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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington D.C. 20549

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FORM 10-K

|(Mark one)                                                   |                                                                                         
|------------------------------------------------------------ | ----------------------------------------------------------------------------------------
|ý                                                            | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934    
|For the fiscal year ended June 30, 2002                     
|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 000-1095478                          

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INTERWAVE COMMUNICATIONS INTERNATIONAL, LTD.(Exact name of registrant as specified in its charter)

|Bermuda(State or other jurisdiction of
incorporation or organization)                                             |  |                          |  | 98-0155633(I.R.S. Employer
identification No.)
|----------------------------------------------------------------------------------------------------------------- |  | ------------------------ |  | ----------------------------------------------
|Clarendon House, 2 Church Street
P.O. Box HM 1022
Hamilton HM DX, Bermuda(Address of principal
executive offices) |  | Not Applicable(Zip code) |  | 441-295-5950(Telephone Number)                

|Title of each class Common Shares, par value $.001 per share |  | Name of each exchange on which registered NASDAQ
|------------------------------------------------------------ |  | ------------------------------------------------

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

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Indicate
by check mark whether 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 ý    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
Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to the
Form 10-K. o

Aggregate
market value of the voting shares held by non-affiliates of the Registrant, based upon the closing price of $0.6405 on September 5, 2002 on the NASDAQ was
$28,423,065. Calculation of holdings by non-affiliates is based upon the assumption, for these purposes only, that executive officers, directors, nominees, and person's holding 5% or more
of Registrant's Common Shares are affiliates. Number of shares of the Registrant's common shares outstanding at September 5, 2002: 58,130,029

DOCUMENTS
INCORPORATED BY REFERENCE:

Certain
portions of the Registrant's proxy statement for its Annual Meeting of Shareholders to be held on December 6, 2002, are incorporated by reference in Part III of this report.

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2002 FORM 10-K ANNUAL REPORT  TABLE OF CONTENTS

|         |  |                                                                                       |  | Page
|-------- |  | ------------------------------------------------------------------------------------- |  | ----
|PART I   |  |                                                                                       |  |     
|Item 1   |  | Business                                                                              |  | 3   
|         |  | Overview                                                                              |  | 3   
|         |  | GSM Products                                                                          |  | 4   
|         |  | Broadband Products                                                                    |  | 4   
|         |  | Wireless Industry Trends and Directions                                               |  | 5   
|         |  | Product Lines                                                                         |  | 12  
|         |  | Product Summary                                                                       |  | 16  
|         |  | Applications of Our Network Systems                                                   |  | 19  
|         |  | Customers                                                                             |  | 20  
|         |  | Sales and Marketing                                                                   |  | 21  
|         |  | Customer SupportCustomer Advocacy/Engineering Services                               |  | 22  
|         |  | Research and Development                                                              |  | 23  
|         |  | Proprietary Rights                                                                    |  | 23  
|         |  | Manufacturing                                                                         |  | 24  
|         |  | Competition                                                                           |  | 25  
|         |  | Employees                                                                             |  | 25  
|         |  | Government Regulation                                                                 |  | 25  
|Item 2   |  | Properties                                                                            |  | 26  
|Item 3   |  | Legal Proceedings                                                                     |  | 27  
|Item 4   |  | Submission of Matters to a Vote of Security Holders                                   |  | 27  
|PART II  |  |                                                                                       |  |     
|Item 5   |  | Market for Registrant's Common Equity and Related Shareholder Matters                 |  | 28  
|Item 6   |  | Selected Financial Data                                                               |  | 29  
|Item 7   |  | Management's Discussion and Analysis of Financial Condition and Results of Operations |  | 30  
|Item 7A  |  | Qualitative and Quantitative Disclosures About Market Risk                            |  | 57  
|Item 9   |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure  |  | 92  
|PART III |  |                                                                                       |  |     
|Item 10  |  | Directors and Executive Officers of the Registrant                                    |  | 92  
|         |  |                                                                                       |  |     

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|Item 11 |  | Executive Compensation                                         |  | 92
|------- |  | -------------------------------------------------------------- |  | --
|Item 12 |  | Security Ownership of Certain Beneficial Owners and Management |  | 92
|Item 13 |  | Certain Relationships and Related Transactions                 |  | 92
|Item 14 |  | Controls and Procedures                                        |  | 93
|PART IV |  |                                                                |  |   
|Item 15 |  | Exhibits, Schedules and Reports on Form 8-K                    |  | 93
|        |  | Exhibits                                                       |  | 93
|        |  | Signatures                                                     |  | 96

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PART I

Item 1. Business

We make many statements in this report, such as statements regarding our plans, objectives, expectations and intentions and others that
are forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. We may identify these statements by the use of the future
tense or words such as "believe," "anticipate," "intend," "may," "expect," "estimate," "will," "continue," "plan" and similar expressions. These forward-looking statements may involve risks and
uncertainties. You should read statements that contain these words carefully, because they discuss our expectations about our future performance, contain projections of our future operating results
and our future financial condition, or state other "forward-looking" information. There may be events in the future, however, that we are not able to predict or over which we have no control. Our
actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those we discuss in "Risk Factors That May Affect Future
Results" and elsewhere in this report. These forward-looking statements speak only as of the date of this report, and we caution you not to rely on these statements without also considering the risks
and uncertainties associated with these statements and our business that are addressed in this report.

Overview

interWAVE Communications International, Ltd., ("we," "us," "the Company," or "interWAVE") is a global provider of scaleable wireless infrastructure
networks that offer a cost effective solution to extend coverage and connection to hard to reach areas. These systems support voice and data in both mobile and fixed environments.

interWAVE's
cellular networks target communities with a few thousand subscribers that could grow up to more than a hundred thousand subscribers. The entire cellular network is based on a
common hardware platform, where the software for the full functionality cellular switch, the base station controller, as well as the base station reside on a single hardware system. This gives the
operator a simple, easy to support and maintain network that is software configurable to various network architectures.

Over
the last fiscal year, interWAVE expanded its product line to include a high capacity switch that can support more than a hundred thousand subscribers. This can operate as a Mobile
Switching Center (MSC) or a gateway to satellite or other wire line networks. With the high end product line, interWAVE is able to offer operators an upgrade path to higher capacity networks.

interWAVE's
product line has been enhanced this year to provide data services with GPRS, and increased its product and technology base with the recent addition of its CDMA2000 IP based
product line and technology with the acquisition of substantially all of the assets of GBase Communications ("GBase") completed in September 2002.

We
market and sell our solutions around the world through our direct sales force and others utilizing a multi-tiered sales strategy which includes selling to wireless service providers,
communications equipment providers, and to systems integrators, including value added resellers ("VARs") which integrate our systems with the products of other companies. Since 1997 we have sold over
3,000 units based on the Global Standard for Mobile Communications ("GSM"), which have been installed in over 35 countries. As a result of the Wireless Inc. acquisition in June 2001, we
have broadband systems deployed in over 50 countries worldwide. We have a strategic relationship with Hutchison Whampoa and its subsidiary Hutchison Telecommunications International, Ltd.
("Hutchison"), one of the leading global GSM cellular operators. As of June 30, 2002, Hutchison affiliates own 4.46% of our fully diluted shares. Hutchison affiliates have deployed our products
in networks in Hong Kong, Sri Lanka, and Paraguay. We also have a strategic, multi-faceted relationship with Eastern Communications Co., Ltd. ("Eastcom") in the People's Republic of China.
Eastcom is a

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leading provider of both GSM and Code Division Multiple Access ("CDMA") equipment in China and owns 10.32% of our fully diluted shares as of June 30, 2002.

There
has been a tremendous slow down in the broadband wireless market. The overall market for broadband access in 2002 has fallen to below $1 billion according to an analyst's
estimate. Broadband access demand has diminished significantly due to the financial difficulties of Internet service providers ("ISPs"), and the availability of other broadband access alternatives,
such as DSL and cable. The sales channel for the broadband access market has become more specialized, where suppliers deliver an integrated bundled solution, as a complete network provider for
specialized markets. As a result, in May 2002, interWAVE sold the rights to a number of its low speed 64kbits, and 128kbits broadband products, including the respective intellectual property
rights for certain products, to Young Design, Inc. ("YDI"), a company focused on delivering broadband networks for ISPs with a complete solution set for both in-door and out-door installations.
interWAVE will continue to include YDI's newly-acquired broadband products as part of interWAVE's turnkey GSM network solution. In addition, YDI is licensed to sell interWAVE's WaveNet Link 4X
solution-a medium-capacity, point-to-point, broadband radio and will begin to distribute interWAVE's WaveNet Link CX (45Mbit) solution-an
industry first, high-capacity, all outdoor, point-to-point, broadband radio-throughout its North American sales channel.

GSM Products

We offer a complete line of compact GSM systems. We have pioneered what we believe is the only commercially available system that provides all of the
infrastructure equipment and software necessary to support an entire wireless network within a single, compact enclosure. We have designed our systems to serve the following applications:



Broadband Products

Our high-speed, or broadband, wireless systems enable international and domestic communications service providers, telephone operating companies and
private network operators to deliver voice and high-speed data services to their customers. These products were the result of our acquisition of Wireless Inc. in June of 2001. Our
systems are designed as an alternative to fiber optic, copper-based and cable-based communication transmission methods and allow a service provider to use the broadband products for infrastructure
build outs or to rapidly deliver high-speed Internet access in a service area. These systems serve the following applications:



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Wireless Industry Trends and Directions

Wireless infrastructure spending as forecasted by Morgan Stanley's recent August report on Wireless Equipment was adjusted downward to reflect a
-17.5% growth rate for 2002, and a -3% for 2003. Global capital expenditure ("CAPEX") spending for wireless carriers was $50.7 billion in 1999, $65.4 billion in
2000 and $72 billion in 2001. The projected spending for 2002 is $66.5 billion, dropping to $61.8 billion in 2003, down to $56.4 billion in 2004, and $54.3 billion
in 2005. This report attributes much of the reduction in spending to global economic weakness, as well as the financial difficulties of many of the large carriers.

The
slowdown in 3G is also one of the reasons for the negative growth rates. The report maintains that Europe will continue to see more than $17 billion in spending for wireless
infrastructure, growing modestly to $18.7 billion by 2005. North American spending on the other hand, from a peak of $20.4 billion in 2001, is estimated to drop to $20.1 billion
in 2002, and then down to $13.6 billion in 2005. North American wireless infrastructure CAPEX is able to sustain more than $20 billion despite a recession due to the carriers' need to
complete their build outs for 2.5G, GPRS, as well as CDMA2000 in order to upgrade to the latest digital network technologies. Wireless capital spending is expected to be reduced over the next few
years, as the build outs are completed. Asia, which achieved $18.2 billion in 2001, is projected to drop to $14.9 billion in 2002, and down to $10 billion in 2005.

Many
analysts see a growing competition in data services being provided in hot spots by 802.11 technologies, which is an unlicensed, inexpensive technology that is easy to install.
Although 802.11 has shortcomings of lack of guaranteed performance, questionable security, and lack of high speed mobility support, the subscriber growth rate and adoption rate of 802.11 hot spot
technology has been dramatic.

The
contraction in China's market for telecommunications equipment in the first half of calendar 2002, due in part to over-provisioning by the Chinese carriers in prior years, the
introduction of low cost services like PHS driving the price of cellular services down, as well as the severe competition presented by the domestic suppliers who have been aggressively pursuing market
share through a price war, set the stage for an industry price shakeout in China. Carriers in China are seeing lower revenue per user (RPU) for the new subscribers as wireless penetration goes from
the initial business users to the everyday casual users. Reduction in budget by Chinese carriers mid-stream during the 2002 year, shrunk the overall CAPEX spending in China by at least 30% between
both China Mobile and China Unicom.

According
to P.R. China's Information Industry Ministry, the country has 300 million telephone users, including 131 million mobile phone subscribers. In the first
nine months of 2002, China's telecom
companies jointly invested about 140 billion yuan (US$17 billion), generating accumulated revenues of 257 billion yuan (US$31 billion), the Ministry said.

According
to Global Wireless news of July 2002, China Mobile Communications ("China Mobile"), China's largest mobile service provider, announced it will invest 50 billion yuan
(US$6 billion) in mobile-phone infrastructure in the western part of China during the next three years. During the past three years, China Mobile has already invested 54 billion yuan (US$6.5 billion)
in upgrading and expanding its western network. The western China region currently accounts for only 10 percent of the China Mobile network, but is expected to grow to 23 percent by
2005. The mobile-phone penetration rate is more than 19 percent in the East of China, but only 7 percent in the West of China, with 90 percent of China Mobile's customers living in the
eastern part of the country. The expansion to the West represents an excellent opportunity for interWAVE, where the compactness of interWAVE's products, and the ability to reduce back haul traffic
through local switching in the base station node platform, gives operators the ability to build out networks for villages and towns economically.

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The
wireless equipment market overall is now, more than ever before, sensitive to overall cost, with emphasis not only in the actual equipment pricing, but also in the service and
technology value contributed by the equipment supplier. interWAVE continues to succeed with customers seeking these differentiated value propositions, where the simplicity, yet standard compliance and
full functionality of interWAVE's products offer customers rapid deployment, ease of installation, support and maintenance. These values and the ability to achieve breakeven early become the critical
factors for the selection of interWAVE as the wireless equipment supplier.

On
broadband wireless, while personal computer sales are stagnant, global sales of wireless systems using so-called Wireless LAN (WLAN) technology, continue to boom, according to the
research group Gartner Dataquest. Global sales of WLAN system units are forecast to increase 73% in 2003 to 26.5 million units, up from 15.5 million units in 2002. The average price per
unit is falling quickly, which means that revenues will grow much more slowlyby 26 percent to $2.8 billion. Wireless LAN, often referred to by the numeric tag 802.11, uses wireless
base stations hooked up to a fixed-line network, which establish a radio connection over a distance of up to 100 meters to a computer fitted with a WLAN adapter card. Increasingly the WLAN
radio will be integrated on the mother board of a personal computer.

In
2002, approximately 10% of all portable PCs will be shipped with a wireless LAN adapter card included and this percentage is expected to increase to 31 percent in 2004. By
2007, Gartner Dataquest forecasts 68% of all mobile PCs shipped will include a wireless LAN capability. In the corporate world the penetration will be even higher. Gartner Dataquest forecasts the
penetration rate of wireless LAN into the professional portable PC installed base will grow from 9% in 2000 to almost 50% by the end of 2003, and to more than 90% by 2007.

Because
of the significance of this market driving wireless data services, interWAVE delivered 802.WAVE this year and demonstrated our 802.WAVE product at the GSM World Congress. The
802.WAVE product provides the bridging between cellular and LAN networks, where users can log into a public wireless LAN network to access the Internet by subscribing to services offered by cellular
operators using the same authentication, roaming and billing infrastructure in a seamless and transparent way.

The
need for the service providers to integrate the management and support of subscribers across cellular and LAN networks is inevitable, as the popularity of the inexpensive 802.11
technology becomes more pervasive and begins to erode some of the data service market offered by 3G. interWAVE is prepared to address this opportunity by offering a mobile, LAN gateway
integration server that can be installed at a central office, or on a campus or building premise.

Global System for Mobile Communications Standard

The GSM standard is the dominant standard worldwide followed by the code division multiple access standard, or CDMA, the time division multiple access standard,
or TDMA, and analog standards. According to the Comprehensive Guide to Wireless Technologies, all of the digital standards, including GSM, CDMA and TDMA, offer clearer voice communications than the
older analog standards. We believe that digital standards will attract even more users in the future, as functions such as high-speed data communications become available. The GSM standard
allows users to send and receive text messages and allows users to roam across international boundaries without an interruption in service.

According
to the GSM Association, GSM is the world's most widely accepted digital wireless standard with 643 million users in 2001 and is projected to grow to over
1.4 billion users by 2006. In 2001, GSM accounted for approximately 68% of the world's wireless market and CDMA, TDMA and analog accounted for 12%, 10% and 4% of the world's market,
respectively. GSM is the dominant standard in Europe as a result of the European Union's decision to endorse a single unifying digital

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standard in the 1980s. In Asia, the rate of acceptance of the GSM standard is growing rapidly as wireless service providers have selected GSM to offer differentiated services and to increase
capacity. On November 1, 1999, the GSM Association and the Universal Wireless Communications Consortium, the governing bodies of the GSM and TDMA standards, respectively, announced an agreement
to jointly develop standards that enable GSM and TDMA systems to operate together. International standards organizations have established the next generation of standards, the third generation ("3G")
standards, that will replace all three of these technologies.

Early
in the history of the wireless market, analog standards achieved a strong presence in the United States while the GSM standard was being adopted in Europe. According to
International Data Corporation ("IDC"), at the end of 2001, 7.0% of the 120 million wireless users in the United States were using the GSM standard, up from 5.6% in 1999. IDC projects the total
number of wireless users to grow to 168 million, with 20% using GSM, in the United States by 2004. Today, although the
acceptance of the GSM standard in North America is in its early stages, increased penetration of the GSM standard is being driven by its ability to support international roaming, and will be further
driven by its advanced data transmission and messaging capabilities. AT&T Wireless and Cingular originally deployed TDMA but have now deployed GSM also to replace TDMA. GSM has been adopted in North
America by communications service providers, including Microcell, Cingular, VoiceStream, and AT&T Wireless.

Both
CDMA and TDMA also have significant presence in the United States. Sprint PCS and Verizon have deployed CDMA.

3G

An international consortium of standards bodies has established the specifications for the next generation of wireless standards, referred to as the 3G wireless
standards. There are two specifications for 3G, one is UMTS, and the other is CDMA2000, an umbrella technology which includes 1XRTT for voice and EVDO for data. The wide band standard is intended to
improve data speeds to achieve 2Mbits or greater and increased voice capacity. CDMA2000 has been adopted by U.S. operators, Korean operators, KDDI in Japan and China Unicom. Some Latin America and
Eastern European wireless operators are also planning to adopt this standard. UMTS is the 3G standard for the licenses issued in Europe, and is the follow on standard for GSM and GPRS.

There
has been a delay in deployment of UMTS 3G in Europe, due primarily to financial challenges of the Western European operators. There is also a delay in UMTS handset
availability, resulting in a slowdown in overall deployments, even for large operators such as Hutchison 3G, which is the leading operator currently driving the UMTS 3G roll out in
Europe.

CDMA 2000

CDMA2000, also known as IS-2000, is an umbrella technology for the evolution of CDMAOne/IS-95 to 3rd generation services. CDMA2000 will provide enhanced services
to CDMAOne subscribers, as well as forward and backward capabilities in terminals. Qualcomm, Inc. ("Qualcomm") owns the key intellectual property for CDMA technology. Wireless equipment
manufacturers license CDMA technology from Qualcomm.

CDMA2000
can be deployed in several phases. The first phase, CDMA2000 1X, should support an average of 144 kbps packet data in a mobile environment. The second release of 1X,
called 1XEV-DO should support data rates up to 2 Mbits/sec on a dedicated data carrier. Finally, 1XEV-DV should support even higher peak rates, simultaneous voice and high speed data, as well
as improved Quality of Service mechanisms.

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A
key component of CDMA2000 systems will be a new Packet Core Network (PCN) that allows for the delivery of packet data services with more speed and security. The CDMA2000 PCN is one of
the first steps in the evolution of CDMA2000 systems to an all-IP and multi-media architecture.

CDMA2000
is more widely deployed in the U.S., Korea, Japan and China. This technology is an evolutionary upgrade to CDMA IS-95, the predecessor to CDMA2000. The combined number of
subscribers for this CDMA standard is over 100 million. The compound annual growth rate of CDMA2000 equipment sales has been about 25% to 30% per year. The market size for CDMA is more than
$5 billion and is growing at a rate of 25% to 30% per year as operators upgrade their IS-95 networks to address demands for higher performance data services.

interWAVE
invested in September 2002 in the acquisition of CDMA2000 technology and purchased the technology from GBase Communications ("GBase"), a private company with a IP based
product line and technology for pico, micro and macro cell base stations supporting 1XRTT CDMA, with features that are anticipated to be enhanced to support 1XEVDO and eventually 1XEVDV. interWAVE's
strategic partner, Eastcom in China, as well as its strategic customer Hutchison should both offer excellent opportunities for distribution and use of the CDMA2000 product line. interWAVE obtained a
license from Qualcomm for enterprise applications of CDMA2000 technology from GBase.

CDMA2000
is not constrained to only the IMT band; it is defined to operate in all existing allocated spectrum for wireless telecommunications, thereby maximizing flexibility for
operators. Furthermore, CDMA2000 delivers 3G services which occupy a very small amount of spectrum (1.25 MHz per carrier), protecting this precious resource of spectrum for operators. These
frequency bands include: 450 MHz, 700 MHz, 800 MHz, 900 MHz, 1700 MHz, 1800MHz, 1900 MHz, and 2100 MHz.

In
the second half of calendar year 2002, there should be a substantial increase in the number of CDMA2000 users as Verizon Wireless and Sprint PCS Group roll out CDMA2000 1X advanced
wireless networks in North America. Near term projections for the demand for additional CDMA2000 handsets for the balance of the year 2002 is for more than 20 million units, based on recent
Qualcomm announcements on the number of CDMA2000 handset chips that will be shipped by end of September 2002.

Key Developing Market Opportunities



Community networks enable the introduction of wireless service to these areas that wireless providers currently do not serve or to areas that may not have any
telephone service. Wireless solutions such as wireless local loop networks offer the most cost-effective way to provide telephone service to areas with no current service. Wireless local
loop networks are wireless communications systems that connect users to the public telephone network using radio signals as a substitute for traditional landline connections. These markets offer
substantial growth potential due to the relatively low level of rural and remote telephone service penetration and the continued need for low-cost communications services. In addition,
wireless solutions provide a high-value proposition in developing countries since these solutions are generally less expensive due to the lack of an established infrastructure in these
countries. To succeed in the community networks market, we believe wireless service providers need to employ network systems that minimize initial capital expenditures while providing the flexibility
to scale cost-effectively as demand grows. In addition, wireless service providers need to minimize ongoing operating costs, such as the charges associated with routing calls through a
central switch.

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Our WAVEXchange local switch serves as switching capacity for Home Zones, in which the GSM subscriber has a service similar to cordless telephony,
with mobility within the Home Zone covered by the WAVEXchange. In a city served by a central switch of high capacity, such as a Nortel switch, the WAVEXchange Home Zones can create an
underlay network with local switching, where the subscribers may access the services of the central switch. In other networks, our WAVETransit switch may connect clusters of Home Zones
and provide access to the Public Switched Telephone Network ("PSTN"). We have deployed a Home Zone network for a subsidiary of Hutchison in Sri Lanka and also a nationwide Home Zone network in
Paraguay for a subsidiary of Hutchison. Our TurboMAX base transceiver station ("BTS") provides high power coverage in Home Zone networks. The Home Zone approach allows the operators to
build out a nationwide network incrementally, thus minimizing large up front investments required using traditional network buildout methods. Every Home Zone can be independently expanded and managed
to provide full cellular network services.



The compact size of our GSM infrastructure equipment and packaging expertise has enabled several special applications of our equipment including:



Primary Objectives of the GSM Wireless Service Provider

To better serve their existing user base and to gain market share, wireless service providers are focused on the following primary objectives:

Cost-Effective Network Deployment.The deployment of traditional wireless networks requires significant capital
expenditures. A typical wireless network consists of a mobile switching center ("MSC") to route voice and data signals to their correct destinations, multiple base station controllers ("BSCs") to
aggregate and manage voice and data signals between the switch and the base transceiver station ("BTS") and many base transceiver stations to transmit and receive voice and data signals over radio
frequencies. Wireless networks are typically designed to support large user bases. Service providers need cost-effective ways to address smaller user bases. As service providers face
increasing price competition, they will depend on communications equipment providers for cost-effective and technologically advanced infrastructure systems.

Extension of Coverage.In the past, wireless networks have been deployed primarily in urban centers and other heavy usage
areas. Increasing demand for improved service over wider geographic areas has prompted wireless service providers to accelerate the expansion of their networks. In addition, wireless service providers
are deploying networks in locations where service has previously been inadequate or prohibitively expensive to provide.

Improved Quality of Service.Currently, wireless networks in metropolitan areas are prone to a lower quality of service when
heavy usage causes capacity limits to be exceeded. Furthermore, wireless service in buildings, tunnels and subways is often interrupted or unavailable. Similarly, wireless services in remote areas are
often limited due to the lack of a fully-developed wireless infrastructure. Improving

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the quality of wireless service involves increasing network capacity and capabilities to address current network constraints.

Value-Added Services.The extreme competition faced by wireless service providers requires them to offer differentiated,
value-added services including the ability to roam across regional, national and international boundaries without an interruption in service, access to high-speed data transmission and
other features such as voicemail and caller ID. In order to address increasing competitive pressures, wireless service providers must use flexible systems that enable them to deploy numerous services
in a timely and cost-efficient manner.

As
wireless service providers seek to achieve these objectives in an extremely competitive market, they will increasingly require communications equipment providers to develop wireless
network solutions that enable the flexible, cost-effective delivery of value-added services and that are capable of being easily adapted to the 3G wireless standard.

Broadband Wireless Networks

In this last year broadband wireless market has taken a dramatic turn, with consolidation of standards, a reduction in the number of players and sharpened
criteria for selection by fewer service providers in this market space. There is rapid convergence towards 802.11 standards, continuing improvement in quality and cost reduction. Wi-fi technologies
now allow a wireless service provider to connect point-to-point or point-to-multi-point for distances of 10 miles or more. OFDM improves non-line of sight connections. Maturity in standards allow
suppliers to inter-operate across different vendors' networks. There is a wide adoption of 802.11b, and standardization using the Internet Protocol ("IP"), spanning from the lower unlicensed bands of
2.4, 5.8Mhz, up to the higher capacity 25Ghz frequency bands.

Broadband
wireless as an access service suffered a dramatic downturn due to the collapse of the ISP providers, and the glut of fiber and DSL competing for services to the end customers.
Broadband wireless access remains a viable and economic solution for regions that have not been built out with fiber optics or provisioned with quality DSL.

Broadband
wireless, however, as a transport for high speed back haul transmission, remains attractive for many cellular operators and data service providers who use the higher
performance broadband wireless (45Mbits to 155Mbits/OC3) products as an aggregation and transport vehicle for bundled traffic to a central gateway. interWAVE has focused its broadband product line on
this market. Optimizing the technologies to deliver cost effective, high performance point to point 16 QUAM CX radio, with an all-outdoor ATM switch to support mesh networks that can be conveniently
connected to provide a reliable wireless network capable of supporting redundancy and congestion control.

GSM Solutions

Our systems offer a number of important advantages to GSM service providers, including:

Compact, Flexible and Modular

Our WAVEXpress® products provide a comprehensive set of GSM network capabilities. We believe that we provide the only commercially available system
that supports an entire GSM network within a single enclosure approximately the size of a personal computer tower. The patented WAVEXpress® system can serve as a base station, base station
controller, switch or any combination of these functions depending on our system's hardware and software configuration. The WAVEXpress® product is modular, using only four hardware
modules, which enable the system to be updated and enhanced by simply exchanging specific hardware modules and upgrading software. Our compact and modular system enables wireless service providers to
implement wireless office networks, to fill in

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coverage blind spots, to increase capacity in heavy usage areas and to provide service to previously unserved areas.

Cost-Effective Network Deployment and Operation

Our compact, flexible systems enable us to be a price leader, reducing both initial and incremental capital expenditures for network deployment by wireless
service providers. The flexible nature of our products enables wireless service providers to rapidly add capacity to their networks. In addition, because there are only four main
WAVEXpress® hardware modules, the result is reduced maintenance and training costs, and reduced in capital necessary to maintain spare parts in inventory. Furthermore, we have a patented
switching technology that allows the network to determine whether a call should be directed to its destination by the local network or by a central office. This proprietary switching capability allows
a wireless service provider to reduce its dependence on central office switching equipment and increase network efficiency, resulting in lower operating costs. It also helps to provide feature
transparency between the local network and central office, by-passing support of unsupported features to the central office switch. This further reduces the capital cost of our solution.

