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SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549




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Form 10-K

|           |  |                                                                                           
|---------- |  | ------------------------------------------------------------------------------------------
|(Mark One) |  |                                                                                           
|þ          |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR
	15(d)
	OF THE SECURITIES EXCHANGE ACT OF 1934    
|          
|           |  | For the fiscal year ended December 31,
	2001                                              
|          
|or        
|          
|o          |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR
	15(d)
	OF THE SECURITIES EXCHANGE ACT OF 1934
|          
|           |  | For the transition period
	from           to                                              

Commission file number 0-24673



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Metawave Communications Corporation

(Exact name of registrant as specified in its
charter)


|                                                                |  |                                   
|--------------------------------------------------------------- |  | ----------------------------------
|Delaware                                                        |  | 91-1673152                        
|(State or other jurisdiction
	of incorporation or organization) |  | (IRS Employer
	Identification No.)

10735 Willows Road NE Redmond, WA
98052

(Address of principal executive offices,
including zip code)


(425) 702-5600

(Registrants telephone number, including
area code)




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Securities registered pursuant to
Section 12(b) of the Act:

None


Securities registered pursuant to
Section 12(g) of the Act:

Common Stock, Par Value $0.0001


(Title of Class)




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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
90 days.     Yes þ          No o

Indicate by check mark if disclosure of
delinquent filers pursuant to Item 405 of Regulation S-K is
not contained herein, and will not be contained, to the best of
the registrants knowledge, in definitive proxy or
information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this
Form 10-K.     þ

The aggregate market value of the voting stock
held by non-affiliates of the registrant as of April 1,
2002 was approximately $19,023,691 based upon the closing price
on the Nasdaq National Market reported for such date. Shares of
Common Stock held by each officer and director and by each
person who owns 5% or more of the outstanding Common Stock have
been excluded in that such persons may be deemed to be
affiliates. This determination of affiliate status is not
necessarily a conclusive determination for other purposes.

The number of shares outstanding of the
registrants Common Stock outstanding as of April 1,
2002 was 51,670,127.

DOCUMENTS INCORPORATED BY REFERENCE

Part III incorporates information by reference
from the definitive proxy statement for the Annual Meeting of
Stockholders to be held on June 6, 2002.



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METAWAVE COMMUNICATIONS CORPORATION

INDEX

|         |  |                                                                                        |  |      |    | 
|-------- |  | -------------------------------------------------------------------------------------- |  | ---- | -- | 
|         |  |                                                                                        |  | Page
|         |  |                                                                                        |  |     
|PART I  
|ITEM 1.  |  | BUSINESS                                                                               |  |      | 2  | 
|ITEM 2.  |  | PROPERTIES                                                                             |  |      | 11 | 
|ITEM 3.  |  | LEGAL PROCEEDINGS                                                                      |  |      | 11 | 
|ITEM 4.  |  | SUBMISSION OF MATTERS TO A VOTE OF SECURITY
	HOLDERS                                   |  |      | 11 | 
|PART II 
|ITEM 5.  |  | MARKET FOR REGISTRANTS COMMON STOCK AND
	RELATED STOCKHOLDER MATTERS                  |  |      | 12 | 
|ITEM 6.  |  | SELECTED CONSOLIDATED FINANCIAL DATA                                                   |  |      | 14 | 
|ITEM 7.  |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF
	FINANCIAL CONDITION AND RESULTS OF OPERATIONS |  |      | 15 | 
|ITEM 7A. |  | QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT
	MARKET RISK                            |  |      | 31 | 
|ITEM 8.  |  | FINANCIAL STATEMENTS                                                                   |  |      | 32 | 
|ITEM 9.  |  | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
	ACCOUNTING AND FINANCIAL DISCLOSURE  |  |      | 56 | 
|PART III
|ITEM 10. |  | DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT                                     |  |      |    | 
|ITEM 11. |  | EXECUTIVE COMPENSATION                                                                 |  |      |    | 
|ITEM 12. |  | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
	AND MANAGEMENT                        |  |      |    | 
|ITEM 13. |  | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                         |  |      |    | 
|PART IV 
|ITEM 14. |  | EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
	REPORTS ON FORM 8-K                      |  |      | 56 | 

1



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PART I

Item
1.     Business

In addition to historical information, the
following discussion of Metawave Communications
Corporations (The Companys or
Metawaves) business (as well as the letter to
stockholders from the Companys chairman and chief
executive officer sent to stockholders with this Annual Report
on Form 10-K) contains forward-looking statements. These
forward-looking statements involve risks, uncertainties and
assumptions. The actual results may differ materially from those
anticipated in these forward-looking statements as a result of
many factors, including but not limited to, those discussed in
the sections in this Annual Report on Form 10-K entitled
Competition, Intellectual Property,
Risks Related to our Business, Risks Related
to our Stockholders and Managements Discussion
and Analysis of Financial Condition and Results of
Operations. In addition, the forward-looking statements
relating to our future operations are based on the assumption
that we are able to continue as a going concern. Readers are
cautioned not to place undue reliance on these forward-looking
statements, which reflect managements opinions only as of
the date hereof and if we are required to significantly alter
our business operations in order to continue operations, our
future results may differ substantially from those expressed in
our forward-looking statements. The Company undertakes no
obligation to revise or publicly release the results of any
revision to these forward-looking statements. Readers should
carefully review the risk factors described in this document, as
well as in other documents the Company files from time to time
with the Securities and Exchange Commission, including the
Quarterly Reports on Form 10-Q to be filed by the Company
in fiscal year 2002.

Overview

Metawave Communications Corporation provides
smart antenna solutions to wireless network operators, tower
providers and base station manufacturers facing capacity
constraints and performance issues in the wireless
communications industry. We believe that our smart antenna
systems improve overall network performance by increasing
capacity, improving or maintaining network quality, reducing
network operating costs and better managing network
infrastructure. Our smart antenna systems are designed to allow
wireless network operators, tower providers and base station
manufacturers to address wireless network challenges, allowing
them to more cost-effectively keep pace with growth in
subscriber rates and minutes of use and increased demand for
digital voice and data services. Our technologies are designed
to be implemented in a variety of market segments in the
worldwide wireless communications industry and currently support
various CDMA, GSM, third generation (3G) and analog standards.

Our customers of SpotLight appliqué systems
include Verizon Wireless, ALLTEL Communications and Grupo
Iusacell Celular S.A. de C.V. of Mexico. As of December 31,
2001, we had sold an aggregate of 368 SpotLight®
appliqué systems worldwide. Our SpotLight smart antenna
systems are appliqués or add-ons to existing or new base
stations and are intended to increase the capacity and improve
the performance of current second generation (2G) and
two-and-one-half generation (2.5G) CDMA networks. As an
improvement to our current SpotLight 2200 appliqué product,
we entered into an agreement with Lucent Technologies to better
and more closely integrate our SpotLight 2200 CDMA smart antenna
system into Lucents FlexentTM Modular
Cellular base station.

We are developing an antenna sharing product
called SmartShareTM that is designed to enable tower
providers to increase the number of carriers on their towers and
to enable multiple wireless network operators to share a common
set of antennas while independently defining antenna patterns to
optimize their individual networks. We have entered into an
agreement with Crown Castle International to develop and supply
our SmartShare products for use in their tower locations.

We are developing a smart antenna solution called
SmartCellTM that is designed to enable wireless
network operators operating in the cellular and Personal
Communications Services, or PCS, frequencies to improve the
performance of their networks by improving capacity, quality and
coverage. SmartCell is intended to provide greater capacity and
performance benefits over that provided by off-the-shelf sector
antennas.

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Our smart antenna solutions are also designed to
be embedded into 2.5G and 3G base stations. We have entered
into an agreement with Samsung Electronics Co., Ltd. to embed
our adaptive smart antenna technology into some of their base
stations.

In March of 2002, we decided upon a restructuring
plan to discontinue the SpotLight GSM product, reduce our
workforce and consolidate facilities. After evaluation of the
market, we determined that the SpotLight GSM product did not
have sufficient customer demand to continue with the product.
While this decision was made based on market conditions in the
first quarter of 2002, we determined that these market
conditions impaired the carrying value of the inventory and
fixed assets associated with the product as of December 31,
2001. Accordingly, a provision of $18.1 million for the
write down of these assets was made in the year ended
December 31, 2001.

We expect to record charges of approximately
$23 million relating to this restructuring,
$18.1 million of which was recorded in 2001 as stated
above. We expect to record the remaining charges of
approximately $4.9 million, related to employee severance,
facilities shutdown, termination of third party arrangements and
other costs, in the first and second quarters of 2002.

In connection with the restructuring, the Company
identified unauthorized commitments related to SpotLight GSM
sales made to companies in Asia. As a result of these
commitments, the Company has restated its quarterly results for
the first three quarters of 2001 and has revised its annual
results for 2001 with respect to $7.1 million of revenue
out of the $43.6 million of total revenue previously
announced.

Industry Background

Markets for Our
Products.In wireless communications
networks, there are several wireless standards that use
different technologies to process calls and divide allocated
spectrum. These wireless standards fall into two broad
categories, analog and digital. Advanced Mobile Phone System, or
AMPS, is the leading analog standard. Digital standards are
further subdivided into two general schemes, time division and
code division. Time Division Multiple Access, or TDMA, and
Global Systems for Mobile Communications, or GSM, are the
leading time division standards. Code Division Multiple Access,
or CDMA, is the leading code division standard.

The terms cellular and PCS are often used
interchangeably by the popular press when discussing wireless
communications networks. Within the wireless industry the
distinction between the two is important. Cellular describes
networks operating in the 800 MHz and 900 MHz
frequency bands, using both analog and digital standards.
Analog, CDMA, GSM and TDMA are the most widely deployed cellular
standards across the globe. PCS typically describes networks
operating in the 1800 MHz and 1900 MHz frequency
bands. CDMA, GSM and TDMA are the most widely deployed PCS
standards.

The CDMA, GSM and TDMA markets consist of
wireless network operators at both cellular and PCS frequencies.
According to EMC and the CDMA Development Group, CDMA is the
dominant digital technology deployed in North America. The CDMA
Development Group estimated that there were 111 million
CDMA subscribers worldwide as of January 2002. According to the
GSM Association, GSM is the most widely deployed digital
standard worldwide and has been deployed in 171 countries,
with more than 646 million subscribers at year end 2001.

3G Standards.Over
the next several years, it is expected that wireless network
operators will begin to migrate their systems to 3G air
interface standards. Our current smart antenna products for 2G
and 2.5G networks are designed to support the needs of
wireless networks operators as they migrate their networks to
3G. We will continue to develop hardware and software solutions
that can be embedded into wireless infrastructure base station
products or added to these products to further enhance the
spectral efficiency of these 3G air interface standards.

Growth in Wireless
Usage.The demand for wireless
communications services has grown significantly in recent years,
although overall growth rates have slowed. This increase in
usage has been driven by an increased number of subscribers and
minutes of use, lower prices due to multiple wireless network
operators competing in most markets, competitive pricing
strategies, such as discounting and fixed rate plans and
expanded availability of existing services. The emergence of new
data and internet-oriented wireless services and devices,

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such as data-enabled mobile phones, palm
computers and laptop computers with wireless modems, is expected
to contribute to future increases in wireless usage. However,
given the current volatility of the financial markets and the
slowdown in the global economy, many of our customers may find
it increasingly difficult to predict demand for their products
and services. As a result, many of our customers continue to
reduce and postpone the expansion or upgrade of their wireless
networks or tower portfolios, the development of new
technologies and products for both wireless and tower operators,
and the demand for shared tower applications which has reduced,
or can reduce, the demand for our products and services.


Expanded Usage and Resulting Strain on
Wireless Network Capacity.Increased
subscriber usage can place a significant strain on wireless
networks given the fixed amount of radio frequency spectrum
available. Wireless spectrum is allocated to individual wireless
network operators in fixed amounts by governments in the U.S.
and foreign markets. A fundamental challenge for wireless
network operators is to increase capacity, while maintaining
signal quality, within a fixed amount of wireless bandwidth.

Wireless network operators have traditionally
addressed capacity problems by building additional cell sites,
adding more digital capacity and/or enhancing digital
capability. Building additional cell sites has three major
disadvantages. First, we believe the cost of constructing a new
cell site in the United States, including land, building and
equipment, is approximately $500,000. Second, building cell
sites closer together may increase signal interference in the
network, which can reduce capacity and call quality,
exacerbating the very problems that the additional cell sites
were built to resolve. Third, wireless network operators may
face significant community resistance arising from environmental
and zoning concerns and objections to the appearance of
additional cell site towers. In addition to building new cell
sites, wireless operators address capacity problems by deploying
more digital capacity. In CDMA networks, operators dedicate more
spectrum to CDMA services to increase capacity. This technique
is generally employed over a large cluster of sites and is
usually not done for individual capacity constrained sites. In
time division networks, operators seek to add more digital radio
channels and re-use the frequencies to a greater degree in order
to increase network capacity. This technique is limited by
available spectrum and increased interference, which adversely
affects capacity and quality. Finally, operators may deploy
enhanced digital capability such as improved voice coding,
frequency hopping in time division networks and
2.5G solutions in the case of CDMA networks. These
techniques require new subscriber handsets and widespread
deployment in the network to be fully effective.

Tower Industry Tenant Growth.Tower providers desire to increase
revenue by attracting more tenants to their towers. Kagan World
Media estimates the average lease-up rate for the five largest
tower providers to be about 2.4 tenants per tower at the
end of 2001. Tower providers wanting to increase the number of
tenants on their towers can encounter a number of challenges,
which include time and administrative burdens for zoning
modifications, structural improvements to accommodate additional
tenants and tower height restrictions that may limit the number
of tower positions which provide acceptable locations for
additional tenant antennas.

Our Products and Solutions

Our products are designed to provide solutions to
the capacity, performance and infrastructure issues facing CDMA,
GSM and 3G wireless networks. Our SpotLight systems are
designed to be compatible with CDMA wireless standards and with
currently installed cell site equipment, thereby preserving
wireless network operators existing investment in
equipment and technology. Our smart antenna appliqué
systems have been developed to be compatible with Lucent
Series II and FlexentTM Modular Cellular
base stations, Motorola HDII, SC2400, SC4812 and SC9600 base
stations, and Nortel Metrocell 800 MHz CDMA base stations, which
we believe represent substantially all of the 800 MHz CDMA base
stations deployed in North America.

SpotLight 2200.In
March 2001, we introduced SpotLight 2200, the current evolution
of our SpotLight 2000 CDMA product. SpotLight 2200 includes our
new dual-band antenna option, which allows operators to share a
single antenna array for 800 MHz cellular and 1900 MHz PCS
services.

Our proprietary SpotLight 2200 systems
increase CDMA network performance by efficiently distributing
existing network resources to better match subscriber usage and
balance the traffic load within a three sector cell, reducing
the problem of having one sector overloaded while the other
sectors are underutilized. As traffic varies throughout the day,
our SpotLight system can accommodate these variations and
balance the traffic accordingly.

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This load balancing increases network efficiency
and capacity. Based on customer data, current versions of our
SpotLight 2200 system have demonstrated increases in CDMA
cell site capacity up to 50% in three sector cell sites. The
Spotlight 2200 system is also deployed in six sector
applications to improve cell site capacity. In six sector
deployments, cell site capacity has been improved by up to 94%,
depending on network configuration.


The SpotLight 2200 system can be deployed in
two different configurations depending on customer network
requirements. The CDMA-only configuration uses our SpotLight
system to support only the CDMA interface. CDMA with Analog
Pass Through, or CDMA/ APT provides capacity benefits to the
CDMA interface while passing the analog signals
through our SpotLight system without changing the analog
network. The CDMA/ APT system allows the service provider to
support both CDMA and analog networks with a single set of
antennas and power amplifiers.

Our SpotLight 2200 system can be
administered and monitored locally or remotely through our
Microsoft WindowsTM-based software application called
SiteSculptorTM. SiteSculptor allows real time
monitoring of system performance through graphical displays.

SpotLight 2230 Integrated Product for Lucent
Flexent Modular Cellular Base
Stations.In October 2001, we
announced an alliance with Lucent to integrate our
SpotLight 2200 smart antenna system with their FlexentModular Cellular base station. Designed for the 800 MHz
cellular frequency, the integrated smart antenna solution,
SpotLight 2230, simplifies the integration of the two
systems by sharing key components of the base station. With the
integrated smart antenna solution, operators can
cost-effectively and seamlessly upgrade their FlexentModular Cellular base stations with smart antenna
functionality in order to carry additional traffic on and
improve the performance of their networks.

SmartShareTMAntenna Sharing Solution.SmartShare is our new antenna
sharing solution that supports cellular band, Specialized Mobile
Radio (SMR) and PCS frequencies. SmartShare allows multiple
operators, who may operate at different frequencies, to share a
common set of antenna panels at a cell site. Wireless network
operators benefit from this arrangement because it will provide
them with the economic advantages of tower sharing and access to
more cell sites in areas where tower space is limited.
SmartShare will provide operators with the flexibility to
independently define and optimize antenna patterns to fit their
particular needs without being constrained by the fixed patterns
of conventional off-the-shelf antennas. For tower providers,
SmartShare enables them to take advantage of shared antenna
economies by accommodating more carriers on their towers and by
offering multiple carriers a premium position on the tower. In
February 2002, we signed an agreement with Crown Castle to
develop and supply our SmartShare systems for use in their tower
locations. The SmartShare antenna sharing solution supports all
major air interfaces and can be applied in analog,
iDENTM (Integrated Dispatch Enhanced Radio), CDMA,
GSM, TDMA and 3G networks.

SmartCellTMAntenna Solution.We are developing a smart antenna
solution called SmartCell, comprised of a set of phased-array
antenna panels with a customizable personality module that
establishes either a standard sector pattern or an optimally
sculpted pattern for a particular sector. Our SmartCell product
uses our proprietary Cell SculptingTM technology that
enables a wireless network operator to sculpt or
shape a cells coverage pattern in a way that delivers
greater performance, capacity and coverage benefits than
off-the-shelf sector antennas. Cell Sculpting technology is used
to determine an optimal pattern for a cell site, which is then
captured in a personality module that is installed at the back
of each antenna panel. Unlike the fixed patterns of conventional
sector antennas, SmartCell allows wireless network operators to
change antenna patterns by swapping out the personality module.
Our SmartCell solution is designed to be compatible with base
stations operating in the PCS frequency bands in CDMA, GSM and
3G networks. The advantages of SmartCells Cell
Sculpting capabilities are also available to users of SmartShare.

Embedded Adaptive Smart Antenna
Solutions.We have developed embedded
adaptive smart antenna solutions which have been field tested to
demonstrate CDMA (IS-95) system performance enhancements.
The same solutions can be applied to 3G standards such as
CDMA2000 and WCDMA. Our embedded solutions increase network
capacity by utilizing fully adaptive beam forming techniques
that track individual mobile subscribers, and hence reduce
interference from surrounding mobile users and base stations. A
significant capacity increase has been demonstrated in field
experiments. In February 2001, we entered into an agreement with
Samsung to embed our adaptive smart antenna technology into some
of their base stations.

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Our embedded adaptive smart antenna solutions are
compatible with 3G networks and can be applied in CDMA2000 and
WCDMA networks.


Strategy

Our objective is to provide smart antenna systems
to the worldwide wireless communications market. Key elements of
our strategy are to:

Deliver Solutions that Increase Capacity and
Improve Performance of Wireless
Networks.We will continue to develop
solutions to enable wireless network operators to improve the
performance of their CDMA, GSM and 3G networks. Our smart
antenna systems improve the performance of these networks by
increasing system capacity and improving quality metrics such as
dropped call and access failure rates.

Deliver Antenna Sharing
Solutions.We are developing smart
antenna sharing solutions that will provide tower providers with
additional means to increase the number of tenants on their
towers and that will enable multiple operators to share a common
set of antenna panels on a tower while independently optimizing
antenna patterns for their individual service.

Integrate our Technology into 3G Wireless
Infrastructure.We intend to use our
leadership in adaptive smart antenna technology to develop
embedded hardware and software solutions for manufacturers of
wireless infrastructure equipment.

Target Additional Strategic
Customers.We intend to target
additional markets by expanding our installation, sales and
service capabilities in the regions served by large multi-system
wireless cellular and PCS networks operators.

Further Penetrate Existing CDMA
Customers.We believe that the 800 MHz
CDMA market will continue to represent a significant opportunity
for us. Over the last two years we have sold SpotLight smart
antenna systems to the largest 800 MHz CDMA wireless network
operators in North America, as measured by subscriber market
share data provided by the Radio Communications Review. We
intend to leverage the performance and service of our existing
system deployments to expand our presence and penetration within
these wireless network operators.

Core Technology

We believe that one of our key competitive
advantages is our investment and expertise in the core
technologies that enable efficient spectrum management of
wireless networks. Our core competencies encompass a number of
technical components, including advanced antenna concepts, radio
wave propagation models, network performance monitoring tools,
wireless standards knowledge and communications systems hardware
implementations. These core competencies, when applied in
combination, allow wireless network operators, tower providers
and infrastructure manufacturers to optimize capacity, coverage
and quality across their networks. We have developed, and
continue to expand upon, the following fundamental technical
elements:

Phased-Array Antenna
Systems.We have developed
phased-array antenna systems that provide compact beam-forming
within a single structure. This technology can be applied to
many wireless environments, including cellular, PCS, SMR and
two-way paging.

Multibeam Hardware
Architectures.We have developed
cost-effective hardware implementations necessary to support the
operation of multibeam systems on high-traffic cell sites. These
hardware architectures can be applied across CDMA, GSM, TDMA, 3G
and analog standards and allows us to further enhance and
optimize the performance for each standard.

Real Time Network Control
Algorithms.We have developed
expertise in the optimization of wireless network performance
for CDMA, GSM, 3G and analog wireless standards. This expertise
allows network control algorithms to be customized based on the
specific wireless standard and network deployment scenario. We
have also developed internal software tools for performance
modeling of wireless networks, allowing us to further customize
systems for wireless network operators based on their specific
needs.

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Adjustable Beam Forming
Techniques.We design and build
antenna systems with a broad range of standard and custom beam
types and shapes using adaptive beam-forming technology.
Adaptive beam-forming systems can monitor traffic loading and
interference levels and then respond by implementing changes
designed to equalize traffic loads and reduce interference.
Additionally, our fully adaptive beam forming allows each
individual subscriber to be continuously followed and serviced
by high gain antenna beams. The result is significant
improvement in reducing interference rejection, therefore,
system capacity increases. Moreover, the technical ability to
track and locate subscribers may enable location-based services.

Research and Development

Our success depends on a number of factors, which
include our ability to identify and respond to emerging
technological trends in our target markets, develop and maintain
competitive systems, enhance our existing systems by adding
features and functionality that differentiate them from our
direct and indirect competitors and bring systems to market on a
timely basis and at competitive prices. As a result, we have
made, and we intend to continue to make, significant investments
in research and product development. Our research and
development expenses were $33.5 million in 2001. Our
research and development expenses were $27.8 million in
2000 (excluding $10.4 million of in process research and
development related to the Adaptive Telecom, Inc. acquisition),
and $22.8 million in 1999.

Our development efforts in the near term will be
focused on using our technology to develop network performance
solutions for the existing and emerging wireless communications
markets. Our core technology can be used to address capacity and
performance issues in many large wireless networks. Principal
areas of focus include the following:



| |   |                                                                                                                                                               
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | continuing to develop product and feature
	upgrades to our SpotLight CDMA appliqué products;                                                                  
|
| |  | developing our SmartShare antenna sharing
	solution for tower providers;                                                                                      
|
| |  | developing our SmartCell antenna solution that
	will enable wireless network operators to increase capacity and
	optimize their cellular and PCS networks; and
|
| |  | integrating and embedding our adaptive smart
	antenna technology into wireless base station equipment.                                                        

Customers

Our customers for SpotLight smart antenna
appliqué systems are wireless network operators who face
network performance problems. These sales have been primarily to
customers located in the United States and Mexico.

We have master supply agreements with three of
the largest 800 MHz CDMA wireless network operators in
North America, as measured by subscriber market share. These
customers are Verizon, ALLTEL and Grupo Iusacell.

During the twelve months ended December 31,
2001, sales to ALLTEL, Grupo Iusacell and Verizon accounted for
36.5%, 31.3% and 27.4% of revenues, respectively. During the
twelve months ended December 31, 2000, sales to Verizon and
Grupo Iusacell accounted for 60.2% and 33.4% of revenues,
respectively. During the twelve months ended December 31,
1999, sales to ALLTEL and Grupo Iusacell accounted for 65.7% and
26.0% of revenues, respectively.

International sales of our systems accounted for
35.2% of revenues for the fiscal year ended December 31,
2001 and 36.6% and 26.0% of revenues for the fiscal years ended
December 31, 2000 and 1999, respectively.

As of December 31, 2001, our backlog of
orders was approximately $11.1 million, compared to a backlog of
$11.3 million on December 31, 2000. We only include in
backlog customer commitments that are scheduled to be shipped or
installed in the next six months. System orders in our current
backlog are subject to changes in delivery schedules or to
cancellation at the option of the purchaser without significant
penalty. Installation of our systems may be delayed by various
factors. For a more detailed discussion of these delays, see the
risk factor titled Delays in Product Installation and
End-User Sales. Accordingly, although useful

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for internal scheduling of production and
services resources, backlog as of any particular date may not be
a reliable measure of revenue for any future period.


Our potential customers for embedded adaptive
smart antenna solutions are existing and emerging wireless base
station manufacturers. In February 2001, we entered into an
agreement with Samsung to embed our adaptive smart antenna
technology into some of their base stations.

In February 2002, we signed a development and
supply agreement with Crown Castle to develop and supply our
SmartShare products for use in their tower locations.

Sales, Marketing and Customer
Support

We sell our smart antenna systems through a
direct sales force supported by systems engineers. Sales
personnel are assigned on a customer account basis and are
responsible for generating system sales, providing system and
customer support and soliciting customer feedback for system
development. Sales personnel receive support from our marketing
communications organization which is responsible for the
branding and marketing of our products and services.

Our sales and marketing efforts are primarily
focused on establishing and developing long-term relationships
with potential customers. A relationship with a new customer
typically begins with a field trial or conditional sale in a
particular market of a customer. These are designed to satisfy
performance conditions prior to the completion of the sale. The
results of our field trials or conditional performance periods
of our conditional sales arrangements must generally be approved
at the senior management level within our customer accounts.
Consequently, the sales process associated with the initial
purchase of our systems is typically complex and lengthy,
lasting in some cases up to 12 months. However, once the
system successfully meets the applicable performance criteria,
we typically negotiate and enter into corporate-wide master
supply agreements. After this agreement is in place, purchasing
decisions are generally made on a market-by-market basis
pursuant to purchase orders placed under the master supply
agreement which are not subject to the satisfaction of
performance criteria. Consequently, the sales cycle for
subsequent purchases by individual markets or regions is
generally much shorter.

Our customer services organization performs
system installation, network optimization, training, consulting
and repair and maintenance services to support our smart antenna
systems. The organization also offers services to optimize the
network following the installation of a smart antenna system.
These services utilize our expertise in radio frequency network
design, knowledge of individual network configurations and
knowledge of our smart antenna system capabilities.

We generally offer a repair or
replace warranty on our systems for 12 to 24 months.
Warranty support and extended maintenance services for our
products are performed at our headquarters in Redmond,
Washington and at customer locations.

Manufacturing

We rely on outside suppliers to manufacture the
components and subassemblies used in our products. We have a
five-year supply agreement with Viasystems Group, Inc. to
manufacture our SpotLight systems. Viasystems obligation
under the supply agreement consists primarily of supplier and
commodity management and the assembling and testing of finished
systems from the components and subassemblies purchased from
outside suppliers. We anticipate that we will also use outside
suppliers to manufacture our SmartShare and SmartCell antenna
components.

