<PAGE>

================================================================================

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington D. C. 20549

                                    _________

                                    FORM 10-Q

(Mark one)

[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934

     For the quarterly period ended June 30, 2002

                                       OR

[_]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934

     For the transition period from to _____ to _____.

                         Commission File Number 0-19640

                                   _________

                              VERTEL CORPORATION
             (Exact name of Registrant as specified in its charter)

                 California                                       95-3948704
        (State or other jurisdiction of                        (I.R.S. Employer
         incorporation or organization)                      Identification No.)

21300 Victory Boulevard, Suite 700, Woodland Hills, California        91367
          (Address of principal executive offices)                 (Zip code)

                                 (818) 227-1400
              (Registrant's telephone number, including area code)

Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period as the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past ninety days.

                                 Yes [X] No [_]

As of August 12, 2002 there were 34,163,961 shares of common stock outstanding.

================================================================================

<PAGE>

                          PART I. FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

                               VERTEL CORPORATION

                           CONSOLIDATED BALANCE SHEETS
                      (in thousands, except share amounts)

<TABLE>
<CAPTION>
                                                                                     June 30,     December 31,
          ASSETS                                                                      2002           2001
                                                                                    ---------     ------------
<S>                                                                                 <C>           <C>
Current assets:
     Cash and cash equivalents .......................................               $   714        $  2,851
     Trade accounts receivable (net of allowances of $461 as of
           June 30, 2002 and $487 as of December 31, 2001) ...........                 2,155           2,316
     Prepaid expenses and other current assets .......................                   577             221
                                                                                     -------        --------
          Total current assets .......................................                 3,446           5,388

Property and equipment, net ..........................................                   270             456
Investments ..........................................................                    15              75
Goodwill, net ........................................................                 3,751           8,546
Other assets .........................................................                   472             365
                                                                                     -------        --------
                                                                                     $ 7,954        $ 14,830
                                                                                     =======        ========

                 LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
     Accounts payable ................................................               $   327        $    439
     Accrued wages and related liabilities ...........................                   852           1,024
     Accrued restructuring expenses ..................................                    21             145
     Accrued taxes payable ...........................................                   397             374
     Other accrued liabilities .......................................                 1,198           1,340
     Accrued acquisition liabilities .................................                    25              31
     Deferred revenue ................................................                 1,114             933
     Warrant obligation ..............................................                    82              --
                                                                                     -------        --------
          Total current liabilities ..................................                 4,016           4,286
                                                                                     -------        --------

Convertible note payable, net of unamortized discount of $2,394.......                   776              --
                                                                                     -------        --------
          Total liabilities ..........................................                 4,792           4,286
                                                                                     -------        --------

Shareholders' equity:
     Preferred stock, par value $.01, 2,000,000 shares authorized;
          none issued and outstanding
     Common stock, par value $.01, 100,000,000 shares authorized;
          shares issued and outstanding: 2002, 34,055,371;
                  2001, 32,891,689 ...................................                   340             329
     Additional paid-in capital ......................................                95,519          93,105
     Accumulated deficit .............................................               (92,355)        (82,640)
     Accumulated other comprehensive loss ............................                  (342)           (250)
                                                                                     -------        --------
          Total shareholders' equity .................................                 3,162          10,544
                                                                                     -------        --------
                                                                                     $ 7,954        $ 14,830
                                                                                     =======        ========
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       2

<PAGE>

                               VERTEL CORPORATION

          CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
                    (in thousands, except per share amounts)

<TABLE>
<CAPTION>
                                                              Three Month Period Ended                Six Month Period Ended
                                                              ------------------------                ----------------------
                                                             June 30,          June 30,              June 30,        June 30,
                                                               2002              2001                 2002              2001
                                                               ----              ----                 ----              ----
<S>                                                         <C>               <C>                  <C>               <C>
Net revenues:
   License ...........................................      $    990          $  2,079             $  2,249          $  3,415
   Service and other .................................         1,064             1,437                1,807             2,699
                                                            --------          --------             --------          --------
         Net revenues ................................         2,054             3,516                4,056             6,114
                                                            --------          --------             --------          --------
Cost of revenues:
   License ...........................................            24                50                   63               224
   Service and other .................................           892             1,853                1,931             3,625
                                                            --------          --------             --------          --------
        Total cost of revenues .......................           916             1,903                1,994             3,849
                                                            --------          --------             --------          --------

Gross profit .........................................         1,138             1,613                2,062             2,265
                                                            --------          --------             --------          --------

Operating expenses:
   Research and development ..........................         1,300               897                2,589             1,757
   Sales and marketing ...............................         1,424             1,521                2,697             3,303
   General and administrative ........................           960               835                1,751             1,718
   Goodwill amortization .............................             -               361                    -               599
   Goodwill impairment ...............................         4,795                 -                4,795                 -
                                                            --------          --------             --------          --------
        Total operating expenses .....................         8,479             3,614               11,832             7,377
                                                            --------          --------             --------          --------

Operating loss .......................................        (7,341)           (2,001)              (9,770)           (5,112)
Other income, net ....................................            52               121                   99               295
                                                            --------          --------             --------          --------
Loss before provision for income taxes ...............        (7,289)           (1,880)              (9,671)           (4,817)
Provision (benefit) for income taxes .................            21                 4                   44               (82)
                                                            --------          --------             --------          --------
Net loss .............................................        (7,310)           (1,884)              (9,715)           (4,735)
Other comprehensive loss .............................           (54)              (57)                 (92)             (230)
                                                            --------          --------             --------          --------
Comprehensive loss ...................................      $ (7,364)         $ (1,941)            $ (9,807)         $ (4,965)
                                                            ========          ========             ========          ========

Basic and diluted net loss per common share ..........        ($0.22)           ($0.06)              ($0.29)           ($0.16)
                                                            ========          ========             ========          ========

Weighted average shares outstanding
used in net loss per common share
calculations - basic and diluted                              33,772            29,912               33,451            29,133
                                                            ========          ========             ========          ========
</TABLE>

  See accompanying notes to consolidated financial statements.

                                       3

<PAGE>

                               VERTEL CORPORATION

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)

<TABLE>
<CAPTION>
                                                                           Six Month Period Ended
                                                                           ----------------------
                                                                        June 30,             June 30,
                                                                          2002                 2001
                                                                          ----                 ----
<S>                                                                    <C>                   <C>
Cash flows from operating activities:
      Net loss ......................................................  $ (9,715)             $ (4,735)
      Adjustments to reconcile net loss to net cash
           used for operating activities:
           Depreciation and amortization ............................       279                 1,222
           Goodwill impairment ......................................     4,795                     -
           Provision for returns and bad debts ......................         -                     7
           Change in fair value of Warrant obligation ...............      (347)                    -
           Non cash interest ........................................       326                     -
           Changes in operating assets and liabilities ..............      (637)               (1,035)
                                                                       --------              --------
           Net cash used for operating activities ...................    (5,299)               (4,541)
                                                                       --------              --------

Cash flows from investing activities:
        Net sales (purchases) of short-term investments .............         -                (1,904)
        Purchases of property and equipment .........................       (94)                 (207)
        Cash acquired in business acquisition, net of cash paid .....         -                    69
        Change in other assets ......................................      (107)                  118
                                                                       --------              --------
             Net cash used for investing activities .................      (201)               (1,924)
                                                                       --------              --------

Cash flows from financing activities:
        Proceeds from issuance of common stock ......................         -                   113
        Proceeds from sale of convertible promissory note and Warrant     3,395                     -
        Payments on capital lease obligations and short-term debt ...         -                  (300)
                                                                       --------              --------

            Net cash provided by (used for) financing activities ....     3,395                  (187)
                                                                       --------              --------

Effect of exchange rate changes on cash .............................       (32)                    1
                                                                       --------              --------

Net decrease in cash and cash equivalents ...........................    (2,137)               (6,651)

Cash and cash equivalents, beginning of period ......................     2,851                10,827
                                                                       --------              --------

Cash and cash equivalents, end of period ............................  $    714              $  4,176
                                                                       ========              ========
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       4

<PAGE>

                               VERTEL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.   General

     Our consolidated financial statements include the accounts of our
subsidiaries. Intercompany balances and transactions have been eliminated in
consolidation. The interim consolidated financial statements are unaudited. In
the opinion of management, the interim financial statements include all
adjustments, consisting of only normal, recurring adjustments, necessary for a
fair presentation of our financial position, results of operations and cash
flows.

     We suggest that our consolidated financial statements and the accompanying
notes be read in conjunction with our audited consolidated financial statements
and the accompanying notes for the year ended December 31, 2001 included in our
Annual Report on Form 10-K. The results of operations for the three and six
month periods ended June 30, 2002 are not necessarily indicative of results that
may be expected for the full year.

     Effective May 23, 2002, our common stock began trading on The Nasdaq
SmallCap Market(SM). Prior to that date, our common stock traded on The Nasdaq
National Market (R). As of May 23, 2002, we met all of the continued inclusion
criteria for The Nasdaq SmallCap Market, except for the minimum $1.00 bid price
per share requirement set forth in Marketplace Rule 4310(c)(4). Nasdaq granted
us an extension until August 13, 2002 to regain compliance with the $1.00
minimum bid price requirement. Additionaly, because one of our independent
directors resigned on May 23, 2002 we no longer met the requirement to have
three independent directors on our audit committee. Nasdaq granted us an
extension until August 19, 2002 to add additional independent directors to our
Board of Directors to meet the audit committee requirement. We have not met the
ten consecutive trading days $1.00 minimum bid requirement. We have not regained
compliance with the $1.00 minimum bid requirement. However, we do expect to meet
the audit committee requirement by Nasdaq's deadline. As a result, The Nasdaq
Stock Market, Inc. will now evaluate whether to grant us an additional grace
period of up to 180 days to regain compliance with the $1.00 minimum bid
requirement. Generally, we would be granted such an extension under our
circumstances. However, because of our non-cash charge for goodwill impairment
recorded by us for the second fiscal quarter of 2002 (see Note 3), our
Shareholders' Equity does not satisfy the initial listing requirement for The
Nasdaq SmallCap Market. Nasdaq has indicated that they would be looking at the
SmallCap initial listing requirements when evaluating granting whether to grant
us the additional 180-day grace period to regain compliance with the $1.00
minimum bid price rule. On August 14, 2002, we received a Nasdaq Staff
Determination letter indicating that we fail to comply with the minimum bid
price requirements. As a result Nasdaq indicated that our shares are subject to
delisting on August 22, 2002. We are currently evaluating our options, including
appealing Nasdaq's determination. If we appeal the delisting determination and
our appeal is unsuccessful, or if we choose not to appeal, our common stock
would be delisted from The Nasdaq SmallCap Market and we may be unable to have
our common stock listed or quoted on any other organized market. Even if our
common stock is quoted or listed on another organized market, an active trading
market may not develop.

