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SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

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FORM
10-Q

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(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, 2003
| |  | --------------------------------------------

OR

| | o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
| | - | ----------------------------------------------------------------------------------------

| |  | For the transition period fromto
| |  | --------------------------------

Commission File Number 0-19640

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VERTEL
CORPORATION

(Exact name of Registrant as specified in its charter)

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| | California(Stateorotherjurisdictionofincorporationororganization) |  | 95-3948704(I.R.S.EmployerIdentificationNo.) | 
| | ----------------------------------------------------------------- |  | ------------------------------------------- | 

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)

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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past ninety days. Yes x No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2
of the Exchange Act). Yes o No x

As of June 30, 2003 there were 38,516,292 common shares
outstanding with a par value of $0.01 per share.

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##### Table of Contents



VERTEL CORPORATION



|        |  |                       |  |                                                                                      |   
|------- |  | --------------------- |  | ------------------------------------------------------------------------------------ | --
|        |  |                       |  |                                                                                      |   
|Part I  |  | Financial Information | 
|        |  |                       |  |                                                                                      |   
|        |  | Item 1.               |  | Financial Statements                                                                 |   
|        |  |                       |  |                                                                                      |   
|        |  |                       |  | Consolidated Balance Sheet                                                           | 3 
|        |  |                       |  |                                                                                      |   
|        |  |                       |  | Consolidated Statement of Operations and Comprehensive Loss                          | 4 
|        |  |                       |  |                                                                                      |   
|        |  |                       |  | Consolidated Statement of Cash Flows                                                 | 5 
|        |  |                       |  |                                                                                      |   
|        |  |                       |  | Notes to Financial Statements                                                        | 6 
|        |  |                       |  |                                                                                      |   
|        |  | Item 2.               |  | Managements Discussion and Analysis of Financial Condition and Results of Operation | 14
|        |  |                       |  |                                                                                      |   
|        |  | Item 3.               |  | Quantitative and Qualitative Disclosures About Market Risk                           | 24
|        |  |                       |  |                                                                                      |   
|        |  | Item 4.               |  | Controls and Procedures                                                              | 24
|        |  |                       |  |                                                                                      |   
|Part II |  | Other Information     | 
|        |  |                       |  |                                                                                      |   
|        |  | Item 1.               |  | Legal Proceedings                                                                    | 25
|        |  |                       |  |                                                                                      |   
|        |  | Item 2.               |  | Changes in Securities and Use of Proceeds                                            | 25
|        |  |                       |  |                                                                                      |   
|        |  | Item 3.               |  | Defaults Upon Senior Securities                                                      | 25
|        |  |                       |  |                                                                                      |   
|        |  | Item 4.               |  | Submission of Matters to Vote of Security Holders                                    | 25
|        |  |                       |  |                                                                                      |   
|        |  | Item 5.               |  | Other Information                                                                    | 25
|        |  |                       |  |                                                                                      |   
|        |  | Item 6.               |  | Exhibits and Reports on Form 8-K                                                     | 25
|        |  |                       |  |                                                                                      |   

Forward-Looking Statements

This document includes certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on managements
current expectations and are subject to uncertainty and changes in circumstances. Actual results may differ materially from these expectations due to changes in global, political, economic, business, competitive, market and regulatory
factors.

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PART I.
FINANCIAL INFORMATION

| | ITEM 1. | FINANCIAL STATEMENTS
| | ------- | --------------------

VERTEL CORPORATIONCONSOLIDATED BALANCE
SHEET(in thousands, except share amounts)



|                                                                                                                                |  | June30,2003 |          | December31,2002 |  
|------------------------------------------------------------------------------------------------------------------------------- |  | ----------- | -------- | --------------- | -
|                                                                                                                                |  |             |          |                 |  
|                                                                                                                                |  |             |          |                 |  
|ASSETS                                                                                                                          |  |             |          |                 |  
|                                                                                                                                |  |             |          |                 |  
|Current Assets:                                                                                                                 |  |             |          |                 |  
|Cash and cash equivalents                                                                                                       |  | $           | 233      |                 | $
|Accounts receivable (net of allowances of $1 for 2003 and $461 for 2002                                                         |  |             | 470      |                 |  
|Prepaid expenses and other current assets                                                                                       |  |             | 179      |                 |  
|                                                                                                                                |  |             |          |                 |  
|Total current assets                                                                                                            |  | $           | 882      |                 | $
|Fixed and Other Assets:                                                                                                         |  |             |          |                 |  
|Property and equipment, net                                                                                                     |  | $           | 89       |                 | $
|Investments                                                                                                                     |  |             | 27       |                 |  
|Goodwill                                                                                                                        |  |             | 754      |                 |  
|Other assets                                                                                                                    |  |             | 378      |                 |  
|                                                                                                                                |  |             |          |                 |  
|Total Assets                                                                                                                    |  | $           | 2,130    |                 | $
|                                                                                                                                |  |             |          |                 |  
|                                                                                                                                |  |             |          |                 |  
|LIABILITIES AND SHAREHOILDERS EQUITY (DEFICIT)                                                                                 |  |             |          |                 |  
|                                                                                                                                |  |             |          |                 |  
|Current Liabilities:                                                                                                            |  |             |          |                 |  
|Accounts payable                                                                                                                |  | $           | 166      |                 | $
|Accrued wages and related liabilities                                                                                           |  |             | 219      |                 |  
|Accrued taxes payable                                                                                                           |  |             | 358      |                 |  
|Other accrued liabilities                                                                                                       |  |             | 1,512    |                 |  
|Notes payable                                                                                                                   |  |             | 3,782    |                 |  
|Warrant obligation                                                                                                              |  |             | 303      |                 |  
|Deferred revenues                                                                                                               |  |             | 514      |                 |  
|                                                                                                                                |  |             |          |                 |  
|Total current liabilities                                                                                                       |  | $           | 6,854    |                 | $
|                                                                                                                                |  |             |          |                 |  
|Commitments (Note 8)                                                                                                            |  |             |          |                 |  
|                                                                                                                                |  |             |          |                 |  
|Shareholders Equity (Deficit):                                                                                                 |  |             |          |                 |  
|Preferred stock, par value $0.01, 2,000,000 shares authorized; none issued and outstanding                                      |  | $           |         |                 | $
|Common stock, par value $0.01, 100,000,000 shares authorized; shares issued and outstanding: 2003: 38,516,292; 2002:
34,534,253 |  |             | 385      |                 |  
|Additional paid-in capital                                                                                                      |  |             | 97,102   |                 |  
|Accumlated deficit                                                                                                              |  |             | (101,896 | )               |  
|Accumulated other comprehensive loss                                                                                            |  |             | (315     | )               |  
|                                                                                                                                |  |             |          |                 |  
|Total shareholders equity (deficit)                                                                                            |  | $           | (4,724   | )               | $
|                                                                                                                                |  |             |          |                 |  
|Total liabilities and shareholders equity (deficit)                                                                            |  | $           | 2,130    |                 | $
|                                                                                                                                |  |             |          |                 |  

See accompanying notes to consolidated financial statements.

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VERTEL CORPORATIONCONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE LOSS(in thousands, except per share amounts)



|                                                                                                       |  | ThreeMonthPeriodEndedMarch 31 |        | SixMonthPeriodEndedJune 30 |  
|------------------------------------------------------------------------------------------------------ |  | ----------------------------- | ------ | -------------------------- | -
|                                                                                                       |  |                               |        |                            |  
|                                                                                                       |  | 2003                          |        | 2002                       |  
|                                                                                                       |  |                               |        |                            |  
|Net revenues:                                                                                          |  |                               |        |                            |  
|Licenses                                                                                               |  | $                             | 255    |                            | $
|Service and other                                                                                      |  |                               | 313    |                            |  
|                                                                                                       |  |                               |        |                            |  
|Total net revenues                                                                                     |  | $                             | 568    |                            | $
|Cost of revenues:                                                                                      |  |                               |        |                            |  
|Licenses                                                                                               |  | $                             | 18     |                            | $
|Service and other                                                                                      |  |                               | 329    |                            |  
|                                                                                                       |  |                               |        |                            |  
|Total cost of Revenues                                                                                 |  | $                             | 347    |                            | $
|                                                                                                       |  |                               |        |                            |  
|Gross profit                                                                                           |  | $                             | 221    |                            | $
|Operating expenses:                                                                                    |  |                               |        |                            |  
|Research and development                                                                               |  | $                             | 531    |                            | $
|Sales and marketing                                                                                    |  |                               | 764    |                            |  
|General and administrative                                                                             |  |                               | 875    |                            |  
|Goodwill amortization                                                                                  |  |                               |       |                            |  
|Goodwill impairment                                                                                    |  |                               |       |                            |  
|                                                                                                       |  |                               |        |                            |  
|Total operating expenses                                                                               |  | $                             | 2,170  |                            | $
|                                                                                                       |  |                               |        |                            |  
|Operating Loss                                                                                         |  | $                             | (1,949 | )                          | $
|Other income (expense), net                                                                            |  |                               | (440   | )                          |  
|                                                                                                       |  |                               |        |                            |  
|Loss before provision for income taxes                                                                 |  | $                             | (2,389 | )                          | $
|Provision (benefit) for income taxes                                                                   |  |                               | (15    | )                          |  
|                                                                                                       |  |                               |        |                            |  
|Net Loss                                                                                               |  | $                             | (2,404 | )                          | $
|Other comprehensive income (loss)                                                                      |  |                               | 31     |                            |  
|                                                                                                       |  |                               |        |                            |  
|Comprehensive loss                                                                                     |  | $                             | (2,373 | )                          | $
|                                                                                                       |  |                               |        |                            |  
|Basic and diliuted net loss per common share                                                           |  | $                             | (0.07  | )                          | $
|                                                                                                       |  |                               |        |                            |  
|Weighted average shares outstanding used in net loss per common share calculations - basic and diluted |  |                               | 36,196 |                            |  

See accompanying notes to consolidated financial
statements.