Some additional parts and components used in our
smart antenna systems, such as antenna panels from Decibel
Products, a division of Allen Telecom Inc., are presently only
available from a single source. Some other parts and components
are available from a limited number of sources. For a more
detailed discussion of the risks associated with having a
limited source of suppliers see the risk factor titled
Limited Number of Suppliers.

8



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##### 



Competition

The market for smart antenna solutions is part of
the broader market for wireless infrastructure equipment which
is dominated by a number of large companies including Alcatel,
Ericsson, Lucent, Motorola, NEC, Nokia, Nortel, Samsung and
Siemens. Our smart antenna systems compete with other solutions
to expand network capacity and improve network quality. These
alternative solutions include other smart antenna systems,
additional base stations, six sector applications and deploying
more digital capacity and/or improved digital capability.

Other smart antenna systems are offered by
various competitors such as Ericsson, Nortel, Lucent, Wireless
Online and ArrayComm. Ericsson has announced a GSM smart
antenna system called GSM Capacity Booster that includes an
Ericsson base station as well as the smart antenna system.
Nortel has offered a smart antenna equipped GSM base station in
the past and has tested, and announced plans to offer, a CDMA
version for PCS applications. Lucent has announced plans to
develop an intelligent antenna product for use in 3G networks.
Wireless Online has announced a smart antenna product for GSM
networks. ArrayComm offers a smart antenna product that is
integrated into a Personal Handyphone System standard base
station in Japan. ArrayComm has announced plans to develop a
smart antenna solution for WCDMA and a proprietary broadband
product which includes smart antenna capabilities. Most of the
large wireless infrastructure equipment providers, including
Alcatel, Ericsson, Lucent, Motorola, NEC, Nokia, Nortel, Samsung
and Siemens, have large development organizations and have
either announced their intention to examine smart antenna
technologies, or have the core technology competence to do so
for the CDMA, GSM, TDMA and 3G standards. We have reached
agreement with only one of these companies, Samsung, to embed
our adaptive smart antenna technology into some of their base
stations.

The addition of more cell sites often will
provide more capacity to wireless networks and therefore may be
a substitute for our systems. The cost of base station equipment
contained in these cell sites has decreased in recent years and
affects our ability to compete effectively. However, other
related costs for new cell sites including real estate, towers
and building construction generally have not declined. Base
stations are sold by wireless infrastructure equipment
manufacturers such as the companies listed above, and
additionally, if base station manufacturers successfully develop
and integrate smart antenna solutions into their product
offerings, it may materially and adversely affect our business.

Efficient digital technologies and enhancements
to these technologies will provide more capacity to wireless
networks and, therefore, may be possible substitutes for our
systems. These digital technologies include existing
technologies, such as CDMA, GSM and TDMA, as well as emerging
3G standards, such as CDMA2000 and WCDMA. There are
enhancements to the existing CDMA and GSM standards, which
provide additional capacity. There are also various
enhancements, such as improved voice coding for CDMA and various
frequency hopping techniques for GSM, which are designed to
increase the capacity of these standards. These digital
technologies and various enhancements are also offered by the
large wireless infrastructure equipment providers listed above.
We believe that our smart antenna technologies can be compatible
with these digital technologies and their various enhancements.
Our technology, and its ability to enhance capacity, is additive
to the capacity enhancement provided by these digital
technologies. Customers, however, may delay or cancel deployment
of our smart antenna systems while they deploy these alternative
digital technologies and other enhancements.

We believe the principal competitive factors in
the smart antenna solutions market include:



| |   |                                                                                      
| | - | -------------------------------------------------------------------------------------
| |  | expertise in the core technologies needed for
	radio frequency communication systems;
|
| |  | system performance, features and reliability;                                        
|
| |  | price and performance characteristics;                                               
|
| |  | timeliness of new system introductions;                                              
|
| |  | customer service and support;                                                        

9



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##### 





| |   |                                        
| | - | ---------------------------------------
| |  | established customer relationships; and
|
| |  | size of installed customer base.       

We believe we will be competitive with respect to
many of these factors; however, our existing and potential
competitors may have longer operating histories, greater name
recognition, larger installed customer bases, greater financial,
technical, sales, marketing and other resources, and more
established customer relationships. To be competitive, we must
invest significant resources to address these competitive
factors and achieve customer satisfaction. If we fail to do so,
our smart antenna systems may not compete favorably with our
competitors which will materially and adversely affect our
business.

Intellectual Property

We currently have 46 issued U.S. patents,
four allowed U.S. patents and 36 pending
U.S. patent applications. In addition, we are seeking
patent protection for some of our inventions in foreign
countries. We have received eight registered federal copyrights
for our software and have one more copyright application
pending. The source code for our proprietary software is also
protected as a trade secret. In addition, we enter into
confidentiality agreements with our employees, customers,
vendors and strategic partners, and control access to, and the
distribution of our software, documentation and other
confidential and proprietary information. Our primary trademarks
are registered with the U.S. Patent and Trademark Office and
other foreign jurisdictions and trademark protection for a
number of other trademarks is pending in the U.S. and in foreign
countries.

Government Regulation

We obtain regulatory approval for our products.
In the United States, our products are certified by the Federal
Communications Commission, or FCC, before sales to customers may
commence to ensure that they will not cause wireless base
stations to exceed the prescribed technical standards. In
addition, our products are required to comply with electrical
safety standards.

Other countries have similar regulations that
must be complied with before our systems can be used. Foreign
countries regulatory programs are generally similar to
those in the United States. These governmental approval
processes frequently involve substantial delay, which could
result in the cancellation, postponement or rescheduling of
systems by our customers. Because of the expenses associated
with government approvals of our systems in some countries, we
only plan to seek product approval in those countries once we
have a customer who intends to purchase our systems.

In addition, our customers operations are
subject to extensive government regulations. To the extent that
our customers wireless networks are affected by existing
or new standards or regulations, we could experience delays in
orders. These delays could materially and adversely affect our
business and operating results. Allocation of additional
spectrum by governments may affect our customers level of
demand. For example, although the FCC has recently modified its
restrictions on the amount of spectrum a single wireless network
operator may hold in a geographic area, there was no increase in
the aggregate amount of spectrum made available to wireless
carriers.

We are also subject to U.S. government
export controls. Our sales and distributorship agreements
require that the export or resale of our systems to end users
located in other countries must be in compliance with
U.S. export controls. Our products do not currently require
any export control licenses to be sold abroad.

Employees

As of April 15, 2002, we had 160 employees,
of which 44 were primarily engaged in research, development and
product management, 85 in sales, marketing and customer
support and 31 in general and administration. After the
completion of our restructuring announced in March 2002, we
expect these numbers to be substantially reduced. We have no
collective bargaining agreement with our employees, and we have
never experienced a work stoppage. We believe that our employee
relations are good.

10



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##### 



Item
2.     Properties

We are headquartered in Redmond, Washington,
where we lease an aggregate of approximately 96,000 square
feet, housing our principal administrative, sales and marketing,
customer support and manufacturing facilities. Our lease for
this facility expires on May 31, 2005 and we have an option
to renew this lease for two additional five year terms. We
sublease approximately 26,500 square feet of this space. We
also have a five-year lease for a sales and engineering support
office in Dallas, Texas and short term leases on a facility in
Campbell, California, and a services and support office in
Shanghai, China. We are in process of closing our Taipei, Taiwan
manufacturing and service facilities totaling approximately
29,500 square feet.



Item 3.     Legal
Proceedings


Beginning on March 18, 2002, a number of
class action lawsuits have been filed against us and several
current and former officers of the Company in the United States
District Court for the Western District of Washington. The
complaints were filed on behalf of persons who purchased our
common stock between April 2001 and March 2002. The complaints
allege that the Company made false and misleading statements or
omissions in violation of Sections 10(b) and 20(a) and
Rule 10b-5 of the Securities Exchange Act of 1934, and seek
unspecified compensatory damages and other relief. Additional
purchasers of our securities may assert claims similar to these
in the future.

On November 6, 2001, a class action lawsuit
was filed in the United States District Court for the Southern
District of New York against us and several of our officers and
directors, as well as against the underwriters who handled our
April 26, 2000 initial public offering of common stock. The
complaint was filed on behalf of persons who purchased our
common stock during the time period beginning on April 26,
2000 and ending on December 6, 2000. The complaint alleges
violations of the Securities Act of 1933 and the Securities
Exchange Act of 1934 primarily based on the assertion that there
was undisclosed compensation received by our underwriters in
connection with our initial public offering.

We intend to vigorously defend against these
complaints. The results of litigation proceedings are inherently
unpredictable, however, and we are unable to provide assurance
regarding the outcome of these complaints or possible damages
that may be incurred. The uncertainty associated with these
substantial unresolved lawsuits could seriously harm our
business and financial condition and affect our ability to
continue operations as a going concern. In particular, the
continued defense of the lawsuits could result in the diversion
of our managements time and attention away from business
operations, which could harm our business. In addition, negative
developments with respect to the lawsuits or the investigation
could cause our stock price to decline significantly. Moreover,
although we are unable to determine the amount, if any, that we
may be required to pay in connection with the resolution of
these lawsuits by settlement or otherwise, any such payment
could seriously harm our financial condition and affect our
ability to continue business operations as a going concern. Our
independent accountants have issued a going concern
opinion in their report on our financial statements for the year
ended December 31, 2001, citing the uncertainties regarding
these legal proceedings and the resulting potential damages if
the proceedings are successful. Accordingly, the uncertain
outcome of these proceedings raises doubt about our ability to
continue as a going concern.

On September 6, 2001, a complaint was filed
by Teledyne Industries against us in the Superior Court of
California alleging breach of a manufacturing agreement dated
April 26, 2000. In December 2001, a settlement was reached
between the Company and Teledyne whereby the Company agreed to
purchase $500,000 of finished assemblies and long-lead inventory.

In addition, from time to time we are subject to
various other legal proceedings that arise in the ordinary
course of business. Although we cannot predict the outcomes of
these proceedings with certainty, we do not believe that the
disposition of these matters will have a material adverse effect
on our financial position, results of operations or cash flows.

Item
4.     Submission of Matters to a
Vote of Security Holders

There were no matters submitted to a vote of our
security holders during the fourth quarter of our fiscal year
ended December 31, 2001.

11



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##### 



PART II



|        |                                                                      
|------- | ---------------------------------------------------------------------
|Item 5. | Market for Registrants Common Stock
	and Related Stockholder Matters

(a) Our common stock is traded on the Nasdaq
National Market under the symbol MTWV. The following table sets
forth the range of high and low closing sale prices, as reported
on the Nasdaq National Market, for each quarter since our
initial public offering on April 27, 2000.

High and low prices for the Companys Common
Stock for each quarter since our initial public offering on
April 27, 2000 are as follows:

|               |  |             |       |     |  |   |       | 
|-------------- |  | ----------- | ----- | --- |  | - | ----- | 
|               |  |            
|               |  | Stock Price
|               |  |            
|               |  | High        |       | Low
|               |  |             |       |    
|Year 2002      |  |             |       |     |  |   |       | 
|First Quarter  |  | $           | 4.04  |     |  | $ | 0.29  | 
|Year 2001      |  |             |       |     |  |   |       | 
|First Quarter  |  | $           | 14.75 |     |  | $ | 6.19  | 
|Second Quarter |  | $           | 6.48  |     |  | $ | 2.19  | 
|Third Quarter  |  | $           | 4.35  |     |  | $ | 2.00  | 
|Fourth Quarter |  | $           | 3.12  |     |  | $ | 1.60  | 
|Year 2000      |  |             |       |     |  |   |       | 
|Second Quarter |  | $           | 34.19 |     |  | $ | 10.31 | 
|Third Quarter  |  | $           | 30.00 |     |  | $ | 18.31 | 
|Fourth Quarter |  | $           | 20.19 |     |  | $ | 6.31  | 

At April 1, 2002, we had 323 holders of
record of our common stock and 51,670,127 shares outstanding.

We have never declared or paid any cash dividends
on our capital stock or other securities. We currently
anticipate that we will retain all of our future earnings for
use in the expansion and operation of our business and do not
anticipate paying cash dividends in the foreseeable future. In
the future, the terms of credit agreements may impose
restrictions or limitations on the payment of dividends.

During the year ended December 31, 2001, the
Company issued an aggregate of 6,723,452 shares of common stock
to Acqua Wellington North American Equities Fund Ltd. pursuant
to purchase agreements entered into at the time of each sale.
Net proceeds from the issuance of the shares were approximately
$18.7 million.

During the year ended December 31, 2001, the
Company issued 533,808 shares of common stock to Vertical
Ventures LLC pursuant to a purchase agreement entered into at
the time of sale. Net proceeds from the issuance of the shares
were approximately $1.5 million.

During the year ended December 31, 2001, the
Company issued 480,075 shares of common stock to Pine Ridge
Financial, Ltd. pursuant to a purchase agreement entered into at
the time of sale. Net proceeds from the issuance of the shares
were approximately $1.0 million.

In the fourth quarter of 2001, we issued an
aggregate of 84,782 shares of Series A preferred stock and
warrants to purchase an aggregate of 42,391 shares of
Series A preferred stock to entities affiliated with Oak
Investment Partners at a price of $235.90 per share. The
aggregate gross proceeds from the sale of the Series A
preferred stock were $20.0 million. We will receive an
additional $10 million if all of the warrants are
exercised. The shares are convertible to common stock at a ratio
of 100 shares of common stock for each share of preferred stock.

12



---



##### 



In the second quarter of 2000, we completed an
initial public offering of our common stock pursuant to our
Registration Statement on Form S-1 (File
No. 333-30568) as filed with the Securities Exchange
Commission on April 25, 2000. A total of 7,187,500 shares
of our common stock offered in our prospectus were sold at $9.00
per share. Merrill Lynch and Co., Salomon Smith Barney and U.S.
Bancorp Piper Jaffray were the managing underwriters for the
offering. The aggregate gross proceeds from the sale were
$64.7 million. In connection with our initial public
offering, we paid $4.5 million for the underwriters
discounts and an aggregate amount of $1.3 million for the
Nasdaq National Market listing fee, printing and engraving,
legal, accounting, travel and other related expenses. Net
proceeds from the offering amounted to $58.9 million. As of
December 31, 2001, all proceeds had been used.

13



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##### 



Item
6.     Selected Consolidated
Financial Data

You should read the following selected
consolidated financial data in conjunction with our consolidated
financial statements and notes to our consolidated financial
statements and with Managements Discussion and
Analysis of Financial Condition and Results of Operations.
A summary of selected financial data as of and for the years
ended December 31, 1997, 1998, 1999, 2000 and 2001 are set
forth below.

|                                                                                      |                                                                     |                                       |         |        |        |      |         |        |        |      |         |        |        |   |         |        |        |   |         |        |        | 
|------------------------------------------------------------------------------------- | ------------------------------------------------------------------- | ------------------------------------- | ------- | ------ | ------ | ---- | ------- | ------ | ------ | ---- | ------- | ------ | ------ | - | ------- | ------ | ------ | - | ------- | ------ | ------ | 
|                                                                                      |                                                                     |                                      
|                                                                                      |                                                                     | Years Ended December 31,             
|                                                                                      |                                                                     |                                      
|                                                                                      |                                                                     | 1997                                  |         | 1998   |        | 1999 |         | 2000   |        | 2001
|                                                                                      |                                                                     |                                       |         |        |        |      |         |        |        |     
|                                                                                      |                                                                     |                                      
|                                                                                      |                                                                     | (In thousands, except per share data)
|Consolidated Statements of Operations
	Data:                                          |                                                                     |                                       |         |        |        |      |         |        |        |      |         |        |        |   |         |        |        |   |         |       
|Revenues                                                                              |                                                                     | $                                     | 1,450   |        |        | $    | 15,991  |        |        | $    | 22,596  |        |        | $ | 52,777  |        |        | $ | 36,472  |       
|Cost of revenues                                                                      |                                                                     |                                       | 1,728   |        |        |      | 18,028  |        |        |      | 22,236  |        |        |   | 37,890  |        |        |   | 35,024  |       
|Provision for the write-down of
	SpotLight GSM inventory                              |                                                                     |                                       |        |        |        |      |        |        |        |      |        |        |        |   |        |        |        |   | 17,470  |       
|                                                                                      |                                                                     |                                       |         |        |        |      |         |        |        |      |         |        |        |   |         |        |        |   |         |       
|Gross profit (loss)                                                                   |                                                                     |                                       | (278    | )      |        |      | (2,037  | )      |        |      | 360     |        |        |   | 14,887  |        |        |   | (16,022 | )     
|Operating expenses                                                                    |                                                                     |                                       |         |        |        |      |         |        |        |      |         |        |        |   |         |        |        |   |         |       
|                                                                                      | Research and development                                            |                                       |         | 13,083 |        |      |         | 18,495 |        |      |         | 22,787 |        |   |         | 38,160 |        |   |         | 33,513 |       
|                                                                                      | Sales and marketing                                                 |                                       |         | 5,383  |        |      |         | 11,346 |        |      |         | 11,080 |        |   |         | 12,740 |        |   |         | 11,308 |       
|                                                                                      | General and administrative                                          |                                       |         | 3,762  |        |      |         | 5,887  |        |      |         | 5,732  |        |   |         | 9,693  |        |   |         | 13,215 |       
|                                                                                      | Provision for the write-down of
	SpotLight GSM related fixed assets |                                       |         |       |        |      |         |       |        |      |         |       |        |   |         |       |        |   |         | 675    |       
|                                                                                      | Amortization of goodwill and other intangibles                      |                                       |         |       |        |      |         |       |        |      |         |       |        |   |         | 5,054  |        |   |         | 18,269 |       
|                                                                                      |                                                                     |                                       |         |        |        |      |         |        |        |      |         |        |        |   |         |        |        |   |         |       
|                                                                                      |                                                                     | Total operating expenses              |         |        | 22,228 |      |         |        | 35,728 |      |         |        | 39,599 |   |         |        | 65,647 |   |         |        | 76,980 | 
|                                                                                      |                                                                     |                                       |         |        |        |      |         |        |        |      |         |        |        |   |         |        |        |   |         |       
|Loss from operations                                                                  |                                                                     |                                       | (22,506 | )      |        |      | (37,765 | )      |        |      | (39,239 | )      |        |   | (50,760 | )      |        |   | (93,002 | )     
|Other income (expense), net                                                           |                                                                     |                                       | 402     |        |        |      | (6,563  | )      |        |      | (3,174  | )      |        |   | 1,989   |        |        |   | (15     | )     
|                                                                                      |                                                                     |                                       |         |        |        |      |         |        |        |      |         |        |        |   |         |        |        |   |         |       
|Net loss before cumulative effect of change in
	accounting principle                  |                                                                     |                                       | (22,104 | )      |        |      | (44,328 | )      |        |      | (42,413 | )      |        |   | (48,771 | )      |        |   | (93,017 | )     
|Cumulative effect of change in accounting
	principle                                  |                                                                     |                                       |        |        |        |      |        |        |        |      |        |        |        |   | (764    | )      |        |   |        |       
|                                                                                      |                                                                     |                                       |         |        |        |      |         |        |        |      |         |        |        |   |         |        |        |   |         |       
|Net loss                                                                              |                                                                     | $                                     | (22,104 | )      |        | $    | (44,328 | )      |        | $    | (42,413 | )      |        | $ | (49,535 | )      |        | $ | (93,017 | )     
|                                                                                      |                                                                     |                                       |         |        |        |      |         |        |        |      |         |        |        |   |         |        |        |   |         |       
|Beneficial conversion charge on issuance of
	series A preferred stock                 |                                                                     |                                       |        |        |        |      |        |        |        |      |        |        |        |   |        |        |        |   | (1,324  | )     
|                                                                                      |                                                                     |                                       |         |        |        |      |         |        |        |      |         |        |        |   |         |        |        |   |         |       
|Net loss attributable to common stockholders                                          |                                                                     | $                                     | (22,104 | )      |        | $    | (44,328 | )      |        | $    | (42,413 | )      |        | $ | (49,535 | )      |        | $ | (94,341 | )     
|                                                                                      |                                                                     |                                       |         |        |        |      |         |        |        |      |         |        |        |   |         |        |        |   |         |       
|Basic and diluted net loss per share                                                  |                                                                     | $                                     | (12.18  | )      |        | $    | (21.88  | )      |        | $    | (18.98  | )      |        | $ | (1.80   | )(1)   |        | $ | (2.01   | )     
|                                                                                      |                                                                     |                                       |         |        |        |      |         |        |        |      |         |        |        |   |         |        |        |   |         |       
|Weighted average shares used in computation of
	basic and diluted
	net loss per share |                                                                     |                                       | 1,815   |        |        |      | 2,026   |        |        |      | 2,235   |        |        |   | 27,462  |        |        |   | 47,050  |       
|                                                                                      |                                                                     |                                       |         |        |        |      |         |        |        |      |         |        |        |   |         |        |        |   |         |       



---



|    |                                                                                                          
|--- | ---------------------------------------------------------------------------------------------------------
|(1) | The cumulative effect of the change in accounting
	principle included in this amount was $0.02 per share.

14



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##### 



|                                            |  |                |         |      |  |      |         |      |  |      |          |   |  |   |          |   |  |   |          |  
|------------------------------------------- |  | -------------- | ------- | ---- |  | ---- | ------- | ---- |  | ---- | -------- | - |  | - | -------- | - |  | - | -------- | -
|                                            |  |               
|                                            |  | December 31,  
|                                            |  |               
|                                            |  | 1997           |         | 1998 |  | 1999 |         | 2000 |  | 2001
|                                            |  |                |         |      |  |      |         |      |  |     
|                                            |  |               
|                                            |  | (In thousands)
|Consolidated Balance Sheet Data:            |  |                |         |      |  |      |         |      |  |      |          |   |  |   |          |   |  |   |          |  
|Cash and cash equivalents                   |  | $              | 13,334  |      |  | $    | 10,763  |      |  | $    | 20,165   |   |  | $ | 37,921   |   |  | $ | 28,851   |  
|Working capital                             |  |                | 15,677  |      |  |      | (17,135 | )    |  |      | 22,759   |   |  |   | 52,641   |   |  |   | 29,160   |  
|Total assets                                |  |                | 22,575  |      |  |      | 32,510  |      |  |      | 40,946   |   |  |   | 168,355  |   |  |   | 125,555  |  
|Long-term obligations, less current portion |  |                | 2,978   |      |  |      | 4,413   |      |  |      | 2,503    |   |  |   | 2,542    |   |  |   | 1,268    |  
|Convertible preferred stock and warrants    |  |                | 49,410  |      |  |      | 61,595  |      |  |      | 144,102  |   |  |   |         |   |  |   | 20,000   |  
|Common stock                                |  |                | 1,968   |      |  |      | 2,179   |      |  |      | 3,573    |   |  |   | 321,451  |   |  |   | 340,776  |  
|Accumulated deficit                         |  |                | (33,899 | )    |  |      | (78,227 | )    |  |      | (120,640 | ) |  |   | (170,175 | ) |  |   | (264,516 | )
|Stockholders equity (deficit)              |  |                | (33,136 | )    |  |      | (76,596 | )    |  |      | (117,954 | ) |  |   | 139,530  |   |  |   | 74,860   |  

Item
7.     Managements Discussion
and Analysis of Financial Condition and Results of
Operations

The following discussion should be read in
conjunction with the Consolidated Financial Statements and the
related notes that appear elsewhere in this document

Forward-Looking Statements

Certain statements in the Managements
Discussion and Analysis of Financial Condition and Results of
Operations constitute forward-looking statements
within the meaning of the Private Securities Litigation Reform
Act of 1995, and the Company intends that such forward-looking
statements be subject to the safe harbors created by this law.
You generally can identify these statements by our use of
forward-looking words such as plans,
estimates, believes,
expects, may, will,
should or anticipates or the negative or
other variations of such terms or comparable terminology, or by
discussion of the strategy that involves risks and
uncertainties. We often use these types of statements when
discussing our plans and strategies, our anticipation of
revenues from the markets for our services and products, our
anticipated capital expenditures, operations support systems or
change in regulatory requirements and other statements contained
in this report regarding matters that are not historical facts.

We caution you that these forward-looking
statements are only predictions and estimates regarding future
events and circumstances. All forward-looking statements
included in this document are based on information available to
us on the date hereof and we assume no obligation to update any
such forward-looking statements. Actual results could differ
materially from those projected in the forward-looking
statements.

Our business and financial performance are
subject to substantial risks and uncertainties. In evaluating
our business, you should carefully consider various factors that
might cause actual results to differ materially from stated
expectations. Please see the Risks Related to Our
Business and the various risks outlined in our filings
with the Securities and Exchange Commission from time-to-time.

Critical Accounting Policies and
Estimates

Managements Discussion and Analysis of
Financial Condition and Results of Operations discusses our
consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the
United States. The preparation of these financial statements
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues
and expenses during the reporting period. On an on-going basis,
management evaluates its estimates and judgments, including
those related to the allowance for bad debts, inventories,
long-lived assets, income taxes, warranty obligations,
restructuring costs, and contingencies and litigation.
Management bases these estimates and judgments on historical
experience and on various other factors that are believed to be
reasonable under the circumstances, the results of which form
the basis for making judgments about the carrying values of

15



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assets and liabilities that are not readily
apparent from other sources. Actual results may differ from
these estimates under different assumptions or conditions.


We believe the following critical accounting
policies, among others, affect our more significant judgments
and estimates used in the preparation of our consolidated
financial statements.



| |                    
| | -------------------
| | Revenue Recognition

Revenues consist of sales to end-users. Our sales
agreements do not provide a right of return. Sales of our
products to end-users are recognized when title to the system
and risk of loss is transferred to the customer and all customer
acceptance conditions, if any, have been satisfied, and
collection is probable. During 2000, the Company began deferring
that portion of equipment revenue that is billable after
completion of installation and optimization services.

Services revenues, generally for installation and
optimization, are recognized when the services have been
performed and all customer acceptance conditions, if any, have
been satisfied. Our maintenance contract revenues are recognized
ratably over the term of the agreement (typically one year).
Revenues from nonrecurring engineering contracts are recognized
based on the percentage-of-completion method.

A key assumption of this policy is that the
customers have no rights of return. If returns are allowed in
the future, revenue may be deferred until the return right
expires or an allowance for future returns may be recorded, if
estimable.

Another key assumption is that, relative to the
system sold, the installation and optimization services are
inconsequential and perfunctory. This assumption is principally
based on (1) the contract stating (and no exceptions have
been made to the contrary) that failure to perform the services
would not result in the customer receiving a full or partial
refund or rejecting the products delivered to date,
(2) having a demonstrated history of completing these
services in a timely manner and reliably estimating their costs,
(3) the cost or time to perform the remaining obligations
for similar contracts historically has not varied significantly
from one instance to another, (4) the skills or equipment
required to complete the remaining activity are readily
available in the marketplace, (5) the cost of completing
the services is insignificant, (6) the period before the
completion of the remaining services is relatively short, and
(7) the timing of payment of a portion of the sales price,
for which revenue has already been recognized, is not coincident
with completing the service.



| |                        
| | -----------------------
| | Allowance for Bad Debts

We periodically analyze our allowance for trade
accounts receivable to estimate the potential impact of bad
debts. Although we consider the allowance for bad debts adequate
as of year end, there can be no assurance that these allowances
will be adequate over time to cover ultimate losses in
connection with bad debts.



| |            
| | -----------
| | Inventories

Inventories, which are composed of materials and
components, trial units and completed systems, are valued at the
lower of cost (first in, first out) or market. On a periodic
basis, we compare the amount of inventory on hand and under
commitment, including commitments made to Viasystems Group,
Inc., with our latest forecasted requirements to determine
whether write-downs for excess or obsolete inventory are
required. Although we consider the amounts on hand at year-end
to be realizable, there can be no assurance that these amounts
will prove to be realizable over time.



| |                     
| | --------------------
| | Goodwill and Patents

Goodwill and patents are stated at cost.
Amortization is provided using the straight-line method over the
estimated useful life of three to five years of the related
asset for financial statement purposes. The adoption of
Statement of Financial Accounting Standard (SFAS) No. 142,
effective January 1, 2002, will result in our
discontinuation of amortization of goodwill. We are required to
test goodwill for impairment on a periodic

16



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basis or whenever events or changes in
circumstances indicate that the carrying amount of the goodwill
may be impaired, which could have an adverse effect on the
future results of operations if an impairment occurs. A key
assumption in the assessment of goodwill is the future success
of sales of SmartShare, SmartCell and other products. If these
sales are delayed or do not occur, our goodwill may become
impaired. In addition, the decline in our market capitalization
during the first quarter of 2002 will likely result in a
substantial charge against earnings related to the adoption of
SFAS No. 142. (See New Accounting
Pronouncements)




| |                                 
| | --------------------------------
| | Impairment of Long-Lived
	Assets

We review long-lived assets for impairment
whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. An asset is
considered to be impaired when the sum of the undiscounted
future net cash flows expected to result from the use of the
asset and its eventual disposition exceeds its carrying value.
The amount of impairment loss, if any, is measured as the
difference between the net book value of the asset and its
estimated fair value.

