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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, 2003                      
|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 $0.01 per share |  | Name of each exchange on which registered NASDAQ
|------------------------------------------------------------ |  | ------------------------------------------------

Securities registered pursuant to Section 12(g)of the Act:
Common Shares, par value $0.01 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

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

Aggregate
market value of the voting and non-voting common shares held by non-affiliates of the Registrant, based upon the closing price of $2.10 (as adjusted for
stock splits) on December 31, 2002 on the NASDAQ was $10.0 million. 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 common outstanding shares of the Registrant on September 3,
2003: 6,857,677.

DOCUMENTS
INCORPORATED BY REFERENCE:

Certain
portions of the Registrant's proxy statement for its Annual Meeting of Shareholders to be held on December 5, 2003, are incorporated by reference in Part III of this report.

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2003 FORM 10-K ANNUAL REPORT  TABLE OF CONTENTS

|         |  |                                                                                                |  | Page
|-------- |  | ---------------------------------------------------------------------------------------------- |  | ----
|PART I   |  |                                                                                                |  |     
|Item 1   |  | Business                                                                                       |  | 2   
|         |  | Overview                                                                                       |  | 2   
|         |  | Standards for Wireless Mobile Communications                                                   |  | 3   
|         |  | Market Opportunities                                                                           |  | 3   
|         |  | Primary Objective of the GSM Wireless Service Provider                                         |  | 4   
|         |  | Our GSM Solutions                                                                              |  | 5   
|         |  | Our GSM Products                                                                               |  | 6   
|         |  | CDMA Infrastructure                                                                            |  | 8   
|         |  | Product Summary                                                                                |  | 9   
|         |  | Applications of Our GSM Network Systems                                                        |  | 11  
|         |  | Customers                                                                                      |  | 11  
|         |  | Sales and Marketing                                                                            |  | 12  
|         |  | Customer Support                                                                               |  | 13  
|         |  | Engineering                                                                                    |  | 13  
|         |  | Manufacturing                                                                                  |  | 14  
|         |  | Backlog                                                                                        |  | 15  
|         |  | Competition                                                                                    |  | 15  
|         |  | Government Regulation                                                                          |  | 16  
|         |  | Proprietary Rights                                                                             |  | 16  
|         |  | Trademarks                                                                                     |  | 17  
|Item 2   |  | Properties                                                                                     |  | 17  
|Item 3   |  | Legal Proceedings                                                                              |  | 18  
|Item 4   |  | Submission of Matters to a Vote of Security Holders                                            |  | 18  
|PART II  |  |                                                                                                |  |     
|Item 5   |  | Market for Registrant's Common Equity and Related Shareholder Matters                          |  | 19  
|Item 6   |  | Selected Financial Data                                                                        |  | 21  
|Item 7   |  | Management's Discussion and Analysis of Financial Condition and Results of Operations          |  | 22  
|Item 7A  |  | Qualitative and Quantitative Disclosures About Market Risk                                     |  | 53  
|Item 9   |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure           |  | 89  
|Item 9A  |  | Controls and Procedures                                                                        |  | 89  
|PART III |  |                                                                                                |  |     
|Item 10  |  | Directors and Executive Officers of the Registrant                                             |  | 89  
|Item 11  |  | Executive Compensation                                                                         |  | 89  
|Item 12  |  | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |  | 89  
|Item 13  |  | Certain Relationships and Related Transactions                                                 |  | 90  
|Item 14  |  | Principal Accountant Fees and Services                                                         |  | 90  
|PART IV  |  |                                                                                                |  |     
|Item 15  |  | Exhibits, Schedules and Reports on Form 8-K                                                    |  | 91  
|         |  | Exhibit Index                                                                                  |  | 92  
|         |  | Signatures                                                                                     |  | 94  
|         |  | Power of Attorney                                                                              |  | 94  

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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" 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. is a global provider of scaleable wireless infrastructure networks that offer a cost effective solution to
extend coverage and connectivity to hard-to-reach areas. We were incorporated in June 1994 and recorded our first product sale in May 1997. Our systems support
wireless voice and data transmission for both mobile and fixed applications.

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. Our networks may be deployed in communities with a few thousand subscribers and may be scaled to grow to
more than a
hundred thousand subscribers. Our products provide wireless network operators a simple, easy to support and maintain network that is software configurable to various network architectures. We have
designed our systems to serve the following applications:



In
fiscal 2003, interWAVE continued to enhance its high capacity switch product line to include additional functionality and value added services and interWAVE successfully deployed this
high capacity switch with a number of African network operators. In addition, in fiscal 2003, interWAVE deployed its new high capacity UltraWAVE BTS product with two network operators, including its
deployment of a GSM 850 product in North America and a GSM 900 product in the Pacific Islands. Further, interWAVE's product line was enhanced in fiscal 2003 to provide data services with general
packet radio service, or GPRS, and interWAVE broadened its product and technology base with the

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addition
of a CDMA2000 based product line and technology with the acquisition of substantially all of the assets of GBase Communications in September 2002.

We
market and sell our solutions around the world through our direct sales force and other sales representatives utilizing a multi-tiered sales strategy which includes selling to
wireless service providers, communications equipment providers and systems integrators, including value added resellers, or VARS, that integrate our systems with the products of other companies. Since
1997 we have sold over 3,000 units of equipment based on the Global Standard for Mobile Communications, or GSM, which have been deployed in over 100 networks in more than 35 countries. We have a
strategic relationship with Hutchison Whampoa and its subsidiary Hutchison Telecommunications International, Ltd., or Hutchison, one of the leading global GSM cellular network operators. As of
June 30, 2003, Hutchison
affiliates owned approximately 3.84% 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
relationship with Eastern Communications Co., Ltd. in the People's Republic of China. Eastcom is a leading provider of both GSM and Code Division Multiple Access, or CDMA, equipment in China
and owned approximately 8.88% of our fully diluted shares as of June 30, 2003.

Standards for Wireless Mobile Communications

GSM is the most widely accepted digital wireless standard worldwide, followed by the CDMA standard, the time division multiple access standard, or TDMA, and
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. interWAVE's network products operate on the GSM standard.

In
November 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. UMTS, the follow on standard for GSM and GPRS, is the 3G standard for licenses issued in Europe. CDMA2000
has been adopted by network operators in the United States, Korea, Japan and China. In addition, certain Latin American and Eastern European wireless operators have indicated that they intend to adopt
the CDMA2000 standard.

In
September 2002, interWAVE acquired CDMA2000 technology from GBase Communications. As part of the GBase acquisition, interWAVE obtained a license from Qualcomm to use the
CDMA2000 technology for enterprise applications. In April 2003, the terms of this existing wireless enterprise licensing agreement was expanded to include a full worldwide CDMA infrastructure
license agreement. Under the terms of the expanded agreement, interWAVE can develop, manufacture and sell CDMAOne and CDMA2000® 1X/1xEV-DO infrastructure
equipment.

Market Opportunities

Community Solutions

Community networks enable the introduction of wireless service to those 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

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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.

Home Zone Networks

The Home Zone is a service provider with wireless connectivity in a town or city without enabling mobility. WAVEXchange serves as switching capacity
for Home Zones, in which the GSM subscriber has service similar to cordless telephony. The WAVEXchange Home Zones can create an underlay network with local switching. The Home Zone network replicates
the switching network architecture of the Public Switched Telephone Network, or PSTN, reducing the operators interconnect charges to the 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, or BTS, provides high power coverage in
Home Zone networks. The Home Zone approach allows operators to build out a nationwide network incrementally, thus minimizing large, up front investments that are required when using traditional
network buildout methods. Every Home Zone can be independently expanded and managed to provide full cellular network services.

Specialty Applications

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 large centrally located mobile
switching center, or MSC, to route voice and data signals to their correct destinations, multiple base station controllers, or BSCs, to aggregate and manage voice and data signals between the switch
and the base transceiver station, or BTS, and many base transceiver stations to transmit and receive voice and data signals over radio frequencies. Wireless networks typically are designed to support
large user bases, but service providers also need cost-effective ways to address smaller user bases. As service providers face increasing price competition,

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we
believe 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 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.

Our GSM Solutions

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

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
fill in 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 enable wireless service providers to rapidly add capacity to their networks. In addition, because there are only four main
WAVEXpress® hardware modules, maintenance and training costs are minimized, and the amount of capital necessary to maintain spare parts in inventory is limited. 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

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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.

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.

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 that can be offered 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. These products enable service providers
to customize and expand service offerings to users without deploying additional systems that require incremental training and testing. Our systems provide scalable and low-cost
alternatives to expensive digital communications infrastructure equipment.

Network Compatibility

Our wireless systems support industry standard protocols that allow voice and data to be transported at carrier-quality standards. Our systems address a broad
range of applications in different markets. Our products are split into two distinct product lines:



Our GSM Products

The switching products are delivered on the WAVEXpress® platform and the WAVETransit platform. Both platforms support the same base
transceiver station, or BTS, products and are fully interoperable.

WAVEXpress®

Our core WAVEXpress® product can house any combination of switches, base station controllers and base stations in a single compact enclosure. The
WAVEXpress® system is approximately the size of a personal computer tower and weighs less than 50 pounds. Our WAVEXpress product line represented 58%, 65% and 69% of our net revenues for
fiscal years ending June 30, 2003, 2002 and 2001, respectively.

WAVEXchange.The WAVEXchange is a family of switches. The WAVEXchange-I is based on the
WAVEXpress platform and supports up to 8,000 subscribers. WAVEXchange-II is capable of

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supporting
up to 200,000 subscribers, and is based on the WAVETransit hardware platform. The WAVEXchange software, implemented on either platform, provides the wireless switch functionality that
routes and bills calls, directs data packets, acts 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 public telephone networks and connected to other mobile switching centers over standard SS7 signaling links via the
mobile application protocol, thus supporting international 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. The recent addition of GPRS in the latest release of our switch
software allows the WAVEXchange switches to act as a mobile media gateway supplemented by our new GSM 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 mobile switching center or a local WAVEXchange switch. The wall-mountable WAVEXpress/BSC is one of the smallest GSM base station controllers on the
market, and connects to any mobile switching center
supporting the GSM standard. The WAVEXpress BSC supports the full rate and enhanced full rate voice transcoders and the four GPRS data coding schemes. The WAVEXpress BSC can be reconfigured into the
WAVEXchange switching platform or the WAVEXpress BTS platform.

WAVEXpress/BTS.The WAVEXpress/BTS is a base transceiver station that accommodates up to three radios providing up to 22
simultaneous voice communication channels, and up to 4 GPRS Packet Data Channels. Versions of the WAVEXpress/BTS are available in all GSM frequency bands: 900 Mhz and 1800 Mhz for Europe and Asia 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 the WAVEXpress platform. The TRX capacity has been increased to 84 radios in the initial release, with further capacity increases planned by the
end of 2003.

UltraWAVE/BTS.The UltraWAVE/BTS currently supports 6 radios. We intend to develop a 12 radio UltraWAVE BTS by the end of
December 2003.

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.

WAVEXpress/TurboMAX.The WAVEXpress/TurboMAX is a high power, 25-watt, 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. 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 wireless networks. TurboMAX uses a 40-watt power amplifier per transceiver with unique, patented thermal technology developed
initially for military applications.

Network In A Box.The Network In A Box, or NIB, offers the ability to support a complete GSM network by integrating the
WAVEXchange switch, base station controller, or BSC, and base transceiver station, or BTS, in a single WAVEXpress unit. The NIB is designed for rapid deployment and provides easy network expansion as
usage and coverage requirements increase. The NIB can be configured as a stand-alone GSM network or it can integrated with the public telephone networks or other GSM networks to provide GSM roaming
services. We have a patented switching technology that allows a

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single
NIB to act as a local switch with connections to the public 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.

WAVEGSN.The WAVEGSN was developed as part of the GPRS product development. The WAVEGSN can be deployed in three
configurations: SGSN standalone, GGSN standalone or SGSN and GGSN combined. The primary function of the Serving GPRS Service Node, or SGSN, is to handle mobility management for the attached GPRS
mobile terminals. It also manages the interactions with the GSM circuit-switched network elements, or HLR/VLR, and the Short Messaging infrastructure. The Gateway GPRS Support Node, or GGSN, is
primarily a router. In the packet data network, it is the entity that routes 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.

WAVETransit.The WAVETransit is a high capacity circuit switched transport based switch platform
with standard SS7 ISDN and R2 signaling interfaces. It is designed to provide a complete solution for interconnectivity between GSM mobile and landline networks. The WAVEtransit Network performs trunk
routing, number translations dialed number grooming, multi-protocol switching, and network announcements.

WAVEXchange II.The WAVEXchange II, or WXC II System is a High Capacity HLR/VLR/MSC platform, which supports up to
100,000 subscribers. The WXC II consists of up to 256 E1 interfaces and a number real time operating system servers which provide the MSC, VLR, HLR, AuC, EIR, SMS, Pre-Paid and OMC
functionality. The WXC II comes equipped with a Voice Prompt System, or VPS, and built in Echo cancellation. The WXC II complies with all relevant GSM mobile standards, 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, or WLL, services.

WAVEView.The WAVEView is an operations and management control, or 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 BSS and NSS wireless infrastructure. 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.

CDMA Infrastructure

The CDMA infrastructure is based on a common set of processor, modem and RF cards. These cards can be deployed as a low power pico system or as a macro BTS with
the aid of a single channel PA per Frequency Assignment. These CDMA products support an all IP back haul infrastructure resulting in significant cost savings to the network operator.

WAVE2000 Pico BS Plus.InterWAVE's WAVE2000 Pico BS Plus is a standards compliant, cost effective, highly distributed
CDMA2000 radio network based on IP connectivity. This flexible indoor platform utilizes existing Private Branch Exchange, or PBX, Public Switch Telephone Network, or PSTN, and Voice Over Internet
Protocol, or VoIP, infrastructure to provide wireless communication within public and private networks. The WAVE2000 Pico BS Plus is ideal for building in-fill environments, and wireless
office applications. Its compact form makes it suitable for pole or wall mounting.

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WAVE2000 BS Plus.interWAVE's WAVE2000 BS Plus is a standard compliant, cost-effective, distributed CDMA2000
radio network based on IP connectivity. This compact flexible CDMA2000 radio network is ideal for providing voice and data services in large public or private areas (e.g., public communities
and large campuses).

WAVE2000 PDSN.interWAVE's WAVE2000 Packet Data Service Node, or PDSN, provides a standard-compliant gateway function for
CDMA2000 wireless high-rate packet data access to Internet services. The WAVE2000 PDSN integrates all Internet data traffic from one or more WAVE2000 BS Plus units over the radio access
network, or RAN. It also acts as a proxy for each wireless subscriber registered within the network. interWAVE's WAVE2000 PDSN is a software package that runs on a standard PC. It is optimized for
small to medium capacity networks, and is the most cost-effective solution for this subscriber range. interWAVE's WAVE2000 PDSN supports all relevant CDMA2000 1xRTT standard protocols.

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.                                                                                                           
|UltraWAVE®/BSC        |  | A high capacity Base Station Controller supporting up to 32 base transceiver stations.                                                          |  | Supports the same number of Abis connections as the WAVEXpress BSC, but the TRX capacity has been increased to 84 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 four 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 35 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 2 radios and 1000 users.
|                      |  |                                                                                                                                                 |  |                                                                                                                                                           

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|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.                                                                                                    
|----------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|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.                                          
|WAVE2000 Pico BS+ |  | A combined CDMA BSC and BTS product which provides the RF interface to the Mobile Station and a IP interface to the MSC via a media gateway.                                                      |  | A small low power BSS supporting up to 2 FA using the 1XRTT CDMA standard. The interface to the MSC is over IP and conforms to the IOS 4.1 interoperability standard.                                                                  
|WAVE2000 BS Plus  |  | A combined CDMA BSC and BTS product which provides the RF interface to the Mobile Station and a IP interface to the MSC via a media gateway.                                                      |  | A Macro high power BSS supporting up to 3 FA in omni or sectorized configurations and a total of 96 channels. The interface to the MSC conforms to the IOS 4.1 standard and is transported over IP. The maximum data rate is 153Kbit/s.
|WAVE2000 PDSN     |  | The Packet Data Support Node acts as the interface between the Radio Access Network and the Internet. It also provides the proxy functionality for all subscribers registered within the network. |  | Can support up to 5000 subscribers at 144Kbit/s per subscriber. Supports PAP, CHAP security along with Radius authentication.                                                                                                          

10

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Applications of Our GSM Network Systems

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, China.                                                                                                                                                                                                           
|interWAVE Solution:                  |  | WAVEXpress®/BTS, WAVEXpress®/TurboWAVE, WAVEXpress®/BSC, WAVEView OMC.                                                                                                                                                                                                     
|Value Proposition:                   |  |  increase existing customer usage;
 improve network coverage;
 improve network quality; and
 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; and
 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; and
 generate additional roaming revenue.                                                                                                                                                                 

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, 2003, approximately 9% of our
revenue was derived from sales to Eastcom.

