##### Table of Contents









UNITED STATES SECURITIES AND EXCHANGE
COMMISSION

Washington, D.C. 20549


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 000-26963

Netro Corporation


(Exact name of registrant as specified in its
charter)


|                         |  |                                  
|------------------------ |  | ---------------------------------
|Delaware                 |  | 77-0395029                       
|(State of incorporation) |  | (IRS Employer Identification No.)

3860 North First Street, San Jose, CA
95134

(408) 216-1500


(Address, including zip code, and telephone
number, including area code, of Registrants principal
executive offices)


Securities registered pursuant to
Section 12(b) of the Act: None

Securities registered pursuant to
Section 12(g) of the Act: Common Stock, $.001 per share par
value



---

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
the definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to
this
Form 10-K.     o

The aggregate market value of the
registrants common stock held by non-affiliates of the
registrant was approximately $118,664,481 on March 1, 2002,
based on the average bid and asked price of the
registrants common stock as reported on The Nasdaq Stock
Market as of such date.

There were 60,943,414 shares of the
registrants common stock issued and outstanding as of
March 1, 2002.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrants definitive
proxy statement to be filed with the Securities and Exchange
Commission in connection with the registrants Annual
Meeting of Stockholders currently expected to be held on
May 21, 2002 are incorporated by reference into Part III.



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TABLE OF CONTENTS



|              |                                                                                               |  |  |  |  |  |  | 
|------------- | --------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I       
|              | Item 1. Business                                                                             
|              | Item 2. Properties                                                                           
|              | Item 3. Legal Proceedings                                                                    
|              | Item 4. Submission of Matters to A Vote of Security Holders                                  
|PART II      
|              | Item 5. Market for the Registrants Common Stock and Related Stockholder Matters             
|              | Item 6. Selected Consolidated Financial Data                                                 
|              | Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
|              | Item 7A. Quantitative and Qualitative Disclosures About Market Risk                          
|              | Item 8. Financial Statements and Supplementary Data                                          
|              | Item 9. Changes in and Disagreements with Accountants and Financial Disclosure               
|PART III     
|PART IV      
|              | Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K                     
|SIGNATURES   
|EXHIBIT INDEX
|EXHIBIT 10.8 
|EXHIBIT 21.1 
|EXHIBIT 23.1 
|EXHIBIT 99.1 



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TABLE OF CONTENTS

|                              |  |                                                                                                 |  |      |  | 
|----------------------------- |  | ----------------------------------------------------------------------------------------------- |  | ---- |  | 
|                              |  |                                                                                                 |  | Page
|                              |  |                                                                                                 |  |     
|PART I                       
|Item 1.                       |  | Business                                                                                        |  |      |  | 
|Item 2.                       |  | Properties                                                                                      |  |      |  | 
|Item 3.                       |  | Legal Proceedings                                                                               |  |      |  | 
|Item 4.                       |  | Submission of Matters to a Vote of Security
	Holders                                            |  |      |  | 
|                             
|PART II                      
|Item 5.                       |  | Market for Registrants Common Stock and
	Related Stockholder Matters                           |  |      |  | 
|Item 6.                       |  | Selected Financial Data                                                                         |  |      |  | 
|Item 7.                       |  | Managements Discussion and Analysis of
	Financial Condition and Results of Operations          |  |      |  | 
|Item 7A.                      |  | Quantitative and Qualitative Disclosures about
	Market Risk                                     |  |      |  | 
|Item 8.                       |  | Financial Statements and Supplementary Data                                                     |  |      |  | 
|Item 9.                       |  | Changes in and Disagreements with Accountants on
	Accounting and Financial Disclosure           |  |      |  | 
|                             
|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 and Related Stockholder Matters |  |      |  | 
|Item 13.                      |  | Certain Relationships and Related Transactions                                                  |  |      |  | 
|                             
|PART IV                      
|Item 14.                      |  | Exhibits, Financial Statement Schedules and
	Reports on Form 8-K                                |  |      |  | 
|Signatures                    |  |                                                                                                 |  |     
|Index to Financial Statements |  |                                                                                                 |  |     

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PART I




Item 1.     Business

Certain matters discussed in this Annual
Report on Form 10-K contain certain forward-looking
statements within the meaning of the Private Securities
Litigation Reform Act of 1995, including statements regarding
our business strategy, product capability, financial condition,
results of operation and business. The words
anticipate, believe,
estimate, expect, plan,
intend and similar expressions, as they relate to
Netro, are intended to identify forward-looking statements. Such
statements reflect our current views with respect to future
events and involve known and unknown risks, uncertainties and
other factors including, but not limited to, economic, key
employee, competitive, regulatory, governmental and
technological factors affecting our growth, operations, markets,
products, services, licenses and other factors discussed under
the heading Risk Factors in the section entitled
Managements Discussion and Analysis of Financial
Condition and Results of Operations. We cannot be sure
that any of our expectations will be realized.

Overview

We are a leading provider of broadband,
point-to-multipoint, fixed wireless equipment.
Telecommunications service providers use our equipment to
provide voice and high speed data access connections to end
users, or between locations in the metropolitan
telecommunications network, as an alternative to using wired or
other connectivity. Our products are designed to provide access
connectivity to residences and small and mid-sized businesses,
as well as to provide infrastructure transmission connections
between mobile phone service hubs and the core mobile
telecommunications network. We began commercially shipping our
first point-to-multipoint product, AirStar®, in 1998 and
have a significant installed base for this product. AirStar is
mainly targeted at service providers offering voice and high
speed data services to small and mid-sized enterprises and
mobile phone service providers for infrastructure applications.
AirStar operates at the higher end of the licensed frequency
spectrum (10 -  39 GHz) with support for an
additional frequency, at the lower range (3.5 GHz).

In February of 2002 we acquired from AT&T
Wireless Services, Inc. their fixed wireless development team, a
license to intellectual property, equipment and proprietary
software assets. The technology was originally developed under
the code name Angel. The Angel product was
commercially deployed in the United States by AT&T Wireless
and is a proven and mature platform that is mainly targeted at
service providers offering voice and high speed data services to
residential and small business customers, segments we do not
address with the AirStar platform. Angel operates at the lower
end of the licensed frequency spectrum
(1.9 - 3.5 GHz). We plan to sell the Angel system
internationally. We are in the process of modifying the Angel
platform to conform to international standards, including adding
frequency options that are more typically used in international
markets, such as 3.5 GHz. We expect these modifications to
be complete in the second half of 2002.

Both the AirStar and Angel platforms have been
designed to minimize the costs of deployment and operation and
to permit operators to offer a broad range of voice, Internet
Protocol, or IP, and data services. When
modifications to the Angel platform are complete, we will offer
complete solutions that operate at point-to-multipoint
frequencies licensed in every major geography in the world,
including Europe, Asia, North America and Latin America, which
we believe is a significant competitive advantage.

We were incorporated in California on
November 14, 1994 and were reincorporated in Delaware on
June 19, 2001. Our principal corporate offices are located
at 3860 North First Street, San Jose, California 95134.

The Netro Solution

The global telecommunications industry has
experienced substantial deregulation during the past several
years. Simultaneously, the emergence of the Internet and other
telecommunications services has increased the demand for
bandwidth. In addition, we believe that there is a growing
demand for public telecommunications voice services in some less
developed countries where, according to the International
Telecommunication

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Union, the number of telephone lines per
100 inhabitants, known as teledensity, is below 10.0.
This is driving local access service providers to upgrade their
networks and increase their service offerings. However, the
public telecommunications infrastructure does not currently meet
all the public access demand and therefore fixed wireless access
systems have emerged as an alternative to copper wired
infrastructure for telephony and access to the Internet. Fixed
wireless technology is an attractive solution for network access
needs, since it offers quick deployment, independence from the
limitations of an existing wired network, lower infrastructure
costs and lower operating costs.


At the same time as deregulation, the emergence
of the Internet and increased demand for telecommunications
services in developing countries are driving the demand for new
and better access solutions. Governments are also licensing
mobile service providers to use new spectrum for advanced mobile
phone services that include both voice calls and data
functionality, such as Internet browsing. This next generation
of cellular phone service, typically referred to as
3G cellular, is expected to require significantly more hub
sites than existing cellular topologies. In addition, these hub
sites will be transmitting not only voice, but also high speed
data traffic. We believe that point-to-multipoint technology
such as AirStar can be a more efficient and cost-effective
alternative for connecting these 3G cellular hubs to the
core mobile network than existing methods, such as leased lines
and point-to-point radios.

Our AirStar system operates at the higher
licensed frequencies (10 - 39 GHz, with a low
frequency version for 3.5 GHz) and is designed to allow
service providers to offer a wide range of high speed data and
voice services to small and mid-sized enterprises and to enable
mobile service providers to deploy cost effective transmission
infrastructure for their 3G cellular networks. AirStar has
an impressive track record of performance and stability across a
worldwide installed base. AirStar can handle a wide range of
services providing on-demand bandwidth and allowing for
oversubscription of available spectrum, thereby allowing service
providers to maximize revenues from their broadband wireless
installation.

Our Angel system operates at the lower licensed
frequencies (1.9 - 3.5 GHz) and is designed to
offer residences and small businesses primary voice and high
speed data services with speeds similar to those offered by DSL.
Angel uses orthogonal frequency division multiplexing, or
OFDM, to allow service providers non-line-of-sight
coverage within a cell, to ensure that up to 95 percent of
the population within a given cell will be covered by the base
station. This non-line-of-sight capability, along with the
quality of the services offered by Angel, make it a leading edge
solution. Angel was deployed in the United States to
47,000 subscribers and was the first solution of its kind
to be mass deployed and field proven.

Both AirStar and Angel are designed to provide
the following benefits to service providers:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Carrier Class Voice and High Speed Data
	Services.Many existing high speed
	access technologies are optimized for either voice or data
	traffic. However, offering both voice and data services can
	increase the average revenue per user a service provider can
	realize. Voice traffic requires fixed-speed, low-capacity
	transmissions, while data traffic requires variable-speed,
	high-capacity transmissions. Consequently, network operators
	wishing to carry both types of traffic, whether because they
	offer access solutions or are aggregating mobile phone traffic,
	often must choose among setting aside capacity to service peak
	transmission data traffic requirements, which typically requires
	installing more base stations, allowing degradation of service
	during heavy usage, or servicing a smaller number of
	subscribers. In contrast, service providers using the Angel or
	AirStar systems can support voice and high speed data from the
	same system without having to make these performance compromises.
|
| |  | Cost-Effective Deployment and
	Operation.Both AirStar and Angel use
	point-to-multipoint deployment architectures. By employing a
	point-to-multipoint architecture, one hub radio can serve
	multiple subscriber radios. This results in lower total radio
	costs than point-to-point architectures in which each radio can
	communicate with only one other radio. In addition, a
	significant portion of the cost to build an AirStar or Angel
	network is directly related to subscriber growth. To add
	subscribers in a sector, a provider simply installs equipment at
	the subscribers premises and activates the service
	remotely, allowing the service provider to incur costs
	concurrently with the subscriber growth. The Angel system also
	uses OFDM and therefore allows non-line-of-sight deployment,
	meaning that there is up to a 95 percent chance in a given
	cell that a subscriber can indeed be connected to the network.
	This                                                                                      

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | reduces capital expenditures in terms of the
	number of hubs that need to be deployed and reduces service
	provider operating costs since there are fewer cases where, due
	to unanticipated coverage gaps, a service technician will fail
	to connect a subscriber who has requested service.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| |  | Quality of Service and
	Reliability.Service providers using
	Netros products can deploy bundles of voice and high speed
	data services at different price points to different market
	segments with high levels of service availability. In addition,
	AirStar permits differentiated service levels among subscribers.
	AirStar can prioritize transmissions depending on their source
	and type, and fill available transmission capacity with lower
	priority transmissions. Furthermore, Netros products are
	engineered to enable service providers to offer the same high
	reliability and availability for services that traditional
	service providers have historically offered for voice services.
	Reliability is accomplished through an error correction
	algorithm, redundancy and comprehensive network management
	software.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| |  | Global Market
	Coverage.We currently offer products
	to address point-to-multipoint licensed frequencies in Europe,
	Asia, North America, Latin America and the Middle East. We are
	also in the process of adapting our products to additional
	frequencies to address new markets and new spectrum auctions
	ongoing in our existing markets. In addition, we will be adding
	a 3.5 GHz frequency radio to the Angel system to make it
	suitable for some of the international markets we plan to
	address with this platform. We believe our experience around the
	world makes our products more attractive to service providers
	with multi-country strategies and enhances our ability to apply
	learning from established markets to developing markets.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| |  | Rapid Time to
	Market.Service providers using
	Netros products can achieve rapid time to market for
	integrated voice and high speed data connections through
	efficient installation, network management software and the
	ability to dynamically allocate capacity among subscribers.
	Service providers that we target have typically committed a high
	level of capital investment to enter the high speed wireless
	telecommunications services market, and thus are focused on
	quickly realizing a return on their investment. Our systems are
	scalable and allow service providers to rapidly offer new
	services to existing or incremental subscribers within a
	coverage area by a simple software command and a radio
	installation that is automatically configured by the base
	station with little technician intervention. By installing one
	base station, the service provider can attain coverage of many
	potential subscribers. For example, an AirStar cell operating at
	the 26 GHz frequency band can cover ranges from 5 to
	15 square miles, depending on local conditions, and has a
	transmission capacity of over 600 Mbps. Compared to other
	high speed, wire-based technologies that often require lengthy
	and expensive upgrades before offering service or do not support
	integrated voice and data services, our products allow a service
	provider to rapidly deploy integrated voice and high speed data
	services as demand warrants.

Strategy

Our objective is to be the leading worldwide
supplier of broadband wireless, point-to-multipoint equipment
used by telecommunications service providers. Key elements of
our strategy include the following:

Leverage our Leadership
Position.We believe that AirStar is
one of the most mature point-to-multipoint broadband wireless
systems and has one of the largest worldwide installed bases. We
have deployed the AirStar in several commercial networks
worldwide including in Germany, Spain, Portugal, Poland and
Argentina. We intend to leverage our successful commercial
deployments at existing service providers by extending our sales
into the networks that those same service providers are
establishing in other countries and by using these customers as
reference accounts for new service providers. We intend to
capitalize on Angels maturity and capabilities in the low
frequency market segment to enter quickly into international
markets we are targeting for Angel.

Capitalize on Technology Expertise and Extend
Product Portfolio.We have dedicated
ourselves to bringing technologically advanced, innovative and
cost effective solutions to the broadband fixed wireless market.
We believe that our expertise in relevant core technologies and
our customer oriented approach to product definition and
development have enabled us to achieve technological leadership
in the broadband fixed wireless market. We intend to continue to
devote significant resources to our research and development

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activities to maintain and enhance this
leadership. Using our technology expertise and substantial
understanding of the drivers behind a successful fixed wireless
deployment, we will extend our product portfolio and product
features to address more markets and needs by adding features to
our current products, developing additional products and
potentially acquiring additional companies or products.


Reduce Product
Costs.We believe that a key element
to enabling the market for fixed broadband wireless is to reduce
the cost per customer served and improve the business case for
the service provider. We are currently in the process of several
cost reduction initiatives, including engineering cost
reductions which, we believe, will improve our financial
performance and, more importantly, expand the addressable
market. We also plan to extend the reach of our products into
additional segments of the access market using third party
products or technology.

Enable Service Provider Business
Models.We intend to continue to focus
our product development efforts on features that would enable
service providers to deploy differentiated, profitable services
to their subscribers. Our Angel platform allows for
non-line-of-sight operation and adaptive modulation and carries
both circuit switched voice and packet data services. We believe
integrating these capabilities is highly complex, and we intend
to leverage our technology expertise to introduce new products
and features rapidly and cost effectively. We intend to offer
new features that will enable service providers to further
differentiate their services. For example, we expect to
introduce support for 3G infrastructure backhaul on the
AirStar platform and increase the capacity of the Angel platform
in 2002.

Build Direct Sales and Customer Advocacy
Infrastructure.We believe the best
way to increase product sales and overall market acceptance of
our products is through the development of a direct sales and
customer advocacy infrastructure that allows systems integrators
to participate in the product offering process while permitting
our own personnel to directly touch the customer base. We
presently market our products directly through sales offices in
Brazil, Mexico, China, the United States and the UK,
subsidiaries in France and Germany, local partners and OEMs as
well as through Lucent and Nokia. We intend to devote
significant resources to the expansion of our global presence
and to establish strategic relationships with local system
integrators who can reach and better serve additional segments
of the market. We also plan to continue to work closely with our
system integrators and service providers as well as third-party
service and installation organizations to enable them to provide
their own primary and secondary tiers of support for our
products while our engineers and customer service personnel will
provide backup support on a 24-hour per day, 7-day per week
basis.

Products and Technology

We currently develop, manufacture and sell the
AirStar product for access offerings to small and mid-sized
businesses and mobile infrastructure, and are developing the
Angel platform for access offerings to residences and small
businesses. We expect our Angel platform modifications to be
completed during the second half of 2002. Each of our product
lines is comprised of three principal components:



| |   |                                                                                                                                                                                                                                                                                
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Customer Premise
	Equipment,which includes a radio
	element which sends and receives signals to and from the hub
	equipment, and a digital signal processing unit, which connects
	and provides interfaces to the end-users
	telecommunications and/or data network;          
|
| |  | Hubs,which include
	several radio elements that send and receive signals from
	multiple customer premise equipment units and an aggregation
	unit, which aggregates data from the outdoor units and
	interfaces to the telecommunications service providers
	core network; and
|
| |  | Network Management
	Software,which controls and monitors
	the operation of hubs and customer premise equipment.                                                                                                                                                                

We believe our AirStar and Angel products have
industry-leading technologies including air interface
technology, modulation technology, software and hardware
implementations, advanced networking architecture, radio
transmission technology and networking software capabilities. We
first commercialized these technologies in the form of our
AirStar family of products by focusing on the service
providers needs. Angels

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key technologies were commercialized and deployed
to over 47,000 subscribers in the United States. Key
technology elements of Netro products include the following:


Air Interface
Protocol.We believe our
products proprietary air interface protocols maximize the
benefit of our point-to-multipoint architecture, and advanced
peak traffic management techniques. Our air interface technology
for AirStar, CellMACTM, schedules transmissions from
each subscriber in very small increments. It allows subscribers
to request additional capacity from the base station for peak
demand data services through a capacity reservation mechanism
that requires little wasted radio frequency. The base station
can prioritize the requests according to service level
agreements and allocates just enough capacity or time slots to
enable the transfer of each transmission. Our air interface
technology for Angel uses OFDM, which allows deployment in
non-line-of-sight mode. In addition, Angels air interface
technology supports adaptive modulation, thereby increasing
bandwidth to some subscribers and doing the opposite for others,
all based on a dynamic analysis of the link characteristics for
each subscriber. This results in a larger effective transmission
capacity and better bandwidth utilization. Angels air
interface technology also supports circuit-switched voice
services and packet data services, with data capacity allocated
on demand.

Effective Combination of Voice and
Data.In AirStar, the CellMAC air
interface utilizes asynchronous transfer mode, or ATM, to
efficiently combine voice and data onto a single stream. This
transports voice and data traffic simultaneously and maintains a
guaranteed quality of service for each traffic type. Using this
architecture, capacity for services can be provided based on
average throughput requirements rather than peak throughput
requirements. As a result, the capacity of the transmission is
increased, resulting in better use of radio frequency and thus
lower equipment expenditures. Our Angel technology carries
circuit switched voice over narrow channels, without any
degradation in voice quality. This leaves more bandwidth for
dynamic sharing of data services.

Radio Technology.Since our inception, we have worked extensively on radio designs
and volume manufacturing processes to create robust yet
cost-effective radios that support advanced radio technology and
peak demand transmission capabilities. The current AirStar and
Angel radios are both third generation designs and we are in the
process of developing fourth generation designs for each
platform which will reduce cost and enhance performance.

Carrier Class Management
Software.We believe that the network
management systems we offer provide a significant competitive
advantage. Our software architecture and use of object-oriented
design principles for both real-time and network management
software are key to making our software modular and adjustable
to additional communications protocols. Our software extends the
ability of our systems to enable the inter-working of voice
protocols and support the concentration of voice traffic.

Sales and Marketing

We have sales representatives in Brazil, Mexico,
China, France, Germany, Singapore, Spain and the United Kingdom,
as well as in Florida and in our corporate headquarters in San
Jose, California. We sell our products indirectly through
original equipment manufacturers, or OEMs, and local
resellers in addition to through our direct sales force. In
addition, we offer installation and maintenance services through
our system integration partners and third-party installation and
support organizations.

During 2001, most of our sales were direct or
through local resellers who rely heavily on Netro sales
personnel and we expect this to continue in the future. In
determining which accounts are appropriate for direct sales, we
try to identify those that are key early adopters that can help
drive our product feature sets in a manner that will better
address the needs of the marketplace as a whole. These customers
usually have the ability to install, integrate, service and
maintain their systems themselves. For customers requiring
significant installations integration and maintenance services,
we typically sell our product through large OEMs, such as Lucent
and Nokia.

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Revenues by geography based on to the location of
our original customers were as follows:

|              |  |          |        |               |  |      |        |      |  |      |        |      |  |  |     |   |  |  |     |   |  |  |     |  
|------------- |  | -------- | ------ | ------------- |  | ---- | ------ | ---- |  | ---- | ------ | ---- |  |  | --- | - |  |  | --- | - |  |  | --- | -
|              |  |          |        |               |  |      |        |     
|              |  |          |        | Percentage of
|              |  | Revenues |        | Total Revenue
|              |  |          |        |              
|              |  | 2001     |        | 2000          |  | 1999 |        | 2001 |  | 2000 |        | 1999
|              |  |          |        |               |  |      |        |      |  |      |        |     
|Latin America |  | $        | 9,872  |               |  | $    | 6,661  |      |  | $    | 549    |      |  |  | 42  | % |  |  | 10  | % |  |  | 3   | %
|Europe        |  |          | 6,028  |               |  |      | 1,447  |      |  |      | 3,736  |      |  |  | 25  |   |  |  | 2   |   |  |  | 21  |  
|Middle East   |  |          | 482    |               |  |      | 40     |      |  |      | 3,468  |      |  |  | 2   |   |  |  |    |   |  |  | 19  |  
|Asia          |  |          | 468    |               |  |      | 192    |      |  |      | 6      |      |  |  | 2   |   |  |  |    |   |  |  |    |  
|              |  |          |        |               |  |      |        |      |  |      |        |      |  |  |     |   |  |  |     |   |  |  |     |  
|International |  |          | 16,850 |               |  |      | 8,340  |      |  |      | 7,759  |      |  |  | 71  |   |  |  | 12  |   |  |  | 43  |  
|United States |  |          | 6,809  |               |  |      | 60,187 |      |  |      | 10,426 |      |  |  | 29  |   |  |  | 88  |   |  |  | 57  |  
|              |  |          |        |               |  |      |        |      |  |      |        |      |  |  |     |   |  |  |     |   |  |  |     |  
|              |  | $        | 23,659 |               |  | $    | 68,527 |      |  | $    | 18,185 |      |  |  | 100 | % |  |  | 100 | % |  |  | 100 | %
|              |  |          |        |               |  |      |        |      |  |      |        |      |  |  |     |   |  |  |     |   |  |  |     |  

Substantially all of our domestic revenues are
related to products sold to OEMs and direct resellers. Almost
all of their end customers are located outside of the United
States.

Countries that accounted for more than
10 percent of revenues based on the location of our
original customers were as follows:

|              |  |          |       |                |  |      |        |      |  |      |        |      |  |  |     |  |  |  |    |   |  |  |    |  
|------------- |  | -------- | ----- | -------------- |  | ---- | ------ | ---- |  | ---- | ------ | ---- |  |  | --- |  |  |  | -- | - |  |  | -- | -
|              |  |          |       |                |  |      |        |     
|              |  |          |       | Percentage of 
|              |  | Revenues |       | Total Revenues
|              |  |          |       |               
|              |  | 2001     |       | 2000           |  | 1999 |        | 2001 |  | 2000 |        | 1999
|              |  |          |       |                |  |      |        |      |  |      |        |     
|United States |  | $        | 6,809 |                |  | $    | 60,187 |      |  | $    | 10,426 |      |  |  | 29% |  |  |  | 88 | % |  |  | 57 | %
|Argentina     |  | $        | 7,175 |                |  |      | *      |      |  |      | *      |      |  |  | 30% |  |  |  | *  |   |  |  | *  |  
|France        |  | $        | 2,343 |                |  |      | *      |      |  |      | *      |      |  |  | 10% |  |  |  | *  |   |  |  | *  |  



---



|  |                                         
|- | ----------------------------------------
|* | Revenues less than 10 percent for period

Regardless of the distribution channel that
services the account, our direct sales force maintains contact
with the service provider and the system integrator account
team. This contact keeps us close to the evolving needs of the
service providers and helps ensure that we are well positioned
within each account.

Our marketing group provides marketing support
services for our executive staff, our direct sales force and for
our OEMs and resellers. Through our marketing activities, we
provide technical and strategic sales support to our direct
sales personnel and system integrators or resellers including
in-depth product presentations, technical manuals, sales tools,
pricing, marketing communications, marketing research, trademark
administration and other support functions. Our marketing group
is also responsible for product management activities throughout
each products lifecycle. These include the definition of
product features, approval of product releases, specification of
enhancements to our product and service offerings and
determination of future product platforms.

Customers

Historically, the predominant portion of our
revenues have come from sales to large OEMs, such as Lucent, who
have in turn resold Netro products to competitive phone service
providers in Europe. During 2001, we began the process of
changing our customer base to incumbent phone service providers
and mobile service providers. Although the majority of our
revenues in 2001 were ultimately related to installations by
competitive phone service providers, our strategy for future
growth is dependent on the acceptance of our products by these
new target customers.

6



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##### Table of Contents



Revenues from customers that comprised more that
10 percent of revenue were as follows:

|                 |  |          |        |                |  |      |        |      |  |      |        |      |  |  |    |   |  |  |    |   |  |  |    |  
|---------------- |  | -------- | ------ | -------------- |  | ---- | ------ | ---- |  | ---- | ------ | ---- |  |  | -- | - |  |  | -- | - |  |  | -- | -
|                 |  |          |        |                |  |      |        |     
|                 |  |          |        | Percentage of 
|                 |  | Revenues |        | Total Revenues
|                 |  |          |        |               
|                 |  | 2001     |        | 2000           |  | 1999 |        | 2001 |  | 2000 |        | 1999
|                 |  |          |        |                |  |      |        |      |  |      |        |     
|Lucent           |  | $        | 7,110  |                |  | $    | 59,220 |      |  | $    | 10,426 |      |  |  | 30 | % |  |  | 86 | % |  |  | 57 | %
|Techtel          |  |          | 7,007  |                |  |      | *      |      |  |      | *      |      |  |  | 30 |   |  |  | *  |   |  |  | *  |  
|Condumex         |  |          | 2,390  |                |  |      | *      |      |  |      | *      |      |  |  | 10 |   |  |  | *  |   |  |  | *  |  
|Imed Link        |  |          | *      |                |  |      | *      |      |  |      | 1,792  |      |  |  | *  |   |  |  | *  |   |  |  | 10 |  
|NTL              |  |          | *      |                |  |      | *      |      |  |      | 1,767  |      |  |  | *  |   |  |  | *  |   |  |  | 10 |  
|                 |  |          |        |                |  |      |        |      |  |      |        |      |  |  |    |   |  |  |    |   |  |  |    |  
|Aggregate amount |  | $        | 16,507 |                |  | $    | 59,220 |      |  | $    | 13,985 |      |  |  | 70 | % |  |  | 86 | % |  |  | 77 | %
|                 |  |          |        |                |  |      |        |      |  |      |        |      |  |  |    |   |  |  |    |   |  |  |    |  



---



|  |                                         
|- | ----------------------------------------
|* | Revenues less than 10 percent for period

See Managements Discussion and
Analysis of Financial Condition and Results of Operations.

Operations and Manufacturing

Our manufacturing activities, based in our San
Jose facility, consist primarily of prototype manufacturing,
final testing and system staging. Our strategy is to outsource
manufacturing to contract manufacturers, which have the
expertise and ability to achieve cost reductions associated with
volume manufacturing and to respond quickly to customer orders
while maintaining high quality standards. This also serves to
turn some of our fixed costs into variable costs and enables us
to share in the purchasing efficiencies enjoyed by these larger
manufacturers.

Our operations and manufacturing groups
facilitate technology transfer between our research and
development group and the contract manufacturers. We may also
use our manufacturing operation to expedite the sales cycle
before the full product is released to external manufacturers.

Research and Development

We believe that our extensive experience
designing and implementing high-quality network and radio
components and system software has enabled us to develop
high-value integrated systems solutions. As a result of these
development efforts, we believe we have created an
industry-leading platform for cost-effective high speed wireless
voice and data delivery with dynamic allocation of capacity.

We believe that our future success depends on our
continued investment in research and development in core radio,
networking and software technologies, and we expect to continue
to invest a significant portion of revenues in this area. Our
research and development expenses were $25.8 million in
2001, $24.3 million in 2000, and $19.3 million in
1999. We are committed to an ongoing new product development
program that is based on an assessment of service
providers needs and technological changes in the
communications market. In addition, we expect research and
development expenses to increase significantly as a result of
our acquisition of the Angel product line. We are currently
investing in improving performance, service and networking
features and accelerating cost reduction for both the Angel and
AirStar platforms.