Overview

The global wireless telecommunications industry
experienced a very challenging period in 2001, during which
business activity contracted. Due to the recent global economic
slowdown, our customers are facing slowing revenue growth,
reduced access to capital and the need to carefully manage their
cash flow and profitability. In response to these challenges,
our customers are reducing capital expenditures and rethinking
their plans to expand their networks. As a result, we have
experienced lower revenues during 2001 as compared with 2000. If
capital investment levels continue to decline, or if the
telecommunications market improves at a slower pace than we
anticipate, our revenues and profitability will continue to be
adversely affected. In light of the changes to the wireless
telecommunications industry, we have realigned our business to
better match the opportunities presented by the market.

In April 2001, we entered into a supply agreement
with Viasystems Group, Inc. to produce our SpotLight systems.
Viasystems obligation under the supply agreement consists
primarily of supplier and commodity management and the
assembling and testing of finished systems from components and
subassemblies. This move was an important step in our effort to
maximize working capital and minimize costs.

In May 2001, our office and manufacturing
facilities in Taiwan were affected by a major fire. Damages were
extensive enough to require us to relocate our facilities. As a
result of the fire, the Company incurred property losses of
approximately $3.3 million, which has been recovered
through insurance. As a part of our restructuring in the first
half of 2002, we will close the Taiwan facilities.

During 2001, we completed private placements of
common and preferred stock totaling $41.2 million. These
private placements included the sale of 7,737,335 shares of
common stock to various parties, and the sale of
84,782 shares of Series A preferred stock to entities
affiliated with Oak Investment Partners. Included in the sale of
Series A preferred stock were warrants to purchase
42,391 shares of Series A preferred stock. The
preferred stock and the preferred stock underlying the warrants
are convertible to common stock at a 100 to 1 basis.
These private placement offerings were made to fund current
operations.

In October 2001, we underwent a restructuring
plan to, among other things, reduce our workforce and
consolidate facilities. Restructuring charges of
$1.7 million were recorded during the year to provide for
these actions and the related impairment of fixed assets. After
evaluation of our cost structure and market position, we
determined that restructuring was needed to better align us with
the market and to streamline our operations.

In March 2002, we decided upon a restructuring
plan to discontinue the SpotLight GSM product, reduce our
workforce and consolidated facilities. After evaluation of the
market, we determined that the SpotLight GSM product did not
have sufficient customer demand to continue with the product.
While this decision was made based on market conditions in the
first quarter of 2002, we determined that these market
conditions impaired the carrying value of the inventory and
fixed assets associated with the product as of December 31,

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2001. Accordingly, a provision for the write down
of these assets was made in the year ended
December 31, 2001.


We expect to record charges of approximately
$23 million relating to this restructuring,
$18.1 million of which was recorded in 2001. We expect to
record the remaining charges of approximately $4.9 million,
related to employee severance, facilities shutdown, termination
of third party arrangements and other costs, in the first and
second quarters of 2002.

In connection with the restructuring, we
identified unauthorized commitments related to SpotLight GSM
sales made to companies in Asia. As a result of these
commitments, we have restated our quarterly results for the
first three quarters of 2001 and have revised our annual results
for 2001 with respect to $7.1 million of revenue out of the
$43.6 million of total revenue previously reported.

During the year, we announced new products that
we believe will expand our market base to tower and base station
operators in addition to our traditional customers. SmartShare
Antenna Sharing Solution is our new antenna sharing solution
that allows multiple wireless operators, who may operate at
different frequencies, to share a single set of antenna panels
at a cell site. Wireless network operators benefit from this
arrangement because it will provide access to more cell sites in
areas where tower space is limited. SmartShare will provide
operators with the flexibility to independently define and
optimize antenna patterns to fit their particular needs.
SmartShare enables tower operators to take advantage of shared
antenna economies by accommodating more operators on their
towers and by offering multiple operators a premium position on
the tower. In February 2002, we signed an agreement with Crown
Castle to develop and supply our SmartShare products for use in
their tower locations.

Our SmartCell product uses our proprietary Cell
Sculpting technology that enables a wireless network operator to
sculpt or shape a cells coverage pattern in a
way that delivers greater performance, capacity and coverage
benefits than off-the-shelf sector antennas. Cell Sculpting
technology is used to determine an optimal pattern for a cell
site, which is then captured in a personality module that is
installed at the back of each antenna panel. Unlike the fixed
patterns of conventional sector antennas, SmartCell allows
wireless network operators to change antenna patterns by
swapping out the personality module. Our SmartCell solution is
designed to be compatible with base stations operating in the
cellular and PCS frequency bands.

We have also developed embedded adaptive smart
antenna solutions which have been field tested to demonstrate
CDMA (IS-95) system performance enhancements. The same solutions
can be applied to CDMA2000 and WCDMA. Our embedded solutions
increase network capacity by utilizing fully adaptive beam
forming techniques that track individual mobile subscribers, and
hence reduce interference from surrounding mobile users and base
stations. A significant capacity increase has been demonstrated
in field experiments in an actual operating cellular
environment. Our embedded adaptive smart antenna solutions are
compatible with 3G wireless infrastructure. In February 2001, we
entered into an agreement with Samsung to embed our adaptive
smart antenna technology into some of their base stations. Our
embedded adaptive smart antenna solutions can be applied in
CDMA2000 and WCDMA networks.

Results of Operations



| |         
| | --------
| | Revenues

Revenues consist of sales to wireless operators
and are recognized as described in Critical Accounting
Policies and Estimates. Our contract terms, including
pricing and acceptance criteria, if any, typically vary
depending upon the order. Consequently, our revenues may vary
from quarter to quarter depending on the length of the sales
cycle and the applicable contract terms on the installation and
optimization of the product. With the recent mergers and
consolidations in the wireless industry, we expect a limited
number of customers will account for a substantial percentage of
revenues for the foreseeable future. In 2001, Verizon (27.4%),
ALLTEL (36.5%) and Grupo Iusacell (31.3%) accounted for 95.2% of
our total revenues.

The Company operates in one material segment as a
manufacturer of wireless telecommunications equipment. While
expenses for sales, marketing and maintenance activities are
incurred in various geographi-

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cal regions, the majority of the Companys
assets are located, and the majority of the Companys
operating expenses are incurred in the U.S.


Revenues were $36.5 million in 2001 and
$52.8 million in 2000, a decrease of 30.9%. This decrease
was primarily due to a general slowdown in the worldwide economy
and spending by wireless telecommunications companies. We
believe a recovery in capital spending may not occur
until 2003. International sales of our systems accounted
for 35.2% of total revenues for the year ended December 31,
2001, and 36.6% for the year ended December 31, 2000.

Revenues were $52.8 million in 2000 and
$22.6 million in 1999, an increase of 133.6%. This increase
was primarily due to increased unit sales of our CDMA SpotLight
systems and increased revenues derived from sales of optional
equipment. Our two largest customers in 2000 were Verizon and
Grupo Iusacell, which accounted for 60.2% and 33.4% of our total
revenues, respectively. International sales of our systems
accounted for 36.6% of total revenues for the year ended
December 31, 2000 and 26.0% for the year ended
December 31, 1999.



| |                 
| | ----------------
| | Cost of Revenues

We have a manufacturing agreement with
Viasystems. The cost of revenues for products produced by
Viasystems is the unit price of the product when we purchase the
product for shipment. Our gross margins are generally higher for
hardware revenues than for service revenues. We anticipate that
our overall gross margins will fluctuate from period-to-period
as a result of shifts in product mix, anticipated decreases in
average selling prices and our ability to reduce costs.

Cost of revenues, excluding the provision for the
write-down of GSM Inventory as discussed in Provision for the
Write-Down of SpotLight GSM Inventory and Fixed Assets
below, as a percent of revenue was 96.0% in 2001, 71.8% in 2000
and 98.4% in 1999. In fiscal year 2001 cost of revenues as a
percentage of sales increased due to the recording of a
$5.8 million inventory charge for excess and obsolete
inventory and product enhancements during the second quarter of
2001 and changes in the product mix from 2000 to 2001, primarily
consisting of increased service revenues. Cost of revenues in
2000 reflects a change in product mix from analog systems to
SpotLight 2000 CDMA systems.



| |                                                                          
| | -------------------------------------------------------------------------
| | Provision for the Write-Down of SpotLight
	GSM Inventory and Fixed Assets

In March of 2002, we decided upon a restructuring
plan to discontinue the SpotLight GSM product, reduce our
workforce and consolidate facilities. After evaluation of the
market, we determined that the SpotLight GSM product did not
have sufficient customer demand to continue with the product.
While this decision was made based on market conditions in the
first quarter of 2002, we determined that these market
conditions impaired the carrying value of the inventory and
fixed assets associated with the product as of December 31,
2001. Accordingly, a provision of $18.1 million for the
write down of these assets was made in the year ended
December 31, 2001.

We expect to record charges of approximately
$23 million relating to this restructuring,
$18.1 million of which was recorded in 2001 as stated
above. We expect to record the remaining charges of
approximately $4.9 million, related to employee severance,
facilities shutdown and other costs, in the first and second
quarter of 2002.



| |                         
| | ------------------------
| | Research and Development

Our research and development expense consists
principally of salaries, related personnel expenses, consultant
fees and prototype expenses related to the design, development,
testing and enhancement of our products. We expense all of our
research and development costs as incurred. We believe that
continued investment in research and development is critical to
achieving our strategic product development and cost reduction
objectives. However, due to our restructuring efforts in 2001
and 2002, including the discontinuation of our SpotLight GSM
product, we expect research and development expenses to decrease
in 2002.

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Research and development expense decreased 12.3%
to $33.5 million for 2001 from $38.2 million for 2000.
The decrease in research and development expense was primarily
due to our acquisition of Adaptive Telecom in the third quarter
of 2000. At that time we recorded $10.4 million in-process
research and development expense as a one-time charge in
connection with the acquisition of Adaptive Telecom. The
remaining net increase in research and development expense was
primarily due to continuing development and testing of
SpotLight 2200 CDMA and SpotLight GSM systems, development
of our embedded product and development efforts for the
SmartShare and SmartCell smart antenna products.

Research and development expense increased 67.5%
to $38.2 million for 2000 from $22.8 million for 1999.
The increase in research and development expense was primarily
due to continuing development and testing of our
SpotLight 2200 CDMA systems, our SpotLight GSM systems and
our embedded product development. As a result of our acquisition
of Adaptive Telecom, we recorded $10.4 million in-process
research and development expense as a one-time charge in the
third quarter of 2000. We recognized additional research and
development expense of $3.0 million in the amortization of
deferred stock compensation related to the Adaptive Telecom
acquisition.



| |                    
| | -------------------
| | Sales and Marketing

Our sales and marketing expense consists of
salaries, sales commissions and expenses for personnel engaged
in marketing, sales and field service support for new
installations and installed base, as well as promotional
expenditures. We believe that these expenses will decrease in
the future as a result of restructuring efforts in 2001 and
2002. Sales and marketing expense decreased 11.0% to
$11.3 million for 2001 from $12.7 million in 2000. The
decrease was primarily due to staff reductions and operational
improvements made as a part of our restructuring in the fourth
quarter of 2001. Sales and marketing expense increased 14.4% to
$12.7 million for 2000 from $11.1 million in 1999. The
increase was primarily due to staffing increases, adjusted sales
compensation structure, additional services to customers in 2000
and $0.2 million in amortization of deferred stock
compensation from the acquisition of Adaptive Telecom.



| |                           
| | --------------------------
| | General and Administrative

Our general and administrative expense consists
primarily of salaries and personnel related expenses, recruiting
and relocation expenses, professional and consulting fees,
insurance premiums and other corporate expenses. Due to our
restructuring efforts in 2001 and 2002 we expect general and
administrative costs to decrease in the future. General and
administrative expense was $13.2 million in 2001 and
$9.7 million in 2000, an increase of 36.3%. The increase
was primarily due to $1.7 million in restructuring charges
and write down of assets incurred as a result of the reduction
in force in the fourth quarter, additional salary, professional
services, insurance premiums and other corporate expenses.
General and administrative expense was $9.7 million in 2000
and $5.7 million in 1999, an increase of 70.2%. The
increase was primarily due to additional salary, professional
services and an additional $3.0 million in amortization of
deferred stock compensation from the acquisition of Adaptive
Telecom.



| |                          
| | -------------------------
| | Other Income and Expenses

Our other income and expenses are composed
primarily of investment income and interest expense on our
outstanding leases and notes. Our investments are composed
primarily of money market funds and commercial paper with a
maturity of three months or less. Other expense for 2001 was
$15,000 as compared to other income of $2.0 million in
2000. Investment income has decreased in 2001 from prior years
due to lower market returns and lower overall cash balances
during 2001. We anticipate that investment income will continue
to fluctuate with our overall cash position.

Acquisition of Adaptive Telecom,
Inc.

On September 21, 2000, we acquired Adaptive
Telecom, Inc. by issuing 5,361,803 shares of our common
stock and options to purchase 124,377 shares of our common
stock in exchange for all outstanding capital stock and the
assumption of all outstanding options of Adaptive Telecom. This
acquisition, valued at

20



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$114.3 million, resulted in a charge for
in-process research and development of $10.4 million,
goodwill of $79.5 million, other intangible assets of
$7.0 million, and deferred stock compensation of
$17.4 million. The $10.4 million in-process research
and development expense was charged in the quarter ended
September 30, 2000.


The unamortized balance of the acquired goodwill
at December 31, 2001 is $60.1 million. In July 2001,
the Financial Accounting Standards Board issued SFAS
No. 141, Business Combinations, and SFAS
No. 142, Goodwill and Other Intangible Assets.
Under SFAS No. 142 the amortization of existing goodwill
will cease on December 31, 2001. SFAS No. 142
establishes a new method of testing goodwill for impairment on
an annual basis or on an interim basis if an event occurs or
circumstances change that would more likely than not reduce the
fair value of a reporting unit below its carrying value. The
adoption of SFAS No. 142, effective January 1, 2002,
will result in our discontinuation of amortization of goodwill.
However, we will be required to test the goodwill for impairment
on a periodic basis or whenever events or changes in
circumstances indicate that the carrying amount of the goodwill
may be impaired. The decline of our market capitalization in the
first quarter of 2002 will likely result in a substantial charge
against earnings during 2002 related to the adoption of this new
statement. The unamortized balance of acquired patents,
$3.0 million, will continue to be amortized over the
remaining useful life of the patents.

Liquidity and Capital Resources

Our cash and short-term investment portfolio
totaled $33.0 million at December 31, 2001. Our
investments are composed primarily of money market funds and
commercial paper with a maturity of three months or less to
minimize interest rate risk and facilitate rapid deployment for
immediate cash needs. At December 31, 2001, approximately
$4.2 million of this portfolio was restricted due to lease
and loan provisions.

As of December 31, 2001, we do not have any
off-balance sheet arrangements.

We lease our facilities under noncancelable
operating lease agreements that expire on various dates through
2005. We lease some of our equipment under noncancelable capital
leases that expire on various dates through 2003.

The operating lease for our headquarters in
Redmond, Washington expires on May 31, 2005. We may, at our
option, extend the term of this lease for two successive periods
of five years each. The option to extend must be elected
12 months prior to the expiration of the initial lease
term. In connection with this arrangement, we have issued a
letter of credit to the landlord for $2.5 million.

Following is a summary of future minimum payments
under capital leases and operating leases, including our
headquarters, that have initial or remaining noncancelable lease
terms in excess of one year at December 31, 2001:

|     |  |                |       |           |  |         |       |  |  |   |     | 
|---- |  | -------------- | ----- | --------- |  | ------- | ----- |  |  | - | --- | 
|     |  | Capital        |       | Operating |  | Notes  
|     |  | Leases         |       | Leases    |  | Payable
|     |  |                |       |           |  |        
|     |  |               
|     |  | (In thousands)
|2002 |  | $              | 1,867 |           |  | $       | 2,523 |  |  | $ | 866 | 
|2003 |  |                | 1,468 |           |  |         | 2,184 |  |  |   |    | 
|2004 |  |                |      |           |  |         | 1,947 |  |  |   |    | 
|2005 |  |                |      |           |  |         | 957   |  |  |   |    | 
|2006 |  |                |      |           |  |         | 35    |  |  |   |    | 
|     |  |                |       |           |  |         |       |  |  |   |     | 
|     |  | $              | 3,335 |           |  | $       | 7,646 |  |  | $ | 866 | 
|     |  |                |       |           |  |         |       |  |  |   |     | 

Total purchase orders and other noncancelable
purchase commitments outstanding at December 31, 2001 were
approximately $6.0 million.

For the year ended December 31, 2001, we
used net cash in operating activities of $57.0 million
compared to $36.4 million during the same period in 2000.
In fiscal year 2001, our operating activities

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included uses of cash to fund our net loss of
$93.0 million, increased inventories of $15.3 million,
excluding the sale of inventory to Viasystems, and a decrease in
accounts payable and accrued liabilities of $1.3 million.
We partially offset cash uses with a decrease of accounts
receivable of $9.2 million, a decrease of $0.5 million
in prepaid and other non current assets, non-cash charges to
depreciation and amortization of $21.5 million, stock
compensation expenses of $5.3 million, the provision for
the write-down of SpotLight GSM inventory and other related
assets of $18.1 million and a $2.1 million impairment
of fixed assets. For the year ended December 31, 2000, our
operating activities included uses of cash to fund our net loss
of $49.5 million, increased inventories of
$12.9 million, increased accounts receivable of
$11.4 million and increased prepaid, officer note and other
non current assets of $2.9 million. We partially offset cash
uses with increases in accounts payable and accrued liabilities
of $13.4 million. For the fiscal year ended
December 31, 1999, we used net cash in operating activities
of $37.8 million.


Our net cash from investing activities for the
fiscal year ended December 31, 2001 was $6.7 million
as compared to net cash used of $3.5 million and
$1.3 million for the fiscal years ended December 31,
2000 and 1999, respectively. Pursuant to the manufacturing
agreement with Viasystems, we received approximately
$8.0 million in payment for inventory and fixed assets. We
also received proceeds from insurance recoveries of
$2.3 million. These were offset by the purchase of
$3.5 million of test equipment and leasehold improvements
to support our research and development and our Taiwan
manufacturing efforts. We also spent $2.5 million in
investment banking, legal, consulting and audit fees related to
our acquisition of Adaptive Telecom in the third quarter
of 2000.

Our net cash provided by financing activities for
2001 was $41.4 million compared to $57.7 million for
2000 and $48.5 million for 1999. During the year ended
December 31, 2001, we received approximately
$21.2 million from the issuance of 7,737,335 shares of
common stock and $20.0 million from the issuance of 84,782
share of Series A convertible preferred stock and
42,391 Series A preferred stock warrants. We received
approximately $1.7 million and issued 584,591 shares
of common stock under our stock option and employee stock
purchase plans. We also received $0.9 million on the
issuance of notes payable. Cash provided by financing activities
during the year ended December 31, 2001 was offset by
$2.4 million in lease payments. During the second quarter
of 2000, we received net proceeds of $58.9 million from the
sale of 7,187,500 shares of our common stock. Our 1999 net
cash from financing primarily consisted of net proceeds from the
sale of Series E preferred stock of $82.5 million. In
April 1999, we repaid $29.0 million in Senior Secured
Bridge Notes plus interest of $4.1 million.

Our primary requirements for working capital over
the next twelve months are to fund our operations, including
spending on research and development, restructuring outlays and
capital expenditures. We believe cash outlays for the 2002
restructuring charges will be less than $3 million in the
first half of 2002. We believe that the primary source of funds
will be from operations and current working capital. In the
past, we have used private placement sales of stock to help fund
our cash requirements. We do not believe that such offerings
will be required over the next twelve months. Instead, we
believe projected sales, the lowering of the number of days our
sales are outstanding and the continued liquidation of our
inventory over the next twelve months will be sufficient to fund
our cash requirements.

This assumption may be adversely effected based
on the ongoing sales of our products and our continued relations
with our customers. In addition, if an adverse result occurs in
any of the securities lawsuits we are defending, or if the cost
of such defense is significantly beyond our current
expectations, our assumption regarding our capital resources may
be adversely affected and our ability to continue as a going
concern may be significantly affected. We may require additional
funds in the future to support our working capital requirements
or for other purposes, and we may seek to raise such additional
funds through the sale of public or private equity and/or debt
financings as well as from other sources. No assurance can be
given that additional financing will be available in the future
or that if available, such financing will be obtainable on terms
favorable to us or our stockholders when we may require it. Any
inability to obtain needed financing by us could have a
materially adverse effect on our business and operating results.

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Risks Related to Our Business



| |                                                                             
| | ----------------------------------------------------------------------------
| | Capital Spending Patterns of Wireless
	Network Operators and Tower Operators

We rely on wireless network operators and tower
operators to purchase our products and services. Any substantial
decrease or delay in capital spending patterns in the industry
would negatively affect our revenues, which could cause our
stock price to decline. The demand for our products and services
depends, to a significant degree, on the magnitude and timing of
capital spending by these operators for constructing, building
or upgrading their systems or tower portfolios. Due to the
current volatility of the financial markets and slowdown in the
global economy, many of our customers may find it increasingly
difficult to predict demand for their products and services. As
a result, many of our customers continue to reduce and postpone
the expansion or upgrade of their wireless networks or tower
portfolios, the development of new technologies and products for
both wireless and tower operators, and the demand for shared
tower applications which has reduced, or can reduce, the demand
for our products and services. The capital spending patterns of
our customers depends on a variety of factors outside of our
control, including access to financing, overall financial
health, the status of federal, local and foreign government
regulation and deregulation, changing standards for wireless
technology, overall demand for wireless services, competitive
pressures and general economic conditions. Further, in some
circumstances the financial health of our customers could
adversely affect their ability to pay for our products and
services in addition to affecting their demand for such products
and services. In addition, capital spending patterns in the
wireless industry can be subject to some degree of seasonality,
with lower levels of spending in the first part of the calendar
year, based on annual budget cycles.



| |                                 
| | --------------------------------
| | Market Acceptance
	Uncertainties

Our products may fail to achieve sufficient
market acceptance in order to achieve our desired business and
operating results. For example, our SpotLight GSM systems did
not achieve market acceptance in Asia, causing us to discontinue
the product line in 2002. In light of the rapidly evolving
nature of the wireless communications industry, we cannot
predict with any degree of assurance whether our future products
will achieve broad market acceptance or the degree to which they
will achieve market acceptance. In February 2002, we signed an
agreement with Crown Castle to develop and supply our SmartShare
products. In the first quarter of 2001, we signed an agreement
with Samsung to embed our adaptive smart antenna technology into
some of their base stations. Our future growth is dependent in
part upon the acceptance and success of our embedded smart
antenna solutions and products like SmartCell and SmartShare.
Given the early stage of development of these products, we
cannot predict whether they will achieve market acceptance. Our
future growth is also dependent upon the continued acceptance of
our SpotLight CDMA products. If our products do not achieve
market acceptance, our business and operating results may be
harmed.



| |                                                
| | -----------------------------------------------
| | Competition and Alternative Capacity
	Solutions

The market for spectrum management solutions is
relatively new, but we expect it to become increasingly
competitive. This market is part of the broader market for
wireless infrastructure equipment, which is dominated by a
number of large companies including Lucent, Ericsson, NEC,
Nortel, Nokia, Samsung, Siemens and Alcatel. Several of these
companies have announced plans to introduce products that
incorporate smart antenna technology. Our smart antenna systems
compete with other solutions to improve network performance.
These alternative solutions include other smart antenna systems
and adding base stations. We believe that the principal
competitive factor is the cost-effective delivery of increased
capacity to wireless network operators. If our products are not
a cost-effective solution, our ability to attract and retain
customers would be harmed. We believe that base station
manufacturers, which provide wireless network capacity through
sales of additional base stations or the development of
competitive technologies, represent the most significant
competitive threat.

In addition, efficient digital technologies and
enhancements to these technologies are expected to provide
increased capacity and, therefore, may be substitutes for our
products. The large wireless infrastructure equipment providers
listed above also offer these digital technologies and various
enhancements. We believe that our smart antenna technologies can
be compatible with these digital technologies and their various

23



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##### 



enhancements. Our technology, and its ability to
enhance capacity, is additive to the capacity enhancement
provided by these digital technologies. Customers, however, may
delay or cancel deployment of our smart antenna systems while
they deploy these more efficient digital technologies and other
enhancements. For more information on the competitive risks
facing us, please see Business 
Competition.




| |                                    
| | -----------------------------------
| | Securities Class Action
	Litigation

A number of class action lawsuits have been filed
against us and several current and former officers of the
Company in the United States District Court for the Western
District of Washington. The complaints were filed on behalf of
persons who purchased our common stock between April 2001 and
March 2002. The complaints allege that the Company made false
and misleading statements or omissions in violation of
Sections 10(b) and 20(a) and Rule 10b-5 of the
Securities Exchange Act of 1934, and seek unspecified
compensatory damages and other relief. Other purchasers of our
stock may also have claims not yet asserted based on these same
allegations.

On November 6, 2001, a class action lawsuit
was filed in the United States District Court for the Southern
District of New York against us and several of our officers and
directors as well as against the underwriters who handled our
April 26, 2000 initial public offering of common stock. The
complaint was filed on behalf of persons who purchased our
common stock during the time period beginning on April 26,
2000 and ending on December 6, 2000. The complaint alleges
violations of the Securities Act of 1933 and the Securities
Exchange Act of 1934 primarily based on the assertion that there
was undisclosed compensation received by our underwriters in
connection with our initial public offering.

We intend to vigorously defend against these
complaints. The results of litigation proceedings are inherently
unpredictable, however, and we are unable to provide assurance
regarding the outcome of these complaints or possible damages
that may be incurred. The uncertainty associated with these
substantial unresolved lawsuits could seriously harm our
business and financial condition. In particular, the continued
defense of the lawsuits could result in the diversion of our
managements time and attention away from business
operations, which could harm our business. In addition, negative
developments with respect to the lawsuits or the investigation
could cause our stock price to decline significantly. Moreover,
although we are unable to determine the amount, if any, that we
may be required to pay in connection with the resolution of
these lawsuits by settlement or otherwise, any such payment
could seriously harm our financial condition and affect our
ability to continue business operations.