11

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The
selected customers listed below each represented less than 10% of our revenues for the fiscal year ended June 30, 2003.

|Customer                    |  | Application                          |  | End Users                                           
|--------------------------- |  | ------------------------------------ |  | ----------------------------------------------------
|Systems Integrators:        |  |                                      |  |                                                     
|Young Design, Inc.          |  |  Point to point                     |  |  Broadband users                                   
|Telos Engineering           |  |  Wireless office networks           |  |  Large organizations                               
|Wireless Service Providers: |  |                                      |  |                                                     
|Widespread Trading          |  |  Urban and rural community networks |  |  Wireless users in Nigeria                         
|Bell Benin                  |  |  Urban and rural community networks |  |  Wireless users in Benin                           
|Vodacom                     |  |  Urban and rural community networks |  |  Wireless users in the Democratic Republic of Congo

Sales and Marketing

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

Our
GSM systems currently are deployed in:



Trial
systems currently are deployed in:



Our
broadband networks currently are deployed in:



We
have ceased marketing and selling our broadband product line. Our broadband product line represented 0%, 18% and 8% of our net revenues for fiscal years ending June 30, 2003, 2002 and
2001, respectively.

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, 2003, 2002 and 2001. See "Notes to Consolidated Financial Statements, Note 18Segment Information." Risks associated with our foreign operations are discussed more
fully in the "Risk Factors" section.

12

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Communications Equipment Providers

Eastern Communications Co., Ltd.Eastcom, a publicly listed company on the Shanghai Stock Exchange, is one of the
leading providers of telecommunications equipment for cellular networks and handsets throughout China. In March 2002, interWAVE entered into an OEM Agreement with Eastcom for BSS extension
equipment. As of June 30, 2003, Eastcom owned approximately 8.88% of our fully diluted shares.

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

Direct Sales

We established a direct sales presence in Paris, France in mid-1996. We established a five-year cooperation agreement with Telstra,
headquartered in Australia. Through wireless service providers, such as CFL, Bell Benin and Vodacom, we have deployed our network solutions in Nigeria, Benin, Congo, Kenya, Somalia, Sri Lanka and
Paraguay.

In
fiscal 2003, sales to Widespread Trading, Bell Benin and Vodacom comprised 7%, 7% 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 0.3 million shares, or 3.84%, of our outstanding shares as of June 30, 2003.

Customer Support

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 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 ensure that they have the necessary skills and specific product knowledge to assist their customers with installation, management and other network support requirements.

Engineering

Our engineering development team resides in three locations. Our main engineering organization is in Mountain View, California, where hardware, firmware, and the
core radio software and systems engineering are performed. In fiscal 2003, we reduced our engineering group in California and moved some of our switch software development to Shenzhen, China, where
one-third of our engineering headcount is located. The management system software group and the documentation group is located in Tralee, Ireland. Our Colorado Springs facility was closed
in July 2002.

13

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In
fiscal 2003, the major products that were being developed or delivered were:



We
believe interWAVE's success depends on its ability to continue to develop more cost effective products through technology innovation and to introduce new capabilities and features for
existing products. Our research development expenses totaled approximately $12.9 million, $19.8 million and $30.5 million for fiscal years 2003, 2002 and 2001, respectively. As of
June 30, 2003, engineering development staff consisted of 81 full-time or contracted employees, and we have 195 employees company wide.

Manufacturing

We rely on Flash Electronics to manufacture our GSM and CDMA product lines. We began using Flash Electronics' contract manufacturing services on a purchase order
basis in May 2000 and we entered into a manufacturing agreement in January 2002. Flash Electronics has manufacturing facilities in Fremont, California and in Suzhou, Jiangsu Province,
China.

In
May 2003, our manufacturing team was relocated to our 8,300 square foot facility located in our main 34,500 square foot facility in Mountain View, California from our facility
in Menlo Park, California. We use this facility for planning, procurement, final assembly, system testing, and quality control. We also 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 to meet the ordering needs of our contract manufacturer. We
also utilize this sales forecast to control our inventory levels. Due to the modular architecture of our product line, we are able to reconfigure our products for specific customer purchase orders in
a timely manner.

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

14

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Backlog

As of September 26, 2003, our backlog was approximately $21.3 million. As of September 26, 2002, our backlog was approximately
$11.5 million. Backlog consists of purchase orders received, including, in some instances, forecast requirements released for production under customer contracts. Any cancellation and/or
postponement charges generally vary depending upon the time of cancellation or postponement, and a portion of our backlog may be subject to cancellation or postponement without significant penalty. A
substantial portion of our current backlog is scheduled for delivery within the
next 12 months. Customers may cancel scheduled deliveries and backlog may therefore not be a meaningful indicator of future financial results.

Competition

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. Over the last year, we have experienced increased competition from Huawei, a Chinese company selling GSM products and services in the African and Russian markets. Huawei has been
gaining market share by selling equipment at prices that are significantly lower than prices for similar products from other manufacturers and by its ability to receive financing from the Chinese
government. We also compete with the TDMA and CDMA product offerings from the 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. In the past, the products of most of the leading GSM communications
equipment providers were capable of handling large subscriber bases. Equipment providers are beginning to focus, however, on equipment similar to our products that address smaller subscriber bases.
Each of the major GSM communications equipment providers has at least a partial GSM solution that addresses this target market.

Increased
competition in our target market 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 designed and engineered our products to minimize costs, maximize margins and improve competitiveness. However, 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.

15

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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 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 U.S. 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.

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 and 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 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

16

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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.

Trademarks

The following are trademarks of interWAVE: Business Mobility, Community Mobility, Specialized Mobility, interWAVE, TurboMAX, GateWAVE, WAVEServer, IPNIB, 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®, and interWAVE Communications® and WAVEXchange®.

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.: MULTIPOINT NETWORKS®, RAN®, THE WIRELESS SOLUTION FOR MAN®, WAVENET®,
WAVENET ACCESS® and WAVENET 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. In May 2003, we relocated our principal administrative, manufacturing and engineering
facilities from our facility in Menlo Park, California to our main 34,500 square foot facility in Mountain View, California, which is also used for planning, procurement, final assembly, system
testing, and quality control. The three-year lease commenced in May 2003. In addition, we lease sales, service and systems testing facilities in the following locations:

|City                                                                               |  | Approx. S.F. |  | Lease Expires
|---------------------------------------------------------------------------------- |  | ------------ |  | -------------
|Basingstoke, Hampshire, UK                                                         |  | 3,000        |  | December 2006
|Beijing, PRC                                                                       |  | 150          |  | January 2004 
|Hong Kong, S.A.R.                                                                  |  | 100          |  | November 2003
|Menlo Park, California, USA (see Note 15 to the Consolidated Financial Statements) |  | 59,000       |  | January 2005 
|Paris, France                                                                      |  | 3,552        |  | October 2005 
|San Diego, California, USA                                                         |  | 11,411       |  | December 2005
|Shenzhen, PR China                                                                 |  | 1,815        |  | August 2004  
|Tralee, Ireland                                                                    |  | 5,000        |  | December 2006

17

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interWAVE
believes that its facilities are adequate to support the business efficiently and that the properties and equipment have been well maintained.

Item 3. Legal Proceedings

On November 21, 2001, interWAVE and various of its officers and directors were named as defendants inMiddleton v. interWAVE
Communications International Ltd., et al., Case No. 01-CV-10598, a purported securities class action lawsuit filed in United States
District Court, Southern District of New York. On April 19, 2002, plaintiffs filed an amended complaint. The amended complaint asserts that the prospectus from interWAVE's January 28,
2000 initial public offering ("IPO") failed to disclose certain alleged improper actions by various underwriters for the offering in the allocation of IPO shares. The amended complaint alleges claims
against certain underwriters, interWAVE and its officers and directors under the Securities Act of 1933 and the Securities Exchange Act of 1934. Similar complaints have been filed concerning more than
300 other IPOs; these cases have been coordinated asIn re Initial Public Offering Securities Litigation, 21 MC 92.

On
July 15, 2002, the issuers filed an omnibus motion to dismiss for failure to comply with applicable pleading standards. On October 8, 2002, the Court entered an Order of
Dismissal as to all of the
individual defendants in the IPO litigation, without prejudice. On February 19, 2003, the Court denied the motion to dismiss against interWAVE.

A
proposal has been made for the settlement and release of claims against the issuer defendants, including interWAVE. The settlement is subject to a number of conditions, including
approval of the proposed settling parties and the court. If the settlement does not occur, and litigation against interWAVE continues, interWAVE believes it has meritorious defenses and intends to
defend the action vigorously; provided, however, such legal proceedings may be time consuming and expensive and the outcome could be adverse to interWAVE. An adverse outcome could have a material
adverse effect on interWAVE's financial position, on its business and results of operations.

interWAVE
may from time to time become a party to various legal proceedings arising in the ordinary course of 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, through the solicitation of proxies or
otherwise.

18

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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

interWAVE'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 closing
sales prices by quarter as reported on the NASDAQ National Market:

High

LowFiscal Year Ended June 30, 2003:First Quarter

$
8.70

$
4.80Second Quarter


5.10


1.80Third Quarter


2.20


1.50Fourth Quarter


3.30


1.60


High

LowFiscal Year Ended June 30, 2002:First Quarter

$
26.90

$
6.90Second Quarter


12.40


6.70Third Quarter


10.20


6.30Fourth Quarter


12.00


7.50


On
June 30, 2003, there were approximately 681 shareholders of record of interWAVE'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

interWAVE has never paid cash dividends on its common shares. interWAVE 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 interWAVE sold by interWAVE from July 1, 2002 to June 30, 2003:

|Class of Purchasers  |  | Date of Sale |  | Aggregate Number of
Title of Securities |  | Amount of Price
Consideration |           | Form of Price
Consideration
|-------------------- |  | ------------ |  | --------------------------------------- |  | ----------------------------- | --------- | ---------------------------
|GBase Communications |  | 09/26/02     |  | Common Shares- 396,847                  |  | $                             |          |                            
|UT Starcom, Inc.     |  | 09/30/02     |  | Common Shares- 583,657                  |  | $                             | 3,000,000 |                            

All 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 interWAVE that the shares were being acquired for investment or pursuant to a determination of fairness by the California
Corporations Commission.

19

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USE OF PROCEEDS FROM OUR 2000 INITIAL PUBLIC OFFERING

On January 28, 2000, a registration statement on Form F-1 (No. 333-92967) was declared effective by the SEC, pursuant
to which 9,775,000 shares of our common shares were offered and sold for our account at a price of $13.00 per share, generating gross proceeds of approximately $127.1 million.

In
connection with the offering, we incurred $8.9 million in underwriting discounts and commissions, and $1.9 million in other related expenses. The net proceeds from the
offering, after deducting the foregoing expenses, were $116.3 million. Each outstanding share of preferred stock was automatically converted into one share of common stock upon the closing of
the initial public offering. The managing underwriters were Salomon Smith Barney, Banc of America Securities LLC and SG Cowen.

As
of September 29, 2003, we have used all of the net proceeds from the initial offering to fund our operations, capital expenditures and other general corporate purposes,
including purchases of equipment relating to acquisitions completed during the year, net losses from operations, excluding depreciation and amortization and other non-cash charges, and
other costs relating to acquisitions that we completed during the fiscal year ended June 30, 2003.

The
equity compensation plan information required by Item 201(d) of Regulation S-K is set forth in Part III, Item 12 of this Annual Report on
Form 10-K.

20

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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 annual report. The statement of operations data for the fiscal years ended June 30,
2003, 2002, 2001, 2000 and 1999, and the balance sheet data as of June 30, 2003, 2002, 2001, 2000 and 1999 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 amounts are expressed in U.S. dollars. Our fiscal year
2003 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:                                                  |                                                          |                            |        
|Total revenues                                                                 |                                                          | $                          | 29,960 
|Cost of revenues                                                               |                                                          |                            | 22,416 
|                                                                               |                                                          |                            |        
|Gross profit (loss)                                                            |                                                          |                            | 7,544  
|Operating expenses:                                                            |                                                          |                            |        
|                                                                               | Research and development                                 |                            |        
|                                                                               | Selling, general and administrative                      |                            |        
|                                                                               | Amortization of deferred stock compensation              |                            |        
|                                                                               | In-process research and development                      |                            |        
|                                                                               | Losses (gains) on asset sales and asset impairments, net |                            |        
|                                                                               | Restructuring charges (credit)                           |                            |        
|                                                                               |                                                          |                            |        
|Total operating expenses                                                       |                                                          |                            | 35,489 
|                                                                               |                                                          |                            |        
|Loss from operations                                                           |                                                          |                            | (27,945
|Interest income                                                                |                                                          |                            | 167    
|Interest expense                                                               |                                                          |                            | (166   
|Other expense, net                                                             |                                                          |                            | (53    
|                                                                               |                                                          |                            |        
|Loss before income taxes                                                       |                                                          |                            | (27,997
|Income tax expense                                                             |                                                          |                            | (267   
|                                                                               |                                                          |                            |        
|Net loss                                                                       |                                                          |                            | (28,264
|Dividend effect of beneficial conversion feature to H-1 preferred shareholders |                                                          |                            |       
|                                                                               |                                                          |                            |        
|Net loss attributable to common shareholders                                   |                                                          | $                          | (28,264
|                                                                               |                                                          |                            |        
|Basic and diluted net loss per share                                           |                                                          | $                          | (4.34  
|                                                                               |                                                          |                            |        
|Shares used in computing basic and diluted net loss per share                  |                                                          |                            | 6,508  
|                                                                               |                                                          |                            |        

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

21

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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. Deployments of our community networks began in 1998, primarily in China and Africa, to add capacity and coverage to existing systems. 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 $30.0 million in fiscal 2003, $43.0 million in fiscal 2002 and
$26.5 million in fiscal 2001. We incurred net losses of $28.3 million in fiscal 2003, $64.3 million in fiscal 2002 and $94.1 million in fiscal 2001. As of June 30,
2003 and 2002, we had an accumulated deficit of $326.9 million and $298.6 million, respectively.

In
fiscal 2003, we faced a challenging global economic environment. During this period, we continued downsizing and realigning our company to focus on our core business as a provider of
cellular infrastructure networks to network operators. In particular, we ceased marketing and selling our broadband product line, thereby targeting lowered operating expenses, decreased losses and
increased revenue.

In
fiscal 2003, 2% of our revenue resulted from sales in Latin America, 48% of our revenue resulted from sales in Europe, Middle East and Africa, 20% of our revenue resulted from sales
in Asia Pacific, and 30% of our revenue resulted from sales in North America, mostly from "license saver" sales to small operators in the United States. We have continued our expansion into Russia to
establish a presence in Eastern Europe, where cellular service penetration is low and we believe growth potential is significant.

In
September 2002, we completed the purchase of substantially all of the assets of GBase Communications, a developer of CDMA2000 base station systems and packet data servicing
nodes for third generation markets under a license from Qualcomm, Inc.

Under
the asset purchase agreement, we acquired substantially all of GBase's assets and assumed most of its liabilities for an initial purchase price of 0.32 million common
shares. An additional 0.02 million common shares were placed in an escrow pending the satisfaction of certain contingencies. Contingent consideration of 0.08 million common shares were
placed in an escrow and will be released in two tranches subject to the continued employment of key GBase personnel for periods of 12 and 18 months following the closing of the asset purchase.

In
addition, if the average of our closing share price during the last calendar quarter of 2003 is below approximately $20 per share, we will be obligated to issue additional contingent
consideration in common shares and cash, such that the total consideration at that time equals $6.7.