     We have reported operating losses from continuing operations for each of
the most recent five fiscal years. For the six months ended June 30, 2002 we
reported operating losses of $9,770,000, which includes a goodwill impairment
charge of $4,795,000, and negative cash flows from operations of $5,299,000. As
of June 30, 2002 we had an accumulated deficit of $92,355,000 and negative
working capital of $570,000, which includes cash of $714,000. During the first
quarter of 2002, we received net proceeds of approximately $3,395,000 from the
sale of a convertible promissory note and the issuance of a common stock warrant
(See Note 4). Substantially all of the proceeds from this transaction were used
by us during the six months ended June 30, 2002. On August 13, 2002, we received
net proceeds of approximately $1.4 million from the sale of a second convertible
promissory note and the issuance of another common stock warrant (See Note 7).
These conditions raise substantial doubt about our ability to continue as a
going concern and, therefore, we may be unable to realize our assets and
discharge our liabilities in the normal course of business. Our plans to
overcome these conditions include increasing revenues, reducing expenses and
raising additional equity capital. In the first half of 2002, we added
additional sales personnel with the intention of increasing revenues. Since the
beginning of the year through August 13, 2002, we have reduced the total number
of employees by approximately 40% and implemented other cost reduction
initiatives. We continue to look for cost reduction opportunities and we expect
to enter the fourth quarter of 2002 with a quarterly cash expense burn rate of
approximately $3 million. Although we plan to increase revenues and continue
reducing expenses, we believe it is likely we may require additional financing
in the fourth quarter of 2002 in order to fund planned operations for the
remainder of 2002 and 2003. We continue to seek short term financing and a
longer term financing solution. We cannot assure that we will be able to
increase our revenues, or that our expense reduction programs will be
successful, or that additional financing will be available to us, or, if
available, on terms that will be satisfactory to us. If we are not successful in
reducing our expenses or raising sufficient additional capital, or if we do not
achieve revenues at levels sufficient to generate operating income, we may not
be able to continue as a going concern. Our financial statements do not include
any adjustments relating to the recoverability and classification of recorded
asset amounts nor to amounts and classification of liabilities that may be
necessary should we be unable to continue as a going concern.

2.   Recent Accounting Pronouncements

     In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS
No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and Other
Intangible Assets." SFAS No. 141 requires that certain acquired intangible
assets in a business combination be recognized as assets separate from goodwill.
The application of SFAS No. 141 did not affect any of our previously reported
amounts included in goodwill. SFAS No. 142 eliminates goodwill amortization and
requires an evaluation of goodwill for impairment (at the reporting unit level)
upon adoption, as well as subsequent evaluations on an annual basis, and

                                       5

<PAGE>

                               VERTEL CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

more frequently if circumstances indicate a possible impairment. On an ongoing
basis (absent any impairment indicators), we expect to perform our impairment
test during our fourth quarter. This impairment test is comprised of two steps.
The initial step is designed to identify potential goodwill impairment by
comparing an estimate of the fair value of the applicable reporting unit to its
carrying value, including goodwill. If the carrying value exceeds fair value, a
second step is performed, which compares the implied fair value of the
applicable reporting unit's goodwill with the carrying amount of that goodwill,
to measure the amount of goodwill impairment, if any.

     As described in Note 6, we currently operate in one reportable segment,
which is also our only reporting unit for purposes of SFAS No. 142. Since we
have only one reporting unit, all of our goodwill has been assigned to our
enterprise as a whole. We estimated the fair value of our enterprise upon
adoption of SFAS No. 142 on January 1, 2002 to be its market capitalization,
based on the closing share prices quoted on The Nasdaq National Market. Since
our market capitalization of approximately $22,038,000 as of January 1, 2002
exceeded the $10,544,000 carrying value of our enterprise on that date we
concluded goodwill did not appear impaired and that the second step of the
impairment test prescribed by SFAS No. 142 was not required to be performed.
However, our market capitalization fell below the carrying value of our
enterprise in the second quarter of 2002. As a result of these changed
circumstances, we re-evaluated goodwill for impairment and determined that as of
June 30, 2002, goodwill was impaired (see Note 3).

     In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations ". SFAS No. 143 addresses the financial accounting and
reporting issues related to the obligations associated with the retirement of
tangible long-lived assets and the associated asset retirement costs. SFAS No.
143 is effective for financial statements issued for fiscal years beginning
after June 15, 2002. The Company will adopt SFAS No. 143 effective January 1,
2003. The adoption of SFAS No. 143 is not expected to have a significant impact
on the consolidated financial position or results of operations.

     In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets". SFAS No. 144 addresses the
financial accounting and reporting issues for the impairment or disposal of
long-lived assets. This statement supersedes SFAS No. 121 but retains the
fundamental provisions for (a) recognition/measurement of impairment of
long-lived assets to be held and used and (b) measurement of long-lived assets
to be disposed of by sales. The Company adopted SFAS No. 144 effective January
1, 2002. The adoption of SFAS No. 144 did not have a significant impact on the
consolidated financial position or results of operations.

3.   Goodwill

     Goodwill represents the excess of the cost of an acquired entity over the
net of the amounts assigned to the assets acquired and liabilities assumed.
Goodwill of $4,742,000 and $7,320,000 arose from the acquisitions of Expersoft
Corporation in March 1999 and the acquisition of the assets from Trigon
Technology Group ("Trigon") in May 2001. Prior to adoption of SFAS No. 141 and
SFAS No. 142 (see Note 2) we accounted for business combinations in accordance
with Accounting Principles Board opinion No. 16, "Business Combinations" and
amortized the goodwill arising from these acquisitions using the straight-line
method over the assets' estimated useful lives of five years.

     As described in Note 6, we currently operate in one reportable segment,
which is also our only reporting unit for purposes of SFAS No. 142. Since we
have only one reporting unit, all of our goodwill has been assigned to our
enterprise as a whole.

     SFAS No. 142 requires, however, we test goodwill for impairment if
circumstances indicate a possible impairment. During the six months ended June
30, 2002, the telecommunications sector continued to be adversely impacted by
the worst economic environment the U.S. economy has experienced in the last
decade. The market price of our common stock, and consequently our market
capitalization, declined steadily during the quarter ended March 31, 2002.
Although our market capitalization approximated our carrying value as of March
31, 2002, during the quarter ended June 30, 2002 it declined further. We believe
these circumstances indicated goodwill might be impaired as of June 30, 2002. We
have completed the first and second steps of the impairment test prescribed by
SFAS No. 142 and determined that as of June 30, 2002 goodwill was impaired. As a
result, during the quarter ended June 30, 2002 we recorded a goodwill impairment
charge of $4,795,000. We engaged a third-party valuation consultant to assist us
in determining the amount of the impairment charge. The primary method used to
determine fair values for SFAS No. 142 impairment purposes was the discounted
cash flow method. The discounted cash flow method resulted in a fair value of
our enterprise that approximated our market capitalization as of June 30, 2002.

                                       6

<PAGE>

                               VERTEL CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

     The changes in the carrying amount of goodwill for the year ended December
31, 2001 and the six months ended June 30, 2002 are as follows (in thousands):

     Balance, January 1, 2001 ..............    $  3,034
     Goodwill acquired from Trigon .........       7,320
     Amortization ..........................      (1,808)
                                                --------
     Balance, December 31, 2001 ............       8,546
     Impairment charge .....................      (4,795)
                                                --------
     Balance, June 30, 2002 ................    $  3,751
                                                ========

     The following table summarizes the impact on our statement of operations
had we not recorded goodwill amortization during the quarter ended and six
months ended June 30, 2001, as would have been the case if the provisions of
SFAS No. 142 had been in effect:

<TABLE>
<CAPTION>
                                                       Three Month         Six Month
                                                       Period Ended      Period Ended
                                                         June 30,          June 30,
                                                           2001              2001
                                                     ---------------   ----------------
<S>                                                   <C>               <C>
Reported net loss:
            Net loss, as reported ..............      $ (1,884,000)     $  (4,735,000)
            Add back; goodwill amortization ....           361,000            599,000
                                                     ---------------   ----------------
            Net loss, as adjusted ..............      $ (1,523,000)     $  (4,136,000)
                                                     ===============   ================

Basic and diluted earnings per share:
            Net loss per share, as reported ....      $      (0.06)     $      (0.16)

            Goodwill amortization ..............               .01              0.02
                                                     ---------------   ----------------
            Net loss per share, as adjusted ....      $      (0.05)     $      (0.14)
                                                     ===============   ================
</TABLE>

4.   Financing Transaction

     On January 3, 2002, in connection with a Note and Warrant Purchase
Agreement with SDS Merchant Fund, L.P. ("SDS"), we received net proceeds of
approximately $3,395,000, after payment of a $105,000 commission, from the sale
of a $3,500,000 three-year, 6% convertible promissory note (the "Note") to SDS
and issued SDS a Warrant initially exercisable into 800,000 shares of our common
stock at an initial exercise price of $0.9988 per share (the "Warrant"). The
total costs incurred in connection with the financing transaction amounted to
$216,160, excluding the commission of $105,000, and consisted of professional
fees and SEC registration fees. These costs are being amortized on a
straight-line basis to expense over the 36-month term of the Note.