Our independent accountants have issued a
going concern opinion in their report on our
financial statements for the year ended December 31, 2001,
citing the uncertainties regarding these legal proceedings and
the resulting potential damages if the proceedings are
successful. See Note 20 to our financial statements.



| |                                                                           
| | --------------------------------------------------------------------------
| | Lower than Expected Growth Trends in the
	Wireless Communications Industry

Our future operating results will depend upon the
continued growth and increased availability and acceptance of
wireless communications services. Current trends in growth rates
have been down. There can be no assurance that the current
trends will reverse and the volume and variety of wireless
services or the markets for and acceptance of such services will
grow, or that any such growth will create a demand for our
systems. If current trends continue, or recover at a slow rate,
our sales will be lower than expected, which would seriously
harm our business.

The wireless communications industry has
developed different technologies and standards based on the type
of service provided and geographical region. There is
uncertainty as to whether all existing wireless technologies
will continue to achieve market acceptance in the future. If a
digital technology for which we develop a smart antenna system
is not widely adopted, the potential size of the market for this
system would be limited, and we may not recover the cost of
development. Further, we may not be able to redirect our
development efforts toward those digital wireless technologies
that do sustain market acceptance in a timely manner, which
would impede our ability to achieve or sustain profitability
once achieved.

24



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| |                             
| | ----------------------------
| | Development and Sales Delays

We are still in the development stage of our new
SmartCell and SmartShare products. While we anticipate that the
development and initial sale of both these products will occur
in 2002, we may encounter unforeseen delays. Such delays may
include unforeseen design complexities, loss of skilled
personnel, failure to achieve expected performance requirements
and supplier non-performance. For example, our agreement for the
development and sale of SmartShare, signed in February 2002,
requires the satisfaction of performance criteria and delivery
schedules as conditions of purchases of SmartShare by Crown
Castle. Should any problems or obstacles delay the
commercialization of either of these products, operating results
could fall significantly below our expectations.



| |                                                   
| | --------------------------------------------------
| | Delays in Product Installation and End-User
	Sales

We typically install our products systems for
customers at cell sites for commercial operation. Timely
installation of our systems is affected by a variety of factors
not within our control. For example, customers may need to
obtain zoning approvals for a new cell site building and tower
before we may begin our installation process. With existing
sites, if a customer chooses to upgrade to our antennas, permits
may also be required to place the antennas on the tower. In
addition, the customer is responsible for preparing the cell
site for installation, including any electrical, air
conditioning or tower cabling requirements. Customers often
experience delays in obtaining the requisite permits and
preparing the sites, which delays our ability to install the
systems. Several of our supply agreements provide that, in the
event that the customer purchases installation and optimization
services from us, we will invoice the services fees and a
portion of the systems price upon completion of the services.
Consequently, if installation and optimization are delayed,
payment from the customer will be delayed.

In addition, as a result of our adoption of a
change to our revenue recognition policy (see Note 1 to our
financial statements), we defer that portion of the revenue
billable upon the installation and optimization. These delays
could contribute to fluctuations in our revenues from quarter to
quarter and negatively affect our cash flow and business
operations. Moreover, delays in installation may contribute to
delays in obtaining new sales orders from customers as
customers inventory of uninstalled products systems
increase. A significant reduction in order activity from
customers could harm our business and operating results.

Moreover, to the extent that our products, such
as SmartShare, consist of several components to be delivered at
different times, we may not be able to record any revenue until
delivery of all such components is completed. If we are not able
to recognize revenue on delivery, our financial results and
business operations may be harmed.



| |                                 
| | --------------------------------
| | Complex and Lengthy Sales
	Cycle

We believe that the purchase of our products is
typically a strategic decision that requires approval at senior
levels of customers organizations, significant technical
evaluation and a substantial commitment of customers
personnel, financial and other resources. Our contracts with new
customers typically contain conditional acceptance provisions
for the initial product sales, and we delay recognition of
revenue until all conditions are satisfied, which causes our
initial sales cycle to vary substantially from customer to
customer. This variability makes predicting our revenues
difficult. Typically, performance of our products must be
accepted in a field trial prior to completing any sales to a
particular customer. We may incur substantial expenses and
expend significant management and personnel resources in the
process of a field trial. This makes the sales process
associated with the purchase of our products complex, lengthy
and subject to a number of significant risks. If we do not
satisfy conditions in these contracts, or if satisfaction of
these conditions were delayed for any reason, revenues in any
particular period could fall significantly below our
expectations.



| |                                                         
| | --------------------------------------------------------
| | Current Financial Results do not Predict
	Future Results

Because of the uncertain nature of the rapidly
changing wireless market we serve and the high fixed costs we
incur in the short term, period-to-period comparisons of
operating results are not likely to be meaningful.

25



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In addition, you should not rely on the results
for any period as an indication of future performance. Factors
that may cause our quarterly results to fluctuate include:




| |   |                                                                                                    
| | - | ---------------------------------------------------------------------------------------------------
| |  | gain or loss of significant customers;                                                             
|
| |  | our ability to increase sales to our existing
	customers;                                          
|
| |  | delays in customer orders;                                                                         
|
| |  | our ability to reduce manufacturing costs of our
	smart antenna systems;                           
|
| |  | our ability to introduce and successfully market
	new smart antenna systems and embedded solutions;
|
| |  | introduction and enhancement of competitive or
	substitute products by our competitors;            
|
| |  | limitations in our manufacturing capacity; and                                                     
|
| |  | delays or changes in regulatory environments.                                                      



| |                           
| | --------------------------
| | Concentration of Customers

Due to the highly concentrated nature of the
wireless industry and the recent industry consolidation, we
depend on a limited number of wireless network operators for
substantially all of our revenues from our SpotLight product.
The loss of a customer or a delay in an order from a customer
could impair our operating results. Additionally, the loss of a
customer or a delay in payment by a customer could adversely
affect our cash flow. We believe that the number of potential
customers for future SpotLight systems sales will be limited. In
2001, three SpotLight customers accounted for 95.2% of our total
revenues. In addition, we anticipate that sales of our
SmartShare and SmartCell products and our embedded solutions
will be to a limited number of customers. Currently, we have
signed only one agreement to develop our embedded solutions for
use in a base station manufacturers products, and only one
agreement to develop and sell SmartShare to a tower operator.
Failure to retain these customers could cause our operating
results to be significantly less than anticipated and lead to a
decline in our stock price. Moreover, due to this customer
concentration, any loss or reduced demand from our customers
could cause our sales to fall significantly.



| |                                  
| | ---------------------------------
| | Retention of Qualified
	Personnel

The success of our business depends upon the
continued contributions of each of our key technical and senior
management personnel, each of whom would be difficult to
replace. We have not entered into employment agreements with any
of our employees other than severance arrangements with
Robert H. Hunsberger, Richard P. Henderson and Gary
Flood and an employment arrangement that includes severance
arrangements, with Shimon Scherzer. Except for
Mr. Scherzer, we have not entered into non-competition
agreements with any of our employees. We will also need to
attract and retain qualified engineering, financial,
manufacturing, quality assurance, sales, marketing and customer
support personnel to ensure our future success. Competition for
such personnel, particularly qualified engineers, is intense. In
addition, the unpredictability of the wireless communications
market, the volatility of the economic markets and the reduction
in demand for our products caused us to reduce our workforce.
These recent layoffs may make it more difficult to recruit and
retain qualified personnel when needed. The loss of any key
employee, the failure of any key employee to perform in his or
her current position, our inability to attract and retain
skilled employees as needed or the inability of our officers and
key employees to expand, train and manage our employee base
could limit our ability to expand and become profitable.

26



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| |                                                                                                                        
| | -----------------------------------------------------------------------------------------------------------------------
| | Our Independent Auditor, Arthur Andersen
	LLP, has been Criminally Indicted by the United States
	Department of Justice

On March 14, 2002, the United States
Department of Justice obtained a criminal indictment against
Arthur Andersen LLP, the companys auditors. The indictment
raises a number of uncertainties for the Company:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The SEC has announced that it will continue to
	accept financial statements audited by Andersen in its SEC
	filings, as long as companies obtain representations from
	Andersen concerning audit quality controls. We have received
	this representation with respect to the audited financial
	statements included in this report. However, we cannot control
	whether Andersen will be able to continue to make this
	representation in the future. In addition, if Andersen is
	convicted, the SEC may seek to ban Andersen from doing public
	company audit work, or may refuse to accept financial statements
	audited by Andersen in future SEC filings.                                                                                                               
|
| |  | If for any other reason financial statements
	audited by Andersen are no longer accepted by the SEC, we would
	have to seek another auditing firm. The number of auditing firms
	in the United States with staffing and capabilities similar to
	Andersens is extremely limited. If financial statements
	audited by Andersen are no longer accepted by the SEC, it is
	likely that many public companies will be seeking alternative
	auditors at the same time. A large number of companies
	contemporaneously seeking new auditors may strain the auditing
	capacity of the other major U.S. accounting firms. We may
	experience difficulties in obtaining a satisfactory alternative
	auditor, and the cost of obtaining the annual audit would be
	likely to increase.
|
| |  | Current SEC rules require the auditors
	consent if the audited financial statements are incorporated by
	reference in a future SEC filing. Audited financial statements
	are incorporated by reference into the SEC registration
	statement for the companys option plans. We cannot control
	whether the SEC will continue to accept Andersen consents for
	previously completed audits. If the SEC stops accepting Andersen
	consents in the future, the companys ability to grant
	stock options may be restricted until a satisfactory consent is
	obtained.                                                                                                                                                                                                          



| |                                                            
| | -----------------------------------------------------------
| | Potential Impairment of our Goodwill and
	Intangible Assets

The adoption of SFAS No. 142, effective
January 1, 2002, will result in our discontinuation of
amortization of goodwill; however, we are required to test
goodwill for impairment periodically and upon the occurrence of
defined events. We are assessing the impact of adopting this
statement. The decline of our market capitalization during the
first quarter of 2002 will likely result in a substantial charge
against earnings during 2002 related to the adoption of this
statement. We have recorded $60.1 million in goodwill that
is subject to these provisions, any impairment of which could
have an adverse effect on the future results of operations.



| |                            
| | ---------------------------
| | Limited Number of Suppliers

We rely on Viasystems to manufacture our
SpotLight products pursuant to a five-year supply agreement.
Under the agreement, Viasystems is responsible for supplier and
commodity management and the assembling and testing of finished
systems from the components and subassemblies purchased from
outside suppliers. We anticipate that we will also depend on a
single supplier to manufacture our SmartShare and SmartCell
antenna components. In addition, some of the other parts and
components used in our products are available from a limited
number of sources, such as linear power amplifiers supplied by
Powerwave and antenna panels from Decibel Products. The reliance
on these sole or limited source suppliers involves risks and
uncertainties, including the possibility of a shortage or
discontinuation of key components or the financial health and
continued operations of the supplier. Any reduced availability
of these parts or components when required could materially
impair the ability to manufacture and deliver our products on a
timely basis and result in the cancellation of orders, which
could significantly harm our business and operating results.

27



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| |                           
| | --------------------------
| | International Market Risks

The sales of our products in international
markets subject us to risks and costs that may harm our
business. Risks and associated costs inherent in our
international business activities include: difficulties
obtaining foreign regulatory approval or U.S. export
licenses for our smart antenna systems and embedded solutions
and technologies; greater difficulties collecting delinquent or
unpaid accounts; political and economic instability in the
regions where we sell or manufacture our products;
enforceability of contracts with foreign customers governed by
foreign laws; lack of experienced technical personnel familiar
with our products in foreign markets; and increased complexities
in the financial, legal and operational aspects of our business.



| |                                  
| | ---------------------------------
| | Intellectual Property
	Protection

Despite our efforts to protect our proprietary
rights, unauthorized parties may attempt to copy or otherwise
obtain and use our intellectual property or technology. In the
foreign markets in which we are active, such as Asia,
intellectual property laws and their enforcement are weaker than
in the United States. If our methods of protecting our
intellectual property are not adequate, our competitors may
misappropriate our technology and we could lose customers to
these competitors. In addition, third parties may develop
alternative wireless communication technologies or products that
do not infringe on any of our patents or intellectual property.
Moreover, competing dissimilar technologies, such as those using
wireline communication or using new or different protocols, may
be deployed which would cause us to lose customers. In addition,
the licensing of our technology for embedded solutions requires
closer collaboration with our partners and, consequently,
greater disclosure of our trade secrets and other intellectual
property. Although we take precautions to protect our
intellectual property, such as confidentiality agreements and
patent and copyright filings in the U.S. and foreign
jurisdictions, this may not be sufficient to prevent
unauthorized use of our intellectual property.

Patents and patent applications relating to
products used in the wireless communications industry are
numerous. Current and potential competitors and other third
parties may have been issued or in the future may be issued
patents, or may obtain additional proprietary rights relating to
products used or proposed to be used by us. We may not be aware
of all patents or patent applications that may materially affect
our ability to make, use or sell any current or future products.
From time to time, third parties have asserted patent, copyright
and other intellectual property rights to technologies that are
important to us. We expect that we will increasingly be subject
to infringement claims as the number of products and competitors
in the spectrum management market grows and the functionality of
products overlaps. Third parties may assert infringement claims
against us in the future, and such assertions could result in
costly litigation, the diversion of management and engineering
resources and require us to obtain a license to intellectual
property rights of such parties. There can be no assurance that
these licenses would be available on terms acceptable to us, if
at all. Any failure to obtain a license from any third party
asserting claims in the future or defense of any third party
lawsuit could materially and adversely affect our business and
operating results.



| |                              
| | -----------------------------
| | Cost Reductions are Necessary

We anticipate that average selling prices for our
products will need to decrease in the future in response to
competitive pricing pressures and new product introductions by
competitors. If the price of base station equipment continues to
decrease, the addition of new cell sites may be viewed as a more
cost-effective alternative for wireless network operators
seeking increased capacity. To lower average selling prices
without adversely affecting gross profits, we will have to
reduce the manufacturing costs of our smart antenna systems. We
may not be able to achieve cost savings at a rate needed to keep
pace with competitive pricing pressures.



| |                      
| | ---------------------
| | Government Regulation

Many of our products are required to comply with
numerous domestic and international government regulations and
standards, which vary by market. As standards for products
continue to evolve, we will need to modify our systems or
develop and support new versions of our systems to meet emerging
industry standards, comply with government regulations and
satisfy the requirements necessary to obtain approvals.
Compliance

28



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##### 



with government regulations and industry
standards can each be a lengthy process, taking from several
months to longer than a year. It may be difficult for us to
obtain additional necessary regulatory approvals or comply with
new industry standards in a timely manner, if at all. Our
inability to obtain regulatory approval and meet established
standards in a timely manner could delay or prevent entrance
into or force our departure from markets, which would harm our
sales. In addition, compliance with U.S. export control
regulations may delay or prevent the export of our products,
data and technology to foreign customers, distributors and
wireless equipment partners.


In addition, our customers operations in
the US are subject to extensive federal, state and local
regulations. For example, on the local level, our customers must
obtain zoning approval from local authorities to place antennas
on their towers. Delays in obtaining these approvals could delay
installation of our products, and thus delay revenues. See
Delays in Product Installation and End-User Salesfor more information. To the extent that our customers are
delayed in deploying their wireless systems as a result of
existing or new standards or regulations, we could experience
delays in orders. Any delay could contribute to fluctuations in
our results of operations.

Governments currently limit the amount of
spectrum each carrier is allowed in any market. Any increase in
spectrum allowance by governments may adversely affect us. See
Business  Government Regulation for more
information regarding the governmental control and approval of
our business.



| |                    
| | -------------------
| | Future Acquisitions

We may make additional acquisitions of
businesses, products or technologies in the future. No assurance
can be given as to our ability to successfully integrate
additional businesses, products, technologies or personnel that
might have been acquired or may be acquired in the future, and
our failure to do so could significantly affect our business and
operating results. Moreover, we may not be able to locate
suitable acquisition opportunities to obtain access to
technology that may be important to the development of our
business.

Risks Related to Our Stockholders



| |                                
| | -------------------------------
| | Potential for Nasdaq
	Delisting

If our stock trades for 30 consecutive
business days below the applicable minimum bid price requirement
of $1.00, Nasdaqs Listing Qualifications Department will
send a deficiency notice to the company, advising that the
company has been afforded a grace period of 90 calendar
days to regain compliance with the applicable requirement. If we
are unable to regain compliance with the bid price requirement
prior to the expiration of the 90-day National Market grace
period, we may transfer to the SmallCap Market so as to take
advantage of the longer 180 day grace periods offered on
that market, provided we meet all other requirements for
continued listing on the SmallCap Market. Between March 15,
2002 and April 12, 2002, our common stock traded below
$1.00 for 21 consecutive business days. If our stock is delisted
by the Nasdaq National Market, it could severely impact the
liquidity of our common stock.



| |                       
| | ----------------------
| | Stock Price Volatility

Our common shares have experienced, and may
continue to experience, substantial price volatility,
particularly as a result of variations between our actual or
anticipated financial results and the published expectations of
analysts and as a result of announcements by us. In addition,
the stock market has experienced extreme price fluctuations that
have affected the market price of many technology companies in
particular and that have often been unrelated to the operating
performance of these companies. A major decline in the capital
markets generally, or in the market price of our securities, may
negatively impact our ability to make future strategic
acquisitions, raise capital, issue debt or convertible debt, or
retain employees. These factors, as well as general economic and
political conditions, may in turn have a material adverse effect
on the market price of our common stock.

29



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| |                                                                          
| | -------------------------------------------------------------------------
| | Management and Large Stockholders Own a
	Substantial Portion of our Stock

Our directors and executive officers and several
large stockholders beneficially own approximately 40.3% of our
outstanding common stock, on an as-converted basis. As a result
of their ownership and positions, our directors and executive
officers and these stockholders collectively are able to
significantly influence all matters requiring stockholder
approval, including the election of directors and approval of
significant corporate transactions. Such concentration of
ownership may also have the effect of delaying or preventing a
change in control of Metawave. In addition, sales of significant
amounts of shares held by our directors and executive officers
and these stockholders, or the prospect of these sales, could
adversely affect the market price of our common stock.

Entities affiliated with one stockholder hold all
of the outstanding shares of our Series A preferred stock
and are entitled to elect one member of the board of directors.
For a more detailed description of the risk associated with the
outstanding Series A preferred stock, see the next risk
factor titled Preferred Stock with Preferential
Rights.



| |                                          
| | -----------------------------------------
| | Preferred Stock with Preferential
	Rights

The Company has 84,782 shares of Series A
preferred stock and warrants to purchase an aggregate of 42,391
shares of Series A preferred stock outstanding. The shares
are convertible to common stock at a ratio of 100 shares of
common stock for each share of preferred stock. The
Series A preferred stock has liquidation preferences and
price-based antidilution protection. The liquidation preferences
provide that upon any liquidation, sale or change of control of
Metawave, holders of the Series A preferred stock will be
entitled to receive the amount invested prior and in preference
to any distribution to holders of Metawaves common stock.
After the foregoing preference, holders of Series A
preferred stock shall also participate with holders of the
common stock in any distribution until the holders of
Series A preferred stock have received three times their
original investment amount in the aggregate. Thereafter, the
holders of common stock shall receive the remaining funds;
provided, however, that if holders of Series A preferred
stock would have received more on an as-converted basis, the
holders will be treated as if they had converted the shares of
preferred stock into common stock whether or not the conversion
had actually occurred. Subject to exceptions and limitations,
and conditioned on the approval of the holders of a majority of
the outstanding common stock, the price-based antidilution
protection will provide that, so long as the Series A
preferred stock is outstanding, if we issue securities at a
common stock equivalent price of less than $2.359, then the
conversion price of the outstanding Series A preferred
stock will be adjusted to be equal to the price at which such
security was sold. The Series A stockholders also have
registration rights. We must make best efforts to register the
shares of common stock to be received upon conversion of the
Series A preferred stock upon the earlier of eighteen
months after the closing date of the financing or expiration of
sales restrictions on the Series A preferred stock.
Additionally, the holders of the Series A preferred stock
have the right to designate a member to the board of directors.



| |                           
| | --------------------------
| | Raising Additional Capital

During 2001, we raised $21.2 million through
sales of common stock and $20.0 million through the sale of
Series A preferred stock and warrants to purchase
Series A preferred stock. We believe that our existing
cash, cash equivalents and short-term investments will be
sufficient to meet our operating expenses working capital and
capital expenditure requirements through at least the next
12 months. Thereafter, we may need to raise additional
funds. We may have to raise funds even sooner in order to fund
growth, to develop new or enhanced services or products, to
respond to competitive pressures, to acquire complementary
products, businesses or technologies or otherwise to respond to
unanticipated requirements including any increased costs
associated with our outstanding securities litigation or
potential damages resulting from the settlement or successful
outcome of any of these proceedings. If additional funds are
raised through the issuance of equity or convertible debt
securities, the percentage ownership of our stockholders will be
reduced. If we raise capital through debt financing, we may be
forced to accept restrictions affecting our liquidity, including
restrictions on our ability to incur additional indebtedness or
pay dividends. We cannot assure you that additional financing
will be available on favorable terms or at all. If adequate
funds are not available or are not available on acceptable
terms, we may not be able to fund our ongoing operations and
growth, take advantage of

30



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unanticipated acquisition opportunities, develop
or enhance products and services or respond to competitive
pressures. This inability could seriously harm our business and
results of operations.




| |                                      
| | -------------------------------------
| | Charter and Anti-takeover
	Provisions

Our Board of Directors has the authority to issue
up to an additional 9,872,827 shares of preferred stock and to
determine the price, rights, preferences, privileges and
restrictions, including voting rights, of those shares without
any further vote or action by the stockholders. The rights of
the holders of common stock may be subject to, and may be
adversely affected by, the rights of the holders of any
preferred stock that may be issued in the future. The issuance
of preferred stock may have the effect of delaying, deferring or
preventing a change of control of Metawave without further
action by the stockholders and may adversely affect the voting
and other rights of the holders of our common stock. Further,
provisions of our charter documents, including provisions
eliminating the ability of stockholders to take action by
written consent and limiting the ability of stockholders to
raise matters at a meeting of stockholders without giving
advance notice, may have the effect of delaying or preventing
changes in control or management of Metawave, which could have
an adverse effect on the market price of our stock. In addition,
our charter documents do not permit cumulative voting, which may
make it more difficult for a third party to gain control of our
Board of Directors. Similarly, state laws in Washington related
to corporate takeovers may prevent or delay a change of control
of Metawave.

New Accounting Pronouncements

In July 2001, the Financial Accounting Standards
Board issued SFAS No. 141, Business
Combinations, and SFAS No. 142, Goodwill and
Other Intangible Assets. SFAS No. 141 prospectively
prohibits the pooling of interest method of accounting for
business combinations initiated after June 30, 2001. The
amortization of existing goodwill will cease on
December 31, 2001. Any goodwill resulting from acquisitions
completed after June 30, 2001 will not be amortized. SFAS
No. 142 also establishes a new method of testing goodwill
for impairment on an annual basis or on an interim basis if an
event occurs or circumstances change that would more likely than
not reduce the fair value of a reporting unit below its carrying
value. The adoption of SFAS No. 142, effective
January 1, 2002, will result in our discontinuation of
amortization of goodwill; however, we are required to test
goodwill for impairment in the first quarter of 2002, which
could have an adverse effect on the future results of operations
if an impairment occurs. We have not assessed the impact of
adopting this statement. The decline of our market
capitalization during the first quarter of 2002 will likely
result in a substantial charge against earnings during 2002
related to the adoption of this statement. Goodwill amortization
was approximately $15.9 million in fiscal 2001 and
approximately $4.4 million in fiscal 2000.

In August 2001, the Financial Accounting
Standards Board issued SFAS No. 144, Accounting for
the Impairment or Disposal of Long-Lived Assets. SFAS
No. 144 requires a single accounting model for the
impairment or disposal of long lived assets. We are required to
adopt SFAS No. 144 no later than January 1, 2002. The
provisions of this statement for assets held for sale or other
disposal generally are required to be applied prospectively
after the adoption date to newly initiated disposal activities
and therefore, we cannot determine the potential effects that
adoption of SFAS No. 144 will have on our financial
statements with respect to future disposal decisions.



Item
7A.     Qualitative and Quantitative
Disclosures About Market Risk




| |                   
| | ------------------
| | Interest Rate Risk

We do not use derivative financial instruments in
our investment portfolio. We invest in high quality marketable
securities, primarily U.S. Government obligations and corporate
obligations with maturates of less than three months. Such
securities are subject to interest rate risk and will rise and
fall in value if market interest rates change, however, we do
not expect any material loss from our marketable security
investments and therefore believe that our potential interest
rate exposure is not material.



| |                      
| | ---------------------
| | Foreign Currency Risk

Currently our export sales are denominated in
U.S. Dollars. The continued development of our
international operations will result in an increased market risk
relative to foreign currencies. At this time, we do not believe
there will be material risks related to fluctuations in foreign
exchange rates.

31



---



##### 



Item
8.     Financial
Statements

|                                                                                                           |  |           |    | 
|---------------------------------------------------------------------------------------------------------- |  | --------- | -- | 
|                                                                                                           |  | Page in  
|                                                                                                           |  | Form 10-K
|                                                                                                           |  |          
|Report of Arthur Andersen LLP, Independent Public
	Accountants                                             |  |           | 33 | 
|Report of Ernst & Young LLP, Independent
	Auditors                                                         |  |           | 34 | 
|Consolidated Balance Sheets 
	December 31, 2000 and 2001                                                  |  |           | 35 | 
|Consolidated Statements of Operations 
	years ended December 31, 1999, 2000 and 2001                      |  |           | 36 | 
|Consolidated Statements of Stockholders
	Equity (Deficit)  years ended December 31, 1999,
	2000 and 2001 |  |           | 37 | 
|Consolidated Statements of Cash Flows 
	years ended December 31, 1999, 2000 and 2001                      |  |           | 38 | 
|Notes to Consolidated Financial Statements                                                                 |  |           | 39 | 

32



---



##### 



REPORT OF INDEPENDENT PUBLIC
ACCOUNTANTS

To Metawave Communications Corporation:

We have audited the accompanying consolidated
balance sheets of Metawave Communications Corporation (a
Delaware corporation) and subsidiaries as of December 31,
2000 and 2001, and the related consolidated statements of
operations, stockholders equity (deficit) and cash
flows for the years then ended. These financial statements are
the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with
auditing standards generally accepted in the United States.
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.

In our opinion, the financial statements referred
to above present fairly, in all material respects, the financial
position of Metawave Communications Corporation and subsidiaries
as of December 31, 2000 and 2001, and the results of their
operations and their cash flows for the years then ended in
conformity with accounting principles generally accepted in the
United States.

The accompanying financial statements have been
prepared assuming that the Company will continue as a going
concern. As discussed in Note 20 to the financial
statements, uncertainties regarding asserted and potential
unasserted claims exist that raise substantial doubt about the
Companys ability to continue as a going concern.
Managements plans in regard to these matters are also
described in Note 20. The financial statements do not
include any adjustments relating to the recoverability and
classification of asset carrying amounts or the amount and
classification of liabilities that might result should the
Company be unable to continue as a going concern.

As explained in Note 1 to the financial
statements, effective January 1, 2000, the Company changed
its method of accounting for certain equipment revenue.



| |                        
| | -----------------------
| | /s/ ARTHUR ANDERSEN LLP

Seattle, Washington

April 3, 2002


33



---



##### 



REPORT OF ERNST & YOUNG LLP,
INDEPENDENT AUDITORS

Board of Directors

Metawave Communications Corporation


We have audited the accompanying consolidated
statements of operations, stockholders deficit, and cash
flows of Metawave Communications Corporation for the year ended
December 31, 1999. These financial statements are the
responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements based on our audit.

We conducted our audit in accordance with
auditing standards generally accepted in the United States.
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial
statements are free of material misstatements. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.