Interoperability with Existing GSM Networks

We maintain strict adherence to GSM standards to ensure that our systems are compatible with other communications equipment providers' products. We have proven
our systems' interoperability in live
networks with equipment from all major communications equipment providers, including Alcatel, Ericsson, Lucent, Nokia, Nortel Networks and Siemens. Our systems are also compatible with existing
private telephone systems. Interoperability enables wireless service providers to upgrade their existing systems without having to replace their entire network, facilitating the introduction of new
capabilities and services in a timely and cost-effective manner. We plan to maintain our systems' interoperability despite changes to software, equipment configuration, network design and
upgrades to the various network standards.

Rapid Time-to-Market for New, Value-Added Services

Service providers using our wireless network systems can achieve rapid time-to-market for new services, which they can offer to new and
existing users. Our flexible design enables the system to be readily upgraded through simple hardware additions and software reconfigurations. These features allow service providers to decrease the
implementation time required to offer new services to customers.

Our
WAVEView products also allow for the control of all functions and components of the network through a single management system. This enables service providers to
customize and expand service offerings to users without deploying additional systems that require incremental training and testing. Our systems provide small, scalable and low-cost
alternatives to expensive digital communications infrastructure equipment.

Broadband Solutions

Our line of broadband wireless network systems include point-to-multipoint and point-to-point wireless products
that connect end-users to the Internet and public and private communication networks. Our systems allow a service provider to offer high-speed network access to the
end-user as a cost-effective alternative to wired services. These systems assure service providers quick time-to-market by permitting rapid installation
of complete high-speed communication networks. In addition, we design our systems to be compliant with domestic and international standards.

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Rapid Installation

Our systems are shipped off-the-shelf and are easy to install. Our license-exempt products do not require frequency coordination or
licensing, eliminating many of the time-consuming processes required in planning, coordinating and installing traditional radio technology. License-exempt operation permits rapid
installation to meet customer demand for broadband wireless access.

Scalability

Our systems are scalable. As more users are added to a point to multipoint network, a central base station that may have initially been equipped with a single
transmitter can be easily upgraded to accommodate up to ten transmitters.

Router-based Wireless Networks

We use a router-based architecture for our WAVENET ACCESS wireless systems, versus many of our competitors who use bridge-based architectures. The advantages of
routing systems include scalability, control and security. Unlike bridge-based systems where IP traffic is bridged to all network nodes, in a router-based system, Internet Protocol ("IP") traffic is
routed to desired locations eliminating excess broadcast traffic. By reducing the excess broadcast traffic, our router-based systems greatly improve the bandwidth efficiency of our networks in
comparison to systems that do not have internal router capability.

Remote Management

Our standard network management applications include a simple network management protocol and a secure Web-based browser interface. These interfaces
allow the system to be managed and administered remotely through the Internet.

Network Compatibility

Our wireless systems provide built-in routing and support industry standard protocols that allow data to be transported at carrier-quality standards.
Our systems address a broad range of applications in different markets.

Product Lines

Our Products are split into two distinct product lines:



GSM Infrastructure

The switching products are delivered on the WAVEXpress® platform and the WAVELoop platform. Both platforms support the same base
transceiver station ("BTS") products and are fully interoperable.

WAVEXpress®

Our core WAVEXpress® product can house any combination of our switch, our base station controller and our base station in a single compact enclosure.
The WAVEXpress® system is approximately the size of a personal computer tower and weighs less than 50 pounds. Our

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WAVEXpress product line represented 65%, 69% and 96% of our net revenues for fiscal years ending June 30, 2002, 2001 and 2000, respectively.

WAVEXchange.The WAVEXchange is a family of switches. A low end, WAVEXchange-I is based on the
WAVEXpress platform, with common hardware as the base station and the base station controller, supports up to 8,000 subscribers. The high end version, WAVEXchange-II, delivered in June 2002, is
capable of supporting up to 200,000 subscribers, and is based on the WAVETransit platform hardware. The WAVEXchange software, implemented on either platform, is a wireless switch that routes calls,
directs data packets, performs as a signaling gateway, and is designed to allow the network to process calls regionally, thereby reducing operating costs. The small size and configurability of the
WAVEXchange-I enables wireless service providers to deploy value-added services rapidly in a small town or village. The WAVEXchange-I and II both can be integrated with
existing private telephone networks and connected to a mobile switch over standard mobile message protocol interface, thus supporting roaming, hand-overs, and billing. The patented
WAVEXchange is the only GSM switch on the market that can act either as a base station controller extension of a central switch or as a local switch, on a
call-by-call basis. Recent addition of GPRS in the latest release of the switch software allows the WAVEXchange switches to provide functions as a mobile media gateway
supplemented by our new GSN product that directs traffic on to the Internet.

WAVEXpress/BSC.The WAVEXpress/BSC is a compact base station controller that aggregates and manages the communications
between the WAVEXpress/BTS and the central switching equipment or a local WAVEXchange switch. The wall-mountable WAVEXpress/BSC, one of the smallest GSM base station controllers on the
market, connects to any main switching center supporting the GSM standard. The WAVEXpress BSC supports transcoder requirements for GPRS and can be configured onto the WAVEXchange platform or the BTS
platform for the WAVEXpress family.

WAVEXpress/BTS.The WAVEXpress/BTS is a base transceiver station, which accommodates up to three radios providing up to 22
simultaneous communication channels, and six radios if used with the newly released single slot GPRS radio cards. Versions of the WAVEXpress/BTS are available in all GSM frequency bands:
900 Mhz and 1800 Mhz for Europe and Asia and 850MHz and 1900 Mhz for the Americas.

UltraWAVE/BSC.The UltraWAVE/BSC provides the same functionality as the WAVEXpress BSC except that it is in an extended back
plane configuration, doubling the number of slots of WAVEXpress platform, where the TRX capacity has been increased to 80 TRXs in the initial release, with further capacity increases planned.

UltraWAVE/BTS.The UltraWAVE/BTS supports 6 TRXs, sectorized as 2 by 2 by 2 in its initial
release, and will support up to 12 TRXs, using the new single slot radios, by the end of December 2002. The 12 TRXs can be sectorized into 4 by 4 by 4.

WAVEXpress/BS Plus.The WAVEXpress/BS Plus combines the functions of a base station controller and
base transceiver station in a single product. A WAVEXpress/BS Plus can support up to three external WAVEXpress/BTS base stations to serve up to 2,400 users. We began shipping the BS Plus product in
March 2000.

WAVEXpress/TurboMAX.The WAVEXpress/TurboMAX is a high power, 25 watts macro network product
for the community market. TurboMAX offers wireless community network service providers a cost-effective, easy-to-install macro network solution with interWAVE's
current WAVEXpress footprint. We began shipping the TurboMAX in October 2000. Designed as an integral part of interWAVE's suite of wireless network products, TurboMAX shares a
common hardware platform with increased power and receives sensitivity that seamlessly interoperates with all other major

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wireless networks. TurboMAX uses 40-watt power amplifiers per transceiver with a unique, patented thermal technology developed initially for military applications.

Network In A Box.The Network In A Box (NIB) offers the ability to support a complete GSM network by integrating the switch
(WAVEXchange), base station controller (BSC) and base transceiver station (BTS) in a single WAVEXpress unit. The NIB is designed for rapid deployment and provides easy network expansion as usage and
coverage requirements increase. Ideally suited for wireless office networks, the NIB can support a stand-alone GSM network or it can integrate with most private telephone networks to provide wireless
GSM interoperability with a corporate wireline network. We have a patented switching technology that allows a single NIB to act as a wireless extension to a private telephone network and as an
extension to a public wireless network on a call-by-call basis. In remote and rural communities, the NIB enables rapid deployment of GSM capabilities. Since a high percentage
of calls stay within the local network, transmission costs associated with dependence on a central switch are minimized. Coverage and capacity can be increased quickly and easily by adding
WAVEXpress/BTS and WAVEXpress/BSC units to the network. The NIB can also serve as a cost-efficient GSM starter network allowing wireless service providers to match their infrastructure
expenditures to usage growth. We began shipping the NIB in August 1998.

WAVEGSN.The WAVEGSN can be configured as either a combined GGSN/SGSN for small cost effective GPRS deployments or as
standalone network elements for higher GPRS capacity. The primary function of the Serving GPRS Service Node (SGSN) is to handle mobility management for the attached GPRS mobile terminals. It also
manages the interactions with the GSM circuit-switched network elements (HLR/VLR) and the Short Messaging infrastructure. The Gateway GPRS Support Node (GGSN) is primarily a router. In the packet data
network, it is the entity that knows how to route packets to a GPRS mobile terminal. For packets sent by the mobile terminal, the GGSN is the 'point of entry' into the packet data network. A GPRS
network may comprise a single GGSN but multiple SGSNs. We began trials of the WAVEGSN in January 2002.

IPWAVE.The IPWAVE is a compact, fully functional single TRX BTS intended for
in-building deployment in both public and enterprise GSM networks. It can be connected to a WAVEXpress BSC or NIB via an IP network. We began trials of the IPWAVE in June 2001.

WAVELoop.The WAVELoop is a high capacity WLL switch designed specifically for the China markets.
It supports GSM radio interfaces as well as the associated services in a GSM environment, as well as prepaid services, short messaging and a voice mail system.

WAVETransit.The WAVETransit is a high capacity E1 transport based switch platform with standard
interfaces. It is designed to provide a complete solution for interconnectivity between GSM mobile and landline networks. The WAVEtransit connects the networks of interWAVE WXC/BSC/BTS clusters with
the PSTN. The WAVEtransit Network performs trunk routing, dialed number grooming, multi-protocol switching, voice prompting and prepaid service provisioning.

WAVEXchange II.The WAVEXchange II (WXC II) System is a High Capacity HLR/VLR/MSC platform, which supports up to
100,000 subscribers. The WXC II consists of a Central Switching Unit (MSC), with up to 256 E1 interfaces and a number real time operating system servers which provide the HLR, AuC, SMS,
Pre-Paid and OMC functionality. The WXC II comes equipped with a Voice Prompt System (VPS) and built in Echo cancellation. The WXC II may be co-located with a WAVEXpress BSC
and TurboMAX BTSs or may operate from a central site communicating with remote BSS elements over the standard A interface. The WXC II complies with the ETSI SS7, MAP, ISUP and CAMEL Phase II
standards, which permits interoperability with the current WAVEXChange platform and other vendor's MSC, HLR, SMS and SCF products. The WXC II System provides a standard and cost effective platform for
GSM macro network deployments and Wireless Local Loop (WLL) services.

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WAVEView.The WAVEView is an operations and management control (OMC) system for wireless service
network components. Our system architecture simplifies the process of deploying new network components, allowing the user to manage all aspects of wireless user profiles. The WAVEView also allows
wireless service providers to monitor network faults in real-time and includes a comprehensive help function that guides users through management tasks. We began shipping WAVEView in
May 1998.

Broadband Wireless

We manufacture broadband wireless systems that provide both point-to-multipoint and point-to-point services. Our
systems provide IP and clear channel mode transport via wireless broadband service for high-speed network access. These systems are designed as an alternative to copper-based DSL or cable-
based broadband technologies and allow a service provider to rapidly install high-speed access throughout a service area. Our technology enables service providers to respond quickly to
meet the demand for high-speed network access, and allows businesses to build high-performance wireless networks to supplement wired offerings from service providers.

WAVENET LINK CX

The WAVENET LINK CX is a cost-effective product capable of transporting up to 50 Mbps over a distance of up to 10 miles. The radio is
mounted outdoors, close to the antenna, to minimize transmission losses, and is connected to the user's local access network or in-building distribution system. The product can be
configured for Ethernet transport at 45 Mb/s or as a traditional telco microwave link for DS3 (45 Mb/s) or E3 (34 Mb/s). We have engaged with a partner to distribute an indoor unit for the Link CX
radio which will provide up to 28 T1 or 16 E1 tributaries per radio. This combined offering will be very competitive in the mobile telephony infrastructure market.

WAVENET LINK 4X

The WAVENET LINK 4X provides a cost-effective solution for access requirements as well as cellular base station connectivity with
capacities of up to 4 x 2.048 Mbps. This system features an embedded simple network management protocol. The indoor unit, or IDU, provides all user interfaces including 2.048 Mbps ports, simple
network management protocol access and external alarm input.

StreamNet ATM Switching

The Streamnet 1200 is a fully functioned ATM switch configured in an environmentally hardened enclosure. In conjunction with the CX radio it
provides a cost effective solution for outdoor ATM switching services in the local loop markets. We believe that communication companies will adopt wireless solutions as a more cost-effective method
than wired solutions to meet this demand since it allows them to deploy broadband Internet access services more rapidly than would be possible if they had to lease copper wire from the local telephone
company. Streamnet 1200 was first shipped in February 2002.

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NetManager

The NetManager platform is being developed to support both the element and network management of all our ATM and link products on a scalable carrier class
platform.

Product Summary

|Product Name           |  | Function                                                                                                                                        |  | Product Features                                                                                                                                            
|---------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------
|WAVEXchange           |  | Wireless switch that routes telephone traffic through the GSM network and can also act as a base station controller.                            |  | Small size, low price per user. Design allows users to increase capacity by adding components. Can accommodate up to 8,000 users.                           
|WAVEXpress®/BSC        |  | Base station controller supports from 1 to 16 base transceiver stations.                                                                        |  | Supports up to 16 Abis connections and 36 TRXs.                                                                                                             
|WAVEXtend®/BSC         |  | A high capacity Base Station Controller supporting up to sixteen base transceiver stations                                                      |  | Supports the same number of Abis connections as the WAVEXpress BSC, but the TRX capacity has been increased to 80 TRXs.                                     
|WAVEXpress®/BTS        |  | Base transceiver station that supports the radio interface between the mobile telephone and the GSM network.                                    |  | Accommodates up to three radios and 22 channels.                                                                                                            
|WAVEXpress®/BSPlus     |  | A product that combines the features of the WAVEXpress/BSC and WAVEXpress/BTS.                                                                  |  | Supports up to 3 radios internally, and up to three external WAVEXpress®/BTS base stations.                                                                 
|WAVEXpress®/ TurboMAX |  | A macro-network product that extends the reach of the WAVEXpress to provide broader geographic coverage.                                        |  | Increases power output to up to 25 watts per transceiver.                                                                                                   
|Network In A Box       |  | All-in-one wireless network that includes the GSM switching, base station control and base transceiver station functions in a single enclosure. |  | Incorporates all of the functionality of the WAVEXchange, WAVEXpress/BSC and WAVEXpress/BTS in a single enclosure. Supports up to two radios and 1000 users.
|WAVEGSN                |  | A low cost Combined Gateway GPRS Support Node (GGSN) and Serving GPRS Support Node (SGSN) providing packet data service to GSM subscribers      |  | All in one GPRS Support node supporting up to 5000 attached users. Can be split in to separate GGSN and SGSN for higher capacities.                         
|WAVELoop              |  | A high capacity switch for wireless local loop deployments in China.                                                                            |  | Supports up to 100,000 subscribers and has integral voicemail and prepaid services.                                                                         
|                       |  |                                                                                                                                                 |  |                                                                                                                                                             

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|WAVETransit         |  | A high capacity switch that provides for the interconnection of multiple WAVEXchange systems and the PSTN.                                                                                            |  | Supports up to 256 E1 with a variety of PSTN interconnect protocols.                                                                                                                                                  
|-------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|WAVEXchange II       |  | A high capacity mobile switch that switches traffic between the BSS network and the PSTN.                                                                                                             |  | Supports up to 256 E1 ports and 100,000 mobile subscribers. The WAVEXchange II also supports the HLR, VLR, AuC, and EIR databases required to provide mobility and security functionality in a GSM network.           
|WAVEView            |  | Management system that manages multiple base transceiver stations, base station controllers and switches.                                                                                             |  | Operates on a standard UNIX System with multiple system Administrators. UNIX is an operating system used for technical applications worldwide. Supports remote connection and dial-in access.                         
|WAVENET ACCESS® 3500 |  | Fixed broadband wireless system operating in the licensed 3.5 GHz band, used for delivering DSL and other broadband IP access services to residential and business customers.                         |  | Wireless ITU-R 3.5 GHz band system with built-in routing, NAT, and other value-added networking features. Peak user data throughput >1.6 Mbps full duplex with up to 20 km line of sight ("LOS") range.               
|WAVENET ACCESS® 2458 |  | Fixed broadband wireless system operating in FH-CDMA mode in the license-exempt 2.4 and 5.8 GHz ISM band, used for delivering DSL and other IP access services to residential and business customers. |  | Wireless FCC-compliant ISM split-band operation (Tx @2.4 GHz, Rx @5.8 GHz) system with built-in routing and UDP traffic prioritization. Peak user data throughput >0.5 Mbps full duplex with up to 20 miles LOS range.
|WAVENET LINK 4X     |  | A cost-effective solution for access requirements as well as cellular base station connectivity with capacities of up to 4xE1.                                                                        |  | This system features embedded simple network management protocol (SNMP). The indoor unit, or IDU, provides all user interfaces including E1 ports, SNMP access and external alarm input.                              
|StreamNet 1200      |  | An all-outdoor ATM switch being designed to support ATM-25 connections.                                                                                                                               |  | Typically used with the all-outdoor Link AX radios to build point-to-point ATM broadband distribution networks to carry converged voice and data traffic.                                                             
|                     |  |                                                                                                                                                                                                       |  |                                                                                                                                                                                                                       

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|NetManager       |  | A carrier-class Element and Network Management System for current StreamNet and future interWAVE products. |  | Being designed to provide management of multiple interWAVE network elements, and interconnection to the customers network management system through standards-based CORBA or JAVA RMI interfaces.   
|---------------- |  | ---------------------------------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|WAVENET LINK CX |  | A license exempt product that provides a DS3 and 100baseT point-to-point connection.                       |  | Is used in a variety of applications such as PBX and LAN extension on corporate campuses. Also used in conjunction with the Streamnet 1200 product to provide low cost networking for DSL extension.

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Applications of Our Network Systems

GSM Applications

Our network systems allow wireless service providers to expand capacity and coverage on a permanent or emergency basis, to operate wireless office networks and to
provide service to remote and rural areas. The following case studies show how our network solutions have been implemented to create value for wireless service providers:

Community Networks

|Fill-in Capacity Coverage            |  |                                                                                                                                                                        
|------------------------------------ |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Problem:                             |  | Need to provide wireless service in the subways in Beijing.                                                                                                            
|interWAVE Solution:                  |  | WAVEXpress®/BTS, WAVEXpress®/TurboWAVE, WAVEXpress®/BSC, WAVEView OMC.                                                                                               
|Value Proposition:                   |  |  increase existing customer usage.                                                                                                                                    
|                                     |  |  improve network coverage.                                                                                                                                            
|                                     |  |  improve network quality.                                                                                                                                             
|                                     |  |  small size and ease of installation.                                                                                                                                 
|Rural and Remote Services            |  |                                                                                                                                                                        
|Problem:                             |  | Wireless service provider wants to establish cost-effective communications service to rural regions in the Democratic Republic of Congo.                               
|interWAVE Solution:                  |  | WAVEXpress®/TurboMAX, WAVEXpress®/BSC, WAVEXchange, WAVEView OMC.                                                                                                   
|Value Proposition:                   |  |  provide basic telephone services in the Democratic Republic of Congo.                                                                                                
|                                     |  |  minimize initial capital investment.                                                                                                                                 
|                                     |  |  allow service provider to add capacity in a cost-effective manner as user base grows.                                                                                
|                                     |  |  switch calls at local network level to reduce transmission cost.                                                                                                     
|Mobile, Temporary Capacity Expansion |  |                                                                                                                                                                        
|Problem:                             |  | Wireless service provider wants to deliver service to natural disaster area to aid relief efforts or to temporarily increase capacity in a location for a sports event.
|interWAVE Solution:                  |  | Network In A Box, WAVEXpress® BTS, WAVEView OMC.                                                                                                                      
|Value Proposition:                   |  |  enhance humanitarian relief efforts.                                                                                                                                 
|                                     |  |  increase customer usage.                                                                                                                                             
|                                     |  |  generate additional roaming revenue.                                                                                                                                 

Broadband Applications

Non-movable, or fixed, broadband wireless access technology can solve many of the problems imposed by wired networks. Broadband wireless technology
enables rapid implementation of high-speed network access in a cost-effective manner relative to wired networks. A broadband wireless network is often the best option for
high-speed communication in remote areas and in many developing countries due to the lack of an existing wired infrastructure. In these regions, wireless technologies provide clear

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advantages over wired networks, including lower cost, faster installation, greater flexibility and increased reliability. Broadband wireless technologies are classified as either
point-to-point or point-to-multipoint.

Point-To-Point

A point-to-point wireless system connects two locations, using two identical pieces of equipment. Each piece of equipment is first
connected to an end-user's or service provider's network by a cable and a connector and then connected by an antenna cable to an antenna that is usually mounted on a rooftop or tower. The
two antennas are then aimed at one another to create a wireless connection.

|ISP Interconnect    |  |                                                                                                        
|------------------- |  | -------------------------------------------------------------------------------------------------------
|Problem:            |  | An ISP needs to provide a high speed connection to a large business or residential multi-unit building.
|interWAVE Solution: |  | WAVENET LINK CX                                                                                       
|Value Proposition:  |  |  provide high capacity link quickly, no spectrum license required.                                    
|                    |  |  minimize initial capital investment.                                                                 
|                    |  |  allow ISP to deliver an internet connection in a cost-effective manner.                              

Point-To-Multipoint

A point-to-multipoint wireless system connects multiple facilities within a relatively small geographic location to a central hub.
Point-to-multipoint wireless technology is used to transport data traffic from one location to many locations, typically to interconnect a large number of facilities in a
relatively small geographic area. Point-to-multipoint wireless technology overcomes the limitations of point-to-point technology by designating a single
radio transceiver as the central base station. The base station uses a radio protocol to control and manage end-user devices so that data is transmitted and received among multiple
locations with minimal interference.

|ISP Interconnect    |  |                                                                                       
|------------------- |  | --------------------------------------------------------------------------------------
|Problem:            |  | An ISP needs to provide a high speed connection to a small or medium sized businesses.
|interWAVE Solution: |  | WAVENET ACCESS®.                                                                      
|Value Proposition:  |  |  provide high capacity link quickly, no spectrum license required.                   
|                    |  |  minimize initial capital investment using shared spectrum for each                  
|                    |  |  allow ISP to deliver a high speed internet connection in a cost-effective manner.   

Customers

We have developed relationships with communications equipment providers, systems integrators and wireless service providers. The following table identifies our
customers, the applications of our products and the intended end users of communications networks employing our products. For the fiscal year ended June 30, 2002, approximately 25% of our
revenue was derived from sales to affiliates

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of Hutchison. The selected customers listed below each represented less than 10% of our revenues for the fiscal year ended June 30, 2002.

|Customer                            |  | Application                           |  | End Users                               
|----------------------------------- |  | ------------------------------------- |  | ----------------------------------------
|Communications Equipment Providers: |  |                                       |  |                                         
|Eastcom                             |  |  Rural and remote community networks |  |  Wireless users in developing countries
|Telos Engineering                   |  |  Wireless office networks            |  |  Large organizations                   
|Wireless Service Providers:         |  |                                       |  |                                         
|Federated States of Micronesia      |  |  Urban and rural community networks  |  |  Wireless users in Micronesia          
|NationLink                          |  |  Urban and rural community networks  |  |  Wireless users in Somalia             
|Safaricom                           |  |  Urban and rural community networks  |  |  Wireless users in Kenya               
|Telstra                             |  |  Wireless office                     |  |  Wireless office in Australia          

Sales and Marketing

We market and sell our solutions around the world through our direct sales force and others utilizing a multi-tiered sales strategy which includes selling to
wireless service providers, to communications equipment providers, and to systems integrators that integrate our systems with the products of other companies.

We
currently havelive GSM systemswhich are deployed in:



We
also havetrial systemsthat are deployed in:



We
havelive broadband networksin:



Information
regarding segment information and geographic information for the last three fiscal years is provided in the consolidated financial statements for the fiscal years ended
June 30, 2002, 2001 and 2000. See "Notes to consolidated financial statements, Note 17Segment Information."

Communications Equipment Providers

Eastern Communications Co., Ltd. ("Eastcom").Eastcom is a publicly listed company on the Shanghai Stock Exchange and
is one of the leading providers of telecommunications equipment for cellular networks and handsets throughout China. Originally started in the 1950s as a manufacturing facility of the then Ministry of
Posts & Telecommunications, Eastcom has since incorporated under its current name and operates as an independent entity. interWAVE has an OEM Agreement with

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Eastcom with a value of up to $25 million for BSS extension equipment during the first year. We also have close discussions with Eastcom to set up a manufacturing program in China to support
the Chinese market. As of June 30, 2002, Eastcom owns 10.32% of our fully diluted shares.

Telos Technology Inc.Telos is a Canadian switch developer and integrator supplying rural networks within the US and
internationally. We have partnered with Telos in the deployment of networks worldwide.

Distributors and VARs

interWAVE's broadband network products included the following channels: systems integrators and distributors, value added resellers, telephone operating companies
and Internet and communication service providers. These include YDI in the US, Duxbury in Africa, KF Technologia and Digitel in Brazil, Coasin in Chile, Dateline in Russia, Keppel in Malaysia, and PT
Alvarid Mass in Indonesia.

Direct Sales

We established a direct sales presence in Hong Kong in late 1995 and in Paris in mid-1996. We have established a five-year cooperation
agreement with Telstra, headquartered in Australia. Nortel discontinued distribution of our products in June 2002. We have a multi-year cooperation agreement with France Telecom,
headquartered in Paris, where we assess the opportunities with France Telecom and determine suitability of products and technologies. Through wireless service providers, such as Hutchison
Telecommunications (Hong Kong), a unit of Hutchison Whampoa, FSM Telecom, Safaricom,
NationLink, Lanka Cellular Services Limited, and Comunicaciones Personales, S.A., we have deployed our network solutions in Hong Kong, Federated States of Micronesia, Kenya, Somalia, Sri Lanka and
Paraguay, respectively.

In
fiscal 2002, Hutchinson, and affiliates, FSM Telecom and Safaricom comprised 25%, 8% and 5% of our revenues, respectively.

Hutchison Telecommunications Group.We began deploying our products in Hong Kong with Hutchison Telecommunications Group in
1997. In December 1999, we executed a contract with an affiliate of Hutchison to deploy our products in Sri Lanka. In June 2001, we executed a contract with Comunicaciones Personales,
S.A., an affiliate of Hutchison Telecommunications Group, to deploy a nationwide GSM network in Paraguay. In addition, Holodeck Limited, an affiliate of Hutchison and a wholly-owned subsidiary of
Hutchison Whampoa owns 2.6 million shares, or 4.46%, of our outstanding shares as of June 30, 2002.

In
connection with our contract with an affiliate of Hutchison to sell our products in Sri Lanka, we entered into an exclusivity agreement in which we agreed not to sell our
WAVEXchange and WAVExpress® products to any party in Sri Lanka other than Hutchison's affiliate for a period of three years. This period will be extended two years if at the
end of the three year period Hutchison's affiliate has ordered equipment in the aggregate value of $15 million.

Customer SupportCustomer Advocacy/Engineering Services

We complement our products with a worldwide service organization that provides product support, network and radio system design, turnkey installation, maintenance
and field engineering. Our support organization provides pre-sales, installation and post-sales support to wireless service providers who have purchased systems directly from
us. Our distributors are typically responsible for installation, maintenance and support services to their customers. We offer 24-hour telephone support 7 days a week to both
service providers who have purchased systems directly from our distributors and us. We offer an ongoing maintenance program for our products, consisting of product enhancements, product updates and
technical support. System operators may renew maintenance and support on an annual basis by paying a maintenance fee. We also provide extensive support to communication equipment

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providers and systems integrators through product training, 24-hour help-desk support and emergency problem resolution. In addition, we work closely with our customers'
first-line support organizations to insure that they have the necessary skills and specific product knowledge to assist their customers with installation, management and other network
support requirements.

Research and Development

Our engineering development team resides in three locations. The main engineering organization is in Menlo Park, California, where hardware, firmware, and the
core radio software and systems engineering are done. Over the last year, we reduced our engineering group in California and moved all of our switch software development to Shenzhen in P.R. China,
where one-third of our engineering headcount is located. The management system software group and the documentation group reside in Tralee, Ireland.

