
and multimedia applications. These requirements were incorporated into a request
for proposal for technologies to be considered for the HomePlug baseline
specification. The request for proposal was distributed in March 2000 to over 20
prospective powerline
25
<PAGE> 30

technology suppliers worldwide. Six technology proposals were submitted and
underwent extensive technical analysis and laboratory and field testing. In June
2000, HomePlug announced that it had selected our PowerPacket technology as the
baseline for its 1.0 standard specification.

THE INTELLON SOLUTION

We are a leader in the design and development of digital, analog and
mixed-signal ICs for the home connectivity market. Our PowerPacket technology
meets all the primary requirements for successful and widespread home
connectivity. We have leveraged our more than 10 years of experience in
characterizing the powerline for use as a communications medium to develop our
SSC and most recently our PowerPacket technology. PowerPacket is an OFDM based
technology that we implement as a complete silicon solution. Specifically, we
have developed proprietary mathematical models and signal processing algorithms
in order to enhance OFDM for use on the powerline. PowerPacket ICs are being
incorporated by our customers into a broad range of digital products for the
home. We believe our PowerPacket technology is well-positioned to become the
industry standard for home connectivity over the powerline.

Key elements of PowerPacket include:

- Reliability and robustness. PowerPacket is designed to allow
connectivity under any conditions every time an enabled device is plugged
into any electrical socket in the home. PowerPacket operates reliably in
the harsh powerline environment by analyzing and dynamically adapting to
changing conditions such as radio interference, noise bursts and other
disruptions common to the powerline. PowerPacket also incorporates a
proprietary error correction capability that further enhances
reliability.

- High performance. PowerPacket currently supports data transmission rates
up to 14 Mbps, which is sufficient to accommodate high-bandwidth
communications of voice, video, audio and data. Through the use of
advanced signal processing algorithms and adaptive channel coding
techniques, coupled with the use of advanced semiconductor process
technology, PowerPacket is able to dynamically select the most efficient
modulation techniques to permit each signal path to run at high speeds in
changing environments. As a result, we can achieve high performance and
optimize the available bandwidth of the powerline for communications.

- Cost effective. Our PowerPacket solution uses the most widely available
advanced semiconductor technology. Using 0.25 micron CMOS process
technology, we are able to integrate many highly complex system functions
on a single chip. We provide all of the components necessary for a fully-
functional implementation of PowerPacket, including analog front end,
back end, physical layer device, media access controller and related
software. By incorporating our ICs, our OEM customers can design products
more efficiently and achieve lower product cost.

- Ease of implementation for OEMs. To make our PowerPacket products
turn-key for the OEM, we also developed reference designs and
accompanying software to enable device interconnectivity, thus allowing
OEMs to avoid the cost and time required to develop their own software.
Additionally, minimal external circuitry is required to connect our ICs
to the powerline, twisted pair cable or other communication medium, thus
simplifying their incorporation into OEM products.

- Scalability. We believe that future generations of our PowerPacket
technology can be scalable to higher data rates. We have successfully
tested at 80 Mbps over wireless radio frequencies. PowerPacket is a
dynamically adaptable bandwidth control technology that can scale in
performance by taking advantage of additional available frequency bands.
We believe we can further enhance PowerPacket through improved error
correction, higher modulation rates and more efficient channel estimation
to achieve higher data rates while maintaining compatibility with earlier
versions of our technology. PowerPacket is also designed so that we can
leverage the migration of semiconductor process technology to finer
geometries in order to achieve higher performance and lower costs.

26
<PAGE> 31

- Extensibility. Our product architecture has been designed to support
industry standard interfaces such as media independent interface, or MII,
and can easily incorporate other interface standards such as universal
serial bus, or USB, and peripheral component interconnect, or PCI. Our
support of industry standard Ethernet and Internet protocol facilitates
connectivity by enabling PowerPacket to bridge to other home network
technologies such as HomePNA or Bluetooth.

- Security. In order to allow OEMs to meet HomePlug requirements to
provide a high level of security to the consumer, we embedded industry
standard advanced encryption methods in our ICs. As a result, PowerPacket
creates a logical separation between powerline networks in adjacent
homes.

PowerPacket is a reliable, high-performance, cost-effective, easy to
implement, scalable, extensible and secure home connectivity solution.
PowerPacket enables connectivity anytime, anywhere, to everywhere connected to
the home powerline and does not require the installation of any new wires.
Because it is a powerline technology, our solution is pervasive and easy to use.
Just plug it in.

STRATEGY

Our objective is to be the world leader in providing advanced
communications ICs and technology for home connectivity without the installation
of new wires.

Key elements of our strategy include:

- Focus on high-growth home connectivity applications. Our focus is on
products that target the rapidly growing home connectivity market. These
products encompass entertainment, communications, productivity
enhancement and control applications.

- Broaden relationships with market leading OEMs. We intend to continue
securing OEM market leaders and HomePlug members as customers for target
applications. We have been successful in establishing relationships with
leaders in multiple market segments including broadband access, digital
consumer electronics, PCs and powerline network adapters for data and
voice communications. By being the first to market with HomePlug
compatible powerline ICs, we expect to secure an advantageous position
with our customers. By gaining early insight into new product
opportunities, we expect to broaden our relationships and drive long-term
revenue growth.

- Maintain and expand our technology leadership. We intend to maintain our
position as the baseline technology for the current version of the
HomePlug 1.0 standard specification and expand to become the baseline
specification for all future versions of the HomePlug specification. We
intend to focus our research, development and engineering efforts on the
continued advancement of our core OFDM technology platform. We also plan
to continue to leverage a common set of proprietary IC building blocks
and advanced design, verification and implementation methodologies for
new product applications.

- Leverage our core technology to improve existing applications and create
new applications. We believe our OFDM technology, analog and
mixed-signal expertise and advanced design methodologies allow us to
offer ICs that are more highly integrated than competing technologies. By
reducing component count and die size, we intend to combine additional
functionality on a smaller single chip. We believe a single chip solution
will spur the development of new applications.

- Facilitate broad OEM and consumer adoption of the Intellon home
connectivity solution. We intend to continue to work within HomePlug and
other organizations to educate consumers about the benefits of powerline
home connectivity, help shape future worldwide industry standards for
home connectivity and achieve acceptance of our technology as the
international standard for powerline home connectivity.

- Expand into new markets and wireless. While neither we nor HomePlug, to
date, have focused on enterprise applications, we believe that there is a
significant opportunity for powerline connectivity in the small office
and home office, or SOHO, market. We believe that our PowerPacket
27
<PAGE> 32

technology can be incorporated into OEM products that address the needs
of this market. Moreover, building on the strength and flexibility of our
core technology, we intend to create a home connectivity solution for
wireless media.

CORE TECHNOLOGY

Our primary competitive advantage is our technology expertise in several
key areas.

- Digital and mixed-signal IC design capability. Our engineering design
team is composed of digital and mixed-signal IC design experts with broad
experience in logic design, verification and layout of highly complex
digital and mixed-signal integrated circuits. Our team works with
advanced and integrated development tools, enabling us to design our home
connectivity ICs for maximum performance using proven CMOS process
technologies. This expertise has allowed us to achieve a high rate of
success with the initial fabrication of working silicon.

- Analog design capability. Our team of experienced analog design
engineers has developed low-cost, high-performance analog front ends that
complement our digital home connectivity ICs. The analog front end
provides the necessary signal conversion needed to couple the digital
signals with the powerline or RF media.

- Signal processing algorithms. Highly specialized communications signal
processing algorithms are the foundation for all our high-speed home
connectivity products. Our research and development team has been able to
develop these algorithms as a result of their knowledge of advanced
signal processing, analysis and simulation techniques. The algorithms
provide the necessary conditioning to allow a high-speed digital signal
to be transmitted and received reliably over the powerline.

The combination of these core competencies has led to the development of
our two core technologies, the PowerPacket and SSC communications platforms.

PowerPacket Technology

PowerPacket is based on OFDM, a multiple carrier system which is adaptable
to environments with harsh multi-path reflections, large narrowband interference
and impulse noise without equalization. We have implemented enhanced OFDM
solutions that deliver data transmission rates of up to 14 Mbps over home
powerlines and have successfully tested at 80 Mbps over wireless radio
frequencies. We are currently conducting research and development to scale
PowerPacket to higher levels of performance while maintaining compatibility with
the existing version of the technology. In addition to powerline and wireless
media, PowerPacket can also be implemented through other communications media
found in the home such as twisted pair and coaxial cable. This flexibility and
scalability should allow us to offer a broad range of solutions to meet a
variety of future requirements in the market.

Spread Spectrum Carrier Technology

SSC technology is a method of spread spectrum communications suitable for
both point-to-point and carrier sense multiple access, or CSMA, networks. CSMA
networks are used in applications such as industrial control and home automation
requiring data rates up to several hundred bits per second. Historically, spread
spectrum communications systems have been used for secure communications or to
overcome narrowband impairments in the communications medium. Spread spectrum
receivers generally require an initial period of time to synchronize with the
carrier, which has made them unsuitable for CSMA networks. Our SSC technology is
a method by which a series of short, self-synchronizing, frequency-swept chirps
act as a carrier. The chirps are always of the same known pattern and detectable
by all of the nodes on the network. This provides substantial improvements in
network and communication performance in comparison to other low-cost
communication methods.

28
<PAGE> 33

PRODUCTS

We design, develop and market advanced communications ICs that allow
connectivity within the home without any new wires. We are currently marketing
PowerPacket products for the home connectivity market that are designed to
provide reliable data, voice and multimedia communications at speeds up to 14
Mbps over existing powerlines within the home. In addition, we sell a family of
SSC products that have been adopted by the automotive industry as a leading
solution for providing communications over existing wiring found within
commercial transportation vehicles.

PowerPacket Products

We are currently marketing ICs based on PowerPacket technology that we
first introduced in February 2000. These ICs are targeted at and optimized for
high-speed home connectivity over the existing powerline. We expect OEMs to
incorporate these ICs in a wide variety of products that can deploy
high-bandwidth connectivity within the home, including satellite and cable
set-top boxes, Internet appliances, PCs, home theater systems, digital audio
products, cable modems, DSL modems and PDAs. Our PowerPacket products will allow
these devices to be connected at speeds of up to 14 Mbps over the powerline by
simply plugging them into any electrical socket in the home. Our PowerPacket
products include:

- INT5130 -- The INT5130 is a powerline transceiver that provides physical
layer communication over the powerline at speeds up to 14 Mbps. Also
incorporated into this design are the access control functions necessary
to manage a shared media network and to provide support for isochronous
and streaming data packets. This product will be used in a variety of
consumer applications within the home including PCs, digital audio
products, cable modems, DSL modems, satellite and cable set-top boxes,
Internet appliances and home theater systems. Prototype versions of this
product are currently being sold to customers for use in their own
product development activities. We expect to begin volume production of
the INT5130 by the second quarter of 2001.

- INT5121 -- The INT5121 will be comparable to the INT5130 in regard to
data rate, reliability and noise immunity but will include an integrated
USB interface. This will allow OEMs to reduce overall system design costs
in powerline connected USB products. The INT5121 is currently under
development. We expect to deliver this product in the second half of
2001.

- INT1000 -- The INT1000 is a complementary product to the INT5130 and will
be a complementary product to the INT5121. The INT1000 is an integrated
analog-to-digital and digital-to-analog converter which is a required
element of the analog circuitry needed to connect the INT5130 and the
INT5121 to the powerline. The INT1000 will be sold to customers along
with the INT5130 and the INT5121 as a complete IC solution. Prototype
versions of the INT1000 are currently being sold to customers for use in
their own product development activities in combination with the INT5130.
We expect to begin volume production of the INT1000 by the second quarter
of 2001.

Additional PowerPacket ICs in development are expected to be introduced in
2002 and are expected to be implemented as application specific standard
products, or ASSPs, as well as semi-custom designs for specific customers. Our
PowerPacket technology can be extended effectively to additional transmission
media. We have successfully tested our PowerPacket technology in a wireless
environment delivering data rates up to 80 Mbps.

Spread Spectrum Carrier Products

Our original SSC product line addresses a broad range of low-bandwidth
communications over existing powerlines and wireless media. Some of our SSC
products enable communications over existing wiring in commercial transportation
vehicles. For example, our SSC products enable connectivity between the
motorized truck cabs, or tractors, and the passive interchangeable trailers that
are replaced as each new load is carried, or trailers, in order to monitor the
anti-lock braking system. The U.S. Department of

29
<PAGE> 34

Transportation has mandated in March 1998 that all commercial trailers
manufactured after March 2001 be equipped with this monitor capability. A
transportation industry trade society has recommended the use of a solution that
uses our SSC technology to address this mandate.

Our current SSC products include:

- SSC P485 -- The SSC P485 is a powerline transceiver that provides a
reliable and low-cost method of networking devices without new wire
installation. The SSC P485 also contains signal conditioning circuitry
and a simple host interface. The SSC P485 is used in applications in the
transportation industry.

- SSC P111 -- The SSC P111 is a complementary product to our SSC powerline
transceivers. It provides the functions of output power amplifier and
output tri-state switch for powerline transceiver products. The output
power amplifier meets the requirements specified by the CEBus, or
EIA-600, standard with reference to output voltage levels in both typical
and low impedance powerline loads and incorporates over-temperature
protection for improved system reliability. The SSC P111 is used in
applications in combinations with all other SSC ICs.

- SSC P200 -- The SSC P200 PL network interface controller is a highly
integrated SSC transceiver and channel access interface for implementing
low-cost networking products. It provides the data link layer control
logic for EIA-600 channel access using unacknowledged services, SSC
transceiver, signal conditioning circuitry and a serial peripheral
interface compatible host interface. The SSC P200 is used with a host
microcontroller to construct simple sensor and actuator devices for use
in lighting control, process monitoring, access control, point-of-sale,
telemetry and other systems requiring low-cost network capability.

- SSC P300 -- The SSC P300 PL network interface controller is a highly
integrated powerline transceiver and channel access interface for
implementing CEBus compatible products. It provides the data link layer
control logic for EIA-600 channel access and communication services, a
SSC powerline transceiver, signal conditioning circuitry, and a serial
peripheral interface compatible host interface. The SSC P300 is used with
a host microcontroller to construct CEBus compatible products for use in
process monitoring, access control, point-of-sale, telemetry and other
systems requiring low-cost network capability.

CUSTOMERS

Most of our product revenue to date has come from the sale of our SSC
products to industrial and transportation industry OEMs. We are targeting the
sale of our PowerPacket powerline connectivity products to a broad range of
communications, computing and consumer electronics OEMs. We are currently
shipping PowerPacket ICs to customers for evaluation purposes and we have
received orders for volume shipments over extended periods, which we expect to
begin shipping in the second quarter 2001. Because our PowerPacket products are
not in volume production, we have not yet derived significant product revenue
from these OEMs. However, we have achieved a number of design wins and are
working closely with many of the leading communications, digital entertainment
and consumer electronics companies some of which have resulted in orders for our
PowerPacket ICs. We achieve a design win after a company with a defined home
connectivity market strategy assigns resources to develop products that meet
that strategy, purchases one of our reference designs and indicates an interest
in making volume purchases of our products.

30
<PAGE> 35

The table below lists some of the major customers for SSC products and some
of the OEMs with whom we have achieved design wins for our PowerPacket products.
In addition, we have achieved design wins with other major OEMs.