In our opinion, the financial statements referred
to above present fairly, in all material respects, the
consolidated results of operations and cash flows of Metawave
Communications Corporation for the year ended December 31,
1999 in conformity with accounting principles generally accepted
in the United States.



| |                      
| | ---------------------
| | /s/ ERNST & YOUNG LLP

Seattle, Washington

February 11, 2000


34



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##### 



METAWAVE COMMUNICATIONS CORPORATION

CONSOLIDATED BALANCE SHEETS

|                                                                   |                                                                                                                                                                                                                                                      |                                                                                                                                                                   |        |          |         |  |        |          |         | 
|------------------------------------------------------------------ | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------ | -------- | ------- |  | ------ | -------- | ------- | 
|                                                                   |                                                                                                                                                                                                                                                      |                                                                                                                                                                  
|                                                                   |                                                                                                                                                                                                                                                      | December 31,                                                                                                                                                     
|                                                                   |                                                                                                                                                                                                                                                      |                                                                                                                                                                  
|                                                                   |                                                                                                                                                                                                                                                      | 2000                                                                                                                                                              |        | 2001    
|                                                                   |                                                                                                                                                                                                                                                      |                                                                                                                                                                   |        |         
|                                                                   |                                                                                                                                                                                                                                                      |                                                                                                                                                                  
|                                                                   |                                                                                                                                                                                                                                                      | (In thousands, except share                                                                                                                                      
|                                                                   |                                                                                                                                                                                                                                                      | and per share data)                                                                                                                                              
|ASSETS                                                            
|Current assets:                                                    |                                                                                                                                                                                                                                                      |                                                                                                                                                                   |        |          |         |  |        |         
|                                                                   | Cash and cash equivalents                                                                                                                                                                                                                            |                                                                                                                                                                   | $      | 37,921   |         |  | $      | 28,851   |        
|                                                                   | Restricted cash                                                                                                                                                                                                                                      |                                                                                                                                                                   |        |         |         |  |        | 4,175    |        
|                                                                   | Accounts receivable, less allowances of $45 in
	2000 and $227 in 2001                                                                                                                                                                                |                                                                                                                                                                   |        | 21,533   |         |  |        | 11,371   |        
|                                                                   | Receivable from Viasystems Group, Inc.                                                                                                                                                                                                               |                                                                                                                                                                   |        |         |         |  |        | 5,153    |        
|                                                                   | Inventories                                                                                                                                                                                                                                          |                                                                                                                                                                   |        | 17,022   |         |  |        | 5,111    |        
|                                                                   | Prepaid expenses and other current assets                                                                                                                                                                                                            |                                                                                                                                                                   |        | 2,448    |         |  |        | 3,926    |        
|                                                                   |                                                                                                                                                                                                                                                      |                                                                                                                                                                   |        |          |         |  |        |         
|                                                                   |                                                                                                                                                                                                                                                      | Total current assets                                                                                                                                              |        |          | 78,924  |  |        |          | 58,587  | 
|Property and equipment, net                                        |                                                                                                                                                                                                                                                      |                                                                                                                                                                   | 6,642  |          |         |  | 3,323  |         
|Goodwill, net                                                      |                                                                                                                                                                                                                                                      |                                                                                                                                                                   | 75,109 |          |         |  | 59,205 |         
|Other intangibles, net                                             |                                                                                                                                                                                                                                                      |                                                                                                                                                                   | 6,308  |          |         |  | 4,297  |         
|Note receivable from officer                                       |                                                                                                                                                                                                                                                      |                                                                                                                                                                   | 1,005  |          |         |  |       |         
|Other noncurrent assets                                            |                                                                                                                                                                                                                                                      |                                                                                                                                                                   | 367    |          |         |  | 143    |         
|                                                                   |                                                                                                                                                                                                                                                      |                                                                                                                                                                   |        |          |         |  |        |         
|                                                                   |                                                                                                                                                                                                                                                      | Total assets                                                                                                                                                      |        | $        | 168,355 |  |        | $        | 125,555 | 
|                                                                   |                                                                                                                                                                                                                                                      |                                                                                                                                                                   |        |          |         |  |        |         
|LIABILITIES AND STOCKHOLDERS
	EQUITY                             
|Current liabilities:                                               |                                                                                                                                                                                                                                                      |                                                                                                                                                                   |        |          |         |  |        |         
|                                                                   | Accounts payable (includes $6,762 payable to
	Viasystems Group, Inc. at December 31, 2001)                                                                                                                                                           |                                                                                                                                                                   | $      | 10,566   |         |  | $      | 15,554   |        
|                                                                   | Payable to related party                                                                                                                                                                                                                             |                                                                                                                                                                   |        | 7,002    |         |  |        | 1,235    |        
|                                                                   | Other current liabilities                                                                                                                                                                                                                            |                                                                                                                                                                   |        | 3,323    |         |  |        | 7,035    |        
|                                                                   | Accrued compensation                                                                                                                                                                                                                                 |                                                                                                                                                                   |        | 2,478    |         |  |        | 2,914    |        
|                                                                   | Current portion of notes payable and capital
	lease obligations                                                                                                                                                                                      |                                                                                                                                                                   |        | 2,914    |         |  |        | 2,689    |        
|                                                                   |                                                                                                                                                                                                                                                      |                                                                                                                                                                   |        |          |         |  |        |         
|                                                                   |                                                                                                                                                                                                                                                      | Total current liabilities                                                                                                                                         |        |          | 26,283  |  |        |          | 29,427  | 
|Notes payable and capital lease obligations, less
	current portion |                                                                                                                                                                                                                                                      |                                                                                                                                                                   | 2,526  |          |         |  | 1,268  |         
|Other long-term liabilities                                        |                                                                                                                                                                                                                                                      |                                                                                                                                                                   | 16     |          |         |  |       |         
|                                                                   |                                                                                                                                                                                                                                                      |                                                                                                                                                                   |        |          |         |  |        |         
|                                                                   |                                                                                                                                                                                                                                                      | Total liabilities                                                                                                                                                 |        |          | 28,825  |  |        |          | 30,695  | 
|                                                                   |                                                                                                                                                                                                                                                      |                                                                                                                                                                   |        |          |         |  |        |         
|Commitments and contingencies (Notes 8, 11,
	20 and 21)            |                                                                                                                                                                                                                                                      |                                                                                                                                                                   |        |          |         |  |        |         
|Convertible preferred stock (Note 8), $.0001
	par value:           |                                                                                                                                                                                                                                                      |                                                                                                                                                                   |        |          |         |  |        |         
|                                                                   | Authorized shares  10,000,000 shares
	at December 31, 2000 and 2001; issued and outstanding
	shares  0 and 84,782 in 2000 and 2001, respectively,
	and warrants. Liquidation preference $20,000 plus pro rata with
	common stockholders to $40,000 |                                                                                                                                                                   |        |         |         |  |        | 20,000   |        
|                                                                   |                                                                                                                                                                                                                                                      |                                                                                                                                                                   |        |          |         |  |        |         
|Stockholders equity:                                              |                                                                                                                                                                                                                                                      |                                                                                                                                                                   |        |          |         |  |        |         
|                                                                   | Common stock, $.0001 par value, and paid-in
	capital:                                                                                                                                                                                                |                                                                                                                                                                   |        |          |         |  |        |          |        
|                                                                   |                                                                                                                                                                                                                                                      | Authorized shares  150,000,000 shares
	at December 31, 2000 and 2001; issued and outstanding
	shares  43,483,300 and 51,662,687 in 2000 and 2001,
	respectively |        |          | 321,451 |  |        |          | 340,776 | 
|                                                                   | Deferred stock compensation                                                                                                                                                                                                                          |                                                                                                                                                                   |        | (11,591  | )       |  |        | (1,430   | )      
|                                                                   | Accumulated other comprehensive (loss) income                                                                                                                                                                                                        |                                                                                                                                                                   |        | (155     | )       |  |        | 30       |        
|                                                                   | Accumulated deficit                                                                                                                                                                                                                                  |                                                                                                                                                                   |        | (170,175 | )       |  |        | (264,516 | )      
|                                                                   |                                                                                                                                                                                                                                                      |                                                                                                                                                                   |        |          |         |  |        |         
|                                                                   |                                                                                                                                                                                                                                                      | Total stockholders equity                                                                                                                                        |        |          | 139,530 |  |        |          | 74,860  | 
|                                                                   |                                                                                                                                                                                                                                                      |                                                                                                                                                                   |        |          |         |  |        |         
|                                                                   |                                                                                                                                                                                                                                                      | Total liabilities and stockholders equity                                                                                                                        |        | $        | 168,355 |  |        | $        | 125,555 | 
|                                                                   |                                                                                                                                                                                                                                                      |                                                                                                                                                                   |        |          |         |  |        |         

See accompanying notes.

35



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##### 



METAWAVE COMMUNICATIONS CORPORATION



CONSOLIDATED STATEMENTS OF
OPERATIONS


|                                                                                                                 |                                                                               |                                       |         |        |        |      |         |        |        |   |         |        |        | 
|---------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------- | ------------------------------------- | ------- | ------ | ------ | ---- | ------- | ------ | ------ | - | ------- | ------ | ------ | 
|                                                                                                                 |                                                                               |                                      
|                                                                                                                 |                                                                               | Years Ended December 31,             
|                                                                                                                 |                                                                               |                                      
|                                                                                                                 |                                                                               | 1999                                  |         | 2000   |        | 2001
|                                                                                                                 |                                                                               |                                       |         |        |        |     
|                                                                                                                 |                                                                               |                                      
|                                                                                                                 |                                                                               | (In thousands, except per share data)
|Revenues                                                                                                         |                                                                               | $                                     | 22,596  |        |        | $    | 52,777  |        |        | $ | 36,472  |       
|Cost of revenues                                                                                                 |                                                                               |                                       | 22,236  |        |        |      | 37,890  |        |        |   | 35,024  |       
|Provision for the write-down of SpotLight GSM
	inventory (Note 20)                                               |                                                                               |                                       |        |        |        |      |        |        |        |   | 17,470  |       
|                                                                                                                 |                                                                               |                                       |         |        |        |      |         |        |        |   |         |       
|Gross profit (loss)                                                                                              |                                                                               |                                       | 360     |        |        |      | 14,887  |        |        |   | (16,022 | )     
|                                                                                                                 |                                                                               |                                       |         |        |        |      |         |        |        |   |         |       
|Operating expenses:                                                                                              |                                                                               |                                       |         |        |        |      |         |        |        |   |         |       
|                                                                                                                 | Research and development                                                      |                                       |         | 22,787 |        |      |         | 38,160 |        |   |         | 33,513 |       
|                                                                                                                 | Sales and marketing                                                           |                                       |         | 11,080 |        |      |         | 12,740 |        |   |         | 11,308 |       
|                                                                                                                 | General and administrative                                                    |                                       |         | 5,732  |        |      |         | 9,693  |        |   |         | 13,215 |       
|                                                                                                                 | Provision for the write-down of SpotLight GSM
	related fixed assets (Note 20) |                                       |         |       |        |      |         |       |        |   |         | 675    |       
|                                                                                                                 | Amortization of goodwill and other intangibles                                |                                       |         |       |        |      |         | 5,054  |        |   |         | 18,269 |       
|                                                                                                                 |                                                                               |                                       |         |        |        |      |         |        |        |   |         |       
|                                                                                                                 |                                                                               | Total operating expenses              |         |        | 39,599 |      |         |        | 65,647 |   |         |        | 76,980 | 
|                                                                                                                 |                                                                               |                                       |         |        |        |      |         |        |        |   |         |       
|Loss from operations                                                                                             |                                                                               |                                       | (39,239 | )      |        |      | (50,760 | )      |        |   | (93,002 | )     
|                                                                                                                 |                                                                               |                                       |         |        |        |      |         |        |        |   |         |       
|Other income, principally interest income                                                                        |                                                                               |                                       | 1,165   |        |        |      | 2,663   |        |        |   | 748     |       
|Interest expense                                                                                                 |                                                                               |                                       | (4,339  | )      |        |      | (674    | )      |        |   | (763    | )     
|                                                                                                                 |                                                                               |                                       |         |        |        |      |         |        |        |   |         |       
|Other income (expense), net                                                                                      |                                                                               |                                       | (3,174  | )      |        |      | 1,989   |        |        |   | (15     | )     
|                                                                                                                 |                                                                               |                                       |         |        |        |      |         |        |        |   |         |       
|Net loss before cumulative effect of change in
	accounting principle                                             |                                                                               |                                       | (42,413 | )      |        |      | (48,771 | )      |        |   | (93,017 | )     
|Cumulative effect on prior years of change in
	accounting principle                                              |                                                                               |                                       |        |        |        |      | (764    | )      |        |   |        |       
|                                                                                                                 |                                                                               |                                       |         |        |        |      |         |        |        |   |         |       
|Net loss                                                                                                         |                                                                               | $                                     | (42,413 | )      |        | $    | (49,535 | )      |        | $ | (93,017 | )     
|                                                                                                                 |                                                                               |                                       |         |        |        |      |         |        |        |   |         |       
|Beneficial conversion charge                                                                                     |                                                                               |                                       |        |        |        |      |        |        |        |   | (1,324  | )     
|                                                                                                                 |                                                                               |                                       |         |        |        |      |         |        |        |   |         |       
|Net loss attributable to common stockholders                                                                     |                                                                               | $                                     | (42,413 | )      |        | $    | (49,535 | )      |        | $ | (94,341 | )     
|                                                                                                                 |                                                                               |                                       |         |        |        |      |         |        |        |   |         |       
|Weighted average common shares outstanding                                                                       |                                                                               |                                       | 2,235   |        |        |      | 27,462  |        |        |   | 47,050  |       
|                                                                                                                 |                                                                               |                                       |         |        |        |      |         |        |        |   |         |       
|Basic and diluted net loss per share before
	cumulative effect of change in accounting principle                 |                                                                               | $                                     | (18.98  | )      |        | $    | (1.78   | )      |        | $ | (2.01   | )     
|Cumulative effect on prior years of change in
	accounting principle                                              |                                                                               |                                       |        |        |        |      | (0.02   | )      |        |   |        |       
|                                                                                                                 |                                                                               |                                       |         |        |        |      |         |        |        |   |         |       
|Basic and diluted net loss per share                                                                             |                                                                               | $                                     | (18.98  | )      |        | $    | (1.80   | )      |        | $ | (2.01   | )     
|                                                                                                                 |                                                                               |                                       |         |        |        |      |         |        |        |   |         |       
|Pro forma net loss assuming the change in
	accounting principle was applied in 1999                              |                                                                               | $                                     | (43,019 | )      |        |      |         |        |        |   |         |       
|                                                                                                                 |                                                                               |                                       |         |        |        |      |         |        |        |   |         |       
|Pro forma basic and diluted net loss per share
	assuming the change in accounting principle was applied in 1999. |                                                                               | $                                     | (19.25  | )      |        |      |         |        |        |   |         |       
|                                                                                                                 |                                                                               |                                       |         |        |        |      |         |        |        |   |         |       

See accompanying notes.

36



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##### 



METAWAVE COMMUNICATIONS CORPORATION



CONSOLIDATED STATEMENTS OF STOCKHOLDERS
EQUITY (DEFICIT)


For the Years Ended December 31, 1999,
2000 and 2001


|                                                                          |                                   |                                   |            |          |  |               |         |               |  |               |         |           |  |   |      |      |   |   |          |         |   |   |          |         |  
|------------------------------------------------------------------------- | --------------------------------- | --------------------------------- | ---------- | -------- |  | ------------- | ------- | ------------- |  | ------------- | ------- | --------- |  | - | ---- | ---- | - | - | -------- | ------- | - | - | -------- | ------- | -
|                                                                          |                                   |                                   |            |          |  |               |         |               |  |              
|                                                                          |                                   | Common Stock and                  |            |          |  | Accumulated   |         |               |  | Total        
|                                                                          |                                   | Paid-in Capital                   |            | Deferred |  | Other         |         |               |  | Stockholders
|                                                                          |                                   |                                   |            | Stock    |  | Comprehensive |         | Accumulated   |  | Equity       
|                                                                          |                                   | Shares                            |            | Amount   |  | Compensation  |         | Income (Loss) |  | Deficit       |         | (Deficit)
|                                                                          |                                   |                                   |            |          |  |               |         |               |  |               |         |          
|                                                                          |                                   |                                  
|                                                                          |                                   | (In thousands, except share data)
|Balance at January 1, 1999                                                |                                   |                                   | 2,112,229  |          |  | $             | 2,179   |               |  | $             | (554    | )         |  | $ | 6    |      |   | $ | (78,227  | )       |   | $ | (76,596  | )      
|Exercise of stock options                                                 |                                   |                                   | 278,681    |          |  |               | 137     |               |  |               |        |           |  |   |     |      |   |   |         |         |   |   | 137      |        
|Issuance of common stock warrants                                         |                                   |                                   |           |          |  |               | 88      |               |  |               |        |           |  |   |     |      |   |   |         |         |   |   | 88       |        
|Deferred stock compensation                                               |                                   |                                   |           |          |  |               | 1,169   |               |  |               | (1,169  | )         |  |   |     |      |   |   |         |         |   |   |         |        
|Amortization of deferred stock compensation                               |                                   |                                   |           |          |  |               |        |               |  |               | 817     |           |  |   |     |      |   |   |         |         |   |   | 817      |        
|Comprehensive income (loss):                                              |                                   |                                   |            |          |  |               |         |               |  |               |         |           |  |   |      |      |   |   |          |         |   |   |          |        
|                                                                          | Foreign exchange translation gain |                                   |            |         |  |               |         |              |  |               |         |          |  |   |      | 13   |   |   |          |        |   |   |          | 13      |  
|                                                                          | Net loss                          |                                   |            |         |  |               |         |              |  |               |         |          |  |   |      |     |   |   |          | (42,413 | ) |   |          | (42,413 | )
|                                                                          |                                   |                                   |            |          |  |               |         |               |  |               |         |           |  |   |      |      |   |   |          |         |   |   |          |        
|Comprehensive loss                                                        |                                   |                                   |            |          |  |               |         |               |  |               |         |           |  |   |      |      |   |   |          |         |   |   | (42,400  | )      
|                                                                          |                                   |                                   |            |          |  |               |         |               |  |               |         |           |  |   |      |      |   |   |          |         |   |   |          |        
|Balance at December 31, 1999                                              |                                   |                                   | 2,390,910  |          |  | $             | 3,573   |               |  | $             | (906    | )         |  | $ | 19   |      |   | $ | (120,640 | )       |   | $ | (117,954 | )      
|Repurchase of restricted stock                                            |                                   |                                   | (375       | )        |  |               | (1      | )             |  |               |        |           |  |   |     |      |   |   |         |         |   |   | (1       | )      
|Exercise of stock options                                                 |                                   |                                   | 425,921    |          |  |               | 699     |               |  |               |        |           |  |   |     |      |   |   |         |         |   |   | 699      |        
|Issuance of common stock from employee purchases                          |                                   |                                   | 87,846     |          |  |               | 676     |               |  |               |        |           |  |   |     |      |   |   |         |         |   |   | 676      |        
|Issuance of common stock from initial public
	offering                    |                                   |                                   | 7,187,500  |          |  |               | 58,873  |               |  |               |        |           |  |   |     |      |   |   |         |         |   |   | 58,873   |        
|Issuance of common stock to acquire Adaptive
	Telecom                     |                                   |                                   | 5,361,803  |          |  |               | 93,735  |               |  |               |        |           |  |   |     |      |   |   |         |         |   |   | 93,735   |        
|Issuance of common stock options to acquire
	Adaptive Telecom             |                                   |                                   |           |          |  |               | 771     |               |  |               |        |           |  |   |     |      |   |   |         |         |   |   | 771      |        
|Conversion of convertible and redeemable
	preferred stock to common stock |                                   |                                   | 27,972,907 |          |  |               | 143,945 |               |  |               |        |           |  |   |     |      |   |   |         |         |   |   | 143,945  |        
|Conversion of preferred stock warrants to common
	stock warrants          |                                   |                                   |           |          |  |               | 157     |               |  |               |        |           |  |   |     |      |   |   |         |         |   |   | 157      |        
|Exercise of common stock warrants                                         |                                   |                                   | 56,788     |          |  |               |        |               |  |               |        |           |  |   |     |      |   |   |         |         |   |   |         |        
|Deferred stock compensation                                               |                                   |                                   |           |          |  |               | 19,023  |               |  |               | (19,023 | )         |  |   |     |      |   |   |         |         |   |   |         |        
|Amortization of deferred stock compensation                               |                                   |                                   |           |          |  |               |        |               |  |               | 8,338   |           |  |   |     |      |   |   |         |         |   |   | 8,338    |        
|Comprehensive loss:                                                       |                                   |                                   |            |          |  |               |         |               |  |               |         |           |  |   |      |      |   |   |          |         |   |   |          |        
|                                                                          | Foreign exchange translation loss |                                   |            |         |  |               |         |              |  |               |         |          |  |   |      | (174 | ) |   |          |        |   |   |          | (174    | )
|                                                                          | Net loss                          |                                   |            |         |  |               |         |              |  |               |         |          |  |   |      |     |   |   |          | (49,535 | ) |   |          | (49,535 | )
|                                                                          |                                   |                                   |            |          |  |               |         |               |  |               |         |           |  |   |      |      |   |   |          |         |   |   |          |        
|Comprehensive loss                                                        |                                   |                                   |            |          |  |               |         |               |  |               |         |           |  |   |      |      |   |   |          |         |   |   | (49,709  | )      
|                                                                          |                                   |                                   |            |          |  |               |         |               |  |               |         |           |  |   |      |      |   |   |          |         |   |   |          |        
|Balance at December 31, 2000                                              |                                   |                                   | 43,483,300 |          |  | $             | 321,451 |               |  | $             | (11,591 | )         |  | $ | (155 | )    |   | $ | (170,175 | )       |   | $ | 139,530  |        
|Exercise of stock options                                                 |                                   |                                   | 308,750    |          |  |               | 1,031   |               |  |               |        |           |  |   |     |      |   |   |         |         |   |   | 1,031    |        
|Repurchase of restricted stock                                            |                                   |                                   | (142,539   | )        |  |               | (9      | )             |  |               |        |           |  |   |     |      |   |   |         |         |   |   | (9       | )      
|Issuance of common stock from employee purchases                          |                                   |                                   | 275,841    |          |  |               | 693     |               |  |               |        |           |  |   |     |      |   |   |         |         |   |   | 693      |        
|Issuance of common stock                                                  |                                   |                                   | 7,737,335  |          |  |               | 21,158  |               |  |               |        |           |  |   |     |      |   |   |         |         |   |   | 21,158   |        
|Beneficial conversion charge on issuance of
	convertible preferred stock  |                                   |                                   |            |          |  |               | 1,324   |               |  |               |        |           |  |   |     |      |   |   | (1,324   | )       |   |   |         |        
|Amortization of deferred stock compensation                               |                                   |                                   |           |          |  |               |        |               |  |               | 5,289   |           |  |   |     |      |   |   |         |         |   |   | 5,289    |        
|Reversal of unamortized deferred stock
	compensation                      |                                   |                                   |           |          |  |               | (4,872  | )             |  |               | 4,872   |           |  |   |     |      |   |   |         |         |   |   |         |        
|Comprehensive loss:                                                       |                                   |                                   |            |          |  |               |         |               |  |               |         |           |  |   |      |      |   |   |          |         |   |   |          |        
|                                                                          | Foreign exchange translation gain |                                   |            |         |  |               |         |              |  |               |         |          |  |   |      | 185  |   |   |          |        |   |   |          | 185     |  
|                                                                          | Net loss                          |                                   |            |         |  |               |         |              |  |               |         |          |  |   |      |     |   |   |          | (93,017 | ) |   |          | (93,017 | )
|                                                                          |                                   |                                   |            |          |  |               |         |               |  |               |         |           |  |   |      |      |   |   |          |         |   |   |          |        
|Comprehensive loss                                                        |                                   |                                   |            |          |  |               |         |               |  |               |         |           |  |   |      |      |   |   |          |         |   |   | (92,832  | )      
|                                                                          |                                   |                                   |            |          |  |               |         |               |  |               |         |           |  |   |      |      |   |   |          |         |   |   |          |        
|Balance at December 31, 2001                                              |                                   |                                   | 51,662,687 |          |  | $             | 340,776 |               |  | $             | (1,430  | )         |  | $ | 30   |      |   | $ | (264,516 | )       |   | $ | 74,860   |        
|                                                                          |                                   |                                   |            |          |  |               |         |               |  |               |         |           |  |   |      |      |   |   |          |         |   |   |          |        

See accompanying notes.