In
the last fiscal year, the major products that were being developed or delivered were:



We
believe the company's success depends on its ability to continue to develop more cost effective products through technology innovation and introduce new capabilities and features for
existing products. Our engineering development expenditures totaled approximately $19.8 million, $30.5 million and $18.1 million for fiscal years 2002, 2001 and 2000,
respectively. In the interest of reducing the cost of research and development, we made a concerted effort to reduce research and development headcount in the U.S., and increased engineering staff in
Shenzhen, P.R. China and Tralee, Ireland. Our Colorado Springs facility was closed in July 2002. As of June 30, 2002, engineering development staff consisted of
133 full-time or contracted employees.

Proprietary Rights

Our success and ability to compete depends in part upon our proprietary technology. We rely on a combination of patent, copyright and trade secret laws as well as
non-disclosure agreements to protect our proprietary technology. We currently hold 24 United States patents and have 28 United States patent applications pending. We have filed many of
these patent applications in a number of other countries, so that we have a total of 43 issued and 75 patents pending worldwide. We cannot be certain that patents will be issued with respect to
pending or future patent applications or that our patents will be upheld as valid or will be sufficient to prevent the development of competitive products. We seek to protect our intellectual property
rights by limiting access to the distribution of our software, documentation and other proprietary information. In addition, we have entered into confidentiality

23

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agreements with our employees and certain customers, vendors and strategic partners. Despite these efforts, it may be possible for unauthorized third parties to copy certain portions of our products,
to design around our patents, or to reverse- engineer or otherwise obtain and use our proprietary information. In addition, we cannot be certain that others will not develop substantially equivalent
or superseding proprietary technology, or that equivalent products will not be marketed in competition with our products, thereby substantially reducing the value of our proprietary rights. We are
also subject to the risk of adverse claims and litigation alleging infringement of the intellectual property rights of others. In this regard, there can be no assurance that third parties will not
assert infringement claims in the future with respect to our current or future products or that any such claims will not require us to enter into license arrangements or result in protracted and
costly litigation, regardless of the merits of such claims.

No
assurance can be given that any necessary licenses will be available or that, if available, such licenses can be obtained on commercially reasonable terms. In addition, the laws of
some countries do not protect our proprietary rights to the same extent as do the laws of the United States. Accordingly, we may not be able to protect our proprietary rights against unauthorized
third party copying or use, which could significantly harm our business.

In
June 2001, we settled the case of interWAVE Communications International Ltd. v. JetCell Corp., which alleged JetCell's misappropriation of trade secrets and patent
infringement, and entered into a limited patent cross license with Cisco Systems, Inc., which acquired JetCell after the lawsuit was filed.

Manufacturing

We rely heavily on contract manufacturing to provide labor and capital-intensive production capacity. We have transitioned all of our product outsourcing to Flash
Electronics, ("Flash"). Flash provides contract manufacturing services on all of our GSM and Broadband product lines. Working relations with Flash began in May 2000 and a formal "Manufacturing
and Purchase Agreement" was executed in January 2002. Flash Electronics has approximately 200,000 square feet of advanced manufacturing facilities in Fremont, California, and has under
construction a new 340,000 square foot facility in Suzhou, Jiangsu Province, P.R. China.

In
April 2002, manufacturing was relocated to our 5,000 square foot facility in Menlo Park, California from our facility in Santa Clara, California. This is part of our main
60,000 square foot facility and is used for planning, procurement, final assembly, system testing, and quality control. We also leased a 12,000 square foot facility that handles receiving, inventory,
and shipping, which is within a mile of our main facility. We occupy a 7,000 square foot facility in San Diego, California, which is used for planning, special configuration, and stock management for
certain business lines.

Since
we typically have long sales cycles, we rely on a detailed sales forecast to determine our production requirements and meet the ordering needs of our contract manufacturers. We
utilize the sales forecast to control our inventory levels, and due to the modular architecture of our product line we are able to easily reconfigure our products in order to respond to specific
customer purchase orders in a timely manner. Our customers place periodic purchase orders with us based on their requirements for our products.

Our
systems include a number of components that come from sole source suppliers such as Lucent, Motorola and Xilinx. Our contract manufacturers procure these components from distributors
or directly from the sole source manufacturers. In addition, for some products we procure these directly. We communicate with the sole source suppliers frequently in order to insure the continuing
availability of the components. Generally, if a manufacturer decides to discontinue a critical component, it would provide enough time for us and our contract manufacturers to locate alternative
components. However, we may be required to redesign our products or take other steps, which could delay their availability.

24

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Competition

GSM Products

The GSM wireless market is rapidly evolving and highly competitive. We believe that our GSM business is affected by the following competitive factors:



We
expect that competition in each of our markets will increase in the future. We currently compete against GSM communications equipment providers such as Ericsson, Lucent, Motorola,
Nokia, and Siemens. We also compete with the TDMA and CDMA product offerings from these same communications equipment providers and expect that a number of them will develop competing data
communications products and technologies in the near future. We also compete with the CDMA product offerings of Samsung and LG Electronics. Most of these leading GSM communications equipment providers
focus on solutions that address large numbers of subscribers. Equipment providers are beginning to focus on markets with smaller subscriber bases as we do currently. All of the major
GSM communications equipment providers have at least partial GSM solutions that address our target markets.

Increased
competition is likely to result in price reductions, shorter product life cycles, reduced gross margins, longer sales cycles and loss of market share, any of which would
seriously harm our business. We have taken steps in engineering to cost reduce the current design in order to improve margins and compete, but we cannot assure you that we will be able to compete
successfully against current or future competitors or that the competitive pressures we face will not seriously minimize our business opportunities and negatively affect our results of operations.

Broadband Products

We have already begun the process of cost reducing the Link CX product and it's components to bring costs substantially lower in order to become the most
competitively priced license-free microwave point-to-point radio at 45 Mb/s.

Employees

As of June 30, 2002, we employed or contracted 329 people, including 43 in operations, 120 in marketing, sales and customer support, 133 in research and
development and 33 in finance and administration. Of these employees, 35 were contract employees who were engaged in engineering and customer support. None of our employees is represented by a labor
union and we have experienced no work stoppages to date. We believe our relationship with our employees is good.

Government Regulation

Many of our systems intentionally radiate radio frequency energy, and therefore must comply with regulations in the countries where we sell and install our
systems. The process of verifying compliance with radio and network regulations is known as system certification, and this must be granted before a

25

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system is offered commercially for sale. The Federal Communications Commission, or FCC, certifies systems we sell and install in the United States. Some regions of the world, such as Latin America
and the Philippines, accept FCC certification as sufficient approval for operation within these regions. The European Telecommunications Standards Institute, or ETSI, certifies systems we sell and
install in Europe. Many countries also require additional testing to certify compliance to local standards and requirements, in addition to FCC or European Telecommunications Standards Institute
rules.

Our
systems operate in both licensed and license-exempt frequency assignments. A licensed frequency assignment requires that, prior to installing our systems, the operator obtain a
license from the appropriate regulatory body for a specific frequency allocation. A license-exempt frequency assignment allows an operator to install and activate our systems without notifying any
authority once we have received certification for the systems. In the United States, operation of unlicensed radio communications equipment is subject to the conditions that no harmful interference is
caused to authorized users of the band, and that interference, including interference that may cause undesired operation, must be accepted from all other users of the band. This includes other
unlicensed operators, authorized operators such as amateur licensees, industrial, scientific and medical equipment, and U.S. Government operations. Unlicensed operators that cause harmful interference
to authorized users, or that exceed permitted radio frequency emission levels, may be required to cease operations until the condition causing the harmful interference or excessive emissions has been
corrected.

The
delays inherent in this regulatory approval process may cause the rescheduling, postponement or cancellation of the installation of communications systems by our customers, which in
turn may significantly reduce sales of systems to these customers. The failure to comply with current or future regulations or changes in the interpretation of existing regulations in a particular
country could result in the suspension or cessation of sales in that country, restrictions on our development efforts and those of our customers, render current systems obsolete, expose us to fines,
or increase the opportunity for additional competition. These regulations or changes in interpretation of these regulations could require us to modify our products and incur substantial compliance
costs.

We
are also subject to US government export controls. We rely on our customers to inform us when they plan to deliver our products to other countries and we regularly inform our
customers of the export controls with which they must comply.

Trademarks

The following are trademarks of interWAVE: Business Mobility, Community Mobility, Specialized Mobility, interWAVE, TurboMAX, GateWAVE, WAVEServer, IPNIB,
WAVEXchange, IBSS, WAVEXpress BS Plus, LiteWAVE-3G, Enabling Global Mobility, I View, NextWAVE, WAVEMate, IWAVEXchange, WAVEIP, IPWAVEXchange, and WAVExtend. The following are registered
trademarks of interWAVE: WAVEXpress®, WAVEView®, WAVEXchange® and interWAVE Communications®. The following are trademarks of our subsidiary,
Wireless, Inc.: Broadband Without Boundaries, Starport, Streamnet, Wavenet Link, Wireless, Inc.. The following are
registered trademarks of Wireless, Inc.: WAVENET®, WAVENET ACCESS® and TRANSPORT®. Nortel Networks is a trademark of Nortel Networks Corporation. Other
trademarks or service marks appearing in this annual report belong to their respective holders.

Item 2. Properties

Our corporate headquarters is located in Hamilton, Bermuda. Our principal administrative and engineering facilities are located in leased facilities totaling
approximately 56,000 square feet in Menlo Park, California. The five-year lease commenced December 15, 1999. We sublet our former premises in Redwood City following our relocation
in early calendar 2000, until the expiration of our Redwood City lease in September 2002. As part of the Wireless, Inc. acquisition, we assumed the lease for 54,800 square feet of
facility for research, development and office space occupied by Wireless, Inc. in Santa

26

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Clara, California in June 2001 and terminated the lease in June 2002. The lease would have expired in July 2006. In addition, we lease sales, service and systems testing
facilities in the following locations:

|City                                       |  | Approx. S.F. |  | Lease Expires       |  
|------------------------------------------ |  | ------------ |  | ------------------- | -
|Asuncion, Paraguay                         |  | 2,917        |  | December 2003       |  
|Basingstoke, UK                            |  | 3,000        |  | December 2006       |  
|Beijing, PRC                               |  | 4,436        |  | December 2002       |  
|Colombo, Sri Lanka                         |  | 1,450        |  | February 2003       |  
|Colorado Springs, Colorado, USA            |  | 4,000        |  | October 2002        |  
|Hong Kong, S.A.R.                          |  | 9,991        |  | August 2002         |  
|Melbourne, Australia                       |  | 338          |  | N/A (month-to-month | )
|Paris, France                              |  | 3,552        |  | October 2005        |  
|San Diego (Ferris Square), California, USA |  | 11,411       |  | December 2005       |  
|Shenzhen, PRC                              |  | 1,815        |  | August 2002         |  
|Tralee, Ireland                            |  | 2,961        |  | N/A (month-to-month | )

In
August 2002, we signed a new lease for 2,300 square feet with Hong Kong Technology Centre. We moved into the new office at the end of August 2002. The new lease expires
in August 2004. We discontinued our old leases in Hong Kong and Colorado Springs, Colorado in August 2002.

Item 3. Legal Proceedings

On November 21, 2001, a securities class action,Middleton v. interWAVE Communications International, Ltd., et.
al., Case No. 01 CV 10598, was filed in United States District Court for the Southern District of New York against certain investment bank underwriters for the Company's
initial public offering ("IPO"), the Company, and three of the Company's officers. The amended complaint alleges undisclosed and improper practices by the underwriters concerning the allocation of the
Company's IPO shares, in violation of the federal securities laws, and seeks unspecified damages on behalf of persons who purchased the Company's stock during the period from January 28, 2000
through December 6, 2000. Other actions have been filed making similar allegations regarding the IPOs of more than 300 other companies. All of these lawsuits have been coordinated for pretrial
purposes asIn re Initial Public Offering Securities Litigation, Civil Action No. 21-MC-92. The Company believes it has
meritorious defenses to the claims and will defend itself vigorously.

The
Company and the named officer defendants have made a motion to dismiss the complaint.

We
are unable to predict the outcome of the litigation and do not expect it to be resolved in the near future. The legal proceedings may be time consuming and expensive and the outcome
could be adverse to us, although we believe that the company has meritorious defenses. An adverse outcome could have a material adverse affect on our financial position, on our business and results of
operations.

We
may from time to time become a party to various legal proceedings arising in the ordinary course of our business.

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

During the fourth quarter of the fiscal year covered by this report, no matter was submitted to a vote of security holders.

27

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PART II

Item 5. Market for the Registrant's Common Equity and Related Shareholder Matters

Information about interWAVE's Common Shares

The Company's common shares are traded on The NASDAQ National Market under the symbol "IWAV." The following table sets forth the range of the high and low sale
prices by quarter as reported on the NASDAQ National Market:

High

LowFiscal Year Ended June 30, 2002:First Quarter

$
2.69

$
0.69Second Quarter


1.24


0.67Third Quarter


1.02


0.63Fourth Quarter


1.20


0.75


High

LowFiscal Year Ended June 30, 2001:First Quarter

$
22.94

$
7.50Second Quarter


9.25


1.44Third Quarter


3.47


1.13Fourth Quarter


1.37


0.68


On
June 30, 2002, there were approximately 681 shareholders of record of the Company's common shares. This number does not include the number of persons whose
shares are in nominee or in "street name" accounts through brokers.

DIVIDENDS

The Company has never paid cash dividends on its common shares. The Company intends to retain any earnings for use in its business and, therefore, does not
anticipate paying any cash dividends on the common shares.

RECENT SALES OF UNREGISTERED SECURITIES

The following table sets forth information regarding all unregistered securities of the Company sold by the Company from July 1, 2001 to June 30,
2002.

|Class of Purchasers                    |  | Date of Sale      |  | Aggregate Number of
Title of Securities |  | Purchase
Securities |           | Form of Price
Consideration
|-------------------------------------- |  | ----------------- |  | --------------------------------------- |  | ------------------- | --------- | ---------------------------
|Employee options exercises, as a group |  | 07/01/01-06/30/02 |  | Common Shares- 269,764                  |  | $                   | 209,325   |                            
|Employee Stock Purchase Plan           |  | 10/01, 4/02       |  | Common Shares- 458,839                  |  | $                   | 369,062   |                            
|Eastern Communications USA, Inc.       |  | 06/14/02          |  | Common Shares- 2,000,000                |  | $                   | 1,771,000 |                            
|Shannon Development of Ireland         |  | 06/28/02          |  | Common Shares- 229,765                  |  | $                   | 187,718   |                            

All sales of common shares made pursuant to the exercise of stock options granted under the stock option plans of the Company were made pursuant
to the exemption from the registration requirements of the Securities Act afforded by Rule 701 promulgated under the Securities Act.

All
other sales were made in reliance on Section 3(A)(10) or Section 4(2) of the Securities Act and/or Regulation D promulgated under the Securities Act. The
securities were sold to a limited number of people with no general solicitation or advertising. The purchasers were sophisticated investors with access to all relevant information necessary to
evaluate the investment and who represented to the issuer that the shares were being acquired for investment or pursuant to a determination of fairness by the California Corporations Commission.

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Item 6. Selected Financial Data

The following selected consolidated financial data should be read together with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements, including the related notes found elsewhere in this document. The statement of
operations data for the fiscal years ended June 30, 2002, 2001, 2000, 1999 and 1998, the balance sheet data as of June 30, 2002, 2001, 2000, 1999 and 1998 are derived from the audited
consolidated financial statements of interWAVE certain of which are included elsewhere in this annual report. Our consolidated financial statements are prepared in accordance with accounting
principles generally accepted in the United States of America. All dollar amounts are expressed in U.S. dollars. Our fiscal year 2002 ended on the actual calendar month end. Prior to November 2001,
our fiscal periods ended on the Friday nearest the calendar month end.

|                                                                               |                                             | Fiscal Year Ended June 30, |        
|------------------------------------------------------------------------------ | ------------------------------------------- | -------------------------- | -------
|
|
|Statement of Operations Data:                                                  |                                             |                            |        
|Net revenues                                                                   |                                             | $                          | 42,955 
|Cost of revenues                                                               |                                             |                            | 41,607 
|                                                                               |                                             |                            |        
|Gross profit                                                                   |                                             |                            | 1,348  
|                                                                               |                                             |                            |        
|Operating expenses:                                                            |                                             |                            |        
|                                                                               | Research and development                    |                            |        
|                                                                               | Selling, general and administrative         |                            |        
|                                                                               | Amortization of deferred stock compensation |                            |        
|                                                                               | Amortization of intangible assets           |                            |        
|                                                                               | In-process research and development         |                            |        
|                                                                               | Losses on asset impairments and sales       |                            |        
|                                                                               | Restructuring charges (credit)              |                            |        
|                                                                               |                                             |                            |        
|Total operating expenses                                                       |                                             |                            | 66,084 
|                                                                               |                                             |                            |        
|Loss from operations                                                           |                                             |                            | (64,736
|Interest income, net                                                           |                                             |                            | 1,373  
|Interest expense, net                                                          |                                             |                            | (317   
|Other expense, net                                                             |                                             |                            | (436   
|                                                                               |                                             |                            |        
|Net loss before income taxes                                                   |                                             |                            | (64,116
|Income tax expense                                                             |                                             |                            | 209    
|                                                                               |                                             |                            |        
|Net loss                                                                       |                                             |                            | (64,325
|Dividend effect of beneficial conversion feature to H-1 preferred shareholders |                                             |                            |       
|                                                                               |                                             |                            |        
|Net loss attributable to common shareholders                                   |                                             | $                          | (64,325
|                                                                               |                                             |                            |        
|Basic and diluted net loss per share                                           |                                             | $                          | (1.15  
|Weighted average common shares outstanding basic and diluted                   |                                             |                            | 55,833 

|                                       |  | June 30,
|-------------------------------------- |  | --------
|
|
|Balance Sheet Data:                    |  |         
|Cash and cash equivalents              |  | $       
|Working capital                        |  |         
|Total assets                           |  |         
|Long-term debt, net of current portion |  |         
|Total shareholders' equity             |  |         

29

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

The following discussion should be read in conjunction with the selected consolidated financial information and our consolidated financial
statements and related notes included elsewhere in this Form 10-K. This discussion contains forward looking statements that involve risks and uncertainties. Our actual results could
differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under "Risk Factors That May Affect Future Results" and elsewhere
in this report. Our fiscal year ends on the actual calendar month end of June 30.

OVERVIEW

We provide compact wireless communications systems for the GSM market. We were incorporated in June 1994 and recorded our first product sale in
May 1997. Our systems were initially deployed to add capacity and coverage to existing systems, primarily in Asia. Deployments of community networks began in 1998, primarily in China and
Africa. Trials of our wireless office systems commenced in 1999 in both Europe and Asia. Prior to May 1997, we had no sales and our operations consisted primarily of various
start-up activities, such as research and development, recruiting personnel, conducting customer field trials and raising capital. We generated net revenues of $43.0 million in
2002, $26.5 million in 2001, and $30.1 million in 2000. We incurred net losses of $64.3 million in 2002, $94.1 million in 2001, and $28.4 million in 2000. As of
June 30, 2002 and 2001, we had an accumulated deficit of $298.6 million and $234.3 million, respectively. We made no acquisitions during fiscal 2002.

We
went through a series of downsizings and realignments over this last fiscal year while we faced a very challenging economic global environment. We brought in new financial and sales
management at the beginning of the fiscal year and adopted a set of rigorous reporting procedures to ensure visibility
and accountability. We sharpened our focus on our core business as a provider of cellular infrastructure networks to operators; as a result, we reduced our broadband product line and developed
operating metrics, thereby targeting lowered operating expenses, decreased losses and increased revenue. Comparing our financial results year over year:



On
the business strategy side, we expanded our marketing and sales into Latin America and Eastern Europe. Of the revenue in fiscal year 2002, 35% of the revenue was from Latin America,
29% of the revenue was from Europe, Middle East and Africa, 19% was from Asia Pacific, and 17% was

30

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from North America, mostly from "license saver" sales to small operators in the U.S. Recent expansion into Russia should allow us to begin to establish presence in Eastern Europe, where cellular
service penetration is low and growth potential is significant.

With
the asset purchase of GBase, including CDMA2000 IP based product and technology and the team from GBase Communications ("GBase") that was completed in September 2002, we plan
to expand our product offering to address the new network builds in follow on to CDMA IS-95 networks
in the U.S., China, Japan and parts of Latin America. These new IP based product and technology from GBase provides a pico, micro and macro level BTS for 1XRTT CDMA 2000, which could be upgraded to
1XEVDO in the future.

Due
to the state of the worldwide economy and the uncertainty of economic recovery, we have taken decisive actions to further cut costs. Specific steps have already been taken since
June 2002 to further reduce expenses with headcount cuts, development program cuts, and product streamlining. We have terminated 62 employees and contractors and reduced compensation and work
hours of 8 additional employees since the end of June 2002, and we plan to continue to reduce expenses to align operational costs with the reduced world telecom economic outlook. We also plan
to cost reduce our core product line to improve overall margins.

We
plan to continue to refine our sales and marketing strategy going forward for the next fiscal year in light of the worldwide recession and conservatism across all segments of
industry. We plan to market into countries where wireless telephone services are critical for continued economic survival, offering solutions at price points for overall network deployment that
ensures the operator breakeven at or below one year. Taking our success in Sri Lanka, Paraguay and some of the African countries, we plan to make further inroads into regions in Latin America, Eastern
Europe, western provinces of China, and parts of South East Asia.

We
expanded our product and technology portfolio to include CDMA2000 in order to begin to address this new expansion in the market, where CDMA IS-95 operators are now
upgrading their networks to improve capacity and offer better data services. CDMA2000 appears to represent new opportunities for us to sell in the U.S., China, certain parts of Latin America, Japan
and Korea. CDMA2000 is viewed as a critical strategic initiative for the Company for fiscal 2003.

We
plan to continue to build on the strategic alliances we have and form strong OEM relationships with larger companies such as Eastcom and UTStarcom in order to lower our operational
support costs, and focus the company on delivery of differentiated products, technology and network systems.

In
fiscal 2003, we plan to focus on reduction in operational, sales and marketing costs by relying more on our strong partners. This includes plans to move direct support services to
these partners or third party systems integrators. Other areas of critical importance are the aggressive cost reduction on core product lines through design and manufacturing, plans to expand our
presence to new regions of Latin America, China and Eastern Europe to capture new opportunities in these regions, and plans to broaden our marketing to include CDMA2000 customers.

We
plan to continue to seek funding, as done through the recent UTStarcom strategic investment. We plan to look to financial institutions and investment funds for funding.

CRITICAL ACCOUNTING POLICIES

We believe that there are several accounting policies that are critical to understanding our future performance as these policies affect the reported amounts of
revenue and other significant areas that involve management's judgments and estimates. These policies, and our procedures related to these policies, are described in detail below. In addition, please
refer to Note 1 to the consolidated financial

31

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statements for further discussion of the following critical accounting policies as well as our other significant accounting policies.

Revenue Recognition

We recognize revenue in accordance with the Securities and Exchange Commission ("SEC") Staff Accounting Bulletin No. 101 (SAB 101) "Revenue Recognition in
Financial Statements." Accordingly, equipment revenue is recognized when all of the following have occurred: persuasive evidence of an arrangement exists, the product has been shipped, title and all
of the benefits and risks of ownership including risk of loss have passed to the customer, we have the right to invoice the customer, collection of the receivable is reasonably assured, and we have
fulfilled all pre-sale contractual obligations to the customer. Revenue from extended warranty coverage and customer support is recognized ratably over the period of the service contract.
Trial sales made directly to wireless service providers are not recognized as revenue until the trial is successfully completed. Trials conducted by communications service providers and systems
integrators are normally shipped from their inventory and do not result in any incremental revenue to us. Although our products contain a software component, the software is not sold separately and we
are not contractually obligated to provide software upgrades to our customers.

Accounts Receivable Valuation

We evaluate the collectibility of our trade receivables based on a combination of factors. When we become aware of a specific customer's inability to meet its
financial obligations to us, such as in the case of bankruptcy filings or deterioration in the customer's operating results or financial position, we record a specific reserve for bad debt to reduce
the related receivable to the amount we reasonably believe is collectible. We also record reserves for bad debt for all other customers based on a variety of factors including the length of time the
receivables are past due and historical collection experience. If circumstances related to specific customers change, our estimates of the recoverability of receivables are also likely to change.

Inventory Valuation

We perform a detailed assessment of inventory at each balance sheet date, which includes a review of, among other factors, demand requirements, product lifecycle
and product development plans, quality issues, excess inventory and obsolescence. Based on this analysis, we record adjustments, when appropriate, to reflect inventory at net realizable value.

Impairment of Long-lived Assets

We currently evaluate our long-lived assets, including goodwill and identifiable intangibles, for impairment whenever events or changes in
circumstances indicate that the carrying amount of such assets might not be recoverable. Events and circumstances that would trigger an impairment analysis include a significant decrease in the market
value of an asset, a significant change in the manner or extent that an asset is used including a decision to abandon acquired products, services or technologies, a significant adverse change in
operations or business climate affecting the asset, and historical operating or cash flow losses expected to continue for the foreseeable future associated with the asset. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds the fair value of the asset. Fair value is estimated using discounted net cash
flows. Assets to be disposed of are reported at the lower of the carrying amount or fair value less estimated costs to sell.

32

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We
evaluate the recoverability of long lived assets when events or circumstances indicate a possible impairment. Any impairment losses recorded in the future caused by the continuing
deterioration of the industry we operate in could have a material adverse impact on our financial condition and results of operation.

Restructuring Charges

Subsequent to the June 2001 acquisition of Wireless, Inc., our Board of Directors approved a plan to reduce the aggregate work of interWAVE,
consolidate facilities, and restructure certain business functions to streamline the organization for cost reduction. The restructuring activities were initiated primarily due to the severe downturn
in the economic environment in the telecommunications industry. Restructuring charges are recorded in the consolidated statement of operations as a separate line item. Please refer to Note 9 to
the consolidated financial statements on further discussion of our restructuring activities.

RECENT ACCOUNTING PRONOUNCEMENTS

In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standard ("SFAS") No. 141, "Business
Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 requires that all business combinations initiated after June 30, 2001 be accounted for under
the purchase method and addresses the initial recognition and measurement of goodwill and other intangible assets acquired in a business combination. The Company has adopted SFAS No. 141 and it
did not have an impact on the consolidated financial position, results of operations, or cash flows. SFAS No. 142 provides that intangible assets with finite useful lives be amortized and that
goodwill and intangible assets with indefinite lives will not be amortized, but will rather be tested at least annually for impairment. In addition, the statement includes provisions upon adoption for
the reclassification of certain existing recognized intangibles as goodwill, the identification of reporting units for the purpose of assessing potential future impairments of goodwill, the
reassessment of the useful lives of existing recognized intangibles, and reclassification of certain intangibles out of previously reported goodwill. The Company no longer has any goodwill and
therefore does not anticipate any material effects as a result of adopting this statement.

In
June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations," and in October 2001, SFAS No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets." SFAS 143 requires that the fair value of an asset retirement obligation be recorded as a liability in the period in which the Company incurs the
obligation. SFAS No. 144 serves to clarify and further define the provisions of SFAS No. 121,Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of.SFAS No. 144 does not apply to goodwill and other intangible assets that are not amortized. SFAS No. 143 is
effective for fiscal years beginning after June 15, 2002 and SFAS No. 144 is effective for fiscal years beginning after December 15, 2001. The Company will adopt SFAS Nos. 143 and
144 for its fiscal year beginning July 1, 2002. The effect of adopting these statements is not expected to have a material effect on the Company's consolidated financial position, results of
operations or cash flows.

In
April 2002, the FASB issued SFAS No.145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections". This
statement requires, among other things, that gains and losses on the early extinguishment of debt be classified as extraordinary only if they meet the criteria for extraordinary treatment set forth in
Accounting Principles Board Opinion No. 30. The provisions of this statement related to classification of gains and losses on the early extinguishment of debt are effective for fiscal years
beginning after May 15, 2002. The Company is currently considering the impact, if any, that this statement will have on the financial statements.

In
June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." This Statement requires recording costs associated with exit
or disposal activities at

33

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their fair values when a liability has been incurred. Under previous guidance, certain exit costs were accrued upon management's commitment to an exit plan, which is generally before an actual
liability
has been incurred. The provisions of this Statement are effective for exit or disposal activities that are initiated after December 31, 2002. The Company is currently considering the impact, if
any, that this statement will have on the financial statements.