     The conversion price of the Note fluctuates and is determined by
multiplying the applicable discount percentage by the average per share market
value for the five trading days having the lowest per share market value during
the fifteen trading days immediately prior to the conversion date. The initial
discount percentage is 7%. The discount percentage can be adjusted in 2%
increments (i.e. to 5%) for every $1,000,000 that the sum of our cash, cash
equivalents and short-term investments exceeds $3,008,000 on the date that the
discount percentage is being applied. Similarly, the discount percentage can be
adjusted (i.e. to 9%) for every $1,000,000 that the sum of our cash, cash
equivalents and short-term investments is below $3,008,000. The $3,008,000
target cash amount does not include the proceeds of the Note or the Warrant. The
conversion price of the Note is capped at $1.75 per share of common stock.

     The Warrant exercise price will be adjusted on August 31, 2002 and February
28, 2003 to an amount equal to 120% of the per share market value for the five
trading days having the lowest per share market value during the fifteen trading
days immediately prior to such adjustment date, provided that such amounts do
not exceed the initial exercise price. On January 3, 2002, the transaction
commitment date, the fair value of the Warrant, which expires in five years, was
estimated at $505,000 using the Black-Scholes option-pricing model and the
following assumptions; a risk-free interest rate of 4.4%, expected volatility of
199%, and expected dividends of zero.

     In accordance with Accounting Principles Board Opinion No. 14, "Accounting
for Convertible Debt and Debt Issued with Stock Purchase Warrants," we allocated
the net proceeds of $3,395,000 to the Note and the Warrant based on their
relative fair

                                       7

<PAGE>

                               VERTEL CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

values of $3,500,000 for the Note and $505,000 for the Warrant. A discount on
the Note of $533,084 and a discount on the Warrant of $76,916 resulted from the
fair value allocation. On January 3, 2002, the transaction commitment date, the
Note was convertible into 7,777,778 shares of our common stock with a fair value
of $5,055,556, or $0.65 per share, based on the closing market price of our
common stock on The Nasdaq National Market. We determined that the conversion
feature of the Note was beneficial to its holder in the amount of $2,088,600,
which is equal to the difference between the $5,055,556 fair value of the shares
into which the Note was convertible and the $2,966,916 of net proceeds allocated
to the Note in the manner previously described. The principal amount of the Note
of $3,500,000 was recorded as a long-term liability, net of a $2,621,684
discount, which consisted of the $533,084 discount resulting from the fair value
allocation and the $2,088,600 discount resulting from the beneficial conversion
feature. We also credited the beneficial conversion feature of $2,088,600 to
additional paid-in capital. The total discount on the Note of $2,621,684, which
is being amortized to interest expense over the 36-month term of the Note using
the effective interest method, may be subject to downward adjustments to the
extent partial conversions of the Note occur. These adjustments, if required,
would reduce the carrying value of the discount and increase additional paid-in
capital. For the six months ended June 30, 2002, $330,000 of the outstanding
principal balance of the Note was converted into 1,163,682 shares of our common
stock. The amount of the adjustment required to be made to the carrying value of
the discount on the Note was not significant. As of June 30, 2002, the remaining
Note principal of $3,170,000 is reported net of the unamortized discount of
approximately $2,394,000.


     We are required by the listing rules of Nasdaq to obtain shareholder
approval before issuing securities representing 20% or more of our outstanding
listed securities. As of and subsequent to June 30, 2002 the market price of our
common stock has been such that would result in the issuance of more than 20% of
our outstanding common stock if the holder of the Note and Warrant desires to
convert all of the Note into and exercise the Warrant. If the Note and Warrant
holder does express its desire to convert and exercise the Note and Warrant, we
have agreed that we will use our best efforts to hold a special shareholders
meeting to seek shareholder approval of the issuance of the shares of common
stock. Failure to obtain such shareholder approval could result in our being
required to pay cash to the holder of the Note and Warrant in an amount equal to
the fair market value of the shares exceeding 20% of our then-outstanding common
stock. Failure to obtain such shareholder approval could also cause our default
under our agreement with the holder of the Note and Warrant. If we default on
that agreement the outstanding balance under the Note will be accelerated and an
indeterminate amount of damages could be assessed against us for each day that
we are in default.

     Emerging Issues Task Force (EITF) No. 00-19, "Accounting for Derivative
Financial Instruments Index to, and Potentially Settled in, a Company's Own
Stock", requires that we initially classify the Warrant as a liability since the
foregoing provisions of our agreement with the holder of the Note and Warrant
could require us to pay cash to settle the Warrant contract. Accordingly, we
recorded the fair value of the Warrant of $428,084, net of the $76,916 discount
arising from the allocation of the net proceeds to the Note and Warrant as
previously described, as a Warrant obligation on January 3, 2002, the
transaction commitment date. EITF No. 00-19 requires that we adjust the carrying
value of the Warrant obligation to its fair value on each reporting date. As of
June 30, 2002, the fair value of the Warrant was estimated at $82,000 using the
Black-Scholes option-pricing model and the following assumptions; a risk-free
interest rate of 4.4%, expected volatility of 199%, and expected dividends of
zero. The decrease in the Warrant fair value from January 3, 2002 to June 30,
2002 of approximately $347,000 was reflected as other income.

     A significant component of the Black-Scholes model is the fair market value
per share of our common stock. If the fair market value of our common stock
increases the fair value of the Warrant obligation would likely increase,
resulting in a charge to other expense. If the fair market value of our common
stock decreases the fair value of the Warrant obligation would likely decrease,
resulting in other income, as was the case for the first and second quarters of
2002. For example, if the fair market value of our common stock on June 30, 2002
was $1.00 per share, the fair value of the Warrant obligation determined using
the Black-Scholes model, assuming all other variables remain constant, would
hypothetically have been approximately $781,000, resulting in a charge of
approximately $353,000 to other expense for the second quarter of 2002.
Conversely, if the fair market value of our common stock on June 30, 2002 was
$0.05 per share, the fair value of the Warrant obligation determined using the
Black-Scholes Model, assuming all other variables remain constant, would
hypothetically have been approximately $152,000, resulting in other income of
approximately $276,000 for the second quarter of 2002. Given the volatility of
our stock price, we cannot predict the impact fluctuations in the fair market
value of our stock price may have on our consolidated statement of operations
for any future period.

     EITF No. 00-19 requires that we evaluate the classification of the Warrant
as a liability as of each reporting date. To the extent the potential for us to
be required to pay cash to settle the Warrant contract no longer exists, we may
be required to reclassify the carrying value of the Warrant liability to equity.

                                        8

<PAGE>

                               VERTEL CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

5.   Statement of Cash Flows

     Decreases in operating cash flows arising from changes in assets and
liabilities consist of the following (in thousands):

<TABLE>
<CAPTION>
                                                                       Six Month Period Ended
                                                                       ----------------------
                                                                       June 30,      June 30,
                                                                         2002          2001
                                                                         ----          ----
<S>                                                                    <C>           <C>
     Trade accounts receivable ...................................     $   161       $  (166)
     Prepaid expenses and other current assets ...................        (356)         (288)
     Accounts payable ............................................        (112)           18
     Accrued wages and related liabilities .......................        (172)         (160)
     Cash payments for restructuring expenses ....................        (124)           --
     Accrued taxes payable .......................................          23          (129)
     Other accrued liabilities ...................................        (238)         (163)
     Deferred revenue ............................................         181          (147)
                                                                       -------       -------
                                                                       $  (637)      $(1,035)
                                                                       =======       =======
</TABLE>

6.   Segment Reporting

     Our chief operating decision maker, as defined by SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information," is our
chief executive officer. On October 11, 2001, we announced the hiring of a new
chief executive officer. Our new chief executive officer makes decisions about
resource allocation based on the organization as a whole. Accordingly, we now
operate in one reporting segment. Prior to the first quarter of 2002, decisions
made by our chief executive officer about allocating resources, which consist
primarily of personnel, and compensation of key employees were made based on the
operating results of two principal segments, license and service. Since we now
operate in one reportable segment, restatement of prior period information is
not necessary.

7.   Subsequent Event

     On August 13, 2002, in connection with a Note and Warrant Purchase
Agreement with SDS Merchant Fund, L.P. we issued a $3.1 million, three-year, 8%
convertible senior secured promissory note (the "Second Note") together with a
five-year Warrant. The security interest also extends to an earlier $3,500,000
note (the "First Note") with SDS dated January 3, 2002 (see Note 4). Proceeds of
$1,500,000 from the Second Note was used to reduce the balance outstanding on
the First Note, $100,000 was used to repay a bridge loan from SDS and $60,000
was paid as a commission, leaving us with net proceeds of approximately $1.4
million, excluding professional fees. The Warrant is initially exercisable into
2,625,000 shares of our common stock at an exercise price of $0.20 per share.
The Second Note and Warrant will be accounted for similarly to the First Note
and Warrant as described in Note 4.

                                       9

<PAGE>

ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
          RESULTS OF OPERATIONS

FORWARD-LOOKING INFORMATION AND SAFE HARBOR STATEMENT UNDER THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995.

     This report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. In addition, forward-looking statements may be made orally
or in press releases, conferences, reports, on our web site or otherwise, in the
future by us or on our behalf. Statements that are not historical are
forward-looking. When used by or on our behalf, the words "expect,"
"anticipate," "estimate," "believe," "intend" and similar expressions generally
identify forward-looking statements.