37



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##### 



METAWAVE COMMUNICATIONS CORPORATION

CONSOLIDATED STATEMENTS OF CASH
FLOWS

|                                                                             |                                                                                       |                                                                                               |         |       |         |      |         |        |         |   |         |        |         |  
|---------------------------------------------------------------------------- | ------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------- | ------- | ----- | ------- | ---- | ------- | ------ | ------- | - | ------- | ------ | ------- | -
|                                                                             |                                                                                       |                                                                                              
|                                                                             |                                                                                       | Years Ended December 31,                                                                     
|                                                                             |                                                                                       |                                                                                              
|                                                                             |                                                                                       | 1999                                                                                          |         | 2000  |         | 2001
|                                                                             |                                                                                       |                                                                                               |         |       |         |     
|                                                                             |                                                                                       |                                                                                              
|                                                                             |                                                                                       | (In thousands)                                                                               
|Operating activities:                                                        |                                                                                       |                                                                                               |         |       |         |      |         |        |         |   |         |       
|Net loss                                                                     |                                                                                       | $                                                                                             | (42,413 | )     |         | $    | (49,535 | )      |         | $ | (93,017 | )     
|Adjustments to reconcile net loss to net cash
	used in operating activities: |                                                                                       |                                                                                               |         |       |         |      |         |        |         |   |         |       
|                                                                             | Depreciation and amortization                                                         |                                                                                               |         | 3,035 |         |      |         | 8,272  |         |   |         | 21,454 |        
|                                                                             | Acquired in-process research and development                                          |                                                                                               |         |      |         |      |         | 10,400 |         |   |         |       |        
|                                                                             | Amortization of deferred stock compensation                                           |                                                                                               |         | 817   |         |      |         | 8,338  |         |   |         | 5,289  |        
|                                                                             | Provision for the write-off of SpotLight GSM
	inventory and related fixed assets      |                                                                                               |         |      |         |      |         |       |         |   |         | 18,145 |        
|                                                                             | Debt financing amortization                                                           |                                                                                               |         | 2,321 |         |      |         |       |         |   |         |       |        
|                                                                             | Impairment of fixed assets (including amounts in
	connection with 2001 restructuring) |                                                                                               |         |      |         |      |         |       |         |   |         | 2,149  |        
|                                                                             | Cash restricted by letters of credit and loan
	provisions                             |                                                                                               |         |      |         |      |         |       |         |   |         | (4,175 | )      
|                                                                             | Other                                                                                 |                                                                                               |         | 296   |         |      |         | (86    | )       |   |         | 69     |        
|                                                                             | Changes in operating assets and liabilities net
	of acquisition:                      |                                                                                               |         |       |         |      |         |        |         |   |         |        |        
|                                                                             |                                                                                       | Decrease (increase) in accounts receivable                                                    |         |       | (5,798  | )    |         |        | (11,406 | ) |         |        | 9,211   |  
|                                                                             |                                                                                       | Decrease (increase) in inventories                                                            |         |       | 3,780   |      |         |        | (12,873 | ) |         |        | (15,292 | )
|                                                                             |                                                                                       | Decrease (increase) in prepaid expenses,
	note receivable and other assets                    |         |       | 8       |      |         |        | (2,882  | ) |         |        | 509     |  
|                                                                             |                                                                                       | Increase (decrease) in accounts payable,
	other current liabilities, and accrued compensation |         |       | 180     |      |         |        | 13,417  |   |         |        | (1,310  | )
|                                                                             |                                                                                       |                                                                                               |         |       |         |      |         |        |         |   |         |       
|                                                                             |                                                                                       | Net cash used in operating activities                                                         |         |       | (37,774 | )    |         |        | (36,355 | ) |         |        | (56,968 | )
|                                                                             |                                                                                       |                                                                                               |         |       |         |      |         |        |         |   |         |       
|Investing activities:                                                        |                                                                                       |                                                                                               |         |       |         |      |         |        |         |   |         |       
|Cash paid for acquisition of Adaptive Telecom                                |                                                                                       |                                                                                               |        |       |         |      | (2,500  | )      |         |   |        |       
|Net proceeds from sale of inventory and fixed
	assets                        |                                                                                       |                                                                                               |        |       |         |      |        |        |         |   | 7,964   |       
|Proceeds from insurance recovery                                             |                                                                                       |                                                                                               |        |       |         |      |        |        |         |   | 2,268   |       
|Purchases of equipment                                                       |                                                                                       |                                                                                               | (1,317  | )     |         |      | (1,043  | )      |         |   | (3,483  | )     
|                                                                             |                                                                                       |                                                                                               |         |       |         |      |         |        |         |   |         |       
|Net cash (used in) provided by investing
	activities                         |                                                                                       |                                                                                               | (1,317  | )     |         |      | (3,543  | )      |         |   | 6,749   |       
|                                                                             |                                                                                       |                                                                                               |         |       |         |      |         |        |         |   |         |       
|Financing activities:                                                        |                                                                                       |                                                                                               |         |       |         |      |         |        |         |   |         |       
|Net proceeds from issuance of preferred stock and
	preferred stock warrants  |                                                                                       |                                                                                               | 82,507  |       |         |      |        |        |         |   | 20,000  |       
|Net proceeds from issuance of common stock                                   |                                                                                       |                                                                                               |        |       |         |      | 58,873  |        |         |   | 21,158  |       
|Net proceeds from exercise of common stock options                           |                                                                                       |                                                                                               | 138     |       |         |      | 698     |        |         |   | 1,022   |       
|Net proceeds from employee stock purchases                                   |                                                                                       |                                                                                               |        |       |         |      | 676     |        |         |   | 693     |       
|Proceeds from notes payable                                                  |                                                                                       |                                                                                               |        |       |         |      | 66      |        |         |   | 866     |       
|Principal payments on notes payable and capital
	lease obligations           |                                                                                       |                                                                                               | (34,160 | )     |         |      | (2,644  | )      |         |   | (2,349  | )     
|                                                                             |                                                                                       |                                                                                               |         |       |         |      |         |        |         |   |         |       
|Net cash provided by financing activities                                    |                                                                                       |                                                                                               | 48,485  |       |         |      | 57,669  |        |         |   | 41,390  |       
|                                                                             |                                                                                       |                                                                                               |         |       |         |      |         |        |         |   |         |       
|Net increase (decrease) in cash                                              |                                                                                       |                                                                                               | 9,394   |       |         |      | 17,771  |        |         |   | (8,829  | )     
|Effect of exchange rate changes on cash                                      |                                                                                       |                                                                                               | 8       |       |         |      | (15     | )      |         |   | (241    | )     
|Cash and cash equivalents at beginning of year                               |                                                                                       |                                                                                               | 10,763  |       |         |      | 20,165  |        |         |   | 37,921  |       
|                                                                             |                                                                                       |                                                                                               |         |       |         |      |         |        |         |   |         |       
|Cash and cash equivalents at end of year                                     |                                                                                       | $                                                                                             | 20,165  |       |         | $    | 37,921  |        |         | $ | 28,851  |       
|                                                                             |                                                                                       |                                                                                               |         |       |         |      |         |        |         |   |         |       
|Noncash transactions and supplemental
	disclosures:                          |                                                                                       |                                                                                               |         |       |         |      |         |        |         |   |         |       
|Capital lease obligations incurred to purchase
	assets                       |                                                                                       | $                                                                                             | 1,256   |       |         | $    | 2,764   |        |         | $ |        |       
|Noncash conversion of preferred stock to common
	stock                       |                                                                                       |                                                                                               |        |       |         |      | 143,945 |        |         |   |        |       
|Noncash conversion of preferred stock warrants to
	preferred stock           |                                                                                       |                                                                                               | 620     |       |         |      |        |        |         |   |        |       
|Noncash issuance of common stock for acquisition                             |                                                                                       |                                                                                               |        |       |         |      | 93,735  |        |         |   |        |       
|Noncash issuance of common stock options for
	acquisition                    |                                                                                       |                                                                                               |        |       |         |      | 771     |        |         |   |        |       
|Noncash conversion of preferred stock warrants to
	common stock warrants     |                                                                                       |                                                                                               |        |       |         |      | 157     |        |         |   |        |       
|Beneficial conversion charge                                                 |                                                                                       |                                                                                               |        |       |         |      |        |        |         |   | 1,324   |       
|Deferred stock compensation                                                  |                                                                                       |                                                                                               | 1,169   |       |         |      | 19,023  |        |         |   |        |       
|Transfer of inventory and fixed assets to
	Viasystems Group, Inc.            |                                                                                       |                                                                                               |        |       |         |      |        |        |         |   | 4,166   |       
|Reversal of unamortized deferred stock
	compensation                         |                                                                                       |                                                                                               |        |       |         |      |        |        |         |   | 4,872   |       
|Interest paid                                                                |                                                                                       |                                                                                               | 1,653   |       |         |      | 494     |        |         |   | 712     |       

See accompanying notes.

38



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##### 



METAWAVE COMMUNICATIONS CORPORATION



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS


1.     Summary of
Significant Accounting Policies

Metawave Communications Corporation, a Delaware
corporation (the Company), headquartered in Redmond,
Washington, provides smart antenna solutions to wireless
operators, tower providers and base station manufacturers facing
capacity constraints and performance issues in the wireless
communications industry. The Companys believes that its
smart antenna systems improve overall network performance by
increasing capacity, improving or maintaining network quality,
reducing network operating costs and better managing network
infrastructure. Our smart antenna systems are designed to allow
wireless network operators, tower providers and base station
manufacturers to address wireless network challenges, allowing
them to more cost-effectively keep pace with growth in
subscriber rates and minutes of use and increased demand for
digital voice and data services. Our technologies are designed
to be implemented in a variety of market segments in the
worldwide wireless communications industry and currently support
various CDMA, GSM, third generation (3G) and analog standards.



| |          
| | ---------
| | Liquidity

The Company experienced net losses of
$42.4 million, $49.5 million and $93.0 million
for the fiscal years ended December 31, 1999, 2000 and
2001, respectively. Management believes that the Company may
experience substantial losses in 2002, even if commercial sales
of the Companys systems grow. Management believes that
existing cash and revenues from systems sales and service
revenues will be sufficient to fund operations for the next
twelve months. Any substantial inability to achieve the current
business plan could have a material adverse impact on the
Companys financial position, liquidity or results of
operations and may require the Company to reduce expenditures to
enable it to continue operations for the next twelve months. See
Note 20 regarding uncertainties regarding asserted and potential
unasserted claims that raise substantial doubt about the
Companys ability to continue as a going concern.



| |                                                       
| | ------------------------------------------------------
| | Principles of Consolidation and Basis of
	Presentation

The consolidated financial statements include the
accounts of the Company and its wholly owned subsidiaries. All
intercompany accounts and transactions have been eliminated in
consolidation. Reclassifications have been made to prior
years financial statements to conform to current year
presentation. These reclassifications had no impact on
previously reported net loss or stockholders equity.

The Company uses a 52-week fiscal year ending on
the Sunday closest to December 31. The 2001 fiscal year
ended on December 30, 2001, with each of the fiscal
quarters representing a 13-week period. For convenience of
presentation, all fiscal periods in these financial statements
are treated as ending on a calendar month end.



| |                 
| | ----------------
| | Use of Estimates

The preparation of financial statements in
conformity with accounting principles generally accepted in the
United States of America requires management to make estimates
and assumptions that affect amounts of assets and liabilities
and the disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Accordingly,
actual results may differ from those estimates. Significant
estimates include the allowance for bad debts, inventory
valuation, restructuring costs, income taxes, warranty
obligations, contingencies and litigation and impairment of
long-lived assets.



| |                             
| | ----------------------------
| | Foreign Currency Translation

The functional currency of the Companys
foreign subsidiaries is the local currency in the country in
which the subsidiary is located. Assets and liabilities
denominated in foreign currencies are translated to U.S. dollars
at the exchange rate in effect on the balance sheet date.
Revenues and expenses are translated at the

39



---



##### 



METAWAVE COMMUNICATIONS CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

average rates of exchange prevailing during the
month. The translation adjustment resulting from this process is
shown within accumulated other comprehensive loss
(income) as a component of stockholders equity. Gains
and losses on foreign currency transactions are included in the
consolidated statement of operations as incurred. To date, gains
and losses on foreign currency transactions have not been
significant.



| |                             
| | ----------------------------
| | Concentration of Credit Risk

The Companys customers are primarily
wireless network operators in the United States and Mexico. As
such, the Companys primary market is made up of a limited
number of customers operating within the same industry, thereby
subjecting the Company to business risks associated with the
downturn of the telecommunications industry or downturns
specific to one of its customers.

Financial instruments that potentially subject
the Company to concentrations of credit risk consist principally
of cash and cash equivalents and trade receivables. The carrying
value of financial instruments approximates market value.

The Company performs ongoing credit evaluations
of its customers financial condition and generally does
not require collateral. The Company maintains reserves, which to
date have not been material, for potential credit losses, and
such losses have been within managements expectations.



| |                                            
| | -------------------------------------------
| | Cash, Cash Equivalents and Restricted
	Cash

The Company considers all highly liquid
investments with maturity of three months or less at the date of
purchase to be cash equivalents. The carrying amount
approximates fair value because of the short maturities of these
investments.

As of December 31, 2001, $4.2 million
of cash is restricted to support letters of credit associated
with leases and short-term notes.



| |            
| | -----------
| | Inventories

Inventories, which are composed of materials and
components, trial units, and completed systems, are valued at
the lower of cost (first-in, first-out) or market. On a periodic
basis, the Company compares the amount of inventory on hand and
under commitment with its latest forecasted requirements to
determine whether charges for excess or obsolete inventory are
required.

In March 2002, the Company decided upon a
restructuring plan to discontinue the SpotLight GSM product,
reduce its workforce and consolidate facilities. After
evaluation of the market, it was determined that the SpotLight
GSM product did not have sufficient customer demand to continue
with the product. While this decision was made based on market
conditions in the first quarter of 2002, it was determined that
these market conditions impaired the carrying value of the
inventory associated with the product as of December 31,
2001.

During 1999, 2000 and 2001, the Company recorded
$1.1 million, $1.6 million and $5.8 million in
losses related to adjusting inventory balances to their net
realizable value. These losses are a component of cost of
revenues. In addition, the Company recorded $17.5 million
in a provision for the write-down of SpotLight GSM inventory,
including purchase commitments of $4.2 million.



| |                       
| | ----------------------
| | Property and Equipment

Property, equipment and leasehold improvements
are stated at cost. Depreciation and amortization (including
leased assets) is provided using the straight-line method over
the estimated useful lives of two to seven years of the related
assets for financial statement purposes. Leasehold improvements
are amortized over the lesser of the lease term or the estimated
useful life. Depreciation is classified as research and
development, sales and marketing, or general and administrative
expenses depending on the nature of the property and equipment.

40



---



##### 



METAWAVE COMMUNICATIONS CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Upon sale or retirement of property and
equipment, the related costs and accumulated depreciation or
amortization are removed from the balance sheet and any gain or
loss is included in the determination of net loss. The Company
recorded an asset impairment charge of $0.7 million to
reduce the carrying value of its SpotLight GSM fixed assets to
their net realizable value. See Note 19 regarding additional
asset impairment charges.



| |                                
| | -------------------------------
| | Goodwill and Other
	Intangibles

Goodwill and other intangibles are stated at
cost. Amortization is provided using the straight-line method
over the estimated useful lives of three to five years of the
related asset for financial statement purposes. Amortization of
goodwill was $4.4 million and $15.9 million in 2000
and 2001, respectively. Accumulated amortization of goodwill was
$4.4 million and $20.3 million at December 31,
2000 and 2001, respectively. Accumulated amortization of other
intangible assets was $0.7 million and $2.6 million at
December 31, 2000 and 2001, respectively.



| |                                 
| | --------------------------------
| | Impairment of Long-Lived
	Assets

The Company reviews long-lived assets for
impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. An
asset is considered to be impaired when the sum of the
undiscounted future net cash flows expected to result from the
use of the asset and its eventual disposition exceeds its
carrying value. The amount of impairment loss, if any, is
measured as the difference between the net book value of the
asset and its estimated fair value.



| |         
| | --------
| | Warranty

The Company generally provides a 12 to
24 month warranty, which may vary depending upon specific
contractual terms, on all systems and records a related
provision for estimated warranty costs.



| |                                                                                 
| | --------------------------------------------------------------------------------
| | Revenue Recognition and 2000 Change in
	Revenue Recognition Accounting Principle

Revenues consist of sales to end-users. Our sales
agreements do not provide a right of return. Sales of our
products to end-users are recognized when title to the system
and risk of loss is transferred to the customer and all customer
acceptance conditions, if any, have been satisfied, and
collection is probable. During 2000, the Company began deferring
that portion of equipment revenue that is billable after
completion of installation and optimization services.

Services revenues, generally for installation and
optimization, are recognized when the services have been
performed and all customer acceptance conditions, if any, have
been satisfied. Maintenance contract revenues are recognized
ratably over the term of the agreement (typically one year).
Revenues from nonrecurring engineering contracts are recognized
based on the percentage-of-completion method. Service revenues
in 2001 were $7.2 million, costs of these revenues was
$6.3 million. Service revenues in 1999 and 2000 were less
than 10% of total revenue.

Relative to the system sold, the installation and
optimization services are inconsequential and perfunctory. This
is principally based on (1) the contract stating (and no
exceptions have been made to the contrary) that failure to
perform the services would not result in the customer receiving
a full or partial refund or rejecting the products delivered to
date, (2) having a demonstrated history of completing these
services in a timely manner and reliably estimating their costs,
(3) the cost or time to perform the remaining obligations
for similar contracts historically has not varied significantly
from one instance to another, (4) the skills or

41



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##### 



METAWAVE COMMUNICATIONS CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

equipment required to complete the remaining
activity are readily available in the marketplace, (5) the
cost of completing the services is insignificant, (6) the
period before the completion of the remaining services is
relatively short, and (7) the timing of payment of a
portion of the sales price, for which revenue has already been
recognized, is not coincident with completing the service.

Accounting principle change: During the year
ended December 31, 2000, the Company completed its final
analysis of Securities and Exchange Commission (SEC) Staff
Accounting Bulletin (SAB) No. 101 Revenue
Recognition issued in December 1999 and the Frequently
Asked Questions and Answers published by the SEC Staff in
October 2000. The Company decided to change its accounting
principle for revenue recognition related to the portion of
equipment revenue billable upon installation and optimization.
Historically, the Company had recognized this revenue upon
delivery of the equipment. The adopted principle provides for
the deferral of that portion of equipment revenue billable upon
installation and optimization until those services are
completed. This change in accounting principle resulted in a
charge of $0.8 million for the cumulative effect of the
change through the end of fiscal 1999. The Company believes that
the change in accounting principle is preferable based on
guidance provided in SAB 101.



| |                                
| | -------------------------------
| | Research and Development
	Costs

Research and development costs are expensed as
incurred. The value of in-process research and development
projects acquired in business combinations is expensed upon
acquisition.



| |                  
| | -----------------
| | Advertising Costs

Advertising costs are charged to expense as
incurred. Advertising expense of $1.4 million,
$1.7 million and $2.1 million was recorded for the
years ended December 31, 1999, 2000, and 2001, respectively.



| |                         
| | ------------------------
| | Stock-Based Compensation

The Company has elected to follow Accounting
Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees (APB No. 25), and related
interpretations, in accounting for its employee stock options
rather than the alternative fair value accounting allowed by
Statement of Financial Accounting Standards
(SFAS) No. 123, Accounting for Stock-Based
Compensation. APB No. 25 provides that the
compensation expense relative to the Companys employee
stock options is measured based on the intrinsic value of the
stock option. When employees terminate, any deferred stock
compensation on the balance sheet and any previously recognized
deferred stock compensation expense on the statement of
operations related to unvested options is reversed. SFAS
No. 123 requires companies that continue to follow APB
No. 25 to provide a pro forma disclosure of the impact of
applying the fair value method of SFAS No. 123 (refer to
Note 9).

The Company recognizes compensation expense for
options and warrants granted to non-employees in accordance with
the provisions of SFAS No. 123 and Emerging Issues Task
Force Consensus 96-18.



| |                           
| | --------------------------
| | Other Comprehensive Income

The Company follows SFAS No. 130,
Reporting Comprehensive Income, which establishes
standards for the reporting and display of comprehensive income
and its components in the financial statements. The only item of
other comprehensive income (loss) which the Company
currently reports is foreign currency translation adjustments.



| |                  
| | -----------------
| | Business Segments

The Company operates in one material segment as a
provider of wireless telecommunication equipment. SFAS
No. 131, Disclosures about Segments of an Enterprise
and Related Information establishes standards

42



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##### 



METAWAVE COMMUNICATIONS CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

for related disclosures about systems and
services, geographic areas and major customers. Information
related to international operations and major customers is
contained in Notes 15 and 16.



| |                              
| | -----------------------------
| | New Accounting Pronouncements

In July 2001, the Financial Accounting Standards
Board issued SFAS No. 141, Business
Combinations, and SFAS No. 142, Goodwill and
Other Intangible Assets. SFAS No. 141 prospectively
prohibits the pooling of interest method of accounting for
business combinations initiated after June 30, 2001. Any
goodwill resulting from acquisitions completed after
June 30, 2001 will not be amortized. SFAS No. 142 also
establishes a new method of testing goodwill for impairment on
an annual basis or on an interim basis if an event occurs or
circumstances change that would more likely than not reduce the
fair value of a reporting unit below its carrying value. The
adoption of SFAS No. 142, effective January 1, 2002,
will result in the discontinuation of amortization of goodwill;
however, the Company is required to test goodwill for impairment
in the first quarter of 2002, which could have an adverse effect
on the future results of operations if an impairment occurs. The
Company is assessing the impact of adopting this statement. The
decline of the Companys market capitalization during the
first quarter of 2002 will likely result in a substantial charge
against earnings during 2002 related to the adoption of this
statement.

In August 2001, the Financial Accounting
Standards Board issued SFAS No. 144, Accounting for
the Impairment or Disposal of Long-Lived Assets. SFAS
No. 144 requires a single accounting model for the
impairment or disposal of long lived assets. The Company is
required to adopt SFAS No. 144 no later than
January 1, 2002. The Company is assessing the impact of
adopting this statement.

2.     Manufacturing
Outsourcing Agreement

During the first quarter of 2001, the Company
entered into an exclusive, five-year supply agreement with
Viasystems Group, Inc. (Viasystems) to outsource
substantially all of its manufacturing operations to Viasystems.
Viasystems is a leading global provider of electronics
manufacturing services. Under the terms of the agreement,
Viasystems purchased approximately $10.1 million of fixed
assets and inventory for $8.0 million in cash and a
receivable totaling $3.1 million. No gain or loss was
recognized on this transaction, as the $1.0 million excess
of consideration received over assets given is reflected as a
deferred gain in other current liabilities.

Under provisions of the Asset Purchase Agreement
between the Company and Viasystems, the Company is required to
purchase excess inventory back from Viasystems on a periodic
basis. Through December 31, 2001, the amount of these
repurchases has been $4.4 million. A write-down was
recorded to reduce this inventory to its net realizable value.

During the second quarter of 2001, the Company
sold $4.2 million in inventory to Viasystems and accepted a
$4.2 million receivable. The receivable is being settled as
the Company buys additional inventory from Viasystems.

Under provisions of the Manufacturing Agreement
with Viasystems, the Company may not cancel any portion of an
accepted purchase order, binding forecast or forecast affecting
long-lead inventory without Viasystems written approval.
If approval is given then the Company must pay Viasystems for
100% of the excess inventory ordered by Viasystems. Viasystems
is obligated to use commercially reasonable efforts to mitigate
the potential amount due to Viasystems from the Company pursuant
to this provision.

3.     Business
Combinations

On September 21, 2000, the Company completed
the acquisition of Adaptive Telecom, Inc. (Adaptive
Telecom) with the issuance of 5,361,803 shares of common
stock and 124,377 stock options of Metawave in exchange for all
the outstanding capital stock and the assumption of all
outstanding options to acquire

43



---



##### 



METAWAVE COMMUNICATIONS CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Adaptive Telecom common stock. This included
786,336 shares of restricted stock issued to employees,
subject to vesting requirements, which may be repurchased by
Metawave upon termination of employment. The acquisition was
accounted for under the purchase method of accounting, and the
results of operations of Adaptive Telecom had been included in
the consolidated financial statements from the date of the
acquisition.

The total purchase price including acquisition
related expenses was approximately $114.3 million, of which
$10.4 million was allocated to in-process research and
development and expensed upon the closing of the acquisition.
Values assigned to in-process research and development were
determined with the assistance of an independent appraiser using
a discounted cash flow analysis which considered, among other
factors, the state of development of each project, the time and
cost needed to complete each project, expected income and
associated risks.

The intangible assets acquired included assembled
workforce and patents totaling $7.0 million. Purchased
goodwill, representing purchase price in excess of values
assigned to the identified tangible and intangible assets was
approximately $79.5 million.

The value allocated to deferred stock
compensation of $17.4 million represented the excess of the
fair market value over the exercise price for options and
unvested restricted stock which had been issued to employees of
Adaptive Telecom and were outstanding at September 21,
2000. The value of the deferred compensation is being amortized
over the related remaining vesting periods using an accelerated
vesting approach pursuant to FASB Interpretation No. 28.

The following unaudited pro forma financial
information reflects the results of operations for the years
ended December 31, 1999 and 2000, as if the acquisition of
Adaptive Telecom had occurred on January 1 of each year. The pro
forma results exclude the $10.4 million nonrecurring
write-off of in-process research and development. The historical
results of Adaptive Telecom are based on its results of
operations for the years ended December 31, 1999 and 2000.

|                   |  |                           |         |      |  |   |         |  
|------------------ |  | ------------------------- | ------- | ---- |  | - | ------- | -
|                   |  |                          
|                   |  | Years Ended December 31, 
|                   |  |                          
|                   |  | 1999                      |         | 2000
|                   |  |                           |         |     
|                   |  |                          
|                   |  | (Unaudited, in thousands)
|Revenues           |  | $                         | 26,146  |      |  | $ | 53,475  |  
|Net Loss           |  | $                         | (74,586 | )    |  | $ | (62,056 | )
|Net Loss Per Share |  | $                         | (10.58  | )    |  | $ | (2.00   | )

4.     Inventories

|                         |  |                |        |      |  |   |       | 
|------------------------ |  | -------------- | ------ | ---- |  | - | ----- | 
|                         |  |               
|                         |  | December 31,  
|                         |  |               
|                         |  | 2000           |        | 2001
|                         |  |                |        |     
|                         |  |               
|                         |  | (In thousands)
|Materials and Components |  | $              | 14,790 |      |  | $ | 3,449 | 
|Trial Units              |  |                | 647    |      |  |   | 585   | 
|Completed Systems        |  |                | 1,585  |      |  |   | 1,077 | 
|                         |  |                |        |      |  |   |       | 
|                         |  | $              | 17,022 |      |  | $ | 5,111 | 
|                         |  |                |        |      |  |   |       | 

The Company uses a limited number of suppliers
for portions of its inventories including Viasystems for
completed systems (Note 2) and Powerwave for linear power
amplifiers (Note 14).

44



---



##### 



METAWAVE COMMUNICATIONS CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

5.     Property and
Equipment

|                                          |  |                |        |      |  |   |        |  
|----------------------------------------- |  | -------------- | ------ | ---- |  | - | ------ | -
|                                          |  |               
|                                          |  | December 31,  
|                                          |  |               
|                                          |  | 2000           |        | 2001
|                                          |  |                |        |     
|                                          |  |               
|                                          |  | (In thousands)
|Equipment                                 |  | $              | 13,832 |      |  | $ | 6,995  |  
|Furniture and Fixtures                    |  |                | 1,097  |      |  |   | 516    |  
|Leasehold Improvements                    |  |                | 958    |      |  |   | 530    |  
|                                          |  |                |        |      |  |   |        |  
|                                          |  |                | 15,887 |      |  |   | 8,041  |  
|Accumulated Depreciation and Amortization |  |                | (9,245 | )    |  |   | (4,718 | )
|                                          |  |                |        |      |  |   |        |  
|                                          |  | $              | 6,642  |      |  | $ | 3,323  |  
|                                          |  |                |        |      |  |   |        |  

Included in property and equipment are assets
acquired under capital lease obligations with an original cost
of $9.4 million and $4.2 million as of
December 31, 2000 and 2001, respectively. Accumulated
amortization on the leased assets was $6.2 million as of
December 31, 2000 and $3.5 million as of
December 31, 2001.

Depreciation expense of $3.0 million,
$3.7 million and $3.2 million was recorded in
operating expenses in the years ended December 31, 1999,
2000 and 2001, respectively.

6.     Other Current
Liabilities

|                              |  |                |       |      |  |   |       | 
|----------------------------- |  | -------------- | ----- | ---- |  | - | ----- | 
|                              |  |               
|                              |  | December 31,  
|                              |  |               
|                              |  | 2000           |       | 2001
|                              |  |                |       |     
|                              |  |               
|                              |  | (In thousands)
|Deposits from Asian Companies |  | $              |      |      |  | $ | 2,245 | 
|Accrued Warranty Expense      |  |                | 1,121 |      |  |   | 1,391 | 
|Other                         |  |                | 2,202 |      |  |   | 3,399 | 
|                              |  |                |       |      |  |   |       | 
|                              |  | $              | 3,323 |      |  | $ | 7,035 | 
|                              |  |                |       |      |  |   |       | 

7.     Convertible
and Redeemable Preferred Stock

Through 1998, the Company issued convertible and
redeemable preferred stock with proceeds of $56.5 million.
In January 1999, the Company issued 726,264 additional shares of
convertible and redeemable Series E at $8.00 per share with
gross proceeds of $5.8 million. In April and June 1999, the
Company issued 15,676,153 additional shares of Series E at
$5.00 per share with gross proceeds of $78.4 million. In
connection with the issuance of the Series E at $5.00 per
share in April, the existing Series E stockholders were
issued 974,996 additional Series E shares adjusting the
price per share from $8.00 to $5.00. Holders of preferred stock
had preferential rights to dividends when and if declared by the
Board of Directors. Dividends were not cumulative. In
conjunction with the closing of the Companys initial
public stock offering, on May 2, 2000, all series of
preferred stock were converted to 27,972,907 shares of common
stock.