LOSSES ON ASSET IMPAIRMENTS AND SALES

We review our goodwill and other intangible assets for impairment whenever events or changes in circumstances indicate that the carrying value may not be
recoverable. As part of our review of our fiscal 2002 fourth quarter results, we performed an impairment analysis of identifiable intangible assets and goodwill recorded in connection with our
acquisition of Wireless, Inc. and other long-lived assets. The assessment was performed primarily due to the continuing softening of the global economy and the telecommnuications
industry in particular, the continuing decline in our stock price, the net book value of assets significantly exceeding our market capitalization, the overall decline in industry growth rates which
indicate that this trend may continue for an indefinite period. As a result of this assessment, we recorded approximately $19.4 million in asset impairment charges. This amount included
$16.5 million to write down the net book value of goodwill and property and equipment from its acquisitions of Wireless, Inc. to zero, as well as an additional $2.9 million to
write off Wireless, Inc.'s inventories, which was charged to cost of revenues. The Company also sold certain assets related to Wireless, Inc. to a third party and recorded a loss on that
sale of $0.2 million.

|Fiscal 2002                |                | Balance at
June 30, 2001 |        | Additions/
(Disposals/Usage) |   | Depreciation/
Amortization |        | Impairment
Charge/Loss on sale |        | Balance at
June 30, 2002
|-------------------------- | -------------- | ------------------------ | ------ | ---------------------------- | - | -------------------------- | ------ | ------------------------------ | ------ | ------------------------
|Intangible assets(2):      |                |                          |        |                              |   |                            |        |                                |        |                         
|                           | Wireless, Inc. |                          | $      | 21,624                       |   | $                          | 891    |                                | $      | (6,517                  
|Inventories(1):            |                |                          |        |                              |   |                            |        |                                |        |                         
|                           | Wireless, Inc. |                          |        | 5,222                        |   |                            | (1,972 | )                              |        |                        
|Property and Equipment(2): |                |                          |        |                              |   |                            |        |                                |        |                         
|                           | Wireless, Inc. |                          |        | 2,804                        |   |                            | (843   | )                              |        | (1,302                  
|                           |                |                          |        |                              |   |                            |        |                                |        |                         
|                           |                | $                        | 29,650 |                              | $ | (1,924                     | )      | $                              | (7,819 | )                       
|                           |                |                          |        |                              |   |                            |        |                                |        |                         

---

The
write-down to estimated fair value was based upon the estimated future discounted cash flows from operations and estimated terminal values of the businesses (see
Note 8 to the consolidated financial statements).

34

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RESTRUCTURING CHARGES

Our restructuring accrual as of June 30, 2002 is summarized as follows (in thousands):

|Fiscal 2002                                           |  | Restructuring
Accrual as of
June 30, 2001 |       | Additions/
Reversals |   | Non-cash
Charges |   | Payments |        | Restructuring
Accrual as of
June 30, 2002
|----------------------------------------------------- |  | ----------------------------------------- | ----- | -------------------- | - | ---------------- | - | -------- | ------ | -----------------------------------------
|Future lease payments related to Abandoned facilities |  | $                                         | 5,986 |                      | $ | (2,880           | ) | $        | (614   | )                                        
|Abandoned leasehold improvements                      |  |                                           | 595   |                      |   | 39               |   |          | (634   | )                                        
|Workforce reduction                                   |  |                                           |      |                      |   | 855              |   |          |       |                                          
|                                                      |  |                                           |       |                      |   |                  |   |          |        |                                          
|Total                                                 |  | $                                         | 6,581 |                      | $ | (1,986           | ) | $        | (1,248 | )                                        
|                                                      |  |                                           |       |                      |   |                  |   |          |        |                                          

During
fiscal 2002, we reduced our workforce by an additional 107 employees, and closed certain facilities. As a result, we recorded a restructuring expense related to severance payments
and future lease commitments and recorded an additional charge of $0.9 million.

Additionally,
we negotiated and signed a lease termination agreement which reduces our operating lease commitment significantly over the next three years. The actual termination
agreement differed from the estimate and resulted in a reduction of the lease loss accrual and accordingly, reversed $2.9 million as a restructuring credit in the accompanying consolidated
statements of operations.

The
remaining restructuring accrual for future lease payments related to abandoned facilities and workforce reduction of $0.8 million is expected to be paid out through
December 2002, and is included on the accompanying consolidated balance sheet in accrued expenses and other current liabilities.

OPERATIONS

We operate in two business segmentsGSM and broadband products. We also recently acquired the assets of a developer of CDMA 2000 products. We generate
net revenues from sales of our systems and, in connection with our direct sales activity, from installation, maintenance contracts and support of those systems. Revenue derived from systems sales,
comprised of unit sales of our WAVEXpress base station and base station controller, our WAVEXchange, our Network In A Box and our WAVEView management system, constituted 65% of net revenues in 2002,
69% of net revenues in 2001, and 96% of net revenues in 2000. Other revenues were derived primarily from other equipment sales and installation services.

Currently,
our revenues are generated by sales to communications equipment providers and system integrators that may either sell our systems on a stand-alone basis or integrate them with
their systems and by direct sales to wireless service providers. In fiscal year 2002, sales to communications equipment providers represented 13% of total revenues, sales to systems integrators
accounted for 23% of total revenues and direct sales to wireless service providers represented 64% of total revenues.

We
rely on our internal sales forecasts and our ongoing discussions with customers, including their formal purchase orders, as guidance for planning our production and our revenue
outlook.

We
have a strategic relationship with Eastern Communication Company, Ltd. ("Eastcom"), one of China's largest telecommunication equipment manufacturers. Our sales to Eastcom may
be significant to our business, and if we fail to sell our products to Eastcom, our business could be adversely affected.

Net
revenues outside North America represented approximately 83%, 84% and 88% of total net revenues in fiscal years 2002, 2001 and 2000, respectively. We have derived and expect to
continue to derive a majority of our revenues from products installed outside the U.S. by both non-U.S. and U.S. based communications equipment providers, systems integrators and wireless
service providers, subjecting our revenue stream to risks from economic uncertainties, currency fluctuations, political instability and uncertain cultural and regulatory environments. All of our
revenues are currently in U.S.

35

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dollars, which reduces our exposure to fluctuations in revenues attributable to changes in currency exchange rates. In the future, business conditions may require us to sell our products in other
currencies. In addition, we face risks inherent in conducting global business. These risks include extended collection time for receivables, the potential loss of security interest, political
instability, reduced ability to enforce obligations and reduced protection for our intellectual property.

We
have incurred substantial operating losses and substantial cash outflow since our inception and we expect to incur net losses and net cash outflow in the near future, which may be
substantial. A significant portion of our expenses are fixed in the near term, and we may not be able to quickly reduce spending if our revenue is lower than anticipated. Therefore, net losses in a
given quarter could be greater than expected. You have limited historical financial data and operating results with which to evaluate our business and our prospects. As a result, you must consider our
prospects in light of our history in business in a rapidly evolving market. For additional information on factors that may affect our future results of operations, please see "Risk Factors That May
Affect Future Results."

Communications
equipment providers, system integrators and wireless service providers typically perform numerous tests and extensively evaluate products before incorporating them into
their networks. The time required for testing, evaluation and design of our systems into the service provider's network typically ranges from six to twelve months. During the trial period we sell a
limited number of units. The successful completion of the trial phase often results in another sale of additional units intended for deployment in commercial service. Our business could be adversely
affected if a significant customer reduces or delays orders during our sales cycle or chooses not to deploy networks incorporating our systems.

Cost
of revenues primarily consists of material costs, direct labor costs, warranty costs, royalties, overhead related to manufacturing our products, amortization of intangible assets,
and customer support costs.

In
general, our gross margins will be affected by the following factors and, therefore, we are unable to predict what these margins will be in the future:



We
currently obtain all of our primary components and subassemblies for our GSM products from a single independent contract manufacturer. Accordingly, a significant portion of our cost
of revenues consists of payments to this supplier. The remainder of our cost of revenues for GSM products includes to our in-house manufacturing operations, which consist primarily of
quality control, final assembly, testing and product integration.

Research
and development expenses consist primarily of compensation and related costs for research and development personnel and expenses for testing facilities and equipment. All
research and development costs are expensed as they are incurred. We expect to continue to make substantial investments in research and development.

Selling,
general and administrative expenses consist primarily of compensation and related costs for sales and sales support personnel, marketing personnel, financial, accounting, human
resource and general management personnel, sales commissions, marketing programs, legal and professional services, travel expenses, bad debt expenses and other general corporate expenses. We expect to
incur

36

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substantial expenditures related to sales and marketing activities, the recruitment of additional sales and marketing personnel and the expansion of our domestic and international distribution
channels.

Since
our inception, we have used share option programs for key employees as compensation to attract strong business and technical talent. We have recorded compensation expense for our
option grants equal to the excess of the fair market price on the date of grant or sale over the option exercise price. Of the total deferred compensation, approximately $(0.2) million,
$3.1 million and $9.9 million was amortized in fiscal years 2002, 2001 and 2000, respectively. The balance in deferred compensation of $0.3 million as of June 30, 2002 is
being amortized on an accelerated basis over the vesting period of the applicable options, which is typically four years.

Our
current GSM products operate on the GSM standard. GSM competes with other digital standards, including code division multiple access, or CDMA, and time division multiple access, or
TDMA. GSM also competes with analog standards. In the event that TDMA or CDMA become the dominant digital wireless communication standard in geographic markets we are seeking to address, the
acceptance of our GSM products and our GSM revenues and operating results from GSM would be harmed.

The
most prevalent emerging third generation ("3G") standards of wireless communications are essentially forms of CDMA, but the Universal Mobile Telephony Services ("UMTS") form of 3G is
built upon a GSM base. Rather than subtracting from the market appeal of GSM, early indications are that more carriers may deploy GSM prior to their deployment of 3G because some elements of GSM are
used by a prevalent form of 3G. Ultimately, however, 3G may become the dominant wireless standard, so that we must be competitive in offering a 3G product to assure acceptance of our wireless voice
and data products in the marketplace. In September 2002, we have acquired substantially all of
the assets of a 3G CDMA 2000 developer, GBase Communications, to address the need for a 3G product and 3G technology.

Our
industry is intensely competitive, and many of our competitors are major telecommunications equipment providers with resources that are significantly greater than ours. In addition
to competitive pressures, we will also likely encounter declining sales prices and profit margins over time as products mature.

37

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RESULTS OF OPERATIONS

The following table presents certain consolidated statement of operations data for the periods indicated as a percentage of net revenues.

|                                 |                                                                      | Fiscal Years Ended June 30, |       
|-------------------------------- | -------------------------------------------------------------------- | --------------------------- | ------
|
|As a Percentage of Net Revenues: |                                                                      |                             |       
|                                 | Net revenues                                                         |                             | 100.0 
|                                 | Cost of revenues                                                     |                             | 96.9  
|                                 | Gross margin                                                         |                             | 3.1   
|Operating expenses:              |                                                                      |                             |       
|                                 | Research and development                                             |                             | 46.1  
|                                 | Selling, general and administrative                                  |                             | 60.0  
|                                 | Amortization of deferred stock compensation                          |                             | (0.5  
|                                 | Amortization of intangible assets                                    |                             | 14.2  
|                                 | In-process research and development                                  |                             | 0.0   
|                                 | Losses on asset impairments and sales                                |                             | 38.8  
|                                 | Restructuring charges (credit)                                       |                             | (4.6  
|Total operating expenses         |                                                                      | 153.8                       |       
|                                 | Operating loss                                                       |                             | (150.7
|                                 | Interest income, net                                                 |                             | 3.2   
|                                 | Interest expense, net                                                |                             | (0.7  
|                                 | Other expense, net                                                   |                             | (1.0  
|                                 | Net loss before income taxes                                         |                             | (149.3
|                                 | Income tax expense                                                   |                             | (0.5  
|                                 | Net loss                                                             |                             | (149.7
|                                 | Dividend effect of beneficial conversion feature to H-1 shareholders |                             |      
|                                 | Net loss attributable to common shares outstanding                   |                             | (149.7

Sales
to major customers and related parties are as follows (in thousands):

|                                      |       | Fiscal Years Ended June 30, |        | Fiscal Years Ended June 30, |  
|------------------------------------- | ----- | --------------------------- | ------ | --------------------------- | -
|
|
|Hutchison Telecommunications Group(1) |       | $                           | 10,636 |                             | $
|Eastern Communications Co., Ltd.(1)   |       |                             | 2,978  |                             |  
|Campus Link                           |       |                             |       |                             |  
|Nortel Networks(1)                    |       |                             | 164    |                             |  
|HangZhou Topper Electric Corporation  |       |                             |       |                             |  
|                                      |       |                             |        |                             |  
|                                      | Total |                             | $      | 13,778                      |  
|                                      |       |                             |        |                             |  

---

38

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Comparison of Fiscal Years Ended June 30, 2002 and 2001

Net Revenues

Net revenues increased 62%, an increase of $16.4 million, from $26.5 million for the fiscal year ended June 30, 2001 to $43.0 million
for the fiscal year ended June 30, 2002. This increase was due to our continued penetration in Asia, Middle East and Africa, and Latin America despite continued deterioration of overall market
conditions in the global economy and in the telecommunications industry in particular. Approximately 200 customers accounted for all of our net revenues in 2002 compared to over 100 customers in 2001.
Sales to affiliates of Hutchinson Telecommunications Group and Eastern Communications Co., Ltd. accounted for 25% and 7%, respectively, of net revenues in 2002.

Cost of Revenues

Cost of revenues increased 61%, an increase of $15.8 million, from $25.8 million during 2001 to $41.6 million during 2002. As a percentage of
net revenues, cost of revenues was 97% in 2001 and 2002. In 2002, 12% of net revenues was attributed to our WAVEXchange and Network In A Box products, which earn higher gross profits, while 49% was
attributed to our WAVEXpress/BTS, which earns lower gross profits. In 2001, 17% of net revenues was attributed to our WAVEXchange and Network In A Box products, while 46% was attributed to our
WAVEXpress/BTS. However, the increase in product mix to higher gross profits was offset by the $5.0 million inventory valuation charge, a $2.9 million impairment charge on
Wireless, Inc. inventories, and the relatively high fixed costs of operations and field services.

Research and Development Expenses

Research and development expenses decreased by $10.7 million, a decrease of 35%, from $30.5 million in 2001 to $19.8 million in 2002. The
decrease was primarily due to a reduction in headcount in
research and development from 156 as of June 30, 2001 to 133 as of June 30, 2002. This caused the following decreases from 2001 to 2002: salaries and wages of $1.8 million,
consultants/temporary services of $1.6 million, recruiting of $0.4 million and relocation of $0.1 million. In addition to the labor-related decreases, there were also decreases in
depreciation of $3.1 million, and travel and entertainment of $0.7 million. The remaining decrease of $3.0 million was comprised of operating supplies, phones and other
miscellaneous expenses all of which were driven by the decrease in headcount year over year.

Selling, General and Administrative Expenses

Selling, general and administrative expenses decreased by $7.1 million, a decrease of 22%, from $32.9 million during 2001 compared to
$25.8 million in 2002. The decrease was primarily due to a reduction in bad debt of $8.2 million. There was also a decrease of $1.1 million in the usage of consultants/temporary
services, a decrease of $0.4 million in recruiting, a decrease of $0.6 million in marketing expenses, and a decrease of $3.3 million in operating supplies, phones and other
miscellaneous expenses. This was offset by an increase to salaries and wages of $1.7 million, commissions of $1.4 million, travel and entertainment of $0.2 million, investor
relations and services of $0.2 million, and depreciation and miscellaneous expenses of $3.0 million.

Amortization of Deferred Stock Compensation

Amortization of deferred stock compensation decreased $3.3 million, a decrease of 107%, from $3.1 million in 2001 compared to $(0.2) million in
2002. The decrease in amortization was due to the accelerated amortization of deferred stock compensation in the prior year and credits applied from

39

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forfeitures of stock options in the current year for terminated employees. During 2002, options were granted at fair market value, with no additions to deferred stock compensation.

Amortization of intangible assets

Amortization of intangible assets increased $2.3 million from $3.7 million in 2001 to $6.1 million in 2002. The increase in amortization was
due to our acquisition of Wireless, Inc. in June 2001, which resulted in an increase in goodwill and other intangible assets of $21.9 million from June 30, 2001 to June 30, 2002.

In-process research and development

We did not make any acquisitions during fiscal 2002, and accordingly, no in process research and development expenses were recorded. The $0.6 million in
process research and development expense during fiscal 2001 relates to our acquisition of Microcellular Systems Limited in July 2000.

Losses on asset impairments and sales

Losses on asset impairments and sales decreased $6.5 million from $23.2 million in 2001 to $16.7 million in 2002. The $23.2 million
asset impairment and sales in 2001 relates to our write-down to estimated fair values of various intangible and other assets primarily through our acquisitions of Microcellular Systems Limited and 3C.
The $16.7 million asset impairment and sales in 2002 relates to our write-down to estimated fair values of Wireless, Inc.'s intangible and other assets, and our sale of certain assets related
to Wireless, Inc. to a third party. Wireless, Inc. was acquired by us in June 2001. See Note 8 to the consolidated financial statements for details.

Restructuring charges (credits)

In accordance with our plan to reduce the aggregate workforce, consolidate facilities, and restructure certain business functions in order to streamline the
organization for cost reduction, the Company recorded a restructuring charge of $6.6 million for fiscal 2001. During fiscal 2002, the Company had additional layoffs, closed down several
facilities, recorded an additional charge of $0.9 million, and reversed $2.9 million as a restructuring credit to reflect the final restructuring accrual. See Note 8 to the
consolidated financial statements for details.

Interest Income, net

Interest income decreased $5.1 million from $6.5 million in 2001 to $1.4 million in 2002. The decrease was due to the continuing reduction of
cash and investments from our use of funds for operations.

Interest Expense, net

Interest expense was $0.3 million and $0.2 million in 2002 and 2001, respectively. This expense was primarily associated with equipment loans and
leases.

We
have a $5 million credit facility with Wells Fargo Bank. Interest rate is New York LIBOR -1% payable monthly, which would result in annual interest expense of approximately
$0.1 million based on the June 30, 2002 LIBOR one year rate of 2.25%. No amounts have been drawn down as of June 30, 2002 although the availability to borrow has decreased by
$1.4 million since that amount has been utilized to cover two standby letters of credit for vendor performance bonds and to cover a standby letter of credit for the final costs of the facility
lease which was renegotiated and which will cease after October 2002. The original $5 million line was renegotiated in August 2001 and we are required to maintain a minimum
security interest of $5 million in cash or equivalent instruments with the bank.

40

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In
January and March 2001, the Company entered into two additional equipment financing agreements for an aggregate total of $2 million. The financing equipment loans range
from three to four years. The interest on each loan is fixed at the time of the draw down with the interest rates ranging from 9.8% to 10.3%. Obligations under all loans are secured by the assets
financed. The Company had $1.2 million and $1.6 million outstanding as of June 30, 2002 and 2001, respectively. Approximately $0.4 million of the outstanding balance as of
June 30, 2002 will be repaid over the next twelve months.

The
Company has a $5 million credit facility with Wells Fargo Bank. Interest rate is New York LIBOR -1% payable monthly, which would result in annual interest expense of
approximately $0.1 million based on the June 30, 2002 LIBOR one year rate of 2.25%. No amounts have been drawn down as of June 30, 2002 although the availability to borrow has
decreased by $1.4 million since that amount has been utilized to cover two standby letters of credit for vendor performance bonds and to cover a standby letter of credit for the final costs of
the facility lease which was renegotiated and which will cease after October 2002. The original $5 million line was renegotiated in August 2001 and the Company is required to
maintain a minimum security interest of $5 million in cash or equivalent instruments with the bank.

In
addition, we have two additional credit facilities for a European subsidiary with Royal Bank of Scotland. The first $0.5 million facility carries an interest rate of New York
LIBOR +2.5% with no payment terms specified. The second $1.5 million facility carries an interest rate of New York LIBOR +3% payable monthly, with quarterly repayment of principal over three
years. As of June 30, 2002 and 2001, $0.3 million and $0.5 million has been drawn down, respectively. Should we elect to borrow funds under our committed lines of credit, we will
incur additional interest expense during any periods when amounts are outstanding under the lines.

Income Taxes

In 2002 and 2001 our U.S. subsidiary incurred net losses for United States federal and state income tax purposes. We recorded a provision for income taxes of
$0.2 million and $0.3 million, respectively, related to current international income tax provided on the profits attributable to our foreign operations. As of June 30, 2002, we
had $181.8 million of federal and $93.3 million of state net operating loss carryforwards
to offset future taxable income. The difference between available net operating losses and our accumulated deficit as reported for financial statement purposes is principally because losses incurred
in Bermuda are not subject to a carry-forward since there is no tax on income earned in Bermuda.

Comparison of Fiscal Years Ended June 30, 2001 and 2000

Net Revenues

Net revenues decreased 12%, a decrease of $3.6 million, from $30.1 million for the fiscal year ended June 30, 2000 to $26.5 million
for the fiscal year ended June 30, 2001. This decrease was due to continued deterioration of overall market conditions in the global economy and in the telecommunications industry in
particular, which resulted in decreased orders from active customers, offset by the continued deployment of our systems. Twenty-two customers accounted for all of our net revenues in 2000
while over 100 customers accounted for all of our net revenues in 2001, due to our 2001 acquisitions of Microcellular Systems Limited ("Microcellular"), 3C, and Wireless, Inc. Sales to
affiliates of Hutchison Telecommunications Group, Campus Link and Nortel Networks accounted for 20%, 10% and 6%, respectively, of net revenues in 2001.

41

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Cost of Revenues

Cost of revenues increased 38%, an increase of $7.1 million, from $18.7 million during 2000 compared with $25.8 million during 2001. As a
percentage of net revenues, cost of revenues increased from 62% in 2000 to 97% in 2001, due to changes in the mix of products sold and the increase in reserves for inventory. In 2000, 22% of net
revenues was attributed to our WAVEXchange and Network In A Box products, which earn higher gross profits, while 64% was attributed to our WAVEXpress/BTS, which earns lower gross profits. In 2001, 17%
of net revenues was attributed to our WAVEXchange and Network In A Box products, while 46% was attributed to our WAVEXpress/BTS. However, the increase in product mix to higher gross profits was offset
by the $5.4 million provision for additional inventory reserves and the relatively high fixed costs of operations and field services.

Research and Development Expenses

Research and development expenses increased by $12.3 million, an increase of 68%, from $18.1 million in 2000 to $30.5 million in 2001. The
increase was primarily due to increased headcount in research and development from 103 as of June 30, 2000 to 156 as of June 30, 2001. Increased expenses can also be attributed to higher
depreciation expenses associated with purchased equipment and intangible assets, and to higher facility expenses. The increase in headcount was primarily attributed to the 2001 acquisitions of
Microcellular, 3C and Wireless, Inc. Absolute expenses related to labor increased $5.2 million, which represents a 43% increase over 2000. Other significant areas of increase include
facilities-related expenses of $1.3 million, travel of $0.7 million, depreciation of $0.7 million, and prototype development expenses of $0.6 million. For the Microcellular
acquisition, an additional $3.4 million was charged to research and development expenses as employee retention incentives. In aggregate, the 2001 acquisitions contributed $6.5 million of
the $12.3 million year over year increase.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased by $19.4 million, an increase of 144%, from $13.5 million during 2000 compared to
$32.9 million in 2001. $9.3 million of the increase was attributed to the additional provisions added to the allowance for doubtful accounts as some of our customers continued to
encounter financing issues in the current capital market. The other increases were primarily due to increased spending as a result of our 2001 acquisitions of Microcellular, 3C and
Wireless, Inc. Absolute expenses related to labor increased $4.8 million, which represents a 60% increase from 2000. Other significant areas of increase include public relations and
other marketing expenses of $1.1 million, travel of $0.9 million, facilities expenses of $0.9 million, and legal and professional fees of $0.6 million. For the
Microcellular acquisition, an additional $0.5 million was charged to selling, general and administrative expenses as employee retention incentives. In aggregate, the 2001 acquisitions
contributed $3.4 million of the $19.4 million year over year increase.

Amortization of Deferred Stock Compensation

Amortization of deferred stock compensation decreased $6.8 million, a decrease of 69%, from $9.9 million in 2000 compared to $3.1 million in
2001. The decrease in amortization was due to the accelerated amortization of deferred stock compensation in the prior year and credits applied from terminated employees in the current year. During
2001, options were granted at fair market value, with no additions to deferred stock compensation.

42

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Interest Income, net

Interest income increased $2.4 million from $4.1 million in 2000 to $6.5 million in 2001. The increase was due to the increase in investments
as a result of our January 2000 initial public offering and interest earned from our notes receivable.

Interest Expense, net

Interest expense was $0.2 million and $2.1 million in 2001 and 2000, respectively. This expense was principally due to amortization of the discount
ascribed to the warrants issued in conjunction with the 1999 bridge loan financing, which expired at the beginning of fiscal 2001.

Income Taxes

In 2001 and 2000, our U.S. subsidiary incurred net losses for United States federal and state income tax purposes; and we recorded a provision for income taxes of
$0.3 million and $0.1 million, respectively, related to current international income tax provided on the profits attributable to our foreign operations.

LIQUIDITY AND CAPITAL RESOURCES

2002

2001

2000(in thousands)Cash and cash equivalents

$
11,403

$
25,974

$
43,813Short-term investments


2,849


20,012


92,094Net cash used in operating activities


(28,811
)

(49,389
)

(21,779
)Net cash provided by (used in) investing activities


14,019


41,523


(97,325
)Net cash provided by (used in) financing activities


666


(10,046
)

158,979


Operating Activities.Net cash used in operating activities in 2002, 2001 and 2000 was primarily a result of
net operating losses. Net cash used in operating activities for 2002 was primarily attributable to net loss from operations, decreases in accounts payable and accrued expenses and other liabilities,
offset by non-cash depreciation and amortization and losses on asset impairments and sales, as well as decreases in inventory and trade receivables and increases in deferred revenue. For 2001, net
cash used in operating activities was primarily attributable to net loss from operations, increases in inventory and decreases in accounts payable, offset by non-cash depreciation and amortization and
losses on asset impairments and sales, as well as decreases in trade receivables and increases in accrued expenses and other current liabilities and deferred revenue. For 2000, net cash used in
operating activities were primarily attributable to net loss from operations and increases in trade receivables, offset by increases in accounts payable.

Investing Activities.For 2002, the primary source of cash in investing activities was the sale of short-term investments.
For 2001, our investing activities consisted primarily of the sale of short-term investments offset by cash used in acquisitions for $18.5 million (see Note 6 to the consolidated
financial statements). Other uses of cash in investing activities consisted of purchases of $8.2 million in capital equipment and intangible assets. We expect that capital expenditures will
decrease due to our continued cost-cutting efforts and conservation of cash resources. For 2000, the primary use of cash in investing activities were the purchases of
short-term investments and capital equipment.

Financing Activities.During 2002, we raised $2.5 million from the sale of shares and the exercise of warrants,
options and ESPPs. In 2001, the primary use of cash in financing activities were principal payments on notes payable net of receipts on our issuance of notes receivable to several of our customers. In
January 2000, we completed our initial public offering, which raised $116.3 million net of costs.

43

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Commitments.We lease all of our facilities under operating leases that expire at various dates through 2006. As of
June 30, 2002, we had $7.1 million in future operating lease commitments. In August 2002, we signed a new lease for 2,300 square feet of facility with Hong Kong Technology Centre.
We moved into the new office at the end of August 2002. The new lease expires in August 2004. In the future we expect to continue to finance the acquisition of computer and network
equipment through additional equipment financing arrangements.

As
of June 30, 2002, we have two capital leases with GE Capital. Aggregate future lease payments are $0.5 million, $0.5 million and $0.3 million for
fiscal years 2003, 2004 and 2005, respectively.