     Forward-looking statements involve risks and uncertainties. These
uncertainties include factors that affect all businesses operating in a global
market, as well as matters specific to us and the markets we serve. Particular
risks and uncertainties facing us at the present include our ability to raise
additional capital, in particular the ability to secure additional financing to
fund our operations for the remainder of 2002; the financial uncertainties
associated with continuing losses; our ability, including the financial ability,
to continue to invest in research and development necessary for the development
of new and existing products that are required to increase revenues; the timely
and successful development of existing and new markets; the severe impact that
the slowdown in the U.S. economy has had on the telecommunications industry,
forcing a number of service providers to cease operations, which has adversely
impacted the revenues of our equipment manufacturer customers and, therefore,
our revenues; the fact that some of our products are relatively new and,
although we see developing market interest, it is difficult to predict sales of
our newer products and the market may or may not ultimately adopt these
technologies; the fact that our sales cycle is long for our products, making
initial license sales and future royalties difficult to forecast; additional
difficulty in predicting royalty revenue because that revenue is dependent on
successful development and deployment by our customers of their products
containing our software; fluctuation from quarter to quarter in revenue from our
professional service unit as a result of a limited number of large consulting
contracts; loss of key customer, partner or alliance relationships and the
possibility that we may not be able to replace the loss of a significant
customer; the dependence on a limited number of customers for a significant
portion of our quarterly license revenues; size and timing of license fees
closed during the quarter which may result in large swings in quarterly
operating results and the likely continued significant percentage of quarterly
revenues recorded in the last month of the quarter, frequently in the last weeks
or even days of a quarter, which further adds to the difficulty of forecasting,
and our ability to control expenditures at a level consistent with revenues.

     Additionally, more general risk factors include the possible development
and introduction of competitive products and new and alternative technologies by
our competitors; the increasing sales and marketing costs of attracting new and
retaining existing customers; pricing, currency and exchange risks; governmental
and regulatory developments affecting us and our customers; the ability to
identify, conclude, and integrate acquisitions on a timely basis; the ability to
attract and/or retain essential technical or other personnel; political and
economic uncertainties associated with conducting business on a worldwide basis.
Readers are cautioned not to place undue reliance on any forward-looking
statement and to recognize that the statements are not predictions of actual
future results. Actual results could differ materially from those anticipated in
the forward-looking statements and from historical results, due to the risks and
uncertainties referred to above, as well as others not now anticipated. Further
risks inherent in our business are listed under "Risk Factors" in Part I, Item I
of our Annual Report on Form 10-K for the fiscal year ended December 31, 2001
and Item 3 of our Registration Statement on Form S-3 SEC File No. 333-96639.

     The foregoing statements and risk factors are not exclusive and further
information concerning us and our business, including factors that potentially
materially affect our financial results, may emerge from time to time. It is not
possible for management to predict all risk factors or to assess the impact of
such risk factors on our business. We undertake no obligation to revise or
publicly release the results of any revision to the forward-looking statements.

Background

     We are a telecommunications software and services solutions company. We
derive revenue primarily from software license fees, royalties and services,
including professional services, technical support and maintenance. Software
license fees consist primarily of licenses of our software products. Our
software license agreements generally do not provide for a right of return. We
maintain reserves for returns and potential credit losses, neither of which has
had a material effect on our results of operations or financial condition
through June 30, 2002.

     Pursuant to our license agreements, licensees may distribute their products
with binary or embedded versions of our software. Royalty revenues become due
upon shipment by the licensee of their products containing our software or when
we grant run-time licenses to our licensees. Due to the development times
required for licensees to design and ship products containing our software, we
generally do not receive royalties or run-time revenues from licensees shipments
of such products for at least three quarters from the date we initially ship our
software.

                                       10

<PAGE>

           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS (continued)

     We separately offer professional services, including system design and
engineering, custom application development, source code portation, conformance
testing and certification and application development. These services are
typically based on a detailed statement of work. Professional services revenue
varies according to the size, timing and complexity of the project and is
typically billed based on satisfaction of certain milestones or on a per day
fee. In certain cases, customers reimburse us for non-recurring engineering
efforts.

     Our technical support services consist of product support and maintenance,
training and on-site consulting. Product support and maintenance fees have
constituted the majority of technical support and service revenue.

     We sell products and services primarily through a direct sales force in the
United States and abroad and, in certain sales territories, through third party
agents. Our customers include telecommunications service providers and their
customers, network equipment manufacturers, independent software developers and
software platform vendors.

     Starting in 2000, and continuing through the second quarter of 2002, the
economic environment in the U.S. deteriorated and has remained weak. The
telecommunications sector has declined more significantly than the overall U.S.
economy and telecommunications companies in Europe, and to a lesser extent in
Asia, have also experienced downturns. These conditions adversely impacted us
starting in the second half of 2000 and have continued to date. During this
period a number of telecommunications service providers ceased operations or
sought bankruptcy protection, which in turn impacted telecommunication equipment
manufacturers, and their revenues generally declined. Equipment manufacturers
have historically comprised a significant portion of our customer base, and many
of our customers experienced significant revenue declines in the second half of
2000 that have continued. As a result, in 2000, 2001 and 2002, many of our major
customers have announced multiple staff layoffs, closed or sold business units,
and reduced purchases of development software and consulting services. Although
our second quarter 2002 revenues improved compared to the first quarter of 2002,
there is no industry consensus as to when the equipment manufacturers will see
an economic recovery and, therefore, when they will acquire new development
software, deploy products that include our software or need additional
consulting services revenues. However, we believe that both license and service
revenues will increase across 2002 as the economic conditions affecting the
telecommunications sector, and revenues to equipment manufacturers improve. In
addition, we believe that our newer product offerings, combined with our
professional service competencies, can expand our customer base and enable us to
enter additional markets such as network data mediation.

     As a consequence of the downturn in the telecommunications sector, our
revenues, including revenues from royalties based on shipments by our customers
of their products containing our software, have declined significantly when
compared to 1999. Our reduced revenues increased both our losses and our
negative cash flow. As a consequence, we must increase our revenues, reduce
costs, and/or secure additional funding in order to continue operating as a
going concern through the remainder of 2002.

Critical Accounting Policies and Estimates

     The Securities and Exchange Commission ("SEC") recently issued disclosure
guidance for "critical accounting policies." The SEC defines "critical
accounting policies" as those that require application of management's most
difficult, subjective or complex judgments, often as a result of the need to
make estimates about the effect of matters that are inherently uncertain and may
change in subsequent periods.

     Our significant accounting policies are described in Note 2 of the Notes to
Consolidated Financial Statements in our Annual Report on Form 10-K for the
fiscal year ended December 31, 2001. Not all of these significant accounting
policies require management to make difficult, subjective or complex judgments
or estimates. However, we believe the following accounting policies, which
affect our more significant judgments and estimates used in the preparation of
our consolidated financial statements, could be deemed to be critical within the
SEC definition.

     Allowance for doubtful accounts receivable. We maintain allowances for
doubtful accounts for estimated losses resulting from the inability of our
customers to make required payments. If the financial condition of our customers
were to deteriorate, resulting in an impairment of their ability to make
payments, additional allowances may be required.

        Goodwill. Goodwill represents the excess of the cost of an acquired
entity over the net of the amounts assigned to the assets acquired and
liabilities assumed. Goodwill of $4,742,000 and $7,320,000 arose from the
acquisitions of Expersoft Corporation in March 1999 and the acquisition of the
assets from Trigon Technology Group in May 2001. Effective January 1, 2002, we
adopted Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill
and Other Intangible Assets," which eliminates goodwill amortization and
requires an evaluation of goodwill for impairment (at the reporting unit level)
upon adoption, as well as subsequent evaluations on an annual basis, and more
frequently if circumstances indicate a possible impairment. The impairment test
required by SFAS No. 142 is comprised of two steps. The initial step is designed
to identify potential goodwill impairment by comparing an estimate of the fair
value of the applicable reporting unit to its carrying value, including
goodwill. If the carrying value exceeds fair value, a second step is performed,
which compares the implied fair value of the applicable reporting unit's
goodwill with the carrying amount of that goodwill, to measure the amount of
goodwill impairment, if any. As described in Note 6 of our Notes to Consolidated
Financial Statements included in this quarterly report, we currently operate in
one reportable segment, which is also our only reporting unit for purposes of
SFAS No. 142. Since we have only one reporting unit, all of our goodwill has
been assigned to our enterprise as a whole. We estimated the fair value of our
enterprise upon adoption of SFAS No. 142 on January 1, 2002 to be its market
capitalization, based on the closing share price quoted on The Nasdaq National
Market. Since our market capitalization of approximately $22,038,000 as of
January 1, 2002 exceeded the $10,544,000 carrying value of our enterprise on
that date we concluded goodwill did not appear impaired and that the second step
of the impairment test prescribed by SFAS No. 142 was not required to be
performed.

        SFAS No. 142 requires, however, we test goodwill for impairment if
circumstances indicate a possible impairment. During the six months ended June
30, 2002, the telecommunications sector continued to be adversely impacted by
the worst economic environment the U.S. economy has experienced in the last
decade. The market price of our common stock, and consequently our market
capitalization, declined steadily during the quarter ended March 31, 2002.
Although our market capitalization approximated our carrying value as of March
31, 2002, during the quarter ended June 30, 2002 it declined further. We believe
these circumstances indicated goodwill might be impaired as of June 30, 2002. We
have completed the first and second steps of the impairment test prescribed by
SFAS No. 142 and determined that as of June 30, 2002 goodwill was impaired. As a
result, during the quarter ended June 30, 2002 we recorded a goodwill impairment
charge of $4,795,000. We engaged a third-party valuation consultant to assist us
in determining the amount of the impairment charge. The primary method used to
determine fair values for SFAS No. 142 impairment purposes was the discounted
cash flow method. The discounted cash flow method resulted in a fair value of
our enterprise that approximated our market capitalization.