<TABLE>
<CAPTION>
HOME
HOME CONTROL/HOME
CONNECTIVITY TRANSPORTATION AUTOMATION
(POWERPACKET) (SSC) (SSC)
------------- -------------- ------------
<S> <C> <C>
AT&T Bosch ABB
Conexant Delphi AMP
Fujitsu* Freightliner Ericsson
Motorola* Haldex General Electric
Nortel/NETGEAR* Wabco IBM
Philips* Wheel Monitor Microsoft
Phonex Broadband* Philips
S3/Diamond* Zilog
3Com*
</TABLE>

---------------
* Denotes a customer with whom we have achieved a design win for PowerPacket
ICs.

Revenue from Microsoft and Conexant accounted for 49.1% and 33.4% of our
revenue in 1999. Revenue from Conexant accounted for 88.2% of our revenue for
the six months ended June 30, 2000. While we have long-term contracts with some
customers, our products are generally sold pursuant to purchase orders.

STRATEGIC RELATIONSHIPS

We have entered into a number of strategic relationships with key customers
and technology leaders in order to accelerate the development and proliferation
of our PowerPacket home connectivity solutions.

In August 2000, we entered into an agreement with General Instrument
Corporation, a subsidiary of Motorola (a HomePlug co-founder), for the
development and promotion of a product integrating PowerPacket with Motorola's
SURFboard DOCSIS Cable Modem platform. We are required to make a nonrefundable
payment to Motorola for the development program. Motorola also purchased
1,375,000 shares of our Series C convertible preferred stock at $5.00 per share
for a total of $6.9 million. We also granted Motorola a warrant to purchase an
additional 500,000 shares of our common stock at $5.00 per share. The warrant
vests and is exercisable on the achievement of milestones in the joint marketing
and promotion program. The initial term of the agreement is 18 months. The
agreement may be terminated by either party with six months of written notice,
and may be terminated in the event of material breach or insolvency of a party.

In July 2000, we entered into an agreement with S3/Diamond Multimedia (a
HomePlug co-founder) with an aggregate contract value of $19.7 million over 24
months for the development and supply of PowerPacket ICs for use with S3/Diamond
Multimedia products. S3/Diamond Multimedia is required to make minimum purchases
under the contract of $3.4 million. The term of the agreement is two years,
renewable successively for one year periods. The agreement may be terminated by
either party with or without cause on 90 days of written notice.

In July 2000, we entered into a purchase order with Phonex Broadband (a
HomePlug member) with an aggregate value of $17.2 million over 12 months for the
delivery of PowerPacket ICs. Phonex Broadband has made a noncancelable
commitment to purchase at least $3.9 million of PowerPacket ICs, with the
balance cancelable by Phonex Broadband without significant penalty.

In July 1999, we entered into an agreement with Conexant (a HomePlug
co-founder) to develop an 11 Mbps powerline connectivity IC. As part of this
agreement, Conexant received the developed intellectual property, incorporating
a license to develop ICs based upon that intellectual property. Conexant

31
<PAGE> 36

will receive the current version of our PowerPacket technology and the right to
purchase directly from our foundry, or its own foundry, ICs incorporating the
licensed technology. As part of the agreement, Conexant has made an equity
investment in us of $5.3 million for 1.5 million shares of Series C convertible
preferred stock at $3.50 per share and has paid us $5.0 million of non-recurring
engineering fees and pre-paid royalties. Conexant is required to pay us a
royalty based on the net sales of products using the licensed technology. We
granted Conexant an exclusive license to the licensed intellectual property
until December 31, 2000. The agreement continues indefinitely unless earlier
terminated for cause, consisting generally of a material uncured breach,
bankruptcy or insolvency of one of the parties or in the event that HomePlug
does not adopt Intellon's technology as its 1.0 standard specification.

In September 1998, we entered into an agreement with Microsoft in
connection with our development of a communications IC for Microsoft for data
rates of up to 2 Mbps, and the license for its use with future Microsoft home
and office networking products. Microsoft paid us $6.0 million for the license
and agreed to pay a royalty based on any future sales of ICs using the licensed
technology. The initial license was restricted in its field of use to specified
home and office applications. However, upon payment in the future of an
additional license fee of $20.0 million, this field of use restriction would
terminate. The agreement has not generated any royalties to date and we do not
expect additional license fees to be generated. The agreement continues
indefinitely unless terminated according to its terms. Microsoft may terminate
the agreement for any reason, with or without cause, and Intellon may terminate
the agreement with cause which generally would consist of an uncured material
breach of contract by Microsoft.

SALES AND MARKETING

Our sales and marketing strategy is to achieve design wins with the top
five OEMs in each of our targeted market segments by utilizing our direct sales
team with support from our applications and engineering resources. We intend to
expand our sales efforts with OEMs by establishing key relationships with
broadband services and content providers as well as retail channel participants.
We plan to address the remaining opportunities in the market through independent
distribution partners worldwide. As our revenue base grows, we plan to employ
field applications engineering resources at strategic customer locations to
provide on-site support and to facilitate ongoing business. In addition, we will
license our technology to HomePlug members pursuant to the HomePlug Alliance
agreement, as well as to strategic partners on a selective basis, to facilitate
the development of the powerline home connectivity market.

We sell our products to customers worldwide through direct sales offices
located in San Jose, California and Ocala, Florida. We have independent
distributors in Brazil, Germany, Hong Kong, Singapore, South Africa and Taiwan.
In addition, working with both HomePlug and other industry associations, we
continually seek to further educate consumers as to the benefits of powerline
home connectivity. Our marketing efforts include participation in industry trade
shows, technical conferences and technology seminars and the publishing of
product information, white papers, application notes, press releases and
technical articles. We will continue to promote the powerline as the most
compelling home connectivity solution.

RESEARCH AND DEVELOPMENT

We have assembled a core team of experienced engineers and technologists.
We have spent over ten years analyzing and characterizing the powerline as a
communications medium. As of July 31, 2000, we had 32 research and development
employees focused on developing powerline and communications systems technology.
These employees are involved in advancing our core PowerPacket technology, as
well as applying this technology to new applications and media.

Our ability to further enhance the performance, integration and cost
effectiveness of PowerPacket is essential to our growth. As a result, we plan to
increase research and development staffing in 2000 and 2001. Research and
development expense for the fiscal years ended 1997, 1998 and 1999 and the six
months ended June 30, 2000 was $3.0 million, $2.8 million, $4.9 million and $3.3
million. We expect that research and development spending will continue to
increase for the foreseeable future.

32
<PAGE> 37

MANUFACTURING

We outsource the fabrication, assembly and testing of our ICs. Our fabless
manufacturing model allows us to focus on our core competencies of product
design and development. We manage the production of our ICs through our
operations group.

We currently outsource semiconductor fabrication to Chartered, an
independent wafer foundry. We have qualified another supplier of foundry
services, United Microelectronics, or UMC, which we expect may produce the next
generation of PowerPacket wafers as early as the second half of 2001. We believe
that having a second source will help maintain sufficient capacity on favorable
terms. We do not have long-term supply agreements with either Chartered or UMC.
We use CMOS manufacturing techniques to take advantage of that technology's cost
effectiveness, broad availability, ease of integration and scalability.

Our qualified vendor for the assembly and testing of our PowerPacket ICs is
UTAC. Our qualified vendor for assembly of our SSC ICs is Carsem. We are in the
process of qualifying Carsem as another supplier of assembly and testing
services for our PowerPacket ICs. We expect Carsem will be qualified to assemble
and test our PowerPacket products as early as the second half of 2001.

COMPETITION

We face competition from other suppliers of powerline connectivity
solutions. We believe the specific factors that will drive competition for
powerline IC sales to OEMs include reliability and robustness, performance, cost
effectiveness, ease of implementation, security, scalability, extensibility,
time to market and whether or not the solution is standard compliant. Our
selection by HomePlug supports our belief that we compete favorably with respect
to these factors. Our principal competitors supplying powerline connectivity ICs
include Adaptive Networks, Cogency Semiconductor, DS2, Enikia, Inari and Itran.
Although none of these companies currently supply HomePlug compliant products,
each may be able to enhance its competitive position by being first to market
with a non-HomePlug standard product, by making enhancements to its current
product or by capturing the next generation of the HomePlug standard
specification. As a HomePlug member, we could be required to license our
technology to a competitor who might then develop a product that competes with
ours.

Pursuant to the HomePlug Powerline Alliance agreement dated March 2000, we
are obligated to grant limited licenses to each of the other members of HomePlug
covering the HomePlug baseline specification of PowerPacket and any future
contributions developed by us and adopted by HomePlug. Licenses must be granted
on a nonexclusive, irrevocable, non-transferable, non-sublicenseable worldwide
basis upon terms that are reasonable and nondiscriminatory. The baseline for the
HomePlug 1.0 standard specification consists of the electrical characteristics
and protocols of physical interfaces, the related signals and the testing
results of these specifications in powerline home connectivity. Under our
license and development agreements, including the HomePlug Powerline Alliance
agreement, we retain title to our licensed patents, patent applications and
other licensed technology, and to any improvements that we develop. Both parties
to these license agreements generally will jointly own any improvements to the
licensed patents, patent applications and other licensed technology that are
developed jointly.

As a provider of powerline home connectivity ICs, we face additional
competition from other home connectivity technologies such as twisted pair
cable, coaxial cable and wireless media. Despite the broad array of different
technologies deployed to date, we believe those technologies that do not require
new wires such as HomePNA, HomeRF, 802.11 and other wireless alternatives, will
provide the strongest competition to powerline solutions. Although several of
these competing technologies have already been introduced in the market, none
has achieved widespread adoption. We believe the principal factors driving
competition between home connectivity technologies include pervasiveness,
performance, reliability, ease of use and cost effectiveness. We believe
powerline based home connectivity solutions will compete favorably with respect
to each of these factors. Our principal competitors that supply ICs based on
alternative home connectivity technologies include Advanced Micro Devices,
Broadcom, Conexant, Intel, Lucent and Texas Instruments.

33
<PAGE> 38

PATENTS AND INTELLECTUAL PROPERTY

We rely on a combination of copyright, patent, trademark, trade secret and
other intellectual property law, nondisclosure agreements and other protective
measures to protect our proprietary rights. We also utilize unpatented
proprietary know-how and trade secrets and employ various methods to protect
such intellectual property. Our intellectual property is covered by 10 issued
United States patents, 16 pending United States patent applications and three
foreign patents.

Although we believe that our technology has been independently developed
and that none of our technology or intellectual property infringes on the rights
of others, third parties could assert infringement claims against us or seek an
injunction on the sale of any of our products in the future. If such
infringement were found to exist, we may attempt to acquire the requisite
licenses or rights to use such technology or intellectual property. However, we
cannot assure you that such licenses or rights could be obtained on favorable
terms or at all.

EMPLOYEES

We had 65 full-time employees as of July 31, 2000. None of our employees is
represented by a labor union. We believe that our relationship with our
employees is good.

PROPERTIES

Our principal executive offices are located in Ocala, Florida in
approximately 23,050 square feet of commercial office space pursuant to leases
that in August 2000 were extended until December 2001. We also lease 444 square
feet of commercial office space in San Jose, California, pursuant to a lease
that expires in November 2000 and is subject to renewal. We believe that our
facilities are adequate to meet our current needs.

LEGAL PROCEEDINGS

On March 12, 1999, Domosys Corporation commenced an arbitration proceeding
against us (Case No. 50 T 117 00085 99). The demand for arbitration alleged
breach of a license agreement between us and Domosys relating to Domosys'
attempt to use our SSC technology in applications not permitted by the license
agreement, for alleged false statements made by us with respect to the scope of
Domosys' license agreement and for monopolization of the North American market
for CEBus PL transceivers used to communicate over wiring with respect to truck
automatic braking systems. The arbitration complaint requested three times the
amount of damages that are alleged by Domosys to be "substantially in excess of
$1,000,000." The arbitration proceeding has been bifurcated between issues
concerning interpretation of the license agreement and issues concerning our
conduct and any appropriate damages. An interim arbitration award was issued
December 1, 1999 in our favor with respect to the limited scope of the licensing
agreement. A further arbitration hearing with respect to the remaining claims
has not been scheduled. We are vigorously defending the action.

On July 19, 2000, Vehicle Enhancement Systems, Inc. commenced an action
against us, arising out of a confidentiality agreement between us and Vehicle
Enhancement related to our PLC4TRUCKS. The suit alleges breach of contract
accompanied by fraud, misappropriation of trade secrets, unjust enrichment and
unfair and deceptive trade practices resulting from our alleged improper
disclosure to the trucking industry of information which Vehicle Enhancement
claims is covered by the confidentiality agreement. Vehicle Enhancement has
requested treble and punitive damages based upon our revenues from PLC4TRUCKS.
The action has been removed to federal court (Civil Action No. 0:00-2568-17,
U.S. District Court South Carolina). We are vigorously defending the action.

34
<PAGE> 39

MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The following table provides information with respect to our executive
officers, key employees and directors.

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
James E. Vander Mey.......................... 58 Chairman of the Board
Horst G. Sandfort............................ 58 President, Chief Executive Officer and Director
Bryan R. Carr................................ 45 Senior Vice President and Chief Financial
Officer
William E. Earnshaw.......................... 40 Senior Vice President of Engineering
D. Eric Buffkin.............................. 37 Vice President of Business Development
Robert M. Ciaraldi........................... 55 Vice President of Operations
Caroline T. Davis............................ 51 Vice President/Controller
Lawrence W. Yonge III........................ 42 Vice President of Research
Michael E. Barker(1)(2)...................... 53 Director
Walter J. Gill(1)............................ 65 Director
Charles E. Harris(1)(2)...................... 53 Director
Robert C. Ketterson, Jr.(2).................. 36 Director
</TABLE>

---------------
(1) Member of the Compensation Committee

(2) Member of the Audit Committee

James E. Vander Mey founded Intellon in 1989 and currently serves as its
Chairman of the Board. Prior to founding Intellon, Dr. Vander Mey counseled and
invested in several technology start-up companies. From 1977 to 1983, Dr. Vander
Mey was founder, Chairman of the Board and President of Integral Data Systems,
Inc., a high technology printer company. In 1983, IDS was sold to DataProducts
Corporation. From 1974 to 1977, Dr. Vander Mey was director of Network Product
Development for Codex Corporation, where he directed the development of advanced
communications network products. Prior to that, Dr. Vander Mey was a professor
of computer science at the University of Illinois and Pennsylvania State
University. Prior to 1969, Dr. Vander Mey served as a Captain in the U.S. Air
Force. Dr. Vander Mey holds a Ph.D. and an M.S. in computer science from
Pennsylvania State University. Dr. Vander Mey holds a B.S. in physics from
Wheaton College.

Horst G. Sandfort has been President, Chief Executive Officer and a
director since June 1997. Prior to joining Intellon, from 1994 to 1997, Mr.
Sandfort was President of the Gatefield Division at Zycad Corporation. From 1992
to 1994, he was the Executive Vice President of Geographic Markets for LSI Logic
Corporation. From 1989 to 1992, Mr. Sandfort held the position of President and
Chief Executive Officer for LSI Logic Europe PLC and from 1984 to 1989 he was
the Managing Director of LSI Logic GmbH in Munich, Germany. From 1968 to 1984,
Mr. Sandfort held international sales, marketing and management positions with
Schlumberger S.A., Fairchild Semiconductor, Litronix Corporation and Texas
Instruments. Mr. Sandfort is a director of Gatefield Corporation.