Summary of Liquidity.There can be no assurances as to whether our existing cash and cash equivalents plus short-term
investments will be sufficient to meet our liquidity requirements. We have had recurring net losses, including net losses of $64.3 million, $94.1 million and $28.4 million for the
years ended June 30, 2002, 2001 and 2000, respectively, and we have used cash in operations of $28.8 million, $49.4 million, and $21.8 million for the years ended
June 30, 2002, 2001 and 2000, respectively. Management is currently forming and attempting to execute plans to address these matters. These plans include achieving revenues and margins that
will sustain levels of spending, reducing levels of spending, raising additional amounts of cash through the issuance of debt, equity or through other means such as customer prepayments. If additional
funds are raised through the issuance of preferred equity or debt securities, these securities could have rights, preferences and privileges senior to holders of common stock, and the terms of any
debt could impose restrictions on our operations. The sale of additional equity or convertible debt securities could result in additional dilution to our stockholders, and we may not be able to obtain
additional financing on acceptable terms, if at all. If we are unable to successfully execute such plans, we may be required to reduce the scope of our planned operations, which could harm our
business, or we may even need to cease operations. In this regard, our independent auditor's report contains a paragraph expressing substantial doubt regarding our ability to continue as a going
concern. We cannot assure you that we will be successful in the execution of our plans.

SUBSEQUENT EVENTS

In late September 2002, we completed the purchase of substantially all of the assets of GBase Communications ("GBase"), a developer of CDMA 2000 base
station systems (BSS) and packet data
servicing nodes (PDSNs) for third generation (3G) markets under a license from Qualcomm, Inc ("Qualcomm").

Under
the asset purchase agreement, we acquired substantially all of GBase's assets and assumed $0.5 million in liabilities. The initial purchase consideration to the former GBase
shareholders is a maximum of 3.4 million common shares. Contingent consideration of 0.8 million common shares will be set aside in an escrow that will be issued only upon the
accomplishment of certain future milestones. If our closing share price at the end of each day during the last calendar quarter of 2003 is below $2 per share, we may be obligated to issue additional
contingent consideration in a combination of common shares and cash, such that the total consideration at that time equals $8.4 million based on a $2 per share price.

Also
in late September 2002, we amended our original equipment manufacturer agreement with UTStarcom, Inc. ("UTStarcom"). Additionally, UTStarcom acquired 5.8 million shares of
our common stock for a purchase price of $3.0 million. In return, we will provide certain network interface technical design services, and in the future produce product for UTStarcom that
includes the network interface for CDMA 2000. Under the agreement, we have deposited in escrow certain intellectual property as security in case of material breach, cessation of business or
liquidation.

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RISK FACTORS THAT MAY AFFECT FUTURE RESULTS

In addition to the information in this Annual Report on Form 10-K, the following risk factors should be considered in evaluating interWAVE and
our business.

Investing in our common shares involves a high degree of risk. If any of the following risks occur, the market price of our common shares could decline
and you could lose all or part of your investment.

We may require additional financing to fund operations in Fiscal 2003 and beyond and we cannot assure you that additional financing will be available.

There can be no assurance as to whether our existing cash and cash equivalents plus short-term investments will be sufficient to meet our liquidity requirements.
We have had recurring net losses, including net losses of $64.3 million, $94.1 million and $28.4 million for the years ended June 30, 2002, 2001 and 2000, respectively. We
have used net cash in operations of $28.8 million, $49.4 million, and $21.8 million for the years ended June 30, 2002, 2001 and 2000, respectively. Management is currently
forming and attempting to execute plans to address these matters. These plans include achieving revenues and margins that will sustain levels of spending, reducing levels of spending, raising
additional amounts of cash through the issuance of debt, equity or through other means such as customer prepayments. If additional funds are raised through the issuance of preferred equity or debt
securities, these securities could have rights, preferences and privileges senior to holders of common stock, and the terms of any debt could impose restrictions on our operations. The sale of
additional equity or convertible debt securities could result in additional dilution to our stockholders, and we may not be able to obtain additional financing on acceptable terms, if at all. If we
are unable to successfully execute such plans, we may be required to reduce the scope of our planned operations, which could harm our business, or we may even need to cease operations. In this regard,
our independent auditor's report contains a paragraph expressing substantial doubt regarding our ability to continue as a going concern. We cannot assure you that we will be successful in the
execution of our plans.

Because we have a limited operating history, we cannot be sure that we can successfully execute our business strategy.

We did not record revenue from our first product sale until May 1997. We have a limited history of generating significant revenues. Some of our products
are new products and some of our customers are testing our new products for incorporation into live networks. Therefore, you have limited historical financial data and operating results with which to
evaluate our business and our prospects. You must consider our prospects in light of the early stage of our business in a new and rapidly evolving market. Our limited operating history may make it
difficult for you to assess, based on historical information, whether we can successfully execute our business strategy. If we are unable to successfully execute our business strategy, we would likely
not achieve anticipated levels of revenue growth. In this event, we would be unable to achieve profitability or achieve cash-flow breakeven or build a sustainable business.

We have a history of losses, expect future losses and may never achieve or sustain profitability.

As of June 30, 2002, we had an accumulated deficit of $298.6 million. We incurred net losses of approximately $64.3 million,
$94.1 million and $28.4 million in the fiscal years ended June 30, 2002 and 2001 and 2000, respectively. We may continue to incur net losses and these losses may be substantial.
Furthermore, we expect to generate significant negative cash flow in the near future. We will need to generate substantially higher revenues to achieve and sustain profitability and positive cash
flow. Our ability to generate future revenues, generate cash flow and achieve profitability will depend on a number of factors, many of which are beyond our control. These factors include:



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Due
to these factors, as well as other factors described in this risk factors section, we may be unable to achieve or maintain profitability. If we are unable to achieve or maintain
profitability, or if we are unable to achieve cash-flow breakeven, we will be unable to build a sustainable business. In this event, our share price and the value of your investment would likely
decline.

Our quarterly operating results are likely to fluctuate significantly and may fail to meet the expectations of securities analysts and investors, which may cause our share
price to decline.

Our quarterly operating results have fluctuated significantly in the past and are likely to do so in the future. If our operating results do not meet the
expectations of securities analysts and investors, our share price is likely to decline. The many factors that could cause our quarterly results to fluctuate include:



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Due
to these and other factors, our results of operations could fluctuate substantially in the future, and quarterly comparisons may not be reliable indicators of future performance. In
addition, because many of our expenses for personnel, facilities and equipment are relatively fixed in nature, if revenues fail to meet our expectations, we may not be able to reduce expenses
correspondingly. As a result, we would experience greater than expected net losses and net cash outflow. If we experience greater than expected net losses and net cash outflow, our share price and the
value of your investment would likely decline.

Our stock price has been volatile since our initial public offering, which may make it more difficult for you to resell shares at prices you find attractive.

The trading price of our common stock has been and may continue to be subject to wide fluctuations. Our stock price may fluctuate in response to a number of
events and factors, such as quarterly variations in operating results, announcements of technological innovations or new products by us or
our competitors, changes in financial estimates and recommendations by securities analysts, the operating and stock price performance of other companies that investors may deem comparable, and news
reports relating to trends in our markets. The economic and political conditions for the world economy have been unfavorable. The market conditions for the stocks of telecommunications equipment
manufacturers have been unfavorable. In addition, the stock market has experienced extreme volatility, and a steep decline, with volatility that may be unrelated to the operating performance of
companies and a decline related to recession conditions in telecommunications markets. These broad market and industry fluctuations and conditions may adversely affect the price of our stock,
regardless of our operating performance. Additionally, volatility or a lack of positive performance in our stock price may adversely affect our ability to attract or retain key employees, many of whom
have been granted stock options.

Our stock may be subject to delisting from the NASDAQ National Market if the stock trades at less than one dollar per share for an extended period of time.

Our common stock may be subject to delisting from the NASDAQ National Market if the stock trades for less than one dollar per share for an extended time period of
time. Our stock has traded for less than one dollar recently and there can be no assurance that delisting may not occur. If our common stock is delisted from the NASDAQ National Market, the market for
our common stock may have less liquidity, there may be less trading volume, and the market price for our shares may be adversely affected.

We must manage our growth successfully, including the integration of recently-acquired companies, in order to achieve our desired results.

As a result of recent acquisitions and international expansion, many of our employees are based outside of our Menlo Park facility. If we are unable to
effectively manage our geographically dispersed group of employees, our business will be adversely affected.

As
part of our business strategy, we completed several acquisitions during the 2001 fiscal year and have recently completed our acquisition of substantially all of the assets of GBase
Communications. Acquisition transactions are accompanied by a number of risks, including:



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We
may not be successful in addressing these risks or any other problems encountered in connection with such acquisitions.

Historically we have relied on a small number of customers for most of our revenues, and a decrease in revenues from these customers could seriously harm our business. Some of
our customers have experienced a severe downturn in business.

A small number of customers have accounted for a significant portion of our revenues to date. Net revenues from significant customers as a percentage of our total
net revenues in the three most recent fiscal years were as follows:

Fiscal Years Ended June 30,2002

2001

2000Hutchison Telecommunications Group

25
%
20
%
21
%FSM Telecom

8



Eastern Communications Co., Ltd.

7



Campus Link



10

Nortel Networks



6

28HangZhou Topper Electric Corporation





11


We
expect that the majority of our revenues will continue to depend on sales to a small number of customers. If any key customers experience a downturn in their business or shift their
purchases to our competitors, our revenues and operating results would decline. Some of our key customers have experienced a severe downturn in their business. The telecommunications market in general
has suffered a severe downturn that has adversely affected our business.

We currently depend primarily on one contract manufacturer for all of our products, and plan to use only one contract manufacturer in the future.

We depend primarily on one contract manufacturer for most of our GSM products and for our broadband products. We do not have long-term supply
contracts with our contract manufacturer, and the manufacturer is not obligated to supply us with products for any specific period, in any specific quantity or at any specific price, except as may be
provided in a particular purchase order. None of our

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products are manufactured by more than one supplier. We do not expect this to change for the foreseeable future.

There
are risks associated with our dependence on one contract manufacturer, including the contract manufacturer's control of capacity allocation, labor relations, production quality and
other aspects of the manufacturing process. If we are unable to obtain our products from manufacturers on schedule, revenues from the sale of those products may be delayed or lost, and our reputation,
relationship with customers and our business could be harmed. In addition, in the event that a contract manufacturer must be replaced, the disruption to our business and the expense associated with
obtaining and qualifying a new contract manufacturer could be substantial. If problems with our contract manufacturer cause us to miss customer delivery schedules or result in unforeseen product
quality problems, we may lose customers. As a result, our revenues and our future growth prospects would likely decline.

In
December 2001 the relationship with our former GSM products contract manufacturer terminated. In January 2002 we signed an agreement with the contract manufacturer for
our broadband products to manufacture our GSM products.

Because some of our key components come from a single source, or require long lead times, we could experience unexpected interruptions, which could cause our operating results
to suffer.

A number of our suppliers are sole sources for key components. These key components are complex and difficult to manufacture and require long lead times. 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 other suppliers. Supply
interruptions could delay product shipments, causing our revenues and operating results to decline.

We do not typically have a significant sales backlog and therefore may incur expenses for excess inventory or be unable to meet customer requirements.

We do not have a significant backlog because our customers typically give us firm purchase orders with short lead times before requested shipment. However, our
contract manufacturer requires commitments from us so that it can allocate capacity and be assured of having adequate components and supplies from third parties. Failure to accurately estimate product
demand could cause us to incur expenses related to excess inventory or prohibit us from meeting customer requirements.

Our products are complex and may have errors or defects that are detected only after deployment in complex networks, which may harm our business.

Our products are highly complex and are designed to be deployed in complex networks. Although our products are tested during manufacturing and prior to
deployment, they can only be fully tested when deployed in networks with high-call volume. Consequently, our customers may discover errors after the products have been fully deployed. If
we are unable to fix errors or other problems that may be identified in full deployment, we could experience:



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In
addition, our products often are integrated with other network components. There may be incompatibilities between these components and our products that could significantly harm the
service provider or its subscribers. Product problems in the field could require us to incur costs or divert resources to remedy the problems and subject us to liability for damages caused by the
problems or delay in research and development projects because of the diversion of resources. These problems could also harm our reputation and competitive position in the industry.

We may experience difficulties in the introduction of new or enhanced products or 3G that could result in significant, unexpected expenses or delay their launch, which would
harm our business.

The development of new or enhanced products is a complex and uncertain process. We may experience design, manufacturing, marketing and other difficulties that
could delay or prevent our development, introduction or marketing of new products or product enhancements. We must also effectively manage the transition from old products to new or enhanced products.
We have acquired the assets of a 3G product development company, GBase Communications. We cannot assure you that we will be able to develop, introduce or manage this or any other new product or
product enhancements in a timely manner or at all. Failure to develop new products or product enhancements or 3G products in a timely manner would substantially decrease market acceptance and sales of
our products.

Failure to comply with regulations affecting the telecommunications industry could seriously harm our business and results of operations.

Our failure to comply with government regulations relating to the telecommunications industry in countries where our products are deployed and failure to comply
with any changes to those regulations could seriously harm our business and results of operations. We have not completed all activities necessary to comply with existing regulations and requirements
in some of the countries in which we intend to sell our products. Compliance with the regulations of numerous countries could be costly and require delays in deployments.

Our failure to comply with evolving industry standards could delay our introduction of new products.

An international consortium of standards bodies has established the specifications for the third generation ("3G") wireless standard, and is further working to
establish the specifications of a future wireless standard and its interoperability with existing standards. Any failure of our products to comply with 3G or future standards, including Qualcomm's
standards for CDMA, could delay their introduction and require costly and time consuming engineering changes. After a future standard is adopted, any delays in our introduction of next generation
products could impair our ability to grow revenues in the future. As a result, we may be unable to achieve or sustain profitability or positive cash flow.

Our market opportunity could be significantly diminished in the event that GSM or any subsequent GSM-based standards do not continue to be or are not widely adopted
or if CDMA 2000 is not widely adopted.

Our current GSM products are designed to utilize only GSM, an international standard for voice and data communications. There are other competing standards
including code division multiple access, or CDMA, and time division mutiple access, or TDMA. We have plans to offer CDMA 2000 products,

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beginning with 1XRTT products. In the event that GSM or any GSM-based standards do not continue to be or are not broadly adopted, or in the event that CDMA 2000 products are not
widely adopted, our market opportunity could be significantly limited, which would seriously harm our business. We have a long sales cycle, which could contribute to fluctuations in our results of
operations and share price.

Our
sales cycle is typically long and unpredictable, making it difficult to plan our business. The long sales cycle also requires us to invest resources in a possible transaction that
may not be recovered if we do not successfully conclude the transaction. Factors that affect the length of our sales cycle include:



In
addition, the emerging and evolving nature of the market for the systems we sell, and current economic conditions, may lead prospective customers to postpone their purchasing
decisions. Our long and unpredictable sales cycle can result in delayed revenues, difficulty in matching revenues with expenses and increased expenditures, which together may contribute to declines in
our results of operations and our share price.

Intense competition in the wireless market could prevent us from increasing or sustaining revenues or achieving or sustaining profitability.

The wireless market is rapidly evolving and highly competitive. We cannot assure you that we will have the financial resources, technical expertise or marketing,
manufacturing, distribution and support capabilities to compete successfully in the future. We expect that competition in each of our markets will increase in the future.

In
the community network market, we compete against wireless local loop networks, which are wireless communication systems that connect users to the public telephone network using radio
signals as a substitute for traditional telephone connections. In the wireless office network market, the primary competing standard for our systems is the digital European cordless telephone standard
known as DECT.

We
currently compete against communications equipment providers such as Nortel, Alcatel, Ericsson, Lucent, Motorola, Nokia and Siemens in the GSM, CDMA, TDMA, DECT and wireless local
loop markets. All of the major communications equipment providers have broad product lines that include at least partial solutions that address our target markets.

The
broadband wireless access market is rapidly evolving and highly competitive. We believe that our broadband business is affected by the following competitive factors:



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In
addition, we are seeking to sell our products in emerging markets, many of which have less reliable traditional telephone infrastructures than developed countries. If these countries
improve the reliability and service of their traditional telephone networks, the demand for our products in these markets could be harmed and our future revenue growth could decline. The existing poor
quality of the PSTN in these markets may affect the perceived performance of our products and adversely affect our business.

Many
of our competitors and potential competitors have substantially greater name recognition and greater technical, financial and sales and marketing resources than we have. Such
competitors may undertake more extensive marketing campaigns, adopt more aggressive pricing policies and devote substantially more resources to developing new products than we can. Trends toward
increased consolidation in the telecommunications industry may increase the size and resources of some of our current competitors and could affect some of our current relationships. Pricing trends in
the telecommunications markets and intense pricing pressure may cause our competitors to cut prices to very low price points in an effort to win business.

Increased
competition is likely to result in price reductions, shorter product life cycles, reduced gross margins, longer sales cycles and loss of market share, any of which would
seriously harm our business. We cannot assure you that we will be able to compete successfully against current or future competitors. Competitive pressures we face may cause our revenues, prices, or
growth to decline and may therefore seriously harm our business and results of operations.

If we are unable to manage our global operations effectively, our business would be seriously harmed.

Substantially all of our GSM revenue to date has been derived from systems intended for installation outside of the United States. In addition to the regulatory
issues discussed previously, our operations are subject to the following risks and uncertainties:



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We are selling products to companies in the Peoples Republic of China. Future sales in China will be subject to economic and political risks.

For the year ended June 30, 2002, our PRC customers accounted for 16% of our accounts receivable. In March 2002, we signed an OEM Cooperation
Agreement with Eastern Communications Company Limited ("Eastcom"), a major wireless equipment manufacturer in Hangzhou, China. Eastcom is our largest shareholder. The agreement provides that we will
transfer the manufacturing of some of our GSM products to Eastcom and cooperate in the development of product enhancements. Sales in China pose significant additional risks, which include:



In
the event our revenue levels from sales to China increase, we will become increasingly subject to these risks. Our agreement with Eastcom provides a $25 million purchase
commitment through March 2003. The occurrence of any of these risks would harm our revenues or cash collections from
China and could in turn cause our revenue, cash flow, or growth to decline and harm our business and results of operations.

If we fail to improve our operational systems and controls to manage future growth, our business could be seriously harmed.

We plan to continue to expand our operations significantly to pursue existing and potential market opportunities including the market for 3G products. This growth
and new technology places significant demands on our management and our operational resources. In order to manage growth effectively, we must implement and improve our operational systems, procedures
and controls on a timely basis. We must strictly control costs and manage our business to achieve cash-flow breakeven, to achieve our goals while pursuing market opportunities.

If we are unable to hire or retain key personnel, we might not be able to operate our business successfully.

Our business is highly dependent on our ability to attract, retain and motivate qualified technical and management personnel. Competition is intense for qualified
personnel in our industry and in Northern California, where most of our engineering personnel are located, and we may not be successful in attracting and retaining these personnel. We do not have
non-compete agreements with most of our key employees. We currently do not maintain key person life insurance on any of our key executives. Our success also depends upon the continuing
contributions of our key management and our research, product development, sales and marketing and manufacturing personnel. Many of these key employees would be difficult to replace.

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Our intellectual property and proprietary rights may be insufficient to protect our competitive position.

We cannot assure you that the protection offered by our U.S. patents will be sufficient or that any of our pending U.S. or foreign patent applications will result
in the issuance of patents. In addition, competitors in the United States and other countries, many of whom have substantially greater resources, may apply for and obtain patents that will prevent or
interfere with our ability to make and sell our products in the U.S. and/or abroad. We have 24 issued and 28 pending U.S. patents. We have filed many of these patents internationally, so that we have
a total of 43 issued and 75 patents pending worldwide. Unauthorized parties may attempt to design around our patents, copy or otherwise obtain and use our products. We cannot be certain that the steps
we have taken will prevent unauthorized use of our technology, particularly in countries where the laws may not protect our proprietary rights as
fully as in the United States. Failure to protect our proprietary rights could harm our competitive position and therefore cause our revenues and operating results to decline.

We
may from time to time become a party to various legal proceedings arising in the ordinary course of our business.

Claims that we infringe third-party intellectual property rights could result in significant expenses and 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 that are important to our
business. Any claims could result in costly litigation, divert the efforts of our technical and management personnel, cause product shipment delays, require us to enter into royalty or licensing
agreements or prevent us from making or selling certain products. Any of these could seriously harm our operating results. Royalty or licensing agreements, if available, may not be available on
commercially reasonable terms, if at all. In addition, in some of 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. Costs associated with these indemnification obligations could be significant and could cause our operating results and stock price to decline.

We may not be able to license necessary third-party technology or it may be expensive to do so.

From time to time, we may be required to license technology from third parties to develop new products or product enhancements. We have licensed software for use
in our products from Qualcomm, Inc., Lucent Technologies, TCSI Inc., Trillium Digital Systems Inc., and Wind River Associates. We cannot assure you that third-party licenses will
be available to us on commercially reasonable terms, if at all. The inability to obtain any third-party license required to develop new products and product enhancements could require us to obtain
substitute technology of lower quality or performance standards or at greater cost which could seriously harm our competitive position, revenues and growth prospects.

There
are a number of general GSM patents held by different companies, which may impact our GSM technology. There are a number of CDMA patents held by other companies. If any of our
products infringe on any of these patents and we are unable to negotiate license agreements, then we may be required to redesign a portion of our product line.

We may be unable to meet our future capital requirements or cash requirements, which would limit our ability to grow and compete effectively, resulting in substantial harm to
our business and results of operations.

We may require additional funding, which may not be available on terms which are favorable to us, or may not be available at all. Currently, we have a
$5 million credit facility with Wells Fargo Bank and

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two credit facilities amounting to $2 million for our subsidiary in Europe with Royal Bank of Scotland. If we issue equity securities, existing shareholders may experience dilution or the new
equity securities may have rights, preferences and privileges senior to those of existing shareholders. If additional funds are raised through the issuance of debt securities, such securities may have
rights, preferences and privileges senior to holders of common shares. If we cannot raise funds on terms favorable to us, or raise funds at all, we may not be able to develop or enhance our products,
take advantage of future opportunities or respond to competitive pressures or unanticipated requirements. See "Use of Proceeds," and "Management's Discussion and Analysis of Financial Condition and
Results of OperationsLiquidity and Capital Resources" for more information on our capital requirements and requirements for liquidity.

We may have increased losses if our subtenants do not pay us the rent for the subleases for office space we are obligated to rent. Our subtenants have stopped paying us and
have vacated the premises.

We subleased office space in Redwood City, California to subtentants. Our subtenants have not paid us the rent since October 2001. Since we have not
received rent from these subtenants, we have collected some of the unpaid rent from the security deposits for the subleases. However, the security deposits did not fully secure the rent for the
remainder of the terms of the subleases. It is likely that we will be unable to collect the rent from these subtenants, whose businesses have failed. If we are unable to find new subtenants, then we
may have unoccupied office space for which we are obligated to pay rent of approximately $54 thousand per month until September 2002.

Control by our existing shareholders could discourage the potential acquisition of our business.

As of June 30, 2002, our executive officers, directors and 5% or greater shareholders and their affiliates owned 13.7 million shares or
approximately 23.7% of our outstanding common shares. Acting together, these shareholders would be able to control all matters requiring approval by shareholders, including the election of directors.
This concentration of ownership could have the effect of delaying or preventing a change in control of our business or otherwise discouraging a potential acquirer from attempting to obtain control of
us, which could prevent our shareholders from realizing a premium over the market price for their common shares.

Our by-laws may discourage potential acquisitions of our business.

Some of our by-laws and Bermuda law may discourage, delay or prevent a merger or acquisition that shareholders may consider favorable. This may reduce
the market price of our common shares. A summary of these provisions is included in "Description of Share CapitalAntitakeover Effects of Some Provisions of Memorandum of Association and
By-laws."

Our by-laws provide for waiver of claims by shareholders and indemnify directors and officers.

Our by-laws provide for a broad indemnification of actions of directors and officers. Under the by-laws, the shareholders agree to waive
claims against directors and officers for their actions in the performance of their duties, except for acts of fraud or dishonesty. These waivers will not apply to claims arising under the United
States federal securities laws and will not apply to the extent that they conflict with provisions of the laws of Bermuda or with the fiduciary duties of our directors and officers.

Our operations based in Bermuda may be subject to United States taxation, which could significantly harm our business and operating results.

Except for our United States subsidiaries, we do not consider ourselves to be engaged in a trade or business in the United States. Our United States subsidiaries
are subject to United States taxation on

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their worldwide income, and dividends from our United States subsidiary are subject to United States withholding tax. We and our non-U.S. subsidiaries would, however, be subject to United
States federal income tax on income related to the conduct of a trade or business in the U.S. If we were determined to be subject to United States taxation, our financial results would be
significantly harmed. We cannot assure you that the Internal Revenue Service will not contend that our Bermuda-based operations are engaged in a United States trade or business and, therefore, are
subject to United States income taxation. See "Taxation" for more information on the tax consequences of operating outside the United States.

A substantial number of our common shares are available for sale in the public market simultaneously, which could cause the market price of our shares to decline.

Sales of substantial amounts of our common shares in the public market or the awareness that a large number of shares is available for sale could cause the market
price of our common shares to decline. The shareholders of Wireless, Inc. acquired shares in our company that are no longer subject to any
lock-up agreement. Sales of our common shares held by existing shareholders could cause the market price of our shares to decline.

Because we do not intend to pay any cash dividends on our common shares, holders of our common shares will not be able to receive a return on their shares unless they sell
them.

We have never paid or declared any cash dividends on our common shares or other securities and intend to retain any future earnings to finance the development and
expansion of our business. We do not anticipate paying any cash dividends on our common shares in the foreseeable future. Unless we pay dividends, our shareholders will not be able to receive a return
on their shares unless they sell them.

Our operations could be significantly hindered by the occurrence of a natural disaster or other catastrophic event.

Our manufacturing operations are susceptible to outages due to fire, floods, power loss, telecommunications failures, break-ins and similar events. In
addition, the majority of our network infrastructure is located in Northern California, an area susceptible to earthquakes. Earlier in 2001, the western United States (and California in particular)
experienced repeated episodes of diminished electrical power supply. As a result of these episodes, certain of our manufacturing operations or facilities may be subject to "rolling blackouts" or other
unscheduled interruptions of electrical power. The prospect of such unscheduled interruptions may continue for the foreseeable future and we are unable to predict their occurrence, duration or
cessation. We do not have multiple site manufacturing capacity for all of our products in the event of any such occurrence. Despite our implementation of network security measures, our servers are
vulnerable to computer viruses, break-ins, and similar disruptions from unauthorized tampering with our computer systems. In addition, we are vulnerable to coordinated attempts to overload
our systems with data, resulting in denial or reduction of service to some or all of our employees for a period of time. Any such event could have a material adverse effect on our business, operating
results, and financial condition.

We have extended credit to many of our customers. A downturn in the business of telecommunications companies may make it difficult or impossible to collect some of the credit
that has been extended.

We sell our products on credit terms to many of our customers. If the business of telecommunications companies declines, it may be difficult or impossible to
collect some of the credit extended. We have in the past increased substantially our allowance for uncollectible accounts. The business of telecommunications companies has declined.

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Terrorist acts and acts of declared or undeclared war may seriously harm our business and revenues, costs and expenses and financial condition.

Terrorist acts or acts of declared or undeclared war may cause damage or disruption to interWAVE, our employees, facilities, partners, suppliers, distributors, or
customers, which could significantly impact our revenues, costs, expenses, cash flow and financial condition. The terrorist attacks that took place in the United States on September 11, 2001
were unprecedented events that have created many economic and political uncertainties, some of which may materially harm our business and results of operations. The United States and other members of
the United Nations have acted in response to these terrorist attacks. The long-term effects on our business of the September 11, 2001 attacks are unknown. The potential for future
terrorist attacks, the national and international responses to terrorist attacks, and other acts of declared or undeclared war or hostility have created many economic and political uncertainties,
which could adversely affect our business and results of operations in ways that cannot presently be predicted. Additionally, we are predominantly uninsured for losses and interruptions caused by
terrorist acts and acts of declared or undeclared war.

We have recorded impairment losses in the past and any future impairment of long-lived assets could have a material adverse impact on our financial conditions and
results of operations

Our long-lived assets include goodwill and other intangible assets as a result of our purchasing of assets or businesses. During fiscal 2002, we
evaluated the recoverability of our goodwill and other intangible assets in accordance with Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of," which generally required us to assess these assets for recoverability when events or circumstances indicate a
potential impairment by estimating the undiscounted cash flows to be generated from the use of these assets or by determining the current market value of such assets. Accordingly, we recorded losses
on asset impairments and sales in the amount of $19.6 million during fiscal 2002. The Company evaluates the recoverability of long lived assets when events or circumstances indicate a possible
impairment or at least annually. Recoverability of long lived assets is discussed in our Recent Accounting Pronouncements Section under Item 7 of Management's Discussion and Analysis regarding the
adoption of SFAS No. 142. Any further impairment losses recorded in the future caused by the continuing deterioration of the industry we operate in could have a material adverse impact on our
financial condition and results of operations.