8.     2001
Securities Sales



| |                                     
| | ------------------------------------
| | Sale of Convertible Preferred
	Stock

In December 2001, the Company issued 84,782
shares of Series A Preferred Stock
(Series A) through a private offering to a
venture capital firm whose partner is a member of the
Companys Board of Directors. Proceeds from the financing
amounted to $20.0 million or $235.90 per share. The shares
are convertible at any time at the option of the holder. If the
Companys common stock price exceeds $5.25 for a
30 trading day

45



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##### 



METAWAVE COMMUNICATIONS CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

period commencing in 2004, the preferred stock
will automatically convert. The conversion factor for
Series A is 100 to 1. The holders are entitled to the
number of votes equal to the number of shares of common stock
into which the preferred stock could be converted up to a
maximum voting percentage of 19.9% of the Companys
outstanding capital stock. As a part of the private offering in
December 2001, the Company issued Preferred Stock Purchase
Warrants to purchase 42,391 shares of Series A
Preferred Stock at $235.90 per share, expiring in five years.
These warrants are convertible to common stock warrants using
the same 100 to 1 conversion factor as the Series A
Preferred Stock. The Series A preferred stock has
liquidation preferences and price-based antidilution protection.
The liquidation preferences provide that upon any liquidation,
sale or change of control of Metawave, holders of the
Series A preferred stock will be entitled to receive the
amount invested prior and in preference to any distribution to
holders of Metawaves common stock. After the foregoing
preference, holders of Series A preferred stock shall also
participate with holders of the common stock in any distribution
until the holders of Series A preferred stock have received
three times their original investment amount in the aggregate.
Thereafter, the holders of common stock shall receive the
remaining funds; provided, however, that if holders of
Series A preferred stock would have received more on an
as-converted basis, the holders will be treated as if they had
converted the shares of preferred stock into common stock
whether or not the conversion had actually occurred. Subject to
exceptions and limitations, and conditioned on the approval of
the holders of a majority of the outstanding common stock, the
price-based antidilution protection will provide that, so long
as the Series A preferred stock is outstanding, if the
Company issue securities at a common stock equivalent price of
less than $2.359, then the conversion price of the outstanding
Series A preferred stock will be adjusted to be equal to
the price at which such security was sold. The Series A
stockholders also have registration rights. The Company must
make its best efforts to register the shares of common stock to
be received upon conversion of the Series A preferred stock
upon the earlier of eighteen months after the closing date of
the financing or expiration of sales restrictions on the
Series A preferred stock. Additionally, the holders of the
Series A preferred stock have the right to designate a
member to the board of directors. A beneficial conversion charge
of $1.3 million was recorded as a component of net loss
attributable to common stockholders. Dividends are only payable
if common stockholders are paid a dividend. Due to the
uncertainties regarding potential unasserted claims discussed in
Note 20, these securities have been classified outside of
stockholders equity in the consolidated balance sheet.



| |                     
| | --------------------
| | Sale of Common Stock

The Company issued a total of 6,723,452 shares of
common stock to Acqua Wellington North American Equities Fund
Ltd. during the year ended December 31, 2001. Net proceeds
from the issuance of the shares was approximately
$18.7 million.

The Company issued a total of 533,808 shares of
common stock to Vertical Ventures LLC during the year ended
December 31, 2001. Net proceeds from the issuance of the
shares was approximately $1.5 million.

The Company issued a total of 480,075 shares of
common stock to Pine Ridge Financial, Ltd. during the year ended
December 31, 2001. Net proceeds from the issuance of the
shares was approximately $1.0 million.

9.     Stockholders
Equity



| |                        
| | -----------------------
| | Initial Public Offering

On May 2, 2000, the Company completed an
initial public offering of its common stock. A total of
7,187,500 shares of common stock offered were sold at $9.00 per
share. The aggregate gross proceeds from the sale were
$64.7 million. Net proceeds from the offering amounted to
$58.9 million.

46



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##### 



METAWAVE COMMUNICATIONS CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |                   
| | ------------------
| | Stock Option Plans

The Companys Third Amended and Restated
1995 Stock Option Plan (the 1995 Plan) provides for
the granting of incentive stock options and nonqualified stock
options to employees, officers, directors and consultants.
Options under the 1995 Plan have been granted at estimated fair
value on the date of grant and expire ten years after the date
of the grant. Options granted under the 1995 Plan generally
become exercisable at the rate of 25% of the total number of
shares subject to the option on the first anniversary and as
to  1/48 of the total shares each month thereafter, with
the options being fully vested on the fourth anniversary of the
grant date. The Company reserved 2,766,666 shares of common
stock for issuance under the 1995 Plan.

The 1998 Directors Stock Option Plan (the
Directors Plan) was adopted by the Board of
Directors in February 1998 and approved by the stockholders on
April 20, 1998. A total of 200,000 shares of common
stock were reserved for issuance under the Directors Plan.
In February 2000, the Board of Directors amended the
Directors Plan, and the stockholders approved the
amendment in April 2000. The amended plan became effective on
April 26, 2000. An automatic grant of an option to purchase
16,666 shares of common stock is made to each non-employee
director who joins the Board. Additionally, at each annual
stockholder meeting, each non-employee director is granted an
additional option to purchase 6,666 shares of common stock,
provided that the director continues serving on the Board and
has served as a director for six months prior to grant date. The
amendment to the Directors Plan increased the options
reserved under the Directors Plan to 466,666. Initial
options granted under the Directors Plan to new
non-employee directors will vest as to 25% of the shares
underlying the option on the first anniversary of the date of
the option grant and as to  1/48 of the total shares each
month thereafter, so that these options will be fully vested on
the fourth anniversary of the grant date. Options granted to the
Companys non-employee directors at the time of each annual
stockholders meeting vest as to  1/36 of the total shares
each month so that these options will be fully vested on the
third anniversary of the grant date. The exercise price of all
stock options granted under the Directors Plan will be
equal to the fair market value of the Companys common
stock on the date of grant of the option. Options granted under
the Directors Plan have a term of ten years.

In May 1998, the Board of Directors approved the
1998 Stock Option Plan (the 1998 Plan). Options
granted under the 1998 Plan generally vest on the same terms as
options under the 1995 Plan and are exercisable for a period of
ten years. In February 2000, an evergreen formula increased the
number of shares in the 1998 Plan to 1,835,097.

In June 1999, the Board of Directors approved the
adoption of the Employee Option Incentive Program (the
Incentive Program) under the 1998 Plan. Options
granted under the Incentive Program vest in five years from the
date of grant, however, the terms of the grant also provided
that vesting of 50% of the options would accelerate on the date
of the Companys initial public offering on April 27,
2000, and the remaining 50% would vest on April 27, 2001.
Options under the Incentive Program were granted at estimated
fair market value on the date of grant and expire ten years
after the date of the grant. The Board of Directors issued
options to purchase 336,666 shares under this program.

The 2000 Stock Option Plan (the 2000
Plan) provides for the grant of incentive stock options to
employees, including employee directors, and of nonstatutory
stock options and stock purchase rights to employees, directors
and consultants. The 2000 Plan was originally adopted by the
Board of Directors in February 2000 and was approved by the
stockholders in April 2000. The 2000 Plan provides for the
issuance of options and rights to purchase up to 1,333,333
shares of common stock, plus an automatic annual increase on the
first day of each fiscal year beginning in 2001 through 2009
equal to the lesser of 2,000,000 shares, 5% of our outstanding
common stock on the last day of the immediately preceding fiscal
year, or a lesser number of shares as the Board of Directors
determines. Unless terminated earlier by the Board of Directors,
the 2000 Plan will terminate ten years following its effective
date. Initial options granted under the 2000 Plan to employees
will vest as to 25% of the shares underlying the option on the
first anniversary of the date of option grant and as
to  1/48 of the total shares each month thereafter, so that
these options will be fully vested on the

47



---



##### 



METAWAVE COMMUNICATIONS CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

fourth anniversary of the grant date. Subsequent
options granted to employees will vest at a rate of  1/36
of the shares each month so that these options will be fully
vested on the third anniversary of the grant date.

The 2001 Nonstatutory Stock Option Plan (the
2001 Plan) provides for the grant of nonstatutory
stock options to employees (excluding officers subject to
Section 16 reporting requirements) and consultants. The
2001 Plan was originally adopted by the Board of Directors in
May 2001. The 2001 Plan provides for this issuance of options to
purchase up to 2,000,000 shares of the common stock. Unless
terminated earlier by the Board of Directors, the 2001 Plan will
terminate three years following its effective date. Initial
options granted under the 2001 Plan to employees will vest as to
25% of the shares underlying the option on the first anniversary
of the date of option grant and as to  1/48 of the total
shares each month thereafter, so that these options will be
fully vested on the fourth anniversary of the grant date.
Subsequent options granted to employees will vest at a rate
of  1/36 of the shares each month so that these options
will be fully vested on the third anniversary of the grant date.

Deferred stock compensation is calculated as the
difference between the exercise price and the fair market value
of the Companys common stock at the date of grant. The
deferred stock compensation is amortized over the vesting period
of the related options using an accelerated vesting approach
pursuant to FASB Interpretation No. 28. Including the
Adaptive Telecom plan discussed in the next paragraph, in 2000
and 2001, deferred stock compensation of $19.0 million and
$0 was recorded for options granted under the various stock
option plans. Amortized stock compensation of $0.8 million,
$8.3 million, and $5.3 million was recorded during
each of the years ended December 31, 1999, 2000, and 2001,
respectively.

The Company assumed the Adaptive Telecom 1997
Stock Plan (the 1997 Plan) in connection with its
acquisition of Adaptive Telecom, Inc. in September 2000. The
1997 Plan provided for the grant to employees of incentive stock
options and the grant of nonstatutory stock options and stock
purchase rights to employees, consultants and directors. The
terms of options issued under the 1997 Plan are generally the
same as those that may be issued under the 2000 Plan. The
intrinsic value of the unvested options assumed amounted to
$17.4 million and was recorded as deferred stock
compensation and is being amortized over the remaining vesting
period.

Had the stock compensation expense for the
Companys stock option plans been determined based on the
estimated fair market value using the minimum value option
pricing model at the date of grant, the Companys net loss
would have been increased to these pro forma amounts:

|                                     |             |                          |   |         |   |      |   |         |   |  |   |          |  
|------------------------------------ | ----------- | ------------------------ | - | ------- | - | ---- | - | ------- | - |  | - | -------- | -
|                                     |             |                         
|                                     |             | Years Ended December 31,
|                                     |             |                         
|                                     |             | 1999                     |   | 2000    |   | 2001
|                                     |             |                          |   |         |   |     
|                                     |             |                         
|                                     |             | (In thousands)          
|Net loss:                            |             |                          |   |         |   |      |   |         |   |  |   |         
|                                     | As reported |                          | $ | (42,413 | ) |      | $ | (49,535 | ) |  | $ | (93,017  | )
|                                     | Pro forma   |                          |   | (43,231 | ) |      |   | (61,017 | ) |  |   | (110,113 | )
|Basic and diluted net loss per share |             |                          |   |         |   |      |   |         |   |  |   |         
|                                     | As reported |                          |   | (18.98  | ) |      |   | (1.80   | ) |  |   | (2.01    | )
|                                     | Pro forma   |                          |   | (19.34  | ) |      |   | (2.22   | ) |  |   | (2.34    | )

The fair market value for these options granted
prior to the Companys initial public offering was
estimated at the date of grant using minimum value option
pricing models that take into account: (1) the estimated
fair market value of the common stock at the grant date,
(2) the exercise prices, (3) a one-year expected life
beyond the vest date, (4) no dividends, and (5) a
risk-free interest rate of between 5.42% and 6.43% during 1996
through 2001 over the expected life of the options. For options
granted after the Companys initial public offering in
2000, the Company used a volatility factor of 40%. In 2001, the
Company used a 65% volatility factor.

48



---



##### 



METAWAVE COMMUNICATIONS CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

A summary of the Companys stock option
activity and related information follows:

|                                                                   |                          |                   |           |                   |  |                   |      |           |  |         |            |           |  |   |       |       |  |  |            |   |  |   |       |      | 
|------------------------------------------------------------------ | ------------------------ | ----------------- | --------- | ----------------- |  | ----------------- | ---- | --------- |  | ------- | ---------- | --------- |  | - | ----- | ----- |  |  | ---------- | - |  | - | ----- | ---- | 
|                                                                   |                          |                   |           |                   |  |                  
|                                                                   |                          | December 31, 1999 |           | December 31, 2000 |  | December 31, 2001
|                                                                   |                          |                   |           |                   |  |                  
|                                                                   |                          |                   |           | Weighted-         |  |                   |      | Weighted- |  |         |            | Weighted-
|                                                                   |                          |                   |           | Average           |  |                   |      | Average   |  |         |            | Average  
|                                                                   |                          |                   |           | Exercise          |  |                   |      | Exercise  |  |         |            | Exercise 
|                                                                   |                          | Options           |           | Price             |  | Options           |      | Price     |  | Options |            | Price    
|                                                                   |                          |                   |           |                   |  |                   |      |           |  |         |            |          
|Outstanding at beginning of year                                   |                          |                   | 2,531,996 |                   |  | $                 | 4.59 |           |  |         | 2,885,294  |           |  | $ | 5.25  |       |  |  | 4,899,794  |   |  | $ | 9.92  |     
|Granted at fair value                                              |                          |                   | 914,820   |                   |  |                   | 6.96 |           |  |         | 1,607,735  |           |  |   | 15.95 |       |  |  | 4,657,513  |   |  |   | 6.50  |     
|Granted above deemed fair value                                    |                          |                   | 16,666    |                   |  |                   | 6.75 |           |  |         | 398,758    |           |  |   | 12.00 |       |  |  |           |   |  |   |      |     
|Granted below deemed fair value                                    |                          |                   | 455,250   |                   |  |                   | 4.61 |           |  |         | 1,807,922  |           |  |   | 3.38  |       |  |  |           |   |  |   |      |     
|Canceled                                                           |                          |                   | (754,757  | )                 |  |                   | 6.53 |           |  |         | (272,411   | )         |  |   | 8.31  |       |  |  | (1,179,731 | ) |  |   | 11.18 |     
|Exercised                                                          |                          |                   | (278,681  | )                 |  |                   | .50  |           |  |         | (1,527,504 | )         |  |   | 0.54  |       |  |  | (308,732   | ) |  |   | 3.16  |     
|                                                                   |                          |                   |           |                   |  |                   |      |           |  |         |            |           |  |   |       |       |  |  |            |   |  |   |       |     
|Outstanding at end of year                                         |                          |                   | 2,885,294 |                   |  |                   | 5.25 |           |  |         | 4,899,794  |           |  |   | 9.92  |       |  |  | 8,068,844  |   |  |   | 8.00  |     
|                                                                   |                          |                   |           |                   |  |                   |      |           |  |         |            |           |  |   |       |       |  |  |            |   |  |   |       |     
|Exercisable at end of year                                         |                          |                   | 2,837,236 |                   |  |                   | 5.33 |           |  |         | 3,553,378  |           |  |   | 7.91  |       |  |  | 4,235,621  |   |  |   | 8.77  |     
|                                                                   |                          |                   |           |                   |  |                   |      |           |  |         |            |           |  |   |       |       |  |  |            |   |  |   |       |     
|Weighted-average fair value of options granted
	during the period: |                          |                   |           |                   |  |                   |      |           |  |         |            |           |  |   |       |       |  |  |            |   |  |   |       |     
|                                                                   | Granted at fair value    |                   |           |                   |  |                   |      | 3.59      |  |         |            |           |  |   |       | 15.32 |  |  |            |   |  |   |       | 5.42 | 
|                                                                   | Granted below fair value |                   |           |                   |  |                   |      | 4.50      |  |         |            |           |  |   |       | 17.95 |  |  |            |   |  |   |       |     | 

The following information is provided for options
outstanding and exercisable at December 31, 2001:

|                        |  |             |           |           |  |              |       |           |  |           |      |  |  |  |           |  |  |   |       | 
|----------------------- |  | ----------- | --------- | --------- |  | ------------ | ----- | --------- |  | --------- | ---- |  |  |  | --------- |  |  | - | ----- | 
|                        |  |             |           |           |  |             
|                        |  | Outstanding |           |           |  | Exercisable 
|                        |  |             |           |           |  |             
|                        |  |             |           | Weighted- |  | Average      |       |           |  | Weighted-
|                        |  |             |           | Average   |  | Remaining    |       |           |  | Average  
|                        |  | Number of   |           | Exercise  |  | Contractual  |       | Number of |  | Exercise 
|Range of Exercise Price |  | Options     |           | Price     |  | Life (Years) |       | Options   |  | Price    
|                        |  |             |           |           |  |              |       |           |  |          
|$ 0.15 - 0.93           |  |             | 473,148   |           |  | $            | 0.91  |           |  |           | 5.52 |  |  |  | 473,148   |  |  | $ | 0.91  | 
|1.61 - 2.08             |  |             | 1,266,279 |           |  |              | 2.06  |           |  |           | 9.77 |  |  |  | 122,677   |  |  |   | 2.06  | 
|2.16 - 3.00             |  |             | 180,348   |           |  |              | 2.72  |           |  |           | 7.75 |  |  |  | 94,885    |  |  |   | 3.00  | 
|3.12 - 4.00             |  |             | 1,010,661 |           |  |              | 3.94  |           |  |           | 9.42 |  |  |  | 197,696   |  |  |   | 3.97  | 
|4.05 - 6.00             |  |             | 994,993   |           |  |              | 5.00  |           |  |           | 8.34 |  |  |  | 699,130   |  |  |   | 5.32  | 
|6.31 - 11.44            |  |             | 868,441   |           |  |              | 7.65  |           |  |           | 7.83 |  |  |  | 698,793   |  |  |   | 7.35  | 
|11.69 - 11.69           |  |             | 4,500     |           |  |              | 11.69 |           |  |           | 9.19 |  |  |  |          |  |  |   |      | 
|12.00 - 12.00           |  |             | 869,538   |           |  |              | 12.00 |           |  |           | 6.90 |  |  |  | 869,538   |  |  |   | 12.00 | 
|12.06 - 12.81           |  |             | 12,472    |           |  |              | 12.67 |           |  |           | 8.92 |  |  |  | 10,138    |  |  |   | 12.81 | 
|12.88 - 32.38           |  |             | 2,388,464 |           |  |              | 14.56 |           |  |           | 8.77 |  |  |  | 1,069,616 |  |  |   | 14.95 | 
|                        |  |             |           |           |  |              |       |           |  |           |      |  |  |  |           |  |  |   |       | 
|                        |  |             | 8,068,844 |           |  |              | 8.00  |           |  |           | 8.44 |  |  |  | 4,235,621 |  |  |   | 8.77  | 
|                        |  |             |           |           |  |              |       |           |  |           |      |  |  |  |           |  |  |   |       | 

Stock options available for future grants under
the Companys stock option plans total 939,525 as of
December 31, 2001.

In February 2000, the Board approved the
2000 Employee Stock Purchase Plan (the ESPP),
which was approved by the stockholders in April 2000. The
Company implemented the ESPP on April 26, 2000, and

49



---



##### 



METAWAVE COMMUNICATIONS CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

the ESPP will continue until April 30, 2020.
The ESPP, subject to limitations, permits eligible employees of
the Company to purchase common stock through payroll deductions
of up to 15% of their compensation. The Company has authorized
the issuance of up to 233,333 shares of common stock under
the ESPP, plus an automatic annual increase, to be added on the
first day of the fiscal year beginning in 2001 through 2010,
equal to the lesser of 266,666 shares, 1% of the
common stock outstanding on the last day of the preceding fiscal
year, or a lesser number of shares as determined by the Board of
Directors.



| |                      
| | ---------------------
| | Common Stock Warrants

In connection with various leasing agreements
since 1996, the Company has issued warrants providing for the
purchase of various series of convertible redeemable preferred
stock and common stock. The warrant agreements expire after
seven years. The value of the warrants was recorded as
additional debt issuance cost and was amortized using the
effective interest method over the term of the related lease
agreements. The warrants were valued using the Black-Scholes
valuation model based upon the exercise prices described above,
a risk free rate of 4.5%-6.0%, a dividend yield rate of 0%,
volatility of 60% and an expected life of 2-5 years.

As a result of the two-for-three reverse stock
split and the Companys initial public offering in April,
2000, all of the convertible and redeemable preferred stock
warrants were converted to 90,870 common stock warrants with
exercise prices ranging from $3.28 to $8.32 per share. On
May 2, 2000, Insight Investments Corporation exercised all
4,205 shares of its common stock warrants on a net exercise
basis, resulting in the issuance of 315 shares of the
Companys common stock. In addition, in November 2000,
Comdisco exercised all 86,655 shares of its common stock
warrants on a net exercise basis, which resulted in the issuance
of 56,473 shares of common stock. As a part of the private
offering in December 2001, the Company issued Preferred Stock
Purchase Warrants to purchase 42,391 shares of
Series A Preferred Stock. These warrants are convertible to
common stock warrants using the same 100 to
1 conversion factor as the Series A Preferred Stock,
which would result in a warrant to purchase 4,239,100 shares of
common stock. As of December 31, 2001, there were
20,833 shares of common stock warrants outstanding.



| |                                            
| | -------------------------------------------
| | Common Shares Reserved for Future
	Issuance

The Company has reserved shares of common stock
as follows:

|                                          |  |              |            | 
|----------------------------------------- |  | ------------ | ---------- | 
|                                          |  | December 31,
|                                          |  | 2001        
|                                          |  |             
|Series A Convertible Preferred Securities |  |              | 12,717,300 | 
|Stock options outstanding                 |  |              | 8,068,844  | 
|Stock options available for future grant  |  |              | 939,525    | 
|                                          |  |              |            | 
|                                          |  |              | 21,725,669 | 
|                                          |  |              |            | 

10.     Income
Taxes

As of December 31, 2001, the Company had
federal net operating loss carryforwards (NOL) of approximately
$177 million and research and development tax credit
carryforwards of approximately $3.2 million. The federal
net operating loss carryforwards will begin to expire in the
year 2009 if not utilized. As a result of changes in ownership
coincident with equity financings, the utilization of a portion
of the net operating loss carryforward will be limited, pursuant
to Section 382 of the Internal Revenue Code of 1986, as
amended.

Deferred income taxes reflect the net tax effects
of temporary differences between the carrying amounts of assets
and liabilities for financial reporting purposes and the amounts
used for income tax purposes. The Company has recognized a
valuation allowance equal to the deferred tax assets due to the
uncertainty of

50



---



##### 



METAWAVE COMMUNICATIONS CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

realizing the benefits of the assets. This
valuation allowance is the principal reconciling item from the
statutory rate to the amount recorded of zero. The valuation
allowance increased by $17.7 million, $6.9 million and
$18.4 million in the years ended December 31, 1999,
2000 and 2001, respectively. Significant components of the
Companys deferred tax assets are as follows:

|                          |                                                                   |                                |         |        |        |   |         |        |        | 
|------------------------- | ----------------------------------------------------------------- | ------------------------------ | ------- | ------ | ------ | - | ------- | ------ | ------ | 
|                          |                                                                   |                               
|                          |                                                                   | December 31,                  
|                          |                                                                   |                               
|                          |                                                                   | 2000                           |         | 2001  
|                          |                                                                   |                                |         |       
|                          |                                                                   |                               
|                          |                                                                   | (In thousands)                
|Deferred tax liabilities: |                                                                   |                                |         |        |        |   |         |       
|                          | Prepaid assets                                                    |                                | $       | 178    |        |   | $       | 177    |       
|                          | Property and equipment                                            |                                |         |       |        |   |         | 558    |       
|                          | Intangible assets acquired in Adaptive Telecom
	stock acquisition |                                |         | 2,147  |        |   |         | 1,337  |       
|                          |                                                                   |                                |         |        |        |   |         |       
|                          |                                                                   | Total deferred tax liabilities |         |        | 2,325  |   |         |        | 2,072  | 
|                          |                                                                   |                                |         |        |        |   |         |       
|Deferred tax assets:      |                                                                   |                                |         |        |        |   |         |       
|                          | Net operating loss carryforwards                                  |                                |         | 45,944 |        |   |         | 60,155 |       
|                          | Research and development tax credit carryforwards                 |                                |         | 2,495  |        |   |         | 3,198  |       
|                          | Accrued expenses and reserves                                     |                                |         | 1,178  |        |   |         | 4,131  |       
|                          | Other                                                             |                                |         | 1,622  |        |   |         | 1,889  |       
|                          |                                                                   |                                |         |        |        |   |         |       
|                          |                                                                   | Total deferred tax assets      |         |        | 51,239 |   |         |        | 69,373 | 
|                          |                                                                   |                                |         |        |        |   |         |       
|                          |                                                                   |                                | 48,914  |        |        |   | 67,301  |       
|Less valuation allowance  |                                                                   |                                | (48,914 | )      |        |   | (67,301 | )     
|                          |                                                                   |                                |         |        |        |   |         |       
|Net deferred taxes        |                                                                   | $                              |        |        |        | $ |        |       
|                          |                                                                   |                                |         |        |        |   |         |       

11.     Commitments



| |                         
| | ------------------------
| | Leases and Notes Payable

The Company leases its facilities under
noncancelable operating lease agreements that expire on various
dates through 2006. The Company leases some of its equipment
under noncancelable capital leases that expire on various dates
through 2003.

The Company headquarters in Redmond, Washington
are under an operating lease that expires on May 31, 2005.
The Company, at its option, may extend the term of this lease
for two successive periods of five years each. The option must
be elected 12 months prior to the expiration of the initial
lease term. In connection with this arrangement, the Company has
issued letters of credit to the landlord aggregating
$2.5 million.

51



---



##### 



METAWAVE COMMUNICATIONS CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Following is a summary of future minimum payments
under capital leases and operating leases, including the
principal facility, that have initial or remaining noncancelable
lease terms in excess of one year at December 31, 2001:

|                     |  |                |       |           |  |         |       |  |  |   |     | 
|-------------------- |  | -------------- | ----- | --------- |  | ------- | ----- |  |  | - | --- | 
|                     |  | Capital        |       | Operating |  | Notes  
|                     |  | Leases         |       | Leases    |  | Payable
|                     |  |                |       |           |  |        
|                     |  |               
|                     |  | (In thousands)
|2002                 |  | $              | 1,867 |           |  | $       | 2,523 |  |  | $ | 866 | 
|2003                 |  |                | 1,468 |           |  |         | 2,184 |  |  |   |    | 
|2004                 |  |                |      |           |  |         | 1,947 |  |  |   |    | 
|2005                 |  |                |      |           |  |         | 957   |  |  |   |    | 
|2006                 |  |                |      |           |  |         | 35    |  |  |   |    | 
|                     |  |                |       |           |  |         |       |  |  |   |     | 
|                     |  |                | 3,335 |           |  | $       | 7,646 |  |  | $ | 866 | 
|                     |  |                |       |           |  |         |       |  |  |   |     | 
|Less interest        |  |                | 244   |           |  |         |       |  |  |   |     | 
|                     |  |                |       |           |  |         |       |  |  |   |     | 
|                     |  |                | 3,091 |           |  |         |       |  |  |   |     | 
|Less current portion |  |                | 1,823 |           |  |         |       |  |  |   |     | 
|                     |  |                |       |           |  |         |       |  |  |   |     | 
|                     |  | $              | 1,268 |           |  |         |       |  |  |   |     | 
|                     |  |                |       |           |  |         |       |  |  |   |     | 

Rental expense for operating leases was
$2.0 million, $2.1 million and $2.3 million for
the years ended December 31, 1999, 2000 and 2001,
respectively.



| |                  
| | -----------------
| | Other Commitments

As of December 31, 2001 the Company had
materials purchase commitments of approximately
$6.0 million, including $4.2 million accrued for as
explained in Note 1.

12.     Net Loss Per
Share

Basic and diluted net loss per share is
calculated using the weighted average number of shares of common
stock outstanding; less restricted common stock subject to
vesting. The effect of stock options, warrants and convertible
and redeemable preferred stock has not been included in the
calculation of diluted net loss per share as their effect is
antidilutive. Securities not included in loss per share
calculations were 2,996,997 in 1999, 5,609,530 in 2000 and
21,490,176 in 2001.

13.     Retirement
Plan

The Company has a salary deferral 401(k) plan for
its employees. The plan allows employees to contribute a
percentage of their pretax earnings annually, subject to
limitations imposed by the Internal Revenue Service. The plan
also allows the Company to make a matching contribution, subject
to limitations. To date, the Company has made contributions
totaling $0, $0 and $0.3 million to the plan for the years
ended December 31, 1999, 2000 and 2001, respectively.

14.     Related-Party
Transactions

Powerwave Technologies, Inc.
(Powerwave), a publicly held company, whose chief
executive officer is a director of the Company, is one of the
Companys suppliers. The Companys purchases from
Powerwave totaled $6.4 million, $13.5 million and
$11.2 million in 1999, 2000 and 2001, respectively.