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VERTEL CORPORATIONCONSOLIDATED STATEMENT OF CASH FLOWS(in thousands)



|                                                                                           |  | SixMonthPeriodEndedJune 30 |       
|------------------------------------------------------------------------------------------ |  | -------------------------- | ------
|                                                                                           |  |                            |       
|                                                                                           |  | 2003                       |       
|                                                                                           |  |                            |       
|Cash flows from operating activities:                                                      |  |                            |       
|Net Loss                                                                                   |  | $                          | (4,297
|Adjustments to reconcile net loss to net cash provided by (used for) operating activities: |  |                            |       
|Depreciation and amortization                                                              |  | $                          | 75    
|Goodwill Impairment                                                                        |  |                            |      
|Reserve for returns and bad debts                                                          |  |                            | 139   
|Change in fair value of warrant obligation                                                 |  |                            | (69   
|Non-cash interest expense                                                                  |  |                            | 516   
|Changes in operating assets and liabilities                                                |  |                            | 1,227 
|                                                                                           |  |                            |       
|Net cash used for operating activities                                                     |  | $                          | (2,409
|Cash flows from investing activities                                                       |  |                            |       
|Purchases of property and equipment                                                        |  | $                          | (16   
|Changes in other assets                                                                    |  |                            | 77    
|                                                                                           |  |                            |       
|Net cash provided by (used for) investing activities                                       |  | $                          | 61    
|Cash flows from financing activities                                                       |  |                            |       
|Proceeds from issuance of convertible promissory note                                      |  | $                          |      
|Proceeds from issuance of non-convertible promissory note                                  |  |                            | 1,665 
|                                                                                           |  |                            |       
|Net cash provided by (used for) financing activities                                       |  | $                          | 1,665 
|Effect of exchange rate changes on cash                                                    |  | $                          | 35    
|                                                                                           |  |                            |       
|Net increase (decrease) in cash and cash equivalents                                       |  | $                          | (648  
|Cash and cash equivalents, beginning of period                                             |  |                            | 881   
|                                                                                           |  |                            |       
|Cash and cash equivalents, end of period                                                   |  | $                          | 233   
|                                                                                           |  |                            |       

See accompanying notes to consolidated financial statements.

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VERTEL CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. General

These consolidated financial statements include the accounts of Vertel Corporation and its subsidiaries. All significant inter-company balances and transactions have been eliminated in consolidation. The interim
consolidated financial statements are unaudited and include all adjustments necessary for a fair presentation of the Companys financial position, results of operations and cash flows. These statements and accompanying notes should be read in
conjunction with the audited consolidated financial statements and the accompanying notes for the year ended December 31, 2002 that are included in Vertels Annual Report on Form 10-K. The results of operations for the six-month period ended
June 30, 2003 are not necessarily indicative of results that may be expected for the full year. The Company recently closed all but its Los Angeles office and ceased sales activities. The Company is expecting to maintain its existing customer base
of maintenance contracts while evaluating future operations.

Effective August 22, 2002, Vertels common stock was de-listed from trading on The NASDAQ SmallCap Market(SM)
for failing to comply with the $1.00 minimum bid price requirement. The Companys common stock is now traded on the OTC Bulletin Board (OTC BB) under the stock symbol: VRTL.OB.

In conjunction with the M*Ware strategy, in December of 2002 the Company sold itse*ORB product line, related intellectual property rights and customer contracts to PrismTech Limited, a United
Kingdom company. The agreement was for cash and royalty payments based on futuree*ORB sales. Cash of $600,000 was to be paid over a 180-day period commencing with the closing of the transaction. To
date, $500,000 has been received. PrismTech is currently in default on the final payment of $100,000 that was due in June and is also in default on recent royalty payments that were to be received monthly based one*ORB sales over the 24-month period commencing with the closing date. These payments were not to exceed an additional $600,000.

The Company has
reported operating losses for each of the most recent five fiscal years. For the six months ended June 30, 2003, Vertel reported operating losses of $3,639,000 and negative cash flows from operations of $2,559,000. For the twelve-month period ended
December 31, 2002 the Company reported an operating loss of $14,429,000 and negative cash flows from operations of $6,607,000. As of June 30, 2003 the Company had an accumulated deficit of $101,896,000 and negative working capital of $5,972,000
including cash and cash equivalents of $233,000. Such results raise substantial doubt about Vertels ability to continue as a going concern.

During the second quarter of
2003, the Company received net proceeds of approximately $1,315,000 from the issuance of a series of non-convertible promissory notes (See Note 4). Proceeds from these transactions were used as working capital during the quarter. In the first
quarter of 2003, the Company also received $500,000 in net proceeds from non-convertible promissory notes (See Note 4). In 2002 in the first quarter, the Company received net proceeds of approximately $3,395,000 from the sale of a convertible
secured promissory note and the issuance of a common stock warrant, and on August 13, 2002 received net proceeds of approximately $3,040,000 from the sale of a second convertible secured promissory note and the issuance of additional warrants (See
Note 5). The Company used $1,500,000 of the proceeds of the second note to partially repay the first note. Substantially all of the remaining proceeds from these two transactions were used for operations during the course of 2002. As of December 31,
2002, the recorded balances remaining on these two Notes totaled $1,761,000. This amount is net of $3,012,000 in non-cash charges that are already reflected in the accompanying 2002 financial statements. The sum of these two amounts represents the
total cash amount that would be necessary to satisfy the debt.

The inability thus far of the Company to generate sufficient revenues to offset expenses raises substantial doubt
about Vertels ability to continue as a going concern. As a result the Company may be unable to realize assets and discharge liabilities in the normal course of business. The Company expects to continue to incur operating losses during the
third quarter of 2003 and currently spends about $2.2 million per quarter in expenses. Since the beginning of the year the Company has reduced the number of employees, from 61 to 31, and is contemplating additional steps to reduce expenses.
Nevertheless, the Company cannot assure sales targets will be met or that expense reduction programs will be sufficient to generate operating income. If operating income is not achieved and Vertel is not able to raise additional debt or equity
capital, the Company may not be able to continue as a going concern.

Vertels financial statements do not include any adjustments relating to the recoverability and
classification of recorded asset amounts or the classification and amounts of liabilities that may become necessary in the event the Company is unable to continue as a going concern.

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VERTEL CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

2. Recent Accounting Pronouncements

In April 2002, the FASB issued SFAS 145, Rescission of SFAS Nos. 4, 44 and 64,
Amendment of FASB Statement No. 13 and Technical Corrections, effective May 15, 2002. SFAS 145 prevents gains or losses on the extinguishment of debt that do not meet the criteria of APB 30 to be treated as extraordinary. The
pronouncement also amends SFAS 13, Accounting for Leases, to eliminate the inconsistency between the required accounting for sale-leaseback translations and the required accounting for certain lease modifications that have similar
economic effects. SFAS 145 also amends other existing pronouncements to clarify meanings, make technical corrections and describe applicability under changed conditions. SFAS 145 did not have a material impact on the Companys financial
statements.

In June 2002, the FASB issued SFAS 146, Accounting For Costs Associated with Exit or Disposal Activities. This pronouncement addresses the accounting and
reporting of costs associated with exit or disposal activities and supercedes Emerging Issues Task Force (EITF) Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including
certain costs incurred in a restructuring. SFAS 146 requires recognition of a liability for a cost associated with an exit or disposal activity when the liability is incurred as opposed to when the entity commits to an exit plan under EITF No.
94-3. This pronouncement is effective for exit or disposal activities initiated after December 31, 2002. It is not expected to have a material impact on the Companys financial statements.

In December 2002, the FASB issued SFAS 148, Accounting For Stock-Based Compensation-Transition and Disclosure. This pronouncement amends the transition and disclosure provisions of SFAS 123, Accounting
for Stock-Based Compensation. The pronouncement provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based compensation, amends disclosure requirements and is effective for
financial statements for fiscal years ending after December 15, 2002. The Company is currently evaluating this pronouncement to determine if it will use the fair value method to account for employee stock options and, if so, when to begin the
transition to this new method of accounting. The disclosures required by this pronouncement are included in Note 9 below.

In November 2002, the FASB issued FASB Interpretation
No. 45, Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others. In the course of business the Company has contractual guarantees in the form of warranties. However,
these warranties are limited and do not represent significant commitments or contingent liabilities of the indebtedness of others. This pronouncement is effective for financial statements issued after December 15, 2002 and is not expected to have a
material impact on the Companys financial statements.

In January 2003, the FASB issued FASB Interpretation No. 46, Consolidation of Variable Interest Entities,
an interpretation of Accounting Research Bulletin No. 51, Consolidated Financial Statements. This pronouncement requires the consolidation of variable interest entities, as defined, and is effective immediately for variable interest
entities created after January 31, 2003, and for variable interest entities in which an enterprise obtains an interest after that date. The Company has no variable interest entities and thus this interpretation is not expected to have a material
impact on the Companys financial statements.

In May 2003, the FASB issued SFAS 150, Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity. This pronouncement establishes standards for classification and measurement of certain financial instruments with characteristics of both liabilities and equity. In accordance with the standard, financial instruments
that embody obligations for the issuer are required to be classified as liabilities. SFAS 150 will be effective for financial instruments entered into or modified after May 31, 2003 and otherwise will be effective at the beginning of the first
interim period beginning after June 15, 2003. Upon adoption of SFAS 150, the Company will reclassify its redeemable preferred stock as a liability.

3. Goodwill

The Companys goodwill resulted from the acquisition of Expersoft Corporation in March 1999 and Trigon Technology Group (Trigon) in May 2001. The initial value of goodwill
from these transactions was $4,742,000 and $7,320,000, respectively, or $12,062,000 combined. A summary of changes in goodwill since initial recording is as follows:



|                                                                   |  | Amount |           
|------------------------------------------------------------------ |  | ------ | ----------
|                                                                   |  |        |           
|Goodwill recorded from the acquisition of Expersoft in March 1999  |  | $      | 4,742,000 
|Less: Amortization recorded in 1999                                |  |        | (757,000  
|Less: Amortization recorded in 2000                                |  |        | (952,000  
|                                                                   |  |        |           
|Balance: December 31, 2000                                         |  | $      | 3,033,000 
|Plus: Goodwill recorded from the acquisition of Trigon in May 2001 |  |        | 7,320,000 
|Less: Amortization recorded in 2001                                |  |        | (1,807,000
|                                                                   |  |        |           
|Balance: December 31, 2001                                         |  | $      | 8,546,000 
|Less: Goodwill impairment recorded in 2002                         |  |        | (7,792,000
|                                                                   |  |        |           
|Balance: December 31, 2002                                         |  | $      | 754,000   
|                                                                   |  |        |           

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VERTEL CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

In accordance with SFAS 142, the company did not amortize goodwill in 2002. However, the Company did retain an independent third party valuation consultant to test for goodwill impairments. In June
2002, the Company determined that goodwill was impaired due to the continued deterioration in the telecommunications and technology markets and the decrease in fair market value of the company. Using the Companys best judgment and estimates of
fair value based on discounted cash flows, the valuation consultant determined that goodwill was impaired by $4,795,000 in June 2002.

At December 31, 2002, the Company retained
the same third party valuation consultant to test goodwill for impairment. The consultant determined that goodwill was further impaired $2,997,000 by using the same method described above. Thus, total impairments to goodwill in 2002 were $7,792,000
and were reflected as a separate line item in the statement of operations.