                                       11

<PAGE>

           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS (continued)

     Warrant Obligation. On January 3, 2002, in connection with a Note and
Warrant Purchase Agreement with SDS, we issued SDS a warrant initially
exercisable into 800,000 share of our common stock at an initial exercise price
of $0.9988 per share. This financing transaction is more fully described in Note
4 of our Notes to Consolidated Financial Statements included in this quarterly
report. EITF No. 00-19, "Accounting for Derivative Financial Instruments Index
to, and Potentially Settled in, a Company's Own Stock", requires that we
initially classify the warrant as a liability, since our agreement with SDS
could require us to net-cash settle the warrant, and that we adjust the carrying
value of the warrant obligation to its fair value on any given reporting date.
The warrant obligation was recorded on January 3, 2002, the financing
transaction commitment date, at its estimated fair value of $428,084, net of a
$76,916 discount. As of June 30, 2002, the fair value of the warrant was
estimated at $82,000. The decrease in the warrant fair value from January 3,
2002 to June 30, 2002 of approximately $347,000 was reflected as other income.

     The fair value of the warrant has been determined using the Black-Scholes
option-pricing model. A significant component of the Black-Scholes model is the
fair market value per share of our common stock. If the fair market value of our
common stock increases the fair value of the warrant obligation would likely
increase, resulting in a charge to other expense. If the fair market value of
our common stock decreases the fair value of the warrant obligation would likely
decrease, resulting in other income, as was the case for the first and second
quarters of 2002. For example, if the fair market value of our common stock on
June 30, 2002 was $1.00 per share, the fair value of the warrant obligation
determined using the Black-Scholes model, assuming all other variables remain
constant, would hypothetically have been approximately $781,000, resulting in a
charge of approximately

                                       12

<PAGE>

           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS (continued)

$353,000 to other expense for the first six months of 2002. Conversely, if the
fair market value of our common stock on June 30, 2002 was $0.05 per share, the
fair value of the warrant obligation determined using the Black-Scholes model,
assuming all other variables remain constant, would hypothetically have been
approximately $36,000, resulting in other income of approximately $392,000 for
the first six months of 2002. Given the volatility of our stock price, we cannot
predict the impact fluctuations in the fair market value of our stock price may
have on our consolidated statement of operations for any future period. We
expect similar accounting for the warrants issued to SDS in connection with the
Second Note, as described in Note 7 of our Notes to Consolidated Financial
Statements included in this quarterly report.

     Income taxes. We have recorded a valuation allowance to reduce our deferred
tax assets to zero. If we are able to realize our deferred tax assets in the
future, an adjustment to the deferred tax asset would increase income in the
period such determination was made.

     Fixed price service contracts. Professional service contracts are typically
fixed price contracts that are completed in six months or less. We recognize
revenue as work progresses using the percentage of completion method, which
relies on estimates of total expected contract revenue and costs. We utilize
this method since reasonably dependable estimates of the revenue and costs
applicable to various stages of a contract can be made. Recognized revenues and
profit are subject to revisions as the contract progresses to completion.
Revisions in profit estimates are charged to income in the period in which the
facts that give rise to the revision become known. Revenues from non-recurring
engineering projects are also typically recognized on a percentage of completion
basis and follow the same principles as fixed price service contracts.

Results of Operations

     Net Revenues. Net revenues decreased 42% to $2,054,000 for the three months
ended June 30, 2002 (the "second quarter of 2002") compared to $3,516,000 for
the three months ended June 30, 2001 (the "second quarter of 2001"), and
decreased 34% to $4,056,000 for the six months ended June 30, 2002 (the "first
half of 2002") compared to $6,114,000 for the six months ended June 30, 2001
(the "first half of 2001"). The decrease in both periods was due to lower
license and service revenues. Sequentially, however, net revenues increased 3%
from $2,002,000 for the three months ended March 31, 2002 (the "first quarter of
2002").

     Sales to customers outside the United States comprised approximately 44%
and 29% of net revenues in the second quarter of 2002 and 2001, respectively and
42% and 45% for the first half of 2002 and 2001, respectively. We have
historically reported a high percentage of sales to such customers and expect
international sales to continue to be significant to our business. If the U.S.
dollar strengthens significantly, we may not be able to remain competitive, or
we may have to reduce our prices in international markets. In addition,
competition and price pressure have increased both domestically and
internationally for professional services projects as our competitors and
customers have increasingly subcontracted for engineering services from lower
cost countries such as China and India. As with domestic sales, our sales cycle
is usually lengthy and results in quarterly fluctuations between geographic
markets. Finally, any political or economic turmoil in our major Asian markets
(China, Japan and Korea) could impact future sales in the affected area.

     For the second quarter of 2002, sales to Nokia and NEC America comprised
approximately 13% and 11% of our net revenues, respectively. No single customer
accounted for more than 10% of net revenues for the first half of 2002. For the
second quarter of 2001, sales to Alcatel and Efficient Networks each comprised
approximately 15% of our net revenues. Sales to Alcatel comprised approximately
16% of net revenues for the first half of 2001. At June 30, 2002, NEC America,
Tekview Co., Ltd., Alcatel, and Nokia Corporation comprised 16%, 15%, 15% and
11% of accounts receivable, respectively. At June 30, 2001, Alcatel, Tekview
Co., Ltd., and Efficient Networks comprised 21%, 15%, and 14% of accounts
receivable, respectively.

     License. License revenues consist primarily of license fees and royalties
derived from software products. We recognize revenue from the licensing of
software when persuasive evidence of an arrangement exists and the underlying
software products have been delivered. Most of our customer contracts contain
multiple software products or other elements, such as maintenance and
professional services. We typically deliver all software products included in a
multiple element contract shortly after the contract is executed, with any
service elements, such as maintenance or professional services being provided to
our customers over a period of time, generally less than twelve months. We
generally do not sell our software products separately and therefore cannot
readily determine their fair values. We do sell maintenance, in the form of
maintenance renewals, and professional services separately and have vendor
specific objective evidence (VSOE) of their fair values. Therefore, most of our
customer contracts are accounted for using the residual method, which requires
us to defer the fair value of undelivered elements (e.g. maintenance or
professional services) and recognize as revenue the residual value of the
customer contract. If a multiple element contract includes an undelivered
element for which we do not have VSOE of fair value, we defer the entire
contract value until

                                       13

<PAGE>

           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS (continued)

either the element is delivered or VSOE of its fair value is determined. If the
undelivered element of a multiple element contract is a service element, such as
maintenance or professional services, and we do not have VSOE of its fair value,
we recognize the entire contract value as revenue ratably over the term of the
service element. We recognize royalty revenues when reported by the customer for
non-license key controlled agreements, when the run-time license is shipped for
license key controlled agreements, or when a customer pays royalties in advance
on a non-refundable, non-cancelable basis.

     Historically license revenues have accounted for a substantial portion of
total revenue. License revenues decreased 52% to $990,000 during the second
quarter of 2002 from $2,079,000 during the second quarter of 2001, as a result
of lower licensing revenues across all products. License revenues decreased 34%
to $2,249,000 during the first half of 2002 from $3,415,000 during the first
half of 2001, primarily due to lower Telecommunications Management Network (TMN)
license and royalty revenues. While we expect TMN royalty revenues to increase
as the economy improves for telecommunication equipment manufacturers, TMN
revenues will continue to decline as a percentage of our license revenues.
Although TMN is an international standard, it has not been widely adopted in the
United States and our TMN sales are primarily in Asia. Over time, we expect that
our TMN revenues will be replaced by mediation license revenues.

     Service and Other. Service and other revenues consist primarily of
professional services, maintenance, technical support, non-recurring engineering
projects, training and other revenues. Professional service revenues typically
result from fixed price contracts to fulfill a statement of work for a customer
project, and are usually completed in six months or less. These revenues are
recognized based on the percentage of completion method. Maintenance revenues
are recognized ratably over the term of the maintenance contract. Revenues from
non-recurring engineering projects are also typically recognized on a percentage
of completion basis. Revenues from technical support, consulting and other
categories are usually recognized when the service is performed and no
obligations remain.

     Service and other revenues decreased 26% to $1,064,000 during the second
quarter of 2002 from $1,437,000 during the second quarter of 2001. The decrease
was primarily the result of lower professional service revenues ($315,000) due
to fewer and smaller projects and lower maintenance revenues due to non-renewal
of maintenance agreements, primarily on legacy products ($96,000). Service and
other revenues decreased 33% to $1,807,000 during the first half of 2002 from
$2,699,000 during the first half of 2001. The decrease was also primarily the
result of lower professional service revenues ($629,000) due to fewer and
smaller projects and lower maintenance revenues due to non-renewal of
maintenance agreements, primarily on legacy products ($301,000).

     Historically, our professional services revenues have been dependent on a
limited number of higher value consulting contracts from both new and existing
customers. While there is price pressure due to the lower volume of available
work and increased competition from lower cost countries, we believe that our
core competencies can be leveraged to increase our revenues in the remainder of
2002. Maintenance revenues should continue at approximately the same level for
the remainder of 2002.

     Cost of Revenues--License. Cost of license revenues consists primarily of
royalty fees paid for third party software incorporated in our products, the
cost of reproduction of our software and the user documentation, and delivery of
software. Cost of license revenues decreased 52% in the second quarter of 2002
to $24,000, or 2.4% of license revenue. The decrease was due primarily to lower
license revenues from software products that included royalty-bearing third
party software components for which we in turn would owe a royalty as well as a
reduction in staff in our manufacturing department. The second quarter of 2001
cost of license revenues was $50,000 or 2.4% of license revenues. Cost of
license revenues was $63,000 and $224,000 for the first half of 2002 and 2001,
respectively, representing 2.8% and 6.6%, respectively. For the remainder of
2002, third party software fees could fluctuate if the product sales mix changes
for existing products and could increase if we sell products that incorporate
third party software.