We are also currently investing significant
resources in extending the capabilities, frequencies and
capacity of the Angel product line. We plan to sell the Angel
product in international markets and are currently in the
process of modifying the Angel platform to conform to
international standards, including adding frequency options that
are more typically used in international markets, such as
3.5 GHz. While we expect these modifications to be complete
in the second half of 2002, unforeseen difficulties could delay
our modification and launch of the Angel product. For example,
our ability to develop radios that operate at frequencies used
in international markets depends on third parties to develop
technology that will be incorporated in our radios. We cannot
assure that these third parties will develop these components in
a timely way, if at all.

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Customer Advocacy

A high level of continuing service and support is
critical to our objective of developing long-term customer
relationships. We consolidate all aspects of our customer
service, satisfaction and quality assurance initiatives into a
customer advocacy group. Our customer advocacy organization is
based in our San Jose headquarters. We also have a customer
support presence in Germany, Mexico and the United Kingdom. Our
customer advocacy organization in San Jose serves as the
interface to our research and development group to highlight
certain problems and also provides information about
customers needs to our marketing and research and
development organizations. Our customer support model consists
of three tiers of support:



| |   |                                                                                                                                        
| | - | ---------------------------------------------------------------------------------------------------------------------------------------
| |  | local problem isolation, which provides for
	on-site problem identification and resolution of relatively
	simple issues;               
|
| |  | fault isolation and repair, which provides for
	consultation and instruction by technicians trained by product
	experts; and           
|
| |  | expert level support from product engineering
	experts for the resolution of problems not remedied by the first
	two levels of support.

Our main focus is to provide system integrators
and first-tier support partners with the ability to provide
local support worldwide to service providers, including
training, spare parts, maintenance and installation. As most of
the hands-on support is provided through system integrators,
local resellers, service and installation partners, or the
service providers themselves, we focus on offering various
training courses to enable system integrators, service and
installation partners and service providers to perform both
local problem isolation and fault isolation and repair.
Currently, the majority of our service and support activities
are related to training and installation support for service
providers. These services are provided directly at customer
installations by our customer advocacy group or remotely by our
San Jose headquarters team.

We have a number of flexible hardware and
software maintenance and customer support programs available for
products beyond the applicable warranty period, depending on our
customer preferences. As more trials begin carrying commercial
traffic, we will migrate the support capabilities to off-hours,
24-hour per day, 7-day support, and continue to provide expert
level support for service providers and system integrators.

Competition

The market for high speed, wireless,
point-to-multipoint telecommunications equipment is rapidly
evolving and highly competitive. Increased competition is likely
to result in price reductions, shorter product life cycles,
longer sales cycles and loss of market share, any of which would
adversely affect our business.

Depending on the market we are addressing, we
face different types of competition:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Enterprise Access.As an enterprise access technology,
	point-to-multipoint fixed wireless solutions compete with
	wire-based solutions, such as fiber optic cable and leased T1
	and E1 lines and wireless solutions, such as point-to-point
	radios. As a company within the point-to-multipoint fixed
	wireless industry addressing small and medium enterprise access,
	we compete through our AirStar product with large OEMs, such as
	Alcatel, Ericsson and Marconi, as well as with smaller
	wireless-only companies.                                                                         
|
| |  | Residential and Small Business Access.As a residential and small business
	access technology, point-to-multipoint fixed wireless solutions
	compete with wire-based solutions, such as DSL and cable modems.
	As a company within the point-to-multipoint fixed wireless
	industry addressing residential and small business access, we
	compete through our Angel product with established wireless
	local loop vendors, such as Innowave (a division of
	ECI Telecommunications), AirSpan and Alvarion, as well as
	with numerous startup companies that are developing products for
	our industry.
|
| |  | Mobile Infrastructure.As a technology for connecting
	cellular base stations to the core telecommunications network,
	point-to-multipoint fixed wireless solutions compete with
	wire-based solutions such as leased T1 and E1 lines and wireless
	solutions such as point-to-point radios. As a company within the                                                                                                                                                                                                                                                                                  

8



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| |  |                                                                                                                                                                                                             
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | point-to-multipoint fixed wireless industry
	addressing cellular infrastructure, we compete through our
	AirStar product principally with large systems integrators, such
	as Alcatel, Ericsson and Marconi.

We expect competition to persist and intensify in
the future. Many of our competitors are substantially larger
than we are and have significantly greater financial, sales,
marketing, technical, manufacturing and other resources and more
established distribution channels. These competitors may be able
to respond more rapidly to new or emerging technologies and
changes in customer requirements. They may also be able to
devote greater resources to the development, promotion, sale and
financing of their products than we can. Our competitors may
also attempt to influence the adoption of standards that are not
compatible with our current architecture. Our larger, more
established competitors may have more influence with
standards-setting bodies than we do. If standards other than
ours are adopted, this may require us to incur additional
development and integration costs and may delay our sales
efforts.

Some of our competitors may make strategic
acquisitions or establish cooperative relationships to increase
their ability to gain customer market share rapidly. These
competitors may enter our existing or future markets with
solutions that may be less expensive, provide higher performance
or additional features or be introduced earlier than our
solutions. We also expect that other companies may enter our
market with better products and technologies. If any technology
that is competing with ours is more reliable, faster or less
expensive or has other advantages over our technology, then the
demand for our products and services would decrease, which would
seriously harm our business.

We expect our competitors to continue to improve
the performance of their current products and to introduce new
products or new technologies that may supplant or provide lower
cost alternatives to our products. To be competitive, we must
continue to invest significant resources in research and
development, sales and marketing and customer support. We cannot
be sure that we will have sufficient resources to make these
investments or that we will be able to make the technological
advances necessary to be competitive. As a result, we may not be
able to compete effectively against our competitors.

Intellectual Property

We rely on a combination of patent, copyright,
trademark and trade secret laws, as well as confidentiality
agreements and licensing arrangements, to establish and protect
our proprietary rights. We presently have four issued United
States patents, with additional applications in process. We have
also acquired from AT&T Wireless Services, Inc. a
license to several patents and numerous patent applications
associated with the Angel platform. These licenses are not
transferable. In addition, although AT&T Wireless has agreed
not to license these patents to our competitors for a period of
five years, we cannot assure that they will enforce their rights
against potential infringors. Despite our efforts to protect our
proprietary rights, existing copyright, trademark and trade
secret laws afford only limited protection. In addition, the
laws of some foreign countries do not protect our proprietary
rights to the same extent as do the laws of the United States.
Attempts may be made to copy or reverse engineer aspects of our
products or to obtain and use information that we regard as
proprietary. Accordingly, we may not be able to protect our
proprietary rights against unauthorized third-party copying or
use. Furthermore, policing the unauthorized use of our products
is difficult. Litigation may be necessary in the future to
enforce our intellectual property rights, to protect our trade
secrets or to determine the validity and scope of the
proprietary rights of others. This litigation could result in
substantial costs and diversion of resources and could have a
material adverse effect on our future operating results.

From time to time, third parties may assert
patent, copyright, trademark and other intellectual property
rights to technologies in various jurisdictions that are
important to our business. Any claims could be time-consuming to
deal with, result in costly litigation, divert the efforts of
our technical and management personnel, cause product shipment
delays or require us to enter into royalty or licensing
agreements, any of which could have an adverse effect on our
operating results. Royalty or licensing agreements, if required,
may not be available on terms acceptable to us, if at all. In
addition, in our sales agreements, we agree to indemnify our
customers for any expenses or liabilities resulting from claimed
infringements of patents, trademarks or copyrights of third
parties. As part of our acquisition of assets from
AT&T Wireless, we were assigned by
AT&T Wireless, and we assumed, several contracts with
third party software vendors. We are required to

9



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##### Table of Contents



indemnify AT&T Wireless against claims
that arise out of or in connection with the assumed contracts
after the date of assignment and against claims that the
assigned software infringes the intellectual or proprietary
rights of others.


Employees

As of December 31, 2001, we employed
approximately 211 full-time employees and 14 contract
personnel. Our full-time employees and contract personnel
include 58 people in operations and manufacturing, 90 in
engineering, 59 in sales, marketing and customer advocacy, and
18 in finance and administration. In connection with the
acquisition of the Angel technology in February 2002, we added
124 employees. None of our employees is represented by
collective bargaining agreements, and we consider relations with
our employees to be good.




Item 2.     Properties

We lease an approximately 100,000 square foot
facility in San Jose, California, which we use for executive
offices and for administrative, engineering, product
development, manufacturing and sales and marketing purposes. The
sublease for this facility expires in September 2006. We also
maintain leases for executive office space in China, France,
Germany, Israel, Mexico, Singapore, and the United Kingdom,
which do not represent material financial obligations. In
connection with acquisition of the Angel technology in February
2002, we assumed a lease to an approximately 100,000 square foot
facility in Redmond, Washington, which expires in 2006.




Item 3.     Legal
Proceedings

Coates
Litigation.On or around October 5, 2001,
C. Robert Coates, a holder of shares of our common stock,
commenced an action in the Delaware Chancery Court against the
Company, the former Netro Corporation, which was incorporated in
California (Netro California), and the members of
our board of directors, styled Coates v. Netro Corp.,
et al., C.A. No. 19154
(Coates I). The complaint in Coates I
makes a number of allegations relating to the approval by the
shareholders of Netro California of the merger transaction by
which our state of incorporation was changed from California to
Delaware, including that the disclosures to stockholders in
connection with that proposed transaction were incomplete or
misleading in various respects. The complaint also alleges that
the adoption by our board of directors of a stockholder rights
plan sometime after that merger transaction was in violation of
Delaware law. The complaint seeks (1) to invalidate or
rescind the merger transaction or, in the alternative, to obtain
an order directing a new stockholder vote on that transaction;
(2) to invalidate or reform our certificate of
incorporation and bylaws to eliminate certain alleged
anti-takeover provisions contained in them;
(3) to have the stockholder rights plan declared invalid or
to obtain an order compelling the directors to redeem the rights
distributed to our stockholders thereunder; and (4) to
recover monetary damages in an unspecified amount, as well as
plaintiffs attorneys fees and expenses in bringing
the action.

On November 30, 2001, defendants filed a
motion to dismiss the complaint in Coates I for failure to
state a claim. In addition, Mr. Coates has made a motion
purportedly for partial summary judgment on two issues: first,
that section 2.12 of our bylaws, relating to the business
that may be brought before a special meeting of stockholders,
allegedly is invalid and second, that the definition of
beneficial owner in our rights plan allegedly unduly
interferes with stockholders ability to convene a special
meeting. These motions have not yet been submitted to the Court
for its consideration.

Separately, on or about December 10, 2001,
Mr. Coates filed a complaint in a second action that names
as defendants us and certain members of our board of directors,
styled Coates v. Netro Corp., et al., C.A.
No. 19309 (Coates II). In the complaint in
that action, Mr. Coates challenges a stock option
cancellation and regrant program that was described in the 2001
proxy statement in connection with the approval by the
stockholders of Netro California of an amendment to our 1996
stock option plan. Mr. Coates claims that the discussion in
the proxy statement about the proposed amendment to the stock
option plan and the stock option cancellation and regrant
program was incomplete or misleading and that the stock option
cancellation and

10



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##### Table of Contents



regrant program violated the terms of the stock
option plan, inter alia, because options were issued
under that program with exercise prices at the then-prevailing
market price for our common stock rather than the alleged
fair value of that stock. The complaint seeks an
order declaring the options issued in the program to be invalid
and void, rescinding those options, preliminarily and
permanently enjoining the exercise of those options, imposing a
constructive trust on any such options that were granted to
defendants, and awarding monetary damages in an unspecified
amount as well as plaintiffs attorneys fees and expenses.
Defendants have filed a motion to stay or dismiss the complaint
in Coates II, which motion has not yet been fully briefed.


We and the other defendants believe the claims
asserted by Mr. Coates in both of these actions are without
merit, and we intend to vigorously defend against those claims.

Soto-Gonzalez Litigation.On or around August 23, 2001,
Ramiro Soto-Gonzalez, who alleges that he was a former
shareholder of our common stock, commenced a purported class
action lawsuit in the U.S. District Court for the Southern
District of New York against us, certain of our officers and
directors (Individual Defendants), and Dain
Rauscher, Inc., FleetBoston Robertson Stephens, Inc.,
and Merrill Lynch, Pierce, Fenner and Smith, Inc.
(Underwriter Defendants) (collectively
defendants). The Soto-Gonzalez action is one of more
than 800 lawsuits currently pending in the U.S. District
Court for the Southern District of New York against more than
310 different issuers, certain officers and directors of
these issuers and more than 40 different underwriters
arising out of initial public offerings occurring between
December 1997 and December 2000.

The complaint in the Soto-Gonzalez action makes a
number of allegations relating to the initial public offering of
our common stock in August 1999, including that the disclosures
made in connection with that offering were incomplete or
misleading in various respects. The complaint alleges, among
other things, that the defendants failed to disclose that the
Underwriter Defendants: (1) charged us excessive
commissions and inflated transaction fees in violation of the
securities laws and regulations; and (2) allowed certain
investors to take part in our initial public offering in
exchange for promises that these investors would purchase
additional shares in the after-market for the purpose of
inflating and maintaining the market price of our common stock.
The complaint seeks to certify a class of stockholders who
purchased our common stock between August 18, 1999 and
December 6, 2000, and to recover monetary damages from
defendants in an unspecified amount, as well as plaintiffs
attorneys fees and expenses in bringing the action. The
action is in its earliest stages. We and the Individual
Defendants believe the claims asserted by Mr. Soto-Gonzalez
in the action are without merit, and we intend to vigorously
defend against those claims.

From time to time, we are involved in various
legal proceedings in the ordinary course of business. We are not
currently involved in any additional litigation that, in
managements opinion, would have a material adverse effect
on our business, operating results or financial condition;
however, there can be no assurance that any such proceeding will
not escalate or otherwise become material to our business in the
future.




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

None.

11



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##### Table of Contents






PART II




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

Price Range of Common Stock

Our common stock trades on The Nasdaq National
Market under the symbol NTRO. As of March 1,
2002, the Company had approximately 176 stockholders of
record and the closing price of our common stock was $3.06 per
share as reported by The Nasdaq National Market. The following
table shows the high and low bid prices of our Common Stock for
the periods presented as reported on The Nasdaq National Market:

|     |                                 |      |   |        |  |  |   |       | 
|---- | ------------------------------- | ---- | - | ------ |  |  | - | ----- | 
|     |                                 | High |   | Low   
|     |                                 |      |   |       
|2000 |                                 |      |   |        |  |  |   |      
|     | First Quarter (ended 3/31/00)   |      | $ | 119.63 |  |  | $ | 32.94 | 
|     | Second Quarter (ended 6/30/00)  |      |   | 77.13  |  |  |   | 22.64 | 
|     | Third Quarter (ended 9/30/00)   |      |   | 85.88  |  |  |   | 43.50 | 
|     | Fourth Quarter (ended 12/31/00) |      |   | 60.88  |  |  |   | 6.31  | 
|2001 |                                 |      |   |        |  |  |   |      
|     | First Quarter (ended 3/31/01)   |      |   | 11.63  |  |  |   | 4.88  | 
|     | Second Quarter (ended 6/30/01)  |      |   | 6.25   |  |  |   | 3.31  | 
|     | Third Quarter (ended 9/30/01)   |      |   | 4.00   |  |  |   | 2.21  | 
|     | Fourth Quarter (ended 12/31/01) |      |   | 4.10   |  |  |   | 2.36  | 

We have not paid dividends on our Common Stock at
any time and have no present plans to do so in the future.

Future stock prices may be subject to volatility,
particularly on a quarterly basis. Any shortfall in revenues or
operating results from amounts expected by securities analysts
or investors could have an immediate and significant adverse
effect on the trading price of our stock.

Recent Sales of Unregistered
Securities

On February 12, 2002, we issued and sold
8,200,000 shares of our common stock to AT&T Wireless as
partial consideration for the purchase of certain of AT&T
Wireless assets, pursuant to the terms of an Asset
Purchase Agreement dated January 14, 2002. The assets
acquired include intellectual property, equipment and
proprietary software, all relating to the development,
manufacture and assembly of fixed wireless telecommunications
equipment developed under the code name project
Angel. The securities were issued in reliance upon
the exemption from registration provided under Section 4(2)
of the Securities Act of 1933, as amended, based on the fact
that the common stock was sold by the issuer in a transaction
not involving a public offering.

12



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##### Table of Contents






Item 6.     Selected
Consolidated Financial Data

You should read the following selected
consolidated financial data in conjunction with our consolidated
financial statements and the related notes and with
Managements Discussion and Analysis of Financial
Condition and Results of Operations included elsewhere in
this Form 10-K. The consolidated statements of operations
data for the years ended December 31, 2001, 2000 and 1999,
and the consolidated balance sheet data as of December 31,
2001 and 2000, are derived from our audited consolidated
financial statements included elsewhere in this Form 10-K.
The consolidated statements of operations data for the years
ended December 31, 1998 and 1997 and the consolidated
balance sheet data as of December 31, 1999, 1998 and 1997
are derived from our audited consolidated financial statements
not included in this Form 10-K. The unaudited selected
quarterly data for the years ended December 31, 2001 and
2000 are derived from our unaudited consolidated quarterly
financial statements not included in this Form 10-K. The
historical results presented below are not necessarily
indicative of the results to be expected for any future fiscal
year. See Managements Discussion and Analysis of
Financial Condition and Results of Operations.

|                                                             |                                             |                                           |         |        |        |      |         |        |        |      |         |        |        |   |         |        |        |   |         |        |        | 
|------------------------------------------------------------ | ------------------------------------------- | ----------------------------------------- | ------- | ------ | ------ | ---- | ------- | ------ | ------ | ---- | ------- | ------ | ------ | - | ------- | ------ | ------ | - | ------- | ------ | ------ | 
|                                                             |                                             |                                          
|                                                             |                                             | Year Ended December 31,                  
|                                                             |                                             |                                          
|                                                             |                                             | 2001                                      |         | 2000   |        | 1999 |         | 1998   |        | 1997
|                                                             |                                             |                                           |         |        |        |      |         |        |        |     
|                                                             |                                             |                                          
|                                                             |                                             | (In thousands, except per share amounts):
|Consolidated Statements of Operations
	Data                  |                                             |                                           |         |        |        |      |         |        |        |      |         |        |        |   |         |        |        |   |         |       
|Revenues                                                     |                                             | $                                         | 23,659  |        |        | $    | 68,527  |        |        | $    | 18,185  |        |        | $ | 5,438   |        |        | $ | 5,601   |       
|Cost of revenues                                             |                                             |                                           | 62,512  |        |        |      | 52,096  |        |        |      | 14,874  |        |        |   | 9,640   |        |        |   | 8,273   |       
|                                                             |                                             |                                           |         |        |        |      |         |        |        |      |         |        |        |   |         |        |        |   |         |       
|Gross profit (loss)                                          |                                             |                                           | (38,853 | )      |        |      | 16,431  |        |        |      | 3,311   |        |        |   | (4,202  | )      |        |   | (2,672  | )     
|                                                             |                                             |                                           |         |        |        |      |         |        |        |      |         |        |        |   |         |        |        |   |         |       
|Operating expenses:                                          |                                             |                                           |         |        |        |      |         |        |        |      |         |        |        |   |         |        |        |   |         |       
|                                                             | Research and development                    |                                           |         | 25,782 |        |      |         | 24,265 |        |      |         | 19,307 |        |   |         | 16,143 |        |   |         | 15,289 |       
|                                                             | Sales and marketing                         |                                           |         | 13,281 |        |      |         | 10,455 |        |      |         | 5,794  |        |   |         | 4,819  |        |   |         | 3,776  |       
|                                                             | General and administrative                  |                                           |         | 16,996 |        |      |         | 9,812  |        |      |         | 6,259  |        |   |         | 3,968  |        |   |         | 3,500  |       
|                                                             | Amortization of deferred stock compensation |                                           |         | 857    |        |      |         | 1,064  |        |      |         | 1,104  |        |   |         |       |        |   |         |       |       
|                                                             |                                             |                                           |         |        |        |      |         |        |        |      |         |        |        |   |         |        |        |   |         |       
|                                                             |                                             | Total operating expenses                  |         |        | 56,916 |      |         |        | 45,596 |      |         |        | 32,464 |   |         |        | 24,930 |   |         |        | 22,565 | 
|                                                             |                                             |                                           |         |        |        |      |         |        |        |      |         |        |        |   |         |        |        |   |         |       
|Loss from operations                                         |                                             |                                           | (95,769 | )      |        |      | (29,165 | )      |        |      | (29,153 | )      |        |   | (29,132 | )      |        |   | (25,237 | )     
|Other income, net                                            |                                             |                                           | 16,541  |        |        |      | 18,987  |        |        |      | 353     |        |        |   | 304     |        |        |   | 703     |       
|                                                             |                                             |                                           |         |        |        |      |         |        |        |      |         |        |        |   |         |        |        |   |         |       
|Net loss before provision for income taxes                   |                                             |                                           | (79,228 | )      |        |      | (10,178 | )      |        |      | (28,800 | )      |        |   | (28,828 | )      |        |   | (24,534 | )     
|Provision for income taxes                                   |                                             |                                           | 76      |        |        |      |        |        |        |      |        |        |        |   |        |        |        |   |        |       
|                                                             |                                             |                                           |         |        |        |      |         |        |        |      |         |        |        |   |         |        |        |   |         |       
|Net loss                                                     |                                             | $                                         | (79,304 | )      |        | $    | (10,178 | )      |        | $    | (28,800 | )      |        | $ | (28,828 | )      |        | $ | (24,534 | )     
|                                                             |                                             |                                           |         |        |        |      |         |        |        |      |         |        |        |   |         |        |        |   |         |       
|Basic and diluted net loss per share                         |                                             | $                                         | (1.52   | )      |        | $    | (0.21   | )      |        | $    | (1.31   | )      |        | $ | (4.07   | )      |        | $ | (5.11   | )     
|Shares used to compute basic and diluted net loss
	per share |                                             |                                           | 52,196  |        |        |      | 49,639  |        |        |      | 21,988  |        |        |   | 7,087   |        |        |   | 4,798   |       

|                                                             |  |                         |         |      |  |      |         |      |  |      |        |  |  |  |        |  |  |  |        | 
|------------------------------------------------------------ |  | ----------------------- | ------- | ---- |  | ---- | ------- | ---- |  | ---- | ------ |  |  |  | ------ |  |  |  | ------ | 
|                                                             |  |                        
|                                                             |  | As of December 31,     
|                                                             |  |                        
|                                                             |  | 2001                    |         | 2000 |  | 1999 |         | 1998 |  | 1997
|                                                             |  |                         |         |      |  |      |         |      |  |     
|                                                             |  |                        
|                                                             |  | (Dollars, in thousands)
|Consolidated Balance Sheet Data                              |  |                         |         |      |  |      |         |      |  |      |        |  |  |  |        |  |  |  |        | 
|Cash, cash equivalents and short-term marketable
	securities |  |                         | 206,444 |      |  |      | 277,564 |      |  |      | 45,337 |  |  |  | 15,128 |  |  |  | 25,706 | 
|Working capital                                              |  |                         | 191,123 |      |  |      | 300,159 |      |  |      | 44,417 |  |  |  | 12,523 |  |  |  | 25,657 | 
|Total assets                                                 |  |                         | 349,721 |      |  |      | 421,753 |      |  |      | 65,814 |  |  |  | 26,788 |  |  |  | 37,708 | 
|Long-term debt and capital leases, net of current
	portion   |  |                         | 64      |      |  |      | 1,280   |      |  |      | 3,633  |  |  |  | 4,547  |  |  |  | 4,209  | 
|Total stockholders equity                                   |  |                         | 320,876 |      |  |      | 395,975 |      |  |      | 45,556 |  |  |  | 13,893 |  |  |  | 27,005 | 

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|                        |                |                                                                |  |              |  |            |  |                  |   |               |  |         |   |  |  |       |   |  |  |       |  
|----------------------- | -------------- | -------------------------------------------------------------- |  | ------------ |  | ---------- |  | ---------------- | - | ------------- |  | ------- | - |  |  | ----- | - |  |  | ----- | -
|                        |                |                                                                |  |              |  |            |  |                  |   | Diluted Net  
|                        |                |                                                                |  | Gross Profit |  | Net Income |  | Basic Net Income |   | Income (Loss)
|                        |                | Revenue                                                        |  | (Loss)       |  | (Loss)     |  | (Loss) per Share |   | per Share    
|                        |                |                                                                |  |              |  |            |  |                  |   |              
|                        |                |                                                               
|                        |                | (Unaudited, in dollars, in thousands except per share amounts)
|Selected Quarterly Data |                |                                                                |  |              |  |            |  |                  |   |               |  |         |   |  |  |       |   |  |  |      
|2000                    |                |                                                                |  |              |  |            |  |                  |   |               |  |         |   |  |  |       |   |  |  |      
|                        | First Quarter  |                                                                |  | 10,454       |  |            |  | 2,206            |   |               |  | (7,070  | ) |  |  | (0.15 | ) |  |  | (0.15 | )
|                        | Second Quarter |                                                                |  | 15,504       |  |            |  | 4,111            |   |               |  | (819    | ) |  |  | (0.02 | ) |  |  | (0.02 | )
|                        | Third Quarter  |                                                                |  | 20,520       |  |            |  | 5,486            |   |               |  | 206     |   |  |  | 0.00  |   |  |  | 0.00  |  
|                        | Fourth Quarter |                                                                |  | 22,049       |  |            |  | 4,628            |   |               |  | (2,495  | ) |  |  | (0.05 | ) |  |  | (0.05 | )
|2001                    |                |                                                                |  |              |  |            |  |                  |   |               |  |         |   |  |  |       |   |  |  |      
|                        | First Quarter  |                                                                |  | 9,131        |  |            |  | (21,572          | ) |               |  | (32,972 | ) |  |  | (0.64 | ) |  |  | (0.64 | )
|                        | Second Quarter |                                                                |  | 2,051        |  |            |  | (19,131          | ) |               |  | (29,838 | ) |  |  | (0.57 | ) |  |  | (0.57 | )
|                        | Third Quarter  |                                                                |  | 6,043        |  |            |  | 969              |   |               |  | (7,039  | ) |  |  | (0.13 | ) |  |  | (0.13 | )
|                        | Fourth Quarter |                                                                |  | 6,434        |  |            |  | 881              |   |               |  | (9,455  | ) |  |  | (0.18 | ) |  |  | (0.18 | )




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

You should read the following
managements discussion and analysis of financial condition
and results of operations in conjunction with our consolidated
financial statements and the related notes contained elsewhere
in this report.

This managements discussion and analysis
of financial condition and results of operations contains
forward-looking statements which include, but are not limited
to, statements concerning projected revenues, gross profit
(loss), and expenses, the need for additional capital and market
acceptance of our products. The forward-looking statements are
based on our current expectations, estimates and projections
about our industry, managements beliefs and certain
assumptions made by us. Words such as anticipates,
expects, intends, plans,
believes, or similar expressions are intended to
identify forward-looking statements. These statements are not
guarantees of future performance and are subject to certain
risks, uncertainties and assumptions that are difficult to
predict. Therefore, our actual results could differ
substantially from those anticipated in these forward-looking
statements as a result of many factors. Please read the section
of this 10-K entitled Risk Factors and our other
Securities and Exchange Commission filings which discuss some of
the important risk factors that may affect our business, results
of operations and financial condition. We undertake no
obligation to revise or update publicly any forward-looking
statements for any reason.

Overview

We are a leading provider of broadband,
point-to-multipoint, fixed wireless equipment.
Telecommunications service providers use our equipment to
provide voice and high speed data access connections to end
users, or between locations in the metropolitan
telecommunications network, as an alternative to using wired or
other connectivity. Our products are designed to provide access
connectivity to residences and small and mid-sized businesses,
as well as to provide infrastructure transmission connections
between mobile phone service hubs and the core mobile
telecommunications network. We began commercially shipping our
first point-to-multipoint product, AirStar, in 1998 and have a
significant installed base for this product. AirStar is mainly
targeted at service providers offering voice and high speed data
services to small and mid-sized enterprises and mobile telephone
service providers for infrastructure applications. AirStar
operates at the higher end of the licensed frequency spectrum
(10 - 39 GHz) with support for an additional frequency in
the lower range (3.5 GHz).

In February of 2002, we acquired from AT&T
Wireless Services, Inc. their fixed wireless development team, a
license to intellectual property, equipment and proprietary
software assets. The technology was originally developed under
the code name Angel. The Angel product was
commercially deployed in the United States by AT&T Wireless
and is a proven and mature platform that is mainly targeted at
service providers offering voice and high speed data services to
residential and small business customers, segments we

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do not address with the AirStar platform. Angel
operates at the lower end of the licensed frequency spectrum
(1.9 - 3.5 GHz). We plan to sell the Angel system
internationally, and are in the process of modifying the Angel
platform to conform to international standards, including adding
frequency options that are more typically used in international
markets, such as 3.5 GHz. We expect these modifications to
be complete in the second half of 2002.