Item 7A. Qualitative and Quantitative Disclosures About Market Risks

Foreign Exchange

Our financial market risk includes risks associated with international operations and related foreign currencies. We anticipate that international sales will
continue to account for a significant portion of our consolidated revenue. Our international sales are in U.S. dollars and therefore are not subject to foreign currency exchange risk. Expenses of our
international operations are denominated in each country's local currency and therefore are subject to foreign currency exchange risk. Through June 30, 2002, we have not experienced any
significant negative impact on our operations as a result of fluctuations in foreign currency exchange rates. We do not engage in any hedging activity in connection with our international business or
foreign currency risk.

Interest Rates

We invest our cash in financial instruments, including commercial paper, and repurchase agreements, and in money market funds. These investments are denominated
in U.S. dollars. Cash balances in foreign currencies overseas are operating balances and are only invested in short term deposits of the local operating bank.

57

---

Our
exposure to market risk for changes in interest rates relates primarily to our investment portfolio and outstanding debt obligations. We do not use derivative financial instruments
for speculative or trading purposes. Our investments consist primarily of highly liquid debt instruments that are of high-quality investment grade and mature in one year or less, as
specified in our investment policy. The policy also limits the amount of credit exposure to any one issue, issuer and type of instrument. Due to the short-term nature of our investments
and the short-term and variable interest rate features of our indebtedness, we believe that there is no material market or interest rate risk exposure.

Customer Financing

The telecommunications industry is very capital intensive. Wireless service providers are being forced to use their own financial resources in order to acquire
cellular spectrum from national governments. As a result, they often look to their network equipment suppliers for vendor financing. In order to maintain a competitive edge, suppliers are often forced
to offer extended payment terms, and, on occasion, lines of credit that cover not only equipment financing needs but also working capital needs of the wireless service providers. This may have an
impact on our arrangements with customers as it relates to payment terms on shipments.

58

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interWAVE COMMUNICATIONS INTERNATIONAL, LTD.  INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

|                                                                                                                        |  | Page
|----------------------------------------------------------------------------------------------------------------------- |  | ----
|Independent Auditors' Report                                                                                            |  | 60  
|Consolidated Balance Sheet as of June 30, 2002 and 2001                                                                 |  | 61  
|Consolidated Statement of Operations for the years ended June 30, 2002, 2001 and 2000                                   |  | 62  
|Consolidated Statements of Shareholders' Equity and Comprehensive loss for the years ended June 30, 2002, 2001 and 2000 |  | 63  
|Consolidated Statement of Cash Flows for the years ended June 30, 2002, 2001 and 2000                                   |  | 66  
|Notes to Consolidated Financial Statements                                                                              |  | 67  

59

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Independent Auditors' Report

The
Board of Directors and Shareholders
interWAVE Communications International, Ltd.:

We
have audited the accompanying consolidated balance sheets of interWAVE Communications International, Ltd. and subsidiaries (the "Company") as of June 30, 2002 and 2001,
and the related consolidated statements of operations, shareholders' equity and comprehensive loss, and cash flows for each of the years in the three-year period ended June 30,
2002. In connection with our audits of the consolidated financial statements, we have also audited the related financial statement schedule listed in Item 15(a)(2). These consolidated financial
statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial
statement schedule based on our audits.

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

In
our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of interWAVE Communications
International, Ltd. and subsidiaries as of June 30, 2002 and 2001, and the results of their operations and their cash flows for each of the years in the three-year period
ended June 30, 2002, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the related financial statement schedule, when considered
in relation to the consolidated financial statements taken as a whole, presents fairly, in all material respects the information set forth therein.

The
accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1(b) to the consolidated
financial statements, the Company incurred recurring losses and negative cash flows from operations that raise substantial doubt about its ability to continue as a going concern. Management's plans in
regards to these matters are also described in Note 1(b). The consolidated financial statements and related financial statement schedule do not include any adjustments that might result from
the outcome of this uncertainty.

| |  | /s/ KPMG LLP
| |  | ------------

Mountain
View, California
September 27, 2002

60

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interWAVE COMMUNICATIONS INTERNATIONAL, LTD. AND SUBSIDIARIES        Consolidated Balance Sheets        (In thousands, except share data)

|                                             |                                                                                                                                                                 | June 30, |                                           
|-------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------- | ------------------------------------------
|
|Assets                                       |                                                                                                                                                                 |          |                                           
|Current assets:                              |                                                                                                                                                                 |          |                                           
|                                             | Cash and cash equivalents                                                                                                                                       |          | $                                         
|                                             | Short-term investments                                                                                                                                          |          |                                           
|                                             | Restricted cash, short term portion                                                                                                                             |          |                                           
|                                             | Trade receivables, net of allowance of $5,422 and $9,157 at June 30, 2002 and 2001, respectively                                                                |          |                                           
|                                             | Trade receivables from related parties (Note 13)                                                                                                                |          |                                           
|                                             | Inventories, net                                                                                                                                                |          |                                           
|                                             | Prepaid expenses and other current assets                                                                                                                       |          |                                           
|                                             |                                                                                                                                                                 |          |                                           
|                                             |                                                                                                                                                                 |          | Total current assets                      
|Restricted cash, long term portion           |                                                                                                                                                                 |          | 684                                       
|Property and equipment, net                  |                                                                                                                                                                 |          | 6,999                                     
|Intangibles, net                             |                                                                                                                                                                 |          | 1,660                                     
|Other assets                                 |                                                                                                                                                                 |          | 394                                       
|                                             |                                                                                                                                                                 |          |                                           
|                                             |                                                                                                                                                                 |          | Total assets                              
|                                             |                                                                                                                                                                 |          |                                           
|Liabilities and Shareholders' Equity         |                                                                                                                                                                 |          |                                           
|Current liabilities:                         |                                                                                                                                                                 |          |                                           
|                                             | Accounts payable                                                                                                                                                |          | $                                         
|                                             | Accrued expenses and other current liabilities                                                                                                                  |          |                                           
|                                             | Notes payable, short term portion                                                                                                                               |          |                                           
|                                             | Capital lease obligations, short term portion                                                                                                                   |          |                                           
|                                             | Deferred revenue                                                                                                                                                |          |                                           
|                                             | Deferred revenue from related parties (Note 13)                                                                                                                 |          |                                           
|                                             | Income taxes payable                                                                                                                                            |          |                                           
|                                             |                                                                                                                                                                 |          |                                           
|                                             |                                                                                                                                                                 |          | Total current liabilities                 
|Notes payable, long term portion             |                                                                                                                                                                 |          | 176                                       
|Capital lease obligations, long term portion |                                                                                                                                                                 |          | 792                                       
|Other long-term liabilities                  |                                                                                                                                                                 |          | 1,534                                     
|                                             |                                                                                                                                                                 |          |                                           
|                                             |                                                                                                                                                                 |          | Total liabilities                         
|                                             |                                                                                                                                                                 |          |                                           
|Commitments and contingencies (Note 14)      |                                                                                                                                                                 |          |                                           
|Shareholders' equity:                        |                                                                                                                                                                 |          |                                           
|                                             | Convertible preferred shares, $0.83 par value; 56,500,000 shares authorized; no shares issued and outstanding at June 30, 2002 and 2001                         |          |                                           
|                                             | Common shares, $0.001 par value; 100,000,000 shares authorized; 58,119,352 and 55,528,709 shares issued and outstanding at June 30, 2002 and 2001, respectively |          |                                           
|                                             | Additional paid-in capital                                                                                                                                      |          |                                           
|                                             | Deferred stock compensation                                                                                                                                     |          |                                           
|                                             | Receivable from shareholders                                                                                                                                    |          |                                           
|                                             | Accumulated other comprehensive income (loss)                                                                                                                   |          |                                           
|                                             | Accumulated deficit                                                                                                                                             |          |                                           
|                                             |                                                                                                                                                                 |          |                                           
|                                             |                                                                                                                                                                 |          | Total shareholders' equity                
|                                             |                                                                                                                                                                 |          |                                           
|                                             |                                                                                                                                                                 |          | Total liabilities and shareholders' equity
|                                             |                                                                                                                                                                 |          |                                           

See
accompanying notes to consolidated financial statements.

61

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interWAVE COMMUNICATIONS INTERNATIONAL, LTD. AND SUBSIDIARIES        Consolidated Statements of Operations        (In thousands, except per share data)

|                                                                     |                                              | Fiscal Years Ended June 30,                        |                                                                           
|-------------------------------------------------------------------- | -------------------------------------------- | -------------------------------------------------- | --------------------------------------------------------------------------
|
|Net revenues                                                         |                                              | $                                                  | 29,177                                                                    
|Net revenues from related parties (Note 13)                          |                                              |                                                    | 13,778                                                                    
|                                                                     |                                              |                                                    |                                                                           
|                                                                     | Total revenues                               |                                                    |                                                                           
|Cost of revenues                                                     |                                              |                                                    | 41,607                                                                    
|                                                                     |                                              |                                                    |                                                                           
|                                                                     | Gross profit                                 |                                                    |                                                                           
|                                                                     |                                              |                                                    |                                                                           
|Operating expenses:                                                  |                                              |                                                    |                                                                           
|                                                                     | Research and development                     |                                                    |                                                                           
|                                                                     | Selling, general and administrative          |                                                    |                                                                           
|                                                                     | Amortization of deferred stock compensation* |                                                    |                                                                           
|                                                                     | Amortization of intangible assets            |                                                    |                                                                           
|                                                                     | In-process research and development          |                                                    |                                                                           
|                                                                     | Losses on asset impairments and sales        |                                                    |                                                                           
|                                                                     | Restructuring charges (credit)               |                                                    |                                                                           
|                                                                     |                                              |                                                    |                                                                           
|                                                                     |                                              | Total operating expenses                           |                                                                           
|                                                                     |                                              |                                                    |                                                                           
|                                                                     |                                              | Operating loss                                     |                                                                           
|Interest income, net                                                 |                                              |                                                    | 1,373                                                                     
|Interest expense, net                                                |                                              |                                                    | (317                                                                      
|Other expense, net                                                   |                                              |                                                    | (436                                                                      
|                                                                     |                                              |                                                    |                                                                           
|                                                                     |                                              | Net loss before income taxes                       |                                                                           
|Income tax expense                                                   |                                              |                                                    | 209                                                                       
|                                                                     |                                              |                                                    |                                                                           
|                                                                     |                                              | Net loss                                           |                                                                           
|Dividend effect of beneficial conversion feature to H-1 shareholders |                                              |                                                    |                                                                          
|                                                                     |                                              |                                                    |                                                                           
|                                                                     |                                              | Net loss attributable to common shares outstanding |                                                                           
|                                                                     |                                              |                                                    |                                                                           
|Basic and diluted net loss per share                                 |                                              | $                                                  | (1.15                                                                     
|                                                                     |                                              |                                                    |                                                                           
|Shares used in computing basic and diluted net loss per share        |                                              |                                                    | 55,833                                                                    
|                                                                     |                                              |                                                    |                                                                           
|                                                                     |                                              |                                                    | *Amortization of deferred stock compensation can be classified as follows:
|                                                                     |                                              |                                                    |                                                                           
|                                                                     |                                              |                                                    |                                                                           
|                                                                     |                                              |                                                    |                                                                           
|                                                                     |                                              |                                                    |                                                                           
|                                                                     |                                              |                                                    |                                                                           
|                                                                     |                                              |                                                    |                                                                           

See
accompanying notes to consolidated financial statements.

62

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interWAVE COMMUNICATIONS INTERNATIONAL, LTD. AND SUBSIDIARIES
Consolidated Statements of Shareholders' Equity and Comprehensive Loss (In thousands, except share data)
Fiscal Years ended June 30, 2000, 2001 and 2002

|                                                                                            |  | Convertible Preferred Shares |   |   |         |   |            |  |   |    |  |   |         |  |   |        |   |   |        |   |   |         |  
|------------------------------------------------------------------------------------------- |  | ---------------------------- | - | - | ------- | - | ---------- |  | - | -- |  | - | ------- |  | - | ------ | - | - | ------ | - | - | ------- | -
|
|
|
|Balance as of June 30, 1999                                                                 |  | 20,177,168                   |   | $ | 16,747  |   | 5,071,921  |  | $ | 5  |  | $ | 109,712 |  | $ | (2,071 | ) | $ | (2,284 | ) | $ | (3,717  | )
|Conversion of the bridge financing to Series H1 preferred shares and warrants               |  | 1,872,362                    |   |   | 1,555   |   |           |  |   |   |  |   | 9,291   |  |   |       |   |   |       |   |   |        |  
|Issuance of Series H1, less issuance cost of $766                                           |  | 1,430,000                    |   |   | 1,186   |   |           |  |   |   |  |   | 10,113  |  |   |       |   |   |       |   |   |        |  
|Issuance of Series I1, less issuance cost of $46                                            |  | 3,526,663                    |   |   | 2,927   |   |           |  |   |   |  |   | 25,240  |  |   |       |   |   |       |   |   |        |  
|Cash received from issuance of preferred shares                                             |  |                             |   |   |        |   |           |  |   |   |  |   |        |  |   |       |   |   | 2,000  |   |   |        |  
|Issuance of common shares pursuant to initial public offering less issuance cost of $10,784 |  |                             |   |   |        |   | 9,775,000  |  |   | 10 |  |   | 116,281 |  |   |       |   |   |       |   |   |        |  
|Conversion of preferred shares to common shares                                             |  | (27,006,193                  | ) |   | (22,415 | ) | 27,006,193 |  |   | 27 |  |   | 22,388  |  |   |       |   |   |       |   |   |        |  
|Net exercise of warrants in connection with preferred shares                                |  |                             |   |   |        |   | 2,816,738  |  |   | 3  |  |   | 1,449   |  |   |       |   |   |       |   |   |        |  
|Exchange of warrants in connection with joint sales agreement                               |  |                             |   |   |        |   |           |  |   |   |  |   | 4,121   |  |   | (3,646 | ) |   |       |   |   |        |  
|Performance of services                                                                     |  |                             |   |   |        |   |           |  |   |   |  |   |        |  |   | 1,333  |   |   |       |   |   |        |  
|Exercise of stock options                                                                   |  |                             |   |   |        |   | 2,038,153  |  |   | 2  |  |   | 1,912   |  |   |       |   |   | (132   | ) |   |        |  
|Stock-based compensation to non-employees                                                   |  |                             |   |   |        |   |           |  |   |   |  |   | 391     |  |   |       |   |   |       |   |   |        |  
|Issuance of common shares for Employee Stock Purchase Plan                                  |  |                             |   |   |        |   | 40,960     |  |   |   |  |   | 453     |  |   |       |   |   |       |   |   |        |  
|Deferred stock compensation related to stock option grants                                  |  |                             |   |   |        |   |           |  |   |   |  |   | 12,413  |  |   |       |   |   |       |   |   | (12,413 | )
|Amortization of deferred stock compensation                                                 |  |                             |   |   |        |   |           |  |   |   |  |   |        |  |   |       |   |   |       |   |   | 9,891   |  
|Comprehensive loss:                                                                         |  |                              |   |   |         |   |            |  |   |    |  |   |         |  |   |        |   |   |        |   |   |         |  
|Net loss                                                                                    |  |                             |   |   |        |   |           |  |   |   |  |   |        |  |   |       |   |   |       |   |   |        |  
|Unrealized loss on investments                                                              |  |                             |   |   |        |   |           |  |   |   |  |   |        |  |   |       |   |   |       |   |   |        |  
|Foreign currency translation adjustment                                                     |  |                             |   |   |        |   |           |  |   |   |  |   |        |  |   |       |   |   |       |   |   |        |  
|                                                                                            |  |                              |   |   |         |   |            |  |   |    |  |   |         |  |   |        |   |   |        |   |   |         |  
|Total comprehensive loss                                                                    |  |                              |   |   |         |   |            |  |   |    |  |   |         |  |   |        |   |   |        |   |   |         |  
|                                                                                            |  |                              |   |   |         |   |            |  |   |    |  |   |         |  |   |        |   |   |        |   |   |         |  
|Balances as of June 30, 2000                                                                |  |                             |   | $ |        |   | 46,748,965 |  | $ | 47 |  | $ | 313,764 |  | $ | (4,384 | ) | $ | (416   | ) | $ | (6,239  | )

See accompanying notes to consolidated financial statements.

63

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interWAVE COMMUNICATIONS INTERNATIONAL, LTD. AND SUBSIDIARIES
Consolidated Statements of Shareholders' Equity and Comprehensive Loss (In thousands, except share data) (Continued)
Fiscal Years ended June 30, 2000, 2001 and 2002

|                                                                               |  | Convertible Preferred Shares |  |   |  |            |  |   |    |  |   |         |   |   |       |  |   |      |   |   |        |   |  
|------------------------------------------------------------------------------ |  | ---------------------------- |  | - |  | ---------- |  | - | -- |  | - | ------- | - | - | ----- |  | - | ---- | - | - | ------ | - | -
|
|
|
|Issuance of common shares for acquisition of Microcellular Systems             |  |                             |  |  |  | 555,541    |  | $ | 1  |  | $ | 7,264   |   |   |      |  |   |     |   |   |       |   |  
|Issuance of common shares for acquisition of Wireless, Inc.                    |  |                             |  |  |  | 6,418,940  |  |   | 6  |  |   | 7,883   |   |   |      |  |   |     |   |   |       |   |  
|Exercise of warrants in connection with H1 preferred stock                     |  |                             |  |  |  | 997,469    |  |   | 1  |  |   | 39      |   |   |      |  |   |     |   |   |       |   |  
|Assumption of Microcellular Systems's unvested options                         |  |                             |  |  |  |           |  |   |   |  |   | 363     |   |   |      |  |   |     |   |   | (153   | ) |  
|Assumption of Wireless Inc.'s warrants                                         |  |                             |  |  |  |           |  |   |   |  |   | 33      |   |   |      |  |   |     |   |   |       |   |  
|Write-off of services receivable from shareholders and performance of services |  |                             |  |  |  |           |  |   |   |  |   |        |   |   | 4,384 |  |   |     |   |   |       |   |  
|Stock-based compensation to non-employees                                      |  |                             |  |  |  |           |  |   |   |  |   | 137     |   |   |      |  |   |     |   |   |       |   |  
|Exercise of stock options                                                      |  |                             |  |  |  | 348,805    |  |   |   |  |   | 680     |   |   |      |  |   |     |   |   |       |   |  
|Issuance of common shares for Employee Stock Purchase Plan                     |  |                             |  |  |  | 458,989    |  |   | 1  |  |   | 678     |   |   |      |  |   |     |   |   |       |   |  
|Reversal of deferred stock compensation upon termination                       |  |                             |  |  |  |           |  |   |   |  |   | (1,033  | ) |   |      |  |   |     |   |   | 1,033  |   |  
|Amortization of deferred stock compensation                                    |  |                             |  |  |  |           |  |   |   |  |   |        |   |   |      |  |   |     |   |   | 3,054  |   |  
|Other                                                                          |  |                             |  |  |  |           |  |   |   |  |   | (152    | ) |   |      |  |   | (28  | ) |   |       |   |  
|Comprehensive loss:                                                            |  |                              |  |   |  |            |  |   |    |  |   |         |   |   |       |  |   |      |   |   |        |   |  
|Net loss                                                                       |  |                             |  |  |  |           |  |   |   |  |   |        |   |   |      |  |   |     |   |   |       |   |  
|Unrealized gain on investments                                                 |  |                             |  |  |  |           |  |   |   |  |   |        |   |   |      |  |   |     |   |   |       |   |  
|Foreign currency translation adjustment                                        |  |                             |  |  |  |           |  |   |   |  |   |        |   |   |      |  |   |     |   |   |       |   |  
|                                                                               |  |                              |  |   |  |            |  |   |    |  |   |         |   |   |       |  |   |      |   |   |        |   |  
|Total comprehensive loss                                                       |  |                             |  |  |  |           |  |   |   |  |   |        |   |   |      |  |   |     |   |   |       |   |  
|                                                                               |  |                              |  |   |  |            |  |   |    |  |   |         |   |   |       |  |   |      |   |   |        |   |  
|Balances as of June 30, 2001                                                   |  |                             |  |  |  | 55,528,709 |  | $ | 56 |  | $ | 329,656 |   | $ |      |  | $ | (444 | ) | $ | (2,305 | ) | $

See accompanying notes to consolidated financial statements.

64

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interWAVE COMMUNICATIONS INTERNATIONAL, LTD. AND SUBSIDIARIES
Consolidated Statements of Shareholders' Equity and Comprehensive Loss (In thousands, except share data) (Continued)
Fiscal Years ended June 30, 2000, 2001 and 2002

|                                                                                      |  | Convertible Preferred Shares |  |   |  |            |   |   |    |  |   |         |   |   |   |  |   |      |   |   |       |   |  
|------------------------------------------------------------------------------------- |  | ---------------------------- |  | - |  | ---------- | - | - | -- |  | - | ------- | - | - | - |  | - | ---- | - | - | ----- | - | -
|
|
|
|Issuance of common shares                                                             |  |                             |  |  |  | 2,229,765  |   | $ | 2  |  | $ | 1,956   |   |   |  |  |   |     |   |   |      |   |  
|Repurchase of common shares                                                           |  |                             |  |  |  | (469,000   | ) |   |   |  |   | (481    | ) |   |  |  |   |     |   |   |      |   |  
|Exercise of stock options                                                             |  |                             |  |  |  | 269,764    |   |   |   |  |   | 209     |   |   |  |  |   |     |   |   |      |   |  
|Issuance of common shares for Employee Stock Purchase Plan                            |  |                             |  |  |  | 458,839    |   |   |   |  |   | 370     |   |   |  |  |   |     |   |   |      |   |  
|Exercise of warrants                                                                  |  |                             |  |  |  | 101,275    |   |   |   |  |   | 12      |   |   |  |  |   |     |   |   |      |   |  
|Interest earned on shareholder receivable                                             |  |                             |  |  |  |           |   |   |   |  |   |        |   |   |  |  |   | (11  | ) |   |      |   |  
|Stock-based compensation to non-employees                                             |  |                             |  |  |  |           |   |   |   |  |   | 208     |   |   |  |  |   |     |   |   |      |   |  
|Repurchase of stock warrants                                                          |  |                             |  |  |  |           |   |   |   |  |   | (126    | ) |   |  |  |   |     |   |   |      |   |  
|Issuance of stock warrants for services                                               |  |                             |  |  |  |           |   |   |   |  |   | 107     |   |   |  |  |   |     |   |   |      |   |  
|Amortization of deferred stock compensation                                           |  |                             |  |  |  |           |   |   |   |  |   |        |   |   |  |  |   |     |   |   | 1,029 |   |  
|Recapture of compensation expense for option cancellations in excess of straight line |  |                             |  |  |  |           |   |   |   |  |   | (1,256  | ) |   |  |  |   |     |   |   |      |   |  
|Reversal of Deferred Stock Compensation upon termination                              |  |                             |  |  |  |           |   |   |   |  |   | (978    | ) |   |  |  |   |     |   |   | 978   |   |  
|Net loss                                                                              |  |                             |  |  |  |           |   |   |   |  |   |        |   |   |  |  |   |     |   |   |      |   |  
|Foreign currency translation adjustment                                               |  |                             |  |  |  |           |   |   |   |  |   |        |   |   |  |  |   |     |   |   |      |   |  
|Accumulated unrealized (loss) on investments                                          |  |                             |  |  |  |           |   |   |   |  |   |        |   |   |  |  |   |     |   |   |      |   |  
|                                                                                      |  |                              |  |   |  |            |   |   |    |  |   |         |   |   |   |  |   |      |   |   |       |   |  
|Total comprehensive loss                                                              |  |                             |  |  |  |           |   |   |   |  |   |        |   |   |  |  |   |     |   |   |      |   |  
|                                                                                      |  |                              |  |   |  |            |   |   |    |  |   |         |   |   |   |  |   |      |   |   |       |   |  
|Balances as of June 30, 2002                                                          |  |                             |  |  |  | 58,119,352 |   | $ | 58 |  | $ | 329,677 |   | $ |  |  | $ | (455 | ) | $ | (298  | ) | $
|                                                                                      |  |                              |  |   |  |            |   |   |    |  |   |         |   |   |   |  |   |      |   |   |       |   |  

See accompanying notes to consolidated financial statements.

65

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interWAVE COMMUNICATIONS INTERNATIONAL, LTD. AND SUBSIDIARIES        Consolidated Statements of Cash Flows        (In thousands)

|                                                     |                                                                              | Fiscal Years Ended June 30,                                              |                                       
|---------------------------------------------------- | ---------------------------------------------------------------------------- | ------------------------------------------------------------------------ | --------------------------------------
|
|Cash flows from operating activities:                |                                                                              |                                                                          |                                       
|                                                     | Net loss                                                                     |                                                                          | $                                     
|                                                     | Adjustments to reconcile net loss to net cash used in operating activities:  |                                                                          |                                       
|                                                     |                                                                              | Depreciation and amortization                                            |                                       
|                                                     |                                                                              | Amortization of deferred stock compensation                              |                                       
|                                                     |                                                                              | Loss on asset impairments and sales                                      |                                       
|                                                     |                                                                              | Inventory valuation and purchase commitment charges                      |                                       
|                                                     |                                                                              | In-process research and development                                      |                                       
|                                                     |                                                                              | Non-cash restructuring charges                                           |                                       
|                                                     |                                                                              | Amortization of discount on debt                                         |                                       
|                                                     |                                                                              | Loss on disposition of property and equipment                            |                                       
|                                                     |                                                                              | Provision for bad debt                                                   |                                       
|                                                     |                                                                              | Interest accrued on shareholders' receivable                             |                                       
|                                                     |                                                                              | Warrants issued for services                                             |                                       
|                                                     |                                                                              | Interest accrued on convertible note payable                             |                                       
|                                                     |                                                                              | Value of consulting/engineering services received in exchange for shares |                                       
|                                                     |                                                                              | Changes in operating assets and liabilities:                             |                                       
|                                                     |                                                                              |                                                                          | Trade receivables                     
|                                                     |                                                                              |                                                                          | Inventories                           
|                                                     |                                                                              |                                                                          | Prepaid expenses and other assets     
|                                                     |                                                                              |                                                                          | Accounts payable                      
|                                                     |                                                                              |                                                                          | Accrued expenses and other liabilities
|                                                     |                                                                              |                                                                          | Deferred revenue                      
|                                                     |                                                                              |                                                                          |                                       
|                                                     |                                                                              |                                                                          |                                       
|                                                     |                                                                              |                                                                          |                                       
|Cash flows from investing activities:                |                                                                              |                                                                          |                                       
|                                                     | Sale/(Purchase) of short-term investments                                    |                                                                          |                                       
|                                                     | Purchases of property and equipment                                          |                                                                          |                                       
|                                                     | Purchase of licensed technologies, trademarks and patents                    |                                                                          |                                       
|                                                     | Acquisitions, net of cash acquired                                           |                                                                          |                                       
|                                                     | Equity investments                                                           |                                                                          |                                       
|                                                     |                                                                              |                                                                          |                                       
|                                                     |                                                                              |                                                                          |                                       
|                                                     |                                                                              |                                                                          |                                       
|Cash flows from financing activities:                |                                                                              |                                                                          |                                       
|                                                     | Increase in restricted cash                                                  |                                                                          |                                       
|                                                     | Proceeds from issuances of common shares                                     |                                                                          |                                       
|                                                     | Proceeds from issuances of convertible preferred shares and warrants         |                                                                          |                                       
|                                                     | Principal payments on notes payable and other liabilities                    |                                                                          |                                       
|                                                     | Proceeds from exercise of warrants, options and ESPPs                        |                                                                          |                                       
|                                                     | Payment received on notes receivable                                         |                                                                          |                                       
|                                                     | Repurchase of common shares                                                  |                                                                          |                                       
|                                                     | Repurchase of stock warrants                                                 |                                                                          |                                       
|                                                     | Advance to shareholder and other                                             |                                                                          |                                       
|                                                     |                                                                              |                                                                          |                                       
|                                                     |                                                                              |                                                                          |                                       
|                                                     |                                                                              |                                                                          |                                       
|                                                     | Effect of exchange rate changes on cash and short-term investments           |                                                                          |                                       
|                                                     |                                                                              |                                                                          |                                       
|Net increase (decrease) in cash and cash equivalents |                                                                              |                                                                          | (14,571                               
|Cash and cash equivalents at beginning of year       |                                                                              |                                                                          | 25,974                                
|                                                     |                                                                              |                                                                          |                                       
|Cash and cash equivalents at end of year             |                                                                              | $                                                                        | 11,403                                
|                                                     |                                                                              |                                                                          |                                       
|Supplemental disclosures of cash flow information:   |                                                                              |                                                                          |                                       
|                                                     | Cash paid during year for interest                                           |                                                                          | $                                     
|                                                     | Cash paid during year for taxes                                              |                                                                          | $                                     
|                                                     | Common shares issued and stock options and warrants assumed for acquisitions |                                                                          | $                                     
|                                                     | Equipment given for minority investments                                     |                                                                          | $                                     
|                                                     | Conversion of trade receivables into notes receivable                        |                                                                          | $                                     
|                                                     | Conversion of convertible notes to preferred shares                          |                                                                          | $                                     
|                                                     | Purchase of property and equipment under notes payable                       |                                                                          | $                                     
|                                                     | Conversion of preferred shares and warrants for common                       |                                                                          | $                                     
|                                                     | Exchange of warrants in connection with joint sales agreement                |                                                                          | $                                     
|                                                     | Dividend effect of beneficial conversion feature to H1 shareholders          |                                                                          | $                                     
|                                                     | Deferred stock-based compensation                                            |                                                                          | $                                     

See accompanying notes to consolidated financial statements.