In August 1994, Mr. Sandfort filed a civil action in Germany against LSI
Logic GmbH for wrongful termination of his employment and breach of contract.
LSI responded with a civil action in California against Mr. Sandfort to collect
on promissory notes and for breach of fiduciary duty, fraud and conversion of
corporate assets while he headed up LSI's German operations. LSI also instituted
a criminal discovery proceeding in Germany. On January 13, 1998, a $3.7 million
judgment was rendered in favor of LSI in the California case. Mr. Sandfort and
LSI have reached an agreement in respect to the collection of the California
judgment, which is currently outstanding. The German civil case has been
dismissed by agreement between the parties, and the German criminal proceedings
were dismissed after Mr. Sandfort paid $49,000 to a German charity and $49,000
to the court pursuant to a German statute which permits settlement of such
proceedings without any finding or imputation of guilt or wrongdoing. In
connection

35
<PAGE> 40

with Mr. Sandfort's employment with Intellon, the board of directors appointed a
special committee which retained outside special counsel to conduct an
independent investigation of the allegations, as well as the manner in which Mr.
Sandfort's defense was conducted. Based on this investigation, the special
counsel concluded that had Mr. Sandfort's defense been better financed to enable
him to employ legal counsel familiar with German law and business customs, the
court likely would not have found Mr. Sandfort liable. The special committee and
the board of directors unanimously expressed confidence in the continued service
of Mr. Sandfort as Chief Executive Officer of Intellon.

Bryan R. Carr has been Chief Financial Officer since May 1999. Mr. Carr was
also Vice President from May 1999 to May 2000 when he became Senior Vice
President. From 1995 to 1999, Mr. Carr was Chief Operating Officer, Chief
Financial Officer, Treasurer and a director of The Network Connection, Inc. From
1981 to 1995, he held management positions with LXE, Inc., UTL Corporation and
Coopers & Lybrand. Mr. Carr holds a B.B.A. in accounting from West Texas State
University.

William E. Earnshaw has been Senior Vice President of Engineering since May
2000. From 1994 to May 2000, Mr. Earnshaw was Vice President of Engineering.
From 1991 to 1994, Mr. Earnshaw was Vice President of Engineering for Computer
Products, Inc. From 1987 to 1991, Mr. Earnshaw was a manager of advanced systems
at Modular Computer Systems, Inc. From 1985 to 1987, Mr. Earnshaw was a data
communications consultant at Siemens Information Systems. Mr. Earnshaw began his
career as an electrical engineer at the Naval Facilities Engineering Command in
Norfolk, Virginia. Mr. Earnshaw holds an M.B.A. and a B.S. in electrical
engineering technology from Old Dominion University.

D. Eric Buffkin has been Vice President of Business Development since
January 2000. From 1994 to 1999, Mr. Buffkin was Vice President of Marketing.
From 1991 until 1994, Mr. Buffkin was Director of Applications and Strategic
Marketing. From 1988 to 1991, Mr. Buffkin was a technical resource manager at
Motorola in its worldwide marketing division, semiconductor product sector. From
1985 to 1987, Mr. Buffkin was a design engineer for Mellotron Inc. and for Vitro
Services Corporation. Mr. Buffkin holds an M.B.A. from Rollins College and a
B.S. in electrical engineering from the University of Florida.

Robert M. Ciaraldi has been Vice President of Operations since May 2000.
From 1998 to May 2000, Mr. Ciaraldi was Director of Operations. From 1995 to
1998, Mr. Ciaraldi was Manufacturing Manager and Director of Manufacturing. From
1985 to 1995, Mr. Ciaraldi was Director of Materials, Manufacturing and MIS at
the RTP Division of Computer Products, Inc. Mr. Ciaraldi has over 27 years of
materials, distribution, manufacturing and human resource management experience
executing successive programs in various electronics industries.

Caroline T. Davis has been Vice President/Controller since May 2000. From
1994 to May 2000 Ms. Davis was Controller. From 1987 to 1994, Ms. Davis was Vice
President and Controller of Mid-State Federal Savings Bank, a financial services
company. From 1982 to 1987, Ms. Davis was in public accounting with Duggan
Joiner & Company. Ms. Davis is a Certified Public Accountant and holds a B.A.
from the University of South Florida.

Lawrence W. Yonge III has been Vice President of Research and Development
since May 2000. From 1997 to May 2000, Mr. Yonge was Director of Technology.
From 1989 to 1997, Mr. Yonge was an engineering consultant to Intellon and other
communication product companies. From 1983 to 1989, he was a co-founder and
former president of Raydx Satellite Systems, Inc. From 1980 to 1983, Mr. Yonge
was a design engineer at Microdyne Corporation. Mr. Yonge holds a B.S. in
engineering from LeTourneau University.

Michael E. Barker became a director in September 1996. From 1996 to the
present, he was a venture partner of TL Ventures III. From 1989 to 1996, Mr.
Barker was a principal and head of operations of Odyssey Partners in New York.
He was also a director of other portfolio companies, including Caldor and Thomas
Built Buses. Prior to 1989, Mr. Barker was an executive with Avon, Micom,
Burroughs, Digital and GTE. He holds an M.B.A. and a B.S. from Arizona State
University.

Walter J. Gill has been a director since July 1994. Mr. Gill also has been
on the board of directors of Network Equipment Technologies, Inc. since 1983 and
until 1999 was Chairman of the Board at Sierra
36
<PAGE> 41

Digital Communications, Inc. In 1983, Mr. Gill co-founded and was Vice President
of Engineering and Chief Technology Officer of Network Equipment Technologies.
From 1971 to 1983, Mr. Gill was Chief Engineer of the Telecommunications
Division at Avantek.

Charles E. Harris has been a director since May 1994. Mr. Harris has been
the Vice Chairman and Chief Financial Officer of Starwood Vacation Ownership,
Inc., a vacation property management company, since 1997. Mr. Harris has been
President and Chief Executive Officer of Synagen Capital Partners, Inc., a
merchant banking firm, since 1989, and was President and Chief Executive Officer
of Allen C. Ewing & Co., an investment banking firm, from 1995 to 1999. Prior to
that, Mr. Harris was engaged in the private practice of law and served as
Chairman of the Board and Chief Executive Officer of Mid-State Federal Savings
Bank and Senior Vice President and General Counsel of Sun Banks, Inc. He was
also an Assistant Professor at the University of Florida College of Law. He
received his B.A. from the University of Florida, and his J.D. from the Harvard
Law School.

Robert C. Ketterson, Jr. has been a director since July 1994. Mr. Ketterson
has been Group Managing Director of Fidelity Ventures Telecommunications &
Technology since May 2000, and since 1992 has held various positions with that
company. Mr. Ketterson currently serves on the boards of directors of
HarvardNet, Arepa.com, Adero, Apogee Networks, NetSuite Development and PakNetx.
Mr. Ketterson also represents Fidelity's investments in InterNAP, Webspective,
Nuance, FutureTense and Nexabit. Before joining Fidelity Ventures
Telecommunications & Technology in 1992, Mr. Ketterson was a case manager in the
high technology practice of The Boston Consulting Group and was also a product
marketing manager for PC products at VLSI Technology, Inc. He holds an M.B.A.
from the Sloan School of the Massachusetts Institute of Technology and a B.S. in
computer engineering and a B.A. in marketing from the University of Arizona.

BOARD OF DIRECTORS AND OFFICERS

The size of the board of directors is currently set at six. Directors hold
office until the next annual meeting of shareholders at which time their terms
expire and successors are elected. Officers are appointed by the board of
directors for one year terms.

AUDIT COMMITTEE

The audit committee makes recommendations to the board of directors about
the selection of independent auditors, reviews the results and scope of the
audit and other services provided by our independent auditors, and evaluates our
internal controls. The audit committee consists of Charles E. Harris, Chairman,
Michael E. Barker and Robert C. Ketterson, Jr.

COMPENSATION COMMITTEE

The compensation committee reviews and approves the compensation and
benefits for our executive officers, administers our stock option plans and
makes recommendations to the board of directors about compensation matters. The
compensation committee consists of Walter J. Gill, Chairman, Michael E. Barker
and Charles E. Harris.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

Decisions about executive compensation are made by the compensation
committee. No member of the compensation committee or executive officer of our
company has an interlocking relationship with executive officers or directors of
another company.

37
<PAGE> 42

EXECUTIVE COMPENSATION

The following table sets forth all compensation awarded to, earned by, or
paid to our chief executive officer and the other four most highly paid
executive officers, each of whose total annual salary and bonus exceeded
$100,000 during the fiscal year ended December 31, 1999.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION --------------------
-------------------- NUMBER OF SECURITIES ALL OTHER
SALARY BONUS UNDERLYING OPTIONS COMPENSATION
NAME AND PRINCIPAL POSITION ($) ($) (#) ($)
--------------------------- -------- -------- -------------------- ------------
<S> <C> <C> <C> <C>
Horst G. Sandfort, President and Chief
Executive Officer................... $240,000 $145,487(1) 158,995 $52,257(2)
Bryan R. Carr, Senior Vice President
and Chief Financial Officer......... 101,750(3) 10,650 300,000 86,740(4)
William E. Earnshaw, Senior Vice
President of Engineering............ 136,000 42,235 100,000 --
D. Eric Buffkin, Vice President of
Business Development................ 124,000 6,624 80,000 --
Lawrence W. Yonge, III, Vice President
of Research......................... 115,000 16,314 50,000 --
</TABLE>

---------------
(1) Mr. Sandfort received a bonus of $125,000 in July 2000.

(2) Temporary housing expenses reimbursed to Mr. Sandfort in 1999.

(3) Mr. Carr joined us in May 1999. His annual compensation in 1999 was
$165,000. Mr. Carr received a bonus of $50,000 in July 2000.

(4) Reimbursement for relocation expenses.

The following table provides information with respect to individual grants
of stock options for shares of our common stock to the named executive officers
during fiscal year 1999.

OPTION GRANTS IN LAST FISCAL YEAR

INDIVIDUAL GRANTS

<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------------ POTENTIAL REALIZABLE VALUE
NUMBER OF PERCENT OF AT ASSUMED ANNUAL RATES
SECURITIES TOTAL OPTIONS EXERCISE OF STOCK PRICE APPRECIATION
UNDERLYING GRANTED TO OR BASE FOR OPTION TERM
OPTIONS EMPLOYEES IN PRICE EXPIRATION ---------------------------
NAME GRANTED (#) FISCAL YEAR ($/SH) DATE 5% ($) 10% ($)
---- ----------- ---------------- -------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Horst G. Sandfort....... 35,000 2.46% 1.90 1/21/09 $ 41,800 $106,000
2,495 0.18 1.90 1/26/09 3,000 7,600
40,000 2.81 1.90 4/12/09 47,800 121,000
36,000 2.53 1.90 7/15/09 43,000 109,000
45,500 3.20 1.90 10/14/09 54,400 137,800
Bryan R. Carr........... 300,000 21.07 1.90 5/19/09 358,500 908,400
William E. Earnshaw..... 100,000 7.02 1.90 1/21/09 119,500 302,800
D. Eric Buffkin......... 80,000 5.62 1.90 1/21/09 95,600 242,200
Lawrence W. Yonge,
III................... 50,000 3.51 1.90 1/21/09 59,700 151,400
</TABLE>

38
<PAGE> 43

FISCAL YEAR-END OPTION VALUES

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR

The following table provides information with respect to the named
executive officers concerning the exercise of options during the fiscal year
1999 and the number of shares of "vested" and "unvested" stock options. The
value of "in-the-money" stock options is based on an offering price of $ per
share and net of the option exercise price.

<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
SHARES FISCAL YEAR END FISCAL YEAR END
ACQUIRED ON VALUE ---------------------- ---------------------
NAME EXERCISE (#) REALIZED ($) VESTED UNVESTED VESTED UNVESTED
---- --------------- ------------ --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Horst G. Sandfort......... -- $ -- 668,795 600,000 $ $
Bryan R. Carr............. -- -- -- 300,000
William E. Earnshaw....... -- -- 118,000 132,000
D. Eric Buffkin........... -- -- 113,000 115,000
Lawrence W. Yonge, III.... -- -- 47,000 138,000
</TABLE>

INTELLON CORPORATION 1991 EMPLOYEE INCENTIVE PLAN

The Intellon amended and restated employee incentive plan was adopted by
shareholders on October 4, 1991. The purpose of the 1991 plan is to attract and
retain officers, key employees and consultants, motivate and reward good
performance, and to encourage these individuals to continue to exert their best
efforts on our behalf. The 1991 plan is administered by the Compensation
Committee. The Compensation Committee may issue both incentive stock options and
nonstatutory stock options under the 1991 plan. Unless otherwise indicated,
options will be incentive stock options. Options have a maximum term of 10 years
and are not transferrable, except by the laws of descent and distribution.
Options vest according to a schedule set by the Compensation Committee,
generally over a period of five years. Options vest immediately upon a "change
in control" (as defined in the plan), in some situations upon death of the
optionee, and in the event of an initial public offering. In the case of
incentive stock options, all options granted must be granted within 10 years of
the date of adoption of the plan. The Compensation Committee shall determine
which employees are eligible to receive incentive stock options. No employee who
possesses more than 10% of the combined voting power of the stock may
participate unless his options have a term of five years or less, and the
exercise price for his options is 110% of fair market value of the shares on the
date of grant. 8,500,000 shares of common stock are authorized for issuance
under the 1991 plan, of which 6,195,545 have been granted and 2,304,455 shares
are available for option grants as of July 31, 2000.

INTELLON CORPORATION 1997 DIRECTOR STOCK OPTION PLAN

The Intellon Corporation director stock option plan was adopted by
shareholders on September 19, 1997. The purpose of the 1997 plan is to maintain
our ability to attract and retain the services of experienced and highly
qualified non-employee directors and to enhance shareholder value by more
closely aligning the interests of non-employee directors with those of
shareholders. Only directors may participate. The 1997 plan is administered by
the Compensation Committee. The exercise price of options shall be determined by
the Compensation Committee. Options have a maximum term of 10 years and are not
transferrable, except by the laws of descent and distribution, or waiver by
Intellon. Options vest according to a schedule set by the Compensation
Committee, generally over a period of five years. Options vest immediately upon
a "change in control" (as defined in the plan), in some situations upon death of
the optionee, and in the event of an initial public offering. 750,000 shares of
common stock are authorized for issuance under the 1997 plan, of which 445,000
have been granted and 305,000 shares are available for option grants as of July
31, 2000.

39
<PAGE> 44

DIRECTOR COMPENSATION

We reimburse directors for out-of-pocket and travel expenses incurred while
attending board of director and committee meetings. Mr. Gill is paid $500 per
meeting that he attends in person or by conference call.

EMPLOYMENT AGREEMENTS

Dr. Vander Mey's employment agreement provides for a base salary of
$100,000. Upon any termination of employment, Dr. Vander Mey has agreed not to
compete with us or solicit our clients or employees for a period of one year. In
addition, Dr. Vander Mey executed customary confidentiality and nondisclosure
agreements subsequent to his employment.