Both the AirStar and Angel platforms have been
designed to minimize the costs of deployment and operation and
to permit operators to offer a broad range of voice, IP and data
services. When modifications are complete, we will offer
complete solutions that operate at point-to-multipoint
frequencies licensed in every major geography in the world,
including Europe, Asia, North America and Central and South
America, which we believe is a significant competitive advantage.

We currently develop, manufacture and sell the
AirStar product for access offerings to small and mid-sized
business and mobile infrastructure, and are developing the Angel
platform for access offerings to residences and small
businesses. We expect out Angel platform modifications to be
completed during the second half of 2002. Each of our product
lines is comprised of three principal components:



| |   |                                                                                                                                                                                                                                                                                
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Customer Premise Equipment,which includes a radio element which
	sends and receives signals to and from the hub equipment, and a
	digital signal processing unit, which connects and provides
	interfaces to the end-users telecommunications and/or data
	network;           
|
| |  | Hubs,which include
	several radio elements that send and receive signals from
	multiple customer premise equipment units and an aggregation
	unit, which aggregates data from the outdoor units and
	interfaces to the telecommunications service providers
	core network; and
|
| |  | Network Management Software,which controls and monitors the
	operation of hubs and customer premise equipment.                                                                                                                                                                 

We sell our products indirectly through OEMs and
local resellers in addition to through a direct sales force. Our
sales to OEMs comprised approximately 31 percent of
revenues in 2001, 89 percent of revenues in 2000, and
64 percent of revenues in 1999. Due to ongoing realignments
of our relationships with certain of our OEM partners we are
uncertain what portion of revenues OEMs will represent in future
periods. However, in the event of continued significant declines
in indirect sales, we will be required to continue to improve
and expand our internal sales, customer advocacy and
administration functions. Furthermore, as a result of these
realignments we could experience order delays and order
cancellations and, therefore, revenues during 2002 could be
adversely affected. We experienced such cancellations and loss
of orders during 2001. Overall, our visibility regarding
potential future revenues is unclear.

International revenues represented approximately
71 percent of total revenues in 2001, 12 percent of
total revenues in 2000, and 43 percent of total revenues in
1999. However, substantially all of our domestic revenues are
related to products sold to OEMs. These OEMs have resold, or
plan to resell, these products to end customers in international
locations.

We have adopted a strategy of outsourcing our
manufacturing operations. While we have manufactured a small
fraction of our products at our San Jose headquarters in 1999
and early 2000, by the fourth quarter of 2000, we achieved a
goal of outsourcing substantially all of our volume product
manufacturing and assembly to contract manufacturers. We
maintain a small facility for prototype production in support of
our research and development efforts. We expect to continue to
outsource substantially all of our product manufacturing for
both AirStar and Angel product lines to contract manufacturers.

Critical Accounting Policies

Revenue Recognition.Revenues consist of sales made
directly to end users and indirectly through OEMs and local
resellers. Revenues from product sales are recognized when all
of the following conditions are met: the product has shipped, an
arrangement exists with the customer and we have the right to
invoice the customer, collection of the receivable is probable
and we have fulfilled all of our material contractual
obligations to the customer. Provisions are made at the time of
revenue recognition for estimated warranty

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costs. If we believe that the collectability of a
receivable is not assured, we defer revenue recognition from
such shipment until such time as the amounts due have been
collected. Some of the factors that we use in evaluating whether
or not to defer revenue from a particular customer include:




| |   |                                                                                           
| | - | ------------------------------------------------------------------------------------------
| |  | the customers liquid assets,                                                             
|
| |  | actual and projected income statements for the
	customer,                                 
|
| |  | actual and projected cash flows for the customer,                                         
|
| |  | our estimate of the customers ability to
	secure future financing,                       
|
| |  | the nature of the customers stockholder and
	lender base,                                
|
| |  | the political and economic environment in the
	country in which the customer operates, and
|
| |  | other intangible factors.                                                                 

As of December 31, 2001 we had an
outstanding deferred revenue balance of $1.9 million, of
which $1.1 million was related to sales to companies in
Argentina. In addition, at December 31, 2001, we had a
total of $2.1 million in outstanding receivables from
companies in Argentina, of which $0.1 million was overdue.
Argentina has suffered significant political and economic
dislocations in periods subsequent to those in which we
recognized revenue related to such receivables. In the event
that we recognize revenues for which the related receivable is
not ultimately collected, and such receivable is in excess of
the applicable allowances, our financial statements would be
adversely affected.

Allowance for Doubtful
Accounts.We perform ongoing credit evaluations
of our customers financial condition and establish an
allowance for doubtful accounts based upon factors surrounding
the credit risk of specific customers, historical trends and
other available information. At December 31, 2001,
approximately 81 percent of the Companys trade
accounts receivable balance was represented by four customers.
Accounts receivable, net of allowance for doubtful accounts of
$1.5 million, was $3.7 million. We believe that we
have sufficient allowances for doubtful accounts to address the
risk associated with our outstanding accounts receivable.

Equity Investments.From time to time, we make equity
investments in third parties. Equity investments in companies in
which we do not exercise a significant influence (generally
those in which we own less than 20 percent of the voting
stock outstanding) are accounted for using the cost method.
Equity investments in which we exercise a significant but not
controlling influence are accounted for using the equity method.
Equity investments in which we exercise a controlling influence
(generally those in which we own more than 50 percent of the
voting stock outstanding) are consolidated into our financial
statements. Currently, we have one investment accounted for
under the cost method. All other equity investments are
consolidated into our financial statements. We evaluate our
investments on an ongoing basis using estimates of undiscounted
future cash flows. Any impairment of value is written down in
the period in which it occurs.

Provision for Excess and Obsolete
Inventory.Inventory, which includes material and
labor costs, is stated at the lower of cost (first-in,
first-out) or market. We maintain a reserve for estimated
obsolescence or unmarketable inventory based upon assumptions
about future demand for our products and the conditions of the
markets in which our products are sold. This reserve is
reflected as a reduction to inventory in the accompanying
consolidated balance sheets. Significant management judgments
and estimates must be made and used in connection with
establishing these reserves. In 2001, we recorded approximately
$25.7 million in inventory provisions. If actual market
conditions are less favorable than our assumptions, additional
reserves may be required.

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Results of Operations

|                                           |                                             |                          |      |      |     |      |     |    |    |  |      |     |     | 
|------------------------------------------ | ------------------------------------------- | ------------------------ | ---- | ---- | --- | ---- | --- | -- | -- |  | ---- | --- | --- | 
|                                           |                                             |                         
|                                           |                                             | Percent of Revenue      
|                                           |                                             |                         
|                                           |                                             | 2001                     |      | 2000 |     | 1999
|                                           |                                             |                          |      |      |     |     
|Revenues                                   |                                             |                          | 100  | %    |     |      | 100 | %  |    |  | 100  | %  
|Cost of revenues                           |                                             |                          | 264  |      |     |      | 76  |    |    |  | 82   |    
|                                           |                                             |                          |      |      |     |      |     |    |    |  |      |    
|Gross profit (loss)                        |                                             |                          | (164 | )    |     |      | 24  |    |    |  | 18   |    
|                                           |                                             |                          |      |      |     |      |     |    |    |  |      |    
|Operating expenses:                        |                                             |                          |      |      |     |      |     |    |    |  |      |    
|                                           | Research and development                    |                          |      | 109  |     |      |     | 36 |    |  |      | 106 |    
|                                           | Sales and marketing                         |                          |      | 56   |     |      |     | 15 |    |  |      | 32  |    
|                                           | General and administrative                  |                          |      | 72   |     |      |     | 14 |    |  |      | 34  |    
|                                           | Amortization of deferred stock compensation |                          |      | 4    |     |      |     | 2  |    |  |      | 6   |    
|                                           |                                             |                          |      |      |     |      |     |    |    |  |      |    
|                                           |                                             | Total operating expenses |      |      | 241 |      |     |    | 67 |  |      |     | 178 | 
|                                           |                                             |                          |      |      |     |      |     |    |    |  |      |    
|Loss from operations                       |                                             |                          | (405 | )    |     |      | (43 | )  |    |  | (160 | )  
|Other income, net                          |                                             |                          |      |      |     |      |     |    |    |  |      |    
|                                           | Interest income                             |                          |      | 73   |     |      |     | 29 |    |  |      | 8   |    
|                                           | Interest expense                            |                          |      | (3   | )   |      |     | (1 | )  |  |      | (6  | )  
|                                           |                                             |                          |      |      |     |      |     |    |    |  |      |    
|                                           |                                             | Total other income, net  |      |      | 70  |      |     |    | 28 |  |      |     | 2   | 
|                                           |                                             |                          |      |      |     |      |     |    |    |  |      |    
|Net loss before provision for income taxes |                                             |                          | (335 | )    |     |      | (15 | )  |    |  | (158 | )  
|Provision for income taxes                 |                                             |                          | 0    |      |     |      | 0   |    |    |  | 0    |    
|                                           |                                             |                          |      |      |     |      |     |    |    |  |      |    
|Net loss                                   |                                             |                          | (335 | )%   |     |      | (15 | )% |    |  | (158 | )% 
|                                           |                                             |                          |      |      |     |      |     |    |    |  |      |    

Revenues.Revenues
primarily consist of sales of the AirStar system. Revenues from
product sales are recognized when all of the following
conditions are met: the product has shipped, an arrangement
exists with the customer and we have the right to invoice the
customer, collection of the receivable is probable and we have
fulfilled all of its material contractual obligations to the
customer. Provisions are made at the time of revenue recognition
for estimated warranty costs. From time to time, we enter into
agreements to sell products to customers on open credit terms.
In such cases, if we believe that the collectability of the
associated receivable is not assured, we defer revenue
recognition from such shipment until such time as the amounts
due have been collected. As of December 31, 2001 we had an
outstanding deferred revenue balance of $1.9 million.

Revenues by geography based on the location of
our original customers were as follows:

|              |  |          |        |                     |  |      |        |      |  |      |        |      |  |  |     |   |  |  |     |   |  |  |     |  
|------------- |  | -------- | ------ | ------------------- |  | ---- | ------ | ---- |  | ---- | ------ | ---- |  |  | --- | - |  |  | --- | - |  |  | --- | -
|              |  |          |        |                    
|              |  | Revenues |        | % of Total Revenues
|              |  |          |        |                    
|              |  | 2001     |        | 2000                |  | 1999 |        | 2001 |  | 2000 |        | 1999
|              |  |          |        |                     |  |      |        |      |  |      |        |     
|Latin America |  | $        | 9,872  |                     |  | $    | 6,661  |      |  | $    | 549    |      |  |  | 42  | % |  |  | 10  | % |  |  | 3   | %
|Europe        |  |          | 6,028  |                     |  |      | 1,447  |      |  |      | 3,736  |      |  |  | 25  |   |  |  | 2   |   |  |  | 21  |  
|Middle East   |  |          | 482    |                     |  |      | 40     |      |  |      | 3,468  |      |  |  | 2   |   |  |  |    |   |  |  | 19  |  
|Asia          |  |          | 468    |                     |  |      | 192    |      |  |      | 6      |      |  |  | 2   |   |  |  |    |   |  |  |    |  
|              |  |          |        |                     |  |      |        |      |  |      |        |      |  |  |     |   |  |  |     |   |  |  |     |  
|International |  |          | 16,850 |                     |  |      | 8,340  |      |  |      | 7,759  |      |  |  | 71  |   |  |  | 12  |   |  |  | 43  |  
|United States |  |          | 6,809  |                     |  |      | 60,187 |      |  |      | 10,426 |      |  |  | 29  |   |  |  | 88  |   |  |  | 57  |  
|              |  |          |        |                     |  |      |        |      |  |      |        |      |  |  |     |   |  |  |     |   |  |  |     |  
|              |  | $        | 23,659 |                     |  | $    | 68,527 |      |  | $    | 18,185 |      |  |  | 100 | % |  |  | 100 | % |  |  | 100 | %
|              |  |          |        |                     |  |      |        |      |  |      |        |      |  |  |     |   |  |  |     |   |  |  |     |  

Substantially all of our domestic revenues are
related to products sold to OEMs and direct resellers. Almost
all of their end customers are located outside of the United
States.

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##### Table of Contents



Countries that accounted for more than
10 percent of revenues based on to the location of our
original customers were as follows:

|              |  |          |       |                     |  |      |        |      |  |      |        |      |  |  |     |  |  |  |    |   |  |  |    |  
|------------- |  | -------- | ----- | ------------------- |  | ---- | ------ | ---- |  | ---- | ------ | ---- |  |  | --- |  |  |  | -- | - |  |  | -- | -
|              |  |          |       |                    
|              |  | Revenues |       | % of Total Revenues
|              |  |          |       |                    
|              |  | 2001     |       | 2000                |  | 1999 |        | 2001 |  | 2000 |        | 1999
|              |  |          |       |                     |  |      |        |      |  |      |        |     
|United States |  | $        | 6,809 |                     |  | $    | 60,187 |      |  | $    | 10,426 |      |  |  | 29% |  |  |  | 88 | % |  |  | 57 | %
|Argentina     |  | $        | 7,175 |                     |  |      | *      |      |  |      | *      |      |  |  | 30% |  |  |  | *  |   |  |  | *  |  
|France        |  | $        | 2,343 |                     |  |      | *      |      |  |      | *      |      |  |  | 10% |  |  |  | *  |   |  |  | *  |  



---



|  |                                         
|- | ----------------------------------------
|* | Revenues less than 10 percent for period

Revenues from customers that comprised more that
10 percent of revenue were as follows:

|                 |  |          |        |                     |  |      |        |      |  |      |        |      |  |  |     |  |  |  |    |   |  |  |    |  
|---------------- |  | -------- | ------ | ------------------- |  | ---- | ------ | ---- |  | ---- | ------ | ---- |  |  | --- |  |  |  | -- | - |  |  | -- | -
|                 |  |          |        |                    
|                 |  | Revenues |        | % of Total Revenues
|                 |  |          |        |                    
|                 |  | 2001     |        | 2000                |  | 1999 |        | 2001 |  | 2000 |        | 1999
|                 |  |          |        |                     |  |      |        |      |  |      |        |     
|Lucent           |  | $        | 7,110  |                     |  | $    | 59,220 |      |  | $    | 10,426 |      |  |  | 30% |  |  |  | 86 | % |  |  | 57 | %
|Techtel          |  |          | 7,007  |                     |  |      | *      |      |  |      | *      |      |  |  | 30  |  |  |  | *  |   |  |  | *  |  
|Condumex         |  |          | 2,390  |                     |  |      | *      |      |  |      | *      |      |  |  | 10  |  |  |  | *  |   |  |  | *  |  
|Imed Link        |  |          | *      |                     |  |      | *      |      |  |      | 1,792  |      |  |  | *   |  |  |  | *  |   |  |  | 10 |  
|NTL              |  |          | *      |                     |  |      | *      |      |  |      | 1,767  |      |  |  | *   |  |  |  | *  |   |  |  | 10 |  
|                 |  |          |        |                     |  |      |        |      |  |      |        |      |  |  |     |  |  |  |    |   |  |  |    |  
|Aggregate amount |  | $        | 16,507 |                     |  | $    | 59,220 |      |  | $    | 13,985 |      |  |  | 70% |  |  |  | 86 | % |  |  | 77 | %
|                 |  |          |        |                     |  |      |        |      |  |      |        |      |  |  |     |  |  |  |    |   |  |  |    |  



---



|  |                                         
|- | ----------------------------------------
|* | Revenues less than 10 percent for period

Revenues decreased to $23.7 million in 2001
from $68.5 million in 2000, due principally to reduced
demand for broadband wireless access equipment from competitive
local exchange carriers in Europe, which was reflected in
delayed and cancelled orders from some of our OEM partners.
Revenues increased to $68.5 million in 2000 from
$18.2 million in 1999, due principally to increased AirStar
system sales to our OEM partners for resale to competitive local
exchange carriers in Europe. This increased activity was related
to an increase in spectrum licensing activity at frequencies
utilized by the AirStar system. Overall, our visibility
regarding potential future revenue is unclear.

Gross Profit (Loss).Gross profit(loss) represents total
revenues less the cost of revenues. Cost of revenues consists of
contract manufacturing costs, material costs, labor costs,
manufacturing overhead, warranty reserves and other direct
product costs. Gross profit decreased to a loss of ($38.9)
million in 2001 from a profit of $16.4 million in 2000. As
a percentage of revenues, gross profit decreased to (164.2)
percent in 2001 from 24.0 percent in 2000. The decline in
gross profit on a dollar basis as well as on a percentage basis
primarily reflects a $42.4 million charge related to excess
and obsolete inventory and other material-related commitments
made in anticipation of significantly higher revenue volumes
than those achieved. Gross profit was also negatively affected,
but to a lesser extent, by an increase in the proportion of
revenues from customer premise equipment as opposed to hub
equipment and a sales volume insufficient to fully absorb
internal manufacturing expenses. These effects were partially
offset by an increase in the proportion of revenues from direct
sales. In addition, the negative effect of inventory and
material related commitments on gross profit was offset in part
by the sale of some products which for which we had fully
reserved for obsolescence but which we were able to sell to
customers. Although these sales were at significant discounts to
the original cost of goods sold associated with these products,
the net impact was to increase gross profit due to the reserves
taken. The total amounts added to gross profit during 2001 as a
result of these changes was $0.9 million. We do not expect
to realize significant gross profit contribution from such sales
in future periods. Gross profit increased to $16.4 million
in 2000 from $3.3 million in 1999, due to increased unit
sales of the AirStar product. Gross profit increased as a
percentage of revenue to 24.0 percent in 2000 from
18.2 percent in 1999. This increase principally reflects
the impact of cost reduction and improved absorption of
manufacturing overhead with the 276.4 percent
year-over-year increase in revenues.

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We have experienced substantial fluctuations in
gross profit. The principal drivers of the fluctuations, other
than the inventory and material-related commitments in 2001, are
the level of revenues, the product sales mix and the customer
sales mix. In general, customer premise equipment sales result
in lower gross profit percentages than hub sales. The unit ratio
of customer premise equipment sales to hub sales was 25:1 for
2001 compared to 8:1 for 2000 and 16:1 in 1999. We expect the
ratio of unit sales of customer premise equipment to hub unit
sales to be in excess of 25:1 in future periods. Sales to OEMs
generate lower gross profit percentages than sales to local
resellers or direct sales to customers. Sales to OEMs
represented 31 percent of revenues in 2001, compared to
89 percent of revenues in 2000 and 64 percent of
revenues in 1999. In addition, we expect average selling prices
for our products to decline substantially during 2002. We have
initiatives underway to reduce direct manufacturing and indirect
manufacturing overhead costs. However, to the extent that we are
unable to reduce our product costs at a rate faster than the
rate at which average selling prices and/or total revenues
decline, gross profit as a percentage of revenues will continue
to decline during 2002. We expect that the introduction of the
Angel product, the introduction of new customers, channel mix,
product mix, declining average selling prices, and our efforts
to reduce product costs will result in fluctuations in our gross
profits in future periods.

Research and Development.Research and development expenses
consist of compensation costs, the cost of some software
development tools, consultant fees and prototype expenses
related to the design, development and testing of our products.
Research and development expenses increased to
$25.8 million in 2001 from $24.3 million in 2000. The
increase in research and development expenses was primarily due
to an increase in personnel and related compensation costs due
mainly to an increase in average research and development
personnel from 158 to 161. This increase was partially offset by
a decrease of $1.2 million in third-party engineering
charges, prototype and other expenses related to the timing of
the development and release of new product features for the
AirStar system. Research and development expenses increased to
$24.3 million in 2000 from $19.3 million in 1999,
primarily due to an increase in research and development
personnel from 142 to 158, an increase of $3.0 million in
prototype material expenses, a $0.4 million increase in
third-party engineering charges and expenses related to the
release of new product features for the AirStar system. We
expect that continued substantial investment in research and
development, particularly in the modification of the Angel
product, will be critical to attaining our strategic product and
cost reduction objectives. In addition, as a result of our
acquisition of the Project Angel product line from AT&T
Wireless, we significantly increased the number of research and
development projects that we are engaged in and also added 96
research and development personnel. As a result, we expect
research and development expenses to increase on both a dollar
and percentage basis in 2002.

Sales and Marketing.Sales and marketing expenses consist
primarily of compensation costs, commissions, travel and related
expenses for marketing, sales, customer advocacy and field
service support personnel. We also incur expenses related to
product management, trade show and promotional expenses. Sales
and marketing expenses increased to $13.3 million in 2001
from $10.5 million in 2000. The increases were primarily due to
an increase in personnel and related compensation costs related
to an increase in average sales and marketing personnel from 45
to 59 and increases of $1.1 million in promotional
expenses. Sales and marketing expenses increased to
$10.5 million in 2000 from $5.8 million in 1999. The
increase was primarily due to the significant expansion in the
average number of sales, technical assistance and field support
personnel necessary to support both the pre-sale and post-sale
activities associated with the AirStar system from 37 to 45. We
expect these expenses to continue to increase both on an
absolute basis and as a percentage of revenues in 2002 as we
invest in expanding our sales and customer advocacy
organizations and as the percentage of our sales to systems
integrators declines.

General and Administrative.General and administrative expenses
consist primarily of compensation costs and related expenses for
executive, finance, management information systems, human
resources and administrative personnel. These expenses also
include professional fees, facilities and other general
corporate expenses. General and administrative expenses
increased to $17.0 million in 2001 from $9.8 million in
2000. The increase was primarily due to increased personnel and
related compensation costs related to an increase in general and
administrative personnel from 25 to 28, an increase of
$1.3 million for doubtful accounts reserves, severance
expenses of $0.8 million related to our reduction in work
force effected June 30, 2001, fixed assets

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disposals of $0.4 million, increased
facilities expenses of $2.4 million associated with
additional leased building space and growth in our
infrastructure, in addition to increased director and officer
insurance of $0.4 million. General and administrative
expenses increased to $9.8 million in 2000 from
$6.3 million in 1999. The increase was primarily due to
increases in personnel and related compensation costs related to
an increase in general and administrative personnel from 20 to
29, increased costs associated with being a public company of
$0.9 million and increased reserves associated with higher
revenues by $0.5 million. We expect our general and
administrative expenses to increase due to our acquisition of
assets from AT&T Wireless in absolute dollars and as a
percentage of revenues in 2002.


Amortization of Deferred Stock Compensation.Amortization of deferred stock
compensation results from the granting of stock options to
employees with exercise prices per share determined to be below
the estimated fair values per share of our common stock at dates
of grant. The deferred compensation that results is being
amortized to expense over the vesting periods of the individual
options, generally four years. We have recorded total deferred
stock compensation of $4.8 million through
December 31, 2001. Amortization of deferred stock
compensation was $857,000 in 2001 and $1.1 million in 2000
and 1999.

Other Income, net.Other income, net consists primarily
of interest income earned on low-risk, marketable securities and
interest paid on outstanding debt. Other income, net decreased
to $16.5 million in 2001 from $19.0 million in 2000
due to decreased cash balances and declining interest rates.
Other income, net increased to $19.0 million in 2000 from
$0.4 million in 1999 due to significantly increased cash
balances from our follow-on offering in March 2000.

Income Taxes.We
have incurred a net loss for each period since inception.
Recorded income taxes represent taxes paid by our foreign
subsidiaries. As of December 31, 2001, we had Federal and
state net operating loss carry forwards of approximately
$173.0 million and $63.0 million, respectively, which
expire at various dates through 2022. Due to the uncertainty of
future profitability, a valuation allowance equal to the
deferred tax asset has been recorded. Certain changes in
ownership resulting from the sales of common stock will limit
the future annual realization of the tax net operating loss
carry forwards.

Liquidity and Capital Resources

As of December 31, 2001, cash and cash
equivalents were $90.5 million, short-term marketable
securities were $116.0 million and long term marketable
securities were $119.9 million. We have a $10 million
bank line of credit which expires in January 2004. Under the
agreement, the we must comply with certain financial and other
covenants. As of December 31, 2001, we were in compliance
with all covenants. As of December 31, 2001, there were no
borrowings outstanding and amounts utilized for outstanding
letters of credit were $2.3 million under this agreement.
The line of credit is secured by eligible outstanding accounts
receivable and inventory. At December 31, 2001, the amount
available under the line of credit was $3.5 million. Any
borrowings under the line would accrue interest at the 30-day
LIBOR plus 1.5 percent, 3.4 percent at
December 31, 2001, or the banks prime rate,
4.8 percent at December 31, 2001, at our option. Capital
lease obligations were $1.3 million at December 31,
2001. Operating lease obligations through 2006 were
$20.4 million at December 31, 2001.

Cash used in operating activities was
$28.3 million in 2001 due primarily to the net loss,
adjusted for non-cash charges of $43.0 million, including
provisions for inventory, doubtful accounts and material-related
commitments. Cash used in operating activities was
$33.0 million for the year ended December 31, 2000,
primarily due to the net loss in addition to a
$21.0 million increase in inventory.

Cash provided by investing activities was
$30.4 million for the year ended December 31, 2001,
primarily due to net maturities of marketable securities of
$37.8 million, partially offset by $5.8 million in
capital equipment purchases. Cash used in investing activities
was $238.5 million for the year ended December 31,
2000, primarily due to net purchases of marketable securities of
$233.3 million.

Cash used in financing activities was
$3.2 million for the year ended December 31, 2001,
primarily due to payments on the bank line of credit and capital
leases of $6.1 million, partially offset by proceeds from
the issuance of common stock of $2.9 million. Cash provided
by financing activities was $355.8 million for the

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year ended December 31, 2000, primarily due
to $357.9 million from the net proceeds of our follow-on
offering in March 2000.


The capital required for volume manufacturing is
being committed by our contract manufacturers. We provide six or
twelve month forecasts to our contract manufacturers. We
generally make rolling 60-day purchase commitments, subject to
cancellation fees. In addition, in specific instances we may
agree to assume liability for limited quantities of specialized
components with lead times beyond this 60-day period. As of
December 31, 2001, amounts outstanding under forecasts and
long-lead time commitments were $3.1 million.

In addition, from time to time in the past, we
have committed to purchase minimum volumes of products from
certain of our contract manufacturers. As of December 31,
2001 the value of outstanding minimum purchase commitments for
which we had not yet placed purchase orders was
$31.6 million. We believe that our currently forecasted
demand for products, combined for our reserves for inventory and
material related commitments will be sufficient to meet these
commitments in the future.

We have no other material commitments. Our future
capital requirements will depend upon many factors, including
the timing of research and product development efforts and
expansion of our marketing efforts for both our AirStar and
Angel products. We expect to continue to expend significant but
smaller amounts on property and equipment related to the
expansion of our facilities, and on laboratory and test
equipment for research and development.

On February 12, 2002, we acquired AT&T
Wireless fixed wireless development team, a license to
intellectual property, equipment and proprietary software assets
for $16 million in cash and 8.2 million shares of
Netro common stock.

We believe that our cash and cash equivalents
balances, short-term and long-term marketable securities and
funds available under our existing line of credit will be
sufficient to satisfy our cash requirements for at least the
next twelve months. Our management intends to invest our cash in
excess of current operating requirements in interest-bearing,
investment-grade marketable securities.

Accounting Pronouncements

In July 2001, the Financial Accounting Standards
Board, or FASB, issued Statement of Financial
Accounting Standards, or SFAS, Nos. 141 and
142, Business Combinations and Goodwill and
Other Intangibles. SFAS No. 141 requires all business
combinations initiated after June 30, 2001 to be accounted
for using the purchase method. Under SFAS No. 142, goodwill
is no longer subject to amortization over its estimated useful
life. Rather, goodwill is subject to at least an annual
assessment for impairment applying a fair-value based test.
Additionally, an acquired intangible asset should be separately
recognized if the benefit of the intangible asset is obtained
through contractual or other legal rights, or if the intangible
asset can be sold, transferred, licensed, rented, or exchanged,
regardless of the acquirers intent to do so. As we had no
goodwill recorded on our balance sheets at December 31,
2001, these pronouncements did not have a material impact on our
financial position or results of operations.

In October 2001, the FASB issued SFAS
No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets. SFAS No. 144 supersedes SFAS
No. 121. SFAS No. 144 primarily addresses significant
issues relating to the implementation of SFAS No. 121 and
develops a single accounting model for long-lived assets to be
disposed of, whether primarily held, used or newly acquired. The
provisions of SFAS No. 144 will be effective for fiscal
years beginning after December 15, 2001. We do not
anticipate the adoption of this pronouncement to have a material
impact on our financial position or results of operations.

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Risk Factors

You should carefully consider the following
factors and other information in this prospectus before deciding
to purchase our common stock. Any of these risks could have a
material adverse effect on our business, financial condition,
results of operations and prospects, which could in turn have a
material adverse effect on the price of our common
stock.