In connection with the adoption of SFAS 142, prior period goodwill amounts have not been
restated.

4. Financing Transactions

On January 3, 2002, in connection with a Note and Warrant
Purchase Agreement with SDS Merchant Fund, L.P. (SDS), the Company 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
(First Note) to SDS and issued a five year Warrant (the First Warrant) initially exercisable into 800,000 shares of Vertel common stock at an initial exercise price of $0.9988 per share. The total costs incurred in connection
with the financing transaction amounted to $216,000, 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 as expense over the 36-month term of
the First Note and are reflected as a reduction of the recorded note payable balance on the accompanying balance sheet.

On August 13, 2002, in connection with a Note and Warrant
Purchase Agreement with SDS, the Company received net proceeds of approximately $3,040,000 after payment of a $60,000 commission, from the sale of a $3,100,000, three-year, 8% convertible senior secured promissory note (the Second Note)
to SDS and issued a five-year Warrant (Second Warrant) initially exercisable into 2,625,000 shares of Vertel common stock at an initial exercise price of $0.20 per share. The security interest also extends to the $3,500,000 First Note
with SDS. Proceeds of $1,500,000 from the Second Note were used to reduce the balance outstanding on the First Note and $100,000 was used to repay a bridge loan from SDS. The total costs incurred in connection with the financing transaction amounted
to approximately $191,000, excluding the commission of $60,000, and consisted of professional fees and SEC registration fees. These costs are being amortized on a straight-line basis as expense over the 36-month term of the Second Note and are
reflected as a reduction of the recorded note payable balance on the accompanying balance sheet.

The conversion price of the First 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 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 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 First Note or the First Warrant. The conversion price of the First Note is capped at $1.75 per share of common stock.

The conversion price of the Second Note fluctuates and
is determined by multiplying the applicable discount percentage by the average per share market value for the three trading days having the lowest per share market value during the twenty-two trading days immediately prior to the conversion date.
The initial discount percentage is 18%. The discount percentage is adjusted based on four times the Companys quarterly revenues as disclosed in its most recent public filing (the Annualized Revenue). The discount percentage is 7%
if the Annualized Revenue is more than $15,000,000; 12% if the Annualized Revenue is more than $12,000,000, but not more than $15,000,000; 15% if the Annualized Revenue is more than $10,000,000, but not more than $12,000,000; 18% if the Annualized
Revenue is more than $8,000,000, but not more than $10,000,000; and 21% if the Annualized Revenue is more than $6,000,000, but not more than $8,000,000. The discount percentage cannot be below 7%. If Vertels cash collections do not exceed
$1,350,000 on a quarterly basis, the discount percentage is 24%. However, since Vertels common stock was de-listed from The NASDAQ SmallCap Market effective as of August 22, 2002 and, as a result is trading on the OTC Bulletin Board, the
discount percentage increased to 40% until trading returns to the NASDAQ SmallCap Market. The conversion price of the Second Note is capped at $1.25 per share of common stock.

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VERTEL CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

The First Warrant exercise price is subject to an adjustment 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 previous exercise price. On January 3, 2002, the transaction commitment date, the fair value of the First Warrant that 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 no expected dividends.

The Second Warrant exercise price will be adjusted every twelve months on August 1 to an amount equal to 120% of the average of the per share market value for the five trading days having the lowest per share market value during the
twenty-two trading days immediately prior to such adjustment dates, provided that such adjusted price is lower than the previous exercise price. On August 13, 2002, the transaction commitment date, the fair value of the Second Warrant that expires
in five years, was estimated at $284,000 using the Black-Scholes option-pricing model and the following assumptions: a risk-free interest rate of 3.33%, expected volatility of 219% and no expected dividends.

The reconciliation between face values of the two SDS notes and actual balances recorded in the balance sheet is as follows:



|                                                                     | First Note |            | Second Note |   | Total      |  
|-------------------------------------------------------------------- | ---------- | ---------- | ----------- | - | ---------- | -
|                                                                     |            |            |             |   |            |  
|Original Value of Note                                               | $          | 3,500,000  |             | $ | 3,100,000  |  
|Less: Conversions in 2002                                            |            | (340,000   | )           |   | (40,000    | )
|Less: Repayments in 2002                                             |            | (1,447,000 | )           |   |           |  
|                                                                     |            |            |             |   |            |  
|Gross Value of Notes at December 31, 2002                            | $          | 1,713,000  |             | $ | 3,060,000  |  
|Other Adjustments                                                    |            |            |             |   |            |  
|Less: Conversion during half year ended June 30, 2003                | $          | 0          |             | $ | (160,000   | )
|Less: Discount due to beneficial conversion feature at June 30, 2003 | $          | (131,000   | )           | $ | (243,000   | )
|Less: Discount due to Warrant at June 30, 2003                       |            | (514,000   | )           |   | (1,608,000 | )
|                                                                     |            |            |             |   |            |  
|Balance of Notes Payable at March 31, 2003                           | $          | (1,067,000 | )           | $ | (1,049,000 | )
|                                                                     |            |            |             |   |            |  

The Company allocated the net proceeds of $3,395,000 to the First Note and the First Warrant based on
a method that approximates the residual method using fair values of $3,500,000 for the First Note and $505,000 for the First Warrant. A discount on the First Note of $533,000 and a discount on the First Warrant of $77,000 resulted from the fair
value allocation. On January 3, 2002, the transaction commitment date, the First Note was convertible into approximately 7,778,000 shares of common stock with a fair value of $5,056,000, or $0.65 per share, based on the closing market price of
common stock on The NASDAQ National Market.

The Company determined that the conversion feature of the First Note was beneficial to the holder in the amount of $2,089,000, the
difference between the $5,056,000 fair value of the shares into which the First Note was convertible and the $2,967,000 of net proceeds allocated to the First Note as previously described. The principal amount of the First Note of $3,500,000 was
recorded as a long-term liability, net of a $2,622,000 discount, that consisted of a $533,000 discount resulting from the fair value allocation and the $2,089,000 discount resulting from the beneficial conversion feature. The Company also credited
the beneficial conversion feature of $2,088,900 to additional paid-in capital. The total discount on the First Note of $2,622,000, that is being amortized to interest expense over the 36-month term of the First Note using the effective interest
method, is subject to downward adjustments to the extent partial conversions of the First Note occur. These adjustments would reduce the carrying value of the discount and increase interest expense. For the year ended December 31, 2002, $340,000 of
the outstanding principal balance and $4,300 of accrued interest on the First Note was converted into 1,272,000 shares of common stock. During the second quarter of 2003 SDS converted $160,000 of debt to approximately 4.0 million shares of common
stock.

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VERTEL CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

As a condition of the sale of the Second Note the Company repaid $1,447,000 of principal and $53,000 of interest relating to the First Note. For accounting purposes, in repaying a portion of the First
Note principal, the Company also acquired a portion of the beneficial conversion feature originally issued with the First Note. The Company measured the value of the beneficial conversion feature acquired on the date of repayment as $670,000. For
accounting purposes, the Company allocated a portion of the value of the cash repayment to the portion of the beneficial conversion feature acquired in the repayment transaction. As a result of this allocation of value, the Company recorded a gain
on the repayment transaction of $513,000. The remaining First Note principal of approximately $1,713,000 is reported in the Companys financial statements as $911,000, net of the unamortized discount of approximately $802,000 at December 31,
2002.

The Company allocated the net proceeds of $3,040,000 to the Second Note and the Second Warrant based on a method that approximates the residual method using fair values of
$3,100,000 for the Second Note and $284,000 for the Second Warrant. A discount on the Second Note of $315,000 and a discount on the Second Warrant of $29,000 resulted from the fair value allocation. On August 13, 2002, the transaction commitment
date, the Second Note was convertible into approximately 44,286,000 shares of common stock with a fair value of $4,871,000, or $0.11 per share, based on the closing market price of common stock on The NASDAQ SmallCap Market.

The Company determined that the conversion feature of the Second Note was beneficial to the holder in the amount of $2,086,000, the difference between the $4,871,000 fair value of the shares into
which the Second Note was convertible and the $2,785,000 of net proceeds allocated to the Second Note as previously described. The principal amount of the Second Note of $3,100,000 was recorded as a long-term liability, net of a $2,401,000 discount,
that consisted of the $315,000 discount resulting from the fair value allocation and the $2,086,000 discount resulting from the beneficial conversion feature. The Company also credited the beneficial conversion feature of $2,086,000 to additional
paid-in capital. The total discount on the Second Note of $2,401,000 that is being amortized to interest expense over the 36-month term of the Second Note using the effective interest method, is subject to downward adjustments to the extent partial
conversions of the Second Note occur. These adjustments would reduce the carrying value of the discount and increase interest expense. For the year ended December 31, 2002, $40,000 of the outstanding principal balance and $1,000 of accrued interest
on the Second Note was converted into 1,045,000 shares of common stock. As a condition of the Second Note, the Company repaid $1,447,000 of principal and interest of $53,000 relating to the First Note. The remaining Second Note principal of
approximately $3,060,000 is reported net of the unamortized discount of approximately $2,210,000 at December 31, 2002.

During the three month period ended June 30, 2003, the
balance due on the notes was increased $205,000 for interest accretion arising out of the original discount taken on the notes to reflect the beneficial conversion features. During the first quarter the balance was increased $187,000.

Emerging Issues Task Force (EITF) No. 00-19, Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Companys Own Stock, requires that the
Company initially classify the Warrants as a liability since the provisions of the agreements with the holder of the First and Second Notes and the First and Second Warrants could require the Company to pay cash to settle the warrant contracts.
Accordingly, the Company recorded the fair value of the First Warrant of $428,000, net of the $77,000 discount arising from the allocation of the net proceeds to the First Note and First Warrant as previously described, as a warrant obligation on
January 3, 2002, the transaction commitment date. The Company recorded the fair value of the Second Warrant of $255,000 net of the $29,000 discount arising from the allocation of the net proceeds to the Second Note and Second Warrant as previously
described, as a warrant obligation on August 13, 2002, the transaction commitment date. EITF No. 00-19 requires that the carrying value of the warrant obligations be adjusted to their fair value on each reporting date. As of December 31, 2002, the
fair value of the First Warrant was estimated at $87,000 and the Second Warrant was estimated at $285,000 using the Black-Scholes option-pricing model and the following assumptions: a risk-free interest rate of 2.76%, expected volatility of 225%,
and no expected dividends. The decrease in the First Warrant fair value from January 3, 2002 to December 31, 2002 of approximately $418,000 was reflected as other income. The increase in the Second Warrant fair value from August 13, 2002 to December
31, 2002 of approximately $1,000 was reflected as other expense.