Mr. Sandfort's employment agreement provides for a base salary of $240,000
per year. Pursuant to his compensation agreement, Mr. Sandfort received an
option to purchase 1,000,000 shares of common stock and $100,000 as a signing
bonus. Until February 28, 2002, Mr. Sandfort participates in an annual incentive
compensation program that provides a target level of potential incentive
compensation of at least $160,000 per year, payable in quarterly installments.
As part of his employment agreement, Mr. Sandfort executed confidentiality and
nondisclosure agreements.

Mr. Carr's employment agreement provides for a base salary of $165,000 per
year. Pursuant to his employment agreement, Mr. Carr received an option to
purchase 300,000 shares of common stock. Upon completion of this initial public
offering, Mr. Carr shall receive a cash bonus of not less than 100% of his
annual wages. Mr. Carr is eligible for an annual bonus of $30,000 or more per
year in quarterly installments based on goals mutually agreed upon by Mr. Carr
and the board of directors. Irrespective of his performance goals, Mr. Carr
shall be paid not less than $10,000 per year incentive compensation paid in
quarterly installments of $2,500. In addition, Mr. Carr executed confidentiality
and non-disclosure agreements.

40
<PAGE> 45

PRINCIPAL SHAREHOLDERS

The following table contains information as of August 31, 2000 about the
beneficial common stock ownership of our (a) directors and executive officers,
(b) directors and executive officers as a group, and (c) 5% beneficial owners.

<TABLE>
<CAPTION>
PERCENTAGE OF SHARES OF
COMMON STOCK
NUMBER OF SHARES OF BENEFICIALLY OWNED
COMMON STOCK -------------------------
BENEFICIALLY BEFORE THE AFTER THE
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED(1) OFFERING OFFERING(1)
------------------------------------ ------------------- ---------- -----------
<S> <C> <C> <C>
James E. Vander Mey(2)(3)........................... 6,030,021 21.1%
Robert C. Ketterson, Jr.(2)(4)...................... 4,380,763 15.5
Fidelity Investors III Limited Partnership(5)....... 3,953,687 14.0
82 Devonshire St.
Boston, Massachusetts 02109-3605
Technology Leaders II(6)............................ 1,992,402 7.1
430 Devon Park Drive, Suite 800
Wayne, Pennsylvania 19087
Motorola, Inc.(7)................................... 1,875,000 6.6
101 Tournament Drive
Horsham, Pennsylvania 19044
Horst G. Sandfort(2)(8)............................. 1,732,795 5.8
Conexant Systems Inc................................ 1,500,000 5.3
4311 Jamboree Road
Newport Beach, California 92660
S3 Incorporated..................................... 1,500,000 5.3
2841 Mission College Blvd.
Santa Clara, California 95054
Compaq Computer Corporation......................... 1,394,778 5.0
20555 State Highway 249
Houston, Texas 77269-2000
Electris Finance S.A................................ 1,344,087 4.8
1251 Avenue of the Americas
New York, NY 10020
Bryan R. Carr(2)(9)................................. 705,000 2.4
William E. Earnshaw(2)(9)........................... 590,000 2.1
Charles E. Harris(2)(10)............................ 432,170 1.5
Lawrence W. Yonge III(2)(9)......................... 300,000 1.1
D. Eric Buffkin(2)(11).............................. 280,000 1.0
Robert M. Ciaraldi(2)(9)............................ 150,000 *
Caroline T. Davis(2)(9)............................. 150,000 *
Walter J. Gill (2)(9)............................... 110,000 *
Michael E. Barker(2)(9)............................. 100,000 *
Directors and executive officers as a group (12
persons)(12)...................................... 14,960,749 45.4%
</TABLE>

---------------
* Less than 1%.

41
<PAGE> 46

(1) Except as indicated, persons named in the table have sole voting and
investment power with respect to all shares of common stock owned by them,
subject to community property laws where applicable.

(2) C/o Intellon Corporation, 5100 West Silver Springs Boulevard, Ocala,
Florida 34482.

(3) Includes 225,000 shares issuable on exercise of outstanding options
exercisable within 60 days.

(4) Includes 427,076 shares owned by FTT II Principals LLC of which Mr.
Ketterson is a member. Mr. Ketterson disclaims beneficial ownership of such
shares except to the extent of his proportionate interest. Includes
3,953,687 shares owned by Fidelity Investors III Limited Partnership, of
which Mr. Ketterson is a limited partner. Mr. Ketterson disclaims
beneficial ownership of such shares, except to the extent of his
proportionate interest.

(5) Includes 110,000 shares issuable on exercise of outstanding options
exercisable within 60 days.

(6) Includes 1,110,364 shares owned by Technology Leaders II, L.P. and 882,038
shares owned by TL Ventures Fourth Corp.

(7) Includes 500,000 shares issuable on exercise of outstanding warrants
exercisable within 60 days.

(8) Includes 1,732,795 shares issuable on exercise of outstanding options
exercisable within 60 days, all of which have been pledged to a third
party. Mr. Sandfort has agreed to sell a number of the shares underlying
these options which is necessary to satisfy the obligations secured by the
pledge. He agreed to sell these shares as soon as possible after this
offering, subject to the expiration of his lock-up agreement with the
underwriters and compliance with Rule 144.

(9) All shares issuable on exercise of outstanding options exercisable within
60 days.

(10) Includes 55,000 shares issuable on exercise of outstanding options
exercisable within 60 days. Also includes 69,422 shares owned by Synagen
Capital Partners, Inc., of which Mr. Harris is the President.

(11) Includes 275,000 shares issuable on exercise of outstanding options
exercisable within 60 days.

(12) Includes 4,857,795 shares issuable on exercise of outstanding options
exercisable within 60 days.

42
<PAGE> 47

DESCRIPTION OF CAPITAL STOCK

The following is a description of the material terms of our capital stock
and charter documents. While complete in material respects, these descriptions
are nonetheless summaries and are qualified in each instance by reference to the
full text of documents filed as exhibits to our registration statement.

Our restated articles of incorporation authorize 135,000,000 shares of
capital stock, consisting of 100,000,000 shares of common stock, $0.01 par
value, and 35,000,000 shares of preferred stock, $0.01 par value.

COMMON STOCK

We have 100,000,000 shares of common stock authorized, of which 5,065,577
shares are issued and outstanding as of July 31, 2000. As of July 31, 2000 we
had 72 shareholders of record. Holders of common stock are entitled to one vote
per share on all matters submitted to a vote of shareholders. There are no
cumulative voting or preemptive rights. Holders of common stock are entitled to
receive their share of any dividends declared by the board of directors. In the
event of liquidation, dissolution or winding up, holders of common stock are
entitled to their share of remaining assets following payment to creditors and
the holders of preferred stock. All the outstanding shares of common stock are
fully paid, validly issued and non-assessable. Upon the closing of the offering,
there will be 23,007,626 additional shares of common stock issued and
outstanding due to the conversion of all outstanding preferred shares.

PREFERRED STOCK

We have 35,000,000 shares of authorized preferred stock, of which we
previously issued 7,555,000 shares of Series A convertible preferred, 10,914,599
shares of Series B convertible preferred and 4,538,027 shares of Series C
convertible preferred. So long as any shares of Series A, Series B or Series C
convertible preferred stock are outstanding, we may not take specified corporate
actions without the prior approval of at least five of our directors. Upon the
closing of this offering, all outstanding shares of our preferred stock will be
converted into an aggregate of 23,007,626 shares of common stock. See Note 7 of
the notes to financial statements. Upon shareholder approval prior to closing of
this offering of an amendment to our restated articles of incorporation, the
board of directors will be authorized to issue "blank check" preferred stock in
one or more series and to fix the rights, preferences and privileges of those
shares without further action by shareholders. Any shares of preferred stock
issued may have priority over common stock with respect to dividend, liquidation
or other rights. We currently have no plans to issue any additional preferred
stock.

WARRANTS

We have outstanding warrants to purchase 822,147 shares of our common
stock, at exercise prices ranging from $1.86 to $5.00 per share and expiring on
various dates.

REGISTRATION RIGHTS

In connection with our private preferred stock financings to accredited
investors, we granted registration rights covering 23,007,626 shares of common
stock issuable upon conversion of our Series A, Series B and Series C
convertible preferred stock and warrants. From January 1, 1998 until five years
after the effective date of this prospectus, holders of the common stock
underlying Series A and Series B preferred stock and warrants issued to Fidelity
Ventures Limited, generally have an unlimited number of "demand" registration
rights, subject to customary initial threshold and other limitations, cut-backs,
blackout periods, lock-ups and exclusions. If the value of the underlying common
stock would be less than $5.0 million, the number of the underlying shares is
less than 20% of the outstanding shares owned by the holders of the underlying
shares or the request for registration is made within six months of this
offering, these registration rights are not applicable. These holders generally
have an unlimited number of "piggyback" registration rights, also subject to
customary limitations. Holders of common stock underlying

43
<PAGE> 48

Series C preferred stock are entitled to the same registration rights described
above at any time from January 1, 2002 until five years after the effective date
of this prospectus.

ANTITAKEOVER PROVISIONS IN OUR CHARTER DOCUMENTS

Provisions of our charter documents, adopted prior to closing, are intended
to discourage coercive takeover practices and inadequate takeover bids. These
provisions are also designed to encourage persons seeking to acquire control of
us to first negotiate with our board of directors. These provisions could make
it difficult for a third party to acquire us, even if doing so would be
beneficial to our shareholders.

- No cumulative voting. Our restated articles of incorporation and bylaws
do not provide for cumulative voting in the election of directors. This
means that a shareholder or group of shareholders owning a majority of
shares can elect all of our directors.

- Classified board of directors. Our board of directors will be divided
into three classes of directors, each serving a three year term.
One-third of the board of directors will be elected each year. Directors
serve until the end of their respective term or until successors are
elected or qualified. This provision, when coupled with the provision of
our restated articles of incorporation requiring vacancies to be filled
by the board of directors, may deter a shareholder from removing
incumbent directors and simultaneously gaining control of the board of
directors by filling resulting vacancies with its own nominees.

- Director candidates can only be nominated by the board of
directors. Other than for nominations made by the board of directors,
nominations for election to the board of directors at an annual meeting
can be made by shareholders only if submitted by a shareholder six months
prior to the anniversary date of the prior year's annual meeting date and
accompanied by detailed information about the candidate.

- Special meetings of shareholders. Unless otherwise required by Florida
law, special meetings of shareholders may be called only by the board of
directors or holders of at least 50% of the outstanding shares.

- Amendment of charter or bylaw provisions. Amendment of any of the above
provisions of the restated articles of incorporation or bylaws requires
approval of two-thirds of the board of directors.

FLORIDA ANTITAKEOVER LAW

Florida has enacted legislation that may deter or frustrate a takeover of a
Florida corporation. The Florida Control Share Act generally provides that
shares acquired in excess of specified thresholds will not possess any voting
rights unless such voting rights are approved by a majority of the corporation's
disinterested shareholders. The Florida Affiliated Transactions Act generally
requires approval by a majority of disinterested directors or two-thirds of
shareholders in certain specified transactions between a corporation and holders
of more than 10% of the outstanding voting shares of the corporation (or their
affiliates). Florida law also permits the board of directors evaluating a tender
offer or other business combination to consider all relevant factors including,
without limitation, social, legal, economic or other effects on employees,
customers, suppliers, and other constituencies, possible impact on the local
community, and impact on the Florida and national economies.

TRANSFER AGENT

The transfer agent for the common stock is American Stock Transfer & Trust,
New York, New York.

44
<PAGE> 49

SHARES ELIGIBLE FOR FUTURE SALE

After the offering, there will be 35,073,203 shares of common stock
outstanding (assuming no exercise of outstanding warrants or stock options). Of
these, 7,000,000 shares will be freely tradable without restriction unless they
are held by "affiliates" as defined in Rule 144. 28,073,203 shares will be
"restricted securities" as defined in Rule 144. Restricted securities are not
eligible for future resale into the public market (which may impact trading
price) until the securities are registered for resale with the SEC or the seller
qualifies for an exemption from registration and complies with SEC rules such as
Rule 144 and Rule 701.

Under Rule 144, which will apply to resales of our common stock commencing
90 days after the effective date of this prospectus, a person who owns
restricted securities for one year may resell within any three-month period the
greater of (i) 1% of the total outstanding shares of the common stock, or (ii)
the average weekly trading volume of that class of security during the four
calendar weeks preceding sale. Sales under Rule 144 (other than sales under Rule
144(k) by non-affiliates) are also subject to requirements as to manner of sale,
notice and availability of current public information. Under Rule 144(k),
persons who have held their securities for two years and who have not been
affiliates for three months immediately prior to sale are not subject to the
holding period, volume and other limitations of Rule 144.

Employees, officers, directors and consultants who received securities in
an exempt offering under Rule 701 may resell their securities pursuant to Rule
144 beginning 90 days after the date of this prospectus, to the extent described
in Rule 701, if they have an available exemption and are not subject to lock-up
agreements described below. In this regard, nonaffiliates may resell their Rule
701 shares without regard to the holding period, volume, notice and other
limitations of Rule 144. Affiliates may resell their Rule 701 shares without
regard to the one year holding period requirement but subject to the public
information, volume and notice requirements of Rule 144.

% of the restricted securities are subject to lock-up agreements with
Merrill Lynch. These lock-up agreements restrict resale of the restricted
securities for 180 days after the date of this prospectus. Therefore, unless
Merrill Lynch waives the lock-up agreement, no resales of securities subject to
the lock-up can be made for 180 days after the date of this prospectus. Merrill
Lynch has advised us that it has no specific policy regarding early release of
lock-ups and that it has no plans to shorten or waive the lock-up arrangements.
Without these lock-up agreements, on the date of this prospectus 11,257,926
shares could be resold under Rule 144(k). In addition, without these lock-up
agreements, 90 days after the date of this prospectus 5,536,571 additional
shares could be resold generally under Rule 144, and 104,000 additional shares
could be resold by nonaffiliates under Rule 701. Please see footnote number 8 to
the table contained under "Principal Shareholders."

We intend to file a registration statement on Form S-8 with the SEC to
register the issuance of common stock reserved under our different option plans.
The Form S-8 will also register the resale of shares issued to non-affiliates
under these plans in the public market without restriction under the federal
securities laws.

45
<PAGE> 50

UNDERWRITING

Merrill Lynch, Pierce, Fenner & Smith Incorporated, Bear, Stearns & Co.
Inc. and Wit SoundView Corporation are acting as representatives of the
underwriters named below. Subject to the terms and conditions described in a
purchase agreement among us and the underwriters, we have agreed to sell to the
underwriters, and the underwriters severally have agreed to purchase from us,
the number of shares listed opposite their names below.

<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
----------- ---------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith Incorporated..........
Bear, Stearns & Co. Inc. ...................................
Wit SoundView Corporation...................................
[name of underwriter].......................................
----------
Total..........................................
==========
</TABLE>

The underwriters have agreed to purchase all of the shares sold under the
purchase agreement if any of these shares are purchased. If an underwriter
defaults, the purchase agreement provides that the purchase commitments of the
nondefaulting underwriters may be increased or the purchase agreements may be
terminated.

We have agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act, or to contribute to payments the
underwriters may be required to make in respect of those liabilities.

The underwriters are offering the shares, subject to prior sale, when, as
and if issued to and accepted by them, subject to approval of legal matters by
their counsel, including the validity of the shares, and other conditions
contained in the purchase agreements such as the receipt by the underwriters of
officer's certificates and legal opinions. The underwriters reserve the right to
withdraw, cancel or modify offers to the public and to reject orders in whole or
in part.