We Have a
History of Losses, Expect Future Losses and May Never Achieve
Profitability

We have never recorded net income from operations
and as of December 31, 2001, we had an accumulated deficit
of $185.9 million. We expect to continue to incur net
losses. We incurred net losses of approximately
$79.3 million in 2001, $10.2 million in 2000 and
$28.8 million in 1999. We anticipate continuing to incur
significant sales and marketing, research and development and
general and administrative expenses and, as a result, we will
need to generate significantly higher revenues to achieve
profitability. To date, we have funded our operations primarily
through the sale of equity securities. We cannot be certain that
we will realize sufficient revenues to achieve profitability.
Even if we ultimately do achieve profitability, we may not be
able to sustain or increase profitability on a quarterly or
annual basis. If our revenues grow more slowly than we
anticipate, if we fail to reduce our product costs quickly
enough, or if our operating expenses exceed our expectations and
cannot be adjusted accordingly, our business will be harmed.



| |                                                                                                                                
| | -------------------------------------------------------------------------------------------------------------------------------
| | If We Are Unable to Change Our Customer
	Base, Our Revenues Will Continue to Decline and Our Results of
	Operations Will Suffer

During 2000, the majority of our revenues came
from sales to original equipment manufacturers, or OEMs, who in
turn, resold our products to competitive local exchange carriers
in Europe. Since that time, there has been a significant
dislocation in the market for these service providers,
particularly in the United States and Europe, which has included
several prominent bankruptcies. During 2001, we began the
process of modifying our AirStar product line to be more
suitable for incumbent local exchange carriers and mobile
service operators. Furthermore, we believe that the most
significant market for our Angel product will be incumbent local
exchange carriers. We have limited experience with sales to
these types of customers. We cannot assure you that these
customers will be willing to purchase products from a smaller
company such as Netro. Furthermore, sales cycles with these
customers can be even longer than with competitive local
exchange carrier customers. For example, in connection with
sales of our AirStar product to our first incumbent local
exchange carrier customer, we received a commitment from them to
qualify our product approximately six months prior to the
commencement of qualification testing, qualification testing
took more than three months, and our first order following the
completion of qualification testing took more than six months
from the date qualification testing was complete. We cannot
assure that we will ever sell enough of our AirStar or Angel
products to become profitable.



| |                                                                                                               
| | --------------------------------------------------------------------------------------------------------------
| | Due to Our Limited Operating History, It Is
	Difficult to Predict Future Operating Results or Our Stock
	Price

We have generated only limited revenues to date,
and revenues from our current AirStar product have been
significant only in the past three years. Prior to 1999, most of
our revenues came from sales of a discontinued product line. In
2001, sales of the AirStar product declined significantly
compared to 2000. In the second half of 2002, we plan to begin
selling our new Angel product. Due to our limited operating
history, disappointing sales of the AirStar product in 2001, and
the uncertainties associated with the time of launch and market
acceptance of our new Angel product line in 2002, it is
difficult for us to predict future results of operations.
Investors in our common stock must consider our operational and
financial prospects in light of these risks.

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| |                                                                                                                                                                                                                                                                          
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our Future Operating Results Are Dependent
	on the Sales of Two Similar Product Lines Serving an Emerging
	Market. If Revenues From These Products Do Not Meet Our
	Expectations, We Will Not Have Other Products to Offset the
	Negative Impact on Our Operating Results

We currently derive substantially all of our
revenues from our AirStar product line and expect that this will
continue until our Angel product enters the market. If there are
unexpected changes in revenues from our current product or if
our Angel product is not accepted by the market, we will not
have other products to offset the negative impact on our
operating results. Many of the risk factors listed in this
section could negatively affect sales of our product line. The
market may not continue to demand our current product and we may
not be successful in developing or marketing our Angel product
or any new or enhanced products. Any reduction in the demand for
our current product or our failure to successfully develop or
market our Angel product and introduce new or enhanced products
could adversely affect our operating results and cause the price
of our common stock to decline.



| |                                                                                                                                                                                
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If We Are Not Able to Successfully Modify,
	Market and Sell Our New Angel Product, Anticipated Benefits of
	Our Acquisition of Assets From AT&T Wireless May Never Be
	Achieved

In February 2002, we acquired technologies and
other assets from AT&T Wireless Services, Inc.
(AT&T Wireless or AWS) associated
with its Angel product. We plan to sell the Angel product in
international markets and are currently in the process of
modifying the Angel platform to conform to international
standards. While we expect these modifications to be complete in
the second half of 2002, unforeseen difficulties could delay our
modification and launch of the Angel product, including
difficulties and delays that are out of our control. For
example, our ability to develop radios that operate at
frequencies used in international markets depends on third
parties to develop technology that will be incorporated in our
radios. We cannot assure that these third parties will develop
these components in a timely way, if at all. Even if these
components are successfully developed, we cannot assure that the
Angel product will achieve market acceptance or generate
revenues.



| |                                                                                                                                                                                                           
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If We Are Unable to Integrate Successfully
	the Employees, Technologies and Other Assets We Acquired from
	AT&T Wireless into Our Company, We May Not Achieve the
	Anticipated Benefits of the Acquisition

We are in the initial stages of integrating the
new employees, technologies and other assets related to the
Angel product that we acquired from AT&T Wireless in
February 2002 into our company and corporate culture. Because
the new employees and facility will remain in Redmond,
Washington, and our headquarters are in San Jose, California, we
face the challenge of integrating new and old employees in
geographically disparate locations. The new employees were part
of a well-funded research and development project for a company
much larger and more established than Netro. It could be
difficult or take time for our new employees to adjust to the
resource constraints imposed by operating in a small company
culture. The integration will take time and could distract
management from our business. We cannot assure you that we will
be successful in integrating the acquired personnel or other
assets into Netro. If we are unable to integrate successfully
the employees, technologies and other assets we acquired, we may
incur increased expenses and may never achieve the anticipated
benefits of the acquisition. In addition, if any significant
number of the new Angel product employees were to leave our
company, we may experience difficulties in launching and selling
the product.

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If We Cannot
Reduce Our Product Costs, Our Results of Operations Will
Suffer

We expect that the average selling price for
broadband fixed wireless equipment will decline substantially
during 2002. In addition, market acceptance of our products will
depend in part on reductions in the unit price of our AirStar
and Angel products. If we cannot reduce the cost of our products
enough to keep pace with the required price reductions, our
product sales and/or our gross margins, and consequently our
results of operations, will suffer. We have experienced
significant delays in implementing cost reductions in the past
and may continue to experience delays in the future.

Our ability to implement cost reductions is also
dependent on factors outside of our control. For example,



| |   |                                                                                                                                                 
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------
| |  | our contract manufacturers must correctly
	implement cost reductions that we design into the products.                                          
|
| |  | our cost projections are based upon assumptions
	regarding the ability of our contract manufacturers to achieve
	volume-related cost reductions.
|
| |  | many of our design cost reductions depend on the
	emergence of low-cost components which we expect to be developed
	by third parties.           

We do not control these third parties. To the
extent they are unable or unwilling to cooperate with us in
reducing product cost, or their efforts in this regard are not
timely, our product costs will exceed our internal projections.

In addition, we believe that the price for high
speed wireless telecommunications equipment is driven by the
prevailing price for other high speed connection technologies,
such as the cost of obtaining digital subscriber line service or
leasing a T1 connection from the traditional telecommunications
service provider in a given locale. The price of these
connections has declined significantly in many countries in the
recent past, and could decline significantly in the future. If
this trend continues, service providers might be more likely to
use these kinds of connections than to introduce new technology
such as our products, which would adversely affect our market
share and pricing.



| |                                                                                                                                                                                                
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If We Do Not Succeed in Developing
	Relationships Directly with Telecommunications Service Providers
	and in Strengthening Our Direct and Indirect Sales Channels, Our
	Business Will Be Harmed

Prior to 2001, our revenues depended to a
significant extent on orders from Lucent, an OEM. When Lucent
began implementing restructuring initiatives at the end of 2000,
the division with which we had historically coordinated our
efforts was shut down. As a result, in 2001 our business
suffered and our results were disappointing due to the drop-off
in orders from Lucent. In 2001, we began efforts to decrease our
focus on selling to OEMs and to develop a sales and customer
advocacy infrastructure that deals directly with the ultimate
customer, the telecommunications service provider. Strengthening
our direct sales force continues to be a vital part of our
strategy. If we do not develop these direct contacts with and
sales to the service providers, we will not be able to diversify
and expand our customer base and will continue to depend on
indirect sales through OEMs. In addition, failure to develop
these contacts would prevent us from building and maintaining
the long-term relationships needed to sustain our installed
customer base. Our relationships with our current service
provider customers must also be maintained and strengthened so
that we can provide potential service provider customers with
positive customer references. Furthermore, if we are unable to
expand our business with current service provider customers as
they extend their networks into other countries, our business
will be harmed.

In order to develop these relationships, we need
to continue to increase the size of our direct sales and
customer advocacy organizations. Qualified personnel are
difficult to find and training these personnel requires a
significant time commitment. It may take a substantial amount of
time for new personnel to become productive. To the extent we
are unable to further expand our direct sales force and customer
advocacy organizations, we will not be able to accomplish our
goal of developing and maintaining long-term relationships with
service providers.

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| |                                                                                                                                                                                                                                                                       
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Many Projects That Include Our Products
	Require System Integration Expertise and Third-Party Financing,
	which We Are Unable to Provide. If Sources for System
	Integration or Financing Cannot Be Obtained as Needed, Service
	Providers May Not Select Our Products

Some service providers using our products
purchase them as a part of a larger network deployment program
that can require capital expenditures in the hundreds of
millions of dollars. In some circumstances, these service
providers require their equipment vendors to integrate equipment
into these larger networks and finance deployment. We will be
unable to provide this integration or financing and therefore
will have to rely on the ability of OEMs or third parties to
integrate or finance these transactions. In the event that we
are unable to identify distributors and OEMs that are able to
provide this integration or financing on our behalf, we would be
unable to compete for the business of some service provider
accounts and our business might be adversely affected.



| |                                                                                                                                                                            
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Majority of Service Providers Using Our
	Products are International and Payments from Them Are Dependent
	on the Political and Economical Situation in Those
	Countries

Our products are marketed almost exclusively to
an international customer base. The stability of these customers
and their service bases are directly related to the political
and economic situations in these various countries. In 2001,
30 percent of our sales were to Argentina, a country which
has experienced significant political and economic instability
in recent months. Continuing instability in Argentina or
additional political or economic instability in other countries
could significantly impact our ability to sell to and collect
from existing or potential customers.



| |                                                                                                                                                                   
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Intense Competition in the Market for
	Communications Equipment Could Prevent Us from Increasing or
	Sustaining Revenues or Achieving or Sustaining
	Profitability

The market for high speed, wireless,
point-to-multipoint telecommunications equipment is rapidly
evolving and highly competitive. Increased competition is likely
to result in price reductions, shorter product life cycles,
longer sales cycles and loss of market share, any of which would
adversely affect our business.

Depending on the market we are addressing we face
different types of competition:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Enterprise Access.As an enterprise access technology,
	point-to-multipoint fixed wireless solutions compete with
	wire-based solutions, such as fiber optic cable and leased T1
	and E1 lines and wireless solutions, such as point-to-point
	radios. As a company within the point-to-multipoint fixed
	wireless industry addressing small and medium enterprise access,
	we compete through our AirStar product with large OEMs, such as
	Alcatel, Ericsson and Marconi, as well as with smaller wireless
	only companies.                                                                        
|
| |  | Residential and Small Business Access.As a residential and small business
	access technology, point-to-multipoint fixed wireless solutions
	compete with wire-based solutions, such as DSL and cable modems.
	As a company within the point-to-multipoint fixed wireless
	industry addressing residential and small business access we
	compete through our Angel product with established wireless
	local loop vendors, such as Innowave (a division of ECI
	Telecommunications), AirSpan and Alvarion, as well as with
	numerous startup companies that are developing products for our
	industry.
|
| |  | Mobile Infrastructure.As a technology for connecting
	cellular base stations to the core telecommunications network,
	point-to-multipoint fixed wireless solutions compete with
	wire-based solutions such as leased T1 and E1 lines and wireless
	solutions such as point-to-point radios. As a company within the
	point-to-multipoint fixed wireless industry addressing cellular
	infrastructure, we compete through our AirStar product
	principally with large OEMs, such as Alcatel, Ericsson and
	Marconi.                                                                                  

We expect competition to persist and intensify in
the future. Many of our competitors are substantially larger
than we are and have significantly greater financial, sales,
marketing, technical, manufacturing and other resources and more
established distribution channels. These competitors may be able
to respond more rapidly to new or emerging technologies and
changes in customer requirements or to devote greater resources
to the development, promotion, sale and financing of their
products than we can. Our competitors may also attempt to
influence the adoption of standards that are not compatible with
our current architecture. Our

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larger, more established competitors may have
more influence with standards setting bodies than we do. If
standards other than ours are adopted, this may require us to
incur additional development and integration costs and may delay
our sales efforts.


Some of our competitors may make strategic
acquisitions or establish cooperative relationships to increase
their ability to gain customer market share rapidly. These
competitors may enter our existing or future markets with
solutions that may be less expensive, provide higher performance
or additional features or be introduced earlier than our
solutions. We also expect that other companies may enter our
market with better products and technologies. If any technology
that is competing with ours is more reliable, faster or less
expensive or has other advantages over our technology, then the
demand for our products and services would decrease, which would
seriously harm our business.

We expect our competitors to continue to improve
the performance of their current products and to introduce new
products or new technologies that may supplant or provide lower
cost alternatives to our products. To be competitive, we must
continue to invest significant resources in research and
development, sales and marketing and customer support. We cannot
be sure that we will have sufficient resources to make these
investments or that we will be able to make the technological
advances necessary to be competitive. As a result, we may not be
able to compete effectively against our competitors.



| |                                                                                                       
| | ------------------------------------------------------------------------------------------------------
| | We Have a Long Sales Cycle, which Could
	Cause Our Results of Operations and Stock Price to
	Fluctuate

Our sales cycles are long and unpredictable. As a
result, our revenues may fluctuate from quarter to quarter and
we may be unable to adjust our expenses accordingly. This would
cause our operating results and stock price to fluctuate. OEMs
and service providers typically perform numerous tests and
extensively evaluate products before incorporating them into
networks. The time required for testing, evaluation and design
of our products into the service providers network
typically ranges from six to twelve months. If a service
provider decides to supply commercial service with our products,
it can take an additional six to twelve months before a service
provider commences deployment of our products. Some additional
factors that affect the length of our sales cycle include:



| |   |                                                   
| | - | --------------------------------------------------
| |  | acquisition of roof rights;                       
|
| |  | deployment and planning of network infrastructure;
|
| |  | complexity of a given network;                    
|
| |  | scope of a given project;                         
|
| |  | availability of radio frequency; and              
|
| |  | regulatory issues.                                

In addition, the delays inherent in our sales
cycle raise additional risks of service provider decisions to
cancel or change their product plans. Our business is adversely
affected when a significant customer reduces or delays orders
during our sales cycle or chooses not to deploy networks
incorporating our products. For example, delays in the licensing
process for 26GHz spectrum in China have limited our ability to
sell a product we developed specifically for this market.



| |                                                                                  
| | ---------------------------------------------------------------------------------
| | We May Purchase Significant Inventory for
	Planned Sales which Do Not Materialize

In future periods, we generally anticipate
significant increases in our working capital needs due to
planned revenue increases. In anticipation of these expected
revenues, we may purchase significant amounts of inventory and
incur significant payment obligations. Due to the long and
unpredictable nature of our sales cycle or other factors outside
of our control, these anticipated future revenues may not
materialize. If the anticipated revenues do not materialize, we
could end up with inventory levels and/or purchase commitments
with vendors that are significantly in excess of our needs,
which could diminish our working capital and/or

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cause significant losses. We experienced such
excesses in recent quarters as a result of lower than expected
revenues during such periods.




| |                                                                                                                                                
| | -----------------------------------------------------------------------------------------------------------------------------------------------
| | Our Products May Contain Defects that Could
	Harm Our Reputation, Be Costly to Correct, Expose Us to
	Litigation and Harm Our Operating Results

We and our customers have from time to time
discovered defects in our products and additional defects may be
found in the future. If defects are discovered, we may not be
able to correct them in a timely manner or at all. Defects and
failures in our products could result in a loss of, or a delay
in, market acceptance of our products. In addition, defects in
our products could cause adverse publicity, damage our
reputation and impair our ability to acquire new customers. In
addition, we may need to make significant capital expenditures
to eliminate defects from our products.

Moreover, because our products are used in
critical telecommunications networks, we may be subject to
significant liability claims if our products do not work
properly. The provisions in our agreements with customers that
are intended to limit our exposure to liability claims may not
preclude all potential claims. In addition, any insurance
policies we have may not adequately limit our exposure with
respect to such claims. We warrant to our current customers that
our products will operate in accordance with specified customer
requirements. If our products fail to conform to these
specifications, our customers could require us to remedy the
failure or could assert claims for damages. Liability claims
could require us to spend significant time and money in
litigation or pay significant damages. Any such claims, whether
or not successful, would be costly and time-consuming to defend
and could seriously damage our reputation and our business.



| |                                                                                                                                           
| | ------------------------------------------------------------------------------------------------------------------------------------------
| | Our Business Is Subject to Many Factors
	that Could Cause Our Quarterly Operating Results to Fluctuate
	and Our Stock Price to Be Volatile

Our quarterly and annual operating results have
fluctuated in the past and are likely to fluctuate significantly
in the future due to a variety of factors, many of which are
outside of our control. If our quarterly or annual operating
results do not meet the expectations of securities analysts and
investors, the trading price of our common stock could
significantly decline. Some of the factors that could affect our
quarterly or annual operating results include:



| |   |                                                                                                                                                                                                    
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the timing and amount of, or cancellation or
	rescheduling of, orders for our products;                                                                                                            
|
| |  | the timing and our ability to develop, introduce,
	ship and support new products and product enhancements, such as
	our planned introduction of our Angel product, and manage
	product transitions;
|
| |  | announcements, new product introductions and
	reductions in price of products offered by our competitors;                                                                                          
|
| |  | market acceptance of our products;                                                                                                                                                                 
|
| |  | a decrease in the average selling prices of our
	products;                                                                                                                                         
|
| |  | our ability to achieve cost reductions;                                                                                                                                                            
|
| |  | our ability to obtain sufficient supplies of sole
	or limited source components for our products;                                                                                                  
|
| |  | our ability to achieve and maintain production
	volumes and quality levels for our products;                                                                                                       
|
| |  | the volume of products sold and the mix of
	distribution channels through which they are sold;                                                                                                     
|
| |  | the loss of any one of our major customers or a
	significant reduction in orders from those customers;                                                                                             
|
| |  | increased competition, particularly from larger,
	better capitalized competitors;                                                                                                                  
|
| |  | fluctuations in demand for our products and
	services; and                                                                                                                                         
|
| |  | telecommunications and wireless market conditions
	and economic conditions generally.                                                                                                              

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Due in part to factors such as the timing of
product release dates, purchase orders and product availability,
significant volume shipments of products could occur at the end
of our fiscal quarter. Failure to ship products by the end of a
quarter may adversely affect our operating results. In the
future, our customers may delay delivery schedules or cancel
their orders without notice. Due to these and other factors,
quarterly revenue, expenses and results of operations could vary
significantly in the future, and period-to-period comparisons
should not be relied upon as indications of future performance.



| |                                                                                                                                                                                                                            
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We Depend on Contract Manufacturers. If
	These Manufacturers Are Unable to Fill Our Orders on a Timely
	Basis, and We Are Unable to Find Alternative Sources, We May Be
	Unable to Deliver Products to Meet Customer Orders

We currently only manufacture prototypes of our
products and perform testing and staging at our own facilities.
The remaining manufacturing is performed by contact
manufacturers. If our manufacturers are unable or unwilling to
continue manufacturing our products in required volumes, we
would have to identify and train acceptable alternative
manufacturers, which could take as long as six months and cause
our results of operations to suffer. We also expect to use
contract manufacturers to manufacture the Angel product line,
however, none of our current contract manufacturing partners,
nor any of the other partners with whom we are in discussions,
have experience manufacturing the Angel product line. As a
result, we cannot be assured of their ability to manufacture the
Angel product at the costs we currently estimate or with
sufficient quality. Additionally, it will take these contract
manufacturers time and expense to establish the supply chain
necessary to obtain components and sub-assemblies. We cannot
assure that they will be able to timely establish the supply
chains and become qualified to manufacture the Angel product. As
a result, we may not be able to achieve our goal of making
shipments and obtaining revenues during the second half of 2002
from the Angel product line.

Our experience with these manufacturers provides
us with no basis to project their delivery schedules, yields or
costs. In addition, few manufacturers produce radios like ours
on a large scale. It is possible that a source may not be
available to us when needed, and we may not be able to satisfy
our production requirements at acceptable prices and on a timely
basis, if at all. Any significant interruption in supply would
affect the allocation of products to customers, which in turn
could have an adverse effect on our business. In addition, by
outsourcing our manufacturing we are less able to control the
quality of our finished products.



| |                                                                               
| | ------------------------------------------------------------------------------
| | If We Do Not Meet Product Introduction
	Deadlines, Our Business Will Be Harmed

Our inability to develop new products or product
features on a timely basis, or the failure of new products or
product features to achieve market acceptance, could adversely
affect our business. In the past, we have experienced design and
manufacturing difficulties that have delayed our development,
introduction or marketing of new products and enhancements which
has caused us to incur unexpected expenses. For example, the
first trial shipments of AirStar were delayed for almost one
year due to technical problems. In addition, some of our
customers have conditioned their future purchases of our
products on the addition of product features. In the past we
have experienced delays in introducing new features. We also
cannot assure that we will be successful in our efforts to
release product enhancements enabling significantly higher peak
transmission rates than we currently offer. Furthermore, in
order to compete in many markets, we will have to develop
different versions of our existing products that operate at
different frequencies and comply with diverse, new or varying
governmental regulations in each market.



| |                                                                                                                                                                                                        
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Because Some of Our Key Components Are from
	Sole Source Suppliers or Require Long Lead Times, Our Business
	Is Subject to Unexpected Interruptions, which Could Cause Our
	Operating Results to Suffer

Many of our key components are complex to
manufacture and have long lead times. They are purchased from
sole source vendors for which alternative sources are not
currently available. In the event of a reduction or interruption
of supply, or a degradation in quality, as many as six months
could be required before we would begin receiving adequate
supplies from alternative suppliers, if any. As a result,
product shipments could be delayed and our revenues and results
of operations would suffer. If we receive a smaller allocation of

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component parts than is necessary to manufacture
products in quantities sufficient to meet customer demand,
customers could choose to purchase competing products and we
could lose market share.




| |                                                                                                                                                                                           
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If High Speed Wireless Telecommunications
	Technology or Our Implementation of This Technology Is Not
	Accepted by Service Providers, We Will Not Be Able to Sustain or
	Grow Our Business

Our future success is substantially dependent on
whether high speed wireless telecommunications equipment gains
market acceptance as a means to provide telecommunications voice
and data services. All of our products are based on this
technology. In the event that service providers adopt
technologies other than the high speed wireless technology that
we offer, we may not be able to sustain or grow our business.
Service providers continuously evaluate alternative high speed
access technologies, including wire-based technologies such as
digital subscriber lines, cable modems, fiber optic cable and T1
connections leased from the traditional service providers in a
given locale, as well as different wireless technologies. In
addition, widespread acceptance of our technology may be
hindered by inherent technological limitations, such as coverage
limitations or bandwidth limitations.



| |                                                                                                                                                                                                        
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Because We Must Sell Our Products in Many
	Countries that Have Different Regulatory Schemes, If We Cannot
	Develop Products that Work with Different Standards, We Will Be
	Unable to Sell Our Products

If our sales are to grow, we must sell our
products in many different countries. Many countries require
communications equipment used in their country to comply with
unique regulations, including safety regulations, radio
frequency allocation schemes and standards. If we cannot develop
products that work with different standards, we will be unable
to sell our products. If compliance proves to be more expensive
or time consuming than we anticipate, our business would be
adversely affected. Some countries have not completed their
radio frequency allocation process and therefore we do not know
the standards with which we would be forced to comply.
Furthermore, standards and regulatory requirements are subject
to change. If we fail to anticipate or comply with these new
standards, our business and results of operations will be
adversely affected.



| |                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------
| | If We Are Unable to Manage Our
	International Operations Effectively, Our Business Would Be
	Adversely Affected

Sales of products which were ultimately deployed
internationally accounted for approximately 92 percent of
our revenues in 2001, 96 percent of our revenues in 2000
and 79 percent of our revenues in 1999. In addition, most
equipment purchased by domestic customers has been shipped to
international service providers. Our international operations
are subject to a number of risks and uncertainties, including:



| |   |                                                                                                                  
| | - | -----------------------------------------------------------------------------------------------------------------
| |  | changes in foreign currency exchange rates;                                                                      
|
| |  | changes in a specific countrys or
	regions political or economic conditions, particularly in
	emerging markets;
|
| |  | trade protection measures and import or export
	licensing requirements;                                          
|
| |  | potentially less effective protection of
	intellectual property;                                                 
|
| |  | the difficulties and costs of obtaining
	regulatory approvals for our products;                                  
|
| |  | unexpected changes in regulatory requirements; and                                                               
|
| |  | legal uncertainties regarding liability, tax,
	tariffs and other trade barriers.                                 

Any of these factors could have an adverse impact
on our existing international operations and business or impair
our ability to expand into international markets.



| |                                                      
| | -----------------------------------------------------
| | We Face Risks Associated with Shareholder
	Litigation

We and certain members of our board of directors
have been sued by alleged shareholders in three lawsuits. One of
the lawsuits involves several allegations relating to the
approval by our shareholders at last

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years annual meeting of the merger
transaction by which our state of incorporation was changed from
California to Delaware, including that the disclosure to
shareholders in connection with the proposed transaction was
incomplete or misleading. That lawsuit also alleges that the
adoption of our shareholder rights plan by our board of
directors was in violation of Delaware law. A second lawsuit
alleges that our option cancellation and regrant program
completed in 2001 was impermissible and that options granted
under the program were invalid and should be rescinded. The
third lawsuit involves allegations relating to inadequate
disclosure of underwriting commissions and practices in
violation of securities laws and regulations in relation to our
initial public offering. Although we and the directors who have
been sued believe all allegations are without merit and intend
to defend the suits vigorously, we cannot predict with certainty
the outcome of these lawsuits. Our defense against such lawsuits
will be costly and will require a significant commitment of time
and resources by our management.




| |                                                                                                                                                                                   
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Claims that We Infringe Third-Party
	Intellectual Property Rights Could Result in Significant
	Expenses or Restrictions on Our Ability to Sell Our Products in
	Particular Markets

From time to time, third parties may assert
patent, copyright, trademark and other intellectual property
rights to technologies in various jurisdictions that are
important to our business. Any claims could be time-consuming to
deal with, result in costly litigation, divert the efforts of
our technical and management personnel, cause product shipment
delays or require us to enter into royalty or licensing
agreements, any of which could have an adverse effect on our
operating results. Royalty or licensing agreements, if required,
may not be available on terms acceptable to us, if at all. In
addition, in our sales agreements, we agree to indemnify our
customers for any expenses or liabilities resulting from claimed
infringements of patents, trademarks or copyrights of third
parties. As part of our acquisition of assets from AT&T
Wireless, we were assigned by AT&T Wireless, and we assumed,
several contracts with third party software vendors. We are
required to indemnify AT&T Wireless against claims that
arise out of or in connection with the assumed contracts after
the date of assignment and against claims that the assigned
software infringes the intellectual or proprietary rights of
others.



| |                                                                    
| | -------------------------------------------------------------------
| | We May Not Be Able to Adequately Protect
	Our Intellectual Property

We rely on a combination of patent, copyright,
trademark and trade secret laws, as well as confidentiality
agreements and licensing arrangements, to establish and protect
our proprietary rights. We presently have four issued United
States patents, with additional applications in process. We have
also acquired from AT&T Wireless Services, Inc. a
license to several patents and numerous patent applications
associated with the Angel platform. These licenses are not
transferable. In addition, although AT&T Wireless has agreed
not to license these patents to our competitors for a period of
five years, we cannot assure that they will enforce their rights
against potential infringors. Despite our efforts to protect our
proprietary rights, existing copyright, trademark and trade
secret laws afford only limited protection. In addition, the
laws of some foreign countries do not protect our proprietary
rights to the same extent as do the laws of the United States.
Attempts may be made to copy or reverse engineer aspects of our
products or to obtain and use information that we regard as
proprietary. Accordingly, we may not be able to protect our
proprietary rights against unauthorized third-party copying or
use. Furthermore, policing the unauthorized use of our products
is difficult. Litigation may be necessary in the future to
enforce our intellectual property rights, to protect our trade
secrets or to determine the validity and scope of the
proprietary rights of others. This litigation could result in
substantial costs and diversion of resources and could have a
material adverse effect on our future operating results.



| |                                                                                                                                  
| | ---------------------------------------------------------------------------------------------------------------------------------
| | Line-of-Sight Limitations Inherent to Our
	Airstar Products May Limit Deployment Options and Have an
	Adverse Affect on Our Sales

Although our Angel product line operates without
the need for line-of-sight, high frequency broadband wireless
products such as our AirStar product require a direct
line-of-sight between antennas, potentially limiting the ability
of our customers to deploy them in a cost-effective manner.
Because of line-of-sight limitations, service providers often
install broadband wireless equipment on the rooftops of
buildings and on other tall structures. Telecommunications
service providers must generally secure roof rights from the
owners

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of each building or other structure on which our
products are installed. Any inability to obtain roof rights
easily and cost effectively may cause a delay in deployment and
increase the installation cost of our products or may cause
customers not to choose to install broadband wireless equipment.




| |                                                                                                              
| | -------------------------------------------------------------------------------------------------------------
| | If We Are Unable to Hire or Retain Our
	Personnel, We Might Not Be Able to Operate Our Business
	Successfully

The loss of the services of any key personnel or
our inability to hire new personnel could restrict our ability
to compete effectively. Competition for qualified personnel in
our industry and in the Silicon Valley is intense, and we may
not be successful in attracting and retaining these personnel.
There are only a limited number of people with the requisite
skills, particularly people with millimeter wave radio
expertise. We are also dependent on the continued contributions
of our principal sales, engineering and management personnel,
many of whom would be difficult to replace. Furthermore, we are
dependent on personnel to complete the internationalization of
our Angel product who have unique knowledge regarding this
product line. Retaining these employees may be particularly
challenging in light of the change in environment that they are
being subjected to as a result of our acquisition. We currently
do not maintain key person life insurance on any of our key
executives.



| |                                                                                                        
| | -------------------------------------------------------------------------------------------------------
| | Major Stockholders Have Substantial Control
	Over Us, Which Could Delay or Prevent a Change in
	Control

Global Telecom LLC and AT&T Wireless
Services, Inc. beneficially owned approximately
15.5 percent and 13.4 percent of our common stock as
of March 1, 2002. In addition, an officer of AT&T
Wireless serves as a member of our board of directors. As a
result, these stockholders can exert significant influence over
our management and affairs and have the ability to exercise
significant influence over all matters submitted to our
stockholders for approval, including matters relating to the
election and removal of directors, merger or consolidation
transactions and the sale of all or substantially all our
assets. This concentration of ownership may delay or prevent a
change of control or discourage a potential acquirer from making
a tender offer or otherwise attempting to obtain control of our
company, which could decrease the market price of our common
stock. The interests of these stockholders may not always
coincide with our interests or your interests.



| |                                                                                                                                                                                                                     
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Provisions of Our Certificate of
	Incorporation and Bylaws, Our Stockholder Rights Plan and
	Delaware Law Could Discourage or Prevent a Potential Takeover,
	Even if the Transaction Would Benefit Our
	Stockholders

An acquisition or takeover of our company by
another could result in benefits to our stockholders, such as a
premium over the market value of our common stock. There are
provisions in our certificate of incorporation and bylaws and in
Delaware law that could have the effect of deterring takeover
offers and provide greater defenses against takeovers, even if a
substantial number or a majority of our stockholders wish to
accept a takeover offer. These provisions include our classified
board of directors, limitations on the ability of our
stockholders to call special meetings and advance notice
requirements for nominating candidates for election to our board
of directors and for proposals that can be voted on at
stockholder meetings. In addition, we are party to a stockholder
rights agreement, which effectively prohibits persons from
acquiring more that 15 percent (other than Global Telecom
LLC, which is effectively prohibited from acquiring more that
19.9 percent of our common stock without the approval of
our board of directors. All of these factors could have the
effect of thwarting takeover attempts that investors in our
common stock may view as beneficial and may wish to accept.