Pursuant to the Note and Warrant Purchase Agreement, the Company may be required to pay substantial penalties to
the note holder under specified circumstances, including, among others, the following: failure to pay principal or interest on the convertible promissory note when due; failure to deliver shares of common stock upon conversion of the convertible
promissory note and exercise of the warrants; failure to maintain the Companys common stock listing on The NASDAQ National Market for a period of five consecutive trading days; failure to comply with a request for conversion of the convertible
promissory note or exercise of the warrant; failure to maintain the effectiveness of the registration statement covering the shares of common stock issuable on conversion of the convertible promissory note and on exercise of the warrant; failure to
perform or observe any material covenant, condition or agreement under the agreement with the note holder; making a false material misrepresentation or warranty under the agreement with the note holder; failure to timely obtain shareholder approval
for the issuance of shares of

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VERTEL CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

common stock issuable upon conversion of the convertible promissory note and exercise of the warrant, if such approval is required; a default on the payment of any indebtedness in excess of $100,000
or in the performance of any other agreement or condition relating to the indebtedness that causes or permits or requires the acceleration or early repayment of the indebtedness; filing for or consent to the filing of bankruptcy or making or
permitting a general assignment for the benefit of creditors or appointing a trustee, receiver, custodian or liquidator for a substantial part of the Companys property or assets, or; the commencement of a proceeding or case against the Company
seeking (i) the liquidation, reorganization, moratorium, dissolution, winding up, or composition or readjustment of debts, (ii) the appointment of a trustee, receiver, custodian, liquidator or (iii) dissolution. The Company would generally have to
pay such penalties in the form of an increased interest rate during the time of the default and money damages based on the note holders lost stock sales opportunities during the time of a default as well as other indeterminate costs and
expenses.

In connection with the First Note, on October 3, 2001 the Company filed a Form S-3 registration statement for an estimated 200% of the number of shares of common stock
issuable upon conversion of the convertible promissory note and exercise of the warrant as of the filing of the registration statement. The SEC declared Form S-3 effective on December 27, 2001 and on January 3, 2002, SDS purchased the note. Under
terms of the Second Note the Company must file a registration statement for an estimated 200% of the number of shares of common stock issuable upon conversion of the convertible promissory note and exercise of the warrant as of the filing of the
registration statement. As of December 31, 2002 the Company has not made such a filing.

As of the date of this Form 10-Q filing, the Companys common stock has been
de-listed as detailed above and the Company has failed to maintain sufficient authorized shares and to register the necessary shares to support the underlying convertible promissory notes and warrants as agreed. Although the holders of the notes and
warrants could demand repayment of the notes at the prepayment price (115% of the principal outstanding), demand an increased interest rate during the period of default, seek money damages for lost stock sales opportunities during the period of
default, convert the remaining principal on the notes (significantly diluting current shareholders), or exercise or otherwise enforce any one or more rights under the applicable agreements, the note holders have not advised the Company that it is in
default or taken any other remedial action. The impact of enforcing any combination of these rights could substantially alter the Companys ability to conduct business, severely impact liquidity, and may materially affect future business
operations. The Company has reflected the notes payable as current on the accompanying balance sheet.

On March 26, 2003 the Company received proceeds of $500,000 from the
issuance of six-month, non-convertible, secured promissory notes to North Sound Legacy Fund, North Sound Legacy Institutional Fund and North Sound Legacy International Ltd. (formerly DMG Legacy Fund, DMG Legacy Institutional Fund and DMG Legacy
International Ltd.), collectively referred to as North Sound. Terms of the notes were for interest to accrue at a rate of 12.0% per annum to be paid together with the original principal on September 26, 2003. Proceeds from the note were used to
cover near-term operating expenses.

On April 16, 2003 the Company received proceeds of $100,000 from the issuance of six-month, non-convertible, secured promissory notes to North
Sound . Terms of the notes were for interest to accrue at a rate of 12.0% per annum to be paid together with the original principal on October 16, 2003. Proceeds from the note were used to cover near-term operating expenses.

On April 20, 2003 the Company received proceeds of $110,000 from the issuance of six-month, non-convertible, secured promissory notes to SDS. Terms of the notes were for interest to accrue at a rate
of 12.0% per annum to be paid together with the original principal on October 20, 2003. Proceeds from the note were used to cover near-term operating expenses.

On May 7, 2003 the
Company received proceeds of $280,000 from the issuance of six-month, non-convertible, secured promissory notes to SDS. Terms of the notes were for interest to accrue at a rate of 12.0% per annum to be paid together with the original principal on
November 7, 2003. Proceeds from the note were used to cover near-term operating expenses.

On May 23, 2003 the Company received proceeds of $75,000 from the issuance of six-month,
non-convertible, secured promissory notes to SDS. Terms of the notes were for interest to accrue at a rate of 12.0% per annum to be paid together with the original principal on November 23, 2003. Proceeds from the note were used to cover near-term
operating expenses.

On June 4, 2003 the Company received proceeds of $250,000 from the issuance of six-month, non-convertible, secured promissory notes to SDS. Terms of the notes
were for interest to accrue at a rate of 12.0% per annum to be paid together with the original principal on December 4, 2003. Proceeds from the note were used to cover near-term operating expenses.

On June 12, 2003 the Company received proceeds of $200,000 from the issuance of six-month, non-convertible, secured promissory notes to North Sound. Terms of the notes were for interest to accrue at a rate of 12.0% per
annum to be paid together with the original principal on December 12, 2003. Proceeds from the note were used to cover near-term operating expenses.

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VERTEL CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

On June 26, 2003 the Company received proceeds of $150,000 from the issuance of six-month, non-convertible, secured promissory notes to SDS. Terms of the notes were for interest to accrue at a rate of
12.0% per annum to be paid together with the original principal on December 26, 2003. Proceeds from the note were used to cover near-term operating expenses.

5.Statement of Cash Flows

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



|                                          |  | Six Month Period Ended: |      
|----------------------------------------- |  | ----------------------- | -----
|                                          |  |                         |      
|                                          |  | June302003              |      
|                                          |  |                         |      
|Trade accounts receivable                 |  | $                       | 1,238
|Prepaid expenses and other current assets |  |                         | (47  
|Accounts payable                          |  |                         | 71   
|Accrued wages and related liabilities     |  |                         | (461 
|Cash payments and restructuring expense   |  |                         |     
|Accrued taxes payable                     |  |                         | 20   
|Other accrued liabilities                 |  |                         | 325  
|Deferred revenue                          |  |                         | 81   
|                                          |  |                         |      
|Net change in assets and liabilities      |  | $                       | 1,227
|                                          |  |                         |      

6.Segment Reporting

Vertel operates and reports activities as a single business unit. The Companys chief operating decision maker, as defined by SFAS No. 131, Disclosures about Segments of an Enterprise and
Related Information, is Vertels chief executive officer. On October 11, 2001, the Company announced the hiring of a new chief executive officer who makes decisions about resource allocations based on the organization as a whole. Prior to
2002, decisions about allocating resources (consisting primarily of personnel and compensation of key employees) were made by the chief executive officer based on the operating results of two principal segments: license and service. Since the
Company now operates in one reportable segment, restatement of prior period information is not necessary.

7.Stock
Options

In December 2002, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (FAS) No. 148,
Accounting for Stock-Based Compensation - Transition and Disclosure, an Amendment of FAS 123 (FAS 148). This statement provides alternative methods of transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. In addition, FAS 148 amends the disclosure requirements of FAS 123 to require more prominent and more frequent disclosures in financial statements about the effects of stock-based compensation. The
provisions of FAS 148 are effective for fiscal years ending after December 15, 2002 and the interim disclosure provisions are effective for financial reports containing financial statements for interim periods beginning after December 15, 2002. The
Company adopted FAS 148 during the fourth quarter ended December 31, 2002. The adoption of FAS 148 did not have a material impact on the Companys results of operations or financial position and the additional required disclosures are provided
below.

The Company applies Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations, in accounting for its
stock-based compensation plans. Accordingly, no compensation cost has been recognized for its stock option plan. Had compensation cost for the Companys stock-based compensation plan been determined based on the fair value at the grant dates
for awards under those plans consistent with FAS 123, the Companys net loss and loss per share would have been adjusted to the pro forma amounts indicated below:

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VERTEL CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)



|                                                                      |  | Three-monthPeriod endedJune 30, 2003 |           | Six-monthPeriod endedJune 30, 2003 |  
|--------------------------------------------------------------------- |  | ------------------------------------ | --------- | ---------------------------------- | -
|                                                                      |  |                                      |           |                                    |  
|Net loss  as reported                                                |  | $                                    | 2,404,000 |                                    | $
|Adjustment to net loss for pro forma stock-based compensation expense |  |                                      | 936,000   |                                    |  
|                                                                      |  |                                      |           |                                    |  
|Net loss  pro forma                                                  |  | $                                    | 3,340,000 |                                    | $
|                                                                      |  |                                      |           |                                    |  
|Basic and diluted net loss per common share  as reported             |  | $                                    | 0.07      |                                    | $
|                                                                      |  |                                      |           |                                    |  
|Basic and diluted net loss per common share  pro forma               |  | $                                    | 0.09      |                                    | $
|                                                                      |  |                                      |           |                                    |  

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##### Table of Contents

| | ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
| | ------- | -------------------------------------------------------------------------------------

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

Except for historical information, the matters discussed in this document are 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 the
Companys web-site or otherwise, in the future by the Company or on the Companys behalf.

In some cases forward-looking statements can be identified by the
use of terminology such as may, will, expects, plans, anticipates, believes, estimates, potential or continue or the corresponding negatives
thereof or other comparable terminology. Although the Company believes that the expectations reflected in the forward-looking statements contained herein are reasonable, there can be no assurance that such expectations or any of the
forward-looking statements will prove to be correct and actual results could differ materially from those projected or assumed in the forward-looking statements.

The Companys future financial condition and results of operations, as well as any forward-looking statements are subject to inherent risks and uncertainties. These uncertainties include factors that affect all businesses
operating in a global market, as well as matters specific to Vertel and the markets the Company serves. Particular risks and uncertainties at present include the ability to raise additional capital, in particular the ability to secure additional
financing to fund operations for the remainder of 2003; the financial uncertainties associated with continuing losses; the ability to continue to invest in the research and development necessary for the development of new and existing products 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 equipment manufacturer customers and, therefore, the Companys revenues; the fact that some of the Companys products are relatively new and, although they are developing market interest, it is
difficult to predict sales of new products and the market may or may not ultimately adopt such technologies; the fact that the Companys sales cycle is long thereby making initial license sales and future royalties difficult to forecast;
additional difficulty in predicting royalty revenue because such revenue is dependent on successful development and deployment by customers of their products containing Vertels software; fluctuations from quarter to quarter in revenue from the
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 the Company 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 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 the Companys 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 competitors; the increasing sales and marketing costs of attracting new and retaining existing customers; pricing, currency and exchange risks; governmental and regulatory developments affecting the Company and its
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, 2002 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 the Company and its business, including factors that potentially materially affect 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 the business. The Company undertakes no obligation to revise or publicly release the results of any
revision to forward-looking statements.