22

---

The
following table summarizes the consideration paid and allocation of purchase price for GBase (in thousands):

Acquisition costs

$
270Liabilities assumed


705Common stock issued


5,302$
6,277Other tangible assets

$
123Qualcomm licenses


1,403Purchased technology


4,751$
6,277


The
value of the contingent consideration of $0.3 million and $0.1 million are being recognized ratably as stock compensation expense over the next 12 and 18 months,
respectively. For the year ended June 30, 2003, $0.3 million related to this contingent consideration was recognized as compensation expense and classified as research and development
expenses in the accompanying condensed consolidated statements of operations. Purchased technology is amortized over the estimated useful life of 4 years and classified as amortization of
intangible assets.

In
September 2002, we amended our original equipment manufacturer agreement with UTStarcom, Inc. Additionally, UTStarcom acquired 0.58 million shares of our common
stock for a purchase price of $3.0 million, which represented the fair value of common stock on the date of the transaction. We also agreed to provide certain network interface technical design
services, and in the future produce and sell products to UTStarcom that include the network interface for CDMA2000 for fees to be negotiated. Under the agreement, we have deposited in escrow certain
intellectual property as security in case of material breach, cessation of business or liquidation.

In
October 2002, we issued warrants to purchase 0.2 million shares of our common stock to UTStarcom. The fair value of the warrant of $0.3 million was determined
using the Black-Scholes pricing model with the following assumptions: interest rate at 3.5%, volatility at 122%, exercise price at $2.10 and 3-year terms. The $0.3 million was
charged to our consolidated statement of operations as selling, general and administrative expenses.

Also
in October 2002, we entered into a licensing agreement with Telos Technology Ltd. Under the agreement, in exchange for consideration of $2 million we granted a
perpetual license to Telos to use certain technology we acquired in the GBase acquisition. The $2 million consideration received was offset against the cost of GBase's purchased technology.

In
fiscal 2003, we experienced significant changes in our senior management, including the resignation of our Chief Executive Officer, Priscilla M. Lu. Following Ms. Lu's
resignation, William E. Gibson, a member of our Board of Directors, served as the chairman of an executive committee consisting of our independent members of the Board of Directors, which collectively
managed the duties previously undertaken by our Chief Executive Officer. In July 2003, Erwin F. Leichtle joined interWAVE as President and Chief Executive Officer and was elected to its Board
of Directors.

In
March 2003, we expanded our agreement with Qualcomm to include a worldwide CDMA infrastructure license. The expanded license grants us the right to develop, make and sell
infrastructure equipment based on Qualcomm's CDMAOne and CDMA2000 1X/1xEV-DO technology. Accordingly, we have recorded an additional license value at $2.5 million. This Qualcomm
license is amortized based on the greater of the straight-line amortization over 5 years or units sold basis.

Also
in March 2003, Young Design, Inc., a leading manufacturer of broadband solutions for wireless internet service providers, or WISP, common carriers and mobile carriers,
placed a $0.8 million

23

---

product
order for our Link CX, high-capacity radio and, in a separate transaction, purchased substantially all of the remaining assets and obtained a nonexclusive license for all of the
technology related to the Link CX product line. Accordingly, we recorded a gain on sale of assets in the amount of $0.3 million.

In
order to maintain a listing on the Nasdaq National Market, listed issuers must, among other requirements, maintain a $1 per share minimum bid price and shareholder equity of at least
$10 million.

On
April 14, 2003, Nasdaq determined that interWAVE no longer met the minimum bid price requirement and gave us until April 30, 2003 to achieve and maintain a closing bid
price of at least $1 per share for at least ten consecutive trading days. On April 30, 2003, interWAVE effected a 1-for-10 reverse stock split, and thus far interWAVE's
bid price has stayed above the $1 minimum. On May 22, 2003, Nasdaq determined that interWAVE had regained compliance with the Nasdaq National Market's minimum bid price requirement, and closed
the file on interWAVE's bid price deficiency.

On
August 11, 2003, Nasdaq determined that interWAVE no longer met the National Market's $10 million shareholder equity requirement and requested that interWAVE respond by
August 25, 2003, with a specific plan to achieve and sustain compliance with the shareholder equity requirement. On August 25, 2003, interWAVE submitted a plan designed to achieve and
sustain compliance with the shareholder equity requirement. Nasdaq accepted interWAVE's plan, but conditioned its acceptance upon interWAVE achieving certain milestones, the first of which must be
completed by October 1, 2003. It is unlikely that interWAVE will be able to achieve this initial milestone and regain compliance with the shareholder equity requirement of the Nasdaq National
Market by the October 1, 2003 deadline.

interWAVE's
final financial statements as of June 30, 2003, filed under Item 8 of this Form 10-K, reflect shareholders' equity in excess of $10 million
due to a subsequent event described in Note 15(a) to the Consolidated Financial Statements. interWAVE has submitted a letter to the Nasdaq National Market seeking relief from the delisting of
its securities based on interWAVE's revised shareholders' equity. We cannot assure you that the Nasdaq National Market will grant us relief from delisting, or, if it does grant us relief, that we will
be able to maintain compliance with the shareholder equity requirement of the Nasdaq National Market in the future. If we are unable to maintain compliance with the shareholder equity requirement, we
may be forced to transfer the listing of our common shares to the Nasdaq SmallCap Market in order to take advantage of that market's lengthier grace periods and more lenient requirements.

If
we are forced to transfer the listing of our common shares to the Nasdaq SmallCap Market, it could seriously limit the liquidity of our common shares and impair our potential to raise
future capital through the sale of our common shares, which could have a material adverse effect on our business. The transfer of our common shares to the Nasdaq SmallCap Market could also reduce the
ability of holders of our common shares to purchase or sell shares as quickly and as inexpensively as they have done historically, and may have an adverse effect on the trading price of our common
shares. The transfer could also adversely affect our relationships with vendors and customers.

In
May 2003, we relocated our principal administrative, manufacturing and engineering facilities from our facility in Menlo Park, California to our main 34,500 square foot
facility in Mountain View, California, which is also used for planning, procurement, final assembly, system testing, and quality control. The three-year lease commenced in May 2003.

In
June 2003, we obtained a revolving line of credit in the amount of $1.0 million from Silicon Valley Bank at an interest rate of 1.5% monthly on gross accounts receivable
outstanding. $1.0 million has been drawn down as of June 30, 2003. Repayment is required when a specific receivable is 90 days

24

---

past
due unless replenished by a more current receivable. In September 2003, the availability under the line of credit was increased to $2.5 million. The line of credit is available
through June 29, 2004.

We
have vacated our Menlo Park, California facility and in September 2003, we renegotiated all remaining obligations under our lease agreement for the Menlo Park, California
facility in exchange for monthly payments of $0.1 million for the next 19 months beginning October 2003 for a total of $1.9 million.

For
fiscal 2004, we plan to continue to refine our sales and marketing strategy in light of the challenging worldwide economic conditions and conservatism across all segments of the
telecommunications industry. We plan to market into countries where wireless telephone services are critical for continued economic survival, offering solutions at prices for overall network
deployment that are targeted to allow network operators to break even within 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, the western provinces of China, and parts of South East Asia.

We
intend to focus on the continued reduction in operational, sales and marketing costs by relying increasingly on our partners. We plan to move direct support services to these partners
or third party systems integrators. We also plan to reduce costs on core product lines through design and manufacturing improvements, and to expand our presence to new regions of Latin America, China
and Eastern Europe to capture new opportunities in these regions.

Finally,
we plan to continue to seek funding from strategic investors, lending institutions and other financial institutions.

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 Statements in this report 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, or 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
do not 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

25

---

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 evaluate our long-lived assets 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.

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 workforce 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 for 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. 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

26

---

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. interWAVE adopted SFAS No. 142 as of July 1, 2002. Because interWAVE
did not have any goodwill at the time of adoption, such adoption did not have an impact on the results of interWAVE's financial position, results of operations or its cash flows.

Prior
to the adoption of SFAS No. 142, interWAVE amortized goodwill on a straight-line basis over an estimated useful life of 4 years. If interWAVE had
accounted for goodwill consistent with the provisions of SFAS No. 142 in prior periods, interWAVE's net loss would have been affected as follows (in thousands, except per share amounts):

Fiscal Years Ended2003

2002

2001Net loss

$
(28,264
)
$
(64,325
)
$
(94,136
)Add back: Goodwill amortization





2,326


2,872Adjusted net loss

$
(28,264
)
$
(61,999
)
$
(91,264
)Basic and diluted loss per share:Net loss

$
(4.34
)
$
(11.52
)
$
(19.25
)Goodwill amortization





0.42


0.59Adjusted net loss

$
(4.34
)
$
(11.10
)
$
(18.66
)Weighted average common shares used in computing loss per share


6,508


5,583


4,890


In
June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations." SFAS 143 requires that the fair value of an asset retirement obligation be
recorded as a liability in the period in which interWAVE incurs the obligation. SFAS No. 143 is effective for fiscal years beginning after June 15, 2002. interWAVE adopted SFAS Nos. 143
for its fiscal year beginning July 1, 2002. The effect of adopting this statement did not have a material effect on our consolidated financial position, results of operations or cash flows.

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 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 adoption
of this statement did not have a material effect on our consolidated financial position, results of operations or cash flows.

In
November 2002, the FASB issued FASB FIN No. 45,Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees
of Indebtedness of Others,which clarifies disclosure and recognition/measurement requirements related to certain guarantees. The disclosure requirements are effective for
financial statements issued after December 15, 2002, and the recognition/measurement requirements are effective on a prospective basis for guarantees issued or modified after
December 31, 2002. The effect of adopting these statements did not have a material impact on our consolidated financial position, results of operations or cash flows. In the normal course of
business, we provide indemnification of varying scope to customers against claims of intellectual property infringement made by third parties arising from the use of our products. Historically, costs
related to these guarantees have not been significant and we are unable to estimate the maximum potential impact of these guarantees on our future results of operations.

27

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In
December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based CompensationTransition and Disclosurean amendment of SFAS
No. 123." This Statement amends SFAS No. 123, "Accounting for Stock-Based Compensation" to provide alternative methods of transition for a voluntary change to the fair value based method
of accounting for stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and
interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. We adopted the prescribed format and provided
the additional disclosures required by SFAS No. 148 in our financial statements for interim periods beginning with the quarterly period ended March 31, 2003. We do not intend to adopt
the fair value method of accounting for stock-based employee compensation.

In
January 2003, the EITF released Issue No. 00-21 ("EITF 00-21"), "Revenue Arrangements with Multiple Deliverables," which addresses certain
aspects of the accounting by a vendor for arrangement under which it will perform multiple revenue-generating activities. Specifically, EITF 00-21 addresses whether an arrangement contains
more than one unit of accounting and the measurement and allocation to the separate units of accounting in the arrangement. EITF 00-21 is effective for revenue arrangements entered into in
fiscal periods beginning after June 15, 2003. In May 2003, the EITF released Issue No. 03-5, "Applicability of AICPA Statement of Position 97-2 to
Non-Software Deliverables in an Arrangement Containing More-Than-Incidental-Software." We are evaluating the provisions of this consensus but do not expect the
adoption to have a material impact on our consolidated financial position, results of operations or cash flows.

In
January 2003, the FASB issued Interpretation No. 46,Consolidation of Variable Interest Entities, an interpretation of ARB
No. 51. This Interpretation addresses the consolidation by business enterprises of variable interest entities as defined in the Interpretation. The Interpretation
applies immediately to variable interests in variable interest entities created after January 31, 2003. The consolidation requirements apply to older entities in the first fiscal year or
interim period beginning after June 15, 2003. The application of this Interpretation did not have a material effect on our consolidated financial statements.

LOSSES (GAINS) ON ASSET SALES AND ASSET IMPAIRMENTS, NET

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 year-end results, we performed an impairment analysis of identifiable intangible assets recorded in connection with our purchase of GBase assets
and other long-lived assets. The assessment was performed primarily due to the continuing softening of the global economy and the telecommunications industry in particular, the continuing
decline in our stock price, the net assets exceeding our market capitalization, and the overall decline in industry growth rates which indicate that this trend may continue for an indefinite period.

We
recorded approximately $83 thousand, $19.6 million and $23.2 million in asset impairment charges for the years ended June 30, 2003, 2002 and 2001,
respectively. For fiscal 2003, the $83 thousand impairment charge was to write down the net book value of primarily computer equipment and leasehold improvements which were no longer in use.
Additionally, we recorded $0.2 million net gain from the sale of certain assets. For fiscal 2002, $16.7 million was to write off the net book value of goodwill and property and equipment
from interWAVE's acquisition of Wireless, Inc., as well as an additional $2.9 million to write off Wireless, Inc.'s inventories, which was charged to cost of revenues. For fiscal
2001, $23.2 million in asset impairment charges included $12.6 million to write down the net book value of goodwill and other intangible assets from its

28

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acquisitions
of 3C and Microcellular to zero. In addition, we recorded another $10.6 million in other asset impairment charges including shareholder services receivables from Nortel and
Intasys:

|Fiscal 2003                |           | Balance at
June 30, 2002 |       | Additions/
(Disposals/Usage) |   | Depreciation/
Amortization |   | Losses (Gains) on Asset
Sales and Asset
Impairments, Net |        | Balance at
June 30, 2003
|-------------------------- | --------- | ------------------------ | ----- | ---------------------------- | - | -------------------------- | - | -------------------------------------------------------- | ------ | ------------------------
|Property and Equipment(1): |           |                          |       |                              |   |                            |   |                                                          |        |                         
|                           | interWAVE |                          | $     | 8,045                        |   | $                          |  |                                                          | $      | (7,962                  
|                           |           |                          |       |                              |   |                            |   |                                                          |        |                         
|                           |           | $                        | 8,045 |                              | $ |                           |   | $                                                        | (7,962 | )                       
|                           |           |                          |       |                              |   |                            |   |                                                          |        |                         

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

|Fiscal 2001        |                                  | Balance at
June 30, 2000 |       | Additions/
(Disposals/Usage) |   | Depreciation/
Amortization |        | Losses (Gains) on Asset
Sales and Asset
Impairments, Net |        | 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 | )                       
|                   |                                  |                          |       |                              |   |                            |        |                                                          |        |                         

---

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.

29

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RESTRUCTURING CHARGES

Our restructuring accrual as of June 30, 2003 and 2002 are summarized as follows (in thousands):

|Fiscal 2003                                           |  | Restructuring
Accrual as of
June 30, 2002 |     | Additions/
Reversals |   | Payments |   | Restructuring
Accrual as of
June 30, 2003
|----------------------------------------------------- |  | ----------------------------------------- | --- | -------------------- | - | -------- | - | -----------------------------------------
|Future lease payments related to abandoned facilities |  | $                                         | 747 |                      | $ | 2,300    |   | $                                        
|Workforce reduction                                   |  |                                           | 35  |                      |   | 902      |   |                                          
|                                                      |  |                                           |     |                      |   |          |   |                                          
|Total                                                 |  | $                                         | 782 |                      | $ | 3,202    | * | $                                        
|                                                      |  |                                           |     |                      |   |          |   |                                          

---

During
fiscal 2003 we reduced our workforce by an additional 133 employees, and closed certain facilities. As a result, we recorded restructuring expense related to severance payments
and future lease commitments and recorded a charge of $3.5 million.

We
have vacated our Menlo Park, California facility and, in September 2003, we renegotiated our remaining obligations under the lease agreement for the facility and agreed to make
monthly payments of $0.1 million for the next 19 months beginning October 2003 for a total of $1.9 million. The discounted value of $1.8 million is included on the
accompanying consolidated balance sheet in accrued restructuring expenses. The remaining workforce reduction accrual of $0.2 million is expected to be paid out by December 2003.

|Fiscal 2002                                           |  | Restructuring
Accrual as of
June 30, 2001 |       | Additions/
Reversals |   | Payments |     | Restructuring
Accrual as of
June 30, 2002
|----------------------------------------------------- |  | ----------------------------------------- | ----- | -------------------- | - | -------- | --- | -----------------------------------------
|Future lease payments related to abandoned facilities |  | $                                         | 5,986 |                      | $ | (3,494   | )   | $                                        
|Abandoned leasehold improvements                      |  |                                           | 595   |                      |   | (595     | )   |                                          
|Workforce reduction                                   |  |                                           |      |                      |   | 855      |     |                                          
|                                                      |  |                                           |       |                      |   |          |     |                                          
|Total                                                 |  | $                                         | 6,581 |                      | $ | (3,234   | )** | $                                        
|                                                      |  |                                           |       |                      |   |          |     |                                          

---

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

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

30

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Also
in fiscal 2002, interWAVE negotiated and signed a lease termination agreement, which reduced interWAVE'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, interWAVE reversed $2.9 million as a restructuring credit in the
accompanying consolidated statements of operations.