Item 7A.     Quantitative
and Qualitative Disclosures About Market Risk

Foreign Currency Hedging Instruments.We transact business in various
foreign currencies and, accordingly, we are subject to exposure
from adverse movements in foreign currency exchange rates. To
date, the effect of changes in foreign currency exchange rates
on revenues and operating expenses have not been material. The
vast majority of our revenues are earned in U.S. dollars.
Operating expenses incurred by our foreign subsidiaries are
denominated primarily in local currencies. We currently do not
use financial

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instruments to hedge these operating expenses. We
intend to assess the need to utilize financial instruments to
hedge currency exposures on an ongoing basis.


We do not use derivative financial instruments
for speculative trading purposes.

Fixed Income Investments.Our exposure to market risks from
changes in interest rates relates primarily to corporate debt
securities. We place our investments with high credit quality
issuers and, by policy, limit the amount of the credit exposure
to any one issuer.

Our general policy is to limit the risk of
principal loss and ensure the safety of invested funds by
limiting market and credit risk. All highly liquid investments
with a maturity of less than three months at the date of
purchase are considered to be cash equivalents; all investments
with maturities of three months or greater and less than one
year are considered to be short-term marketable securities; all
investments with maturities greater than one year are considered
to be long-term marketable securities. All investments are
classified as either available for sale or
held-to-maturity and consist of government and
corporate debt securities.

The SECs rule related to market risk
disclosure requires that we describe and quantify our potential
losses from market risk sensitive instruments attributable to
reasonably possible market changes. We are exposed to changes in
interest rates on our investments in marketable securities. All
of our investments are in funds that hold investment grade
commercial paper, treasury bills or other United States
government obligations. This investment policy reduces our
exposure to long-term interest rate changes. A hypothetical 100
basis point decline in short-term interest rates would reduce
the annualized earnings on our $312.5 million of marketable
securities at December 31, 2001 by approximately
$3.1 million.

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Item 8.     Financial
Statements and Supplementary Data

INDEX TO CONSOLIDATED FINANCIAL
STATEMENTS

|                                         |                                                  |      |    |       | 
|---------------------------------------- | ------------------------------------------------ | ---- | -- | ----- | 
|                                         |                                                  | Page
|                                         |                                                  |     
|Report of Independent Public Accountants |                                                  |      | 34 |      
|                                        
|Financial Statements:                    |                                                  |      |    |      
|                                         | Consolidated Balance Sheets                      |      |    | 35    | 
|                                         | Consolidated Statements of Operations            |      |    | 36    | 
|                                         | Consolidated Statements of Stockholders
	Equity |      |    | 37    | 
|                                         | Consolidated Statements of Cash Flows            |      |    | 38    | 
|                                         | Notes to Consolidated Financial Statements       |      |    | 39-55 | 

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REPORT OF INDEPENDENT PUBLIC
ACCOUNTANTS

To the Board of Directors and Stockholders of
Netro Corporation:

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

We conducted our audits in accordance with
auditing standards generally accepted in the United States of
America. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
consolidated 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 consolidated financial
statements referred to above present fairly, in all material
respects, the financial position of Netro Corporation and
subsidiaries as of December 31, 2001 and 2000, and the
results of their operations and their cash flows for each of the
three years in the period ended December 31, 2001, in
conformity with accounting principles generally accepted in the
United States of America.

Our audits were made for the purpose of forming
an opinion on the basic consolidated financial statements taken
as a whole. The schedule listed under Item 14(a) is
presented for the purpose of complying with the Securities and
Exchange Commissions rules and is not part of the basic
consolidated financial statements. This schedule has been
subjected to the auditing procedures applied in our audits of
the basic consolidated financial statements and, in our opinion,
fairly states in all material respects the financial data
required to be set forth therein in relation to the basic
consolidated financial statements taken as a whole.



| |                    
| | -------------------
| | ARTHUR ANDERSEN LLP

San Jose, California

January 21, 2002 (except with respect to the


matter discussed in Note 12,


as to which the date is February 12, 2002)


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NETRO CORPORATION

CONSOLIDATED BALANCE SHEETS

|                                                           |                                                                                |                                                                                             |                                            |              |         |         |        |          |         |         | 
|---------------------------------------------------------- | ------------------------------------------------------------------------------ | ------------------------------------------------------------------------------------------- | ------------------------------------------ | ------------ | ------- | ------- | ------ | -------- | ------- | ------- | 
|                                                           |                                                                                | December 31,                                                                                |                                            | December 31,
|                                                           |                                                                                | 2001                                                                                        |                                            | 2000        
|                                                           |                                                                                |                                                                                             |                                            |             
|                                                           |                                                                                |                                                                                            
|                                                           |                                                                                | (In thousands, except share                                                                
|                                                           |                                                                                | amounts)                                                                                   
|ASSETS                                                    
|                                                          
|Current Assets:                                            |                                                                                |                                                                                             |                                            |              |         |         |        |         
|                                                           | Cash and cash equivalents                                                      |                                                                                             | $                                          | 90,494       |         |         | $      | 91,660   |        
|                                                           | Short-term marketable securities                                               |                                                                                             |                                            | 115,950      |         |         |        | 185,904  |        
|                                                           | Trade accounts receivable, net of allowances of
	$1,500 and $608, respectively |                                                                                             |                                            | 3,683        |         |         |        | 13,532   |        
|                                                           | Inventory, net                                                                 |                                                                                             |                                            | 6,874        |         |         |        | 27,994   |        
|                                                           | Prepaid expenses and other                                                     |                                                                                             |                                            | 2,832        |         |         |        | 5,527    |        
|                                                           |                                                                                |                                                                                             |                                            |              |         |         |        |         
|                                                           |                                                                                |                                                                                             | Total current assets                       |              |         | 219,833 |        |          |         | 324,617 | 
|Equipment and leasehold improvements, net                  |                                                                                |                                                                                             | 7,796                                      |              |         |         | 6,896  |         
|Long-term marketable securities                            |                                                                                |                                                                                             | 119,858                                    |              |         |         | 89,351 |         
|Other assets                                               |                                                                                |                                                                                             | 2,234                                      |              |         |         | 889    |         
|                                                           |                                                                                |                                                                                             |                                            |              |         |         |        |         
|                                                           |                                                                                | Total assets                                                                                |                                            | $            | 349,721 |         |        | $        | 421,753 |        
|                                                           |                                                                                |                                                                                             |                                            |              |         |         |        |         
|LIABILITIES AND STOCKHOLDERS
	EQUITY                     
|                                                          
|Current Liabilities:                                       |                                                                                |                                                                                             |                                            |              |         |         |        |         
|                                                           | Current portion of long-term debt and capital
	leases                          |                                                                                             | $                                          | 1,272        |         |         | $      | 6,183    |        
|                                                           | Trade accounts payable                                                         |                                                                                             |                                            | 1,649        |         |         |        | 9,116    |        
|                                                           | Accrued liabilities                                                            |                                                                                             |                                            | 25,789       |         |         |        | 9,159    |        
|                                                           |                                                                                |                                                                                             |                                            |              |         |         |        |         
|                                                           |                                                                                |                                                                                             | Total current liabilities                  |              |         | 28,710  |        |          |         | 24,458  | 
|Long-term debt and capital leases, net of current
	portion |                                                                                |                                                                                             | 64                                         |              |         |         | 1,280  |         
|Deferred facilities rent                                   |                                                                                |                                                                                             | 71                                         |              |         |         | 40     |         
|                                                           |                                                                                |                                                                                             |                                            |              |         |         |        |         
|                                                           |                                                                                |                                                                                             | Total liabilities                          |              |         | 28,845  |        |          |         | 25,778  | 
|                                                           |                                                                                |                                                                                             |                                            |              |         |         |        |         
|Commitments and contingencies (Note 7)                     |                                                                                |                                                                                             |                                            |              |         |         |        |         
|Stockholders equity:                                      |                                                                                |                                                                                             |                                            |              |         |         |        |         
|                                                           | Preferred stock, $.001 par value:                                              |                                                                                             |                                            |              |         |         |        |          |        
|                                                           |                                                                                | Authorized  5,000,000 shares                                                               |                                            |              |         |         |        |          |         |        
|                                                           |                                                                                | Outstanding  no shares                                                                     |                                            |              |        |         |        |          |        |        
|                                                           | Common stock, $.001 par value:                                                 |                                                                                             |                                            |              |         |         |        |          |        
|                                                           |                                                                                | Authorized  00,000,000 shares                                                              |                                            |              |         |         |        |          |         |        
|                                                           |                                                                                | Outstanding  52,481,253 and 51,546,412
	shares at December 31, 2001 and 2000, respectively |                                            |              | 506,329 |         |        |          | 503,667 |        
|                                                           | Deferred stock compensation                                                    |                                                                                             |                                            | (831         | )       |         |        | (1,933   | )      
|                                                           | Accumulated other comprehensive income                                         |                                                                                             |                                            | 1,264        |         |         |        | 823      |        
|                                                           | Accumulated deficit                                                            |                                                                                             |                                            | (185,886     | )       |         |        | (106,582 | )      
|                                                           |                                                                                |                                                                                             |                                            |              |         |         |        |         
|                                                           |                                                                                |                                                                                             | Total stockholders equity                 |              |         | 320,876 |        |          |         | 395,975 | 
|                                                           |                                                                                |                                                                                             |                                            |              |         |         |        |         
|                                                           |                                                                                |                                                                                             | Total liabilities and stockholders equity |              | $       | 349,721 |        |          | $       | 421,753 | 
|                                                           |                                                                                |                                                                                             |                                            |              |         |         |        |         

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

35



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##### Table of Contents



NETRO CORPORATION

CONSOLIDATED STATEMENTS OF
OPERATIONS

|                                                             |                                                       |                                       |         |        |        |      |         |        |        |   |         |        |        | 
|------------------------------------------------------------ | ----------------------------------------------------- | ------------------------------------- | ------- | ------ | ------ | ---- | ------- | ------ | ------ | - | ------- | ------ | ------ | 
|                                                             |                                                       |                                      
|                                                             |                                                       | Years Ended December 31,             
|                                                             |                                                       |                                      
|                                                             |                                                       | 2001                                  |         | 2000   |        | 1999
|                                                             |                                                       |                                       |         |        |        |     
|                                                             |                                                       |                                      
|                                                             |                                                       | (In thousands, except per share data)
|Revenues                                                     |                                                       | $                                     | 23,659  |        |        | $    | 68,527  |        |        | $ | 18,185  |       
|Cost of revenues                                             |                                                       |                                       | 62,512  |        |        |      | 52,096  |        |        |   | 14,874  |       
|                                                             |                                                       |                                       |         |        |        |      |         |        |        |   |         |       
|Gross profit (loss)                                          |                                                       |                                       | (38,853 | )      |        |      | 16,431  |        |        |   | 3,311   |       
|                                                             |                                                       |                                       |         |        |        |      |         |        |        |   |         |       
|Operating expenses:                                          |                                                       |                                       |         |        |        |      |         |        |        |   |         |       
|                                                             | Research and development                              |                                       |         | 25,782 |        |      |         | 24,265 |        |   |         | 19,307 |       
|                                                             | Sales and marketing                                   |                                       |         | 13,281 |        |      |         | 10,455 |        |   |         | 5,794  |       
|                                                             | General and administrative                            |                                       |         | 16,996 |        |      |         | 9,812  |        |   |         | 6,259  |       
|                                                             | Amortization of deferred stock compensation (Note
	2) |                                       |         | 857    |        |      |         | 1,064  |        |   |         | 1,104  |       
|                                                             |                                                       |                                       |         |        |        |      |         |        |        |   |         |       
|                                                             |                                                       | Total operating expenses              |         |        | 56,916 |      |         |        | 45,596 |   |         |        | 32,464 | 
|                                                             |                                                       |                                       |         |        |        |      |         |        |        |   |         |       
|Loss from operations                                         |                                                       |                                       | (95,769 | )      |        |      | (29,165 | )      |        |   | (29,153 | )     
|Other income, net                                            |                                                       |                                       |         |        |        |      |         |        |        |   |         |       
|                                                             | Interest income                                       |                                       |         | 17,154 |        |      |         | 20,112 |        |   |         | 1,522  |       
|                                                             | Interest expense                                      |                                       |         | (613   | )      |      |         | (1,125 | )      |   |         | (1,169 | )     
|                                                             |                                                       |                                       |         |        |        |      |         |        |        |   |         |       
|                                                             |                                                       | Total other income, net               |         |        | 16,541 |      |         |        | 18,987 |   |         |        | 353    | 
|                                                             |                                                       |                                       |         |        |        |      |         |        |        |   |         |       
|Net loss before provision for income taxes                   |                                                       |                                       | (79,228 | )      |        |      | (10,178 | )      |        |   | (28,800 | )     
|Provision for income taxes                                   |                                                       |                                       | 76      |        |        |      |        |        |        |   |        |       
|                                                             |                                                       |                                       |         |        |        |      |         |        |        |   |         |       
|Net loss                                                     |                                                       | $                                     | (79,304 | )      |        | $    | (10,178 | )      |        | $ | (28,800 | )     
|                                                             |                                                       |                                       |         |        |        |      |         |        |        |   |         |       
|Basic and diluted net loss per share                         |                                                       | $                                     | (1.52   | )      |        | $    | (0.21   | )      |        | $ | (1.31   | )     
|                                                             |                                                       |                                       |         |        |        |      |         |        |        |   |         |       
|Shares used to compute basic and diluted net loss
	per share |                                                       |                                       | 52,196  |        |        |      | 49,639  |        |        |   | 21,988  |       
|                                                             |                                                       |                                       |         |        |        |      |         |        |        |   |         |       

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

36



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##### Table of Contents



NETRO CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS
EQUITY

|                                                                                         |                    |                                      |             |              |  |            |         |        |  |             |            |   |  |   |         |   |  |   |      |   | 
|---------------------------------------------------------------------------------------- | ------------------ | ------------------------------------ | ----------- | ------------ |  | ---------- | ------- | ------ |  | ----------- | ---------- | - |  | - | ------- | - |  | - | ---- | - | 
|                                                                                         |                    |                                      |             |              |  |            |         |       
|                                                                                         |                    | Convertible                          |             |              |  | Note      
|                                                                                         |                    | Preferred Stock                      |             | Common Stock |  | Receivable
|                                                                                         |                    |                                      |             |              |  | from      
|                                                                                         |                    | Shares                               |             | Amount       |  | Shares     |         | Amount |  | Stockholder
|                                                                                         |                    |                                      |             |              |  |            |         |        |  |            
|                                                                                         |                    |                                     
|                                                                                         |                    | (In thousands, except share amounts)
|Balance, December 31, 1998                                                               |                    |                                      | 27,732,235  |              |  | $          | 81,073  |        |  |             | 8,530,238  |   |  | $ | 1,224   |   |  | $ | (800 | )
|Net loss and comprehensive loss                                                          |                    |                                      |             |              |  |            |         |        |  |             |            |   |  |   |         |   |  |   |      |  
|Exercise of stock options for cash                                                       |                    |                                      |            |              |  |            |        |        |  |             | 731,124    |   |  |   | 757     |   |  |   |     |  
|Deferred stock compensation                                                              |                    |                                      |            |              |  |            |        |        |  |             |           |   |  |   | 4,834   |   |  |   |     |  
|Repurchase of Common Stock for cash                                                      |                    |                                      |            |              |  |            |        |        |  |             | (21,666    | ) |  |   | (4      | ) |  |   |     |  
|Issuance of Series D Convertible Preferred
	Stock for cash, net of issuance costs of $48 |                    |                                      | 2,149,254   |              |  |            | 16,673  |        |  |             |           |   |  |   |        |   |  |   |     |  
|Issuance of Series D Convertible Preferred
	Stock for services rendered                  |                    |                                      | 20,794      |              |  |            | 162     |        |  |             |           |   |  |   |        |   |  |   |     |  
|Issuance of Common Stock in initial public
	offering, net of issuance costs              |                    |                                      |            |              |  |            |        |        |  |             | 5,750,000  |   |  |   | 41,605  |   |  |   |     |  
|Conversion of preferred stock to Common Stock in
	connection with the IPO                |                    |                                      | (29,902,283 | )            |  |            | (97,908 | )      |  |             | 29,902,283 |   |  |   | 97,908  |   |  |   |     |  
|Issuance of Common Stock for services rendered                                           |                    |                                      |            |              |  |            |        |        |  |             | 20,794     |   |  |   | 166     |   |  |   |     |  
|Amortization of deferred stock compensation                                              |                    |                                      |            |              |  |            |        |        |  |             |           |   |  |   |        |   |  |   |     |  
|                                                                                         |                    |                                      |             |              |  |            |         |        |  |             |            |   |  |   |         |   |  |   |      |  
|Balance, December 31, 1999                                                               |                    |                                      |            |              |  |            |        |        |  |             | 44,912,773 |   |  |   | 146,490 |   |  |   | (800 | )
|Net loss                                                                                 |                    |                                      |            |              |  |            |        |        |  |             |           |   |  |   |        |   |  |   |     |  
|Unrealized holding gain on securities                                                    |                    |                                      |            |              |  |            |        |        |  |             |           |   |  |   |        |   |  |   |     |  
|                                                                                         | Comprehensive loss |                                      |             |              |  |            |         |        |  |             |            |   |  |   |         |   |  |   |      |   | 
|Repayment of note from stockholder                                                       |                    |                                      |            |              |  |            |        |        |  |             |           |   |  |   |        |   |  |   | 800  |  
|Exercise of stock options for cash                                                       |                    |                                      |            |              |  |            |        |        |  |             | 1,905,062  |   |  |   | 3,953   |   |  |   |     |  
|Shares issued under ESPP Plan                                                            |                    |                                      |            |              |  |            |        |        |  |             | 240,092    |   |  |   | 1,664   |   |  |   |     |  
|Repurchase of Common Stock for cash                                                      |                    |                                      |            |              |  |            |        |        |  |             | (15,626    | ) |  |   | (31     | ) |  |   |     |  
|Issuance of Common Stock in public offering, net
	of issuance costs                      |                    |                                      |            |              |  |            |        |        |  |             | 4,504,111  |   |  |   | 352,324 |   |  |   |     |  
|Amortization of deferred stock compensation                                              |                    |                                      |            |              |  |            |        |        |  |             |           |   |  |   | (733    | ) |  |   |     |  
|                                                                                         |                    |                                      |             |              |  |            |         |        |  |             |            |   |  |   |         |   |  |   |      |  
|Balance, December 31, 2000                                                               |                    |                                      |            |              |  |            |        |        |  |             | 51,546,412 |   |  |   | 503,667 |   |  |   |     |  
|Net loss                                                                                 |                    |                                      |            |              |  |            |        |        |  |             |           |   |  |   |        |   |  |   |     |  
|Unrealized holding gain on securities                                                    |                    |                                      |            |              |  |            |        |        |  |             |           |   |  |   |        |   |  |   |     |  
|Foreign currency translation adjustments                                                 |                    |                                      |            |              |  |            |        |        |  |             |           |   |  |   |        |   |  |   |     |  
|                                                                                         | Comprehensive loss |                                      |             |              |  |            |         |        |  |             |            |   |  |   |         |   |  |   |      |   | 
|Exercise of stock options for cash                                                       |                    |                                      |            |              |  |            |        |        |  |             | 599,575    |   |  |   | 1,373   |   |  |   |     |  
|Shares issued under ESPP Plan                                                            |                    |                                      |            |              |  |            |        |        |  |             | 335,266    |   |  |   | 1,534   |   |  |   |     |  
|Amortization of deferred stock compensation                                              |                    |                                      |            |              |  |            |        |        |  |             |           |   |  |   | (245    | ) |  |   |     |  
|                                                                                         |                    |                                      |             |              |  |            |         |        |  |             |            |   |  |   |         |   |  |   |      |  
|Balance, December 31, 2001                                                               |                    |                                      |            |              |  | $          |        |        |  |             | 52,481,253 |   |  | $ | 506,329 |   |  | $ |     |  
|                                                                                         |                    |                                      |             |              |  |            |         |        |  |             |            |   |  |   |         |   |  |   |      |  

[Additional columns below]

[Continued from above table, first column(s) repeated]

|                                                                                         |                    |                                      |        |               |  |             |       |               |  |               |          |   |  |   |         |         |   |   |         |   | 
|---------------------------------------------------------------------------------------- | ------------------ | ------------------------------------ | ------ | ------------- |  | ----------- | ----- | ------------- |  | ------------- | -------- | - |  | - | ------- | ------- | - | - | ------- | - | 
|                                                                                         |                    |                                      |        | Accumulated   |  |             |       |               |  |              
|                                                                                         |                    | Deferred                             |        | Other         |  |             |       |               |  | Total        
|                                                                                         |                    | Stock                                |        | Comprehensive |  | Accumulated |       | Comprehensive |  | Stockholders
|                                                                                         |                    | Compensation                         |        | Income        |  | Deficit     |       | Loss          |  | Equity       
|                                                                                         |                    |                                      |        |               |  |             |       |               |  |              
|                                                                                         |                    |                                     
|                                                                                         |                    | (In thousands, except share amounts)
|Balance, December 31, 1998                                                               |                    | $                                    |       |               |  | $           |      |               |  | $             | (67,604  | ) |  |   |         |         |   | $ | 13,893  |  
|Net loss and comprehensive loss                                                          |                    |                                      |        |               |  |             |       |               |  |               | (28,800  | ) |  | $ | (28,800 | )       |   |   | (28,800 | )
|                                                                                         |                    |                                      |        |               |  |             |       |               |  |               |          |   |  |   |         |         |   |   |         |  
|Exercise of stock options for cash                                                       |                    |                                      |       |               |  |             |      |               |  |               |         |   |  |   |         |         |   |   | 757     |  
|Deferred stock compensation                                                              |                    |                                      | (4,834 | )             |  |             |      |               |  |               |         |   |  |   |         |         |   |   |        |  
|Repurchase of Common Stock for cash                                                      |                    |                                      |       |               |  |             |      |               |  |               |         |   |  |   |         |         |   |   | (4      | )
|Issuance of Series D Convertible Preferred
	Stock for cash, net of issuance costs of $48 |                    |                                      |       |               |  |             |      |               |  |               |         |   |  |   |         |         |   |   | 16,673  |  
|Issuance of Series D Convertible Preferred
	Stock for services rendered                  |                    |                                      |       |               |  |             |      |               |  |               |         |   |  |   |         |         |   |   | 162     |  
|Issuance of Common Stock in initial public
	offering, net of issuance costs              |                    |                                      |       |               |  |             |      |               |  |               |         |   |  |   |         |         |   |   | 41,605  |  
|Conversion of preferred stock to Common Stock in
	connection with the IPO                |                    |                                      |       |               |  |             |      |               |  |               |         |   |  |   |         |         |   |   |        |  
|Issuance of Common Stock for services rendered                                           |                    |                                      |       |               |  |             |      |               |  |               |         |   |  |   |         |         |   |   | 166     |  
|Amortization of deferred stock compensation                                              |                    |                                      | 1,104  |               |  |             |      |               |  |               |         |   |  |   |         |         |   |   | 1,104   |  
|                                                                                         |                    |                                      |        |               |  |             |       |               |  |               |          |   |  |   |         |         |   |   |         |  
|Balance, December 31, 1999                                                               |                    |                                      | (3,730 | )             |  |             |      |               |  |               | (96,404  | ) |  |   |         |         |   |   | 45,556  |  
|Net loss                                                                                 |                    |                                      |       |               |  |             |      |               |  |               | (10,178  | ) |  | $ | (10,178 | )       |   |   | (10,178 | )
|Unrealized holding gain on securities                                                    |                    |                                      |       |               |  |             | 823   |               |  |               |         |   |  |   | 823     |         |   |   | 823     |  
|                                                                                         |                    |                                      |        |               |  |             |       |               |  |               |          |   |  |   |         |         |   |   |         |  
|                                                                                         | Comprehensive loss |                                      |        |               |  |             |       |               |  |               |          |   |  |   | $       | (9,355  | ) |   |         |   | 
|                                                                                         |                    |                                      |        |               |  |             |       |               |  |               |          |   |  |   |         |         |   |   |         |  
|Repayment of note from stockholder                                                       |                    |                                      |       |               |  |             |      |               |  |               |         |   |  |   |         |         |   |   | 800     |  
|Exercise of stock options for cash                                                       |                    |                                      |       |               |  |             |      |               |  |               |         |   |  |   |         |         |   |   | 3,953   |  
|Shares issued under ESPP Plan                                                            |                    |                                      |       |               |  |             |      |               |  |               |         |   |  |   |         |         |   |   | 1,664   |  
|Repurchase of Common Stock for cash                                                      |                    |                                      |       |               |  |             |      |               |  |               |         |   |  |   |         |         |   |   | (31     | )
|Issuance of Common Stock in public offering, net
	of issuance costs                      |                    |                                      |       |               |  |             |      |               |  |               |         |   |  |   |         |         |   |   | 352,324 |  
|Amortization of deferred stock compensation                                              |                    |                                      | 1,797  |               |  |             |      |               |  |               |         |   |  |   |         |         |   |   | 1,064   |  
|                                                                                         |                    |                                      |        |               |  |             |       |               |  |               |          |   |  |   |         |         |   |   |         |  
|Balance, December 31, 2000                                                               |                    |                                      | (1,933 | )             |  |             | 823   |               |  |               | (106,582 | ) |  |   |         |         |   |   | 395,975 |  
|Net loss                                                                                 |                    |                                      |       |               |  |             |      |               |  |               | (79,304  | ) |  | $ | (79,304 | )       |   |   | (79,304 | )
|Unrealized holding gain on securities                                                    |                    |                                      |       |               |  |             | 547   |               |  |               |         |   |  |   | 547     |         |   |   | 547     |  
|Foreign currency translation adjustments                                                 |                    |                                      |       |               |  |             | (106  | )             |  |               |         |   |  |   | (106    | )       |   |   | (106    | )
|                                                                                         |                    |                                      |        |               |  |             |       |               |  |               |          |   |  |   |         |         |   |   |         |  
|                                                                                         | Comprehensive loss |                                      |        |               |  |             |       |               |  |               |          |   |  |   | $       | (78,863 | ) |   |         |   | 
|                                                                                         |                    |                                      |        |               |  |             |       |               |  |               |          |   |  |   |         |         |   |   |         |  
|Exercise of stock options for cash                                                       |                    |                                      |       |               |  |             |      |               |  |               |         |   |  |   |         |         |   |   | 1,373   |  
|Shares issued under ESPP Plan                                                            |                    |                                      |       |               |  |             |      |               |  |               |         |   |  |   |         |         |   |   | 1,534   |  
|Amortization of deferred stock compensation                                              |                    |                                      | 1,102  |               |  |             |      |               |  |               |         |   |  |   |         |         |   |   | 857     |  
|                                                                                         |                    |                                      |        |               |  |             |       |               |  |               |          |   |  |   |         |         |   |   |         |  
|Balance, December 31, 2001                                                               |                    | $                                    | (831   | )             |  | $           | 1,264 |               |  | $             | (185,886 | ) |  |   |         |         |   | $ | 320,876 |  
|                                                                                         |                    |                                      |        |               |  |             |       |               |  |               |          |   |  |   |         |         |   |   |         |  