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##### Table of Contents

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONAND RESULTS OF OPERATIONS
(continued)

Background

Vertel Corporation is a telecommunications software and professional
services company and a provider of mediation software solutions to communications companies, global enterprise businesses and their network and software vendors.

The Company has
two sources of revenues: license and royalty revenues from software products and professional services revenues from custom network management solutions and product maintenance contracts. The Companys product offerings are primarily targeted
at the wireline, wireless and broadband market segments within the telecommunications industry. Vertels software products are sold under the M*Ware brand name and provide complete integration and management solutions across the entire
Telecommunications Management Network (TMN) standard hierarchy. This software is typically used to enhance connectivity for a variety of telecommunications hardware and software solutions.

The Company believes the demand for mediation and management solutions will be fueled by continued economic pressure on telecommunication service providers and enterprise network operators. In addition, as restrained
growth in new network investments occur, these same mediation and management solutions will need to deliver a more cost effective path for integrating new technologies as they arise. Service providers and enterprise network operators will demand
that these systems allow for incremental new investments while also continuing to support the consolidation of existing investments.

M*Ware products and solutions satisfy these
market demands. Vertel believes that by being a bridge between networks, customers and service providers, M*Ware mediation and management solutions provide greater efficiencies and are cost effective. In addition, M*Ware enables the Company to
expand beyond traditional network management into two new market segments: telecommunications service providers and enterprise network operators. This will provide Vertel with greater growth opportunities than it otherwise would have attained with
previous product offerings. In addition, M*Ware will reduce the Companys dependency on a single market segment that likely faces its own business and financial challenges.

As 2003 continues to develop and 2004 approaches, many analysts believe investments in new network technologies will begin to approach the rate of growth experienced in the early to mid-1990s. When that occurs, the Company believes its
customers are well positioned to cost effectively integrate those new investments into their existing network infrastructure. As a result, Vertel expects its growth will track closely to the growth in spending on OSS solutions.

The addition of two new market segments will also enable Vertel to grow at a rate greater than it would have experienced without the M*Ware strategy. This multiple market strategy will also reduce the
dependency and associated business challenges Vertel has faced when its primary market segment faced business and financial challenges.

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, 2002. Not all of these significant accounting policies require management to make difficult, subjective or complex judgments or estimates, however, the following accounting policies, which affect
more significant judgments and estimates used in the preparation of consolidated financial statements, are thought to be critical within the SEC definition.

Allowance for
doubtful accounts receivable.The Company maintains an allowance for doubtful accounts for estimated losses resulting from the inability of customers to make required payments. If the financial
condition of customers were to deteriorate and result in an impairment of their ability to make payments, additional allowances may be required.

Goodwill.In June 2001, the Financial Accounting Standards Board (FASB) issued Financial Accounting Standards (FAS) No. 141, Business Combinations and SFAS No. 142,
Goodwill and Other Intangible Assets. SFAS 141 requires that certain acquired intangible assets in a business combination be recognized as assets separate from goodwill. SFAS 142 requires that goodwill and other intangibles with
indefinite lives should no longer be amortized, but rather tested for impairment annually or on an interim basis if events or circumstances indicate that the fair value of the asset has decreased below its carrying value. The Company adopted these
pronouncements on January 1, 2002.

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MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONAND RESULTS OF OPERATIONS
(continued)

In accordance with these pronouncements the Company reviewed its goodwill on January 1, 2002. At that time, the Companys market capitalization was in excess
of $22.0 million as determined by the Companys latest closing share price on NASDAQ. Since this amount exceeded the Companys recorded equity of $10.5 million on that date, the Company concluded that goodwill was not impaired.

Throughout much of 2002 the telecommunications market continued to experience an unfavorable economic environment. Vertel experienced similar conditions during the year and the
Companys common stock share price and market capitalization declined significantly. As a result of these declines, the Company reviewed the carrying value of its goodwill at June 30, 2002 and recorded an impairment charge of $3.8 million. At
December 31, 2002, the Company conducted its annual review of the carrying value of goodwill and recorded an additional impairment charge of $3.0 million. The Company retained a third-party valuation consultant to assist in determining the extent of
goodwill impairment using the discounted cash flow method.

On December 31, 2002, goodwill amounted to $754,000, or 18% of total assets of $4.2 million. This goodwill is what
remains of the goodwill recorded when the fair value of consideration exchanged in two acquisitions exceeded the fair value of the net assets acquired. Vertel acquired Expersoft in March 1999 and Trigon in May 2001 for primarily cash and shares of
common stock. The Company made estimates and used its best judgment when determining the fair value of the assets acquired. The goodwill recorded in these transactions was $4,742,000 and $7,320,000 for Expersoft and Trigon, respectively.

Warrant Obligations.On January 3, 2002, in connection with the first Note and the first Warrant Purchase Agreement with SDS,
the Company issued SDS a warrant initially exercisable into 800,000 shares of Vertel common stock at an initial exercise price of $0.9988 per share. On August 13, 2002, in connection with the second Note and the second Warrant Purchase Agreement
with SDS, the Company issued SDS a warrant initially exercisable into 2,625,000 shares of Vertel common stock at an initial exercise price of $0.20 per share. These financing transactions are more fully described in Note 5 of the Notes to Financial
Statements included in this Form 10-K.

Emerging Issues Task Force (EITF) No. 00-19, Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in,
a Companys Own Stock, requires that the Company initially classify the Warrants as a liability since the foregoing provisions of the agreements with the holder of the First and Second Notes and the First and Second Warrants could require
the Company to pay cash to settle the warrant contracts. Accordingly, the Company recorded the fair value of the First Warrant of $428,084, net of the $76,916 discount arising from the allocation of the net proceeds to the First Note and First
Warrant as previously described, as a warrant obligation on January 3, 2002, the transaction commitment date. The Company recorded the fair value of the Second Warrant of $255,000, net of the $29,000 discount arising from the allocation of the net
proceeds to the Second Note and Second Warrant as previously described, as a warrant obligation on August 13, 2002, the transaction commitment date. EITF No. 00-19 requires that the carrying value of the warrant obligations be adjusted to their fair
value on each reporting date.

As of June 30, 2003, the fair value of the First Warrant was estimated at $71,000 and the Second Warrant was estimated at $232,000 using the
Black-Scholes option-pricing model and the following assumptions: a risk-free interest rate of 2.06%, expected volatility of 247%, and no expected dividends. The increase in the First and Second Warrant fair value for the quarter ended June 30, 2003
was approximately $8,000 and $27,000, respectively, and was reflected in other expense.

The fair value of the warrants 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 common stock. If the fair market value of Vertel common stock increases, the fair value of the warrant obligations would likely increase, resulting in a
charge to other expense. If the fair market value of Vertel common stock decreases, the fair value of the warrant obligations would likely decrease, resulting in other income, as was the case for the first, second and third quarters of 2002. For
example, if the fair market value of common stock on December 31, 2002 was $1.00 per share, the fair value of the First and Second Warrant obligations determined using the Black-Scholes model, assuming all other variables remain constant, would
hypothetically have been approximately $798,000 and $2,613,000, respectively, resulting in a charge of approximately $3,144,000 to other expense for the fourth quarter of 2002.

Conversely, if the fair market value of common stock on December 31, 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 $38,000 and $128,000, respectively, resulting in other income of approximately $338,000 for the year 2002. Given the volatility of the common stock price, the Company cannot predict the impact

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MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONAND RESULTS OF OPERATIONS
(continued)

fluctuations may have on consolidated statement of operations for any future period. Furthermore, EITF No. 00-19 requires the Company to evaluate the
classification of the Warrants as a liability as of each reporting date. To the extent there no longer exists a potential for the Company to be required to pay cash to settle the Warrant contract, the Company may be required to reclassify the
carrying value of the Warrant liability to equity.

If the fair market value of the Companys 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 the Companys common stock decreases the fair value of the warrant obligation would likely decrease, resulting in other income.

Income taxes.Deferred income taxes are provided for temporary differences between the financial statement and income tax basis of Company assets
and liabilities, based on enacted tax rates. A valuation allowance is provided when it is more likely than not that some portion or all of the deferred income tax assets will not be realized. The Company has recorded a valuation allowance to reduce
deferred tax assets to zero. If the Company is able to realize deferred tax assets in the future, an adjustment to deferred tax assets 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. Revenues are recognized
as work progresses using the percentage of completion method, which relies on estimates of total expected contract revenue and costs. The Company uses this method since reasonably dependable estimates can be made of the revenue and costs applicable
to various stages of a project. Recognized revenues and profits are subject to revisions as the contract progresses. Revisions in profit and cost estimates are charged to income in the period in which the facts that give rise to the revision are
known. Estimated losses are recorded in the period in which the determination of loss is made. 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.

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MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONAND RESULTS OF OPERATIONS
(continued)

Results of Operations

Net Revenues.For the three months ended June 30, 2003, net revenues decreased 73%, to $563,000, from $2,054,000 during the same period a year ago. The decline principally reflected lower revenue from professional services ($600,000),
licenses ($504,000) and the absence of sales from thee*ORB product line ($340,000) that was sold in late 2002. Revenue from royalties and maintenance contracts were also down for the quarter by$31,000
and $16,000, respectively.

For the six-month period ended June 30, 2003, net revenues decreased 64%, to $1,474,000, from $4,055,000 during the same period a year ago. The
decline reflected the absence of sales from thee*ORB product line ($925,000) and lower revenues from licenses ($913,000) and professional services ($892,000). Revenues from maintenance contracts and
royalties were up for the first half by $91,000 and $58,000, respectively.

Net revenues from Nations Bank and Nortel comprised 17% and 11% of net revenues in the second
quarter of 2003, respectively. Net revenues from Nations Bank and Tekview comprised 13% and 11% of net revenues during the first half of 2003, respectively. No other single customer accounted for more than 10% of net revenues in either period.
Sales to customers outside the United States comprised approximately 49% and 48% of net revenues in the second quarter and first half of 2003, respectively.