COMMISSIONS AND DISCOUNTS

The representatives have advised us that the underwriters propose initially
to offer the shares to the public at the initial public offering price on the
cover page of this prospectus and to dealers at that price less a concession not
in excess of $ per share. The underwriters may allow, and the dealers may
reallow, a discount not in excess of $ per share to other dealers. After the
initial public offering, the public offering price, concession and discount may
be changed.

The following table shows the public offering price, underwriting discount
and proceeds before expenses to Intellon. The information assumes either no
exercise or full exercise by the underwriters of their over-allotment options.

<TABLE>
<CAPTION>
PER SHARE WITHOUT OPTION WITH OPTION
--------- -------------- -----------
<S> <C> <C> <C>
Public offering price.......................... $ $ $
Underwriting discount.......................... $ $ $
Proceeds, before expenses, to Intellon......... $ $ $
</TABLE>

The expenses of the offering, not including the underwriting discount, are
estimated at $ and are payable by us.

OVER-ALLOTMENT OPTION

We have granted an option to the underwriters to purchase up to
additional shares at the public offering price less the underwriting
discount. The underwriters may exercise the option for 30 days

46
<PAGE> 51

from the date of this prospectus solely to cover any over-allotments. If the
underwriters exercise the option, each will be obligated, subject to conditions
contained in the purchase agreements, to purchase a number of additional shares
proportionate to that underwriter's initial amount reflected in the above table.

RESERVED SHARES

At our request, the underwriters have reserved for sale, at the initial
public offering price, up to of the shares offered by this
prospectus for sale to some of our directors, officers, employees, business
associates and related persons. If these persons purchase reserved shares, this
will reduce the number of shares available for sale to the general public. Any
reserved shares that are not orally confirmed for purchase within one day of the
pricing of this offering will be offered by the underwriters to the general
public on the same terms as the other shares offered by this prospectus.

NO SALES OF SIMILAR SECURITIES

We, our executive officers and directors, strategic and financial investors
and other significant shareholders have agreed, with exceptions, not to sell or
transfer any common stock for 180 days after the date of this prospectus without
first obtaining the written consent of Merrill Lynch. Specifically, we and these
other individuals have agreed not to directly or indirectly

- offer, pledge, sell or contract to sell any common stock,

- sell any option or contract to purchase any common stock,

- purchase any option or contract to sell any common stock,

- grant any option, right or warrant for the sale of any common stock,

- lend or otherwise dispose of or transfer any common stock,

- request or demand that we file a registration statement related to the
common stock, or

- enter into any swap or other agreement that transfers, in whole or in
part, the economic consequence of ownership of any common stock whether
any such swap or transaction is to be settled by delivery of shares or
other securities, in cash or otherwise.

This lockup provision applies to common stock and to securities convertible
into or exchangeable or exercisable for or repayable with common stock. It also
applies to common stock owned now or acquired later by the person executing the
agreement or for which the person executing the agreement later acquires the
power of disposition.

QUOTATION ON THE NASDAQ NATIONAL MARKET

We have applied for the quotation of the shares on the Nasdaq National
Market, subject to notice of issuance, under the symbol "ILON."

Before this offering, there has been no public market for our common stock.
The initial public offering price will be determined through negotiations among
us and the representatives. In addition to prevailing market conditions, the
factors to be considered in determining the initial public offering price are

- the valuation multiples of publicly traded companies that the
representatives believe to be comparable to us,

- our financial information,

- the history of, and the prospects for, our company and the industry in
which we compete,

- an assessment of our management, its past and present operations, and the
prospects for, and timing of, our future revenue,

47
<PAGE> 52

- the present state of our development,

- the prospects for our future revenue and earnings, and

- the above factors in relation to market values and various valuation
measures of other companies engaged in activities similar to ours.

An active trading market for the shares may not develop. It is also
possible that after the offering the shares will not trade in the public market
at or above the initial public offering price.

The underwriters do not expect to sell more than 5% of the shares in the
aggregate to accounts over which they exercise discretionary authority.

PRICE STABILIZATION, SHORT POSITIONS AND PENALTY BIDS

Until the distribution of the shares is completed, SEC rules may limit
underwriters and selling group members from bidding for and purchasing our
common stock. However, the representatives may engage in transactions that
stabilize the price of the common stock such as bids or purchases to peg, fix or
maintain that price.

If the underwriters create a short position in the common stock in
connection with the offering, i.e., if they sell more shares than are listed on
the cover of this prospectus, the representatives may reduce that short position
by purchasing shares in the open market. The representatives may also elect to
reduce any short position by exercising all or part of the over-allotment option
described above. Purchases of the common stock to stabilize its price or to
reduce a short position may cause the price of the common stock to be higher
than it might be in the absence of such purchases.

The representatives may also impose a penalty bid on underwriters and
selling group members. This means that if the representatives purchase shares in
the open market to reduce the underwriter's short position or to stabilize the
price of such shares, they may reclaim the amount of the selling concession from
the underwriters and selling group member who sold those shares. The imposition
of a penalty bid may also affect the price of the shares in that it discourages
resales of those shares.

A prospectus in electronic format is being made available on an Internet
website maintained by Wit SoundView's affiliate, Wit Capital Corporation. In
addition, other dealers purchasing shares from Wit SoundView in this offering
have agreed to make a prospectus in electronic format available on websites
maintained by each of these dealers.

48
<PAGE> 53

LEGAL MATTERS

Nixon Peabody LLP, New York, New York, passed on certain legal matters for
Intellon. Smith, Mackinnon, Greeley, Bowdoin, Edwards, Brownlee & Marks, P.A.,
Orlando, Florida, passed on the legality of the shares being registered and
certain matters of Florida law. A member of that firm beneficially owns 20,000
shares of common stock. Fish & Richardson, P.C., Boston, Massachusetts, passed
on certain patent matters for Intellon. Shearman & Sterling, New York, New York,
passed on certain legal matters for the underwriters.

EXPERTS

Ernst & Young LLP, independent certified public accountants, have audited
our financial statements and the schedule as of December 31, 1999 and 1998 and
for each of the three years in the period ended December 31, 1999, as set forth
in their report. We have included our financial statements and the schedule in
the prospectus and elsewhere in the registration statement in reliance on Ernst
& Young LLP's report, given on their authority as experts in accounting and
auditing.

WHERE YOU CAN FIND MORE INFORMATION

Intellon filed a registration statement on Form S-1 with the SEC covering
sale of common stock in this offering, of which this prospectus is a part. This
prospectus does not contain all of the information in the registration
statement, portions of which are omitted as permitted by SEC rules. Statements
in this prospectus about documents filed as exhibits, while complete in material
respects, are nonetheless summaries. In each case, summary descriptions are
qualified by reference to complete exhibits. Reference is made to each exhibit
for a full description. You may read or copy any document filed by us at the
SEC's Public Reference Room located at 450 5th Street, NW, Washington, D.C.
20549. You may obtain information about the Public Reference Room by calling the
SEC for further information at 1-800-SEC-0330. Filings are also available at the
SEC's web site at www.sec.gov.

49
<PAGE> 54

INTELLON CORPORATION

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<S> <C>
Report of Independent Certified Public Accountants.......... F-2
Balance Sheets.............................................. F-3
Statements of Operations.................................... F-4
Statements of Shareholders' Deficit......................... F-5
Statements of Cash Flows.................................... F-6
Notes to Financial Statements............................... F-7
</TABLE>

F-1
<PAGE> 55

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

Board of Directors
Intellon Corporation

We have audited the accompanying balance sheets of Intellon Corporation as
of December 31, 1999 and 1998, and the related statements of operations,
shareholders' deficit, and cash flows for each of the three years in the period
ended December 31, 1999. Our audits also included the financial statement
schedule listed at Item 16. These financial statements and financial statement
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and financial statement
schedule based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States. 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 financial statements referred to above present fairly,
in all material respects, the financial position of Intellon Corporation, at
December 31, 1999 and 1998, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1999, in conformity
with accounting principles generally accepted in the United States. Also, in our
opinion, the related financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.

/s/ Ernst & Young LLP

Jacksonville, Florida
February 10, 2000

F-2
<PAGE> 56

INTELLON CORPORATION

BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- JUNE 30,
1998 1999 2000
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................... $ 3,016 $ 5,219 $ 6,074
Accounts receivable, net of allowance of $107, $119, and
$80, respectively.................................... 274 69 21
Inventories............................................. 300 577 564
Prepaid expenses........................................ 147 212 173
-------- -------- --------
Total current assets...................................... 3,737 6,077 6,832
Property and equipment, net............................... 1,073 1,259 1,520
Intangibles, net of amortization of $51, $66, and $73,
respectively............................................ 238 310 303
-------- -------- --------
Total assets.............................................. $ 5,048 $ 7,646 $ 8,655
======== ======== ========
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Accounts payable........................................ $ 208 $ 308 $ 1,093
Accrued expenses........................................ 211 355 181
Deferred revenue........................................ 500 30 --
Obligations under capital lease......................... 103 41 95
-------- -------- --------
Total current liabilities................................. 1,022 734 1,369
Redeemable convertible preferred stock:
Series A, $.01 par value, shares authorized 15,000,000;
outstanding 7,555,000 in 1998, 1999, and 2000........ 11,045 11,857 12,264
Series B, $.01 par value, shares authorized 15,000,000;
outstanding 10,914,599 in 1998, 1999, and 2000....... 25,719 27,981 29,112
Series C, $.01 par value, shares authorized 5,000,000;
outstanding 1,691,601 in 1999 and 2,463,027 in
2000................................................. -- 5,912 8,963
-------- -------- --------
Total redeemable convertible preferred stock.............. 36,764 45,750 50,339
Shareholders' deficit:
Common stock, $.01 par value -- shares authorized
40,000,000; outstanding 4,669,577 in 1998, 4,684,327
in 1999, and 5,065,577 in 2000....................... 47 47 51
Accumulated deficit..................................... (32,785) (38,885) (43,104)
-------- -------- --------
Total shareholders' deficit............................... (32,738) (38,838) (43,053)
-------- -------- --------
Total liabilities and shareholders' deficit............... $ 5,048 $ 7,646 $ 8,655
======== ======== ========
</TABLE>

See Notes to Financial Statements
F-3
<PAGE> 57

INTELLON CORPORATION

STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------- ------------------
1997 1998 1999 1999 2000
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue.................................. $ 1,553 $ 4,815 $ 6,727 $ 4,028 $ 3,118
Cost of revenue.......................... 687 1,610 374 247 130
------- ------- ------- ------- -------
Gross profit............................. 866 3,205 6,353 3,781 2,988
Cost of operations:
Research and development............... 3,039 2,767 4,915 2,191 3,331
Selling, general and administrative.... 3,753 4,093 4,612 2,011 3,088
------- ------- ------- ------- -------
Operating loss........................... (5,926) (3,655) (3,174) (421) (3,431)
Other income (expense):
Interest income, net................... 432 186 134 48 157
Other.................................. 2 16 11 11 (1)
------- ------- ------- ------- -------
434 202 145 59 156
------- ------- ------- ------- -------
Net loss................................. (5,492) (3,453) (3,029) (362) (3,275)
Accretion of redeemable convertible
preferred stock to redemption value.... (3,075) (3,075) (3,092) (1,537) (1,890)
------- ------- ------- ------- -------
Net loss attributable to common
shareholders........................... $(8,567) $(6,528) $(6,121) $(1,899) $(5,165)
======= ======= ======= ======= =======
Basic and diluted net loss per common
share.................................. $ (1.85) $ (1.41) $ (1.31) $ (0.41) $ (1.08)
======= ======= ======= ======= =======
Basic and diluted weighted average common
shares outstanding..................... 4,625 4,633 4,682 4,679 4,782
======= ======= ======= ======= =======
Pro forma basic and diluted net loss per
common share........................... $ (0.26) $ (0.21)
======= =======
Pro forma basic and diluted weighted
average common shares outstanding...... 23,193 25,181
======= =======
</TABLE>

See Notes to Financial Statements
F-4
<PAGE> 58

INTELLON CORPORATION

STATEMENTS OF SHAREHOLDERS' DEFICIT
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
COMMON STOCK
------------------- ADDITIONAL ACCUMULATED
SHARES AMOUNT PAID-IN CAPITAL DEFICIT
--------- ------ --------------- -----------
<S> <C> <C> <C> <C>
Balance, December 31, 1996................... 4,612,577 $46 $ -- $(17,762)
Exercise of stock options.................... 16,000 -- 16 --
Accretion of preferred stock................. -- -- (16) (3,059)
Net loss..................................... -- -- -- (5,492)
--------- --- ----- --------
Balance, December 31, 1997................... 4,628,577 46 -- (26,313)
Exercise of stock options.................... 41,000 1 56 --
Accretion of preferred stock................. -- -- (56) (3,019)
Net loss..................................... -- -- -- (3,453)
--------- --- ----- --------
Balance, December 31, 1998................... 4,669,577 47 -- (32,785)
Exercise of stock options.................... 14,750 -- 21 --
Accretion of preferred stock................. -- -- (21) (3,071)
Net loss..................................... -- -- -- (3,029)
--------- --- ----- --------
Balance, December 31, 1999................... 4,684,327 47 -- (38,885)
Exercise of stock options (unaudited)........ 6,250 -- 12 --
Exercise of stock warrants (unaudited)....... 375,000 4 934 --
Accretion of preferred stock (unaudited)..... -- -- (946) (944)
Net loss (unaudited)......................... -- -- -- (3,275)
--------- --- ----- --------
Balance, June 30, 2000 (unaudited)........... 5,065,577 $51 $ -- $(43,104)
========= === ===== ========
</TABLE>

See Notes to Financial Statements
F-5
<PAGE> 59

INTELLON CORPORATION

STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------- ----------------
1997 1998 1999 1999 2000
------- ------- ------- ------ -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss.......................................... $(5,492) $(3,453) $(3,029) $ (362) $(3,275)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation.................................... 633 953 739 371 414
Amortization of intangibles..................... 10 13 15 7 7
Net accretion of discount and amortization of
premium...................................... (185) (12) -- -- --
Loss on disposal of equipment................... 3 2 -- -- --
Cash provided by (used in):
Accounts receivable.......................... 185 32 205 246 48
Inventories.................................. (303) 279 (277) (143) 13
Prepaid expenses............................. (13) (44) (65) 71 39
Accounts payable............................. (180) (23) 100 179 785
Accrued expenses............................. 36 (36) 144 (23) (174)
Deferred revenues............................ -- 500 (470) (470) (30)
------- ------- ------- ------ -------
Net cash used in operating activities............. (5,306) (1,789) (2,638) (124) (2,173)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Investments........................... (6,957) -- -- -- --
Maturity of investments........................... 11,270 1,025 -- -- --
Purchase of property and equipment................ (259) (571) (802) (218) (565)
Increase in intangibles........................... (30) (23) (87) -- --
------- ------- ------- ------ -------
Net cash provided by (used in) investing
activities...................................... 4,024 431 (889) (218) (565)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock............ 16 56 21 21 949
Proceeds from issuance of preferred stock......... -- -- 5,893 -- 2,700
Payments on capital lease obligation.............. -- (52) (184) (93) (56)
------- ------- ------- ------ -------
Net cash provided by (used in) financing
activities...................................... 16 4 5,730 (72) 3,593
------- ------- ------- ------ -------
Net increase (decrease) in cash and cash
equivalents..................................... (1,266) (1,354) 2,203 (414) 855
Cash and cash equivalents, beginning of period.... 5,636 4,370 3,016 3,016 5,219
------- ------- ------- ------ -------
Cash and cash equivalents, end of period.......... $ 4,370 $ 3,016 $ 5,219 $2,602 $ 6,074
======= ======= ======= ====== =======
</TABLE>

See Notes to Financial Statements
F-6
<PAGE> 60

INTELLON CORPORATION

NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
AND FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 2000

1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

DESCRIPTION OF COMPANY

Intellon Corporation (the "Company"), located in Ocala, Florida, is a
fabless semiconductor manufacturer of low-cost, high-performance digital,
analog, mixed-signal and wireless communications systems on silicon for network
connectivity with No New Wires(TM). Intellon's intellectual property, products,
technologies and services are key to a variety of open industry communication
standards and fast growing networking markets by creating low-cost, intelligent
connectivity.