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

37



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##### Table of Contents



NETRO CORPORATION

CONSOLIDATED STATEMENTS OF CASH
FLOWS

|                                                              |                                                                              |                                                                       |                                                        |                                                      |        |         |        |          |       |          |         |         |        |         |        | 
|------------------------------------------------------------- | ---------------------------------------------------------------------------- | --------------------------------------------------------------------- | ------------------------------------------------------ | ---------------------------------------------------- | ------ | ------- | ------ | -------- | ----- | -------- | ------- | ------- | ------ | ------- | ------ | 
|                                                              |                                                                              |                                                                      
|                                                              |                                                                              | Years Ended December 31,                                             
|                                                              |                                                                              |                                                                      
|                                                              |                                                                              | 2001                                                                  |                                                        | 2000                                                 |        | 1999   
|                                                              |                                                                              |                                                                       |                                                        |                                                      |        |        
|                                                              |                                                                              |                                                                      
|                                                              |                                                                              | (In thousands)                                                       
|Cash flows from operating
	activities:                        |                                                                              |                                                                       |                                                        |                                                      |        |         |        |          |       |          |         |        
|                                                              | Net loss                                                                     |                                                                       | $                                                      | (79,304                                              | )      |         | $      | (10,178  | )     |          | $       | (28,800 | )     
|                                                              | Adjustments to reconcile net loss to net cash
	used in operating activities: |                                                                       |                                                        |                                                      |        |         |        |          |       |          |         |         |       
|                                                              |                                                                              | Depreciation and amortization                                         |                                                        |                                                      | 4,081  |         |        |          | 2,383 |          |         |         | 2,789  |        
|                                                              |                                                                              | Provision for excess and obsolete inventory                           |                                                        |                                                      | 25,700 |         |        |          | 1,214 |          |         |         | 324    |        
|                                                              |                                                                              | Provision for doubtful accounts                                       |                                                        |                                                      | 1,315  |         |        |          | 800   |          |         |         | 78     |        
|                                                              |                                                                              | Provision for material-related commitments                            |                                                        |                                                      | 16,000 |         |        |          |      |          |         |         |       |        
|                                                              |                                                                              | Loss on disposal of fixed assets                                      |                                                        |                                                      | 802    |         |        |          | 90    |          |         |         |       |        
|                                                              |                                                                              | Amortization of deferred stock compensation                           |                                                        |                                                      | 857    |         |        |          | 1,064 |          |         |         | 1,104  |        
|                                                              |                                                                              | Non-cash issuance of preferred stock                                  |                                                        |                                                      |       |         |        |          |      |          |         |         | 328    |        
|                                                              |                                                                              | Changes in operating assets and liabilities:                          |                                                        |                                                      |        |         |        |          |       |          |         |         |        |        
|                                                              |                                                                              |                                                                       | Trade accounts receivable                              |                                                      |        | 8,534   |        |          |       | (7,407   | )       |         |        | (5,853  | )     
|                                                              |                                                                              |                                                                       | Inventory                                              |                                                      |        | (4,580  | )      |          |       | (21,299  | )       |         |        | (3,918  | )     
|                                                              |                                                                              |                                                                       | Prepaid expenses and other                             |                                                      |        | 5,023   |        |          |       | (8,147   | )       |         |        | (513    | )     
|                                                              |                                                                              |                                                                       | Trade accounts payable, accrued liabilities and
	other |                                                      |        | (6,746  | )      |          |       | 8,454    |         |         |        | 5,385   |       
|                                                              |                                                                              |                                                                       |                                                        |                                                      |        |         |        |          |       |          |         |        
|                                                              |                                                                              |                                                                       | Net cash used in operating activities                  |                                                      |        | (28,318 | )      |          |       | (33,026  | )       |         |        | (29,076 | )     
|                                                              |                                                                              |                                                                       |                                                        |                                                      |        |         |        |          |       |          |         |        
|Cash flows from investing
	activities:                        |                                                                              |                                                                       |                                                        |                                                      |        |         |        |          |       |          |         |        
|                                                              | Purchases of equipment and leasehold improvements                            |                                                                       |                                                        | (5,830                                               | )      |         |        | (4,800   | )     |          |         | (1,724  | )     
|                                                              | Purchase of equity investment                                                |                                                                       |                                                        | (1,500                                               | )      |         |        | (450     | )     |          |         |        |       
|                                                              | Purchases of marketable securities                                           |                                                                       |                                                        | (357,893                                             | )      |         |        | (406,960 | )     |          |         | (72,952 | )     
|                                                              | Maturities of marketable securities                                          |                                                                       |                                                        | 395,668                                              |        |         |        | 173,670  |       |          |         | 44,099  |       
|                                                              |                                                                              |                                                                       |                                                        |                                                      |        |         |        |          |       |          |         |        
|                                                              |                                                                              |                                                                       | Net cash provided by (used in) investing
	activities   |                                                      |        | 30,445  |        |          |       | (238,540 | )       |         |        | (30,577 | )     
|                                                              |                                                                              |                                                                       |                                                        |                                                      |        |         |        |          |       |          |         |        
|Cash flows from financing
	activities:                        |                                                                              |                                                                       |                                                        |                                                      |        |         |        |          |       |          |         |        
|                                                              | Proceeds from issuance of notes payable and
	sale-leaseback transactions     |                                                                       |                                                        | 121                                                  |        |         |        | 1,083    |       |          |         | 5,833   |       
|                                                              | Payments on notes payable and capital leases                                 |                                                                       |                                                        | (6,248                                               | )      |         |        | (4,017   | )     |          |         | (3,855  | )     
|                                                              | Proceeds from issuance of Preferred Stock, net of
	issuance costs            |                                                                       |                                                        |                                                     |        |         |        |         |       |          |         | 16,673  |       
|                                                              | Proceeds from issuance of Common Stock, net of
	issuance costs               |                                                                       |                                                        | 2,907                                                |        |         |        | 357,941  |       |          |         | 42,362  |       
|                                                              | Repayments of notes receivable from stockholder                              |                                                                       |                                                        |                                                     |        |         |        | 800      |       |          |         |        |       
|                                                              | Repurchase of Common Stock                                                   |                                                                       |                                                        |                                                     |        |         |        | (31      | )     |          |         | (4      | )     
|                                                              |                                                                              |                                                                       |                                                        |                                                      |        |         |        |          |       |          |         |        
|                                                              |                                                                              |                                                                       |                                                        | Net cash provided by (used in) financing
	activities |        |         | (3,220 | )        |       |          | 355,776 |         |        |         | 61,009 | 
|                                                              |                                                                              |                                                                       |                                                        |                                                      |        |         |        |          |       |          |         |        
|Effect of exchange rate changes on cash and
	cash equivalents |                                                                              |                                                                       | (73                                                    | )                                                    |        |         |       |          |       |          |        |        
|                                                              |                                                                              |                                                                       |                                                        |                                                      |        |         |        |          |       |          |         |        
|Net increase (decrease) in cash and cash
	equivalents         |                                                                              |                                                                       | (1,166                                                 | )                                                    |        |         | 84,210 |          |       |          | 1,356   |        
|Cash and cash equivalents, beginning of
	period               |                                                                              |                                                                       | 91,660                                                 |                                                      |        |         | 7,450  |          |       |          | 6,094   |        
|                                                              |                                                                              |                                                                       |                                                        |                                                      |        |         |        |          |       |          |         |        
|Cash and cash equivalents, end of
	period                     |                                                                              | $                                                                     | 90,494                                                 |                                                      |        | $       | 91,660 |          |       | $        | 7,450   |        
|                                                              |                                                                              |                                                                       |                                                        |                                                      |        |         |        |          |       |          |         |        
|Supplemental cash flow information                            |                                                                              |                                                                       |                                                        |                                                      |        |         |        |          |       |          |         |        
|                                                              | Cash paid for interest                                                       |                                                                       | $                                                      | 722                                                  |        |         | $      | 1,045    |       |          | $       | 1,016   |       
|                                                              | Non-cash transactions:                                                       |                                                                       |                                                        |                                                      |        |         |        |          |       |          |         |         |       
|                                                              |                                                                              | Conversion of Preferred Stock to Common Stock in
	connection with IPO |                                                        |                                                      |       |         |        |          |      |          |         | $       | 97,908 |        

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

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##### Table of Contents



NETRO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

1.     Description of
Business:

Netro Corporation (collectively, with its
subsidiaries, the Company) was incorporated in
California on November 14, 1994 and reincorporated in
Delaware on June 19, 2001. Netro is a leading provider of
broadband wireless equipment used by telecommunications service
providers to provide businesses and residential customers with
high speed voice and data access and used by mobile phone
service providers for backhaul infrastructure. The Company
operates in one business segment.

The Company is subject to certain risks and
challenges including, among others: history of losses; sales of
our products are to emerging customers with unproven business
models; undetermined market acceptance; reliance on two similar
product lines; ability to successfully integrate the acquired
assets (see Note 12); ability to reduce product costs;
reliance on a limited number of customers; fluctuation in
operating results; dependence on key manufacturers and
customers; competition; volatility of stock price; dependence on
key personnel; new products and rapid technological change;
international operations and currency fluctuations; lengthy
sales cycle; limited protection of intellectual property rights;
risks of product defects or misuse; shareholder litigation,
regulatory actions and control by existing stockholders.

2.     Summary of
Significant Accounting Policies:



| |                            
| | ---------------------------
| | Principles of Consolidation

The consolidated financial statements include the
accounts of the Company and its subsidiaries in Germany, France
and Israel. All intercompany accounts and transactions have been
eliminated in consolidation.



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

The functional currency of the Companys
subsidiaries is the local currency. Accordingly, all assets and
liabilities are translated into U.S. dollars at the current
exchange rate as of the applicable balance sheet date. Revenues
and expenses are translated at the average exchange rate
prevailing during the period. Gains and losses resulting from
the translation of the financial statements are included in
accumulated other comprehensive income in the accompanying
consolidated statements of stockholders equity. Foreign
exchange gains and losses resulting from foreign currency
transactions were not material in any of the periods presented.
Currently, the Company does not employ a foreign currency hedge
program utilizing foreign currency exchange contracts as the
foreign currency transactions and risks to date have not been
significant.



| |                                                         
| | --------------------------------------------------------
| | Use of Estimates in Preparation of
	Financial Statements

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



| |                          
| | -------------------------
| | Cash and Cash Equivalents

Cash and cash equivalents consist of short-term,
highly liquid investments with original maturities of less than
three months.



| |                      
| | ---------------------
| | Marketable Securities

The Company classifies its marketable securities
as either available-for-sale or
held-to-maturity. Available-for-sale
securities are stated at fair value, with unrealized gains and
losses recorded as

39



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NETRO CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Accumulated other comprehensive income, while
held-to-maturity securities are stated at amortized
cost. Realized gains or losses from the sales of marketable
securities are based on the specific identification method.

At December 31, 2001 and 2000, marketable
securities consisted of the following (in thousands):

|                         |                                          |           |         |            |  |        |       |            |  |   |      |      |   |   |         |         | 
|------------------------ | ---------------------------------------- | --------- | ------- | ---------- |  | ------ | ----- | ---------- |  | - | ---- | ---- | - | - | ------- | ------- | 
|                         |                                          |           |         |            |  |       
|                         |                                          |           |         | Unrealized |  |       
|                         |                                          | Amortized |         |            |  |       
|                         |                                          | Cost      |         | Gains      |  | Losses |       | Fair Value
|                         |                                          |           |         |            |  |        |       |           
|2001                     |                                          |           |         |            |  |        |       |            |  |   |      |      |   |   |         |        
|Available-for-sale:      |                                          |           |         |            |  |        |       |            |  |   |      |      |   |   |         |        
|                         | Commercial Paper                         |           | $       | 48,057     |  |        | $     | 80         |  |   | $    |     |   |   | $       | 48,137  | 
|                         | Corporate Bonds                          |           |         | 73,236     |  |        |       | 981        |  |   |      | (12  | ) |   |         | 74,205  | 
|                         | Government Securities                    |           |         | 136,998    |  |        |       | 506        |  |   |      | (188 | ) |   |         | 137,316 | 
|                         | Time Deposits and Other Bank Obligations |           |         | 52,834     |  |        |       | 7          |  |   |      | (4   | ) |   |         | 52,837  | 
|                         |                                          |           |         |            |  |        |       |            |  |   |      |      |   |   |         |        
|Total Available-for-sale |                                          | $         | 311,125 |            |  | $      | 1,574 |            |  | $ | (204 | )    |   | $ | 312,495 |        
|                         |                                          |           |         |            |  |        |       |            |  |   |      |      |   |   |         |        
|2000                     |                                          |           |         |            |  |        |       |            |  |   |      |      |   |   |         |        
|Available-for-sale:      |                                          |           |         |            |  |        |       |            |  |   |      |      |   |   |         |        
|                         | Commercial Paper                         |           | $       | 154,054    |  |        | $     | 27         |  |   | $    | (26  | ) |   | $       | 154,055 | 
|                         | Corporate Bonds                          |           |         | 76,907     |  |        |       | 501        |  |   |      | (4   | ) |   |         | 77,404  | 
|                         | Government Securities                    |           |         | 96,621     |  |        |       | 333        |  |   |      | (8   | ) |   |         | 96,946  | 
|                         | Time Deposits and Other Bank Obligations |           |         | 18,349     |  |        |       |           |  |   |      |     |   |   |         | 18,349  | 
|                         |                                          |           |         |            |  |        |       |            |  |   |      |      |   |   |         |        
|Total Available-for-sale |                                          | $         | 345,931 |            |  | $      | 861   |            |  | $ | (38  | )    |   | $ | 346,754 |        
|                         |                                          |           |         |            |  |        |       |            |  |   |      |      |   |   |         |        
|Held-to-maturity         |                                          |           |         |            |  |        |       |            |  |   |      |      |   |   |         |        
|                         | U.S. Government Securities               |           | $       | 4,020      |  |        | $     |           |  |   | $    |     |   |   | $       | 4,020   | 
|                         |                                          |           |         |            |  |        |       |            |  |   |      |      |   |   |         |        
|Total Held-to-maturity   |                                          | $         | 4,020   |            |  | $      |      |            |  | $ |     |      |   | $ | 4,020   |        
|                         |                                          |           |         |            |  |        |       |            |  |   |      |      |   |   |         |        

The contractual maturities of
available-for-sale marketable securities at
December 31, 2001 are as follows:

|                            |  |            |         | 
|--------------------------- |  | ---------- | ------- | 
|                            |  | Fair Value
|                            |  |           
|Matures in less than 1 year |  | $          | 249,877 | 
|Matures in 1 to 2 years     |  |            | 62,618  | 
|                            |  |            |         | 
|                            |  | $          | 312,495 | 
|                            |  |            |         | 

Approximately $79,073,000 and $78,855,000 of the
total marketable securities were included in cash and cash
equivalents at December 31, 2001 and 2000, respectively.
The remainder was classified as short-term marketable securities
or long-term marketable securities. Approximately $2,386,000 and
$3,336,000 of accrued interest was also included in short-term
and long-term marketable securities at December 31, 2001
and 2000, respectively.



| |          
| | ---------
| | Inventory

Inventory, which includes material and labor
costs, is stated at the lower of cost (first-in, first-out) or
market. The Company provides for estimated excess or obsolete
inventory based upon assumptions about future demand for
products and the conditions of the markets in which the products
are sold. This reserve is reflected as a reduction to inventory
in the accompanying condensed consolidated balance sheets. In
2001, the Company provided $25.7 million for excess and obsolete
inventory as a result of a decline in sales. Significant

40



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##### Table of Contents



NETRO CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

management judgments and estimates must be made
and used in connection with establishing this provision.
Inventory consists of the following (in thousands):

|                |  |              |       |              |  |   |        | 
|--------------- |  | ------------ | ----- | ------------ |  | - | ------ | 
|                |  | December 31, |       | December 31,
|                |  | 2001         |       | 2000        
|                |  |              |       |             
|Raw materials   |  | $            | 2,534 |              |  | $ | 8,118  | 
|Work-in-process |  |              | 219   |              |  |   | 3,840  | 
|Finished goods  |  |              | 4,121 |              |  |   | 16,036 | 
|                |  |              |       |              |  |   |        | 
|                |  | $            | 6,874 |              |  | $ | 27,994 | 
|                |  |              |       |              |  |   |        | 



| |                                      
| | -------------------------------------
| | Equipment and Leasehold
	Improvements

Equipment is recorded at cost and depreciated
using the straight-line method over the estimated useful lives
of the assets, which range from three to seven years. Leasehold
improvements are recorded at cost and are amortized over the
estimated lives of the improvements or the term of the lease,
whichever is shorter. Maintenance and repairs that do not
improve or extend the life of assets are expensed as incurred.



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

Statement of Financial Accounting Standards
(SFAS) No. 130 Reporting Comprehensive
Income, establishes standards for reporting and display of
comprehensive income and its components. SFAS No. 130
requires companies to report a comprehensive income
that includes unrealized holding gains and losses and other
items that have previously been excluded from net loss and
reflected instead in stockholders equity. Comprehensive
income for the Company consists of net loss plus the effect of
unrealized holding gains and losses on investments classified as
available-for-sale and foreign currency translation adjustments.
Accumulated other comprehensive income consists of the
following, (in thousands):

|                                                          |  |              |       |              |  |   |     | 
|--------------------------------------------------------- |  | ------------ | ----- | ------------ |  | - | --- | 
|                                                          |  | December 31, |       | December 31,
|                                                          |  | 2001         |       | 2000        
|                                                          |  |              |       |             
|Unrealized holding gain on available-for-sale
	securities |  | $            | 1,370 |              |  | $ | 823 | 
|Cumulative translation adjustment                         |  |              | (106  | )            |  |   |    | 
|                                                          |  |              |       |              |  |   |     | 
|                                                          |  | $            | 1,264 |              |  | $ | 823 | 
|                                                          |  |              |       |              |  |   |     | 



| |                           
| | --------------------------
| | Software Development Costs

Under the criteria set forth in SFAS No. 86,
Accounting for the Costs of Computer Software to be Sold,
Leased or Otherwise Marketed, capitalization of software
development costs begins upon the establishment of technological
feasibility of the product. The establishment of technological
feasibility and the ongoing assessment of the recoverability of
these costs requires considerable judgment by management with
respect to certain external factors, including, but not limited
to, anticipated future gross product revenues, estimated
economic life and changes in software and hardware technology.
Amounts that could have been capitalized under this statement
after consideration of the above factors were immaterial and,
therefore, no software development costs have been capitalized
by the Company to date.



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

Revenues consist of sales made directly to end
users and indirectly through original equipment manufacturers
(OEMs) and local resellers. The Company recognizes
revenue pursuant to Staff Accounting Bulletin No. 101
Revenue Recognition in Financial Statements.
Accordingly, revenues from product sales are recognized when all
of the following conditions are met: the product has shipped, an
arrangement exists

41



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##### Table of Contents



NETRO CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

with the customer and the Company has the right
to invoice the customer, collection of the receivable is
probable and the Company has fulfilled all of its material
contractual obligations to the customer. In cases where one of
the above factors has not been met, the Company defers the
associated revenue until all conditions have been met. See
note 5 for deferred revenue balances at December 31,
2001 and 2000. Provisions are made at the time of revenue
recognition for estimated warranty costs.



| |                 
| | ----------------
| | Deferred Revenue

From time to time, the Company enters into
agreements to sell products to customers on open credit terms.
In such cases, if management believes that the collectability of
the associated receivable is not assured, revenue recognition is
deferred until such time as the amounts due have been collected.
Some of the factors used in evaluating whether or not to defer
revenue from a particular customer include:



| |   |                                                                                           
| | - | ------------------------------------------------------------------------------------------
| |  | the customers liquid assets,                                                             
|
| |  | actual and projected income statements for the
	customer,                                 
|
| |  | actual and projected cash flows for the customer,                                         
|
| |  | managements estimate of the customers
	ability to secure future financing,              
|
| |  | the nature of the customers shareholder and
	lender base,                                
|
| |  | the political and economic environment in the
	country in which the customer operates, and
|
| |  | other intangible factors.                                                                 

As of December 31, 2001, the outstanding
deferred revenue balance was $1.9 million



| |                                 
| | --------------------------------
| | Allowance for Doubtful
	Accounts

The Company performs ongoing credit evaluations
of its customers financial condition and establish an
allowance for doubtful accounts based upon factors surrounding
the financial position of specific customers, historical trends
and other available information. At December 31, 2001,
approximately 81 percent of the Companys trade
accounts receivable balance was represented by four customers.



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

Research and development costs are expensed as
incurred and consist primarily of payroll costs, other direct
expenses and overhead.



| |                                             
| | --------------------------------------------
| | Amortization of Deferred Stock
	Compensation

Amortization of deferred stock compensation
results from the granting of stock options to employees with
exercise prices per share determined to be below the estimated
fair values per share of our common stock at dates of grant. For
the periods presented, amortization is classified as follows (in
thousands):

|                                            |  |      |     |      |  |      |       |  |  |   |       | 
|------------------------------------------- |  | ---- | --- | ---- |  | ---- | ----- |  |  | - | ----- | 
|                                            |  | 2001 |     | 2000 |  | 1999
|                                            |  |      |     |      |  |     
|Research and development                    |  | $    | 452 |      |  | $    | 497   |  |  | $ | 520   | 
|Sales and marketing                         |  |      | 231 |      |  |      | 284   |  |  |   | 277   | 
|General and administrative                  |  |      | 174 |      |  |      | 283   |  |  |   | 307   | 
|                                            |  |      |     |      |  |      |       |  |  |   |       | 
|Amortization of deferred stock compensation |  | $    | 857 |      |  | $    | 1,064 |  |  | $ | 1,104 | 
|                                            |  |      |     |      |  |      |       |  |  |   |       | 

42



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##### Table of Contents



NETRO CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |                                   
| | ----------------------------------
| | Computation of Net Loss Per
	Share

Net loss per share was calculated under SFAS
No. 128, Earnings per Share. Basic and diluted
net loss per share is computed using the weighted average number
of shares of common stock outstanding. Potential common shares
from the conversion of convertible preferred stock and exercise
of stock options and warrants are excluded from diluted net loss
per share because they would be antidilutive. The total number
of shares excluded from diluted net loss per share relating to
these securities was as follows (in thousands):

|         |  |                          |       |      |  |      |       |  |  |  |       | 
|-------- |  | ------------------------ | ----- | ---- |  | ---- | ----- |  |  |  | ----- | 
|         |  |                         
|         |  | Years Ended December 31,
|         |  |                         
|         |  | 2001                     |       | 2000 |  | 1999
|         |  |                          |       |      |  |     
|Options  |  |                          | 1,790 |      |  |      | 4,894 |  |  |  | 4,409 | 
|Warrants |  |                          | 57    |      |  |      | 57    |  |  |  | 57    | 
|         |  |                          |       |      |  |      |       |  |  |  |       | 
|         |  |                          | 1,847 |      |  |      | 4,951 |  |  |  | 4,466 | 
|         |  |                          |       |      |  |      |       |  |  |  |       | 

The following table presents the calculation of
net loss per share (in thousands, except per share data):

|                                                                              |  |                          |         |      |  |      |         |   |  |   |         |  
|----------------------------------------------------------------------------- |  | ------------------------ | ------- | ---- |  | ---- | ------- | - |  | - | ------- | -
|                                                                              |  |                         
|                                                                              |  | Years Ended December 31,
|                                                                              |  |                         
|                                                                              |  | 2001                     |         | 2000 |  | 1999
|                                                                              |  |                          |         |      |  |     
|Net loss                                                                      |  | $                        | (79,304 | )    |  | $    | (10,178 | ) |  | $ | (28,800 | )
|                                                                              |  |                          |         |      |  |      |         |   |  |   |         |  
|Weighted average shares of common stock
	outstanding                          |  |                          | 52,196  |      |  |      | 49,639  |   |  |   | 22,059  |  
|Less: Weighted average shares of common stock
	subject to repurchase          |  |                          |        |      |  |      |        |   |  |   | (71     | )
|                                                                              |  |                          |         |      |  |      |         |   |  |   |         |  
|Weighted average shares used to compute basic and
	diluted net loss per share |  |                          | 52,196  |      |  |      | 49,639  |   |  |   | 21,988  |  
|                                                                              |  |                          |         |      |  |      |         |   |  |   |         |  
|Basic and diluted net loss per share                                          |  | $                        | (1.52   | )    |  | $    | (0.21   | ) |  | $ | (1.31   | )
|                                                                              |  |                          |         |      |  |      |         |   |  |   |         |  



| |                                           
| | ------------------------------------------
| | Recently Issued Accounting
	Pronouncements

In July 2001, the Financial Accounting Standards
Board (FASB) issued SFAS Nos. 141 and 142,
Business Combinations and Goodwill and Other
Intangibles. SFAS No. 141 requires all business
combinations initiated after June 30, 2001 to be accounted
for using the purchase method. Under SFAS No 142,
goodwill is no longer subject to amortization over its estimated
useful life. Rather, goodwill is subject to at least an annual
assessment for impairment applying a fair-value based test.
Additionally, an acquired intangible asset should be separately
recognized if the benefit of the intangible asset is obtained
through contractual or other legal rights, or if the intangible
asset can be sold, transferred, licensed, rented, or exchanged,
regardless of the acquirers intent to do so. As the
Company had no goodwill recorded on its balance sheets at
December 31, 2001, these pronouncements did not have a
material impact on its financial position or results of
operations.

In October 2001, the FASB issued SFAS
No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets. SFAS No. 144 supersedes SFAS No.
121. SFAS No. 144 primarily addresses significant issues
relating to the implementation of SFAS No. 121 and develops
a single accounting model for long-lived assets to be disposed
of, whether primarily held, used or newly acquired. The
provisions of SFAS No. 144 will be effective for fiscal
years beginning after December 15, 2001. The Company does
not anticipate the adoption of this pronouncement to have a
material impact on its financial position or results of
operations.

3.     Concentrations
of Credit Risk:

Financial instruments that potentially subject
the Company to concentrations of credit risk consist principally
of trade receivables, cash equivalents, short-term marketable
securities and long-term marketable

43



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NETRO CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

securities. With respect to trade receivables,
the Company performs ongoing credit evaluations of its
customers financial condition. Additionally, the Company
establishes an allowance for doubtful accounts based upon
factors surrounding the credit risk of specific customers,
historical trends and other available information. At
December 31, 2001, approximately 81 percent of the
Companys trade accounts receivable balance was represented
by four customers. At December 31, 2000, approximately
94 percent of the Companys trade accounts receivable
balance was represented by two customers.

Although the Company does not require collateral
on certain accounts receivable on sales to large,
well-established companies, it does require standby letters of
credits or prepayments on certain sales to foreign and smaller
companies. As of December 31, 2001 the Company had overdue
accounts receivable of $1.5 million of which
$0.1 million was related to receivables from companies
located in Argentina. There was an additional $2.0 million
outstanding from companies in Argentina which was not overdue.
Argentina has suffered significant political and economic
dislocations in periods subsequent to those in which revenue
related to the receivables was recognized.

With respect to cash equivalents, short-term
marketable securities and long-term marketable securities, the
Company has cash investment policies that limit the amount of
credit exposure to any one issuer and restrict placement of
these investments to issuers evaluated as creditworthy.