In the second quarter
of 2002, sales to Nokia and NEC America comprised approximately 13% and 11% of net revenues, respectively. No other single customer accounted for more than 10% of net revenues. In the first half of 2002, no customer accounted for more than 10% of
net revenues. Sales to customers outside the United States comprised approximately 44% and 42% of net revenues in the second quarter and first half of 2002, respectively.

The
Company expects the percentage of sales outside the United States to be a significant part of revenues in 2003. If the U.S. dollar strengthens significantly, the Company may not be able to remain competitive in international markets without reducing
prices. In addition, competition and price pressure have increased both domestically and internationally for professional services as competitors and customers continue to seek engineering services from lower cost providers in countries such as
China and India. The Companys sales cycle is typically lengthy resulting in significant fluctuations from one quarter to the next as well as between geographic markets. Finally, any political or economic turmoil in the Companys major
Asian markets (China, Japan and Korea) could also significantly impact future sales.

Licenses.License revenues
consist primarily of license fees and royalties derived from software products. The Company recognizes revenue from the licensing of software when persuasive evidence of a contractual arrangement exists and the underlying software products have been
shipped. Most contracts with customers contain multiple software products or other elements, such as maintenance and professional services. The Company typically delivers 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 customers over a period of time, generally less than twelve months. Royalty revenues are recognized when a customer purchases license
rights in advance on a non-refundable, non-cancelable basis or when run-time licenses are shipped under key controlled license agreements.

Historically license revenues have
accounted for a substantial portion of total revenues. In the second quarter of 2003, license revenues declined 74%, to $255,000, from $989,000, a year ago. The decline reflected lower sales of licenses and royalties related to TMN products (down
$535,000, year-over-year) and the absence of sales from thee*ORB product line ($199,000). For the six-month period ended June 30, 2003, license revenues declined 66%, to $766,000, from $2,248,000, a
year ago. The decline reflected lower sales of licenses and royalties related to TMN products ($855,000) and the absence of sales from thee*ORB product line ($628,000).

The Company expects sales of TMN products will increase as the economy improves for telecommunication equipment manufacturers. However, the Company also expects TMN revenues will decline as a
percentage of total license revenues as more and more customers adopt the Companys M*Ware platform.

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, training and other categories are usually recognized when the service is
performed and no obligations remain.

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MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONAND RESULTS OF OPERATIONS
(continued)

Service and other revenues declined 71% in the second quarter of 2003, to $308,000, from $1,065,000 a year ago. The decline reflected a significantly lower number
of professional services projects (down $600,000, year-over-year) and lower maintenance revenues due to the absence of thee*ORB product line ($141,000) and the expiration of maintenance contracts
related to older, discontinued products ($16,000).

Service and other revenues declined 61% during the first six months of 2003, to $709,000, from $1,807,000 a year ago. The
decline reflected a significantly lower number of professional services projects (down $893,000, year-over-year) and lower maintenance revenues related to the absence of thee*ORB product line
($297,000). These results were partially offset by an increase in the value of maintenance contracts, up $91,000.

Historically, professional services revenues have been dependent
on a limited number of consulting contracts from both new and existing customers. While there are price pressures from the lower volume of available work and increased competition from lower cost providers in foreign countries, the Company believes
the core competencies of its professional services organization can be leveraged to increase revenues in 2003. New maintenance contracts are expected to offset any discontinuations from legacy products in the second half of 2003.

Cost of Revenues - License. Cost of license revenues consists primarily of royalty fees paid to third-party providers of software that is embedded within
Vertels software products. These costs also include the cost of reproducing and shipping software as well as issuing user documentation.

Cost of license revenues decreased
22% in the second quarter of 2003, to $19,000, or 7.3% of license revenues, compared to $24,000, or 2.4% of license revenues in 2002. The year-to-year decrease in expense was simply not as significant as the corresponding decline in license
revenues. There was also a shift in product mix to one-time sales and away from products with embedded third-party software that pays royalties over time. The resulting gross margin from license revenues fell, to 92.7% of sales, from 97.6%.

For the first six months of 2003, the cost of license revenues fell 32%, to $43,000, or 5.6% of license revenues, versus $63,000, or 2.8% of license revenues for the same period
a year ago. The decline in expenses principally reflected a reduction in outside services, although again, the decline was not sufficient to offset the drop in volume. Gross margins from license revenues fell in the first half of 2003, to 94.4%,
from 97.2% a year earlier.

For the balance of 2003 these margins will fluctuate with product mix and could decline if the Company sells third-party products on a revenue-sharing
basis.

Cost of Revenues - Service and other. Cost of service and other revenues consists primarily of expenses associated with performing
professional consulting services, software maintenance and customer technical support such as telephone support, training services and non-recurring engineering services.

During
the second quarter of 2003 service and other costs of sales declined 63%, to $329,000 or 107% of service and other revenues, from $892,000 or 84% of service and other revenues for the same period a year ago. The two most significant factors
affecting the $563,000 decline in expenses were lower costs of personnel ($305,000) and rent ($118,000). In addition, expenses were lower for third party consulting ($38m), leases ($13m) and equipment ($7m). The resulting gross margin from service
and other revenues was a negative 6.8% and 16.2% in 2003 and 2002, respectively.

During the first six months of 2003 service and other costs of sales were $675,000 and
$1,931,000, respectively, a decline of 65%. These costs were 95.2% and 106.8% of revenues in each of the respective years. Compared to the first six months of 2002, year over year payroll was down $600,000, rent was down $251,000 and outside
consulting was also less ($149,000). Other major savings included travel ($79,000), equipment and leases ($61,000) and other expense ($40,000). The resulting gross margin from service and other revenues was 4.8% and a negative 6.8% in 2003 and 2002,
respectively.

The Company anticipates that cost of service and other revenues for the remainder of 2003 will continue to decline as a percent of revenue due to expense reductions
that were not fully realized in the first quarter. However, to the extent new consulting service contracts do not materialize, the expected improvement in future margins may not be as significant.

Research and Development. Historically the Company has made significant investments in research and development. The major components of these expenses are engineering salaries,
benefits, fees to outside contractors, facilities and related overhead charges and depreciation expense primarily for computers and test environments and equipment. In some cases, customers reimburse the Company for development costs related to
non-recurring engineering projects. The Companys recent research and

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MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONAND RESULTS OF OPERATIONS
(continued)

development efforts have been concentrated in mediation software to integrate telecom Operation Support Systems and the underlying network equipment management
systems and related applications. In late 2002, the Company sold itse*ORB product line and discontinued related research and development efforts.

For the three-month period ended June 30, 2003, research and development costs declined 59%, to $533,000, from $1,300,000. The decrease of $767,000 primarily reflected lower costs associated with payroll ($552,000) and
related facilities ($122,000) due to major reductions in staff in August of 2002 and February and June of 2003. Outside consulting and travel were also down $50m and $31, respectively. Although significant, these savings did not keep pace with the
decline in revenues and, as a result, research and development costs as a percent of revenues increased to 95% in the second quarter of 2003, compared to 63% during the same period a year ago.

For the first half of 2003, research and development costs declined 53%, to $1,207,000, from $2,589,000. The decrease of $1,382,000 primarily reflected lower costs associated with payroll ($980,000) and related
facilities ($100,000) due to major reductions in staff in August of 2002 and February and June of 2003. Outside consulting and travel were also down $52m and $71, respectively. Although significant, these savings did not keep pace with the decline
in revenues and, as a result, research and development costs as a percent of revenues increased to 82% in the first half of 2003, compared to 64% during the same period a year ago.

The Company expects research and development costs to be lower for the balance of the year and should improve as a percent of sales as revenues increase. However, if future revenues do not improve, further staff reductions may become
necessary. Such reductions could cause delays in the development of new products and existing product enhancements, which, in turn, could adversely impact future revenues.

Sales and Marketing. Sales and marketing expenses consist primarily of direct sales and sales support personnel and the associated costs related to selling and marketing the Companys products and services.
These principally include salaries, commissions, benefits, travel, facilities and related overhead charges and other marketing expenses such as trade shows, web-site maintenance and collateral materials.

Sales and marketing expenses fell 46% in the second quarter of 2003, to $764,000, from $1,424,000, compared to the same period a year earlier. The decrease of $661,000 principally reflected lower expenses for payroll
($270,000), commissions ($148,000), travel ($91,000) and rent ($68,000). Lower expenses were also reported for outside consulting ($36,000) and marketing ($29,000). Nevertheless, the decline in expenses did not keep pace with the revenue shortfall
and sales and marketing expenses as a percentage of revenues increased in the second quarter of 2003, to 136%, from 69% in 2002.

In the first half of 2003, sales and marketing
expenses fell 38%, to $1,659,000, from $2,697,000, compared to the same period a year earlier. The decrease of $1,037,000 reflected lower expenses for payroll ($306,000), commissions ($252,000), travel ($217,000) and rent ($147,000). Lower expenses
were also reported for consulting ($34,000) and marketing/trade shows ($30,000). Nevertheless, the decline in expenses did not keep pace with the revenue shortfall and sales and marketing expenses as a percentage of revenues increased in the first
half of 2003, to 112%, from 67% in 2002.

The Company expects sales and marketing costs to continue to track lower for the balance of the year and should improve as a percent of
sales as revenues increase. However, if future revenues do not improve, the Company may be required to make even further expense reductions that could impact the Companys 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 accounting, legal and other public company related costs including those of directors, shareholders and investor relations.

For the
three month period ended June 30, 2003, general and administrative costs decreased 9%, to $875,000, from $960,00 a year ago. Lower expenses related to shareholder and public company reports ($183,000), payroll ($139,000), property/casualty insurance
($121,000), telephones ($70,000) and legal ($32,000) were partially offset by increased costs for bad debt ($139,000), rent ($104,000), accounting fees ($73,000) and supplies ($52,000). As a percent of revenues, general and administrative expenses
were 154% and 47% in the second quarter of 2003 and 2002, respectively.

For the first half of 2003, general and administrative costs were down 12%, to $1,535,000, from $1,751,00
a year ago. Decreased expenses related to payrolls ($295,000), property and casualty insurance ($232,000), shareholder and public company reports ($184,000), telephones ($118,000) and outside consulting ($71,000) were partially offset by increased
expenses for rent ($271,000), accounting fees ($212,000), bad debt ($139,000) and supplies ($47,000). As a percent of revenues, general and

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MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONAND RESULTS OF OPERATIONS
(continued)

administrative expenses were 104% and 43% in the first half of 2003 versus 2002, respectively.

The Company expects general and administrative expenses will continue to decrease in 2003, reflecting additional staff reductions in February and May as well as a number of other cost savings initiatives.