OPERATIONS

We operate in one business segmentGSM products. We also recently acquired the assets of a developer of CDMA2000 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 system 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 58% of net revenues in fiscal 2003, 65% of net
revenues in fiscal 2002, and 69% of net revenues in fiscal 2001. Other revenues were derived primarily from other equipment sales and installation services.

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 own
systems and by direct sales to wireless service providers. In fiscal 2003, sales to communications equipment providers represented 19% of total revenues, sales to systems integrators accounted for 19%
of total revenues and direct sales to wireless service providers represented 62% 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.

Net
revenues outside North America represented approximately 70%, 83% and 84% of total net revenues in fiscal years 2003, 2002 and 2001, respectively. We have derived and expect to
continue to derive a majority of our revenues from products installed outside the United States by both non-U.S. and U.S. based communications equipment providers, systems integrators and
wireless service providers, exposing our revenue stream to risks from economic uncertainties, currency fluctuations, political instability and uncertain cultural and regulatory environments. All of
our revenues are currently denominated in U.S. 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 continue to incur net losses in fiscal 2004. Nevertheless, 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."

Communications
equipment providers, system integrators and wireless service providers typically perform numerous tests and extensively evaluate products before incorporating them into
their own 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

31

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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 the Qualcomm
license, patents and trademarks, 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
obtain all of our primary components and sub-assemblies 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 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 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, $(0.2)
million and $3.1 million was amortized in fiscal years 2003, 2002 and 2001, respectively. The balance in deferred compensation of $0.3 million as of June 30, 2002 was fully
amortized in December 2002.

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, or 3G, standards of wireless communications are forms of CDMA, and the Universal Mobile Telephony Services, UMTS, standard of 3G is built
upon a GSM base. We believe that many carriers may deploy GSM prior to deploying 3G because some elements of GSM are utilized in this form of 3G. Ultimately, however, 3G may become the dominant

32

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wireless
standard. Therefore, we plan to be competitive in offering a 3G product to assure acceptance of our wireless voice and data products in the marketplace.

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.

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 Total Revenues: |                                                          |                             |      
|                                   | Total revenues                                           |                             | 100.0
|                                   | Cost of revenues                                         |                             | 74.8 
|                                   |                                                          |                             |      
|                                   | Gross profit (loss)                                      |                             | 25.2 
|Operating expenses:                |                                                          |                             |      
|                                   | Research and development                                 |                             | 43.2 
|                                   | Selling, general and administrative                      |                             | 63.5 
|                                   | Amortization of deferred stock compensation              |                             | 0.6  
|                                   | In-process research and development                      |                             |     
|                                   | Losses (gains) on asset sales and asset impairments, net |                             | (0.5 
|                                   | Restructuring charges (credit)                           |                             | 11.6 
|                                   |                                                          |                             |      
|Total operating expenses           |                                                          | 118.4                       |      
|                                   |                                                          |                             |      
|                                   | Loss from operations                                     |                             | (93.2
|                                   | Interest income                                          |                             | 0.6  
|                                   | Interest expense                                         |                             | (0.6 
|                                   | Other expense, net                                       |                             | (0.2 
|                                   |                                                          |                             |      
|                                   | Loss before income taxes                                 |                             | (93.4
|                                   | Income tax expense                                       |                             | (0.9 
|                                   |                                                          |                             |      
|                                   | Net loss                                                 |                             | (94.3
|                                   |                                                          |                             |      

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)(2) |       | $                           | 1,297 |                             | $
|Eastern Communications Co., Ltd.(1)(2)   |       |                             | 2,805 |                             |  
|Campus Link                              |       |                             |      |                             |  
|Nortel Networks(3)                       |       |                             |      |                             |  
|                                         |       |                             |       |                             |  
|                                         | Total |                             | $     | 4,102                       |  
|                                         |       |                             |       |                             |  

---

33

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Comparison of Fiscal Years Ended June 30, 2003 and 2002

Net Revenues

Net revenues decreased 30%, or $13.0 million, from $43.0 million in fiscal 2002 to $30.0 million in fiscal 2003. This decrease was primarily
due to the continued downturn in overall market conditions in the global economy and in the telecommunications industry in particular. This downturn had a significant impact on our customers and their
markets. In addition, the deployment of our products in Paraguay with Hutchison Telecommunications Group, which comprised 25% of our fiscal 2002 net revenues, was completed in early fiscal 2003. Our
net revenues in fiscal 2003 were derived from sales to 94 customers compared to over 145 customers in fiscal 2002. Sales to affiliates of Hutchinson Telecommunications Group and Eastern Communications
Co., Ltd. accounted for 4% and 9%, respectively, of net revenues in fiscal 2003.

Cost of Revenues

Cost of revenues excluding amortization of intangible assets decreased 46%, or $17.5 million, from $38.2 million in fiscal 2002 to
$20.7 million in fiscal 2003. As a percentage of net revenues, cost of revenues excluding amortization of intangible assets was 69% in fiscal 2003 and 89% in fiscal 2002. Changes in the types
of products and services required by our customers could affect our cost of revenues depending on the mix of high or low margin products required by them. In fiscal 2003, 5% of net revenues was
attributed to our WAVEXchange and Network-In-A-Box products, which earn higher gross profits, while 47% was attributed to our WAVEXpress/BTS, which earns lower
gross profits. In 2002, 12% of net revenues was attributed to our WAVEXchange and Network In A Box products, while 49% was attributed to our WAVEXpress/BTS. During fiscal 2003, we had shipped products
when cost of revenues of $3.5 million was recognized while revenue was recognized on a cash receipt basis.

Amortization
of intangible assets decreased 89%, or $5.4 million, from $6.1 million in fiscal 2002 to $0.7 million in fiscal 2003. The decrease in amortization was
primarily due to our write-off of Wireless, Inc.'s intangible and other assets as part of our impairment analysis in June 2002. Intangible assets amortized in fiscal 2003
relates to our purchased technology through our
acquisition of GBase Communications in September 2002 and amortization of the CDMA license acquired from Qualcomm.

Research and Development Expenses

Research and development (R&D) expenses decreased 35%, or $6.9 million, from $19.8 million in fiscal 2002 to $12.9 million in fiscal 2003.
The decrease was primarily due to a reduction in research and development personnel from 133 as of June 30, 2002 to 81 as of June 30, 2003. As a result of these reductions, salaries and
wages decreased $3.2 million and consultants/temporary services decreased $0.3 million. In addition, depreciation decreased $0.7 million and R&D materials decreased
$0.5 million. The remaining decrease of $2.2 million was comprised of decreases in operating supplies, phones and other miscellaneous expenses.

Selling, General and Administrative Expenses

Selling, general and administrative expenses decreased 34%, or $10.1 million, from $29.2 million in fiscal 2002 to $19.0 million in fiscal
2003. The decrease was primarily due to a reduction in bad debt expense of $3.2 million and reduction in headcount from 103 as of June 30, 2002 to 64 as of June 2003. The
reduction in headcount resulted in the following decreases from fiscal 2002 to fiscal 2003: salaries and wages decreased $3.9 million and consultants/temporary services decreased
$0.4 million. In addition to labor-related decreases, bad debt expense decreased $3.2 million due to our continuous improvement in collections, depreciation decreased
$0.8 million, travel and entertainment decreased $0.6 million and marketing expenses decreased $0.5 million. The remaining decrease of $0.7 million was comprised of
operating supplies, telephone and other miscellaneous expenses.

34

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Amortization of Deferred Stock Compensation

Amortization of deferred stock compensation increased 185%, or $0.4 million, from $(0.2) million in fiscal 2002 to $0.2 million in fiscal 2003. The
increase in amortization was due to the continued amortization of deferred stock compensation for fiscal 2003, while in the prior year credits were applied from forfeitures of stock options for
terminated employees.

Losses (Gains) on Asset Sales and Asset Impairments, Net

Losses (gains) on asset sales and asset impairments, net decreased 101%, or $16.8 million, from $16.7 million in fiscal 2002 to $(0.1) million in
fiscal 2003. The $16.7 million loss on asset impairment and sales in fiscal 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. The $(0.1) million gain on asset sales and asset impairments, net in fiscal 2003 relates to our sale of
certain fixed assets to third parties.

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, interWAVE recorded a restructuring charge of $3.5 million for fiscal 2003. Of the $3.5 million, $1.8 million relates to the future lease
commitments for the Menlo Park facility. During fiscal 2002, interWAVE 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.

Interest Income

Interest income decreased 86%, or $1.2 million, from $1.4 million in fiscal 2002 to $0.2 million in fiscal 2003. The decrease was due to the
continuing reduction of cash and investments from our use of funds for operations.

Interest Expense

Interest expense was $0.2 million and $0.3 million in fiscal 2003 and fiscal 2002, respectively. This expense was primarily associated with
equipment loans and leases.

In
January and March 2001, we entered into two additional equipment financing agreements, in the form of capital leases, for an aggregate total of $2 million. The terms of
the two agreements range from three to four years. The interest on each lease is fixed at the time of a draw down with the interest rates ranging from 9.8% to 10.3%. interWAVE's obligations under
these leases are secured by the assets financed. We had $0.8 million and $1.2 million outstanding as of June 30, 2003 and 2002, respectively, under these leases. We intend to
repay approximately $0.5 million of the outstanding balance as of June 30, 2003 over the next twelve months.

In
addition, we have two credit facilities through 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, 2003 and 2002, $0.2 million and $0.3 million was drawn down, respectively, on these credit facilities. If we elect to borrow funds under these committed lines of
credit, we will incur additional interest expense during any periods when amounts are outstanding under the lines. The two credit facilities will expire in October 2004.

In
June 2003, we obtained a revolving line of credit in the amount of $1.0 million from Silicon Valley Bank at an interest rate of 1.5% monthly on gross accounts receivable
outstanding. $1.0 million

35

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has
been drawn down as of June 30, 2003. Repayment is required when a specific receivable is 90 days past due unless replenished by a more current receivable. In September 2003,
the availability under the line of credit was increased to $2.5 million. The line of credit is available through June 29, 2004.

Income Taxes

In fiscal 2003 and fiscal 2002, our U.S. subsidiary incurred net losses for United States federal and state income tax purposes. We recorded a provision for
income taxes of $0.3 million and $0.2 million, respectively, related to current international income tax provided on the profits attributable to our foreign operations. As of
June 30, 2003, we had $189.7 million of federal and $107.5 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, 2002 and 2001

Net Revenues

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

Cost of Revenues

Cost of revenues excluding amortization of intangible assets increased 48%, or $12.4 million, from $25.8 million in fiscal 2001 to
$38.2 million in fiscal 2002. As a percentage of net revenues, cost of revenues excluding amortization of intangible assets was 97% in fiscal 2001 and 89% in fiscal 2002. In fiscal 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
fiscal 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 in fiscal 2002 was offset by the $5.0 million inventory valuation charge, a $2.9 million valuation charge on Wireless, Inc. inventories and the relatively high fixed costs
of operations and field services.

Amortization
of intangible assets increased 62%, or $2.3 million, from $3.7 million in fiscal 2001 to $6.1 million in fiscal 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.

Research and Development Expenses

Research and development expenses decreased 35%, or $10.7 million, from $30.5 million in fiscal 2001 to $19.8 million in fiscal 2002. This
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
fiscal 2001 to fiscal 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 also were decreases in depreciation of $3.1 million, and travel and

36

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entertainment
of $0.7 million. The remaining decrease of $3.0 million was comprised of operating supplies, phones and other miscellaneous expenses.

Selling, General and Administrative Expenses

Selling, general and administrative expenses decreased 11%, or $3.8 million, from $32.9 million during fiscal 2001 to $29.2 million in fiscal
2002. The decrease was primarily due to a reduction in bad debt of $8.2 million. There also was 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. These
decreases were offset by an increase in 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 107%, or $3.3 million, from $3.1 million in fiscal 2001 to $(0.2) million in fiscal 2002. The
decrease in amortization was due to the accelerated amortization of deferred stock compensation in the prior year and credits applied from forfeitures of stock options in the current year for
terminated employees. During fiscal 2002, options were granted at fair market value, with no additions to deferred stock compensation.

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 (Gains) on Asset Sales and Asset Impairments, Net

Losses on asset impairments and sales decreased 28%, or $6.5 million, from $23.2 million in fiscal 2001 to $16.7 million in fiscal 2002. The
$23.2 million asset impairment and sales in fiscal 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 fiscal 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.

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, interWAVE recorded a restructuring charge of $6.6 million for fiscal 2001. During fiscal 2002, interWAVE 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.

Interest Income

Interest income decreased 78%, or $5.1 million, from $6.5 million in fiscal 2001 to $1.4 million in fiscal 2002. The decrease was due to the
continuing reduction of cash and investments from our use of funds for operations.

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Interest Expense

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

Income Taxes

In fiscal 2002 and fiscal 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.

LIQUIDITY AND CAPITAL RESOURCES

Fiscal Year Ended June 30,2003

2002

2001(in thousands)Cash and cash equivalents

$
4,371

$
11,403

$
25,974Short-term investments





2,849


20,012Net cash used in operating activities


(12,916
)

(28,811
)

(49,389
)Net cash provided by investing activities


906


14,019


41,523Net cash provided by (used in) financing activities


5,659


666


(10,046
)


Operating Activities.Net cash used in operating activities in fiscal 2003, fiscal 2002 and fiscal 2001 was primarily a
result of net operating losses. Net cash used in operating activities for fiscal 2003 was primarily attributable to net loss from operations and decreases in accounts payable, offset by
non-cash depreciation and amortization, restructuring charges as well as decreases in trade receivables, inventory and increases in accrued expenses and other liabilities. For fiscal 2002,
net cash used in operating activities 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 fiscal 2001, net cash used in
operating activities was primarily attributable to net loss from operations, increases in inventory and trade accounts receivables and decreases in accounts payable, offset by non-cash
depreciation and amortization and losses on asset impairments and sales, as well as increases in accrued expenses and other current liabilities and deferred revenue.

Investing Activities.For fiscal 2003, our investing activities consisted of purchases in capital equipment and the asset
acquisition of GBase Communications, offset by the sale of short-term investments. For fiscal 2002, the primary source of cash in investing activities was the sale of
short-term investments. For fiscal 2001, our investing activities consisted primarily of the sale of short-term investments offset by cash used in acquisitions. We expect that
capital expenditures will continue to decrease due to our continued cost-cutting efforts and conservation of cash resources.

Financing Activities.During fiscal 2003, we raised $3.0 million through the sale of common shares to
UTStarcom, Inc. and obtained advances on a $1.0 million revolving line of credit with Silicon Valley Bank. During fiscal 2002, we raised $2.5 million from the sale of shares
directly and pursuant to the exercise of warrants, options and our Employee Stock Purchase Plan. In fiscal 2001, the primary use of cash in financing activities was the payment of principal on notes
payable net of receipts on our issuance of notes receivable to several of our customers.

Commitments.We lease all of our facilities under operating leases that expire at various dates through 2006. As of
June 30, 2003, we had $4.4 million in future operating lease commitments. In May 2003, we relocated our principal administrative, manufacturing and engineering facilities from our
facility in Menlo Park, California to our main 34,500 square foot facility in Mountain View, California,

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which
is also used for planning, procurement, final assembly, system testing, and quality control. The three-year lease commenced in May 2003. In the future we expect to continue to
finance the acquisition of computer and network equipment through additional equipment financing arrangements. Our significant cash commitments for the next few years is summarized as follows:

|                                    |  | Payments Due By Period
|----------------------------------- |  | ----------------------
|
|
|Operating lease commitments         |  | $                     
|Capital lease commitments           |  |                       
|Qualcomm license scheduled payments |  |                       
|Purchase commitments                |  |                       
|Short-term borrowings               |  |                       
|Income taxes payable                |  |                       
|Other long-term liabilities         |  |                       
|                                    |  |                       
|Total                               |  | $                     
|                                    |  |                       

In
January and March 2001, we 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 a draw down with the interest rates ranging from 9.8% to 10.3%. interWAVE's obligations under these loans are secured by the
assets financed. We had $0.9 million and $1.2 million outstanding as of June 30, 2003 and 2002, respectively, under these loans. We intend to repay approximately
$0.5 million of the outstanding balance as of June 30, 2003 over the next twelve months.