In November 2000, the Board authorized a secured
loan of $1.0 million to an executive of the Company at an
annual rate of 6.15%. The loan was paid in full in 2001.

52



---



##### 



METAWAVE COMMUNICATIONS CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

15.     Revenues and
Operations

Revenues from customers representing more than
10% of annual sales in each year were as follows:

|                                     |  |                         |      |      |  |      |      |   |  |  |      |  
|------------------------------------ |  | ----------------------- | ---- | ---- |  | ---- | ---- | - |  |  | ---- | -
|                                     |  |                        
|                                     |  | Year Ended December 31,
|                                     |  |                        
|                                     |  | 1999                    |      | 2000 |  | 2001
|                                     |  |                         |      |      |  |     
|Alltel Communications Inc. (U.S.)    |  |                         | 65.7 | %    |  |      |     |   |  |  | 36.5 | %
|Grupo Iusacell S.A. de C.V. (Mexico) |  |                         | 26.0 | %    |  |      | 33.4 | % |  |  | 31.3 | %
|Verizon Wireless (U.S.)              |  |                         |     |      |  |      | 60.2 | % |  |  | 27.4 | %

At December 31, 2001, accounts receivable
from Alltel Communications Inc., Grupo Iusacell and Verizon were
$6.9 million, $1.5 million and $3.0 million,
respectively.

16.     International
Operations

Metawave sells its smart antenna systems and
services throughout the world, and operates in a single industry
segment. While expenses for sales and marketing activities are
incurred in various geographical regions, substantially all of
Metawaves assets are located and the majority of its
operating expenses are incurred at its corporate headquarters.
Revenue information by geographic region is the only segment
information presented as follows:

|              |  |                         |        |      |  |      |        |  |  |   |        | 
|------------- |  | ----------------------- | ------ | ---- |  | ---- | ------ |  |  | - | ------ | 
|              |  |                        
|              |  | Year Ended December 31,
|              |  |                        
|              |  | 1999                    |        | 2000 |  | 2001
|              |  |                         |        |      |  |     
|              |  |                        
|              |  | (In thousands)         
|United States |  | $                       | 16,717 |      |  | $    | 33,480 |  |  | $ | 23,627 | 
|Mexico        |  |                         | 5,879  |      |  |      | 17,601 |  |  |   | 11,626 | 
|Other         |  |                         |       |      |  |      | 1,696  |  |  |   | 1,219  | 
|              |  |                         |        |      |  |      |        |  |  |   |        | 
|Total         |  | $                       | 22,596 |      |  | $    | 52,777 |  |  | $ | 36,472 | 
|              |  |                         |        |      |  |      |        |  |  |   |        | 

Property and equipment, net, in China and Taiwan
at December 31, 2001 was approximately $1.2 million.
The remainder of the Companys property and equipment is in
the United States.

17.     Allowance for
Doubtful Accounts

|                             |  |                |     |              |  |                 |     |            |  |   |      |   |  |   |     | 
|---------------------------- |  | -------------- | --- | ------------ |  | --------------- | --- | ---------- |  | - | ---- | - |  | - | --- | 
|                             |  | Balance at     |     | Charges      |  | Deductions from |     | Balance at
|                             |  | Beginning      |     | to Costs and |  | Costs and       |     | End of    
|Description                  |  | of Period      |     | Expenses     |  | Expenses        |     | Period    
|                             |  |                |     |              |  |                 |     |           
|                             |  |               
|                             |  | (In thousands)
|Year Ended December 31, 2001 |  | $              | 45  |              |  | $               | 257 |            |  | $ | (75  | ) |  | $ | 227 | 
|Year Ended December 31, 2000 |  |                | 908 |              |  |                 | 100 |            |  |   | (963 | ) |  |   | 45  | 
|Year Ended December 31, 1999 |  |                | 693 |              |  |                 | 215 |            |  |   |     |   |  |   | 908 | 

18.     Quarterly
Financial Data (Unaudited)

The following table presents the results of
operations for each of the four quarters in 2001 and 2000. This
unaudited quarterly information has been prepared on the same
basis as the annual financial information and, in the opinion of
management, reflects all adjustments (consisting only of normal
recurring adjustments) necessary for a fair presentation of the
information for the periods presented. A variety of factors may
lead to significant fluctuations in the Companys quarterly
results of operations. As a result, the Companys results
of operations for any quarter are not necessarily indicative of
results for any future period. Loss per common

53



---



##### 



METAWAVE COMMUNICATIONS CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

share is computed independently for each of the
quarters presented. Therefore, the sum of the quarterly net loss
per share amounts will not necessarily equal the total for the
year.

|              |          |                |   |        |  |          |   |           |   |  |   |         |      |  |   |       |     
|------------- | -------- | -------------- | - | ------ |  | -------- | - | --------- | - |  | - | ------- | ---- |  | - | ----- | ----
|              |          |                |   |        |  |          |   | Basic and
|              |          |                |   | Gross  |  |          |   | Diluted  
|              |          |                |   | Profit |  |          |   | Net Loss 
|              |          | Revenue        |   | (Loss) |  | Net Loss |   | Per Share
|              |          |                |   |        |  |          |   |          
|              |          |               
|              |          | (In thousands)
|2000 Quarters |          |                |   |        |  |          |   |           |   |  |   |         |      |  |   |      
|              | First    |                | $ | 9,126  |  |          | $ | 2,032     |   |  | $ | (7,948  | )(1) |  | $ | (3.09 | )(1)
|              | Second   |                |   | 11,645 |  |          |   | 3,546     |   |  |   | (6,256  | )    |  |   | (0.24 | )   
|              | Third    |                |   | 14,153 |  |          |   | 3,421     |   |  |   | (18,323 | )    |  |   | (0.48 | )   
|              | Fourth   |                |   | 17,853 |  |          |   | 5,888     |   |  |   | (16,244 | )    |  |   | (0.38 | )   
|2001 Quarters |          |                |   |        |  |          |   |           |   |  |   |         |      |  |   |      
|              | First(2) |                | $ | 10,009 |  |          | $ | 692       |   |  | $ | (21,467 | )    |  | $ | (0.50 | )   
|              | Second   |                |   | 8,521  |  |          |   | (4,284    | ) |  |   | (23,963 | )    |  |   | (0.54 | )   
|              | Third(2) |                |   | 5,221  |  |          |   | 1,903     |   |  |   | (15,300 | )    |  |   | (0.31 | )   
|              | Fourth   |                |   | 12,721 |  |          |   | (14,333   | ) |  |   | (32,287 | )    |  |   | (0.65 | )   



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The first quarter 2000 amounts exclude the
	cumulative effect on prior years of the change in accounting
	principle which amounted to $0.8 million and $0.02 per
	share, respectively, and was recorded effective the first day
	of 2000.                                                                                                                                                                                                                              
|   
|(2) | During March 2002, the Company announced a
	restatement of its 2001 results for the first and third quarters
	due to the Company identifying unauthorized commitments made in
	Asia. The restatement eliminated the revenue and accounts
	receivable related to these Asian companies and recorded the
	inventory as consigned inventory and cash received as deposits.
	The table above reflects the impact of this restatement, which
	was as follows (in thousands):

|                                              |  |               |       |               |  |   |       |  
|--------------------------------------------- |  | ------------- | ----- | ------------- |  | - | ----- | -
|                                              |  | First Quarter |       | Third Quarter
|                                              |  |               |       |              
|Revenue reduction                             |  | $             | 1,558 |               |  | $ | 5,587 |  
|Cost of revenue reduction                     |  |               | 1,111 |               |  |   | 3,882 |  
|Gross profit reduction                        |  |               | 447   |               |  |   | 1,705 |  
|Net loss increase                             |  |               | 447   |               |  |   | 1,705 |  
|Basic and diluted net loss per share increase |  |               | (0.01 | )             |  |   | (0.03 | )
|Inventory increase                            |  |               | 1,111 |               |  |   | 3,882 |  
|Accounts receivable decrease                  |  |               | 1,558 |               |  |   | 4,807 |  
|Deposits from Asian companies increase        |  |               |      |               |  |   | 1,558 |  

19.     Restructuring
and Other Special Charges

During October 2001, the Company approved a
restructuring plan to, among other things, reduce its workforce,
consolidate facilities and introduce new products. Restructuring
charges of $1.7 million were recorded in 2001 to provide
for these actions and other related items. The charges are
included in cost of goods sold ($0.5 million) and general
and administrative expenses ($1.2 million). The activities
were largely completed by the end of 2001. The December 31,
2001 accrual is not material.

54



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##### 



METAWAVE COMMUNICATIONS CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The following table summerizes charges recorded
during 2001 for restructuring activities and asset write-downs
(in thousands) :

|                        |  |         |       |                |  |         |        |   |  |   |       | 
|----------------------- |  | ------- | ----- | -------------- |  | ------- | ------ | - |  | - | ----- | 
|                        |  |         |       | Reversal of    |  |        
|                        |  |         |       | Deferred Stock |  | Total  
|                        |  | Charges |       | Compensation   |  | Charges
|                        |  |         |       |                |  |        
|Restructuring           |  | $       | 2,600 |                |  | $       | (1,337 | ) |  | $ | 1,263 | 
|Other asset write-downs |  |         | 470   |                |  |         |       |   |  |   | 470   | 
|                        |  |         |       |                |  |         |        |   |  |   |       | 
|Total                   |  | $       | 3,070 |                |  | $       | (1,337 | ) |  | $ | 1,733 | 
|                        |  |         |       |                |  |         |        |   |  |   |       | 

20.     Legal
Proceedings

Beginning on March 18, 2002, a number of
class action lawsuits have been filed against the Company and
current and former officers of the Company in the United States
District Court for the Western District of Washington. The
complaints were filed on behalf of persons who purchased common
stock between April 2001 and March 2002. The complaints allege
that the Company made false and misleading statements or
omissions in violation of Sections 10(b) and 20(a) and
Rule 10b-5 of the Securities Exchange Act of 1934, and seek
unspecified compensatory damages and other relief. Additional
lawsuits could be filed by other persons, including the
investors that purchased of securities directly from the Company
as discussed in Note 8.

On November 6, 2001, a class action lawsuit
was filed in the United States District Court for the Southern
District of New York against the Company and several of its
officers and directors, as well as against the underwriters who
handled the Companys April 26, 2000 initial public
offering of common stock. The complaint was filed on behalf of
persons who purchased common stock during the time period
beginning on April 26, 2000 and ending on December 6,
2000. The complaint alleges violations of the Securities Act of
1933 and the Securities Exchange Act of 1934 primarily based on
the assertion that there was undisclosed compensation received
by the underwriters in connection with the Companys
initial public offering.

The Company intends to vigorously defend against
these lawsuits. The Company has insurance policies that it
believes are sufficient to cover potential liabilities arising
from these lawsuits. The results of litigation proceedings are
inherently unpredictable, however, and the Company is unable to
provide assurance regarding the outcome of these complaints or
possible damages that may be incurred. The uncertainty
associated with these substantial unresolved lawsuits could
seriously harm the Companys business and financial
condition and affect its ability to continue operations as a
going concern. In particular, the continued defense of the
lawsuits could result in the diversion of managements time
and attention away from business operations, which could harm
the Companys business. Moreover, although the Company is
unable to determine the amount, if any, that may be required to
be paid in connection with the resolution of these lawsuits by
settlement or otherwise, any such payment could seriously harm
the Companys financial condition and affect its ability to
continue business operations. These uncertainties raise
substantial doubt about the Companys ability to continue
as a going concern.

21.     Subsequent
Events

In March of 2002, the Company decided upon a
restructuring plan to discontinue the SpotLight GSM product,
reduce its workforce and consolidate facilities. After
evaluation of the market, it was determined that the SpotLight
GSM product did not have sufficient customer demand to continue
with the product. While this decision was made based on market
conditions in the first quarter of 2002, it was determined that
these market conditions impaired the carrying value of the
inventory and fixed assets associated with the product as of
December 31, 2001. Accordingly, a provision of $18.1
million for the write down of these assets was made in the year
ended December 31, 2001.

The Company expects to record charges of
approximately $23 million relating to this restructuring,
$18.1 million of which was recorded in 2001. The Company
expects to record the remaining charges of approximately
$4.9 million, related to employee severance, facilities
shutdown, the termination of third party relationships and other
costs, in the first and second quarters of 2002.

55



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##### 



Item
9.     Changes in and Disagreements
with Accountants on Accounting and Financial
Disclosure

None

PART III

Part III is incorporated herein by reference from
the Companys definitive proxy statement for its annual
meeting of stockholders to be held June 6, 2002, which will
be filed with the Securities and Exchange Commission within
120 days after the close of the Companys 2001 fiscal
year.

PART IV

Item
14.     Exhibits, Financial
Statement Schedules and Reports on Form 8-K

(a) Documents filed as part of this Report:



| |                                                                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) Financial Statements  all
	consolidated financial statements of the Company as set forth
	under Item 8 of this Report.                                    
|
| | (2) Financial Statement Schedule included in
	note 17.                                                                                                         
|
| | (3) Exhibits are incorporated herein by
	reference or are filed with this report as indicated below
	(numbered in accordance with Item 601 of
	Regulation S-K).

|        |           |             |  |                                                                                                                                                                
|------- | --------- | ----------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |           |            
|Number  |           | Description
|        |           |            
|        | 2.1(a)    |             |  | Amended and Restated Agreement and Plan of Merger
	between the Registrant and Adaptive Telecom, Inc. dated as of
	September 20, 2000.                          
|        | 3.1(b)    |             |  | Certificate of Incorporation of the Registrant.                                                                                                                
|        | 3.2(b)    |             |  | Bylaws of the Registrant.                                                                                                                                      
|        | 3.3(b)    |             |  | Seventh Amended and Restated Certificate of
	Incorporation of the Registrant.                                                                                  
|        | 3.4       |             |  | Certificate of Designations, Preferences and
	Rights of Series A Preferred Stock of the Registrant.                                                            
|        | 4.1(b)    |             |  | Form of Stock Certificate.                                                                                                                                     
|        | 10.1(b)   |             |  | Form of Indemnification Agreement.                                                                                                                             
|        | 10.2(b)   |             |  | 1995 Stock Option Plan, as amended.                                                                                                                            
|        | 10.3(b)   |             |  | 1998 Stock Option Plan, as amended.                                                                                                                            
|        | 10.4(b)   |             |  | 2000 Employee Stock Purchase Plan.                                                                                                                             
|        | 10.5(b)   |             |  | 1998 Amended and Restated Directors Stock
	Option Plan.                                                                                                       
|        | 10.6(b)   |             |  | Series E Preferred Stock Purchase Agreement
	dated April 28, 1999.                                                                                             
|        | 10.7(b)   |             |  | Fifth Amended and Restated Investors Rights
	Agreement dated April 28, 1999 by and among the Registrant
	and certain holders of the Registrants capital stock.
|        | 10.8(b)   |             |  | Lease for Willow Creek Corporate Center dated
	September 29, 1997 by and between the Registrant and Carr
	America Realty Corporation.                          
|        | 10.9(b)  |             |  | Purchase Agreement dated March 4, 1998 by
	and between the Registrant and ALLTEL Supply Inc.                                                                   
|        | 10.10(b)  |             |  | Loan Agreement dated October 14, 1997 by and
	between Registrant and Imperial Bank, and amendments thereto.                                                    
|        | 10.11(b) |             |  | Manufacturing Agreement between the Registrant
	and Powerwave Technologies, Inc. dated as of September 3,
	1998.                                               
|        | 10.12(b) |             |  | Purchase Agreement between the Registrant and GTE
	Wireless Incorporated dated as of September 8, 1998.                                                        

56



---



##### 



|        |            |             |  |                                                                                                                                                                                                                                          
|------- | ---------- | ----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |            |            
|Number  |            | Description
|        |            |            
|        | 10.13(b)  |             |  | Value Added Reseller Agreement between the
	Registrant and CommVerge Solutions (Asia), Inc. dated as of
	December 4, 1999.                                                                                                               
|        | 10.14(b)  |             |  | Purchase Agreement between the Registrant and
	AirTouch Support Services, Inc. dated as of January 1, 2000.                                                                                                                              
|        | 10.15(b)  |             |  | Purchase Agreement between the Registrant and
	Grupo IUSACELL S.A., de C.V. dated as of December 17, 1999.                                                                                                                               
|        | 10.16(b)  |             |  | Purchase Agreement between the Registrant and
	Cellco, L.P., dba Bell Atlantic dated as of December 20,
	1999.                                                                                                                           
|        | 10.17(b)   |             |  | 2000 Stock Option Plan.                                                                                                                                                                                                                  
|        | 10.18(c)  |             |  | Amendment No.1 dated August 16, 2000 to
	Supply Agreement between the Registrant and Grupo IUSACELL S.A.                                                                                                                                 
|        | 10.19(c)   |             |  | Registration Rights Agreement dated
	September 21, 2000 by and between the Registrant and the
	Shareholders of Adaptive Telecom, Inc.                                                                                                    
|        | 10.20(c)   |             |  | Adaptive Telecom, Inc. 1997 Stock Plan.                                                                                                                                                                                                  
|        | 10.21(d) |             |  | Development and Technology License Agreement
	dated February 8, 2001 by and between the Registrant and
	Samsung Electronics Co., Ltd.                                                                                                    
|        | 10.22(e)   |             |  | Asset Purchase Agreement dated April 1, 2001
	between the Registrant and Viasystems, Inc.                                                                                                                                                
|        | 10.23(e)   |             |  | Manufacturing Agreement dated April 1, 2001
	between the Registrant and Viasystems, Inc.                                                                                                                                                 
|        | 10.24(f)   |             |  | 2001 Nonstatutory Stock Option Plan                                                                                                                                                                                                      
|        | 10.25(g)   |             |  | Purchase Agreement between the Registrant and
	Acqua Wellington North American Equities Fund Ltd. dated
	June 14, 2001.                                                                                                                  
|        | 10.26(g)   |             |  | Purchase Agreement between the Registrant and
	Acqua Wellington North American Equities Fund Ltd. dated
	June 22, 2001.                                                                                                                  
|        | 10.27(h)   |             |  | Purchase Agreement between the Registrant and
	Acqua Wellington North American Equities Fund Ltd. dated
	June 27, 2001.                                                                                                                  
|        | 10.28(i)   |             |  | Purchase Agreement between the Registrant and
	Acqua Wellington North American Equities Fund Ltd. dated
	August 9, 2001.                                                                                                                 
|        | 10.29(j)   |             |  | Purchase Agreement between the Registrant and
	Acqua Wellington North American Equities Fund Ltd. dated
	August 15, 2001.                                                                                                                
|        | 10.30(j)   |             |  | Purchase Agreement between the Registrant and
	Acqua Wellington North American Equities Fund Ltd. dated
	August 24, 2001.                                                                                                                
|        | 10.31(k)   |             |  | Purchase Agreement between the Registrant and
	Vertical Ventures LLC dated August 30, 2001.                                                                                                                                              
|        | 10.32(k)   |             |  | Addendum to Purchase Agreement between the
	Registrant and Vertical Ventures LLC dated September 6,
	2001.                                                                                                                               
|        | 10.33(l)   |             |  | Purchase Agreement between the Registrant and to
	Pine Ridge Financial, Ltd. dated September 18, 2001.                                                                                                                                   
|        | 10.34(l)   |             |  | Purchase Agreement between the Registrant and
	Acqua Wellington North American Equities Fund Ltd. dated
	September 21, 2001.                                                                                                             
|        | 10.35(m)   |             |  | Preferred Stock and Warrant Purchase Agreement
	dated as of November 30, 2001 among the Registrant, Oak
	Investment Partners X, Limited Partnership, and Oak X Affiliates
	Fund, Limited Partnership, including Exhibits A and B thereto.
|        | 10.36    |             |  | Supply Agreement between the Registrant and Crown
	Castle dated February 26, 2002.                                                                                                                                                       
|        | 21.1       |             |  | List of the Companys Subsidiaries.                                                                                                                                                                                                      
|        | 23.1       |             |  | Consent of Arthur Andersen LLP, Independent
	Public Accountants.                                                                                                                                                                         
|        | 23.2       |             |  | Consent of Ernst & Young LLP, Independent
	Auditors.                                                                                                                                                                                     
|        | 24.1       |             |  | Power of Attorney (Included in the signature page
	to this Annual Report on Form 10-K).                                                                                                                                                  
|        | 99.1       |             |  | Letter regarding Arthur Andersen LLP
	representation.                                                                                                                                                                                    

57



---



##### 





---



|    |  |                                                                                                                                                                                                                                        
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) |  | Previously filed as an exhibit to the
	Form 8-K filed with the Commission by the Registrant on
	October 5, 2000, and incorporated herein by reference.                                                                                 
|   
|(b) |  | Previously filed as an exhibit to
	Registrants registration statement on Form S-1, File
	No. 333-30568, originally filed with the Commission on
	February 17, 2000, as subsequently amended, and
	incorporated herein by reference.   
|   
|(c) |  | Previously filed as an exhibit to the
	Registrants registration statement on Form S-1, File
	No. 333-48976, originally filed with the Commission on
	October 31, 2000, as subsequently amended, and incorporated
	herein by reference.
|   
|(d) |  | Previously filed as an exhibit to the
	Form 10-K filed with the Commission by the Registrant on
	March 30, 2001, and incorporated herein by reference.                                                                                 
|   
|(e) |  | Previously filed as an exhibit to the
	Form 10-Q filed with the Commission by the Registrant on
	May 15, 2001, and incorporated herein by reference.                                                                                   
|   
|(f) |  | Previously filed as an exhibit to the
	Registrants registration statement on Form S-8, File
	No. 333-63062, originally filed with the Commission on
	June 14, 2001, and incorporated herein by reference.                             
|   
|(g) |  | Previously filed as an exhibit to the
	Form 8-K filed with the Commission by the Registrant on
	June 26, 2001, and incorporated herein by reference.                                                                                   
|   
|(h) |  | Previously filed as an exhibit to the
	Form 8-K filed with the Commission by the Registrant on
	July 2, 2001, and incorporated herein by reference.                                                                                    
|   
|(i) |  | Previously filed as an exhibit to the
	Form 8-K filed with the Commission by the Registrant on
	August 17, 2001, and incorporated herein by reference.                                                                                 
|   
|(j) |  | Previously filed as an exhibit to the
	Form 8-K filed with the Commission by the Registrant on
	August 28, 2001, and incorporated herein by reference.                                                                                 
|   
|(k) |  | Previously filed as an exhibit to the
	Form 8-K filed with the Commission by the Registrant on
	September 14, 2001, and incorporated herein by reference.                                                                              
|   
|(l) |  | Previously filed as an exhibit to the
	Form 8-K filed with the Commission by the Registrant on
	September 27, 2001, and incorporated herein by reference.                                                                              
|   
|(m) |  | Previously filed as an exhibit to the
	Form 8-K filed with the Commission by the Registrant on
	December 4, 2001, and incorporated herein by reference.                                                                                
|   
|   |  | Confidential treatment has been granted with
	respect to certain portions of this Exhibit which has been filed
	separately with the Commission.                                                                                        
|   
|  |  | Confidential treatment has been requested with
	respect to certain portions of this Exhibit which has been filed
	separately with the Commission                                                                                       

All other financial statement schedules not
listed are omitted because either they are not applicable or not
required, or the required information is included in the
consolidated financial statements.

(b) Reports on Form 8-K:



| |                                                                                                                                                                         
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1. Report on Form 8-K, as filed with
	the SEC on May 16, 2001, announcing the fire in our Taiwan
	facilities.                                                           
|
| | 2. Report on Form 8-K, as filed with
	the SEC on June 26, 2001, reporting the private placement
	of common stock to Acqua Wellington North America Equities Fund
	Ltd.  
|
| | 3. Report on Form 8-K, as filed with
	the SEC on July 2, 2001, reporting the private placement of
	common stock to Acqua Wellington North America Equities Fund Ltd.    
|
| | 4. Report on Form 8-K, as filed with
	the SEC on August 17, 2001, reporting the private placement
	of common stock to Acqua Wellington North America Equities Fund
	Ltd.
|
| | 5. Report on Form 8-K, as filed with
	the SEC on August 28, 2001, reporting the private placement
	of common stock to Acqua Wellington North America Equities Fund
	Ltd.

58



---



##### 





| |                                                                                                                                                                                                           
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 6. Report on Form 8-K, as filed with
	the SEC on September 14, 2001, reporting the private
	placement of common stock to Vertical Ventures LLC.                                                           
|
| | 7. Report on Form 8-K, as filed with
	the SEC on September 27, 2001, reporting the private
	placement of common stock to Acqua Wellington North America
	Equities Fund Ltd. and Pine Ridge Financial, Ltd.
|
| | 8. Report on Form 8-K, as filed with
	the SEC October 4, 2001, reporting revised third quarter
	expectations.                                                                                             
|
| | 9. Report on Form 8-K, as filed with
	the SEC on December 4, 2001, reporting the private
	placement of preferred stock and preferred stock warrants to Oak
	Investment Partners.                          

59



---



##### 



SIGNATURES

Pursuant to the requirements of Section 13
or 15(d) 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, as of April 15,
2002.



| |                                    
| | -----------------------------------
| | METAWAVE COMMUNICATIONS CORPORATION



| |     |                         
| | --- | ------------------------
| | By: | /s/ ROBERT H. HUNSBERGER

| |                                   
| | ----------------------------------
| |                                   
| | Robert H. Hunsberger              
| | President, Chief Executive Officer
| | and Chairman of the Board         

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each
person whose signature appears below hereby constitutes and
appoints, jointly and severally, Robert H. Hunsberger and
Larry R. Scheer, and each of them, as such persons true
and lawful attorney-in-fact, with full power of substitution,
and resubstitution, for such person and in such persons
name, place and stead, in any and all capacities, to sign any
and all amendments to this Annual Report on Form 10-K and
to file the same, with exhibits thereto and other documents in
connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents full
power and authority to do and perform each and every act and
thing requisite and necessary to be done as fully to all intents
and purposes as such person might or could do in person, hereby
ratify and confirming all that said attorneys-in-fact and
agents, or any substitute or substitutes of any of them, may
lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities
Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant in the capacities
and on the dates indicated:

|                                             |  |                                                                                              |  |               
|-------------------------------------------- |  | -------------------------------------------------------------------------------------------- |  | --------------
|Signature                                    |  | Title                                                                                        |  | Date          
|                                             |  |                                                                                              |  |               
|                                            
|/s/ ROBERT H. HUNSBERGERRobert H. Hunsberger |  | President, Chief Executive Officer
	and Chairman of the Board
	(Principal Executive Officer) |  | April 11, 2002
|                                            
|/s/ LARRY R. SCHEERLarry R. Scheer           |  | Vice President of Finance (Principal Financial
	and Accounting Officer)                      |  | April 15, 2002
|                                            
|/s/ DOUGLAS O. REUDINKDouglas O. Reudink     |  | Director                                                                                     |  | April 14, 2002
|                                            
|Bandel L. Carano                             |  | Director                                                                                     |  | April   , 2002
|                                            
|Bruce C. Edwards                             |  | Director                                                                                     |  | April   , 2002
|                                            
|/s/ DAVID R. HATHAWAYDavid R. Hathaway       |  | Director                                                                                     |  | April 11, 2002

60



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##### 



|                                               |  |          |  |               
|---------------------------------------------- |  | -------- |  | --------------
|Signature                                      |  | Title    |  | Date          
|                                               |  |          |  |               
|                                              
|/s/ SCOT B. JARVISScot B. Jarvis               |  | Director |  | April 15, 2002
|                                              
|/s/ JENNIFER GILL ROBERTSJennifer Gill Roberts |  | Director |  | April 11, 2002
|                                              
|/s/ DAVID A. TWYVERDavid A. Twyver             |  | Director |  | April 11, 2002

61