Goodwill Impairment. In accordance with FAS 142 the Company reviewed its goodwill on June 30, 2003. At that time, the Companys market capitalization was
approximately $3.5 million as determined by the Companys latest closing share price on NASDAQ Overthe-Counter Bulletin Board. Since this amount exceeded the Companys recorded equity of a negative $2.5 million on that date, the
Company concluded that goodwill was not further impaired during the second quarter. In 2002 the Company incurred a non-cash charge of $4,795,000 related to the impairment of goodwill in accordance with provisions of FAS 142 (see Note 3 in the Notes
to Consolidated Financial Statements included in this quarterly report).

Operating Loss. The Company incurred losses from operations of
$1,949,000 in the second quarter of 2003, versus a loss of $7,341,0000 in 2002. The $5,392,000 improvement principally reflected the absence of $4,795,000 in goodwill impairment in 2002 and lower expenses for research and development and sales and
marketing. These improvements reflected the Companys concerted efforts to improve gross profit margins and lower operating expenses through improved efficiencies, headcount reductions and additional cost savings measures. Although cost of
revenues was also down, it did not decline as rapidly as revenues and therefore offset some of the savings in operating expenses.

During the six-month period ended June 30, 2003,
losses from operations totaled $3,639,000, an improvement over the $9,770,000 posted for the same period a year earlier. The reduction of $6,131,000 reflected good impairment of $4,795,000 and lower expenses for research and development and sales
and marketing. These improvements reflected the Companys concerted efforts to improve gross profit margins and lower operating expenses through improved efficiencies, headcount reductions and additional cost savings measures. Although cost of
revenues was also down, the decline in these expenses was only marginally better than the decline in revenues and therefore had minimal impact on the savings in operating expenses.

Other Net Income (Expense). In the second quarter of 2003, other net expense consisted primarily of net interest expense of $428,000 and other net miscellaneous expenses of $10,000. The
net interest expense consisted of non-cash interest related to the accelerated amortization of an imputed discount on the warrants and beneficial conversions ($329,000) and non-cash interest related to the convertible promissory notes ($99,000).
These non-cash expenses were partially offset by a non-cash loss of $35,000 from the change in fair market value of the warrant obligations arising from the issuance of the convertible promissory notes and warrants and net sublet income of
$25,000.

In the second quarter of 2002, other income net consisted primarily of a non-cash gain of $187,000 on the change in fair market value of the warrant obligation arising
from the issuance of a convertible promissory note and warrants as described in Note 4 of the Notes to Consolidated Financial Statements included in this quarterly report. In addition, the Company recorded sublet income of $25,000 and interest
income of $7,000 during the period. These items were partially offset by the amortization of an imputed discount related to the convertible promissory note ($120,000) and non-cash interest expense also related to the convertible promissory note
($48,000).

In the first half of 2003, other net expense consisted primarily of net interest expense of $703,000 offset by $123,000 of other income. The net interest expense
consisted of non-cash interest related to the accelerated amortization of an imputed discount on the warrants and beneficial conversions ($516,000) and non-cash interest related to the convertible promissory notes ($186,000). These non-cash expenses
were partially offset by a non-cash gain of $69,000 from the change in fair market value of the warrant obligations arising from the issuance of the convertible promissory notes and warrants, net sublet income of $50,000 and the gain on the disposal
of an asset amounting to $5,000.

In the first half of 2002, other income net consisted primarily of a non-cash gain ($347,000) on the change in fair market value of the warrant
obligation arising from the issuance of a convertible promissory note and warrants. In addition, the Company recorded sublet income ($50,000) and interest income ($28,000) during the period. These items were partially offset by the amortization of
an imputed discount related to the convertible promissory note ($227,000) and non-cash interest expense also related to the convertible promissory note ($97,000).

Income
Tax (Provision) Benefit. Income tax provisions are primarily for non-U.S. taxes. The Company anticipates utilizing net operating losses to offset any pre-tax income. In the second quarter of 2003 the Company recorded a
provision for income taxes of $15,000 due primarily to the expiration of certain foreign tax contingencies. A year earlier, a similar provision for $21,000 was made for the same reasons.

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MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONAND RESULTS OF OPERATIONS
(continued)

In the first half of 2003 and 2002 the Company recorded a provision for income taxes of $44,000 in each year due primarily to the expiration of certain foreign
tax contingencies.

The Company recognizes deferred tax assets and liabilities based on differences between financial statement and tax bases of assets and liabilities using
current, enacted rates. A valuation allowance equal to the total amount of net deferred tax assets of approximately $71.0 million at June 30, 2003 has been established. These net deferred tax assets could be realized to the extent the Company
operates profitably in the future during the respective carryforward periods.

Other Comprehensive Loss. The other comprehensive loss reflects
the impact of foreign exchange rates on cash. For the three-month period ended June 30, 2003 the Company realize comprehensive income of $31,000. During the same period in 2002 there was a comprehensive loss of $54,000. For the first six months of
2003 a comprehensive loss of $35,000 was posted versus a loss of $92,000 in 2002.

Liquidity and Capital Resources

Cash and cash equivalents totaled $233,000 on June 30, 2003, a decline of $648,000 from the balance of $881,000 on December 31, 2002. The decrease in cash was primarily due to $2,559,000 of cash being used in operations
offset in part by net cash proceeds of $1,815,000 from the issuance of non-convertible promissory notes during the six-month period.

Net cash used for operating activities during
the first half of 2003 was $2,559,000, compared to $5,299,000 during the same period a year ago. The negative cash flow from operations primarily reflected the net loss of $4,297,000, a decrease in accrued wages and related liabilities ($461,000), a
decrease in the fair value of the Warrant obligations ($69,000) and increased prepaid expenses ($47,000). These amounts were partially offset by a decrease in accounts receivable ($1,238,000), an increase in other accrued liabilities ($325,000),
non-cash interest ($206,000), an increase in deferred revenues ($81,000), non-cash items of depreciation ($75,000) and an increase in accounts payable ($71,000).

Net cash
provided by investing activities was $61,000 in the first half of 2003, compared to $201,00 of funds used during the same period in 2002. Net cash provided in 2003 consisted of a $77,000 decrease in other assets offset by $16,000 of equipment
purchases. In 2002, the use reflected property and equipment purchases ($94,000) and an increase in other assets ($107,000).

Net cash provided by financing activities was
$1,815,000 in the first six months of 2003 compared to $3,395,000 provided during the same period a year ago.. Net cash in 2003 included $1,015,000 in six-month, non-convertible, secured promissory notes from SDS and $800,000 in notes with the same
terms from North Sound. Proceeds in 2002 were from the issuance of a convertible promissory note and warrants to SDS in January of that year.

Effective August 22, 2002, the
Companys common stock was de-listed from the NASDAQ Small Cap Market (SM) for failing to comply with the $1.00 minimum bid price requirement. The common stock is now traded on the Over-The-Counter Bulletin Board under the stock symbol
(VRTL.OB).

As a result of Vertels common stock being de-listed from The NASDAQ SmallCap Market, effective August 22, 2002, and the Companys failure to maintain
sufficient authorized shares and registering the necessary shares underlying the outstanding convertible secured promissory notes and warrants, the Company is in default under the terms of its outstanding convertible securities (First and Second
Notes and Warrants) identified in Note 5 of Item 8: Financial Statements and Supplementary Data. As a consequence of such defaults, the holder of the notes and warrants could demand repayment of the notes at the prepayment price (115% of the
principal outstanding), could convert the remaining principal on the notes (significantly diluting current shareholders), or exercise or otherwise enforce any one or more rights under the applicable agreements. As of the date of the date filing for
this Quarterly Report, the note holders have not advised the Company that it is in default or taken any other remedial action.

The Company has reported operating losses for each
of the most recent five fiscal years. For the six months ended June 30, 2003, Vertel reported operating losses of $3,639,000 and negative cash flows from operations of $2,559,000. For the twelve-month period ended December 31, 2002 the Company
reported an operating loss of $14,429,000 and negative cash flows from operations of $6,607,000. As of June 30, 2003 the Company had an accumulated deficit of $101,567,000 and negative working capital of $5,803,000, including cash and cash
equivalents of $233,000. Such results raise substantial doubt about Vertels ability to continue as a going concern.

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MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONAND RESULTS OF OPERATIONS
(continued)

During the second quarter of 2003 the Company received net proceeds of approximately $1,815,000 from non-convertible promissory notes (See Note 4). Proceeds from
this transaction were used to fund operations during the second quarter. At the end of the first quarter of 2003, the Company also received net proceeds of $500,000 from non-convertible promissory notes that were reflected in the cash balance of
$472,000 on March 31, 2003. During the first quarter of 2002, the Company received net proceeds of approximately $3,395,000 from the sale of a convertible secured promissory note and the issuance of a common stock warrant, and on August 13, 2002
received net proceeds of approximately $3,040,000 from the sale of a second convertible secured promissory note and the issuance of additional warrants (See Note 5). The Company used $1,500,000 of the proceeds of the second note to partially repay
the first note. Substantially all of the remaining proceeds from these two transactions were used for operations during the course of 2002. As of December 31, 2002, the recorded balances remaining on these two Notes totaled $1,761,000. This amount
is net of $3,012,000 in non-cash charges that are already reflected in the accompanying 2002 financial statements. The sum of these two amounts represents the total cash amount that would be necessary to satisfy the debt.

The inability thus far of the Company to generate sufficient revenues to offset expenses raises substantial doubt about Vertels ability to continue as a going concern and the Company may,
therefore, be unable to realize assets and discharge liabilities in the normal course of business. The Company expects to continue to incur operating losses in the third quarter and currently spends about $2.3 million per quarter in expenses. Since
the beginning of the year the Company has reduced the number of employees, from 61 to 31, and has taken additional steps to reduce expenses, including the closing of all facilities except the Los Angeles office in August, 2003. Nevertheless, the
Company cannot assure sales targets will be met or that expense reduction programs will be sufficient to generate operating income. If operating income is not achieved and Vertel is not able to raise additional debt equity capital the Company may
not be able to continue as a going concern.

Vertels financial statements do not include any adjustments relating to the recoverability and classification of recorded asset
amounts or the classification and amounts of liabilities that may become necessary in the event the Company is unable to continue as a going concern.

The Companys 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, 2003, the Company had $3,782,000 of debt outstanding in the form of convertible
promissory notes payable (See Note 4 to the Notes to Consolidated Financial Statements included in this quarterly report).