In
addition, we have two credit facilities through 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, 2003 and 2002, $0.2 million and $0.3 million was drawn down, respectively, on these credit facilities. If we elect to borrow funds under these committed lines of
credit, we will incur additional interest expense during any periods when amounts are outstanding under the lines. The two credit facilities will expire in October 2004.

In
June 2003, we obtained a revolving line of credit in the amount of $1.0 million from Silicon Valley Bank at and interest rate of 1.5% monthly on gross accounts
receivable outstanding. $1.0 million has been drawn down as of June 30, 2003. Repayment is required when a specific receivable is 90 days past due unless replenished by a more
current receivable. In September 2003, the availability under the line of credit was increased to $2.5 million. The line of credit is available through June 29, 2004.

We
have vacated our Menlo Park, California facility and, in September 2003, we renegotiated our remaining obligations under the lease agreement for the facility and agreed to make
monthly payments of $0.1 million for the next 19 months beginning October 2003 for a total of $1.9 million.

Summary of Liquidity.We cannot assure you that 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 $28.3 million, $64.3 million and $94.1 million for the
years ended June 30, 2003, 2002 and 2001, respectively, and we have used cash in operations of $12.9 million, $28.8 million, and $49.4 million for the years ended
June 30, 2003, 2002 and 2001, respectively. Management is currently executing plans with the intent of increasing revenues and margins, reducing spending and raising additional amounts of cash
through the issuance of debt or equity, asset sales or through other means such as customer prepayments. If additional funds are raised through the issuance

39

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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.

40

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RISK FACTORS

We may require additional financing to fund our operations for the remainder of 2003 and beyond and this financing may not be available.

We may require additional capital to fund our operations during the remainder of 2003 and beyond. We have had recurring net losses in the past three fiscal years
and the fiscal year ended June 30, 2003. Our management is currently attempting to execute plans intended to increase revenues and margins, reduce spending and raise additional financing
through the issuance of debt or equity or through other means such as customer prepayments or asset sales.

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
such securities may have rights, preferences and privileges senior to those held by existing shareholders. 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. If we are unable to raise additional funds, 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. See "Use of Proceeds" and "Management's Discussion and Analysis of
Financial Condition and Results of OperationsLiquidity and Capital Resources" in this Form 10-K for more information on our capital requirements and requirements for
liquidity.

We are exposed to general economic conditions, which could have a material adverse impact on our business, operating results and financial condition.

As a result of unfavorable general economic conditions in the United States and internationally and reduced worldwide capital spending, our sales declined in the
fiscal year ended June 30, 2003. Continued weakness in the telecommunications equipment industry or further deterioration to the
business or financial condition of our customers in this industry could have a material adverse impact on our business, operating results and financial condition. If the economic conditions in the
United States and in the other international markets we serve worsen, we may experience a material adverse impact on our business, operating results and financial condition.

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 and we have a limited history of generating significant revenues. Some of our products
are new and are being tested by customers 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 be unable to achieve
cash-flow breakeven, profitability or to build a sustainable business.

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

As of June 30, 2003, we had an accumulated deficit of $326.9 million. We incurred net losses of approximately $28.3 million for the fiscal
year ended June 30, 2003. 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. To
achieve and sustain profitability and positive cash flow, we will need to

41

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generate
substantially higher revenues. 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:



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 factors that could cause our quarterly results to fluctuate include:



42

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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 quarterly revenue may be affected by the purchasing and financing process of our customers, particularly in the purchasing of complete network systems.

The sales cycle for our compete network systems may last from nine months to one year or more and the purchasing process for many customers is complex. Customers
often require assistance in network planning, equipment specification, business plan preparation and financing presentations. Customers also may require a number of approvals, including the approval
of licensing authorities, a technical team, a management group and a board of directors, as well as the approval of financing for the purchase. In addition, prior to submitting an order, some
customers for our complete network systems require public hearings and a public decision approval process. The timing and outcome of our customers' purchasing and financing processes may be difficult
to determine and may affect our ability to forecast sales. If we fail to close the sale for one or more complete network systems in any fiscal quarter, or if a customer fails to obtain the required
approvals or fails to obtain financing, then our revenues and operating results would be adversely affected.

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.

Our stock price could fluctuate due to the following factors, among others:



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 recessionary 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.

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Our stock has been, and currently is, subject to delisting from the Nasdaq National Market due to past and current maintenance standard deficienciesthe current
deficiency results from our failure to maintain shareholder equity of at least $10 million.

In order to maintain interWAVE's listing on the Nasdaq National Market, listed issuers must, among other requirements, maintain a $1 per share minimum bid price
and shareholder equity of at least $10 million.

On
April 14, 2003, Nasdaq determined that interWAVE no longer met the minimum bid price requirement and gave interWAVE until April 30, 2003 to achieve and maintain a
closing bid price of at least $1 per share for at least ten consecutive trading days. On April 30, 2003, interWAVE effected a 1-for-10 reverse stock split, and thus far
interWAVE's bid price has stayed above the $1 minimum. On May 22, 2003, Nasdaq determined that interWAVE had regained compliance with the Nasdaq National Market's minimum bid price requirement,
and closed the file on interWAVE's bid price deficiency.

On
August 11, 2003, Nasdaq determined that interWAVE no longer met the National Market's $10 million shareholder equity requirement and requested that interWAVE respond by
August 25, 2003, with a specific plan to achieve and sustain compliance with the shareholder equity requirement. On August 25, 2003, interWAVE submitted a plan designed to achieve and
sustain compliance with the shareholder equity requirement. Nasdaq accepted interWAVE's plan, but conditioned its acceptance upon interWAVE achieving certain milestones, the first of which must be
completed by October 1, 2003. It is unlikely that interWAVE will be able to achieve this initial milestone and regain compliance with the shareholder equity requirement of the Nasdaq National
Market by the October 1, 2003 deadline.

interWAVE's
final financial statements as of June 30, 2003, filed under Item 8 of this Form 10-K, reflect shareholders' equity in excess of $10 million
due to a subsequent event described in Note 15(a) to the Consolidated Financial Statements. interWAVE has submitted a letter to the Nasdaq National Market seeking relief from the delisting of
its securities based on interWAVE's revised shareholders' equity. We cannot assure you that the Nasdaq National Market will grant us relief from delisting, or, if it does grant us relief, that we will
be able to maintain compliance with the shareholder equity requirement of the Nasdaq National Market in the future. If we are unable to maintain compliance with the shareholder equity requirement, we
may be forced to transfer the listing
of our common shares to the Nasdaq SmallCap Market in order to take advantage of that market's lengthier grace periods and more lenient requirements.

If
we are forced to transfer the listing of our common shares to the Nasdaq SmallCap Market, it could seriously limit the liquidity of our common shares and impair our potential to raise
future capital through the sale of our common shares, which could have a material adverse effect on our business. The transfer of our common shares to the Nasdaq SmallCap Market could also reduce the
ability of holders of our common shares to purchase or sell shares as quickly and as inexpensively as they have done historically, and may have an adverse effect on the trading price of our common
shares. The transfer could also adversely affect our relationships with vendors and customers.

We extend credit to many of our customers in connection with the sale of our products.

We frequently enter into financing arrangements in connection with the sale of our products to wireless service providers. These financing arrangements may
include extended payment terms, and, on occasion, lines of credit that cover not only equipment financing but also the working capital needs of our wireless service provider customers. We cannot
assure you that these wireless service providers will be able to repay loans to us on time, or at all. If these loans are not repaid on a timely basis, our operating results would be adversely
affected.

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

As a result of acquisitions and international expansion, many of our 92 employees are based outside of our Mountain View 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 have completed several acquisitions. During fiscal year 2003, we completed our acquisition of substantially all of the assets of GBase
Communications. Acquisition transactions are accompanied by a number of difficulties, including:



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

We rely on a small number of customers for most of our revenues, and a decrease in revenues from these customers could seriously harm our business.

A small number of customers account for a significant portion of our revenues. Net revenues from significant customers as a percentage of our total net revenues
are as follows:

Fiscal Year Ended2003

2002

2001Revenue(2):Hutchison Telecommunications Group(1)

4
%
25
%
20
%Eastern Communications Co., Ltd.(1)

9
%
7
%
Campus Link





10
%


---

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

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competitors,
our revenues and operating results would decline. Some of our key customers have experienced a severe downturn in their businesses.

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

We depend primarily on one contract manufacturer to manufacture most of our GSM 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 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 this manufacturer on schedule, revenues from the sale of products may be delayed or lost, and our reputation,
relationship with customers and our business could be harmed. In addition, in the event that the 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.

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 for our products. These key components are complex, 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.

If we fail to accurately estimate product demand, we may incur expenses for excess inventory or be unable to meet customer requirements.

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 prevent us from meeting customer requirements.

Our products are complex and may have errors or defects that are detected only after deployment in complex networks.

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, such as 3G products, that could result in significant, unexpected expenses or delays in the
launch of new or enhanced products.

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.
In September 2002, we acquired the assets of a third generation, or 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 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, or 3G, wireless standard, and is working to establish
the specifications of this 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.

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 CDMA2000 is not widely adopted.

Our current 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 multiple access, or TDMA. We offer CDMA2000 products, 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 CDMA2000 products are not widely adopted, our market opportunity could be significantly limited, which would seriously
harm our business.

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Our sales cycle is typically long and unpredictable, making it difficult to plan our business.

Our long sales cycle 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 is 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 Alcatel, Ericsson, Lucent, Motorola, Nokia, Nortel, Siemens, Huawei and ZTE 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
wireless market is rapidly evolving and highly competitive. We believe that our 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 diminish and our future revenue growth could decline. The existing poor
quality of the public switched telephone network 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, our operations are subject to the following risks and uncertainties:



We sell products to companies in the People's Republic of China. Future sales in China will be subject to economic, health and political risks.

As of June 30, 2003, our customers in the People's Republic of China accounted for approximately 1.2% of our trade receivable. In March 2002, we
signed an OEM Cooperation Agreement with Eastern Communications Company Limited, or Eastcom, a major wireless equipment manufacturer in

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Hangzhou,
China. Eastcom's United States subsidiary, Eastern Communications USA, Inc., is one of our largest shareholders. 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. 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 in order to achieve our goals while pursuing market opportunities.

Our future success depends on the continued service of our management team and our ability to hire, retain or maintain sufficient key personnel.

We have recently experienced significant changes in our senior management, including the appointment of our President and Chief Executive Officer Erwin Leichtle
in July 2003. Prior to Mr. Leichtle's joining interWAVE, William E. Gibson, a member of interWAVE's Board of Directors, served as the Chairman of an Executive Committee consisting of our
senior management, which managed the duties previously undertaken by the Chief Executive Officer of interWAVE following the resignation of our former Chief Executive Officer. These changes may be
disruptive to our business.

Our
business is highly dependent on our ability to attract, retain and motivate qualified technical and management personnel. Competition has been and may continue to be 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. Skilled
management and technical personnel are essential to our business and to the development of our 3G products. Our personnel resources are limited because we have reduced the number of our employees in
order to reduce our expenses. 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

50

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depends
upon the continuing contributions of our key management and our research, product development, sales and marketing and manufacturing personnel. These employees may voluntarily terminate their
employment with us at any time. The search for a replacement for any of our key personnel could be time consuming, and could distract our management team from the day-to-day
operations of our business.

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 United States or abroad. We have 24 issued and 28 pending U.S. patents. We have filed many of these patents internationally. 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.

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., Hughes Software Systems, Component Plus 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 and CDMA patents held by different companies, which may impact our GSM and CDMA technology. 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.

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

As of June 30, 2003, our executive officers, directors and 5% or greater shareholders and their affiliates owned approximately 2.1 million shares or
approximately 31.7% of our outstanding common shares. Acting together, these shareholders may 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 Bye-Laws may discourage potential acquisitions of our business.

Some of our Bye-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.

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

Our Bye-Laws provide for a broad indemnification of actions of directors and officers. Under the Bye-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 U.S. subsidiaries, we do not consider ourselves to be engaged in a trade or business in the United States. Our U.S. subsidiaries are subject to
U.S. taxation on their worldwide income, and dividends from our U.S. subsidiaries are subject to U.S. withholding tax. We and our non-U.S. subsidiaries would, however, be subject to U.S.
federal income tax on income related to the conduct of a trade or business in the United States. If we were determined to be subject to U.S. 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 U.S. trade or business and, therefore, are subject to U.S. income
taxation. See "Taxation" in this Form 10-K 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. 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 dividend on our common shares in the foreseeable future.

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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. 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.

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 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 intangible assets as a result of our purchasing of assets or businesses. 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, 2003, 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.

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

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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

Participants in the telecommunications industry typically require significant capital resources. Many wireless service providers are required to expend large
amounts of capital to acquire rights to the cellular spectrum from national governments. As a result, these wireless service providers often seek vendor financing from their network equipment
suppliers. In order to remain competitive, suppliers are often required to offer extended payment terms, and, on occasion, lines of credit that cover not only equipment financing but also working
capital needs of the wireless service providers. These financing arrangements may have an impact on the payment terms on shipments to our customers.

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interWAVE COMMUNICATIONS INTERNATIONAL, LTD. AND SUBSIDIARIES  INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

|                                                                                                                        |  | Page
|----------------------------------------------------------------------------------------------------------------------- |  | ----
|Independent Auditors' Report                                                                                            |  | 56  
|Consolidated Balance Sheets as of June 30, 2003 and 2002                                                                |  | 57  
|Consolidated Statements of Operations for the years ended June 30, 2003, 2002 and 2001                                  |  | 58  
|Consolidated Statements of Shareholders' Equity and Comprehensive Loss for the years ended June 30, 2003, 2002 and 2001 |  | 59  
|Consolidated Statements of Cash Flows for the years ended June 30, 2003, 2002 and 2001                                  |  | 62  
|Notes to Consolidated Financial Statements                                                                              |  | 63  

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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, 2003 and 2002,
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,
2003. 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, 2003 and 2002, and the results of their operations and their cash flows for each of the years in the three-year period
ended June 30, 2003, 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.

As
discussed in Note 1 to the consolidated financial statements, the Company adopted the provisions of Statement of Financial Accounting Standards No. 142, "Goodwill and
Other Intangible Assets," as of July 1, 2002.

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

Mountain
View, California
September 25, 2003

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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 $2,403 and $5,422 at June 30, 2003 and 2002, respectively                                                            |                                            |      
|                                             | Trade receivables from related parties                                                                                                                      |                                            |      
|                                             | Inventories                                                                                                                                                 |                                            |      
|                                             | Prepaid expenses and other current assets                                                                                                                   |                                            |      
|                                             |                                                                                                                                                             |                                            |      
|                                             |                                                                                                                                                             | Total current assets                       |      
|Restricted cash, long term portion           |                                                                                                                                                             |                                            | 147  
|Property and equipment, net                  |                                                                                                                                                             |                                            | 4,321
|Intangibles, net                             |                                                                                                                                                             |                                            | 7,150
|Other assets                                 |                                                                                                                                                             |                                            | 118  
|                                             |                                                                                                                                                             |                                            |      
|                                             |                                                                                                                                                             | Total assets                               |      
|                                             |                                                                                                                                                             |                                            |      
|Liabilities and Shareholders' Equity         |                                                                                                                                                             |                                            |      
|Current liabilities:                         |                                                                                                                                                             |                                            |      
|                                             | Accounts payable                                                                                                                                            |                                            | $    
|                                             | Deferred revenue                                                                                                                                            |                                            |      
|                                             | Deferred revenue from related parties                                                                                                                       |                                            |      
|                                             | Accrued expenses                                                                                                                                            |                                            |      
|                                             | Accrued compensation                                                                                                                                        |                                            |      
|                                             | Accrued restructuring                                                                                                                                       |                                            |      
|                                             | Advance customer deposits                                                                                                                                   |                                            |      
|                                             | Current portion of notes and capital leases payable                                                                                                         |                                            |      
|                                             | Short-term borrowings                                                                                                                                       |                                            |      
|                                             | Income taxes payable                                                                                                                                        |                                            |      
|                                             |                                                                                                                                                             |                                            |      
|                                             |                                                                                                                                                             | Total current liabilities                  |      
|Notes payable, long term portion             |                                                                                                                                                             |                                            |     
|Capital lease obligations, long term portion |                                                                                                                                                             |                                            | 306  
|Other long-term liabilities                  |                                                                                                                                                             |                                            | 1,978
|                                             |                                                                                                                                                             |                                            |      
|                                             |                                                                                                                                                             | Total liabilities                          |      
|Commitments and contingencies                |                                                                                                                                                             |                                            |      
|Shareholders' equity:                        |                                                                                                                                                             |                                            |      
|                                             | Convertible preferred shares, $8.30 par value; 5,650,000 shares authorized; no shares issued and outstanding at June 30, 2003 and 2002                      |                                            |      
|                                             | Common shares, $0.01 par value; 10,000,000 shares authorized; 6,755,177 and 5,811,935 shares issued and outstanding at June 30, 2003 and 2002, respectively |                                            |      
|                                             | Additional paid-in capital                                                                                                                                  |                                            |      
|                                             | Deferred stock compensation                                                                                                                                 |                                            |      
|                                             | Receivable from shareholders                                                                                                                                |                                            |      
|                                             | Accumulated other comprehensive loss                                                                                                                        |                                            |      
|                                             | Accumulated deficit                                                                                                                                         |                                            |      
|                                             |                                                                                                                                                             |                                            |      
|                                             |                                                                                                                                                             | Total shareholders' equity                 |      
|                                             |                                                                                                                                                             |                                            |      
|                                             |                                                                                                                                                             | Total liabilities and shareholders' equity |      
|                                             |                                                                                                                                                             |                                            |      

See accompanying notes to consolidated financial statements.