     Cost of Revenues--Service and other. Cost of service and other revenues
consists primarily of costs associated with performing professional consulting
services, software maintenance and customer technical support such as telephone
support, training services and non-recurring engineering services. In the second
quarter of 2001 these costs included approximately $533,000 related to
TicketExchange, which was formerly known as WebResolve. Cost of service revenues
was $892,000 and $1,853,000 for the second quarters of 2002 and 2001,
respectively, representing 84% and 129 % of service revenues, respectively. For
the first half of 2002 and 2001, cost of services was $1,931,000 and $3,625,000,
respectively, representing 107% and 134% of cost of service revenues
respectively. The decrease in cost of service revenues in 2002 was the result of
staff reductions in our professional services organization, the repositioning of
TicketExchange from a hosted service to a product license, as well as the
redeployment of certain engineering personnel from our professional service
organization to research and development. We anticipate that our cost of service
revenues for the remainder of 2002 will be marginally lower. However, to the
extent that new consulting service contracts do not materialize, our future
profit margins from services would be adversely impacted.

                                       14

<PAGE>

           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS (continued)

     Research and Development. The major components of research and development
(R&D) expenses are engineering salaries, employee benefits and associated
overhead, fees to outside contractors, cost of facilities and depreciation of
capital equipment, which consists primarily of computer and test equipment. In
some cases, customers reimburse R&D costs for non-recurring engineering
projects.

     We have historically made significant investments in research and
development. Our R&D expenditures are now concentrated in mediation software,
which is designed for the integration of telecom Operation Support Systems and
the underlying network equipment management systems, and in related
applications. Total R&D expenses increased 45% to $1,300,000 in the second
quarter of 2002 from $897,000 in the second quarter of 2001. Total R&D expenses
increased 47% to $2,589,000 in the first half of 2002 from $1,757,000 in the
first half of 2001. The increase in R&D expenses for the quarter was primarily
the result of higher payroll and related facilities costs ($383,000) and travel
expenses ($21,000) due to the addition of the R&D organization from Trigon
Technology Group on May 30, 2001 and the redeployment of certain engineering
personnel from our professional services organization to R&D in the first
quarter of 2002. The increase in R&D expenses for the first half was also
primarily the result of higher payroll and related facilities costs ($777,000)
and travel expenses ($53,000) due to the addition of the R&D organization from
Trigon Technology Group on May 30, 2001 and the redeployment of certain
engineering personnel from our professional services organization to R&D in the
first quarter of 2002. We expect our R&D costs to be lower for the remainder of
2002 due to reductions in personnel in May and August 2002. Lower net revenues
in future quarters could force us to reduce expenditures in future periods,
which could result in delays in development of new products and/or product
enhancements, which could further reduce net revenues.

     Sales and Marketing. Sales and marketing expenses consist primarily of
personnel and associated costs related to selling and marketing our products and
services, including trade shows and other promotional costs. We believe that
substantial sales and marketing expenditures are essential to developing
opportunities for revenue growth and sustaining our competitive position. Sales
and marketing expenses in the second quarter of 2002 were $1,424,000, or 6.4%
lower than the $1,521,000 incurred in the second quarter of 2001, lower third
party commissions ($78,000), and reduced marketing and public relations activity
in the form of trade shows, advertising and consultants ($71,000), which was
partially offset by higher travel expenses ($44,000). Sales and marketing
expenses in the first half of 2002 were $2,697,000, or 18.3% lower than the
$3,303,000 incurred in the first half of 2001. The decrease was primarily due to
lower third party commissions ($235,000), lower payroll, commission and related
facility costs ($277,000), reduced marketing and public relations activity in
the form of trade shows and advertising ($115,000), and lower recruiting
expenses ($31,000), which were partially offset by higher travel expenses
($118,000). As a percentage of revenues, sales and marketing expenses increased
in the second quarter of 2002 to 69.2% from 43.3% in the second quarter of 2001
and increased to 66.5% in the first half of 2002 as compared to 54.0% in the
first half of 2001, primarily due to the lower revenues.

     We expect our sales and marketing expenses to continue at the same level
for the remainder of 2002 as we have largely completed our restructuring of our
sales staff to take advantage of additional market opportunities, such as new
geographical regions where we have not previously done business and new sales
channels. However, lower net revenues in future quarters could force us to
reduce expenditures in future periods, which could limit our ability to
capitalize on market opportunities.

     General and Administrative. General and administrative expenses consist
primarily of salaries, employee benefits and other related expenses of
administrative, executive and financial personnel as well as professional fees
and investor relations costs. General and administrative expenses increased by
15.0% to $960,000 in the second quarter of 2002 from $835,000 in the second
quarter of 2001 primarily due to increased consulting expenses and professional
fees related to strategic initiatives ($206,000), which were partially offset by
lower payroll expenses ($40,000) and lower travel expenses ($28,000). General
and administrative expenses increased by 1.9% to $1,751,000 in the first half of
2002 from $1,718,000 in the first half of 2001. The increase in the first half
is primarily due to increased consulting expenses and professional fees as
described above ($216,000), which were partially offset by lower payroll
expenses and related facility costs ($102,000), lower board of directors fees
($50,000) and lower travel expenses ($37,000). We anticipate that general and
administrative expenses will be lower for the remainder of 2002 due to cost
reducing measures and staff reductions.

     Goodwill Amortization. Goodwill amortization was discontinued in 2002 as a
result of our required adoption on January 1, 2002 of SFAS No. 142 (See Note 2
to the Notes to Consolidated Financial Statements included in this quarterly
report). However, we recognized $361,000 of goodwill amortization during the
second quarter of 2001 and $599,000 in the first half of 2001. Had we not
recorded goodwill amortization during the second quarter of 2001 and first half
of 2001, as would have been the case if the provisions of SFAS No. 142 had been
in effect, pro forma net loss would have been $1,523,000 and $4,136,000,
respectively and pro forma basic and diluted net loss per common share would
have been $0.05 and $0.14, respectively.

                                       15

<PAGE>

          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                     AND RESULTS OF OPERATIONS (continued)

     Goodwill Impairment. We incurred a non-cash charge of $4,795,000 in the
second quarter of 2002 related to the impairment of goodwill according to the
provisions of SFAS No. 142. (See Note 3 to the Notes to Consolidated Financial
Statements included in this quarterly report).

     Operating Loss. We incurred losses from operations of $7,341,000 in the
second quarter of 2002, including a charge of $4,795,000 for goodwill
impairment, and $2,001,000 in the second quarter of 2001. The increased loss
from operations was primarily due to the goodwill impairment, lower revenues and
increased research and development and general and administration expenses as
discussed above, although this was partially offset by lower cost of revenues,
lower sales and marketing expenses and the elimination of goodwill amortization.
Operating loss for the first half of 2002 was $9,770,000 as compared to
$5,112,000 in the first half of 2001. The increased loss from operations was
primarily due to the goodwill impairment, lower revenues and increased research
and development and general and administration expenses as discussed above,
although this was partially offset by lower cost of revenues, lower sales and
marketing and the elimination of goodwill amortization.

     Other Income, Net. In the second quarter of 2002, other income, net
consisted primarily of interest income ($7,000), net sublease income ($25,000)
and a non-cash gain ($187,000) based on the change in the fair value of the
Warrant obligation arising from the issuance of a convertible promissory note
and Warrant as described in Note 4 of our Notes to Consolidated Financial
Statements included in this quarterly report. These items were partially offset
by non-cash interest expense related to the convertible promissory note
($48,000) and the amortization of an imputed discount related to the convertible
promissory note ($120,000). For the first half of 2002, other income, net
consisted primarily of interest income ($28,000), net sublease income ($50,000)
and a non-cash gain ($347,000) based on the change in the fair value of the
Warrant obligation arising from the issuance of a convertible promissory note
and Warrant. These items were partially offset by non-cash interest expense
related to the convertible promissory note ($97,000) and the amortization of an
imputed discount related to the convertible promissory note ($227,000). In the
second quarter of 2001, other income, net of $121,000 consisted primarily of
interest income ($95,000) and net sublease income ($26,000). For the first half
of 2001, other income, net of $295,000 consisted primarily of interest income
($238,000) and net sub-lease income ($52,000).

     Income Tax (Provision) Benefit. We recorded a provision for income taxes of
$21,000 in the second quarter of 2002 compared to a provision of $4,000 in the
second quarter of 2001. The provision in 2002 and 2001 was due primarily to a
provision for foreign taxes. For the first half of 2002 we recorded a tax
provision of $44,000 as compared to a benefit of $82,000 in the first half of
2001. The benefit in 2001 was due to the expiration of certain tax contingencies
($113,000). The income tax provisions are primarily for non-U.S. taxes as we
anticipate utilizing net operating losses to offset any pre-tax income.

Liquidity and Capital Resources

     Cash and cash equivalents at June 30, 2002 decreased to $714,000 from
$2,851,000 at December 31, 2001. The decrease in cash was primarily due to cash
used in operations of $5,299,000, which was partially offset by cash proceeds of
$3,395,000 from the issuance of a convertible promissory note and Warrant to
SDS.

     Net cash used for operating activities during the first half of 2002 was
$5,299,000 compared to $4,541,000 used for operating activities in the first
half of 2001. The negative cash flow from operations in the first half of 2002
was primarily the result of the net loss ($9,715,000), an increase in prepaid
expenses due to the timing of insurance payments ($356,000), cash payments for
restructuring expenses ($124,000) and a decrease in accrued liabilities
($238,000). These amounts were partially offset by an increase in deferred
revenue ($181,000) and the non-cash items of interest ($323,000), goodwill
impairment ($4,795,000) and depreciation ($279,000), which in turn were
partially offset by a decrease in the fair value of the Warrant obligation
($347,000).