4.     Equipment and
Leasehold Improvements:

Equipment and leasehold improvements consisted of
the following (in thousands):

|                                                |  |              |         |      |  |   |        |  
|----------------------------------------------- |  | ------------ | ------- | ---- |  | - | ------ | -
|                                                |  |             
|                                                |  | December 31,
|                                                |  |             
|                                                |  | 2001         |         | 2000
|                                                |  |              |         |     
|Engineering and test equipment                  |  | $            | 14,236  |      |  | $ | 11,381 |  
|Office and computer equipment                   |  |              | 5,201   |      |  |   | 3,618  |  
|Furniture and fixtures                          |  |              | 573     |      |  |   | 439    |  
|Leasehold improvements                          |  |              | 593     |      |  |   | 281    |  
|                                                |  |              |         |      |  |   |        |  
|                                                |  |              | 20,603  |      |  |   | 15,719 |  
|Less: Accumulated depreciation and amortization |  |              | (12,807 | )    |  |   | (8,823 | )
|                                                |  |              |         |      |  |   |        |  
|Equipment and leasehold improvements, net       |  | $            | 7,796   |      |  | $ | 6,896  |  
|                                                |  |              |         |      |  |   |        |  

5.     Accrued
Liabilities:

Accrued liabilities consisted of the following
(in thousands):

|                                                        |       |              |        |        |  |   |       |       | 
|------------------------------------------------------- | ----- | ------------ | ------ | ------ |  | - | ----- | ----- | 
|                                                        |       |             
|                                                        |       | December 31,
|                                                        |       |             
|                                                        |       | 2001         |        | 2000  
|                                                        |       |              |        |       
|Accrued payroll and related benefits                    |       | $            | 1,995  |        |  | $ | 2,915 |      
|Warranty reserve                                        |       |              | 2,174  |        |  |   | 2,824 |      
|Customer deposits and deferred revenue                  |       |              | 2,306  |        |  |   | 503   |      
|Material-related commitments to contract
	manufacturers |       |              | 15,723 |        |  |   |      |      
|Professional services                                   |       |              | 1,791  |        |  |   | 141   |      
|Other                                                   |       |              | 1,800  |        |  |   | 2,776 |      
|                                                        |       |              |        |        |  |   |       |      
|                                                        | Total |              | $      | 25,789 |  |   | $     | 9,159 | 
|                                                        |       |              |        |        |  |   |       |      

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NETRO CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

6.     Debt and
Capital Leases:

The following table summarizes obligations under
long-term debt and capital leases (in thousands):

|                                                                                               |  |              |        |      |  |   |        |  
|---------------------------------------------------------------------------------------------- |  | ------------ | ------ | ---- |  | - | ------ | -
|                                                                                               |  |             
|                                                                                               |  | December 31,
|                                                                                               |  |             
|                                                                                               |  | 2001         |        | 2000
|                                                                                               |  |              |        |     
|Borrowings under bank line of credit                                                           |  | $            |       |      |  | $ | 3,568  |  
|Secured note payable to lender, due in monthly
	installments of $91,000 with interest at 12.5% |  |              |       |      |  |   | 975    |  
|Capital leases, due through 2003                                                               |  |              | 1,336  |      |  |   | 2,920  |  
|                                                                                               |  |              |        |      |  |   |        |  
|                                                                                               |  |              | 1,336  |      |  |   | 7,463  |  
|Less: current portion                                                                          |  |              | (1,272 | )    |  |   | (6,183 | )
|                                                                                               |  |              |        |      |  |   |        |  
|                                                                                               |  | $            | 64     |      |  | $ | 1,280  |  
|                                                                                               |  |              |        |      |  |   |        |  

In January 1998, the Company entered into a bank
line of credit under which up to $10,000,000 is available for
borrowings and letters of credit. This arrangement was renewed
in December 2000 and again in March 2001 and expires in January
2004. Borrowings are limited to an aggregate amount equaling
approximately 80 percent and 90 percent of domestic
and foreign eligible trade accounts receivables, respectively,
and 50 percent of eligible foreign inventories. The line of
credit is secured by the Companys trade accounts
receivable and inventory. The borrowings under the line accrue
interest at the 30-day LIBOR rate plus 1.5 percent or the
banks prime rate, at the Companys option. Under the
agreement, the Company must comply with certain financial and
other covenants. At December 31, 2001, the Company was in
compliance with all covenants. In April 2001, the Company paid
off the outstanding balance in full. As of December 31,
2001, there were no borrowings outstanding under this agreement
and amounts utilized for outstanding letters of credit were $2.3
million. At December 31, 2001, $3.5 was available to be
borrowed under the line of credit.

In 1997, the Company borrowed $3,750,000 from a
lender to finance purchases of fixed assets. The loan accrued
interest at 12.5 percent per annum from the date of
borrowing, and was secured by a purchase money lien on the
equipment financed. The remaining principal was paid in 2001.

A significant portion of the Companys
machinery and equipment is leased under agreements accounted for
as capital leases. The cost of equipment under capital leases
included in property and equipment at December 31, 2001 and
2000 was approximately $5,793,000. Associated accumulated
depreciation was approximately $5,292,000 at December 31,
2001 and $4,078,000 at December 31, 2000.

In March 1999, the Company entered into an
equipment lease agreement, under which the Company can finance
equipment purchases of up to $3,000,000. As of December 31,
2001, the Company had borrowed approximately $2,335,000 against
this agreement. The Companys right to make additional
borrowings under this lease line expired in June 2000. See Note
9 for information regarding warrants issued as part of this
agreement.

Future minimum lease payments under all
noncancelable capital lease agreements as of December 31,
2001, are summarized as follows (in thousands):

|                                                      |  |   |       |  
|----------------------------------------------------- |  | - | ----- | -
|2002                                                  |  | $ | 1,338 |  
|2003                                                  |  |   | 65    |  
|                                                      |  |   |       |  
|Total minimum lease payments                          |  |   | 1,403 |  
|Less: amount representing interest at 10.3% to
	13.8% |  |   | (67   | )
|                                                      |  |   |       |  
|Present value of lease payments                       |  | $ | 1,336 |  
|                                                      |  |   |       |  

45



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NETRO CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

7.     Commitments
and Contingencies:

Commitments

The Company leases its facilities and certain
equipment under noncancelable operating lease agreements
expiring at various dates through 2006. Future minimum lease
payments under all noncancelable operating lease agreements as
of December 31, 2001, are summarized as follows (in
thousands):

|     |  |   |        | 
|---- |  | - | ------ | 
|2002 |  | $ | 4,125  | 
|2003 |  |   | 4,240  | 
|2004 |  |   | 4,362  | 
|2005 |  |   | 4,484  | 
|2006 |  |   | 3,227  | 
|     |  |   |        | 
|     |  | $ | 20,438 | 
|     |  |   |        | 

Rent expense for all operating leases was
approximately $2,757,000, $1,401,000 and $1,361,000 in 2001,
2000, and 1999, respectively.

The Company had outstanding a standby letter of
credit of $240,000 to secure the Companys warranty
obligations to one customer relating to a discontinued product.
The letter of credit is secured by a certificate of deposit for
$125,000. The letter of credit is subject to draw if the Company
fails to meet its obligation for liquidated damages to the
customer for downtime.

In July 2001, the Company issued a letter of
credit for $2.0 million as a security deposit for the
Companys San Jose, California office space. The letter of
credit is subject to draw if the Company fails to meet its
obligations under the facilities lease. The lease expires in
September 2006.

The capital required for volume manufacturing is
being committed by our contract manufacturers. We provide six or
twelve month forecasts to our contract manufacturers. We
generally commit to purchase products to be delivered within the
most recent 60 days covered by these forecasts with
cancellation fees. As of December 31, 2001, we had
committed to make purchases totaling $3.1 million from
these manufacturers in the next 60 days. In addition, in
specific instances we may agree to assume liability for limited
quantities of specialized components with lead times beyond this
60-day period.

In addition, from time to time in the past, we
have committed to purchase minimum volumes of products from
certain of our contract manufacturers. As of December 31,
2001 the value of outstanding minimum purchase commitments for
which we had not yet placed purchase orders was
$31.6 million. We believe that our currently forecasted
demand for products, combined with our reserves for inventory
and material-related commitments will be sufficient to meet
these commitments in the future.



| |              
| | -------------
| | Contingencies

Coates Litigation.On or around October 5, 2001, C. Robert Coates, a holder of
shares of the Companys common stock, commenced an action
in the Delaware Chancery Court against the Company, the former
Netro Corporation, which was incorporated in California
(Netro California), and the members of the
Companys board of directors, styled Coates v. Netro Corp.,
et al., C.A. No. 19154 (Coates I). The
complaint in Coates I makes a number of allegations relating to
the approval by the stockholders of Netro California of the
merger transaction by which the Companys state of
incorporation was changed from California to Delaware, including
that the disclosures to shareholders in connection with that
proposed transaction were incomplete or misleading in various
respects. The complaint also alleges that the adoption by the
Companys board of directors of a stockholder rights plan
sometime after that merger transaction was in violation of
Delaware law. The complaint seeks (1) to invalidate or
rescind the merger transaction or, in the

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NETRO CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

alternative, to obtain an order directing a new
stockholder vote on that transaction; (2) to invalidate or
reform the Companys certificate of incorporation and
bylaws to eliminate certain alleged anti-takeover
provisions contained in them; (3) to have the
stockholder rights plan declared invalid or to obtain an order
compelling the directors to redeem the rights distributed to the
Companys stockholders thereunder; and (4) to recover
monetary damages in an unspecified amount, as well as
plaintiffs attorneys fees and expenses in bringing
the action.

On November 30, 2001, defendants filed a
motion to dismiss the complaint in Coates I for failure to state
a claim. In addition, Mr. Coates has made a motion
purportedly for partial summary judgment on two issues: first,
that section 2.12 of the Companys bylaws, relating to the
business that may be brought before a special meeting of
stockholders, allegedly is invalid and second, that the
definition of beneficial owner in the Companys
rights plan allegedly unduly interferes with stockholders
ability to convene a special meeting. These motions have not yet
been submitted to the Court for its consideration.

Separately, on or about December 10, 2001,
Mr. Coates filed a complaint in a second action that names
as defendants the Company and certain members of its board of
directors, styled Coates v. Netro Corp., et al., C.A.
No. 19309 (Coates II). In the complaint in that
action, Mr. Coates challenges a stock option cancellation
and regrant program that was described in the 2001 proxy
statement in connection with the approval by the stockholders of
Netro California of an amendment to the Companys 1996
stock option plan. Mr. Coates claims that the discussion in
the proxy statement about the proposed amendment to the stock
option plan and the stock option cancellation and regrant
program was incomplete or misleading and that the stock option
cancellation and regrant program violated the terms of the stock
option plan, inter alia, because options were issued under that
program with exercise prices at the then-prevailing market price
for the Companys common stock rather than the alleged
fair value of that stock. The complaint seeks an
order declaring the options issued in the program to be invalid
and void, rescinding those options, preliminarily and
permanently enjoining the exercise of those options, imposing a
constructive trust on any such options that were granted to
defendants, and awarding monetary damages in an unspecified
amount as well as plaintiffs attorneys fees and
expenses. Defendants have filed a motion to stay or dismiss the
complaint in Coates II, which motion has not yet been fully
briefed.

The Company and the other defendants believe the
claims asserted by Mr. Coates in both of these actions are
without merit, and they intend to vigorously defend themselves
against those claims.

Soto-Gonzalez Litigation.On or around August 23, 2001,
Ramiro Soto-Gonzalez, who alleges that he was a former
shareholder of the Companys common stock, commenced a
purported class action lawsuit in the U.S. District Court for
the Southern District of New York against the Company, certain
officers and directors of the Company (Individual
Defendants), and Dain Rauscher, Inc., FleetBoston
Robertson Stephens, Inc., and Merrill Lynch, Pierce, Fenner and
Smith, Inc. (Underwriter Defendants) (collectively
defendants). The Soto-Gonzalez action is one of more
than 800 lawsuits currently pending in the U.S. District Court
for the Southern District of New York against more than 310
different issuers, certain officers and directors of these
issuers and more than 40 different underwriters arising out of
initial public offerings occurring between December 1997 and
December 2000.

The complaint in the Soto-Gonzalez action makes a
number of allegations relating to the initial public offering of
Companys common stock in August 1999, including that the
disclosures made in connection with that offering were
incomplete or misleading in various respects. The complaint
alleges, among other things, that the defendants failed to
disclose that the Underwriter Defendants: (1) charged the
Company excessive commissions and inflated transaction fees in
violation of the securities laws and regulations; and (2)
allowed certain investors to take part in the Companys
initial public offering in exchange for promises that these
investors would purchase additional shares in the after-market
for the purpose of inflating and maintaining the market price of
the Companys common stock. The complaint seeks to certify
a class of stockholders who purchased the Companys common
stock between August 18, 1999 and December 6, 2000,
and to recover

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NETRO CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

monetary damages from defendants in an
unspecified amount, as well as plaintiffs attorneys
fees and expenses in bringing the action. The action is in its
earliest stages. The Company and the Individual Defendants
believe the claims asserted by Mr. Soto-Gonzalez in the
action are without merit, and they intend to vigorously defend
themselves against those claims.

From time to time, the Company is involved in
various legal proceedings in the ordinary course of business.
The Company is not currently involved in any additional
litigation which, in managements opinion, would have a
material adverse effect on its business, operating results or
financial condition; however, there can be no assurance that any
such proceeding will not escalate or otherwise become material
to the Companys business in the future.

8.     Employee
Benefit Plan:

The Company maintains an employee savings plan
for all of its full-time employees. This plan qualifies under
Section 401(k) of the Internal Revenue Code (the
Code). The plan allows employees to make pre-tax
contributions in specified percentages up to the maximum dollar
limitations prescribed by the Code. The Company has the option
to contribute to the plan, but has not made contributions to
date.

9.     Capital
Stock:



| |                 
| | ----------------
| | Public Offerings

On August 24, 1999, the Company completed
its initial public offering of 5,750,000 shares of common stock
at a public offering price of $8 per share. The offering
resulted in net proceeds to the Company of $41.6 million.
Simultaneously with the closing of the initial public offering,
all of the Companys then outstanding convertible preferred
stock was automatically converted into an aggregate of
29,902,283 shares of common stock.

On March 17, 2000, the Company completed a
public offering for the sale of 6,000,000 shares of common stock
at a price of $82.50 per share. Of the 6,000,000 shares offered,
the Company sold 4,504,111 shares and selling shareholders sold
1,495,889 shares. The offering resulted in net proceeds to the
Company of $352.3 million.



| |              
| | -------------
| | Capital Stock

The Companys capital stock is divided into
two classes: Common Stock and Preferred Stock.

At December 31, 2001, 12,092,882 shares of
Common Stock were reserved for issuance, including 12,035,854
shares for issuance under the Companys stock option plans,
and 57,028 shares issuable upon the exercise of warrants to
purchase Common Stock.

During 1998, the Company issued 400,000 shares of
Common Stock in exchange for a full recourse note in the amount
of $800,000. The note bore interest at 5.44 percent per
annum and was repaid in February 2000.

The Company is authorized to issue 5,000,000
shares of undesignated preferred stock. The board of directors
will have the authority, without any further vote or action by
the stockholders:



| |   |                                                                                                                                                                                                  
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | to issue the undesignated preferred stock in one
	or more series.                                                                                                                                
|
| |  | to determine the powers, preferences and rights
	and the qualifications, limitations or restrictions granted to
	or imposed upon any wholly unissued series of undesignated
	preferred stock; and
|
| |  | to fix the number of shares constituting any
	series and the designation of that series.                                                                                                         

The rights of the holders of the common stock are
subject to, and may be adversely affected by, the rights of the
holders of any preferred stock that may be issued in the future.

48



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NETRO CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |                        
| | -----------------------
| | Stockholder Rights Plan

In July 2001, the Company adopted a stockholder
rights plan. As a part of the plan, the Company declared a
dividend distribution of one right for each outstanding share of
common stock to stockholders of record as of August 16,
2001. Each right entitles the holder to purchase one unit
consisting of one one-hundredth of a share of a new series of
participating preferred stock at an initial purchase price of
$20.00 per unit. If a person or group acquires 15 percent or
more of the Companys outstanding common stock, holders of
the rights (other than the person or group triggering their
exercise) will be able to purchase, in exchange for the $20.00
exercise price, shares of the Companys common stock having
twice the value of the exercise price. If, following an
acquisition of 15 percent or more of the Companys
common stock by a stockholder, the Company is involved in
certain mergers or other business combinations each right will
entitle the holder to purchase, in exchange for the exercise
price, common stock of the other party to such transaction
having twice the value of the exercise price. Holders who, as of
the date of adoption of the plan, already held more than
15 percent of the Companys common stock will not
trigger any rights under the plan so long as neither they nor
their affiliates or associates acquire more than
19.9 percent of the Companys common stock. The rights
expire on July 23, 2011 unless extended by the
Companys Board of Directors.



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



| |                                     
| | ------------------------------------
| | 2000 Non-Executive Stock Option Plan

The 2000 non-executive stock option plan was
adopted by the Board of Directors in January 2000 and, unless
terminated earlier by the Board of Directors, will terminate in
January 2010. It did not require stockholder approval. The 2000
non-executive stock option plan provides for the grant of
nonstatutory stock options to non-executive employees and
consultants of the Company. The purposes of the 2000
non-executive stock option plan are: to attract and retain the
best available personnel; to provide additional incentives to
our non-executive employees and consultants; and to promote the
success of the Company. The Company has reserved 3,500,000
shares for issuance under the 2000 non-executive stock option
plan, of which 707,693 shares remained available for future
grant as of December 31, 2001.

The compensation committee currently administers
the 2000 non-executive stock option plan. The administrator of
the plan determines: the number of shares subject to options,
provided that no individual employee may receive option grants
for more than 1,000,000 shares in any fiscal year; vesting
schedules, which are typically 1/4(th) after one year and
1/48(th) per month thereafter; exercise prices, which must be at
least 85 percent of the fair market value of our common
stock; the term of the options, which may not exceed ten years;
and the transferability of the options, which are generally
non-transferable other than by will or the laws of descent or
distribution, unless otherwise determined by the administrator.
Options granted under the 2000 non-executive stock option plan
are only nonstatutory stock options. Executive officers of the
Company may not receive grants under the plan.

In the event of a change of control of the
Company, outstanding options will be assumed or substituted by
the successor corporation. If the successor corporation does not
agree to this assumption or substitution, the options will
terminate upon the closing of the transaction. The
Companys board of directors may amend, modify or terminate
the 2000 non-executive stock option plan if the amendment,
modification or termination does not impair vesting rights of
the plan participants.



| |                          
| | -------------------------
| | 1999 Executive Stock Plan

The 1999 Executive Stock Plan was adopted by the
board of directors in April 1999 and approved by the
stockholders in May 1999. A total of 1,195,000 shares of common
stock has been reserved for issuance under the 1999 Executive
Stock Plan, of which 233,855 shares remained available for
future option grants as of December 31, 2001. Unless
terminated earlier, the 1999 Executive Stock Plan will terminate
in April 2009.

49



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NETRO CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The 1999 Executive Stock Plan does not impose an
annual limitation on the number of shares subject to options
that may be issued to any individual employee.

The terms of options issued under the 1999
Executive Stock Plan are generally the same as those that may be
issued under the 1996 Stock Option Plan. However, all options
granted under the 1999 Executive Stock Plan may be exercised
immediately after the grant date, subject to the Companys
right to repurchase at cost any shares that remain unvested at
the time of the optionees termination of employment.
Options granted under the 1999 Executive Stock Plan generally
vest at the rate of  1/4 of the total number of shares
subject to the options twelve months after the date of grant
and  1/48 of the total number of shares subject to the
options each month thereafter.



| |                                   
| | ----------------------------------
| | 1997 Directors Stock Option
	Plan

The 1997 Directors Stock Option Plan (the
Directors Plan) was adopted by the Board of
Directors in December 1997, amended in June 1999, and further
amended in May 2000. A total of 300,000 shares of common
stock has been reserved for issuance under the Directors
Plan, of which options to purchase 111,250 shares remained
available for future option grant as of December 31, 2001.
Under the Directors Plan, as amended, each individual who
first becomes a non-employee director after the effective date
of the amendment will receive an automatic initial grant of an
option to purchase 50,000 shares of common stock upon
appointment or election. Initial grants to non-employee
directors will vest in four equal annual installments. The
Directors Plan also provides for annual grants of options
to purchase 12,500 shares of common stock on the first day
of each fiscal year to each non-employee director who has served
on the Board of Directors for at least six months. The annual
grants to non-employee directors will vest in full on the fourth
anniversary of the date of grant. The per share exercise price
of all stock options granted under the Directors Plan must
be equal to the fair market value of a share 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. However, unvested options will terminate when the
optionee ceases to serve as a director and vested options will
terminate if they are not exercised within six months after
the directors death or disability or within 90 days
after the director ceases to serve as a director for any other
reason.



| |                                 
| | --------------------------------
| | 1995 and 1996 Stock Option Plans

During 1996, the Company established the 1996
Stock Option Plan (the 1996 Plan). All shares
previously available for issuance under the Companys 1995
Stock Option Plan are reserved for issuance under the 1996 Plan.
As of December 31, 2001, 11,050,000 shares of Common
Stock had been authorized for issuance under the 1995 and 1996
Plan, of which 1,865,870 shares remained available for
future option grants. Under the 1996 Plan, the Company may grant
incentive stock options or nonstatutory stock options to
employees, officers, directors and consultants at an exercise
price of not less than 100 percent of the fair market value
of the Common Stock on the date of grant, except that
nonstatutory stock options may be granted at 85 percent of
such fair market value. Options granted generally become
exercisable at a rate of one-fourth of the shares subject to the
option at the end of the first year and  1/48 of the shares
subject to the option at the end of each calendar month
thereafter. However, at the discretion of the administrator, the
optionee may have the immediate right to exercise the option
subject to a restricted stock agreement that gives the Company
the right to repurchase unvested shares at the original issuance
price in the event of termination of employment. The maximum
term of a stock option under the plans is ten years, but if the
optionee at the time of grant has voting power of more than
10 percent of the Companys outstanding capital stock,
the maximum term is five years. The number of shares reserved
for issuance under the 1996 stock option plan will be subject to
an automatic annual increase on the first day of each year
beginning from 2001 through 2006 equal to the least of:
(1) 1,500,000 shares, (2) 3 percent of our
outstanding common stock on the last day of the immediately
preceding fiscal year, or (3) a number of shares determined
by the administrator.

50



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##### Table of Contents



NETRO CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |                            
| | ---------------------------
| | Cancel and Re-grant Program

In March 2001, the Company effected a plan, under
which employees holding options to purchase the Companys
common stock with exercise prices in excess of $34.00 per share
could choose to cancel those stock option grants in exchange for
a commitment that options to purchase the same number of common
shares will be granted in October 2001, provided that the
participant has not terminated employment prior to such time
(the Cancel and Re-grant Program). Options granted
under the Cancel and Re-grant Program have an exercise price
equal to the fair value of the Companys common stock on
the date of the new grant, and vest according to the original
vesting terms, typically  1/4 after one year and  1/48
per month thereafter, beginning at the date of cancellation. All
other terms of options granted under the Cancel and Re-grant
Program are substantially the same as the cancelled options. On
October 26, 2001, the Company granted
1,209,584 options to purchase the Companys common
stock at the fair market value of $3.07 per share in accordance
with the Cancel and Re-grant Program.



| |                          
| | -------------------------
| | Stock Option Plan Summary

The following table summarizes option activity
under all option plans including the 2000 Non-Executive Stock
Option Plan, the 1997 Director Stock Option Plan, the 1999
Executive Stock Option Plan and the 1995 and 1996 Stock Option
Plans (the Plans):

|                             |  |           |            |                     |  |                |            |   |  |   |        | 
|---------------------------- |  | --------- | ---------- | ------------------- |  | -------------- | ---------- | - |  | - | ------ | 
|                             |  |           |            |                    
|                             |  |           |            | Options Outstanding
|                             |  |           |            |                    
|                             |  |           |            |                     |  | Weighted      
|                             |  | Options   |            |                     |  | Average       
|                             |  | Available |            | Shares              |  | Exercise Price
|                             |  |           |            |                     |  |               
|Balance at December 31, 1998 |  |           | 561,504    |                     |  |                | 4,683,111  |   |  | $ | 1.621  | 
|Authorized                   |  |           | 3,315,284  |                     |  |                |           |   |  | $ |       | 
|Granted                      |  |           | (3,689,510 | )                   |  |                | 3,689,510  |   |  | $ | 11.835 | 
|Exercised                    |  |           |           |                     |  |                | (731,124   | ) |  | $ | 1.020  | 
|Terminated                   |  |           | 797,037    |                     |  |                | (797,037   | ) |  | $ | 1.880  | 
|Unvested shares repurchased  |  |           | 21,666     |                     |  |                |           |   |  | $ |       | 
|                             |  |           |            |                     |  |                |            |   |  |   |        | 
|Balance at December 31, 1999 |  |           | 1,005,981  |                     |  |                | 6,844,460  |   |  | $ | 7.178  | 
|Authorized                   |  |           | 2,000,000  |                     |  |                |           |   |  |   |       | 
|Granted                      |  |           | (3,182,668 | )                   |  |                | 3,182,668  |   |  | $ | 37.025 | 
|Exercised                    |  |           |           |                     |  |                | (1,905,062 | ) |  | $ | 2.073  | 
|Terminated                   |  |           | 771,848    |                     |  |                | (771,848   | ) |  | $ | 18.347 | 
|Unvested shares repurchased  |  |           | 15,626     |                     |  |                |           |   |  |   |       | 
|                             |  |           |            |                     |  |                |            |   |  |   |        | 
|Balance at December 31, 2000 |  |           | 610,787    |                     |  |                | 7,350,218  |   |  | $ | 20.424 | 
|Authorized                   |  |           | 3,750,000  |                     |  |                |           |   |  | $ |       | 
|Granted                      |  |           | (4,590,782 | )                   |  |                | 4,590,782  |   |  | $ | 5.210  | 
|Exercised                    |  |           |           |                     |  |                | (599,575   | ) |  | $ | 2.293  | 
|Terminated                   |  |           | 3,148,663  |                     |  |                | (3,148,663 | ) |  | $ | 31.577 | 
|                             |  |           |            |                     |  |                |            |   |  |   |        | 
|Balance at December 31, 2001 |  |           | 2,918,668  |                     |  |                | 8,192,762  |   |  | $ | 8.945  | 
|                             |  |           |            |                     |  |                |            |   |  |   |        | 

Shares of common stock issued pursuant to options
granted under the 1995 and 1996 stock option plans that had not
vested at the date of employee termination were repurchased by
the Company at cost, as reflected in the table above as
unvested shares repurchased. The repurchased shares
were cancelled and returned to the pool of options available for
grant.