UNAUDITED INTERIM RESULTS

The accompanying interim financial statements as of June 30, 2000 and for
the six months ended June 30, 1999 and 2000 are unaudited. The unaudited interim
financial statements have been prepared on the same basis as the annual
financial statements and, in the opinion of management, reflect all adjustments,
all of which are of a normal recurring nature, necessary for a fair presentation
of the Company's financial position, results of operations and cash flows for
the six months ended June 30, 1999 and 2000. The financial data and other
information disclosed in these notes to financial statements relating to these
periods are unaudited. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been omitted with respect to the six month periods.
The results for the six month period ended June 30, 2000 are not necessarily
indicative of the results to be expected for the year ending December 31, 2000.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.

REVENUE RECOGNITION

The Company recognizes revenue from product sales at the time the product
is shipped, net of estimated product returns. Revenue from contracts involving
development (non-recurring engineering) services are recorded using the
completed contract or the percentage-of-completion method of accounting.
Estimates are reviewed and revised periodically throughout the lives of the
contracts. License revenues are recognized when the product has been delivered,
no significant post-delivery obligations remain, the license fee is fixed or
determinable and collection of the fee is probable. Any revisions are recorded
in the accounting period in which the facts that require the revision become
known. The Company recognized $1,316,000, $1,248,000 and $756,000 in product
revenues during the years ended December 31, 1997, 1998 and 1999, respectively,
and $360,000 and $255,000 for the six months ended June 30, 1999 and 2000
(unaudited), respectively. In addition, the Company recognized $237,000,
$3,567,000 and $5,971,000 in development and licensing revenue during the years
ended December 31, 1997, 1998 and 1999, respectively, and $3,668,000 and
$2,863,000 for the six months ended June 30, 1999 and 2000 (unaudited),
respectively.

F-7
<PAGE> 61
INTELLON CORPORATION

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

CASH AND CASH EQUIVALENTS

Cash and cash equivalents include cash on hand, bank demand deposit
accounts, money market accounts and governmental securities. For purposes of the
statements of cash flows, the Company considers all highly liquid investments
with a maturity of three months or less when purchased to be cash equivalents.

CONCENTRATION OF CREDIT RISK AND SIGNIFICANT CUSTOMERS

Financial instruments which potentially subject the Company to credit risk
consist of cash equivalents, investments and accounts receivable. A majority of
the Company's accounts receivable are derived from revenues earned from a few
customers located in the United States of America (U.S.) and are denominated in
U.S. dollars. The Company extends unsecured credit to its customers based on net
30 days repayment terms. The Company monitors its exposure for credit losses and
maintains allowances for anticipated losses.

The Company's significant customers, those representing 10% or more of
revenue for the respective periods, were as follows:

<TABLE>
<CAPTION>
PERCENTAGE OF REVENUE
------------------------------------
FOR THE SIX
FOR THE YEAR ENDED MONTHS ENDED
DECEMBER 31, JUNE 30,
-------------------- ------------
1997 1998 1999 1999 2000
---- ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Customer A...................................... -- -- 33.4% -- 88.2%
Customer B...................................... -- 56.1% 49.1% 81.9% --
Customer C...................................... 21.3% -- -- -- --
Customer D...................................... 10.1% -- -- -- --
</TABLE>

At December 31, 1998, Customer E, F and G accounted for 66.4%, 15.8% and
11.1% of accounts receivable, respectively. At December 31, 1999, Customer A, H
and I accounted for 25.2%, 43.2% and 12.7% of accounts receivable, respectively.
At June 30, 2000 (unaudited), Customer J and K accounted for 83.2% and 16.0% of
accounts receivable, respectively.

The Company purchased electronic components and assembly services from two
vendors that represented 89% of total purchases during 1999 and 80% of total
purchases during the six months ended June 30, 2000 (unaudited).

FAIR VALUE OF FINANCIAL INSTRUMENTS

Financial instruments include cash and cash equivalents, accounts
receivable, accounts payable, capital lease obligations and accrued expenses.
The respective carrying value of these financial instruments approximates fair
value since they are short-term in nature or are receivable or payable on
demand. Fair value estimates discussed herein are based upon certain market
assumptions and pertinent information available to management as of period end.

INVENTORIES

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

RESEARCH AND DEVELOPMENT COSTS

The Company expenses research and development costs as incurred.

F-8
<PAGE> 62
INTELLON CORPORATION

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost. Depreciation and amortization
are computed over the estimated useful lives (three to ten years) of the assets
using primarily the straight-line method. Leasehold improvements are amortized
over the life of the respective lease. Depreciation of capital lease assets is
included in depreciation expense.

INTANGIBLES

Intangibles include patents and trademarks which are stated at cost.
Amortization is computed over the estimated useful lives of the assets on a
straight-line basis. The estimated useful lives of the assets range from 10 to
17 years.

The Company evaluates the recoverability and remaining life of its
intangibles and determines whether the intangibles should be completely or
partially written off or the amortization period accelerated. The Company will
recognize an impairment of intangibles if undiscounted estimated future
operating cash flows expected from the sale of patented products are determined
to be less than the carrying amount of the intangibles. If the Company
determines that the intangibles have been impaired, the measurement of the
impairment will be equal to the excess of the carrying amount of the intangibles
over the amount of the undiscounted estimated future operating cash flows. If an
impairment of intangibles were to occur, the Company would reflect the
impairment through a reduction in the carrying value of the intangibles.

INCOME TAXES

The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards (SFAS) No. 109, Accounting for Income Taxes.

STOCK OPTIONS AND WARRANTS

The Company accounts for its stock options and warrants issued to qualified
employees in accordance with provisions of Accounting Principle Board Opinion
No. 25 (APB 25), Accounting for Stock Issued to Employees and complies with the
disclosure provisions of SFAS No. 123, Accounting for Stock Based Compensation.
Accounting for the issuance of stock options and warrants to qualified employees
under the provisions of APB 25 does not result in compensation expense for the
Company when the exercise price of options and warrants granted is equal to or
exceeds the fair value of the Company's common stock on the date of award.

The Company accounts for stock options and warrants issued to non-employees
in accordance with the provisions of SFAS No. 123 and the Emerging Issues Task
Force consensus on Issue No. 96-18.

LOSS PER SHARE

The Company computes net loss per share in accordance with SFAS No. 128,
Earnings Per Share and Securities and Exchange Commission Staff Accounting
Bulletin No. 98. Basic loss per share is computed by dividing net loss available
to common shareholders by the weighted average common shares outstanding for the
period. Diluted loss per share is computed giving effect to all potentially
dilutive common shares. In periods in which a net loss has been incurred, all
potentially dilutive common shares are considered antidilutive and thus are
excluded from the calculation.

COMPREHENSIVE INCOME

Effective January 1, 1998, the Company adopted SFAS No. 130, Reporting
Comprehensive Income. SFAS No. 130 establishes new rules for the reporting and
display of comprehensive income and its

F-9
<PAGE> 63
INTELLON CORPORATION

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

components in the financial statements; however, the adoption of SFAS No. 130
had no impact on the Company's net loss or shareholders' equity. The Company had
no items of comprehensive income other than net loss for all periods presented.

SEGMENT AND GEOGRAPHIC INFORMATION

Effective January 1, 1998, The Company adopted the provisions of SFAS No.
131, Disclosure About Segments of an Enterprise and Related Information. The
Company identifies its operating segment based on business activities,
management responsibility and geographic location. During all periods presented,
the Company operated in a single business segment: the design, license and
marketing of integrated circuits.

Export sales were $619,000, $564,000 and $371,000 for the years ended
December 31, 1997, 1998 and 1999, respectively, and $252,000 and $102,000 for
the six months ended June 30, 1999 and 2000 (unaudited), respectively. Export
sales were attributable principally to customers located in Europe, Asia and
North America. Export sales to customers located in Norway were $334,000 for the
year ended December 31, 1997.

DEVELOPMENT STAGE COMPANY

In fiscal 1998 and prior, the Company was considered a "Development Stage
Company" for financial statement presentation. Fiscal 1999 represents the first
fiscal year in which the Company is no longer considered to be in the
development stage in accordance with SFAS No. 7, Accounting and Reporting by
Development Stage Enterprises.

RECENT ACCOUNTING PRONOUNCEMENTS

SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities,
as amended, is effective for financial statements for all fiscal years beginning
after June 15, 2000. SFAS No. 133 requires the recognition of all derivatives in
the balance sheet as either assets or liabilities measured at fair value. As the
Company does not currently engage in derivative or hedging activities, there
will be no impact to the Company's results of operations, financial position or
cash flows upon the adoption of this standard.

In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-5 (SOP 98-5), Reporting on the Costs of Start-Up
Activities. SOP 98-5, which is effective for fiscal years beginning after
December 15, 1999, provides guidance on the financial reporting of start-up and
organization costs. It requires costs of start-up activities and organization
costs to be expensed as incurred. As the Company has expensed these costs
historically, the adoption of this standard will not have an impact on the
Company's results of operations, financial position or cash flow.

In December 1999, the Securities and Exchange Commissions (SEC) issued
Staff Accounting Bulletin No. 101 (SAB 101), Revenue Recognition in Financial
Statements. SAB 101 summarizes the SEC's view of applying generally accepted
accounting principles to revenue recognition in financial statements. The
Company is required to adopt the provisions of SAB 101 in the fourth quarter of
fiscal 2000. Management does not believe the adoption of SAB 101 will have a
material effect on the Company's results of operations or financial position.

F-10
<PAGE> 64
INTELLON CORPORATION

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

2. INVENTORIES

Inventories are summarized as follows (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
------------ JUNE 30,
1998 1999 2000
---- ---- ------------
(UNAUDITED)
<S> <C> <C> <C>
Raw materials............................................ $ 41 $347 $200
Finished goods........................................... 693 580 714
---- ---- ----
734 927 914
Less: reserve for excess and obsolete inventory.......... 434 350 350
---- ---- ----
$300 $577 $564
==== ==== ====
</TABLE>

3. PROPERTY AND EQUIPMENT

The Company's property and equipment consists of the following (in
thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
---------------- JUNE 30,
1998 1999 2000
------ ------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Property and equipment:
Furniture and office equipment...................... $ 130 $ 124 $ 137
Research and production equipment................... 2,342 3,070 3,604
Computer equipment and software..................... 651 689 795
Leasehold improvements.............................. 82 209 231
------ ------ ------
3,205 4,092 4,767
Less: accumulated depreciation and amortization..... 2,132 2,833 3,247
------ ------ ------
Net property and equipment............................ $1,073 $1,259 $1,520
====== ====== ======
</TABLE>

4. LEASES

OPERATING LEASE

The Company rents its office, research and production facility under an
operating lease that expires on December 31, 2000, which was renewed through
December 31, 2001. The facility is owned by a non-employee shareholder of the
Company. During 1997, the Company opened a sales office in California under a
one-year lease. The Company has renewed the lease on an annual basis. Rent
expense for these leased facilities amounted to $119,711, $127,703 and $143,086
for the years ended December 31, 1997, 1998 and 1999, respectively, and $69,065
and $77,135 for the six months ended June 30, 1999 and 2000 (unaudited),
respectively.

F-11
<PAGE> 65
INTELLON CORPORATION

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

As of December 31, 1999, future minimum rental payments required under
operating leases that have initial or remaining non-cancelable terms in excess
of one year, including the leases described above, are as follows (in
thousands):

<TABLE>
<CAPTION>
OPERATING
LEASES
---------
<S> <C>
2000....................................................... $167
2001....................................................... 13
2002....................................................... 4
2003....................................................... 1
2004....................................................... 1
----
$186
====
</TABLE>

CAPITAL LEASES

The Company leases certain engineering research equipment and has the
option to purchase the equipment for a nominal cost at the termination of the
lease. The cost of equipment under capital leases included in the balance sheets
as research and production equipment was $140,000 and $122,400 at December 31,
1998 and 1999, respectively, and $148,581 at June 30, 2000 (unaudited).
Accumulated amortization of the leased equipment was approximately $15,400 and
$25,500 at December 31, 1998 and 1999, respectively, and $10,209 at June 30,
2000 (unaudited). All of the capital leases outstanding at December 31, 1999 and
June 30, 2000 (unaudited) terminate within 12 months. Capital leases payable as
of December 31, 1998 and 1999 was $102,617 and $41,178, respectively, and
$95,183 as of June 30, 2000 (unaudited).

5. STOCK OPTION PLANS

Options are granted to employees under the Intellon Corporation's Amended
and Restated Incentive Plan (Employees' Plan). The Employees' Plan provides for
the grant of options to its employees and can include i) options intended to
constitute incentive stock options (ISOs) under the Internal Revenue Code or ii)
non-qualified stock options. The exercise price of each option granted under the
Employees' Plan is determined by the Board of Directors on the date of grant.
The term of each option, with an exercise period not to exceed ten years, is
determined by the Board of Directors. All options must be granted within ten
years of the Employees' Plan inception, which was October 4, 1991, and generally
expire ten years from the date of grant. The Board of Directors may terminate
the Employees' Plan at any time at their discretion. In 1997, the Employees'
Plan was amended to increase the number of options available for grants to
5,000,000. In 1999, the Employees' Plan was amended to decrease the number of
options available for grants to 4,930,000. In 2000, the Employees' Plan was
amended to increase the number of options available for grants to 8,500,000.

Effective September 19, 1997, the Company's Board of Directors approved the
Intellon Corporation Directors' Stock Option Plan (Directors' Plan) and reserved
250,000 shares of common stock for issuance thereunder. Terms of the Directors'
Plan provide for the issuance of non-qualified options to its non-employee
directors at an exercise price determined by the Board of Directors on the date
of grant. The term of each option, with an exercise period not to exceed ten
years, is determined by the Board of Directors. Options granted under the
Directors' Plan generally expire ten years from the date of grant. In 1999, the
Directors' Plan was amended to increase the number of options available for
grants to 320,000. In 2000, the Directors' Plan was amended to increase the
number of options available for grants to 750,000.

F-12
<PAGE> 66
INTELLON CORPORATION

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

In accordance with APB 25, the Company records no compensation expense for
its qualified employee stock options. Pro forma information regarding net income
is required by SFAS No. 123 and has been determined as if the Company had
accounted for its employee stock options under the fair value method of that
Statement.