     Net cash used for investing activities was $201,000 in the first half of
2002 compared to $1,924,000 used in the first half of 2001. Net cash used for
investing in 2002 resulted from purchases of property and equipment ($94,000)
and an increase in other assets ($107,000).

     Net cash provided by financing activities was $3,395,000 in the first half
of 2002 compared to $187,000 provided in the first half of 2001. Net cash
provided by financing was derived from the proceeds from the issuance of a
convertible promissory note and Warrant to SDS in January 2002.

                                       16

<PAGE>

           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS (continued)

     Effective May 23, 2002, our common stock began trading on The Nasdaq
SmallCap Market (sm). Prior to that date, our common stock traded on The Nasdaq
National Market (R). As of May 23, 2002, we met all of the continued inclusion
criteria for The Nasdaq SmallCap Market, except for the minimum $1.00 bid price
per share requirement set forth in Marketplace Rule 4310(c)(4). Nasdaq granted
us an extension until August 13, 2002 to regain compliance with the $1.00
minimum bid price requirement. Additionally, because one of our independent
directors resigned on May 23, 2002 we no longer met the requirement to have
three independent directors on our audit committee. Nasdaq granted us an
extension until August 19, 2002 to add additional independent directors to our
Board of Directors to meet the audit committee requirement. We have not regained
compliance with the $1.00 minimum bid requirement. However, we do expect to meet
the audit committee requirement by Nasdaq's deadline. As a result, The Nasdaq
Stock Market, Inc. will now evaluate whether to grant us an additional grace
period of up to 180 days to regain compliance with the $1.00 minimum bid
requirement. Generally, we would be granted such an extension under our
circumstances. However, because of the non-cash charge for goodwill impairment
recorded by us in the second fiscal quarter of 2002 (see Note 3 to the Notes to
Consolidated Financial Statements included in this quarterly report), our
Shareholders' Equity does not satisfy the initial listing requirement for The
Nasdaq SmallCap Market. Nasdaq has indicated that they would be looking at the
SmallCap initial listing requirements when evaluating whether to grant us the
additional 180-day grace period to regain compliance with the $1.00 minimum bid
price rule. On August 14, 2002, we received a Nasdaq Staff Determination letter
indicating that we fail to comply with the minimum bid price requirements. As a
result Nasdaq indicated that our shares are subject to delisting on August 22,
2002. We are currently evaluating our options, including appealing Nasdaq's
determination. If we appeal the delisting determination and our appeal is
unsuccessful, or if we choose not to appeal , our common stock would be delisted
from The Nasdaq SmallCap Market and we may be unable to have our common stock
listed or quoted on any other organized market. Even if our common stock is
quoted or listed on another organized market, an active trading market may not
develop.

     We have reported operating losses from continuing operations for each of
the most recent five fiscal years. For the six months ended June 30, 2002 we
reported operating losses of $9,770,000, which includes a goodwill impairment
charge of $4,795,000, and negative cash flows from operations of $5,299,000. As
of June 30, 2002, we had an accumulated deficit of $92,355,000 and negative
working capital of $570,000, which includes cash of $714,000. During the first
quarter of 2002, we received net proceeds of approximately $3,395,000 from the
sale of a convertible promissory note and the issuance of a common stock warrant
(See Note 4 to the Notes to Consolidated Financial Statements included in this
quarterly report). Substantially all of the proceeds from this transaction were
used by us during the six months ended June 30, 2002. On August 13, 2002, we
received net proceeds of approximately $1.4 million from the sale of a second
convertible promissory note and the issuance of another common stock warrant
(See Note 7 to the Notes to Consolidated Financial Statements included in this
quarterly report). These conditions raise substantial doubt about our ability to
continue as a going concern and, therefore, we may be unable to realize our
assets and discharge our liabilities in the normal course of business. Our plans
to overcome these conditions include increasing revenues, reducing expenses and
raising additional equity capital. In the first half of 2002, we added
additional sales personnel with the intention of increasing revenues. Since the
beginning of the year through August 13, 2002, we have reduced the total number
of employees by approximately 40% and implemented other cost reduction
initiatives. We continue to look for cost reduction opportunities and we expect
to enter the fourth quarter of 2002 with a quarterly cash expense burn rate of
approximately $3 million. Although we plan to increase revenues and continue
reducing expenses, we believe it is likely we may require additional financing
in the fourth quarter of 2002 in order to fund planned operations for the
remainder of 2002 and 2003. We continue to seek short term financing and a
longer term financing solution. We cannot assure that we will be able to
increase our revenues, or that our expense reduction programs will be
successful, or that additional financing will be available to us, or, if
available, on terms that will be satisfactory to us. If we are not successful in
reducing our expenses or raising sufficient additional capital, or if we do not
achieve revenues at levels sufficient to generate operating income, we may not
be able to continue as a going concern. Our financial statements do not include
any adjustments relating to the recoverability and classification of recorded
asset amounts nor to amounts and classification of liabilities that may be
necessary should we be unable to continue as a going concern.

     As of August 13, 2002, our long-term liquidity needs consist of obligations
under convertible promissory notes and operating lease commitments related to
facilities and office equipment. As of June 30, 2002, we had $3,170,000 of debt
outstanding in the form of a convertible promissory note payable (the "First
Note") to SDS Merchant Fund, L.P. ("SDS")(See Note 4 to the Notes to
Consolidated Financial Statements included in this quarterly report). On August
13, 2002, we received net proceeds of approximately $1.4 million from the
issuance to SDS of a $3,100,000 convertible promissory note (the "Second Note")
and a common stock warrant (See Note 7 of the Notes to Consoldated Financial
Statements included in this quarterly report). Proceeds of $1,500,000 from the
Second Note and Warrant were used to reduce the balance outstanding under the
First Note. As of August 13, 2002, the combined amount payable under the First
Note and Second Note amounted to $1,660,000.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

     (a)  Quantitative Information About Market Risk.

     Our exposure to market risk for changes in interest rates relates primarily
to our investment portfolio. We maintain an investment policy that ensures the
safety and preservation of our invested funds by limiting default risk, market
risk and investment risk. As of June 30, 2002, we had $714,000 of cash and cash
equivalents with a weighted average variable rate of 0.36%, and no short-term
investments. As of June 30, 2001, we had $4,176,000 of cash and cash equivalents
and $3,000,000 of short-term investments with a weighted average variable rate
of 3.71% and 4.04%, respectively.

     At June 30, 2002 we had long-term debt of $3,170,000 (see Note 4 to the
Notes to Consolidated Financial Statements included in this quarterly report)
related to a promissory note payable to SDS Merchant Fund L.P. and no short-term
debt. At June 30, 2001, we had $100,000 of short-term debt related to the Trigon
transaction which was fully paid in July 2001 and no long-term debt.

                                       17

<PAGE>

     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK (continued).

     (b)  Qualitative Information About Market Risk

     While our consolidated financial statements are prepared in United States
Dollars, a portion of our worldwide operations have a functional currency other
than the United States Dollar. In particular, we maintain operations in Germany,
Korea, the Netherlands, and Poland, where the functional currencies are: Euro,
Won, Euro, and Zloty, respectively. Most of our revenues are denominated in the
United States Dollar. Fluctuations in exchange rates may have a material adverse
effect on our results of operations and could also result in exchange losses.
The impact of future exchange rate fluctuations cannot be predicted adequately.
To date, exchange fluctuations have not had a material impact on our earnings
and we have not sought to hedge the risks associated with fluctuations in
exchange rates, but may undertake such transactions in the future. We do not
have a policy relating to hedging. There can be no assurance that any hedging
techniques implemented by us would be successful or that our results of
operations will not be materially adversely affected by exchange rate
fluctuations. Our foreign assets are not material.

     We mitigate default and interest rate risk by investing in high credit
quality securities and by constantly positioning our portfolio to respond
appropriately to a significant reduction in a credit rating of any investment
issuer or guarantor and by placing our portfolio under the management of
professional money managers who invest within specified parameters established
by the Board of Directors. The portfolio includes only marketable securities
with active secondary or resale markets to ensure portfolio liquidity and
maintains a prudent amount of diversification.

PART II.  OTHER INFORMATION

ITEM 1.   LEGAL PROCEEDINGS

          Neither the Company nor any of its subsidiaries is a party to, nor is
     their property the subject of, any material pending legal proceeding. The
     Company may, from time to time, become a party to various legal proceedings
     arising in the normal course of its business.

ITEM 2.   CHANGES IN SECURITIES AND USE OF PROCEEDS

               Not applicable.

ITEM 3.   DEFAULTS UPON SENIOR SECURITIES

               Not applicable.

PART II.  OTHER INFORMATION (continued)


ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

(a)  Our annual meeting of shareholders was held on May 23, 2002.

(b)  The following Class II directors were elected at the annual meeting: Marc
     E. Maassen and Hai-Perng ("Alex") Kuo.

     Voting results for the election of all director nominees were as follows:

                                 In Favor       Withhold       Broker Non-Votes
       Marc E. Maassen          27,144,833       430,085              N/A
       Hai-Perng ("Alex")       27,170,193       404,725              N/A
       Kuo

     The current term for Class I directors, including, Robert T. Flood, Cyrus
     D. Irani and Jack P. Reily (*), will continue until the 2003 annual meeting
     of shareholders.
     (*) Mr. Reily resigned as a director on May 24, 2002.

(c)  The other matters voted upon at the meeting, and results of those votes,
     were as follows:

     (I)         Proposal to ratify the appointment of Deloitte & Touche LLP as
                 independent auditors for the Company for the fiscal year ending
                 December 31, 2002.