57

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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, |                                                                           
|------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------ | --------------------------- | --------------------------------------------------------------------------
|
|Product revenues                                              |                                                                                                                          | $                           | 26,997                                                                    
|Service revenues                                              |                                                                                                                          |                             | 2,963                                                                     
|                                                              |                                                                                                                          |                             |                                                                           
|                                                              | Total revenues (inclusive of related party revenues of $4,102, $13,778 and $9,688 for 2003, 2002 and 2001, respectively) |                             |                                                                           
|                                                              |                                                                                                                          |                             |                                                                           
|Product cost of revenues                                      |                                                                                                                          |                             | 16,202                                                                    
|Service cost of revenues                                      |                                                                                                                          |                             | 4,529                                                                     
|Amortization of intangible assets                             |                                                                                                                          |                             | 1,685                                                                     
|                                                              |                                                                                                                          |                             |                                                                           
|                                                              | Total cost of revenues                                                                                                   |                             |                                                                           
|                                                              |                                                                                                                          |                             |                                                                           
|                                                              | Gross profit (loss)                                                                                                      |                             |                                                                           
|Operating expenses:                                           |                                                                                                                          |                             |                                                                           
|                                                              | Research and development                                                                                                 |                             |                                                                           
|                                                              | Selling, general and administrative                                                                                      |                             |                                                                           
|                                                              | Amortization of deferred stock compensation*                                                                             |                             |                                                                           
|                                                              | In-process research and development                                                                                      |                             |                                                                           
|                                                              | Losses (gains) on asset sales and asset impairments, net                                                                 |                             |                                                                           
|                                                              | Restructuring charges (credit)                                                                                           |                             |                                                                           
|                                                              |                                                                                                                          |                             |                                                                           
|                                                              |                                                                                                                          | Total operating expenses    |                                                                           
|                                                              |                                                                                                                          |                             |                                                                           
|                                                              |                                                                                                                          | Loss from operations        |                                                                           
|Interest income                                               |                                                                                                                          |                             | 167                                                                       
|Interest expense                                              |                                                                                                                          |                             | (166                                                                      
|Other expense, net                                            |                                                                                                                          |                             | (53                                                                       
|                                                              |                                                                                                                          |                             |                                                                           
|                                                              |                                                                                                                          | Loss before income taxes    |                                                                           
|Income tax expense                                            |                                                                                                                          |                             | (267                                                                      
|                                                              |                                                                                                                          |                             |                                                                           
|                                                              |                                                                                                                          | Net loss                    |                                                                           
|                                                              |                                                                                                                          |                             |                                                                           
|Basic and diluted net loss per share                          |                                                                                                                          | $                           | (4.34                                                                     
|                                                              |                                                                                                                          |                             |                                                                           
|Shares used in computing basic and diluted net loss per share |                                                                                                                          |                             | 6,508                                                                     
|                                                              |                                                                                                                          |                             |                                                                           
|                                                              |                                                                                                                          |                             | *Amortization of deferred stock compensation can be classified as follows:
|                                                              |                                                                                                                          |                             |                                                                           
|                                                              |                                                                                                                          |                             |                                                                           
|                                                              |                                                                                                                          |                             |                                                                           
|                                                              |                                                                                                                          |                             |                                                                           
|                                                              |                                                                                                                          |                             |                                                                           
|                                                              |                                                                                                                          |                             |                                                                           

See
accompanying notes to consolidated financial statements.

58

---



interWAVE COMMUNICATIONS INTERNATIONAL, LTD. AND SUBSIDIARIES
Consolidated Statements of Shareholders' Equity and Comprehensive Loss (In thousands, except share data)
Fiscal Years ended June 30, 2001, 2002 and 2003

|                                                                               |  | Convertible Preferred Shares |  |   |  |           |  |   |    |  |   |         |   |   |        |   |   |      |   |   |        |   |  
|------------------------------------------------------------------------------ |  | ---------------------------- |  | - |  | --------- |  | - | -- |  | - | ------- | - | - | ------ | - | - | ---- | - | - | ------ | - | -
|
|
|
|Balances as of June 30, 2000                                                   |  |                             |  |  |  | 4,674,896 |  | $ | 47 |  | $ | 313,764 |   | $ | (4,384 | ) | $ | (416 | ) | $ | (6,239 | ) | $
|Issuance of common shares for acquisition of Microcellular Systems             |  |                             |  |  |  | 55,554    |  |   | 1  |  |   | 7,264   |   |   |       |   |   |     |   |   |       |   |  
|Issuance of common shares for acquisition of Wireless, Inc.                    |  |                             |  |  |  | 641,894   |  |   | 6  |  |   | 7,883   |   |   |       |   |   |     |   |   |       |   |  
|Exercise of warrants                                                           |  |                             |  |  |  | 99,747    |  |   | 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                                                      |  |                             |  |  |  | 34,880    |  |   |   |  |   | 680     |   |   |       |   |   |     |   |   |       |   |  
|Issuance of common shares for Employee Stock Purchase Plan                     |  |                             |  |  |  | 45,899    |  |   | 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                                                   |  |                             |  |  |  | 5,552,870 |  | $ | 56 |  | $ | 329,656 |   | $ |       |   | $ | (444 | ) | $ | (2,305 | ) | $
|                                                                               |  |                              |  |   |  |           |  |   |    |  |   |         |   |   |        |   |   |      |   |   |        |   |  

See accompanying notes to consolidated financial statements.

59

---

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, 2001, 2002 and 2003

|                                                                                      |  | Convertible Preferred Shares |  |   |  |           |   |   |    |  |   |         |   |   |   |  |   |      |   |   |       |   |  
|------------------------------------------------------------------------------------- |  | ---------------------------- |  | - |  | --------- | - | - | -- |  | - | ------- | - | - | - |  | - | ---- | - | - | ----- | - | -
|
|
|
|Issuance of common shares                                                             |  |                             |  |  |  | 222,977   |   | $ | 2  |  | $ | 1,956   |   |   |  |  |   |     |   |   |      |   |  
|Repurchase of common shares                                                           |  |                             |  |  |  | (46,900   | ) |   |   |  |   | (481    | ) |   |  |  |   |     |   |   |      |   |  
|Exercise of stock options                                                             |  |                             |  |  |  | 26,976    |   |   |   |  |   | 209     |   |   |  |  |   |     |   |   |      |   |  
|Issuance of common shares for Employee Stock Purchase Plan                            |  |                             |  |  |  | 45,884    |   |   |   |  |   | 370     |   |   |  |  |   |     |   |   |      |   |  
|Exercise of warrants                                                                  |  |                             |  |  |  | 10,128    |   |   |   |  |   | 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   |   |  
|Comprehensive Loss:                                                                   |  |                              |  |   |  |           |   |   |    |  |   |         |   |   |   |  |   |      |   |   |       |   |  
|Net loss                                                                              |  |                             |  |  |  |          |   |   |   |  |   |        |   |   |  |  |   |     |   |   |      |   |  
|Foreign currency translation adjustment                                               |  |                             |  |  |  |          |   |   |   |  |   |        |   |   |  |  |   |     |   |   |      |   |  
|Accumulated unrealized (loss) on investments                                          |  |                             |  |  |  |          |   |   |   |  |   |        |   |   |  |  |   |     |   |   |      |   |  
|                                                                                      |  |                              |  |   |  |           |   |   |    |  |   |         |   |   |   |  |   |      |   |   |       |   |  
|Total comprehensive loss                                                              |  |                             |  |  |  |          |   |   |   |  |   |        |   |   |  |  |   |     |   |   |      |   |  
|                                                                                      |  |                              |  |   |  |           |   |   |    |  |   |         |   |   |   |  |   |      |   |   |       |   |  
|Balances as of June 30, 2002                                                          |  |                             |  |  |  | 5,811,935 |   | $ | 58 |  | $ | 329,677 |   | $ |  |  | $ | (455 | ) | $ | (298  | ) | $
|                                                                                      |  |                              |  |   |  |           |   |   |    |  |   |         |   |   |   |  |   |      |   |   |       |   |  

See accompanying notes to consolidated financial statements.

60

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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, 2001, 2002 and 2003

|                                                           |  | Convertible Preferred Shares |  |   |  |           |  |   |    |  |   |         |   |   |   |  |   |      |   |   |     |  |  
|---------------------------------------------------------- |  | ---------------------------- |  | - |  | --------- |  | - | -- |  | - | ------- | - | - | - |  | - | ---- | - | - | --- |  | -
|
|
|
|Issuance of common shares and warrants to UT Starcom       |  |                             |  |  |  | 583,657   |  | $ | 6  |  | $ | 3,314   |   |   |  |  |   |     |   |   |    |  |  
|Issuance of common shares for acquisition of GBase Corp.   |  |                             |  |  |  | 316,847   |  |   | 3  |  |   | 5,299   |   |   |  |  |   |     |   |   |    |  |  
|Exercise of stock options                                  |  |                             |  |  |  | 1,066     |  |   |   |  |   | 8       |   |   |  |  |   |     |   |   |    |  |  
|Issuance of common shares for Employee Stock Purchase Plan |  |                             |  |  |  | 41,672    |  |   |   |  |   | 66      |   |   |  |  |   |     |   |   |    |  |  
|Shareholder payment received                               |  |                             |  |  |  |          |  |   |   |  |   |        |   |   |  |  |   | 11   |   |   |    |  |  
|Interest earned on shareholder receivable                  |  |                             |  |  |  |          |  |   |   |  |   |        |   |   |  |  |   | (12  | ) |   |    |  |  
|Other                                                      |  |                             |  |  |  |          |  |   |   |  |   | (35     | ) |   |  |  |   |     |   |   |    |  |  
|Amortization of deferred stock compensation                |  |                             |  |  |  |          |  |   |   |  |   |        |   |   |  |  |   |     |   |   | 194 |  |  
|Reversal of Deferred Stock Compensation upon termination   |  |                             |  |  |  |          |  |   |   |  |   | (104    | ) |   |  |  |   |     |   |   | 104 |  |  
|Comprehensive Loss:                                        |  |                              |  |   |  |           |  |   |    |  |   |         |   |   |   |  |   |      |   |   |     |  |  
|Net loss                                                   |  |                             |  |  |  |          |  |   |   |  |   |        |   |   |  |  |   |     |   |   |    |  |  
|Foreign currency translation adjustment                    |  |                             |  |  |  |          |  |   |   |  |   |        |   |   |  |  |   |     |   |   |    |  |  
|Realized gain on investments                               |  |                             |  |  |  |          |  |   |   |  |   |        |   |   |  |  |   |     |   |   |    |  |  
|                                                           |  |                              |  |   |  |           |  |   |    |  |   |         |   |   |   |  |   |      |   |   |     |  |  
|Total comprehensive loss                                   |  |                             |  |  |  |          |  |   |   |  |   |        |   |   |  |  |   |     |   |   |    |  |  
|                                                           |  |                              |  |   |  |           |  |   |    |  |   |         |   |   |   |  |   |      |   |   |     |  |  
|Balances as of June 30, 2003                               |  |                             |  |  |  | 6,755,177 |  | $ | 67 |  | $ | 338,225 |   | $ |  |  | $ | (456 | ) | $ |    |  | $
|                                                           |  |                              |  |   |  |           |  |   |    |  |   |         |   |   |   |  |   |      |   |   |     |  |  

See accompanying notes to consolidated financial statements.

61

---



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                              |                                       
|                                                   |                                                                              | Losses (Gains) on asset sales and asset impairments, net                 |                                       
|                                                   |                                                                              | Stock compensation expense                                               |                                       
|                                                   |                                                                              | Inventory valuation and purchase commitment charges                      |                                       
|                                                   |                                                                              | In-process research and development                                      |                                       
|                                                   |                                                                              | Non-cash restructuring charges                                           |                                       
|                                                   |                                                                              | Loss on disposition of property and equipment                            |                                       
|                                                   |                                                                              | Provision for bad debt                                                   |                                       
|                                                   |                                                                              | Interest accrued on shareholders' receivable                             |                                       
|                                                   |                                                                              | Warrants issued                                                          |                                       
|                                                   |                                                                              | 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 and other            
|                                                   |                                                                              |                                                                          |                                       
|                                                   |                                                                              |                                                                          |                                       
|Cash flows from investing activities:              |                                                                              |                                                                          |                                       
|                                                   | Sale of short-term investments, net                                          |                                                                          |                                       
|                                                   | Proceeds from sale of property & equipment                                   |                                                                          |                                       
|                                                   | Purchases of property and equipment                                          |                                                                          |                                       
|                                                   | Purchase of licensed technologies, trademarks and patents                    |                                                                          |                                       
|                                                   | Acquisitions, net of cash acquired                                           |                                                                          |                                       
|                                                   | Equity investments                                                           |                                                                          |                                       
|                                                   |                                                                              |                                                                          |                                       
|                                                   |                                                                              |                                                                          |                                       
|Cash flows from financing activities:              |                                                                              |                                                                          |                                       
|                                                   | Decrease (increase) in restricted cash                                       |                                                                          |                                       
|                                                   | Proceeds from issuances of common shares and/or warrants                     |                                                                          |                                       
|                                                   | Proceeds from short-term borrowings                                          |                                                                          |                                       
|                                                   | 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                                                  |                                                                          |                                       
|                                                   | Advance to (payment from) shareholder and other                              |                                                                          |                                       
|                                                   |                                                                              |                                                                          |                                       
|                                                   |                                                                              |                                                                          |                                       
|                                                   | Effect of exchange rate changes on cash and cash equivalents                 |                                                                          |                                       
|                                                   |                                                                              |                                                                          |                                       
|Net decrease in cash and cash equivalents          |                                                                              |                                                                          | (7,032                                
|Cash and cash equivalents at beginning of year     |                                                                              |                                                                          | 11,403                                
|                                                   |                                                                              |                                                                          |                                       
|Cash and cash equivalents at end of year           |                                                                              | $                                                                        | 4,371                                 
|                                                   |                                                                              |                                                                          |                                       
|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                        |                                                                          | $                                     
|                                                   | Purchase of property and equipment under notes payable                       |                                                                          | $                                     
|                                                   | Deferred stock-based compensation                                            |                                                                          | $                                     

See accompanying notes to consolidated financial statements.

62

---



interWAVE COMMUNICATIONS INTERNATIONAL, LTD. AND SUBSIDIARIES        Notes to Consolidated Financial Statements        Fiscal Years ended June 30, 2003, 2002 and 2001

(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 cellular products on a global basis. The Company's GSM products are primarily marketed to communication equipment providers, wireless service providers and systems integrators.

The
Company's fiscal years 2003 and 2002 ended on the last day of the actual calendar month and fiscal 2001 was a 52-week year. 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.

All
common share numbers disclosed in this Form 10-K have been retroactively adjusted to account for the 1-for-10 reverse stock split which
took effect on April 30, 2003.