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| | ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
| | ------- | -----------------------------------------------------------

Quantitative Information About Market Risk.Vertels exposure to market risk for changes in interest rates relates primarily to its investment portfolio. The Company maintains an investment policy that ensures the safety and preservation of invested funds by limiting default risk,
market risk and investment risk. As of June 30, 2003, the Company had $233,000 of cash and cash equivalents with a weighted average variable rate of 0.3%. There were no short-term investments. As of June 30, 2002, cash and cash equivalents were
$714,000 with a weighted average variable rate of 0.36%. There were no short-term investments in either period.

At June 30, 2003 the Company had no long-term debt and short-term
debt of $3,782,000 related to promissory notes payable to SDS Merchant Fund, LP and North Sound. A year earlier, the Company had $3,170,000 in long-term debt in the form of promissory notes payable to SDS and no short-term debt.

Qualitative Information About Market Risk.While consolidated financial statements are prepared in United States Dollars, a portion of Vertels worldwide
operations have functional currencies other than the United States Dollar. In particular, the Company maintains operations in Germany, Korea, the Netherlands and Poland where the functional currencies are the Euro, Won, Euro and Zloty, respectively.
Nevertheless, most revenues are denominated in the United States Dollar.

Fluctuations in exchange rates could result in exchange losses and may have a material adverse effect on
Company results of operations. The impact of future exchange rate fluctuations cannot be predicted adequately. To date, exchange fluctuations have not had a material impact on earnings and the Company has not sought to hedge the risks associated
with fluctuations in exchange rates, but may undertake such transactions in the future. The Company does not have a policy relating to hedging. There can be no assurance that any hedging techniques implemented by the Company would be successful or
that results of operations will not be materially adversely affected by exchange rate fluctuations.

| | ITEM 4. | CONTROLS AND PROCEDURES
| | ------- | -----------------------

Evaluation of Disclosure Controls and Procedures

Vertels Chief Executive Officer and Chief Financial Officer, after evaluating the effectiveness of the Companys disclosure controls and procedures (as defined in the Securities Exchange Act of 1934
Rules 13a-14(c) and 15d-14(c) as of a date within 90 days of the filing date of this quarterly report on Form 10-Q (the Evaluation Date)), have concluded that as of the Evaluation Date, the Companys disclosure controls and
procedures were adequate and effective to ensure that material information relating to the Company and its consolidated subsidiaries would be made known to them by others within those entities, particularly during the period in which this Form 10-Q
was being prepared.

These facts notwithstanding, Vertels Chief Executive Officer and Chief Financial Officer do not expect the Companys disclosure controls or
internal controls will prevent all error and all fraud. The design of any control system is based partly on certain assumptions about the likelihood of future events and there can be no assurance that all future events have been anticipated. In
addition, no matter how well conceived and operated a control system may be, it provide only reasonable, not absolute, assurance that system objectives are being met. No evaluation of controls can provide absolute assurance that all control issues
and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur due to simple mistake or error. In addition, controls can be
circumvented by individuals; can be subject to the collusion of two or more people; or by management decisions to override controls. Furthermore, the design of control systems must reflect the fact that there are resource constraints and the costs
of controls must be considered relative to their respective benefits.

Changes In Internal Controls

There were no significant changes in internal controls or in other factors that could significantly affect disclosure controls and procedures subsequent to the Evaluation Date, nor any significant deficiencies or material weaknesses in such
disclosure controls and procedures requiring corrective actions. As a result, no corrective actions were taken.

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PART II. OTHER INFORMATION

| | ITEM 1. | LEGAL PROCEEDINGS
| | ------- | -----------------

Vertel is sometimes subject to certain legal proceedings and claims that arise in the normal conduct of
business. Currently the Company is not a party to any material, pending legal proceeding nor is it aware of any that may arise that would have a material effect on the Companys financial condition or results of operations.

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.

In light of recent developments, the Company may find itself subject to
legal proceedings, though none are expected to be material.

| | ITEM 2. | CHANGES IN SECURITIES AND USE OF PROCEEDS
| | ------- | -----------------------------------------

Not applicable

| | ITEM 3. | DEFAULTS UPON SENIOR SECURITIES
| | ------- | -------------------------------

None

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

None.

| | ITEM 5. | OTHER INFORMATION
| | ------- | -----------------

None.

| | ITEM 6. | EXHIBITS AND REPORTS ON FORM 8-K
| | ------- | --------------------------------

(a) EXHIBITS

See the Exhibit Index following this Report

(b) REPORTS ON FORM 8-K

The Company filed a Current Report on Form 8-K dated April 16, 2003 in connection with the raising of $210,000 in gross proceeds from the sale of four six-month term Secured Promissory Notes.

The Company filed a Current Report on Form 8-K dated May 5, 2003 in connection with the engagement of Singer, Lewak, Greenbaum and Goldstein, LLP (SLGG) as the Companys
independent public accountants. Concurrently, the Company announced the termination of its relationship with BDO Seidman, LLP.

The Company filed a Current Report
on Form 8-K dated June 18, 2003 in connection with the appointment of Michael A. Sternberg as interim Chief Executive Officer following the resignation of Marc E. Maassen on June 15, 2003. Mr. Sternberg has served as a director of the Company
since August 2002.

The Company filed a Current Report on Form 8-K dated August 10, 2003 wherein the Company announced the closing of all offices except Los
Angeles and the suspension of sales activities. The Company intends to continue to support its existing installed customer base and will determine future operations in the next several months.

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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 13, 2003 |  |  | /s/T.JAMESRANNEY                                                                                                                                             | 
|                      |  |  |                                                                                                                                                              | 
|                      |  |  | T. James RanneyVice President, Finance and Administration,Chief Financial Officer and Secretary(Principal Financial Officer and PrincipalAccounting Officer) | 

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EXHIBIT INDEX

Exhibits included herein, numbered in
accordance with Item 601 of Regulation S-K.



|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    |  | (and 4.1) Amended and Restated Articles of Incorporation of the Registrant (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    |  | (and 4.2) Bylaws of the Registrant, as amended to date (incorporated by 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    |  | (and 4.1) Certificate of amendment to Registrants Articles of Incorporation, 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    |  | (and 4.6) Preferred Shares Rights Agreement dated as of April 29, 1997 with Chase Mellon Shareholder Services, LLC (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).                                                                     
|       |  |                                                                                                                                                                                                                                                                                                                                                
|4.3    |  | 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).                                                                        
|       |  |                                                                                                                                                                                                                                                                                                                                                
|4.4    |  | 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).                                                                                    
|       |  |                                                                                                                                                                                                                                                                                                                                                
|4.5    |  | 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   |  | 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).                                                                                                                                     
|       |  |                                                                                                                                                                                                                                                                                                                                                
|10.2   |  | 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).                                                                                                              
|       |  |                                                                                                                                                                                                                                                                                                                                                
|10.3   |  | 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).                                                                                                                                                
|       |  |                                                                                                                                                                                                                                                                                                                                                
|10.4   |  | 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).                                                                                                                         
|       |  |                                                                                                                                                                                                                                                                                                                                                
|10.5   |  | 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).                                                                                                                                   
|       |  |                                                                                                                                                                                                                                                                                                                                                
|10.6   |  | 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).                                                                                                                                                               
|       |  |                                                                                                                                                                                                                                                                                                                                                

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|       |  |                                                                                                                                                                            
|------ |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number |  | Description                                                                                                                                                                
|       |  |                                                                                                                                                                            
|10.7   |  | 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).

|      |  |                                                                                                                                                                                                                                                                                                              
|----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.8  |  | 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).                                                                                       
|      |  |                                                                                                                                                                                                                                                                                                              
|10.9  |  | 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).                      
|      |  |                                                                                                                                                                                                                                                                                                              
|10.10 |  | 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).                                   
|      |  |                                                                                                                                                                                                                                                                                                              
|10.11 |  | Amendment dated August 14, 2002 to Lease Agreement between the Registrant and Nomura-Warner Center Associates, L.P., dated November 26, 1996 (incorporated by reference
to Exhibit 10.11 of the Registrants Annual Report on Form 10-K for the year ended December 31, 2002, Commission File No. 000-19640).
|      |  |                                                                                                                                                                                                                                                                                                              
|10.12 |  | 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).                                                                    
|      |  |                                                                                                                                                                                                                                                                                                              
|10.13 |  | Employment Agreement between the Company and Cyrus D. Irani dated January 12, 1999 (incorporated by reference to Exhibit 10.72 of the Registrants Annual Report
on Form 10-K for the year ended December 31, 1999, Commission File No. 000-19640).                                                          
|      |  |                                                                                                                                                                                                                                                                                                              
|10.14 |  | Amendment No. 1, dated December 3, 1999 to the Employment Agreement between the Company and Cyrus D. Irani (incorporated by reference to Exhibit 10.80 of the
Registrants Annual Report on Form 10-K for the year ended December 31, 1999, Commission File No. 000-19640).                                  
|      |  |                                                                                                                                                                                                                                                                                                              
|10.15 |  | Employment Agreement between the Company and Stephen J. McDaniel dated November 1, 1999 (incorporated by reference to Exhibit 10.77 of the Registrants Annual
Report on Form 10-K for the year ended December 31, 1999, Commission File No. 000-19640).                                                     
|      |  |                                                                                                                                                                                                                                                                                                              
|10.16 |  | 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).                                                             
|      |  |                                                                                                                                                                                                                                                                                                              
|10.17 |  | 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).                                                          
|      |  |                                                                                                                                                                                                                                                                                                              
|10.18 |  | 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).                                                             
|      |  |                                                                                                                                                                                                                                                                                                              
|10.19 |  | 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).                                                
|      |  |                                                                                                                                                                                                                                                                                                              
|10.20 |  | 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).                                     
|      |  |                                                                                                                                                                                                                                                                                                              
|10.21 |  | 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).                                                                 
|      |  |                                                                                                                                                                                                                                                                                                              

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|Number |  | Description                                                                                                                                                                                                                                          
|------ |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       |  |                                                                                                                                                                                                                                                      
|10.22  |  | Asset Purchase Agreement by and between the Company and PrismTech Limited dated November 27, 2002 (incorporated by reference to Exhibit 10.21 of the Registrants
Current Report on Form 8-k dated December 31, 2002, Commission File No. 000-19640).
|       |  |                                                                                                                                                                                                                                                      
|31.1   |  | Certification of Chief Executive Officer of Registrant Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                    
|       |  |                                                                                                                                                                                                                                                      
|31.2   |  | Certification of Chief Financial Officer of Registrant Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                    
|       |  |                                                                                                                                                                                                                                                      
|32.1   |  | Certification pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith)                                                                                                              
|       |  |                                                                                                                                                                                                                                                      
|32.2   |  | Certification pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith)                                                                                                              
|       |  |                                                                                                                                                                                                                                                      

29