66

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interWAVE COMMUNICATIONS INTERNATIONAL, LTD. AND SUBSIDIARIES        Notes to Consolidated Financial Statements        Fiscal Years ended June 30, 2002, 2001 and 2000

(1) The Company and Summary of Significant Accounting Policies

(a) Description of Business

interWAVE Communications International, Ltd. (the "Company") develops, manufactures and markets compact mobile wireless network solutions for GSM wireless
communications and broadband products on a global basis. The Company's GSM products are primarily marketed to communication equipment providers, wireless service providers and systems integrators.
Broadband products include high-speed wireless access systems, which enable international and domestic Internet and communications service providers, telephone operating companies and
private network operators to deliver voice and high-speed data services to their customers.

The
Company's fiscal year 2002 ended on the last day of the actual calendar month and fiscal 2001 and 2000 were 52-week years. Prior to November 2001, the Company's
fiscal periods ended on the Friday nearest the calendar month end. For presentation purposes the accompanying consolidated financial statements and notes refer to the calendar month end. This change
did not have a material impact on the Company's financial position or results of operations.

(b) Basis of Accounting and Consolidation

The consolidated financial statements of the Company are presented in conformity with accounting principles generally accepted in the United States of America and
the rules and regulations of the Securities and Exchange Commission ("SEC").

The
consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in
consolidation.

The
consolidated financial statements contemplate the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has had recurring net
losses, including net losses of $64.3 million, $94.1 million and $28.4 million for the years ended June 30, 2002, 2001 and 2000, respectively, and the Company also had net
cash used in operations of $28.8 million, $49.4 million, and $21.8 million for the years ended June 30, 2002, 2001 and 2000, respectively. Management is currently forming
and attempting to execute plans to address these matters. These plans include achieving revenues and margins that will sustain levels of spending, reducing levels of spending, raising additional
amounts of cash through the issuance of debt, equity or through other means such as customer prepayments. If additional funds are raised through the issuance of preferred equity or debt securities,
these securities could have rights, preferences and privileges senior to holders of common stock, and the terms of any debt could impose restrictions on our operations. The sale of additional equity
or convertible debt securities could result in additional dilution to the Company's stockholders, and the Company may not be able to obtain additional financing on acceptable terms, if at all. If the
Company is unable to successfully execute such plans, it may be required to reduce the scope of its planned operations, which could harm its business, or it may even need to cease operations. The
consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amount and classification of liabilities or any
other adjustments that might be necessary should the Company be unsuccessful in executing such plans and be unable to continue as a going concern.

67

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(c) Currency Translation

For operations outside of the United States for which the local currency is the functional currency, assets and liabilities are translated into U.S. dollars at
exchange rates in effect at the balance sheet date. Income and expense items are translated at average exchange rates for the period. Adjustments arising from translation of non-U.S.
currency denominated assets and liabilities for these operations are included as a component of accumulated other comprehensive income (loss) in shareholders' equity.

For
non-U.S. operations with the U.S. dollar as the functional currency, non-U.S. currency denominated assets and liabilities are converted into U.S. dollars
using historical rates and any measurement gains and losses are included in the consolidated results of operations and, to date, have not been significant.

(d) Cash Equivalents and Short-Term Investments

The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. Investments with an original
maturity of more than three months are classified as short-term investments. All cash equivalents and short-term investments are classified as
"available-for-sale."

The
amortized cost of available-for-sale securities is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization is included
in net investment income. Available-for-sale securities are recorded at fair value. Unrealized gains and losses are reported as a separate component of accumulated other
comprehensive income (loss) in shareholders' equity. Realized gains and losses and declines in value judged to be other than temporary on available-for-sale securities are
included in net investment income. The cost of securities sold is based on the specific identification method. Interest on securities classified as available-for-sale are
included in interest income. The Company has cash equivalents and investments with various high quality institutions and limits the amount of credit exposure to any one institution.

(e) Concentration of Risk

Financial instruments which potentially subject the Company to a concentration of credit risk principally consist of trade receivables. The Company performs
ongoing credit evaluations of its customers and generally does not require collateral on trade receivables. The Company maintains reserves for potential credit losses.

The
following table summarizes information relating to the Company's significant customers with balances greater than 10% of trade receivables as of:

June 30,2002

2001Trade ReceivablesHutchison Telecommunications Group(1)(2)

19
%
23
%Eastern Communications Co., Ltd.(2)

13

Campus Link



12


68

---

The
following table summarizes information relating to the Company's significant customers with revenues comprising greater than 10% of revenue:

Years Ended June 30,2002

2001

2000RevenuesHutchison Telecommunications Group(1)(2)

25
%
20
%
21
%Campus Link



10

Nortel Networks(2)



6

28HangZhou Topper Electric Corporation





11


---

The
Company currently relies on a limited supply sources for key components used in the manufacture of its products. Additionally, the Company relies primarily on a single third party
manufacturer for the production of its products.

(f) Inventories

Inventories are stated at the lower of cost or market using the first in first out method. Inventory costs include material, labor and overhead.

(g) Property and Equipment

Property and equipment are stated at cost, less accumulated depreciation, calculated using the straight-line depreciation method over the estimated
useful lives of the related assets, generally two to five years. Leasehold improvements are amortized over the life of the underlying lease or the estimated useful life, whichever is shorter.

(h) Revenue Recognition

The Company recognizes revenue in accordance with the Securities and Exchange Commission ("SEC") Staff Accounting Bulletin No.101 (SAB 101) "Revenue Recognition
in Financial Statements." Accordingly, equipment revenue is recognized when all of the following have occurred: persuasive evidence of an arrangement exists, the product has been shipped, title and
all of the benefits and risk of loss have passed to the customer, the Company has the right to invoice the customer, collection of the receivable is reasonably assured, and the Company has fulfilled
all pre-sale contractual obligations to the customer. Revenue from extended warranty coverage and customer support is recognized ratably over the period of the service contract. Trial
sales made directly to wireless service providers are not recognized as revenue until the trial is successfully completed. Trials conducted by communications service providers and systems integrators
are normally shipped from their inventory and do not result in any incremental revenue to the Company. Although the Company's products contain a software

69

---

component, the software is not sold separately. The Company is not contractually obligated to provide software upgrades to its customers, and the software is incidental to the product as a whole.

(i) Research and Development Costs

Costs to develop the Company's products are expensed as incurred.

(j) Advertising and Marketing Costs

The Company expenses all advertising and marketing costs as incurred, which is included as part of selling, general and administrative expenses. Advertising and
marketing expenses were $0.6 million, $1.3 million and $0.2 million in 2002, 2001, and 2000, respectively.

(k) Impairment of Long-Lived Assets

The Company currently evaluates long-lived assets, including goodwill and identifiable intangibles, for impairment whenever events or changes in
circumstances indicate that the carrying amount of such assets might not be recoverable. Events and circumstances that would trigger an impairment analysis include a significant decrease in the market
value of an asset, a significant change in the manner or extent that an asset is used including a decision to abandon acquired products, services or technologies, a significant adverse change in
operations or business climate affecting the asset, and historical operating or cash flow losses expected to continue for the foreseeable future associated with the asset. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds the fair value of the asset. Fair value is estimated using discounted net cash
flows. Assets to be disposed of are reported at the lower of the carrying amount or fair value less estimated costs to sell.

(l) Intangible Assets

As of June 30, 2001, intangible assets primarily consisted of purchased technology, acquired workforce, tradename, customer base and goodwill related to
the acquisition of Wireless, Inc. As part of the Company's evaluation of its long-lived assets, all of the acquired intangible assets related to Wireless, Inc. were written off in fiscal 2002
(see Note 8). As of June 30, 2002, intangible assets only consisted of purchased technology, trademarks and patents, and are being amortized over four years.

(m) Income Taxes

The Company uses the asset and liability method of accounting for income taxes. Deferred tax assets and liabilities are recognized for the estimated future tax
consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and net operating loss carryforwards.
Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. Valuation allowances are
established when necessary to reduce deferred tax assets to the amounts expected to be realized.

70

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(n) Net Loss Per Share

The denominator used in the computation of basic and diluted net loss per share is the weighted average number of common shares outstanding for the respective
period. For the years ended June 30, 2002, 2001 and 2000, 0.3 million, 5.3 million and 9.1 million shares, respectively, were excluded from the calculation of diluted net
loss per share, as the effect would be anti-dilutive.

(o) Stock-Based Compensation and Warrants for Goods and Services

The Company accounts for its stock option plans and its Employee Stock Purchase Plan in accordance with the provisions of Accounting Principles Board
Opinion 25, "Accounting for Stock Issued to Employees," (APB 25), whereby the difference between the exercise price and the fair value at the date of grant is recognized as compensation
expense. Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation," (SFAS No. 123), established a fair value based method of accounting for
stock-based plans. Companies that elect to account for stock-based compensation plans in accordance with APB 25 are required to disclose the pro forma net loss that would have resulted from the
use of the fair value based method under SFAS No. 123. Accordingly, pro forma disclosures required under SFAS No. 123 are included in Note 12.

Warrants
issued for goods or services are valued at the fair value of the equity instrument or the goods or services received, whichever is more readily determinable. Promises of future
services are recorded as contra-equity until such time as the services are received.

(p) Use of Estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America 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 consolidated financial
statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

(q) Accumulated Other Comprehensive Income (Loss)

Accumulated other comprehensive income (loss) refers to revenues, expenses, gains and losses that are not included in net income, but rather are recorded directly
in shareholders' equity. The components of other comprehensive loss for the years ended June 30, 2002, 2001 and 2000 include cumulative translation adjustments and unrealized gains and losses
on short-term investments.

(r) Fair Value of Financial Instruments

The carrying value of cash, cash equivalents, trade receivables, accounts payable and accrued expenses, and other current liabilities approximate fair value due
to the short maturity of those instruments. The carrying value of the notes payable approximate fair value due to the variable interest rates on these notes.

71

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(s) Reclassification

Certain reclassifications have been made to prior year amounts to conform to the current year presentation.

(t) Recent Accounting Pronouncements

In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standard ("SFAS") No. 141, "Business
Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 requires that all business combinations initiated after June 30,
2001 be accounted for under the purchase method and addresses the initial recognition and measurement of goodwill and other intangible assets acquired in a business combination. The Company has
adopted SFAS No. 141 and it did not have an impact on the consolidated financial position, results of operations, or cash flows. SFAS No. 142 provides that intangible assets with finite
useful lives be amortized and that goodwill and intangible assets with indefinite lives will not be amortized, but will rather be tested at least annually for impairment. In addition, the statement
includes provisions upon adoption for the reclassification of certain existing recognized intangibles as goodwill, the identification of reporting units for the purpose of assessing potential future
impairments of goodwill, the reassessment of the useful lives of existing recognized intangibles, and reclassification of certain intangibles out of previously reported goodwill. The Company no longer
has any goodwill and therefore does not anticipate any material effects as a result of adopting this statement.

In
June 2001, the Financial Accounting Standards Board issued SFAS No. 143, "Accounting for Asset Retirement Obligations," and in October 2001, SFAS No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS 143 requires that the fair value of an asset retirement obligation be recorded as a liability in the period in
which the Company incurs the obligation. SFAS No. 144 serves to clarify and further define the provisions of SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of." SFAS No. 144 does not apply to goodwill and other intangible assets that are not amortized. SFAS No. 143 is effective for fiscal
years beginning after June 15, 2002 and SFAS No. 144 is effective for fiscal years beginning after December 15, 2001. The Company will adopt SFAS Nos. 143 and 144 for its fiscal
year beginning July 1, 2002. The effect of adopting these statements is not expected to have a material effect on the Company's consolidated financial position, results of operations or cash
flows.

In
April 2002, the Financial Accounting Standards Board issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13,
and Technical Corrections". This statement requires, among other things, that gains and losses on the early extinguishment of debt be classified as extraordinary only if they meet the criteria for
extraordinary treatment set forth in Accounting Principles Board Opinion No. 30. The provisions of this statement related to classification of gains and losses on the early extinguishment of
debt are effective for fiscal years beginning after May 15, 2002. The Company is currently considering the impact, if any, that this statement will have on the consolidated financial
statements.

72

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In June 2002, the Financial Accounting Standards Board issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." This
Statement requires recording costs associated with exit or disposal activities at their fair values when a liability has been incurred. Under previous guidance, certain exit costs were accrued upon
management's commitment to an exit plan, which is generally before an actual liability has been incurred. The provisions of this Statement are effective for exit or disposal activities that are
initiated after December 31, 2002. The Company is currently considering the impact, if any, that this statement will have on the consolidated financial statements.

(2) Cash and Cash Equivalents and Short-Term Investments

(a) Cash and cash equivalents consisted of the following (in thousands):

June 30,2002

2001Cash

$
5,946

$
2,230Money market funds


927


5,413Commercial paper


4,530


18,331$
11,403

$
25,974


(b) Restricted cash:

The Company has a $5 million credit facility with Wells Fargo Bank. No amounts have been drawn down as of June 30, 2002 although the availability to
borrow has decreased by $1.4 million since this amount has been utilized to secure two standby letters of credit for vendor performance bonds and to secure a standby letter of credit for the
final costs of the facility lease which was renegotiated and which will cease after October 2002. As of June 30, 2002, this $1.4 million is classified as restricted cash, short term
portion.

Additionally,
the Company maintains another certificate of deposit in the amount of $0.7 million as collateral on the leased facility in Menlo Park. It is restricted for use until
expiration in February 2005, and is classified as restricted cash, long term portion as of June 30, 2002.

(c) Short-Term Investments:

Available-for-sale investments for the years ended June 30, 2002 and 2001 were as follows (in thousands):

|                                     |  | June 30, 2002
|------------------------------------ |  | -------------
|
|U.S. government securities           |  | $            
|Commercial paper                     |  |              
|Corporate notes and bonds            |  |              
|                                     |  |              
|Total available-for-sale investments |  | $            
|                                     |  |              

73

---

|                                     |  | June 30, 2001
|------------------------------------ |  | -------------
|
|U.S. government securities           |  | $            
|Corporate notes and bonds            |  |              
|                                     |  |              
|Total available-for-sale investments |  | $            
|                                     |  |              

The
majority of the Company's investments are in short-term fixed rate debt and consists primarily of A-1 and P-1 or better-rated
financial instruments.

(3) Inventories, net

Inventories consisted of the following (in thousands):

June 30,2002

2001Work in process

$
7,712

$
18,514Finished goods


2,090


8,085Inventory held at subcontractors


3,863


664$
13,665

$
27,263


(4) Property and Equipment, net

A summary of property and equipment is as follows (in thousands):

June 30,2002

2001Machinery and equipment

$
19,935

$
20,071Computer equipment


5,617


6,719Furniture and fixtures


411


838Leasehold improvements


1,072


2,83127,035


30,459Less accumulated depreciation and amortization


(20,036
)

(17,825
)$
6,999

$
12,634


74

---

(5) Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consisted of the following (in thousands):

|                                          |  | June 30,
|----------------------------------------- |  | --------
|
|Accrued compensation and related expenses |  | $       
|Accrued purchase commitments              |  |         
|Accrued professional service expenses     |  |         
|Accrued restructuring costs               |  |         
|Other                                     |  |         
|                                          |  |         
|                                          |  | $       
|                                          |  |         

(6) Acquisitions

There were no acquisitions during fiscal 2002. During fiscal 2001, the Company completed three acquisitions. The following table summarizes the fiscal 2001
acquisitions, all of which were accounted for under the purchase method of accounting (purchase price in millions):

Company

Acquisition Date

Purchase Price3C Limited

July 3, 2000

$
4.1Microcellular Systems Limited

July 28, 2000


14.1Wireless, Inc.

June 7, 2001


16.3


Under
the purchase method of accounting, the purchase price was allocated to the assets acquired and liabilities assumed based on their estimated fair values at the acquisition date.

Microcellular
Systems Limited and 3C Limited on a pre-acquisition basis, were not significant to the Company, and accordingly, historical and pro forma results have not been
presented. The results of operations for the above three companies are included with those of the Company for periods subsequent to the acquisition dates.

3C
Limited ("3C") was a Hong Kong based company involved in the development of telecommunication switches. Microcellular Systems Limited ("Microcellular"), an Irish company, provided
sales and support for telecommuncations equipment, primarily for the mobile telephone industry. Wireless, Inc. ("Wireless") was a provider of high-speed, wireless access systems
that enable international and domestic Internet and communications service providers, telephone operating companies and private network operators to deliver voice and high-speed data
services to their customers. A substantial portion of Wireless' revenue was derived from international sales.

75

---

The
following table summarizes the consideration paid and allocation of purchase price for each business combination completed in the year ended June 30, 2001 (in thousands):

|                                         |  | 3C |       | Microcellular |   | Wireless |  | Total |       
|---------------------------------------- |  | -- | ----- | ------------- | - | -------- |  | ----- | ------
|Cash paid                                |  | $  | 4,085 |               | $ | 5,608    |  | $     | 5,000 
|Acquisition costs                        |  |    |      |               |   | 998      |  |       | 3,350 
|Common stock issued                      |  |    |      |               |   | 7,265    |  |       | 7,889 
|Options and warrants assumed             |  |    |      |               |   | 210      |  |       | 33    
|                                         |  |    |       |               |   |          |  |       |       
|                                         |  | $  | 4,085 |               | $ | 14,081   |  | $     | 16,272
|                                         |  |    |       |               |   |          |  |       |       
|Cash received                            |  | $  |      |               | $ | 187      |  | $     | 396   
|Other tangible assets (liabilities), net |  |    | 52    |               |   | 1,276    |  |       | (6,253
|Goodwill                                 |  |    | 269   |               |   | 8,310    |  |       | 8,749 
|Purchased technology                     |  |    | 3,600 |               |   | 1,703    |  |       | 1,920 
|Work force                               |  |    | 164   |               |   | 605      |  |       | 2,343 
|Trade names                              |  |    |      |               |   | 393      |  |       | 3,782 
|Customer base                            |  |    |      |               |   | 1,200    |  |       | 5,136 
|In-process research and development      |  |    |      |               |   | 407      |  |       | 199   
|                                         |  |    |       |               |   |          |  |       |       
|                                         |  | $  | 4,085 |               | $ | 14,081   |  | $     | 16,272
|                                         |  |    |       |               |   |          |  |       |       

(7) Other Assets

The Company has made certain minority equity investments in non-publicly traded companies. The Company's minority equity investments in non-public companies are
included in other assets on the Company's consolidated balance sheets, are carried at cost, and are accounted for under the cost method. The Company holds less than 20 percent of the voting equity of
such companies, and neither has nor seeks corporate governance or significant influence over the respective company's operating and financial policies. The Company monitors its investments for
impairment on a quarterly basis and makes appropriate reductions in carrying values when such impairments are determined to be other-than-temporary. Factors used in determining an impairment include,
but are not limited to, the current business environment including competition and uncertainty of financial condition; going concern considerations such as the inability to obtain additional private
financing to fulfill the investee's stated business plan and cash burn rate; the need for changes to the respective investee's existing business model due to changing business environments and its
ability to successfully implement necessary changes; and comparable valuations. If an investment is determined to be impaired, a determination is made as to whether such impairment is
other-than-temporary. Other assets were $0.4 million and $2.0 million as of June 30, 2002 and 2001, respectively.

(8) Losses on Asset Impairments and Sales

The Company reviews its goodwill and other intangible assets for impairment whenever events or changes in circumstances indicate that the carrying value may not
be recoverable. As part of the Company's review of its fiscal 2002 fourth quarter results, it performed an impairment analysis of identifiable intangible assets and goodwill recorded in connection
with its acquisition of Wireless, Inc. and other long-lived assets. The assessment was performed primarily due to the continuing softening of

76

---

the global economy and the telecommnuications industry in particular, the continuing decline in the Company's stock price, the net book value of its assets significantly exceeding its market
capitalization, the overall decline in industry growth rates which indicate that this trend may continue for an indefinite period and these effects on estimated terminal values. As a result of this
assessment, the Company recorded approximately $19.4 million in asset impairment charges. This amount included $16.5 million to write down the net book value of goodwill and
property and equipment from its acquisitions of Wireless, Inc. to zero, as well as an additional $2.9 million to write off Wireless, Inc.'s inventories, which was charged
to cost of revenues. The Company also sold certain assets related to Wireless, Inc. to a third party and recorded a loss on that sale of $0.2 million. The following table summarizes the account
activity of certain intangible and other assets (in thousands):

|Fiscal 2002                |                | Balance at June 30, 2001 |        | Additions/(Disposals/Usage) |   | Depreciation/Amortization |        | Impairment Charge/
Loss on sale |        | Balance at June 30, 2002
|-------------------------- | -------------- | ------------------------ | ------ | --------------------------- | - | ------------------------- | ------ | ------------------------------- | ------ | ------------------------
|Intangible assets(2):      |                |                          |        |                             |   |                           |        |                                 |        |                         
|                           | Wireless, Inc. |                          | $      | 21,624                      |   | $                         | 891    |                                 | $      | (6,517                  
|Inventories(1):            |                |                          |        |                             |   |                           |        |                                 |        |                         
|                           | Wireless, Inc. |                          |        | 5,222                       |   |                           | (1,972 | )                               |        |                        
|Property and equipment(2): |                |                          |        |                             |   |                           |        |                                 |        |                         
|                           | Wireless, Inc. |                          |        | 2,804                       |   |                           | (843   | )                               |        | (1,302                  
|                           |                |                          |        |                             |   |                           |        |                                 |        |                         
|                           |                | $                        | 29,650 |                             | $ | (1,924                    | )      | $                               | (7,819 | )                       
|                           |                |                          |        |                             |   |                           |        |                                 |        |                         

---

In
2001, the Company performed a similar assessment and recorded a $23.2 million in asset impairment charges. This amount included $12.6 million to write
down the net book value of goodwill and other intangible assets from its acquisitions of 3C and Microcellular to zero. In addition, the Company recorded another $10.6 million in other asset
impairment charges including shareholder services receivables from Nortel and Intasys, as follows (in thousands):

|Fiscal 2001        |                                  | Balance at June 30, 2000 |       | Additions |   | Amortization |        | Impairment Charge |        | Balance at June 30, 2001
|------------------ | -------------------------------- | ------------------------ | ----- | --------- | - | ------------ | ------ | ----------------- | ------ | ------------------------
|Intangible assets: |                                  |                          |       |           |   |              |        |                   |        |                         
|                   | Microcellular Systems Limited    |                          | $     |          |   | $            | 12,609 |                   | $      | (2,635                  
|                   | 3C                               |                          |       |          |   |              | 4,033  |                   |        | (1,344                  
|                   | Nortel patent license            |                          |       | 550       |   |              |       |                   |        | (200                    
|Other assets:      |                                  |                          |       |           |   |              |        |                   |        |                         
|                   | Blue Sky investment              |                          |       |          |   |              | 6,265  |                   |        |                        
|                   | 3C                               |                          |       |          |   |              | 2,000  |                   |        | (1,500                  
|                   | Other                            |                          |       | 476       |   |              |       |                   |        |                        
|Equity:            |                                  |                          |       |           |   |              |        |                   |        |                         
|                   | Shareholder services receivables |                          |       | 4,384     |   |              |       |                   |        | (1,436                  
|                   |                                  |                          |       |           |   |              |        |                   |        |                         
|                   |                                  | $                        | 5,410 |           | $ | 24,907       |        | $                 | (7,115 | )                       
|                   |                                  |                          |       |           |   |              |        |                   |        |                         

77

---

The
write-down to estimated fair value was based upon the estimated future discounted cash flows from operations and estimated terminal values of the
businesses.

(9) Restructuring Charges

The Company's restructuring accrual as of June 30, 2002 and 2001 are summarized as follows (in thousands):

|Fiscal 2002                                           |  | Restructuring Accrual as of June 30, 2001 |       | Additions/Reversals |   | Non-cash Charges |   | Payments |        | Restructuring Accrual as of June 30, 2002
|----------------------------------------------------- |  | ----------------------------------------- | ----- | ------------------- | - | ---------------- | - | -------- | ------ | -----------------------------------------
|Future lease payments related to abandoned facilities |  | $                                         | 5,986 |                     | $ | (2,880           | ) | $        | (614   | )                                        
|Abandoned leasehold improvements                      |  |                                           | 595   |                     |   | 39               |   |          | (634   | )                                        
|Workforce reduction                                   |  |                                           |      |                     |   | 855              |   |          |       |                                          
|                                                      |  |                                           |       |                     |   |                  |   |          |        |                                          
|Total                                                 |  | $                                         | 6,581 |                     | $ | (1,986           | ) | $        | (1,248 | )                                        
|                                                      |  |                                           |       |                     |   |                  |   |          |        |                                          

|Fiscal 2001                                           |  | Restructuring Accrual as of June 30, 2000 |   | Additions/Reversals |   | Non-cash Charges |  | Payments |   | Restructuring Accrual as of June 30, 2001
|----------------------------------------------------- |  | ----------------------------------------- | - | ------------------- | - | ---------------- |  | -------- | - | -----------------------------------------
|Future lease payments related to abandoned facilities |  | $                                         |  |                     | $ | 5,986            |  | $        |  |                                          
|Abandoned leasehold improvements                      |  |                                           |  |                     |   | 595              |  |          |  |                                          
|                                                      |  |                                           |   |                     |   |                  |  |          |   |                                          
|Total                                                 |  | $                                         |  |                     | $ | 6,581            |  | $        |  |                                          
|                                                      |  |                                           |   |                     |   |                  |  |          |   |                                          

Subsequent
to the June 2001 acquisition of Wireless, Inc., the Company's Board of Directors approved a plan to reduce the aggregate workforce of the Company, consolidate facilities, and
restructure certain business functions to streamline the organization for cost reduction. As a result, the Company recorded a restructuring charge of $6.6 million in the fourth quarter of
fiscal 2001, principally for the closure of facilities.

During
fiscal 2002, the Company reduced its workforce by an additional 107 employees, and closed certain facilities. As a result, the Company recorded a restructuring expense related to
severance payments and future lease commitments and recorded an additional charge of $0.9 million.

Additionally,
the Company negotiated and signed a lease termination agreement which reduces the Company's operating lease commitment significantly over the next three years. The actual
termination agreement differed from the estimate and resulted in a reduction of the lease loss accrual and accordingly, the Company reversed $2.9 million as a restructuring credit in the
accompanying consolidated statements of operations.

The
remaining restructuring accrual for future lease payments related to abandoned facilities and workforce reduction of $0.8 million is expected to be paid out through
December 2002, and is included on the accompanying consolidated balance sheet in accrued expenses and other current liabilities.