The Company calculated the minimum fair value of each option grant on the
date of grant using the Black-Scholes options pricing model as prescribed by
SFAS No. 123 using the following assumptions:

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------------------- --------------------------
1997 1998 1999 1999 2000
------------ ------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Expected lives (in years)..... 7 7 7 7 7
Risk-free interest rate
range....................... 5.74 - 6.13% 4.46 - 5.72% 4.65 - 6.23% 4.65 - 5.90% 6.35 - 6.72%
Dividend yield................ 0% 0% 0% 0% 0%
Expected volatility........... 0 0 0 0 0
</TABLE>

For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The per share
weighted average fair value of options granted during the years ended December
31, 1997, 1998 and 1999 was $0.65, $0.60 and $0.68, respectively and $0.59 and
$1.27 for the six months ended June 30, 1999 and 2000 (unaudited), respectively.
The Company's pro forma information follows (in thousands):

<TABLE>
<CAPTION>
PRO FORMA
----------------------------------------------
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
-------------------------- ----------------
1997 1998 1999 1999 2000
------ ------ ------ ----- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Loss before pro forma effect of stock options... $5,492 $3,453 $3,029 $362 $3,275
Pro forma compensation expense from stock
options:
1995 grant.................................... (6) 8 7 3 4
1996 grant.................................... 27 31 31 15 15
1997 grant.................................... 111 231 220 106 94
1998 grant.................................... -- 124 62 33 30
1999 grant.................................... -- -- 222 71 84
2000 grant.................................... -- -- -- -- 198
------ ------ ------ ---- ------
Pro forma net loss.............................. $5,624 $3,847 $3,571 $590 $3,700
====== ====== ====== ==== ======
</TABLE>

Because options vest over several years and additional option grants are
expected, the effects of these pro forma calculations are not likely to be
representative of similar future calculations.

F-13
<PAGE> 67
INTELLON CORPORATION

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

The following table summarizes options activity for the Company's stock
option plans:

<TABLE>
<CAPTION>
WEIGHTED
EXERCISE PRICE AVERAGE
SHARES PER SHARE EXERCISE PRICE
---------- -------------- --------------
<S> <C> <C> <C>
Balance, December 31, 1996................. 1,996,500 $1.00 to $1.90 $1.30
Granted.................................... 1,980,000 1.90 1.90
Exercised.................................. (16,000) 1.00 1.00
Canceled................................... (1,250,000) 1.00 to 1.90 1.23
----------
Balance, December 31, 1997................. 2,710,500 1.00 to 1.90 1.77
Granted.................................... 761,300 1.90 1.90
Exercised.................................. (41,000) 1.00 to 1.90 1.37
Canceled................................... (248,100) 1.00 to 1.90 1.53
----------
Balance, December 31, 1998................. 3,182,700 1.00 to 1.90 1.80
Granted.................................... 1,423,995 1.90 to 3.50 2.12
Exercised.................................. (14,750) 1.00 to 1.90 1.41
Canceled................................... (101,400) 1.00 to 1.90 1.86
----------
Balance, December 31, 1999................. 4,490,545 1.00 to 3.50 1.91
Granted (unaudited)........................ 2,021,250 3.50 3.50
Exercised (unaudited)...................... (6,250) 1.90 1.90
Canceled (unaudited)....................... (34,000) 1.90 1.90
----------
Balance, June 30, 2000 (unaudited)......... 6,471,545 1.00 to 3.50 2.40
==========
</TABLE>

Price ranges of outstanding and exercisable options as of December 31,
1999, are summarized below:

<TABLE>
<CAPTION>
OUTSTANDING OPTIONS EXERCISABLE OPTIONS
----------------------------------- --------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
NUMBER OF REMAINING EXERCISE NUMBER OF EXERCISE
EXERCISE PRICE OPTIONS LIFE (YEARS) PRICE OPTIONS PRICE
-------------- --------- ------------ -------- --------- --------
<S> <C> <C> <C> <C> <C>
$1.00 - $1.90 4,290,045 8 $1.83 1,634,720 $1.73
3.50 200,500 10 3.50 45,500 3.50
--------- ---------
4,490,545 1,680,220
========= =========
</TABLE>

Price ranges of outstanding and exercisable options as of June 30, 2000
(unaudited), are summarized below:

<TABLE>
<CAPTION>
OUTSTANDING OPTIONS EXERCISABLE OPTIONS
----------------------------------- --------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
RANGE OF NUMBER OF REMAINING EXERCISE NUMBER OF EXERCISE
EXERCISE PRICE OPTIONS LIFE (YEARS) PRICE OPTIONS PRICE
-------------- --------- ------------ -------- --------- --------
<S> <C> <C> <C> <C> <C>
$1.00 - $1.90 4,249,795 7 $1.83 1,871,895 $1.74
3.50 2,221,750 10 3.50 129,500 3.50
--------- ---------
6,471,545 2,001,395
========= =========
</TABLE>

F-14
<PAGE> 68
INTELLON CORPORATION

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

6. COMMON SHARES RESERVED

The Company had reserved the following number of shares of common stock for
future issuance:

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ JUNE 30,
1998 1999 2000
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Outstanding options............................ 3,182,700 4,490,545 6,471,545
Granting of additional options................. 1,924,300 696,705 2,709,455
Warrants outstanding........................... 847,147 2,327,298 1,022,147
Conversion of Series A preferred stock......... 7,555,000 7,555,000 7,555,000
Conversion of Series B preferred stock......... 10,914,599 10,914,599 10,914,599
Conversion of Series C preferred stock......... -- 1,691,601 2,463,027
---------- ---------- ----------
Total common shares reserved................... 24,423,746 27,675,748 31,135,773
========== ========== ==========
</TABLE>

7. PREFERRED STOCK AND WARRANTS

During 1993, the Company issued 74,000 warrants to purchase common stock
exercisable at $2.50 per share, which expire in June 2001.

The Company completed a private placement of 7,555,000 shares of Series A
convertible preferred stock on March 29, 1994 for $7,555,000 less approximately
$382,000 in offering costs. In addition, the Company issued 525,000 warrants to
purchase common stock exercisable at $2.50 per share, which expired in May 2000.

During 2000, Series A convertible preferred shareholders exercised warrants
to purchase 375,000 (unaudited) shares of the Company's common stock at exercise
prices of $2.50 (unaudited) per share, for an aggregate purchase price of
$937,500 (unaudited). The remaining unexercised 150,000 warrants expired.

The Company completed a private placement of 2,421,686 shares of Series B
convertible preferred stock on July 31, 1995 for $4,237,950, including
conversion of a note payable, less approximately $50,000 in offering costs. A
note payable of $1,000,000 plus accrued interest of $23,055 payable to a
minority shareholder was converted to 584,603 shares of Series B convertible
preferred stock during 1995 as part of this private placement.

The Company completed a private placement of 8,492,913 shares of Series B
convertible preferred stock on June 27, 1996 for $15,862,049, less approximately
$871,000 in offering costs. In addition, the Company issued 209,599 and 38,548
warrants to purchase Series B convertible preferred stock exercisable at $1.86
and $1.90, respectively, per share, which expire in April 2001. Prior to the
offering, the Company increased the authorized shares of Series B preferred
stock from 10 million to 15 million shares.

The Company completed a private placement of 1,691,601 shares of Series C
convertible preferred stock on December 22, 1999 for $5,920,603 less
approximately $27,000 in offering costs. In addition, the Company issued
1,480,151 warrants to purchase Series C convertible preferred stock at $3.50 per
share which originally expired January 31, 2000. Subject to certain conditions,
the expiration date for 1,400,000 of these warrants was extended to November 30,
2000.

During the six months ended June 30, 2000 (unaudited), 771,426 warrants to
purchase Series C convertible preferred stock were exercised at the exercise
price of $3.50 per share, for an aggregate purchase price of $2,699,991. On
January 31, 2000, 8,725 unexercised warrants expired.

F-15
<PAGE> 69
INTELLON CORPORATION

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

OPTIONAL REDEMPTION

After December 31, 2000 or upon a partial change of control, a preferred
shareholder may require the Company to redeem, in whole or in part such
shareholder's preferred stock at the liquidation preference amount. Accordingly,
the liquidating amount per share in cash of $1.00, $1.86 and $3.50 for Series A,
Series B and Series C preferred stock outstanding at December 31, 1999,
respectively ($7,555,000 for Series A, $20,301,154 for Series B and $5,920,603
for Series C) in excess of the net proceeds ($7,172,907 for Series A,
$19,179,217 for Series B and $5,893,348 for Series C) is being accreted from the
preferred stocks' issuance date to the earliest known optional redemption date
(January 1, 2001). The accretion amount reduces net earnings applicable to
common stock for earnings per share purposes during that period. Additionally,
dividends on the Series A, Series B and Series C preferred stock are being
accreted annually.

CONVERSION

The preferred stock is initially convertible on a one-to-one basis into the
Company's common stock, subject to antidilution adjustments, if any. Conversion
is automatic upon (i) the closing of a $12 million firm underwritten public
offering of shares of the Company or (ii) a change of control for total proceeds
of $40 million or greater.

LIQUIDATING PREFERENCE

In the event of any complete or partial liquidation or dissolution of the
Company, the shareholders of the preferred stock are entitled to receive, prior
to any payment in respect of the common stock, the greater of (i) an amount per
share in cash of $1.00, $1.86 and $3.50 for Series A, Series B and Series C
preferred shareholders, respectively, plus all accrued but unpaid dividends
whether or not any such dividends were declared by the Board or (ii) the amount
per share that would have been paid had the preferred stock been converted into
common stock at the then applicable conversion rate together with accrued and
unpaid dividends whether or not any such dividends were declared by the Board.

DIVIDENDS

Holders of the preferred stock will receive a cumulative dividend at the
rate of $.10, $.186 and $.35 per year, per share of Series A, Series B and
Series C preferred stock, respectively, if dividends are declared by the Board
of Directors. Such dividends, whether declared or not, will be paid in the event
of a partial or complete liquidation of the Company, any optional redemption of
preferred stock or upon the conversion of preferred stock to common stock
resulting from a change of control as defined in the Company's articles of
incorporation, subject to certain conditions. Accordingly, dividends on the
Series A, Series B and Series C preferred stock are being accreted annually. At
December 31, 1999, cumulative dividends in arrears aggregate approximately
$4,359,000 ($.58 per share), $7,912,000 ($.72 per share) and $16,000 ($.01 per
share) for Series A, Series B and Series C preferred stock, respectively. At
June 30, 2000 (unaudited), cumulative dividends in arrears aggregate
approximately $4,737,000 ($0.63 per share), $8,927,000 ($0.82 per share) and
$355,000 ($0.14 per share) for Series A, Series B, and Series C preferred stock,
respectively.

BOARD OF DIRECTORS

The Company's Board of Directors consists of six persons. Four directors
are elected or appointed by certain holders of the Series A preferred stock, and
the remaining two directors are elected by holders of common stock.

F-16
<PAGE> 70
INTELLON CORPORATION

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

COVENANTS

So long as any of the Series A, Series B and Series C preferred stock is
outstanding, the Company may not take certain actions without the prior approval
of at least five of the six Directors of the Company (or such other number of
Directors as may be determined by the Board in the event the size of the Board
is changed) including the following: (i) expand into unrelated businesses, (ii)
lease, sell or otherwise dispose of assets or property with a net book value in
excess of the greater of $1,000,000 or 10% of the net book value of the assets
of the Company, (iii) incur or assume any indebtedness in excess of the lesser
of $600,000 or 10% of the long-term capital (equity and long-term debt) of the
Company, (iv) mortgage, grant a security interest in, pledge or otherwise
encumber assets with a value more than the greater of $600,000 or 10% of the
long-term capital of the Company, (v) issue or sell any securities of the
Company, except pursuant to the payment of preferred stock dividends, the
conversion of preferred stock or the exercise of existing warrants or options,
(vi) declare or pay any dividend, (vii) make any individual capital expenditures
in excess of the greater of $250,000 or 2% of the net book value of the
Company's assets, (viii) enter into any transactions with any affiliates, (ix)
issue any capital stock or other equity pursuant to employee plans beyond
9,250,000 shares, (x) adopt or amend any employment contracts or benefit plans
of the executive management, or (xi) redeem any stock except preferred stock.

8. PURCHASE OF CONTROL

The Company's articles of incorporation provide that, except for any
transaction approved by a supermajority of directors (five of six directors), no
person may directly or indirectly acquire beneficial ownership of more than 40%
of the outstanding voting securities of the Company unless such person makes an
offer to purchase 100% of the outstanding voting securities on the same terms
and conditions.

9. COMMITMENTS

After January 1, 1998 (and prior to the later of the fifth anniversary of
an initial public offering by the Company (IPO) or December 31, 2002), holders
of at least 25% of the then outstanding shares of common stock which were
issued, or are issuable, upon conversion of Series A and Series B preferred
stock and the outstanding stock purchase warrants may require that the Company
use its best efforts to file a registration statement covering the public sale
of the common stock into which the Series A and Series B preferred stock are
convertible (except if the offering price of the registerable shares would be
less than $15 million in an IPO or $5 million in a post-IPO registration, or the
number of securities required to be registered is less than 20% of the
outstanding shares owned by such holders, or if the request is within six months
of another registration, or if such IPO is not underwritten on a firm basis).
Holders of Series C preferred stock have similar registration rights which
commence after January 1, 2002 and end on the later of the fifth anniversary of
an IPO or December 31, 2004.

10. LOSS PER SHARE

The weighted-average common shares outstanding include all common stock
issued. In computing diluted loss per share, outstanding preferred stock, stock
options and common stock warrants in the amount of 21,779,099, 22,251,299 and
25,250,745 for the years ended December 31, 1997, 1998 and 1999 and 23,237,645
and 27,478,171 for the six months ended June 30, 1999 and 2000 (unaudited),
respectively, were excluded from the diluted loss per common share computation
because their effects would have been anti-dilutive.

11. PRO FORMA LOSS PER SHARE

Pro forma net loss per common share for the year ended December 31, 1999
and the six months ended June 30, 2000 (unaudited), is computed using the
weighted-average number of common shares
F-17
<PAGE> 71
INTELLON CORPORATION

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

outstanding, including the pro forma effect of the automatic conversion of the
Company's Series A, B and C 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. The resulting pro
forma adjustment includes an increase in the weighted-average common shares used
to compute basic and diluted net loss per common share of 18,511,309 and
20,398,812 for the year ended December 31, 1999 and the six months ended June
30, 2000 (unaudited), respectively. The pro forma effects of the transactions
are unaudited and have been reflected in the pro forma basic and diluted net
loss per common share information in the accompanying Statements of Operations
for the year ended December 31, 1999 and the six months ended June 30, 2000.

12. INCOME TAXES

The Company has incurred net operating losses since inception, therefore,
no current tax provision or benefit has been provided.

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts reported for tax purposes. The Company's temporary
differences primarily relate to the excess of accelerated tax depreciation and
amortization over depreciation for financial reporting purposes; reserves for
inventory and receivables; and accrued liabilities. The net deferred tax assets
related to these timing differences in the amount of $272,000 at December 31,
1999 and $266,000 at June 30, 2000 (unaudited) have been offset in full by a
valuation allowance due to the uncertainty of future realization.