51



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NETRO CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The following table summarizes information about
stock options outstanding at December 31, 2001:

|                |  |                     |           |             |  |             |           |  |  |  |           | 
|--------------- |  | ------------------- | --------- | ----------- |  | ----------- | --------- |  |  |  | --------- | 
|                |  |                     |           |            
|                |  | Options Outstanding |           |            
|                |  |                     |           |            
|                |  |                     |           | Remaining   |  | Number     
|                |  |                     |           | Contractual |  | Vested and 
|Exercise Prices |  | Number              |           | Life        |  | Exercisable
|                |  |                     |           |             |  |            
|$0.045          |  |                     | 21,000    |             |  |             | 3.6 years |  |  |  | 21,000    | 
|$ 0.20          |  |                     | 76,200    |             |  |             | 4.5 years |  |  |  | 76,200    | 
|$ 1.00 - $ 1.50 |  |                     | 82,254    |             |  |             | 4.9 years |  |  |  | 82,254    | 
|$ 2.00 - $ 2.95 |  |                     | 1,225,722 |             |  |             | 6.7 years |  |  |  | 939,037   | 
|$ 3.07 - $ 4.50 |  |                     | 2,942,915 |             |  |             | 9.0 years |  |  |  | 613,992   | 
|$ 4.68 - $ 7.00 |  |                     | 374,718   |             |  |             | 8.6 years |  |  |  | 82,160    | 
|$ 7.50 - $ 8.00 |  |                     | 1,807,090 |             |  |             | 8.8 years |  |  |  | 301,160   | 
|$14.50 - $19.56 |  |                     | 725,152   |             |  |             | 8.8 years |  |  |  | 200,546   | 
|$21.81 - $28.00 |  |                     | 253,720   |             |  |             | 8.2 years |  |  |  | 112,924   | 
|$34.31 - $49.88 |  |                     | 683,991   |             |  |             | 7.9 years |  |  |  | 322,185   | 
|                |  |                     |           |             |  |             |           |  |  |  |           | 
|                |  |                     | 8,192,762 |             |  |             |           |  |  |  | 2,751,458 | 
|                |  |                     |           |             |  |             |           |  |  |  |           | 

The Company accounts for the Plans under APB
Opinion No. 25, Accounting for Stock Issued to
Employees. Had compensation expense for the Plans been
determined consistent with SFAS No. 123, Accounting
for Stock-Based Compensation, the Companys net loss
and basic net loss per share would have been increased to the
following pro forma amounts (dollars, in thousands, except per
share amounts):

|                                                                                                               |                    |                          |      |          |   |      |       |         |   |  |       |         |  
|-------------------------------------------------------------------------------------------------------------- | ------------------ | ------------------------ | ---- | -------- | - | ---- | ----- | ------- | - |  | ----- | ------- | -
|                                                                                                               |                    |                         
|                                                                                                               |                    | Years Ended December 31,
|                                                                                                               |                    |                         
|                                                                                                               |                    | 2001                     |      | 2000     |   | 1999
|                                                                                                               |                    |                          |      |          |   |     
|As Reported:                                                                                                   |                    |                          |      |          |   |      |       |         |   |  |       |        
|                                                                                                               | Net loss           |                          |      | (79,304  | ) |      |       | (10,178 | ) |  |       | (28,800 | )
|                                                                                                               | Net loss per share |                          |      | (1.52    | ) |      |       | (0.21   | ) |  |       | (1.31   | )
|Pro Forma:                                                                                                     |                    |                          |      |          |   |      |       |         |   |  |       |        
|                                                                                                               | Net loss           |                          |      | (104,145 | ) |      |       | (27,000 | ) |  |       | (30,273 | )
|                                                                                                               | Net loss per share |                          |      | (2.00    | ) |      |       | (0.54   | ) |  |       | (1.38   | )
|Weighted average fair value of options granted
	during the year                                                |                    |                          | 8.72 |          |   |      | 69.45 |         |   |  | 18.78 |        
|Weighted average fair value of purchase rights
	granted during the year under the employee stock purchase plan |                    |                          | 5.19 |          |   |      | 21.55 |         |   |  | 2.97  |        

The fair value of each option grant was estimated
on the date of grant using the Black-Scholes option valuation
model with the following assumptions:

|                                |  |                   |               |                   |  |                   |               |                  |  |  |               |  |  |  |               | 
|------------------------------- |  | ----------------- | ------------- | ----------------- |  | ----------------- | ------------- | ---------------- |  |  | ------------- |  |  |  | ------------- | 
|                                |  | Year Ended        |               | Year Ended        |  | Six Months Ended  |               | Six Months Ended
|                                |  | December 31, 2001 |               | December 31, 2000 |  | December 31, 1999 |               | June 30, 1999   
|                                |  |                   |               |                   |  |                   |               |                 
|Risk-free interest rate         |  |                   | 4.57% - 4.89% |                   |  |                   | 5.72% - 6.68% |                  |  |  | 5.87% - 6.09% |  |  |  | 5.03% - 6.70% | 
|Average Expected Life of Option |  |                   | 4 years       |                   |  |                   | 4 years       |                  |  |  | 4 years       |  |  |  | 5 years       | 
|Dividend Yield                  |  |                   | 0%            |                   |  |                   | 0%            |                  |  |  | 0%            |  |  |  | 0%            | 
|Volatility of Common Stock      |  |                   | 75.5%         |                   |  |                   | 157.5%        |                  |  |  | 90.0%         |  |  |  | 0.01%         | 

52



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##### Table of Contents



NETRO CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |                                   
| | ----------------------------------
| | 1999 Employee Stock Purchase
	Plan

In June 1999, the Board of Directors adopted the
1999 Employee Stock Purchase Plan (the Purchase
Plan). The Purchase Plan is intended to qualify under
Section 423 of the Internal Revenue Code. A total of
1,500,000 shares of common stock have been reserved for issuance
under the Purchase Plan, of which 924,424 shares remain
available for issuance at December 31, 2001. The number of
shares reserved for issuance under the Purchase Plan will be
subject to an automatic annual increase on the first day of each
of 2001 through 2005 equal to the least of: (1) 250,000
shares, (2) 1 percent of the outstanding common stock
on the last day of the immediately preceding fiscal year, or
(3) a number of shares determined by the administrator. The
price of shares purchased under the plan will be equal to
85 percent of the fair market value of the Common Stock on
the first day of the offering period or the last day of the
purchase period, whichever is lower.

The fair value of purchase rights granted under
the Employee Stock Purchase Plan is estimated on the date of
grant using the Black-Scholes option pricing model with the
following weighted-average assumptions:

|                                |  |                         |               |      |  |      |               |  |  |  |           | 
|------------------------------- |  | ----------------------- | ------------- | ---- |  | ---- | ------------- |  |  |  | --------- | 
|                                |  |                        
|                                |  | Year ended December 31,
|                                |  |                        
|                                |  | 2001                    |               | 2000 |  | 1999
|                                |  |                         |               |      |  |     
|Risk-free interest rate         |  |                         | 3.47% - 5.01% |      |  |      | 5.89% - 6.31% |  |  |  | 5.04%     | 
|Average expected life of option |  |                         | 0.5 years     |      |  |      | 0.5 years     |  |  |  | 0.5 years | 
|Dividend yield                  |  |                         | 0%            |      |  |      | 0%            |  |  |  | 0%        | 
|Volatility of Common Stock      |  |                         | 75.5%         |      |  |      | 157.5%        |  |  |  | 90.0%     | 



| |                            
| | ---------------------------
| | Deferred Stock Compensation

In connection with the grant of stock options to
purchase 2,338,550 shares of common stock with a weighted
average exercise price of $2.84 per share to employees during
1998 and 1999, the Company recorded deferred compensation of
$4,834,000, representing the difference between the estimated
fair value of the common stock and the aggregate option exercise
price of such options at the date of grant. This amount is
presented as a reduction of stockholders equity and
amortized ratably over the vesting period of the applicable
options (generally four years). Amortization expense related to
deferred stock compensation was $857,000, $1,064,000 and
$1,104,000 in 2001, 2000 and 1999, respectively. Compensation
expense is decreased in the period of forfeiture for any accrued
but unvested compensation arising from the early termination of
an option holders services.



| |         
| | --------
| | Warrants

In connection with the Companys capital
lease financing arrangements, the Company issued warrants to its
lessors as follows:

|                         |  |         |      |        |  |          |        |  |  |   |      | 
|------------------------ |  | ------- | ---- | ------ |  | -------- | ------ |  |  | - | ---- | 
|                         |  | Year    |      | Share  |  | Exercise
|Class of Stock           |  | Granted |      | Amount |  | Price   
|                         |  |         |      |        |  |         
|Series C Preferred Stock |  |         | 1997 |        |  |          | 28,750 |  |  | $ | 7.00 | 
|Series D Preferred Stock |  |         | 1998 |        |  |          | 8,997  |  |  | $ | 7.78 | 
|Series D Preferred Stock |  |         | 1999 |        |  |          | 19,281 |  |  | $ | 7.78 | 

Warrants to purchase 23,750 shares at $7.00
per share will expire in June 2002. Warrants to purchase
5,000 shares at $7.00 per share will expire in September
2002. Warrants to purchase 8,997 shares at $7.78 per share will
expire in February 2003. Warrants to purchase 19,281 shares
at $7.78 per share will expire in March 2006. The fair value of
the warrants was estimated at the date of grant using the
Black-Scholes model and the value was determined to be
immaterial.

53



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NETRO CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

All of the outstanding warrants to purchase
Preferred Stock were converted upon completion of the
Companys initial public offering into warrants to purchase
shares of Common Stock on a one for one basis. As of
December 31, 2001, none of these warrants had been
exercised.

10.     Income
Taxes:

The Company provides for income taxes under the
provisions of SFAS No. 109, Accounting for Income
Taxes. SFAS No. 109 requires an asset and liability
based approach in accounting for income taxes. Deferred income
tax assets and liabilities are recorded to reflect the tax
consequences on future years of temporary differences of revenue
and expense items for financial statement and income tax
purposes. Valuation allowances are provided against assets that
are not likely to be realized.

We have incurred a net loss for each period since
inception. Recorded income taxes for 2001 represent taxes paid
by our foreign subsidiaries. The provision for income taxes
differs from the expected tax benefit amount computed by
applying the statutory federal income tax rate of
35 percent to loss before income taxes as follows:

|                                    |  |                          |     |      |  |      |     |    |  |  |     |   
|----------------------------------- |  | ------------------------ | --- | ---- |  | ---- | --- | -- |  |  | --- | --
|                                    |  |                         
|                                    |  | Years Ended December 31,
|                                    |  |                         
|                                    |  | 2001                     |     | 2000 |  | 1999
|                                    |  |                          |     |      |  |     
|Federal statutory rate              |  |                          | (35 | )%   |  |      | (35 | )% |  |  | (35 | )%
|State taxes, net of federal benefit |  |                          | (6  | )    |  |      | (6  | )  |  |  | (6  | ) 
|Foreign taxes                       |  |                          | (0  | )    |  |      | (0  | )  |  |  | (0  | ) 
|                                    |  |                          |     |      |  |      |     |    |  |  |     |   
|Change in valuation allowance       |  |                          | 41  |      |  |      | 41  |    |  |  | 41  |   
|                                    |  |                          |     |      |  |      |     |    |  |  |     |   
|                                    |  |                          |    | %    |  |      |    | %  |  |  |    | % 
|                                    |  |                          |     |      |  |      |     |    |  |  |     |   

The major components of the net deferred tax
asset were as follows (in thousands):

|                                  |                                |                          |         |        |        |  |         |        |        | 
|--------------------------------- | ------------------------------ | ------------------------ | ------- | ------ | ------ |  | ------- | ------ | ------ | 
|                                  |                                |                         
|                                  |                                | December 31,            
|                                  |                                |                         
|                                  |                                | 2001                     |         | 2000  
|                                  |                                |                          |         |       
|Net operating losses:             |                                |                          |         |        |        |  |         |       
|                                  | Federal                        |                          | $       | 60,542 |        |  | $       | 31,210 |       
|                                  | State                          |                          |         | 3,779  |        |  |         | 1,314  |       
|Tax credit carryforwards          |                                |                          | 9,186   |        |        |  | 6,775   |       
|Cumulative temporary differences: |                                |                          |         |        |        |  |         |       
|                                  | Reserves                       |                          |         | 13,590 |        |  |         | 2,122  |       
|                                  | Research and development costs |                          |         | 3,915  |        |  |         | 2,709  |       
|                                  | Start-up costs                 |                          |         | 508    |        |  |         | 508    |       
|                                  | Other                          |                          |         | 4,943  |        |  |         | 2,848  |       
|                                  |                                |                          |         |        |        |  |         |       
|                                  |                                | Total deferred tax asset |         |        | 96,463 |  |         |        | 47,486 | 
|Valuation allowance               |                                |                          | (96,463 | )      |        |  | (47,486 | )     
|                                  |                                |                          |         |        |        |  |         |       
|                                  |                                | Net deferred tax asset   |         | $      |       |  |         | $      |       | 
|                                  |                                |                          |         |        |        |  |         |       

The Company has established a valuation allowance
for the total deferred tax asset because, given the
Companys limited operating history and accumulated
deficit, it is uncertain that the deferred tax asset will be
realized.

As of December 31, 2001, the Company had
Federal and state net operating loss carry forwards of
approximately $172,978,000 and $62,983,000, respectively. The
Companys net operating loss carry forwards

54



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NETRO CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

expire at various dates through 2022. Under
current tax law, the net operating loss and tax credit carry
forwards available for use in any given year may be limited upon
the occurrence of certain events, including significant changes
in ownership interest.

11.     Segment
Reporting:

The Company is organized and operates as one
operating segment: the design, development, manufacturing,
marketing and selling of broadband wireless point-to-multipoint
access systems.

The Company sells its products indirectly through
worldwide system integrators and local resellers in addition to
through a direct sales force. Revenue by geography based on
sales to our original customers was as follows:

|              |  |                     |     |      |  |      |     |   |  |  |     |  
|------------- |  | ------------------- | --- | ---- |  | ---- | --- | - |  |  | --- | -
|              |  |                    
|              |  | % of Total Revenues
|              |  |                    
|              |  | 2001                |     | 2000 |  | 1999
|              |  |                     |     |      |  |     
|Latin America |  |                     | 42  | %    |  |      | 10  | % |  |  | 3   | %
|Europe        |  |                     | 25  | %    |  |      | 2   | % |  |  | 21  | %
|Middle East   |  |                     | 2   | %    |  |      |    |   |  |  | 19  | %
|Asia          |  |                     | 2   | %    |  |      |    |   |  |  |    |  
|              |  |                     |     |      |  |      |     |   |  |  |     |  
|International |  |                     | 71  | %    |  |      | 12  | % |  |  | 43  | %
|United States |  |                     | 29  | %    |  |      | 88  | % |  |  | 57  | %
|              |  |                     | 100 | %    |  |      | 100 | % |  |  | 100 | %
|              |  |                     |     |      |  |      |     |   |  |  |     |  

Substantially all of our domestic revenues are
related to products sold to OEMs. These OEMs have resold, or
plan to resell, these products to end customers in international
locations. The following customers accounted for 10 percent
or more of revenues in the periods indicated:

|           |  |              |    |      |  |      |    |   |  |  |    |  
|---------- |  | ------------ | -- | ---- |  | ---- | -- | - |  |  | -- | -
|           |  |             
|           |  | Years Ended 
|           |  | December 31,
|           |  |             
|           |  | 2001         |    | 2000 |  | 1999
|           |  |              |    |      |  |     
|Customer A |  |              | 30 | %    |  |      | 86 | % |  |  | 57 | %
|Customer B |  |              | *  |      |  |      | *  |   |  |  | 10 | %
|Customer C |  |              | *  |      |  |      | *  |   |  |  | 10 | %
|Customer D |  |              | 30 | %    |  |      | *  |   |  |  | *  |  
|Customer E |  |              | 10 | %    |  |      | *  |   |  |  | *  |  



---



|  |                                                      
|- | -----------------------------------------------------
|* | Customer below 10 percent of revenues for
	the period

12.     Subsequent
Event

On February 12, 2002, the Company acquired
AT&T Wireless fixed wireless development team, a
license to intellectual property, equipment and proprietary
software assets for $16 million in cash and
8.2 million shares of Netro common stock. The technology
was originally developed under the code name Project
Angel. The acquisition will be accounted for as a purchase
of assets in 2002, at which point a purchase price allocation
will be determined based on the relative fair values of the
tangible and intangible assets acquired. After the transaction,
AT&T Wireless owned approximately 13.5 percent of the
Companys outstanding common stock. In addition, Lewis
Chakrin, Executive Vice President, Corporate Strategy and
Planning at AT&T Wireless, joined Netros Board of
Directors.

55



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##### Table of Contents






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

Not applicable.




PART III

The Companys Proxy Statement for its Annual
Meeting of Stockholders to be held on May 21, 2002, which,
when filed pursuant to Regulation 14A under the Securities
Exchange Act of 1934, will be incorporated by reference in this
Annual Report on Form 10-K pursuant to General Instruction
G(3) of Form 10-K and will provide the information required
under Part III (Items 10, 11, 12 and 13).

56



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##### Table of Contents






PART IV




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

(a)(1) Financial Statements



| |                                                                                                                                                                       
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The financial statements (including the Notes
	thereto) listed in the Index to Consolidated Financial
	Statements are included in Item 8 of Part II of this
	Form 10-K

(2) Financial Statement Schedules



| |                                                                
| | ---------------------------------------------------------------
| | The following financial statement schedule is
	included herein:



| |                                                 
| | ------------------------------------------------
| | Schedule II  Valuation and
	Qualifying Accounts



| |                                                                                                                                                                  
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------
| | All other schedules are omitted because they are
	not applicable or the required information is shown in the
	consolidated financial statements or notes thereto.

(3) Exhibits

| |             |    |  |                                                                                                                                                                                                                                                              
| | ----------- | -- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 2.1(8)      |    |  | Asset Purchase Agreement among Netro Corporation,
	AAS, Inc. and AT&T Wireless Services, Inc. dated
	January 14, 2002 (exhibits have been excluded; such
	exhibits will be furnished supplementally upon request by the
	Securities and Exchange Commission).
| | 3.3(6)      |    |  | Amended and Restated Certificate of Incorporation
	of the Registrant.                                                                                                                                                                                        
| | 3.4(7)      |    |  | Amended and Restated Bylaws of the Registrant.                                                                                                                                                                                                               
| | 4.1(3)      |    |  | Form of the Registrants common stock
	certificate.                                                                                                                                                                                                          
| | 4.2(9)      |    |  | Registration Rights Agreement by and among the
	Registrant and the selling stockholder dated February 12,
	2002.                                                                                                                                             
| | 10.1(7)     |    |  | Form of Indemnification Agreement.                                                                                                                                                                                                                           
| | 10.2(2)     |    |  | 1995 Stock Option Plan, as amended, and form of
	stock option agreement and restricted stock purchase agreement.                                                                                                                                             
| | 10.3(2)     |    |  | 1996 Stock Option Plan, as amended, and form of
	stock option agreement and restricted stock purchase agreement.                                                                                                                                             
| | 10.4(2)     |    |  | 1997 Directors Stock Option Plan, as
	amended, and form of stock option agreement.                                                                                                                                                                          
| | 10.5(1)     |    |  | 1999 Executive Stock Plan and form of
	subscription agreement.                                                                                                                                                                                               
| | 10.6(1)     |    |  | 1999 Employee Stock Purchase Plan and form of
	subscription agreement.                                                                                                                                                                                       
| | 10.7(4)     |    |  | 2000 Non-Executive Option Plan and form of stock
	option agreement.                                                                                                                                                                                          
| | 10.8        |    |  | Lease between North San Jose Interests and Netro
	Corporation dated April 20, 2001.                                                                                                                                                                          
| | 10.9()(1)  |    |  | Manufacturing and Engineering Services Agreement
	between Registrant and Microelectronics Technology Inc., dated
	January 11, 1999 and first amendment.                                                                                                      
| | 10.9.1()( | 5) |  | Amendment Agreement to the Manufacturing and
	Engineering Services Agreement between the Company and
	Microelectronics Technology, Inc., Dated August 29, 2000.                                                                                              
| | 10.10(1)    |    |  | Employment Agreement between Registrant and
	Gideon Ben-Efraim, and amendment.                                                                                                                                                                               
| | 10.11(1)    |    |  | Form of Change-of-Control Agreement.                                                                                                                                                                                                                         
| | 10.12(5)    |    |  | Preferred Stock Purchase Agreement between the
	Company and Bungee Communications, Inc., dated October 27,
	2000.                                                                                                                                            
| | 10.13()(5 | )  |  | Option Agreement between the Company and Bungee
	Communications, Inc., dated October 27, 2000.                                                                                                                                                               
| | 21.1        |    |  | Subsidiaries of the Registrant.                                                                                                                                                                                                                              
| | 23.1        |    |  | Consent of Arthur Andersen LLP, Independent
	Public Accountants.                                                                                                                                                                                             
| | 99.1        |    |  | Letter to the Securities and Exchange Commission
	Pursuant to Temporary Note 3T.                                                                                                                                                                             

57



---



##### Table of Contents





---



|    |                                                                                                                                                                
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Incorporated by reference to our registration
	statement on Form S-1 (File No. 333-81325) initially
	filed with the SEC on June 22, 1999.                      
|   
|(2) | Incorporated by reference to Amendment No. 1
	to our registration statement on Form S-1 (File
	No. 333-81325) initially filed with the SEC on
	July 28, 1999.  
|   
|(3) | Incorporated by reference to Amendment No. 3
	to our registration statement on Form S-1 (File
	No. 333-81325) initially filed with the SEC on
	August 16, 1999.
|   
|(4) | Incorporated by reference to Amendment No. 1
	to our registration statement on Form S-1 (File
	No. 333-30738) initially filed with the SEC on
	March 1, 2000.  
|   
|(5) | Incorporated by reference to our quarterly report
	on Form 10-Q for the quarter ended September 31, 2000.                                                      
|   
|(6) | Incorporated by reference to our quarterly report
	on Form 10-Q for the quarter ended June 30, 2001.                                                           
|   
|(7) | Incorporated by reference to our quarterly report
	on Form 10-Q for the quarter ended September 31, 2001.                                                      
|   
|(8) | Incorporated by reference to our periodic report
	on Form 8-K filed with the SEC on February 27, 2002.                                                         
|   
|(9) | Incorporated by reference to our registration
	statement on Form S-3 (File No. 333-84316) filed with
	the SEC on March 14, 2002.                               



|  |                                                                                                                             
|- | ----------------------------------------------------------------------------------------------------------------------------
| | Confidential treatment granted with respect to
	certain portions of this Exhibit by order of the SEC dated
	August 18, 1999.



|   |                                                                                                                               
|-- | ------------------------------------------------------------------------------------------------------------------------------
| | Confidential treatment granted with respect to
	certain portions of this Exhibit by order of the SEC dated
	February 16, 2001.

58



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##### Table of Contents



NETRO CORPORATION

SCHEDULE II  VALUATION AND
QUALIFYING ACCOUNTS AND RESERVES

|                                 |                               |                |   |            |  |            |   |            |  |  |   |       |  |  |   |        | 
|-------------------------------- | ----------------------------- | -------------- | - | ---------- |  | ---------- | - | ---------- |  |  | - | ----- |  |  | - | ------ | 
|                                 |                               | Balance at     |   | Additions  |  |            |   | Balance at
|                                 |                               | the Beginning  |   | Charged to |  |            |   | End of    
|                                 |                               | of the Year    |   | Expenses   |  | Deductions |   | the Year  
|                                 |                               |                |   |            |  |            |   |           
|                                 |                               |               
|                                 |                               | (In thousands)
|Allowance for Doubtful Accounts: |                               |                |   |            |  |            |   |            |  |  |   |       |  |  |   |       
|                                 | Year ended December 31, 1999  |                | $ | 509        |  |            | $ | 78         |  |  | $ | 437   |  |  | $ | 150    | 
|                                 | Year ended December 31, 2000  |                |   | 150        |  |            |   | 800        |  |  |   | 342   |  |  |   | 608    | 
|                                 | Year ended December 31, 2001  |                | $ | 608        |  |            | $ | 1,315      |  |  | $ | 423   |  |  | $ | 1,500  | 
|Reserve for Inventory:           |                               |                |   |            |  |            |   |            |  |  |   |       |  |  |   |       
|                                 | Year ended December 31, 1999  |                | $ | 2,366      |  |            | $ | 456        |  |  | $ | 1,604 |  |  | $ | 1,218  | 
|                                 | Year ended December 31, 2000  |                |   | 1,218      |  |            |   | 1,214      |  |  |   | 538   |  |  |   | 1,894  | 
|                                 | Year ended December 31, 2001. |                | $ | 1,894      |  |            | $ | 25,700     |  |  | $ | 4,275 |  |  | $ | 23,319 | 

59



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##### Table of Contents






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.



| |                  
| | -----------------
| | NETRO CORPORATION



| |     |                    
| | --- | -------------------
| | By: | /s/ SANJAY K. KHARE

| |                                             
| | --------------------------------------------
| |                                             
| | Sanjay K. Khare                             
| | Vice President and Chief Financial
	Officer 
| | (Principal Financial and Accounting Officer)

Date: March 28, 2002

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

|                                         |  |                                                                                                |  |               
|---------------------------------------- |  | ---------------------------------------------------------------------------------------------- |  | --------------
|Signature                                |  | Title                                                                                          |  | Date          
|                                         |  |                                                                                                |  |               
|/s/ GIDEON BEN-EFRAIM(Gideon Ben-Efraim) |  | Chairman of the Board of Directors
	and Chief Executive Officer
	(Principal Executive Officer) |  | March 28, 2002
|                                        
|/s/ SANJAY K. KHARE(Sanjay K. Khare)     |  | Vice President and Chief Financial Officer
	(Principal Financial and Accounting Officer)       |  | March 28, 2002
|                                        
|/s/ RICHARD M. MOLEY(Richard M. Moley)   |  | Chairman Emeritus of the
	Board of Directors                                                   |  | March 28, 2002
|                                        
|/s/ THOMAS R. BARUCH(Thomas R. Baruch)   |  | Director                                                                                       |  | March 28, 2002
|                                        
|/s/ LEWIS CHAKRIN(Lewis Chakrin)         |  | Director                                                                                       |  | March 28, 2002
|                                        
|/s/ IRWIN FEDERMAN(Irwin Federman)       |  | Director                                                                                       |  | March 28, 2002
|                                        
|/s/ SANFORD ROBERTSON(Sanford Robertson) |  | Director                                                                                       |  | March 28, 2002
|                                        
|/s/ SHIRLEY YOUNG(Shirley Young)         |  | Director                                                                                       |  | March 28, 2002

60



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##### Table of Contents






EXHIBIT INDEX

|        |             |             |  |                                                                                                                                                                                                                                                              
|------- | ----------- | ----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |             |            
|Number  |             | Description
|        |             |            
|        | 2.1(8)      |             |  | Asset Purchase Agreement among Netro Corporation,
	AAS, Inc. and AT&T Wireless Services, Inc. dated
	January 14, 2002 (exhibits have been excluded; such
	exhibits will be furnished supplementally upon request by the
	Securities and Exchange Commission).
|        | 3.3(6)      |             |  | Amended and Restated Certificate of Incorporation
	of the Registrant.                                                                                                                                                                                        
|        | 3.4(7)      |             |  | Amended and Restated Bylaws of the Registrant.                                                                                                                                                                                                               
|        | 4.1(3)      |             |  | Form of the Registrants common stock
	certificate.                                                                                                                                                                                                          
|        | 4.2(9)      |             |  | Registration Rights Agreement by and among the
	Registrant and the selling stockholder dated February 12,
	2002.                                                                                                                                             
|        | 10.1(7)     |             |  | Form of Indemnification Agreement.                                                                                                                                                                                                                           
|        | 10.2(2)     |             |  | 1995 Stock Option Plan, as amended, and form of
	stock option agreement and restricted stock purchase agreement.                                                                                                                                             
|        | 10.3(2)     |             |  | 1996 Stock Option Plan, as amended, and form of
	stock option agreement and restricted stock purchase agreement.                                                                                                                                             
|        | 10.4(2)     |             |  | 1997 Directors Stock Option Plan, as
	amended, and form of stock option agreement.                                                                                                                                                                          
|        | 10.5(1)     |             |  | 1999 Executive Stock Plan and form of
	subscription agreement.                                                                                                                                                                                               
|        | 10.6(1)     |             |  | 1999 Employee Stock Purchase Plan and form of
	subscription agreement.                                                                                                                                                                                       
|        | 10.7(4)     |             |  | 2000 Non-Executive Option Plan and form of stock
	option agreement.                                                                                                                                                                                          
|        | 10.8        |             |  | Lease between North San Jose Interests and Netro
	Corporation dated April 20, 2001.                                                                                                                                                                          
|        | 10.9()(1)  |             |  | Manufacturing and Engineering Services Agreement
	between Registrant and Microelectronics Technology Inc., dated
	January 11, 1999 and first amendment.                                                                                                      
|        | 10.9.1()( | 5)          |  | Amendment Agreement to the Manufacturing and
	Engineering Services Agreement between the Company and
	Microelectronics Technology, Inc., Dated August 29, 2000.                                                                                              
|        | 10.10(1)    |             |  | Employment Agreement between Registrant and
	Gideon Ben-Efraim, and amendment.                                                                                                                                                                               
|        | 10.11(1)    |             |  | Form of Change-of-Control Agreement.                                                                                                                                                                                                                         
|        | 10.12(5)    |             |  | Preferred Stock Purchase Agreement between the
	Company and Bungee Communications, Inc., dated October 27,
	2000.                                                                                                                                            
|        | 10.13()(5 | )           |  | Option Agreement between the Company and Bungee
	Communications, Inc., dated October 27, 2000.                                                                                                                                                               
|        | 21.1        |             |  | Subsidiaries of the Registrant.                                                                                                                                                                                                                              
|        | 23.1        |             |  | Consent of Arthur Andersen LLP, Independent
	Public Accountants.                                                                                                                                                                                             
|        | 99.1        |             |  | Letter to the Securities and Exchange Commission
	Pursuant to Temporary Note 3T.                                                                                                                                                                             



---



|    |                                                                                                                                                                
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Incorporated by reference to our registration
	statement on Form S-1 (File No. 333-81325) initially
	filed with the SEC on June 22, 1999.                      
|   
|(2) | Incorporated by reference to Amendment No. 1
	to our registration statement on Form S-1 (File
	No. 333-81325) initially filed with the SEC on
	July 28, 1999.  
|   
|(3) | Incorporated by reference to Amendment No. 3
	to our registration statement on Form S-1 (File
	No. 333-81325) initially filed with the SEC on
	August 16, 1999.
|   
|(4) | Incorporated by reference to Amendment No. 1
	to our registration statement on Form S-1 (File
	No. 333-30738) initially filed with the SEC on
	March 1, 2000.  
|   
|(5) | Incorporated by reference to our quarterly report
	on Form 10-Q for the quarter ended September 31, 2000.                                                      
|   
|(6) | Incorporated by reference to our quarterly report
	on Form 10-Q for the quarter ended June 30, 2001.                                                           
|   
|(7) | Incorporated by reference to our quarterly report
	on Form 10-Q for the quarter ended September 31, 2001.                                                      

61



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##### Table of Contents





|    |                                                                                                                                 
|--- | --------------------------------------------------------------------------------------------------------------------------------
|(8) | Incorporated by reference to our periodic report
	on Form 8-K filed with the SEC on February 27, 2002.                          
|   
|(9) | Incorporated by reference to our registration
	statement on Form S-3 (File No. 333-84316) filed with
	the SEC on March 14, 2002.



|  |                                                                                                                             
|- | ----------------------------------------------------------------------------------------------------------------------------
| | Confidential treatment granted with respect to
	certain portions of this Exhibit by order of the SEC dated
	August 18, 1999.



|   |                                                                                                                               
|-- | ------------------------------------------------------------------------------------------------------------------------------
| | Confidential treatment granted with respect to
	certain portions of this Exhibit by order of the SEC dated
	February 16, 2001.

62