                      In Favor      Opposed       Abstain      Broker Non-Votes
                     27,337,215      179,917       57,786             N/A

                                       18

<PAGE>

                          OTHER INFORMATION (continued)

ITEM 5.   OTHER INFORMATION

               None.

ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K

(a)  EXHIBITS

     The exhibits required to be furnished are listed in the Exhibit List
     following this Report

(b)  REPORTS ON FORM 8-K

     On May 9, 2002 we filed a Current Report on Form 8-K in connection with
     reporting our first quarter 2002 financial results.

     On May 23, 2002 we filed a Current Report on Form 8-K in connection with
     the transfer of the listing of our common stock to The Nasdaq SmallCap
     Market, effective with the market opening on May 23, 2002.

                                       19

<PAGE>

                                   SIGNATURES

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

                                     VERTEL CORPORATION

                        (Registrant)

Date: August 14, 2002                /s/ CRAIG S. SCOTT
                                     -------------------------------------------
                                     Craig S. Scott
                                     Vice President, Finance and Administration,
                                     Chief Financial Officer and Secretary
                                     (Principal Financial Officer and Principal
                                     Accounting Officer)

                                       20

<PAGE>

                                  EXHIBIT INDEX

  Number                               Description
  ------                               -----------

2.1          Agreement and Plan of Reorganization and Liquidation, dated May 30,
             2001, by and between Vertel Corporation and Trigon Technology
             Group, Inc. (incorporated by reference to Exhibit 2.1 of the
             Registrant's Current Report on Form 8-K dated May 30, 2001,
             Commission File No. 000-19640).

3.1          Amended and Restated Articles of Incorporation of the Registrant
(and 4.1)    (incorporated by reference to Exhibit 3.3 of the Registrant's
             Quarterly Report on Form 10-Q for the quarter ended September 30,
             2000, Commission File No. 000-19640).

3.2          Bylaws of the Registrant, as amended to date (incorporated by
(and 4.2)    reference to Exhibit 3.4 of the Registrant's Annual Report on Form
             10-K for the year ended December 27, 1997, Commission File No.
             000-19640).

3.3          Certificate of amendment to Registrant's Articles of Incorporation,
(and 4.1)    as filed with the California Secretary of State on April 7, 1998,
             changing the Company's name to Vertel Corporation (incorporated by
             reference to Exhibit 3.5 of the Registrant's Current Report on Form
             8-K dated April 7, 1998, Commission File No. 000-19640).

3.4          Preferred Shares Rights Agreement dated as of April 29, 1997 with
             Chase Mellon Shareholder Services, LLC (and 4.3) (incorporated by
             reference to Exhibit 1 of the Registrant's Registration Statement
             on Form 8-A filed on April 30, 1997, Commission File No.
             000-19640).

4.4          Note and Warrant Purchase Agreement dated August 31, 2001 by and
             between Vertel Corporation and SDS Merchant Fund, L.P.
             (incorporated by reference to Exhibit 4.1 of the Registrant's
             Current Report on Form 8-K dated August 31, 2001, Commission File
             No. 000-19640).

4.5          Form of $3,500,000 Convertible Promissory Note dated August 31,
             2001 by and between SDS Merchant Fund, L.P. (incorporated by
             reference to Exhibit 4.2 of the Registrant's Current Report on Form
             8-K dated August 31, 2001, Commission File No. 000-19640).

4.6          Warrant dated August 31, 2001 by and between Vertel Corporation and
             SDS Merchant Fund, L.P. (incorporated by reference to Exhibit 4.3
             of the Registrant's Current Report on Form 8-K dated August 31,
             2001, Commission File No. 000-19640).

10.1         1991 Employee Stock Purchase Plan (incorporated by reference to
             Exhibit 10.5 of the Registrant's Quarterly Report on Form 10-Q for
             the quarter ended September 26, 1992, Commission File No.
             000-19640).

10.2         Form of subscription agreement under 1991 Employee Stock Purchase
             Plan (incorporated by reference to Exhibit 10.5 of the Registrant's
             Quarterly Report on Form 10-Q for the quarter ended September 26,
             1992, Commission File No. 000-19640).

10.3         Amended 1996 Directors' Stock Option Plan (incorporated by
             reference to Exhibit 10.75 of the Registrant's Annual Report on
             Form 10-K for the year ended December 31, 1999, Commission File No.
             000-19640).

10.4         Form of Option Agreement under 1996 Directors' Stock Option Plan
             (incorporated by reference to Exhibit 10.75 of the  Registrant's
             Annual Report on Form 10-K for the year ended December  31, 1999,
             Commission File No. 000-19640).

10.5         Amended 1998 Stock Option Plan (incorporated by reference to
             Exhibit 10.76 of the Registrant's Annual Report on Form 10-K for
             the year ended December 31, 1999, Commission File No. 000-19640).

10.6         Form of Option Agreement under 1998 Stock Option Plan (incorporated
             by reference to Exhibit 10.76 of the Registrant's Annual Report on
             Form 10-K for the year ended December 31, 1999, Commission File No.
             000-19640).

10.7         Vertel Corporation 2000 Stock Option Plan (incorporated by
             reference to Exhibit 10.81 of the Registrant's Quarterly Report on
             Form 10-Q for the quarter ended June 30, 2000, Commission File No.
             000-19640).

10.8         2001 Nonqualified Stock Option Plan (incorporated by reference to
             Exhibit 5.1 of the Registrant's Current Report on Form 8-K dated
             May 30, 2001, Commission File No. 000-19640).

10.9         Form of Notice of Stock Option (incorporated by reference to
             Exhibit 5.2 of the Registrant's Current Report on Form 8-K dated
             May 30, 2001, Commission File No. 000-19640).

                                       21

<PAGE>

  Number                               Description
  ------                               -----------

10.10        Grant and Form of Stock Option Agreement with attached Notice of
             Exercise (incorporated by reference to Exhibit 5.3 of the
             Registrant's Current Report on Form 8-K dated May 30, 2001,
             Commission File No. 000-19640).

10.11        Lease Agreement between the Registrant and Moorpark Associates, a
             California Limited Partnership, dated February 5, 1993
             (incorporated by reference to Exhibit 10.22 of the Registrant's
             Annual Report on Form 10-K for the year ended January 2, 1993,
             Commission File No. 000-19640).

10.12        Lease Agreement between the Registrant and Nomura-Warner Center
             Associates, L.P., dated November 26, 1996 (incorporated by
             reference to Exhibit 10.48 of the Registrant's Annual Report on
             Form 10-K for the year ended December 28, 1996, Commission File No.
             000-19640).

10.13        Form of Retention Agreement between the Company and each of its
             officers (incorporated by reference to Exhibit 10.68 of the
             Registrant's Annual Report on Form 10-K for the year ended December
             31, 1998, Commission File No. 000-19640).

10.14        Employment Agreement between the Company and Tonia G. Graham dated
             July 5, 2000 (incorporated by reference to Exhibit 10.82 of the
             Registrant's Annual Report on Form 10-K for the year ended December
             31, 2000, Commission File No. 000-19640).

10.15        Employment Agreement between the Company and Craig S. Scott dated
             December 1, 2000 (incorporated by reference to Exhibit 10.83 of the
             Registrant's Annual Report on Form 10-K for the year ended December
             31, 2000, Commission File No. 000-19640).

10.16        Employment Agreement between the Company and Alex Kuo dated May 30,
             2001 (incorporated by reference to Exhibit 10.85 of the
             Registrant's Quarterly Report on Form 10-Q for the quarter ended
             September 30, 2001, Commission File No. 000-19640).

10.17        Retention and Severance Agreement between the Company and Alex Kuo
             dated May 30, 2001 (incorporated by reference to Exhibit 10.86 of
             the Registrant's Quarterly Report on Form 10-Q for the quarter
             ended September 30, 2001, Commission File No. 000-19640).

10.18        Non-Competition and Non-Disclosure Agreement between the Company
             and Alex Kuo dated May 30, 2001 (incorporated by reference to
             Exhibit 10.87 of the Registrant's Quarterly Report on Form 10-Q for
             the quarter ended September 30, 2001, Commission File No.
             000-19640).

10.19        Form of Indemnification Agreement with the Company's officers and
             directors (incorporated by reference to Exhibit 10.22 of the
             Registrant's Annual Report on Form 10-K for the year ended
             December 31, 2001, Commission File No. 000-19640).

10.20        Employment Agreement between the Company and Marc E. Maassen dated
             October 11, 2001 (incorporated by reference to Exhibit 10.20 of the
             Registrant's Quarterly Report on Form 10-Q for the quarter ended
             March 31, 2002, Commission File No. 000-19640).

10.21        Employment Agreement between the Company and Stephen J. McDaniel
             dated January 1, 2002 (incorporated by reference to Exhibit 10.20
             of the Registrant's Quarterly Report on Form 10-Q for the quarter
             ended March 31, 2002, Commission File No. 000-19640).

10.22        Employment Agreement between the Company and E. Carey Walters dated
             January 1, 2002 (incorporated by reference to Exhibit 10.20 of the
             Registrant's Quarterly Report on Form 10-Q for the quarter ended
             March 31, 2002, Commission File No. 000-19640).

10.23        Employment Agreement between the Company and David J. Baumgarten
             dated February 1, 2002 (incorporated by reference to Exhibit 10.20
             of the Registrant's Quarterly Report on Form 10-Q for the quarter
             ended March 31, 2002, Commission File No. 000-19640).

11.1         Statement re: Computation of per share earnings (filed herewith).

99.1         Certification Pursuant to 18 U.S.C. Section 1350, As Adopted
             Pursuant to Section 906 Of The Sabanes-Oxley Act Of 2002 (filed
             herewith).

99.2         Certification Pursuant to 18 U.S.C. Section 1350, As Adopted
             Pursuant To Section 906 Of The Sarbanes-Oxley Act Of 2002 (filed
             herewith).

                                       22