As of December 31, 1999 and June 30, 2000 (unaudited), the Company had
cumulative net operating losses, for federal income tax purposes, of
approximately $24,553,429 and $27,830,364, respectively, fully available to
offset future taxable income. During the year ended December 31, 1994, the
Company had a "change in ownership" as defined in sec.382 of the Internal
Revenue Code (IRC), as amended. As a result, net operating losses of
approximately $3,187,000 are subject to significant limitation on future use in
accordance with IRC Section 382. The deferred tax asset related to the Company's
net operating loss carryforwards in the amount of $9,239,000 at December 31,
1999 and $10,472,000 at June 30, 2000 (unaudited) has been offset in full by a
valuation allowance due to the uncertainty of future realization.

As a result of possible equity transactions relating to an initial public
offering, a "change in ownership" as defined by IRC Section 382 may further
limit future utilization of net operating losses.

F-18
<PAGE> 72
INTELLON CORPORATION

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

The specific details regarding the Company's net operating losses are
provided below (in thousands):

<TABLE>
<CAPTION>
NET
OPERATING YEAR OF
YEAR ENDED DECEMBER 31, LOSS EXPIRATION
----------------------- --------- ----------
<S> <C> <C>
1992...................................................... $ 860 2007
1993...................................................... 1,933 2008
1994...................................................... 394 2009
-------
Net operating losses subject to IRC sec.382 Limitation...... 3,187
-------
1994...................................................... 2,168 2009
1995...................................................... 3,816 2010
1996...................................................... 4,326 2011
1997...................................................... 5,152 2012
1998...................................................... 2,472 2018
1999...................................................... 3,432 2019
2000 (unaudited).......................................... 3,277 2020
-------
24,643
-------
$27,830
=======
</TABLE>

As of December 31, 1999, the Company has federal income tax credits related
to research and development activities of approximately $629,000. These tax
credits are available to offset future federal tax liabilities and are not
subject to expiration or other limitations. This deferred tax asset in the
amount of $629,000, has been offset in full by a valuation allowance due to the
uncertainty of future utilization.

Significant components of the Company's deferred tax assets and liabilities
are detailed below (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
----------------- JUNE 30,
1998 1999 2000
------ ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Deferred tax assets:
Accounts receivable reserve........................ $ 40 $ 45 $ 30
Inventory reserve.................................. 161 129 129
Depreciation and amortization...................... 22 110 138
Accrued liabilities................................ -- 80 59
Other.............................................. 22 6 6
------ ------- -------
245 370 362
Net operating loss carryforwards................... 8,245 9,239 10,472
Research and development tax credit................ 435 629 677
------ ------- -------
Total deferred tax assets............................ 8,925 10,238 11,511
Less: valuation allowance............................ 8,829 10,140 11,415
------ ------- -------
Net deferred tax asset............................... 96 98 96
Deferred tax liabilities:
Patent expense..................................... 96 98 96
------ ------- -------
Net deferred tax asset/(liability)................... $ -- $ -- $ --
====== ======= =======
</TABLE>

F-19
<PAGE> 73
INTELLON CORPORATION

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

13. EMPLOYEE SAVINGS PLAN

Effective January 1, 1996, the Company established a 401(k) savings plan
designed to qualify under Section 401(k) of the Internal Revenue Code. All
employees who attained age 21 and completed six months of service are eligible
to participate in the plan. Each participant may contribute to the plan up to
the maximum allowable amount as determined by the Federal Government. Employees
become 100% vested upon entrance to the plan. The Company may make contributions
to the plan at the discretion of the Board of Directors. No contributions have
been made to the plan by the Company since the inception of the plan; however,
all administrative costs have been paid by the Company.

14. SUBSEQUENT EVENTS (UNAUDITED)

EXERCISE OF WARRANTS

On July 19, 2000 (unaudited), 700,000 warrants to purchase Series C
convertible preferred stock were exercised at the exercise price of $3.50 per
share, for an aggregate purchase price of $2,450,000.

INITIAL PUBLIC OFFERING

In July 2000, the Company's Board of Directors authorized the Company to
file a registration statement with the Securities and Exchange Commission to
permit the Company to proceed with its IPO of its common stock. Upon
consummation of the IPO, all of the outstanding Series A, Series B and Series C
preferred stock outstanding will be converted into an aggregate of 23,007,626
shares of common stock. Prior to the completion of the IPO, the Company's
Certificate of Incorporation will be amended to authorize 100,000,000 shares of
common stock.

STRATEGIC ALLIANCE

In August 2000, the Company entered into a joint development, marketing and
promotion agreement with Motorola, Inc. The Company is required to make a
nonrefundable payment to Motorola for the development program. Motorola
purchased 1,375,000 shares of Series C convertible preferred stock at $5.00 per
preferred stock share or an aggregate $6,875,000 purchase price. The Company
also granted Motorola a warrant to purchase 500,000 shares of common stock at an
exercise price of $5.00 per share which expires June 30, 2003. The warrant vests
and is exercisable based on the achievement of certain milestones as set forth
in the agreement. The warrant does not contain a significant economic
disincentive for non-performance as of the grant date and, accordingly, the fair
value of the warrant will be measured upon the achievement of the performance
milestones and vesting of the warrant in accordance with the Emerging Issues
Task Force consensus on Issue No. 96-18. The fair value of the warrant will be
determined on the performance achievement measurement dates using the
Black-Scholes pricing model and the then applicable risk free interest rates,
volatility factors, expected dividend rate and the estimated remaining life of
the warrant.

F-20
<PAGE> 74

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

Through and including , 2000 (the 25th day after the date of
this prospectus), all dealers effecting transactions in these securities,
whether or not participating in this offering, may be required to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.

[INTELLON]

COMMON STOCK

----------------------

PROSPECTUS
----------------------

MERRILL LYNCH & CO.

BEAR, STEARNS & CO. INC.
WIT SOUNDVIEW

OCTOBER , 2000

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE> 75

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

<TABLE>
<S> <C>
Securities and Exchange Commission registration fee*........ $ 22,770
NASD filing fee............................................. $ 9,125
Nasdaq listing fee.......................................... $ 95,000
Legal fees and expenses..................................... $
Accountants' fees and expenses.............................. $
Printing and engraving expenses............................. $150,000
Transfer agent and registrar fees........................... $ 10,000
Directors' and officers' insurance expenses................. $ 50,000
Miscellaneous expenses...................................... $
Total..................................................... $
========
</TABLE>

---------------
* All expenses other than the SEC registration fee, the NASD filing fee and the
Nasdaq listing fee are estimates.

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Section 607.0850 of the Florida Business Corporation Act authorizes a court
to award, or permits a Florida corporation to grant indemnity to present or
former directors and officers, as well as certain other persons serving at the
request of the corporation in related capacities. This permitted indemnity is
sufficiently broad to permit indemnification for liabilities arising under the
Securities Act, including reimbursement for expenses incurred. The
indemnification authorized under Florida law is not exclusive and is in addition
to any other rights granted to officers and directors under the bylaws of the
registrant or any agreement between officers and directors and the registrant.
Certain employment or other contracts with employees, officers or directors may
provide for insurance or indemnifications to the fullest extent permitted by
Florida law.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

Since July 31, 1997 we have sold the following unregistered securities:

(1) On August 30, 2000 we issued an aggregate of 1,375,000 shares of
our Series C convertible preferred stock to Motorola, in a strategic
transaction, for an aggregate consideration of $6.9 million. Each share has
an initial conversion price of $5.00, subject to adjustment. Motorola was
also granted a warrant to purchase an additional 500,000 shares of our
common stock for $5.00 per share. We relied on Section 4(2) for exemption.

(2) From September 10, 1999 to December 22, 1999 we issued an
aggregate of 1,691,601 shares of Series C convertible preferred stock, par
value $0.01 per share at $3.50 per share, to six unaffiliated accredited
investors for an aggregate purchase price of $5,920,603. All six investors
were also granted warrants to purchase an additional 1,480,151 shares of
Series C preferred stock at $3.50 per share. Five of the six investors
exercised their warrants from January through July 19, 2000 and the
remaining investor's warrants expired unexercised. We relied on Section
4(2) and Rule 506 for exemption.

(3) On March 23, 1994 we issued warrants to purchase 525,000 shares of
common stock to seven unaffiliated accredited investors at an exercise
price of $2.50 per share. The warrants to purchase 375,000 shares were
exercised on March 15, 2000 and the remaining warrants expired unexercised.
We relied on Section 4(2) and Rule 506 for exemption.

II-1
<PAGE> 76

(4) From July 31, 1997 to the present we issued a total of 66,000
shares of common stock to executive officers, directors, employees and
consultants pursuant to options granted under our amended and restated
employee incentive plan, the directors' plan and board resolutions for
prices ranging from $1.00 to $1.90 per share. We relied upon Rule 701 for
exemption.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1.1* Form of underwriting agreement
3.1 Restated articles of incorporation
3.2 Bylaws
5.1* Opinion of Smith, Mackinnon, Greeley, Bowdoin, Edwards,
Brownlee & Marks, P.A.
10.1 1991 employee incentive option plan
10.2 1997 directors' stock option plan
10.3** Prototype development agreement with General Instrument
Corporation dated August 29, 2000
10.4** Development and product supply agreement with S3
Incorporated dated July 19, 2000
10.5** Purchase order with Phonex Broadband Corporation dated July
17, 2000
10.6** Comprehensive development and license agreement with
Conexant Corporation dated July 2, 1999
10.7** Development and license agreement with Microsoft Corporation
dated September 2, 1998
10.8 Employment agreement of Horst G. Sandfort dated February 28,
1997
10.9 Employment agreement of Bryan R. Carr dated April 22, 1999
10.10 Employment agreement of James E. Vander Mey dated December
1, 1997
23.1* Consent of Smith, Mackinnon, Greeley, Bowdoin, Edwards,
Brownlee & Marks, P.A. (included in Exhibit 5.1)
23.2 Consent of Ernst & Young LLP
24.1 Power of attorney (included on page II-4)
27.1 Financial data schedule
</TABLE>

---------------
* To be filed by amendment.

** Portions of this agreement have been omitted and filed separately with the
Securities and Exchange Commission pursuant to a request for an order
granting confidential treatment pursuant to Rule 406 under the Securities
Act.

(b) FINANCIAL STATEMENT SCHEDULE

ITEM 17. UNDERTAKINGS

(a) The undersigned registrant hereby undertakes to provide to the
underwriters at the closing specified in the underwriting agreements
certificates in such denominations and registered in such names as required by
the underwriters to permit prompt delivery to each purchaser.

(b) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful

II-2
<PAGE> 77

defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.

(1) That for purposes of determining any liability under the
Securities Act, the information omitted from the form of prospectus filed
as part of this registration statement in reliance on Rule 430A and
contained in a form of prospectus filed by the registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be
part of this registration statement as of the time it was declared
effective.

(2) That for the purpose of determining any liability under the
Securities Act, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.

II-3
<PAGE> 78

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Ocala, Florida on August 31, 2000.

INTELLON CORPORATION

By:
---------------------------------------
Horst G. Sandfort,
Chief Executive Officer

POWER OF ATTORNEY

Each person whose signature appears below constitutes and appoints Horst G.
Sandfort, Bryan R. Carr and Caroline T. Davis, and each of them, as his or her
true and lawful attorneys-in-fact and agents, with full power of substitution
and resubstitution, for him or her and in his or her name, place and stead, in
any and all capacities, to sign any or all amendments (including post-effective
amendments) to this registration statement and a new registration statement
filed pursuant to Rule 462(b) under the Securities Act of 1933 and to file the
same, with all exhibits thereto, and other documents in connection therewith,
with the U.S. Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the foregoing, as fully to all intents and purposes as he or she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or their substitutes, may lawfully do or cause to
be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>

/s/ JAMES E. VANDER MEY Chairman of the Board and Director August 31, 2000
-----------------------------------------------------
James E. Vander Mey

/s/ HORST G. SANDFORT President and Chief Executive August 31, 2000
----------------------------------------------------- Officer (Principal Executive
Horst G. Sandfort Officer) and Director

/s/ BRYAN R. CARR Senior Vice-President and Chief August 31, 2000
----------------------------------------------------- Financial Officer (Principal
Bryan R. Carr Financial Officer)

/s/ CAROLINE T. DAVIS Vice-President/Controller August 31, 2000
----------------------------------------------------- (Principal Accounting Officer)
Caroline T. Davis

/s/ CHARLES E. HARRIS Director August 31, 2000
-----------------------------------------------------
Charles E. Harris

/s/ WALTER GILL Director August 31, 2000
-----------------------------------------------------
Walter Gill

/s/ ROBERT C. KETTERSON, JR. Director August 31, 2000
-----------------------------------------------------
Robert C. Ketterson, Jr.

/s/ MICHAEL E. BARKER Director August 31, 2000
-----------------------------------------------------
Michael E. Barker
</TABLE>

II-4
<PAGE> 79

INTELLON CORPORATION

SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND END OF
DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS PERIOD
----------- ---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Year ended December 31, 1997:
Deducted from asset accounts:
Allowance for doubtful accounts and sales
returns....................................... $ (17) $ (13) $ 15 $ (15)
Reserve for excess and obsolete inventory....... (58) (80) 0 (138)
----- ----- ---- -----
Total...................................... $ (75) $ (93) $ 15 $(153)
===== ===== ==== =====
Year ended December 31, 1998:
Deducted from asset accounts:
Allowance for doubtful accounts and sales
return........................................ $ (15) $ (93) $ 1 $(107)
Reserve for excess and obsolete inventory....... (138) (426) 130 (434)
----- ----- ---- -----
Total...................................... $(153) $(519) $131 $(541)
===== ===== ==== =====
Year ended December 31, 1999:
Deducted from asset accounts:
Allowance for doubtful accounts and sales
return........................................ $(107) $ (8) $ (4) $(119)
Reserve for excess and obsolete inventory....... (434) 33 51 (350)
----- ----- ---- -----
Total...................................... $(541) $ 25 $ 47 $(469)
===== ===== ==== =====
Six months ended June 30, 2000 (unaudited):
Deducted from asset accounts:
Allowance for doubtful accounts and sales
return........................................ $(119) $ 35 $ 4 $ (80)
Reserve for excess and obsolete inventory....... (350) 0 0 (350)
----- ----- ---- -----
Total...................................... $(469) $ 35 $ 4 $(430)
===== ===== ==== =====
</TABLE>

II-5
<PAGE> 80

INDEX TO EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<S> <C>
1.1* Form of underwriting agreement
3.1 Restated articles of incorporation
3.2 Bylaws
5.1* Opinion of Smith, Mackinnon, Bowdoin, Edwards, Greeley,
Bownlee & Marks, P.A.
10.1 1991 employee incentive option plan
10.2 1997 directors' stock option plan
10.3** Prototype development agreement with General Instrument
Corporation dated August 30, 2000
10.4** Development and product supply agreement with S3
Incorporated dated July 19, 2000
10.5** Purchase order with Phonex Broadband Corporation dated July
17, 2000
10.6** Comprehensive development and license agreement with
Conexant Corporation dated July 2, 1999
10.7** Development and license agreement with Microsoft Corporation
dated September 2, 1998
10.8 Employment agreement of Horst G. Sandfort dated February 28,
1997
10.9 Employment agreement of Bryan R. Carr dated April 22, 1999
10.10 Employment agreement of James E. Vander Mey dated December
1, 1997
23.1* Consent of Smith, Mackinnon, Bowdoin, Edwards, Greeley,
Bownlee & Marks, P.A. (included in Exhibit 5.1)
23.2 Consent of Ernst & Young LLP
24.1 Power of attorney (included on page II-4)
27.1 Financial data schedule
</TABLE>

---------------
* To be filed by amendment.