78

---

(10) Income Taxes

Income tax expense for the fiscal years ended June 30, 2002, 2001 and 2000 consisted of the following (in thousands):

Current

Deferred

Total2002:U.S. Federal

$


$


$
Other


209





209Total

$
209

$


$
2092001:U.S. Federal

$


$


$
Other


306


18


324Total

$
306

$
18

$
3242000:U.S. Federal

$


$


$
Other


54


45


99Total

$
54

$
45

$
99


The
reconciliation between the amount computed by applying the U.S. Federal statutory tax rate of 34% to net loss before income taxes and the actual provision for income taxes follows
(in thousands):

|                                                                                        |  | June 30, |        
|--------------------------------------------------------------------------------------- |  | -------- | -------
|
|Income tax benefit at statutory rate                                                    |  | $        | (21,800
|Non-U.S. income taxed at rate other than the U.S. federal rate                          |  |          | (112   
|Losses in a zero tax jurisdiction                                                       |  |          | 10,664 
|Cumulative tax effect of adjustments to cost sharing agreement between U.S. and Bermuda |  |          |       
|Net losses and temporary differences for which no current benefit is recognized         |  |          | 11,421 
|Other                                                                                   |  |          | 35     
|                                                                                        |  |          |        
|                                                                                        |  | $        | 209    
|                                                                                        |  |          |        

79

---

The
tax effects of temporary differences that give rise to significant portions of deferred tax assets and liabilities are as follows (in thousands):

Fiscal Years Ended June 30,2002

2001

2000Deferred tax assets:Technology asset

$
375

$
511

$
646Inventory


4,908


2,655


1,013Allowance for doubtful accounts





1,081


15Accruals and reserves


1,988


519


801Net operating loss carryforwards


65,037


29,853


23,636Research and other tax credit carryforwards


9,950


6,900


5,031Property and equipment


320


333


278Total gross deferred tax assets


82,578


41,852


31,420Less valuation allowance


(82,578
)

(41,852
)

(31,420
)Total deferred tax assets








Deferred tax liabilitiesProperty and equipment





(60
)

(56
)Net deferred tax liabilities

$


$
(60
)
$
(56
)


The
net change in the total valuation allowance from the year ended June 30, 2002, 2001 and 2000 was an increase of approximately $40.8 million, $10.4 million and
$16.0 million, respectively. Management believes that sufficient uncertainty exists regarding the future realization of deferred tax assets and accordingly, a valuation allowance is required.

The
Company has net operating loss carryforwards for federal and California income tax return purposes of approximately $181.8 million and $93.3 million, respectively. The
U.S. Federal net operating losses expire beginning in 2010 through 2022. California net operating loss carryforwards will expire beginning 2002 through 2012.

The
Company also has research credit carryforwards for U.S. federal and California income tax return purposes of approximately $5.0 million and $4.0 million, respectively.
The federal research credit carryforwards will expire beginning in 2010 through 2022; California research credits carry forward indefinitely until utilized. The Company has California manufacturer's
investment credit carryforwards of approximately $0.9 million, which expire in 2006 through 2012.

(11) Lines of Credit

The
Company has a $5 million credit facility with Wells Fargo Bank. Interest rate is New York LIBOR -1% payable monthly, which would result in annual interest expense of
approximately $0.1 million based on the June 30, 2002 LIBOR one year rate of 2.25%. No amounts have been drawn down as of June 30, 2002 although the availability to borrow has
decreased by $1.4 million since that amount has been utilized to cover two standby letters of credit for vendor performance bonds and to cover a standby letter of credit for the final costs of
the facility lease which was renegotiated and which will cease after October 2002. The original $5 million line was renegotiated in August 2001 and the

80

---

Company is required to maintain a minimum security interest of $5 million in cash or equivalent instruments with the bank.

In
addition, the Company has two additional credit facilities for a European subsidiary with Royal Bank of Scotland. The first $0.5 million facility carries an interest rate of
New York LIBOR +2.5% with no payment terms specified. Restriction is based on amounts drawn but not to exceed 50% of the European subsidiary's trade receivables due less than 120 days. The
second $1.5 million facility carries an interest rate of New York LIBOR +3% payable monthly, with quarterly repayment of principal over three years. Collateral is based on specific receivables
and certain assets of the Company's European subsidiary. As of June 30, 2002 and 2001, $0.3 million and $0.5 million has been drawn down,
respectively. Should we elect to borrow funds under our committed lines of credit, we will incur additional interest expense during any periods when amounts are outstanding under the lines.

(12) Shareholders' Equity

On September 10, 1999, the Company completed an offering of 1,715,715 shares of Series H-1 preferred shares and issued warrants to purchase an
aggregate of 240,000 shares of common shares at $1 per share to a group of investors in exchange for $12,010,000 (before financing costs of $766,000). The Series H-1 contained a $7 per share
liquidation preference and converted to common shares on a one-to-one basis. The fair value of the H-1 preferred and common shares at time of issuance of Series H-1 was deemed to be $7.50 per
share, resulting in recognition of a dividend at the time of issuance (a beneficial conversion) of $2,055,000 during the fiscal year ended June 30, 2000.

1994 Stock Plan

The Company adopted the 1994 Stock Plan in July 1994. This plan provides for the grant of incentive stock options to employees, including employee
directors, and non-statutory stock options and stock purchase rights to employees, directors and consultants. As of June 30, 2002, the Company has reserved 10.73 million
common shares for issuance under this plan.

Incentive
share options may be granted at not less than 100% of the fair market value per share, and non-statutory share options may be granted at not less than 85% of the
fair market value per share at the date of grant as determined by the Board of Directors or committee thereof, except for options granted to a person owning greater than 10% of the total combined
voting power of all classes of shares of the Company, for which the exercise price must not be less than 110% of the fair market value. Share option plan shares generally vest 25% after one year, with
the remainder vesting monthly over the following three years. Additional options granted to existing employees after July 28, 1998 are generally vesting monthly over four years.

81

---



The Company uses the intrinsic value method to account for the 1994 Stock Plan. Accordingly compensation cost has been recognized for its stock options in the
accompanying consolidated financial statements if, on the date of grant, the current market value of the underlying common shares exceeded the exercise price of the stock options at the date of grant.

During
fiscal 2002, 2001 and 2000, the Company granted options with a weighted-average exercise price of $0.92, $5.12 and $5.46 respectively, compared to the weighted-average fair value
of approximately $0.92, $2.91 and $2.74 for the same respective periods.

Options
generally have 10-year terms. However, options granted to an optionee who, at the time the option is granted, owns shares representing more than 10% of the voting
power of all classes of shares of the Company, generally have 5-year terms.

1999 Option Plan

The 1999 Option Plan provides for the grant of incentive stock options to employees and for the grant of non-statutory stock options and share
purchase rights to employees, directors and consultants. Unless terminated sooner, this option plan will terminate in 2009. As of June 30, 2002, 7.7 million shares are reserved for
issuance under this stock option plan.

2001 Supplemental Stock Option Plan

During the year ended June 30, 2001, the Company adopted the 2001 Supplemental Stock Option Plan, which provides for non-statutory stock
options to be granted to employees and service providers of the Company, but excludes executive officers and members of the Board of Directors. As of June 30, 2002, four million shares are
reserved for the 2001 Supplemental Stock Option Plan.

The
1994 Stock Plan, the 1999 Option Plan and the 2001 Supplemental Stock Option Plan are collectively known as the "Plan."

1999 Employee Share Purchase Plan

The share purchase plan was adopted by the Board in September 1999 and approved by the shareholders at the 1999 annual shareholders meeting in
January 2000. The amount of common shares reserved under the employee share purchase plan will be increased automatically on the first day of each fiscal year in the amount of 1% of the
outstanding shares on such date or an amount determined by the Board. During the fiscal year 2002, 700,000 shares were added to the reserve for the share purchases, 200,000 by the former formula
increase and 500,000 by vote of the shareholders.

82

---

A
summary of the Company's Plan activity is as follows:

|                                 |  | June 30,  
|-------------------------------- |  | ----------
|
|
|Outstanding at beginning of year |  | 9,116,822 
|Granted                          |  | 5,187,000 
|Exercised                        |  | (269,764  
|Canceled                         |  | (2,843,236
|                                 |  |           
|Outstanding at year-end          |  | 11,190,822
|                                 |  |           
|Options exercisable at year-end  |  | 3,982,290 
|                                 |  |           

The
following table summarizes information about share options outstanding and exercisable under the Plan as of June 30, 2002:

|             |  | Outstanding |  | Exercisable
|------------ |  | ----------- |  | -----------
|
|$0.30-$0.68  |  | 407,825     |  | 8.46       
|$0.70-$0.70  |  | 1,253,717   |  | 7.01       
|$0.71-$0.76  |  | 1,145,018   |  | 9.00       
|$0.77-$0.89  |  | 1,210,125   |  | 9.27       
|$0.90-$0.93  |  | 837,084     |  | 9.13       
|$0.94-$0.96  |  | 1,399,000   |  | 9.82       
|$0.97-$1.50  |  | 1,299,445   |  | 6.57       
|$1.59-$3.31  |  | 1,289,834   |  | 8.69       
|$3.50-$7.60  |  | 1,210,089   |  | 8.08       
|$8.00-$25.81 |  | 1,208,685   |  | 7.90       
|             |  |             |  |            
|$0.30-$25.81 |  | 11,190,822  |  | 8.38       
|             |  |             |  |            

As
of June 30, 2002, options available for grant under the Plans were 4.9 million.

Under
SFAS No. 123, "Accounting for Stock-Based Compensation," the Company is required to disclose the pro forma effects on net loss and net loss per share as if the Company had
elected to use the fair value approach to account for all of its employee stock-based compensation plans. Had compensation cost for the Company's plans been determined consistently with the fair value
approach described in SFAS No. 123, the Company's pro forma net loss and pro forma net loss per share for the

83

---

years ended June 30, 2002, 2001 and 2000, would have been changed as indicated below (in thousands, except per share amounts):

June 30,2002

2001

2000Net loss:As reported

$
(64,325
)
$
(94,136
)
$
(28,411
)Pro forma

$
(68,951
)
$
(102,259
)
$
(31,613
)Net loss per share:As reported

$
(1.15
)
$
(1.93
)
$
(1.33
)Pro forma

$
(1.23
)
$
(2.09
)
$
(1.47
)


The
fair value of options granted was estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions used for grants in 2002,
2001 and 2000:

2002

2001

2000Weighted average risk-free rate

3.5
%
5.34
%
5.62
%Expected life (years)

4.3

3

3Volatility

286
%
80
%
80
%Dividend yield








84

---

(13) Transactions with Related Parties

For the years ended June 30, 2002, 2001, and 2000, the Company engaged in transactions with related parties resulting in the following: revenue, deferred
revenue, trade receivables and legal expenses: (in thousands):

2002

2001

2000Revenue:Hutchison Telecommunications Group

$
10,636

$
5,285

$
6,353Eastern Communications Co., Ltd.


2,978





Campus Link





2,706


Nortel Networks


164


1,697


8,574ADC Telecommunications/Microcellular Systems Ltd.(1)








1,317Total Access Communications








500$
13,778

$
9,688

$
16,744Legal Expenses:Wilson, Sonsini, Goodrich and Rosati(2)

$
255


N/A


N/A


2002

2001Deferred Revenue:Hutchison Telecommunications Group

$
51

$
977Eastern Communications Co., Ltd.


426


$
477

$
977


2002

2001Trade Receivables:Hutchison Telecommunications Group

$
2,927

$
5,429Eastern Communications Co., Ltd.


2,017


Nortel Networks


434


384$
5,378

$
5,813


---

85

---

(14) Commitments and Contingencies

(a) Operating Lease Commitments

The Company leases its facilities under non-cancelable operating leases. These leases expire at various dates through December 2006. Future
minimum lease payments as of June 30, 2002 are as follows (in thousands):

Year ending June 302003

$
2,8272004


2,5802005


1,6232006


95Total minimum lease payments

$
7,125


The
Company subleased office space in Redwood City, California to subtenants. However, the subtenants have not paid rent since October 2001. Accordingly, the Company collected the unpaid
rent from the security deposits for the subleases. Since the security deposits did not fully secure the rent for
the remainder of the terms of the subleases, the Company is obligated to pay rent of approximately $54,000 per month until the lease expires in September 2002.

Rent
expense was approximately $3.5 million, $4.0 million, and $1.95 million for the years ended June 30, 2002, 2001, and 2000, respectively.

(b) Capital Lease Commitments

The Company has two capital leases with GE Capital. These leases expire in December 2004 and February 2005. Aggregate future minimum lease payments as of
June 30, 2002 are as follows (in thousands):

Year ending June 302003

$
5442004


5432005


316Total minimum lease payments


1,403Less interest


(189
)Present value of payments under capital lease


1,214Less current portion


(422
)Long-term portion of capital lease obligation

$
792


(c) Contract Manufacturers

The Company generally commits to purchase products from its contract manufacturers to be delivered within the most recent 60 days covered by forecasts with
cancellation fees. As of June 30, 2002, the
Company had committed to make purchases totaling $5.7 million from these manufacturers in the next 60 days. In addition, in specific instances, the Company may agree to assume liability
for

86

---

limited quantities of specialized components with lead times beyond this 60-day period. There are currently no associated losses related to the purchase commitments.

As
of June 30, 2002 and 2001, the Company has established an accrual for purchase commitments of $1.3 million and $2.6 million, respectively, for excess inventory
component commitments to key component vendors that it believes may not be realizable during future normal ongoing operations.

(15) Litigation

On November 21, 2001, a securities class action,Middleton v. interWAVE Communications International, Ltd., et.
al., Case No. 01 CV 10598, was filed in United States District Court for the Southern District of New York against certain investment bank underwriters for the Company's
initial public offering ("IPO"), the Company, and three of the Company's officers. The amended complaint alleges undisclosed and improper practices by the underwriters concerning the allocation of the
Company's IPO shares, in violation of the federal securities laws, and seeks unspecified damages on behalf of persons who purchased the Company's stock during the period from January 28, 2000
through December 6, 2000. Other actions have been filed making similar allegations regarding the IPOs of more than 300 other companies. All of these lawsuits have been coordinated for pretrial
purposes asIn re Initial Public Offering Securities Litigation, Civil Action No. 21-MC-92. The Company believes it has
meritorious defenses to the claims and will defend itself vigorously.

The
Company and the named officer defendants have made a motion to dismiss the Complaint.

The
Company is unable to predict the outcome of the litigation and does not expect it to be resolved in the near future. The legal proceedings may be time consuming and expensive and the
outcome could be adverse to the Company, although the Company believes that it has meritorious defenses. An adverse outcome could have a material adverse affect on the Company's financial position, on
its business and results of operations.

The
Company may from time to time become a party to various legal proceedings arising in the ordinary course of its business.

(16) Employee Benefit Plans

The Company maintains a 401(k) defined contribution benefit plan (the "Plan") that covers all U.S. employees who have attained the age of at least
20.5 years. This Plan allows employees to defer up to 20% of their pretax salary in certain investments at the discretion of the employee. Under the Plan, the Company provides for a 100% vested
Employer Matching Contribution equal to 10% of the amount a participant elects to defer as an elective contribution to the Plan up to a maximum of $1,000 during a plan year. The Company had matching
contributions to the Plan of $197,000, $115,000 and $48,000 for the years ended June 30, 2002, 2001 and 2000, respectively. In 2002, the $197,000 match includes a one-time discretionary match
of $63,000 and a $134,000 match of 10% capped at $1,000 per participant.

The
Company has a Employee Stock Purchase Plan ("ESPP"), under which eligible employees may authorize payroll deductions of up to 15% of their compensation, as defined, to purchase
common shares at a price of 85% of the lower of the fair market value as of the beginning or the end of the offering period.

87

---

(17) Segment Information

SFAS No. 131,Disclosures about Segments of an Enterprise and Related Informationestablishes standards for
the manner in which public companies report information about operating segments in annual and interim financial statements. It also establishes standards for related disclosures about products and
services, geographic areas, and major customers. The method for determining what information to report is based on the way management organizes the operating segments within the Company for making
operating decisions and assessing financial performance. The Company's chief operating decision-maker is the chief executive officer ("CEO"). Prior to June 7, 2001, the financial information
reviewed by the CEO was identical to the information presented in the accompanying statements of operations. Since the acquisition of Wireless, Inc. (see Note 6), the Company has
determined that it operates in two operating segments: GSM and broadband. GSM products provide infrastructure equipment and software using GSM to support an entire wireless network within a single,
compact enclosure. Broadband products include our high-speed wireless access systems, which enable international and domestic Internet and communications service providers, telephone
operating companies and private network operators to deliver voice and high-speed data services to their customers.

Due
to the nature of our business, shipments are frequently made to a systems integrator located domestically or in a given country, only to be repackaged and shipped to another country
for actual installation. Geographic revenue information for the fiscal years 2002, 2001, and 2000 is based on our customers' location. Long-lived assets include property, plant and
equipment. Property, plant and equipment information is based on the physical location of the asset at the end of each fiscal year.

88

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Reportable
segment information for each segment is as follows (in thousands):

Years Ended June 30,2002

2001

2000Net RevenuesGSM:North America

$
6,116

$
3,684

$
3,580Latin America


9,860





Europe


11,215


13,200


12,052Asia


7,836


7,395


14,507Total GSM


35,027


24,279


30,139Broadband:North America


1,390


522


Latin America


5,058


1,563


Europe


1,051


65


Asia


429


103


Total Broadband


7,928


2,253


$
42,955

$
26,532

$
30,139Segment loss before income taxesGSM

$
56,999

$
92,949

$
28,312Broadband


7,117


863


Total

$
64,116

$
93,812

$
28,312Depreciation and amortizationGSM

$
11,419

$
12,957

$
3,669Broadband


1,339


102


Total

$
12,758

$
13,059

$
3,669Interest income (expense), netGSM

$
1,081

$
6,297

$
2,059Broadband


(25
)

(2
)

Total

$
1,056

$
6,295

$
2,059Income tax expenseGSM

$
209

$
324

$
99Broadband








Total

$
209

$
324

$
99


89

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As of June 30,2002

2001Total assetsGSM

$
50,848

$
94,639Broadband


1,779


36,235Total

$
52,627

$
130,874


Net
property and equipment by country were as follows (in thousands):

June 30,2002

2001North America

$
5,163

$
10,596Latin America


45


24Europe


463


543Asia


1,328


1,471$
6,999

$
12,634


(18) Subsequent Events

In late September 2002, the Company completed the purchase of substantially all of the assets of GBase Communications ("GBase"), a developer of CDMA 2000 base
station systems (BSS) and packet data servicing nodes (PDSNs) for third generation (3G) markets under a license from Qualcomm, Inc ("Qualcomm").

Under
the asset purchase agreement, the Company acquired substantially all of GBase's assets and assumed $0.5 million in liabilities. The initial purchase consideration to the
former GBase shareholders is a maximum of 3.4 million common shares. Contingent consideration of 0.8 million common shares will be set aside in an escrow that will be issued only upon
the accomplishment of certain future milestones. If the average of the Company's closing share price at the end of each day during the last calendar quarter of 2003 is below $2 per share, the Company
may be obligated to issue additional contingent consideration in a combination of common shares and cash, such that the total consideration at that time equals $8.4 million based on a $2 per
share price.

Also
in late September 2002, the Company amended its original equipment manufacturer agreement with UTStarcom, Inc. ("UTStarcom"). Additionally, UTStarcom acquired 5.8 million
shares of the Company's common stock for a purchase price of $3.0 million. In return, the Company will provide certain network interface technical design services, and in the future produce and
sell product to UTStarcom that includes the network interface for CDMA 2000. Under the agreement, the Company has deposited in escrow certain intellectual property as security in case of material
breach cessation of business or liquidation.

90

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(19) Consolidated Supplementary Data (unaudited)

The following table sets forth certain unaudited condensed consolidated statement of operations data for each quarter of 2002 and 2001. This data has been derived
from unaudited condensed consolidated financial statements and, in the opinion of management, includes all adjustments, consisting of normal recurring and other adjustments, necessary for a fair
presentation of the information when read in conjunction with the consolidated financial statements and notes thereto. The Company's quarterly results have in the past been and may in the future be
subject to significant fluctuations. As a result, the Company believes that results of operations for interim periods should not be relied upon as an indication of the results to be expected in future
periods.

|                                                            |  | Quarters Ended |        
|----------------------------------------------------------- |  | -------------- | -------
|
|
|Total revenues                                              |  | $              | 7,248  
|Cost of revenues                                            |  |                | 15,931 
|Net loss attributable to common shares outstanding          |  |                | (38,973
|Basic and diluted net loss per share                        |  |                | (0.70  
|Shares used to compute basic and diluted net loss per share |  |                | 55,918 

91

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

None.

PART III

Item 10. Directors and Executive Officers of the Registrant

The Company will furnish to the Securities and Exchange Commission a definitive Proxy Statement (the "Proxy Statement") not later than 120 days after the
close of the fiscal year ended June 30, 2002. The information required by this item is incorporated herein by reference to the Proxy Statement.

Item 11. Executive Compensation

The information required by this item is incorporated herein by reference to the Proxy Statement.

Item 12. Security Ownership of Certain Beneficial Owners and Management

The information required by this item is incorporated herein by reference to the Proxy Statement.

Item 13. Certain Relationships and Related Transactions

The information required by this item is incorporated herein by reference to the Proxy Statement.

92

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PART IV

Item 14. Controls and Procedures

Not applicable.

Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K



SCHEDULE IIVALUATION AND QUALIFYING ACCOUNTS  Years ended June 30, 2002, 2001, 2000  (in thousands)

|                                         |  | Balance Beginning of Year |       | Additions |   | Deductions |  | Balance End of Year
|---------------------------------------- |  | ------------------------- | ----- | --------- | - | ---------- |  | -------------------
|2002:                                    |  |                           |       |           |   |            |  |                    
|Allowance for doubtful trade receivables |  | $                         | 9,157 |           | $ | 2,125      |  | $                  
|2001:                                    |  |                           |       |           |   |            |  |                    
|Allowance for doubtful trade receivables |  | $                         | 634   |           | $ | 10,363     |  | $                  
|2000:                                    |  |                           |       |           |   |            |  |                    
|Allowance for doubtful trade receivables |  | $                         | 255   |           | $ | 848        |  | $                  

---



93

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interWAVE COMMUNICATIONS INTERNATIONAL, LTD.
ANNUAL REPORT ON FORM 10-K

INDEX TO EXHIBITS

|Exhibits |     | Description                                                                                                                
|-------- | --- | ---------------------------------------------------------------------------------------------------------------------------
|3.2      | (1) | Amended and Restated By-laws of the Registrant                                                                             
|3.3      | (1) | Memorandum of Association                                                                                                  
|10.1     | (1) | Form of indemnification agreement                                                                                          
|10.2     | (1) | 1994 Stock Plan and form of stock option agreement and restricted stock purchase agreement                                 
|10.3     | (1) | 1999 Option Plan and form of subscription agreement                                                                        
|10.4     | (1) | 1999 Share Purchase Plan and form of subscription agreement                                                                
|10.5     | (1) | Lease between Marina Investments, Inc. and interWAVE Communications Inc., dated February 15, 1999                          
|10.6     | (1) | OEM purchase agreement between Registrant and Nortel Networks Corporation, dated March 27, 1998                            
|10.7     | (1) | Purchase/resale agreement between Registrant and ADC Telecommunications, Inc., dated February 27, 1997                     
|10.8     | (1) | Assignment agreement among ADC Telecommunications, Inc., Microcellular Systems, Ltd. and the Registrant, dated May 13, 1999
|10.9     | (1) | Joint development agreement between Registrant and ADC Telecommunications Inc., dated September 4, 1998                    
|10.10    | (1) | Offer of employment between Registrant and Ian V. Sugarbroad                                                               
|10.11    | (1) | Offer of employment between Registrant and Thomas W. Hubbs                                                                 
|10.13    | (1) | Amended and Restated Rights Agreement by and among Registrant and certain shareholders, dated in August 1999               
|10.14    | (1) | Form of warrant by and between Registrant and Intasys Corporation                                                          
|10.15    | (1) | Form of warrant by and between Registrant and MediaTel Capital                                                             
|10.16    | (1) | Form of warrant by and between Registrant and Nortel Networks Corporation                                                  
|10.17    | (1) | Patent license agreement by and between Registrant and Nortel Networks Corporation                                         
|10.18    | (1) | Technical information agreement by and between Registrant and Nortel Networks Corporation                                  
|10.19    | (1) | Value-added services agreement between Registrant and Pemstar, Inc.                                                        
|10.20    | (1) | Distribution and OEM agreement by and between Registrant and Alcatel, dated October 27, 1999                               
|10.21    | (1) | Lease between Tyco Electronics Corporation and interWAVE Communications, Inc., dated November 24, 1999                     
|10.22    | (1) | Base Station System Agreement by and between Registrant and Lanka Cellular Services (PTV) Limited, dated December 1999     
|         |     |                                                                                                                            

94

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|10.23 | (2) | 2001 Supplemental Stock Option Plan and form of subscription agreement.
|----- | --- | -----------------------------------------------------------------------
|21.1  |     | List of Subsidiaries                                                   
|23.1  |     | Consent of KPMG LLP                                                    
|24.1  | (3) | Power of Attorney                                                      

---

During
the fourth quarter of the fiscal year covered by this report, no reports on Form 8-K were filed.

95

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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, in the City of Menlo Park, State of California, on September 30, 2002.

| |  | INTERWAVE COMMUNICATIONS
INTERNATIONAL, LTD.
| |  | --------------------------------------------
| |  | By:                                         

96

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POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Priscilla M. Lu and Cal R. Hoagland, jointly and
severally, his attorneys-in-fact, each with the power of substitution, for him in any and all capacities to sign any amendments to this Annual Report on
Form 10-K, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all
that each of said attorneys-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof.

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

|Signature                             |  | Title                                                                           |  | Date              
|------------------------------------- |  | ------------------------------------------------------------------------------- |  | ------------------
|/s/PRISCILLA M. LUPriscilla M. Lu     |  | Authorized Representative                                                       |  | September 30, 2002
|/s/PRISCILLA M. LUPriscilla M. Lu     |  | Chief Executive Officer and Chairman of the Board
(Principal Executive Officer) |  | September 30, 2002
|/s/CAL R. HOAGLANDCal R. Hoagland     |  | Chief Financial Officer
(Principal Financial and Accounting Officer)            |  | September 30, 2002
|/s/THOMAS R. GIBIANThomas R. Gibian   |  | Director                                                                        |  | September 30, 2002
|/s/WILLIAM E. GIBSONWilliam E. Gibson |  | Director                                                                        |  | September 29, 2002
|/s/MARIO ROSATIMario Rosati           |  | Director                                                                        |  | September 30, 2002
|/s/NIEN DAK SZENien Dak Sze           |  | Director                                                                        |  | September 28, 2002
|/s/ANDREW C. WANGAndrew C. Wang       |  | Director                                                                        |  | September 30, 2002

97

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Sarbanes-Oxley Section 302(a) Certification

We,
Priscilla M. Lu and Cal R. Hoagland, certify that:

|Date: September 30, 2002 |  |                                                                                                                  
|------------------------ |  | -----------------------------------------------------------------------------------------------------------------
|                         |  | /s/PRISCILLA M. LUPriscilla M. Lu
Chief Executive Officer
and Chairman of the Board
(Principal Executive Officer)
|                         |  | /s/CAL R. HOAGLANDCal R. Hoagland
Chief Financial Officer
(Principal Financial and Accounting Officer)           

98

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CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I,
Priscilla M. Lu, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Annual Report of interWAVE
Communications International Limited on Form 10-K for the fiscal year ended June 30, 2002 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange
Act of 1934 and that information contained in such Annual Report on Form 10-K fairly presents in all material respects the financial condition and results of operations of interWAVE
Communications International Limited.

|Date: September 30, 2002 |  | By:                                                  |  | /s/PRISCILLA M. LU
|------------------------ |  | ---------------------------------------------------- |  | ------------------
|                         |  | Name: Priscilla M. Lu
Title: Chief Executive Officer

I,
Cal R. Hoagland, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Annual Report of interWAVE
Communications International Limited on Form 10-K for the fiscal year ended June 30, 2002 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange
Act of 1934 and that information contained in such Annual Report on Form 10-K fairly presents in all material respects the financial condition and results of operations of interWAVE
Communications International Limited.

|Date: September 30, 2002 |  | By:                                                  |  | /s/CAL R. HOAGLAND
|------------------------ |  | ---------------------------------------------------- |  | ------------------
|                         |  | Name: Cal R. Hoagland
Title: Chief Financial Officer

99

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