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 $28.3 million, $64.3 million and $94.1 million for the years ended June 30, 2003, 2002 and 2001, respectively, and the Company also had net
cash used in operations of $12.9 million, $28.8 million, and $49.4 million for the years ended June 30, 2003, 2002 and 2001, respectively. Management is currently executing
plans intended to increase revenues and margins, reduce costs and raise additional amounts of cash through the issuance of debt, equity, asset sales 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.

(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

63

---

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 and less than one year are classified as short-term investments. All 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 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 an allowance 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 30,2003

2002Trade ReceivablesWidespread Trading International

25
%
Hutchison Telecommunications Group(1)(2)

*

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

*

13
%


64

---

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

Years Ended
June 30,2003

2002

2001RevenuesHutchison Telecommunications Group(1)(2)

*

25
%
20
%Campus Link





10
%Nortel Networks(3)

*



*


---

*
Less than 10%. No one customer represented more than 10% of revenue in fiscal 2003.

The
Company currently relies on 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. The Company
performs 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, the Company records adjustments, when appropriate, to reflect inventory at net realizable value.

(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

65

---

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 component, the software is not sold separately. The Company does not 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 $0.2 million, $0.6 million and $1.3 million in 2003, 2002, and 2001, respectively.

(k) Impairment of Long-Lived Assets

The Company evaluates long-lived assets 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, 2003 intangible assets consisted of purchased technology and a Qualcomm license due to our asset purchase of GBase Communications in
September 2002. The purchase technology is being amortized over four years through amortization of intangible assets. Additionally, in March 2003, the Company expanded its agreement with
Qualcomm to include a worldwide CDMA infrastructure license. The expanded license grants the Company the right to develop, make and sell infrastructure equipment based on Qualcomm's CDMAOne and
CDMA2000 1X/1xEV-DO technology. Accordingly, the Company recorded an additional license value at $2.5 million. The Qualcomm license is amortized through amortization of intangible
assets based on the greater of the straight-line amortization over 5 years or units sold basis. As of June 30, 2002, intangible assets consisted of purchased technology, trademarks
and patents, and are being amortized over four years.

66

---

(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.

(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, 2003, 2002 and 2001, 2.1 million, 0.3 million and 5.3 million potential common shares, respectively, were excluded from the calculation
of diluted net loss per share, as the effect would be anti-dilutive. Stock options with exercise prices greater than the average fair market price for a period, which are defined as
anti-dilutive, are not included in the calculation because of their anti-dilutive effect. All stock options are anti-dilutive in fiscals 2003, 2002 and 2001 due to
the net losses for the years.

(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.

Under
SFAS No. 123, 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

67

---

forma
net loss and pro forma net loss per share for the years ended June 30, 2003, 2002 and 2001, would have been changed as indicated below (in thousands, except per share amounts):

June 30,2003

2002

2001Net loss as reported

$
(28,264
)
$
(64,325
)
$
(94,136
)Add: Stock-based employee compensation expense included in the reported loss, net of related tax effects


194


(227
)

3,054Less: Stock-based employee compensation expense using the fair value based method, net of related tax effect


(1,368
)

(4,399
)

(11,177
)Pro forma net loss

$
(29,438
)
$
(68,951
)
$
(102,259
)Net loss per share:As reported

$
(4.34
)
$
(11.52
)
$
(19.25
)Pro forma

$
(4.52
)
$
(12.35
)
$
(20.91
)


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 2003,
2002 and 2001 are presented below. Assumptions related to the Employee Stock Purchase Plan are not presented as the related compensation expense amounts are insignificant.

2003

2002

2001Weighted average risk-free rate

1.4
%
3.5
%
5.34
%Expected life (years)

3.2

4.3

3Volatility

209
%
286
%
80
%Dividend yield








During
fiscal 2003, 2002 and 2001, the Company granted options with a weighted-average fair value of approximately $2.62, $9.20 and $29.10.

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.

(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.

68

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(q) Accumulated Other Comprehensive Income (Loss)

Accumulated other comprehensive income (loss) refers to revenues, expenses, gains and losses that are not included in net loss, but rather are recorded directly
in shareholders' equity. The components of other comprehensive income (loss) for the years ended June 30, 2003, 2002 and 2001 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 and short-term borrowings approximate fair value due to the variable interest rates on these notes.

(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. 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 adopted SFAS No. 142 as of July 1, 2002. Because the Company did not have any goodwill at the time of adoption, such adoption did not have an impact on the results
of the Company's financial position, results of operations or its cash flows.

Prior
to the adoption of SFAS No. 142, the Company amortized goodwill on a straight-line basis over an estimated useful life of 4 years. Had the Company
accounted for goodwill consistent with the

69

---

provisions
of SFAS No. 142 in prior periods, the Company's net loss would have been affected as follows (in thousands, except per share amounts):

|                                                                |  | Fiscal Years Ended |        
|--------------------------------------------------------------- |  | ------------------ | -------
|
|Net loss                                                        |  | $                  | (28,264
|Add back: Goodwill amortization                                 |  |                    |       
|                                                                |  |                    |        
|Adjusted net loss                                               |  | $                  | (28,264
|                                                                |  |                    |        
|Basic and diluted loss per share:                               |  |                    |        
|Net loss                                                        |  | $                  | (4.34  
|Goodwill amortization                                           |  |                    |       
|                                                                |  |                    |        
|Adjusted net loss                                               |  | $                  | (4.34  
|                                                                |  |                    |        
|Weighted average common shares used in computing loss per share |  |                    | 6,508  
|                                                                |  |                    |        

In
June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations." 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. 143 is effective for fiscal years beginning after June 15. The Company adopted SFAS Nos. 143
for its fiscal year beginning July 1, 2002. The effect of adopting this statement did not have a material effect on the Company's consolidated financial position, results of operations or cash
flows.

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 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 adoption
of this statement did not have a material effect on the Company's consolidated financial position, results of operations or cash flows.

In
November 2002, the FASB issued FASB FIN No. 45,Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees
of Indebtedness of Others,which clarifies disclosure and recognition/measurement requirements related to certain guarantees. The disclosure requirements are effective for
financial statements issued after December 15, 2002, and the recognition/measurement requirements are effective on a prospective basis for guarantees issued or modified after
December 31, 2002. The effect of adopting these statements did not have a material impact on the Company's consolidated financial position, results of operations or cash flows. In the normal
course of business, we provide indemnifications of varying scope to customers against claims of intellectual property infringement made by third parties arising from the use of our products.
Historically, costs related to these guarantees have not been significant and we are unable to estimate the maximum potential impact of these guarantees on our future results of operations.

In
December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based CompensationTransition and Disclosurean amendment of SFAS
No. 123." This Statement amends SFAS No. 123, "Accounting for Stock-Based Compensation" to provide alternative methods of transition for a

70

---

voluntary
change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to
require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported
results. The Company adopted prescribed format and provided the additional disclosures required by SFAS No. 148 in its financial statements for interim periods beginning with the quarterly
period ended March 31, 2003. The Company does not intend to adopt the fair value method of accounting for stock-based employee compensation.

In
January 2003, the EITF released Issue No. 00-21 ("EITF 00-21"), "Revenue Arrangements with Multiple Deliverables," which addresses certain
aspects of the accounting by a vendor for arrangement under which it will perform multiple revenue-generating activities. Specifically, EITF 00-21 addresses whether an arrangement contains
more than one unit of accounting and the measurement and allocation to the separate units of accounting in the arrangement. EITF 00-21 is effective for revenue arrangements entered into in
fiscal periods beginning after June 15, 2003. In May 2003, the EITF released Issue No. 03-5, "Applicability of AICPA Statement of Position 97-2 to
Non-Software Deliverables in an Arrangement Containing More-Than-Incidental-Software." The Company is evaluating the provisions of this consensus but do not expect
the adoption to have a material impact on its consolidated financial position, results of operations or cash flows.

In
January 2003, the FASB issued Interpretation No. 46,Consolidation of Variable Interest Entities, an interpretation of ARB
No. 51. This Interpretation addresses the consolidation by business enterprises of variable interest entities as defined in the Interpretation. The Interpretation
applies immediately to variable interests in variable interest entities created after January 31, 2003. The consolidation requirements apply to older entities in the first fiscal year or
interim period beginning after June 15, 2003. The application of this Interpretation did not have a material effect on the Company's consolidated financial statements.

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

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

June 30,2003

2002Cash

$
4,015

$
5,946Money market funds


356


927Commercial paper





4,530$
4,371

$
11,403


(b) Restricted cash:

The Company maintains stand-by letters of credit in the amount of $0.3 million as collateral on the leased facility in Mountain View and a
customer guarantee, which are restricted for use. As of June 30, 2003, $0.1 million is classified as restricted cash, short-term portion and $0.1 million is classified
as long term portion on the accompanying consolidated balance sheets.

71

---

(c) Short-Term Investments:

The Company redeemed all of its short-term investments during fiscal 2003. Available-for-sale investments for the fiscal year
ended June 30, 2002 was as follows (in thousands):

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

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

(3) Inventories

Inventories consisted of the following (in thousands):

June 30,2003

2002Work in process

$
4,634

$
7,712Finished goods


1,423


2,090Inventory held at subcontractors


2,001


3,863$
8,058

$
13,665


(4) Property and Equipment, net

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

June 30,2003

2002Machinery and equipment

$
12,042

$
19,935Computer equipment


5,530


5,617Furniture and fixtures


412


411Leasehold improvements


182


1,07218,166


27,035Less accumulated depreciation and amortization


(13,845
)

(20,036
)$
4,321

$
6,999


72

---



(5) Accrued Expenses

Accrued expenses consisted of the following (in thousands):

June 30,2003

2002Accrued purchase commitments

$
697

$
1,300Qualcomm license


1,289


Accrued acquisition contingent consideration


345


Accrued professional service expenses


590


540Other


2,771


2,737$
5,692

$
4,577


(6) Acquisitions

In September 2002, the Company completed the purchase of substantially all of the assets of GBase Communications, a developer of CDMA2000 base station
systems and packet data servicing nodes for third generation markets under a license from Qualcomm, Inc. The purchase was accounted for as an acquisition of assets.

Under
the asset purchase agreement, the Company acquired substantially all of GBase's assets and assumed most of its liabilities for an initial purchase price of 0.32 million
common shares at $20 per share. An additional 0.02 million common shares were placed in an escrow pending the satisfaction of certain contingencies. Contingent consideration of
0.08 million common shares were placed in an escrow and will be released in two tranches subject to the continued employment of key GBase personnel for periods of 12 and 18 months
following the asset purchase.

In
addition, if the average of the Company's closing share price during the last calendar quarter of 2003 is below approximately $20 per share, the Company will be obligated to issue
additional contingent consideration in common shares and cash, such that the total consideration at that time equals $6.7 million.

The
following table summarizes the consideration paid and allocation of purchase price for GBase (in thousands):

Acquisition costs

$
270Liabilities assumed


705Common stock issued


5,302$
6,277Other tangible assets

$
123Qualcomm licenses


1,403Purchased technology


4,751$
6,277


The
value of the contingent consideration of $0.3 million and $0.1 million are being recognized ratably as stock compensation expense over the next 12 and 18 months,
respectively. For the year

73

---

ended
June 30, 2003, $0.3 million related to this contingent consideration was recognized as compensation expense and classified as research and development expenses in the accompanying
condensed consolidated statements of operations. Purchased technology is amortized over the estimated useful life of 4 years and classified as amortization of intangible assets, which is
included in cost of revenue.

In
October 2002, the Company entered into a licensing agreement with Telos Technology Ltd ("Telos"). Under the agreement, the Company granted a perpetual license to Telos
to use certain technology acquired in the GBase acquisition for consideration of $2 million. The $2 million received was offset against the cost of GBase's purchased technology.

There
were no acquisition activities in 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.

74

---

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 $0.1 million and $0.4 million as of
June 30, 2003 and 2002, respectively.

(8) Losses (Gains) on Asset Sales and Asset Impairments, Net

The Company reviews its 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 our year-end results, we performed an impairment analysis of identifiable intangible assets recorded in connection with our purchase of GBase assets and
other long-lived assets. The assessment was performed primarily due to the continuing softening of the global economy and the telecommunications

75

---

industry
in particular, the continuing decline in our stock price, the net assets exceeding our market capitalization, and the overall decline in industry growth rates which indicate that this trend
may continue for an indefinite period.

As
a result of this assessment, the Company recorded approximately $83 thousand, $19.6 million and $23.2 million in asset impairment charges for the years ended
June 30, 2003, 2002 and 2001, respectively.
For fiscal 2003, the $83 thousand impairment charge was to write down the net book value of primarily computer equipment and leasehold improvements, which were no longer in use. Additionally,
the Company recorded $0.2 million net gain from the sale of certain assets. For fiscal 2002, $16.7 million was to write off the net book value of goodwill and property and equipment from
interWAVE's acquisition of Wireless, Inc., as well as an additional $2.9 million to write off Wireless, Inc.'s inventories, which was charged to cost of revenues. For fiscal 2001,
$23.2 million in asset impairment charges 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 (in thousands):

|Fiscal 2003                |           | Balance at
June 30, 2002 |       | Additions/
(Disposals/Usage) |   | Depreciation/
Amortization |   | Losses (Gains) on Asset Sales and Asset
Impairments, Net |        | Balance at
June 30, 2003
|-------------------------- | --------- | ------------------------ | ----- | ---------------------------- | - | -------------------------- | - | -------------------------------------------------------- | ------ | ------------------------
|Property and Equipment(1): |           |                          |       |                              |   |                            |   |                                                          |        |                         
|                           | interWAVE |                          | $     | 8,045                        |   | $                          |  |                                                          | $      | (7,962                  
|                           |           |                          |       |                              |   |                            |   |                                                          |        |                         
|                           |           | $                        | 8,045 |                              | $ |                           |   | $                                                        | (7,962 | )                       
|                           |           |                          |       |                              |   |                            |   |                                                          |        |                         

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

76

---

|Fiscal 2001        |                                  | Balance at
June 30, 2000 |       | Additions/
(Disposals/Usage) |   | Depreciation/
Amortization |        | Losses (Gains) on Asset Sales and Asset
Impairments, Net |        | 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 | )                       
|                   |                                  |                          |       |                              |   |                            |        |                                                          |        |                         

---

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

The Company's restructuring accrual as of June 30, 2003 and 2002 is summarized as follows (in thousands):

|Fiscal 2003                                           |  | Restructuring
Accrual as of
June 30, 2002 |     | Additions/
Reversals |   | Payments |   | Restructuring
Accrual as of
June 30, 2003
|----------------------------------------------------- |  | ----------------------------------------- | --- | -------------------- | - | -------- | - | -----------------------------------------
|Future lease payments related to abandoned facilities |  | $                                         | 747 |                      | $ | 2,300    |   | $                                        
|Workforce reduction                                   |  |                                           | 35  |                      |   | 902      |   |                                          
|                                                      |  |                                           |     |                      |   |          |   |                                          
|Total                                                 |  | $                                         | 782 |                      | $ | 3,202    | * | $                                        
|                                                      |  |                                           |     |                      |   |          |   |                                          

---

During
fiscal 2003 the Company reduced its workforce by an additional 133 employees and closed certain facilities. As a result, the Company recorded restructuring expense
related to severance payments and future lease commitments and recorded a charge of $3.5 million.

77

---

In
September 2003, interWAVE renegotiated all remaining obligations under its lease agreement for the Menlo Park, California facility in exchange for monthly payments of
$0.1 million for the next 19 months beginning October 2003 for a total of $1.9 million. The discounted value of $1.8 million is included on the accompanying
consolidated balance sheet in accrued restructuring expenses. The remaining workforce reduction accrual of $0.2 million is expected to be paid out by December 2003.

|Fiscal 2002                                           |  | Restructuring
Accrual as of
June 30, 2001 |       | Additions/
Reversals |   | Payments |     | Restructuring
Accrual as of
June 30, 2002
|----------------------------------------------------- |  | ----------------------------------------- | ----- | -------------------- | - | -------- | --- | -----------------------------------------
|Future lease payments related to abandoned facilities |  | $                                         | 5,986 |                      | $ | (3,494   | )   | $                                        
|Abandoned leasehold improvements                      |  |                                           | 595   |                      |   | (595     | )   |                                          
|Workforce reduction                                   |  |                                           |      |                      |   | 855      |     |                                          
|                                                      |  |                                           |       |                      |   |          |     |                                          
|Total                                                 |  | $                                         | 6,581 |                      | $ | (3,234   | )** | $                                        
|                                                      |  |                                           |       |                      |   |          |     |                                          

---

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

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.

Also
in fiscal 2002, the Company negotiated and signed a lease termination agreement, which reduced 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.

(10) Accrued Warranty and Related Costs

The Company offers a basic limited parts and labor warranty on its hardware products. The basic warranty period for hardware products is typically one year from
the date of purchase by the end user. The Company provides currently for the estimated costs that may be incurred under its basic limited product warranties at the time related revenue is recognized.
Factors in determining appropriate accruals for product warranty obligations include the size of the installed base of products subject to warranty protection, historical warranty claim rates, and
knowledge of specific product failures that are outside of the Company's typical experience. The Company assesses the adequacy of its warranty

78

---

liability
at least quarterly and adjusts the amounts as necessary based on actual experience and changes in future expectations.

The
following table reconciles changes in the Company's accrued warranties which is included in the accrued expenses and related costs for the years ended June 30, 2003, 2002 and
2001:

|                                             |  | Fiscal Years Ended
|-------------------------------------------- |  | ------------------
|
|Beginning accrued warranty and related costs |  | $                 
|Cost of warranty claims                      |  |                   
|                                             |  |                   
|Ending accrued warranty and related costs    |  | $                 
|                                             |  |                   

(11) Income Taxes

Income tax expense for the fiscal years ended June 30, 2003, 2002 and 2001 consisted of the following (in thousands):

Current

Deferred

Total2003:U.S. Federal

$


$


$
Foreign


267





267Total

$
267

$


$
2672002:U.S. Federal

$


$


$
Foreign


209





209Total

$
209

$


$
2092001:U.S. Federal

$


$


$
Foreign


306


18


324Total

$
306

$
18

$
324


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                                            |  | $        | (9,519
|Non-U.S. income taxed at rate other than the U.S. federal rate                  |  |          | (51   
|Losses in a zero tax jurisdiction                                               |  |          | 3,432 
|Net losses and temporary differences for which no current benefit is recognized |  |          | 6,370 
|Other                                                                           |  |          | 35    
|                                                                                |  |          |       
|                                                                                |  | $        | 267   
|                                                                                |  |          |       

79

---

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

June 30,2003

2002Deferred tax assets:Technology asset

$
240

$
375Inventory


5,546


4,908Allowance for doubtful accounts





Accruals and allowance


2,936


1,988Net operating loss carryforwards


67,203


65,037Research and other tax credit carryforwards


10,975


9,950Property and equipment


535


320Total gross deferred tax assets


(87,435
)

82,578Less valuation allowance


(87,435
)

(82,578
)Total deferred tax assets

$


$



The
net change in the total valuation allowance from the year ended June 30, 2003, 2002 and 2001 was an increase of approximately $4.9 million,
$40.8 million and $10.4 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 $186.9 million and $106.0 million, respectively. The
U.S. Federal net operating losses expire beginning in 2010 through 2023. California net operating loss carryforwards will expire beginning 2002 through 2013.

The
Company also has research credit carryforwards for U.S. federal and California income tax return purposes of approximately $5.4 million and $4.6 million, respectively.
The federal research credit carryforwards will expire beginning in 2010 through 2023. California research credits carry forward indefinitely until utilized. The Company has California manufacturer's
investment credit carryforwards of approximately $1.0 million, which expire in 2006 through 2013.

(12) Lines of Credit

The Company has two 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. Availability is based on amounts drawn 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, 2003 and 2002, $0.2 million and $0.3 million has been drawn down, respectively. If the Company elects to borrow
funds under its committed lines of credit, the Company will incur additional interest expense during any periods when amounts are outstanding under the lines. The two credit facilities will expire in
October 2004.

80

---



In June 2003, the Company obtained a revolving line of credit in the amount of $1.0 million from Silicon Valley Bank at and interest rate of 1.5% monthly on gross accounts receivable
outstanding. $1.0 million has been drawn down as of June 30, 2003. Repayment is required when a specific receivable is 90 days past due unless replenished by a more current
receivable. In September 2003, the availability under the line of credit was increased to $2.5 million. The line of credit is available through June 29, 2004.

(13) Shareholders' Equity

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, 2003, 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.

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, 2003, 0.97 million shares are reserved for
issuance under this stock option plan. Similar to the 1994 Option Plan, shares generally vest 25% after one year, with the remainder vesting monthly over the following three years, with
10-year expiration.

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, 2003, 0.4 million shares
are reserved for the 2001 Supplemental Stock Option Plan. Similar to the 1994 Option Plan, shares generally vest 25% after one year, with the remainder vesting monthly over the following three years,
with 10-year expiration.

81

---

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

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

|                                 |  | June 30, 
|-------------------------------- |  | ---------
|
|
|Outstanding at beginning of year |  | 1,109,125
|Granted                          |  | 558,900  
|Exercised                        |  | (1,066   
|Canceled                         |  | (387,071 
|                                 |  |          
|Outstanding at year-end          |  | 1,279,888
|                                 |  |          
|Options exercisable at year-end  |  | 454,453  
|                                 |  |          

The
following table summarizes information about share options outstanding and exercisable under the Plan as of June 30, 2003:

|                |  | Outstanding |  | Exercisable
|--------------- |  | ----------- |  | -----------
|
|$1.70-$1.70     |  | 10,300      |  | 9.71       
|$1.80-$2.03     |  | 252,000     |  | 9.85       
|$2.25-$2.40     |  | 171,116     |  | 9.80       
|$2.60-$6.80     |  | 138,357     |  | 9.03       
|$7.00-$8.90     |  | 186,348     |  | 7.53       
|$9.00-$9.60     |  | 185,635     |  | 8.55       
|$9.70-$26.25    |  | 134,441     |  | 6.46       
|$26.88-$80.00   |  | 136,035     |  | 7.14       
|$85.00-$179.38  |  | 62,603      |  | 7.03       
|$258.13-$258.13 |  | 3,053       |  | 6.75       
|                |  |             |  |            
|$1.70-$258.13   |  | 1,279,888   |  | 8.44       
|                |  |             |  |            

As
of June 30, 2003, options available for grant under the Plans was 327,670.

1999 Employee Stock Purchase Plan

The Company has a Employee Stock Purchase Plan, or 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. 41,711 common shares were available for issuance under
the 1999 Employee Stock Purchase Plan as of June 30, 2003.

82

---

The
ESPP 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 ESPP 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 2003, 58,358 shares were added to the reserve for the share purchases.

During
fiscal 2003, 2002 and 2001, the Company granted options with a weighted-average fair value of approximately $2.62, $9.20 and $29.10.

In
October 2002, the Company issued warrants to purchase 0.2 million shares of its common stock to UTStarcom. The fair value of the warrant of $0.3 million was
determined using the Black-Scholes pricing model with the following assumptions: interest rate at 3.5%, volatility at 122%, exercise price at $2.10 and 3-year terms. The
$0.3 million was charged to the consolidated statement of operations as selling, general and administrative expenses.

(14) Transactions with Related Parties

For the years ended June 30, 2003, 2002, and 2001, the Company engaged in transactions with related parties resulting in the following: revenue, deferred
revenue, trade receivables and legal expenses: (in thousands):

2003

2002

2001Revenue:Hutchison Telecommunications Group

$
1,297

$
10,636

$
5,285Eastern Communications Co., Ltd.


2,805


2,978


Campus Link








2,706Nortel Networks(1)





164


1,697$
4,102

$
13,778

$
9,688Legal Expenses:Wilson, Sonsini, Goodrich and Rosati(2)

$
458

$
255


N/A


2003

2002Deferred Revenue:Hutchison Telecommunications Group

$
22

$
51Eastern Communications Co., Ltd.


119


426$
141

$
477


2003

2002Trade Receivables:Hutchison Telecommunications Group

$
601

$
2,927Eastern Communications Co., Ltd.


24


2,017$
625

$
4,944


---

83

---

(15) 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, 2003 (including the former Menlo Park facility discussed below) are as follows (in thousands):

Year ending June 302004

$
1,8542005


1,8812006


6342007


17Total minimum lease payments

$
4,386


In
May 2003, the Company relocated its principal administrative, manufacturing and engineering facilities from its facility in Menlo Park, California to its main 34,500 square
foot facility in Mountain View, California, which is also used for planning, procurement, final assembly, system testing, and quality control. The three-year lease commenced in
May 2003.

The
Company vacated its Menlo Park, California facility and in September 2003, it renegotiated all remaining obligations under its lease agreement for the Menlo Park, California
facility in exchange for monthly payments of $0.1 million for the next 19 months beginning October 2003 for a total of $1.9 million. The discounted value of
$1.8 million is included in the accompanying consolidated balance sheet as accrued restructuring expense.

Rent
expense was approximately $2.2 million, $3.5 million, and $4.0 million for the years ended June 30, 2003, 2002, and 2001, 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, 2003 are as follows (in thousands):

Year ending June 302004

$
5432005


316Total minimum lease payments


859Less interest


(68
)Present value of payments under capital lease


791Less current portion


(485
)Long-term portion of capital lease obligation

$
306


84

---

(c) Future Qualcomm License Payments

Future payments due Qualcomm for a worldwide CDMA infrastructure license are recorded in the consolidated balance sheet as of June 30, 2003 net of interest
imputed at a rate of 10% per annum as follows (in thousands):

Accrued expenses (due fiscal 2004)

$
1,289Other long-term liabilities (due fiscal 2005)


876$
2,165


(d) Contract Manufacturers

The Company generally commits to purchase products from its contract manufacturer to be delivered within the most recent 60 days covered by forecasts with
cancellation fees. As of June 30, 2003, the Company had committed to make purchases totaling $1.1 million from this manufacturer in the next 60 days. In addition, in specific
instances, the Company may agree to assume liability for 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, 2003 and 2002, the Company has established an accrual for purchase commitments of $0.7 million and $1.3 million, respectively, for excess inventory
component commitments to key component vendors that it believes may not be realizable during future normal ongoing operations.

(16) Litigation

On November 21, 2001, the Company and various of its officers and directors were named as defendants inMiddleton v. interWAVE
Communications International Ltd., et al., Case No. 01-CV-10598, a purported securities class action lawsuit filed in United States
District Court, Southern District of New York. On April 19, 2002, plaintiffs filed an amended complaint. The amended complaint asserts that the prospectus from the Company's January 28,
2000 initial public offering ("IPO") failed to disclose certain alleged improper actions by various underwriters for the offering in the allocation of IPO shares. The amended complaint alleges claims
against certain underwriters, the Company and its officers and directors under the Securities Act of 1933 and the Securities Exchange Act of 1934. Similar complaints have been filed concerning more
than 300 other IPOs; these cases have been coordinated asIn re Initial Public Offering Securities Litigation, 21 MC 92.

On
July 15, 2002, the issuers filed an omnibus motion to dismiss for failure to comply with applicable pleading standards. On October 8, 2002, the Court entered an Order of
Dismissal as to all of the individual defendants in the IPO litigation, without prejudice. On February 19, 2003, the Court denied the motion to dismiss against the Company.

A
proposal has been made for the settlement and release of claims against the issuer defendants, including the Company. The settlement is subject to a number of conditions, including
approval of the proposed settling parties and the court. If the settlement does not occur, and litigation against the Company continues, the Company believes it has meritorious defenses and intends to
defend the action vigorously; provided, however, such legal proceedings may be time consuming and expensive and the

85

---

outcome
could be adverse to the Company. An adverse outcome could have a material adverse effect on the Company's financial position, on its business and results of operations.

(17) 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 100% of their pretax salary in certain investments at the discretion of the employee. Under the Plan, the Company provides for a
discretionary 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 $109,000, $197,000 and $115,000 for the years ended June 30, 2003, 2002 and 2001, respectively. In 2003, the $109,000 match includes a
discretionary match of $64,000 and a $45,000 match of 10% capped at $1,000 per participant.

(18) Segment Information

SFAS No. 131 establishes 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. Subsequent to the June 2002 impairment of the Company's Wireless, Inc. assets and the continued decline in the demand for Wireless, Inc.'s products, the
financial information reviewed by the Company's principal executive officer has been identical to the information presented in the accompanying statements of operations. Accordingly, the Company has
determined that effective July 1, 2002, it operated in a single cellular segment. Cellular products provide infrastructure equipment and software using cellular to support an entire wireless
network within a single, compact enclosure.

Due
to the nature of the Company's 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 years ended June 30, 2003, 2002 and 2001 is based on the Company's customers' locations. Long-lived
assets include property, plant and equipment. Property and equipment and intangible asset information is based on the physical location of the asset at the end of each period presented.

86

---

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

Years Ended June 30,2003

2002

2001Net RevenuesGSM:United States

$
6,373

$
4,149

$
2,171North America (other than United States)


1,522


1,967


1,513Latin America


521


9,860


Europe, Middle East and Africa


14,420


11,215


13,200Asia Pacific


6,104


7,836


7,395Total GSM


28,940


35,027


24,279CDMA:United States


58





North America (other than United States)


962





Total CDMA


1,020





Broadband:United States





1,390


522Latin America





5,058


1,563Europe, Middle East and Africa





1,051


65Asia Pacific





429


103Total Broadband





7,928


2,253$
29,960

$
42,955

$
26,532Net Revenues By Product TypeWAVEXpress


58
%

65
%

69
%Third party equipment


21


12


15Other


21


23


16100
%

100
%

100
%Segment loss before income taxesGSM

$
27,997

$
56,999

$
92,949Broadband





7,117


863Total

$
27,997

$
64,116

$
93,812Depreciation and amortizationGSM

$
4,772

$
11,419

$
12,957Broadband





1,339


102Total

$
4,772

$
12,758

$
13,059Interest incomeGSM

$
1

$
1,081

$
6,297Broadband





(25
)

(2
)Total

$
1

$
1,056

$
6,295Income tax expenseGSM

$
267

$
209

$
324Broadband








Total

$
267

$
209

$
324


87

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As of June 30,2003

2002Total assetsGSM

$
27,618

$
50,848CDMA


5,659


Broadband





1,779Total

$
33,277

$
52,627


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

June 30,2003

2002United States

$
2,969

$
5,163Latin America


31


45Europe


437


463Asia


884


1,328$
4,321

$
6,999


All
intangible assets are located in the United States.

(19) Consolidated Supplementary Quarterly Data (unaudited)

The following table sets forth certain unaudited condensed consolidated statement of operations data for each quarter of fiscal 2003 and fiscal 2002. 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                                              |  | $              | 8,475 
|Cost of revenues                                            |  |                | 4,816 
|Net loss                                                    |  |                | (5,154
|Basic and diluted net loss per share                        |  |                | (0.76 
|Shares used to compute basic and diluted net loss per share |  |                | 6,748 

The
quarterly information for the fourth quarter ended June 30, 2003 includes a reduction in the allowance for doubtful accounts of $0.6 million.

88

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

None.

Item 9A. Controls and Procedures

Evaluation of disclosure controls and procedures.Our management evaluated, with the participation of our Chief Executive
Officer and our Chief Financial Officer, the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Annual Report on Form 10-K. Based on
this evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that our disclosure controls and procedures are effective to ensure that information we are required to
disclose in reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange
Commission rules and forms.

Changes in internal control over financial reporting.There was no change in our internal control over financial reporting
that occurred during the quarter ended June 30, 2003 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART III

Item 10. Directors and Executive Officers of the Registrant

The information required by this item is incorporated herein by reference to the fiscal 2003 definitive Proxy Statement under the captions "Election of
Directors," "Executive Officers," and "Compliance with Section 16(a) of the Exchange Act."

Item 11. Executive Compensation

The information required by this item is incorporated herein by reference to the fiscal 2003 definitive Proxy Statement under the caption "Executive Compensation
and Related Information."

Item 12. Security Ownership of Certain Beneficial Owners and Management

The information concerning security ownership of certain beneficial owners and management of the Company is incorporated herein by reference to the fiscal 2003
definitive Proxy Statement under the caption "Stock Ownership."

89

---

Equity Compensation Plan Information

The following table provides information as of June 30, 2003 with respect to the common shares of the Company that may be issued under the Company's
existing equity compensation plans.

|                                                              |  |           |  |   |       | Number of Securities
Remaining Available
for Future Issuance
Under Equity
Compensation Plans
(Excluding Securities
Reflected in Column (a)) |        
|------------------------------------------------------------- |  | --------- |  | - | ----- | ------------------------------------------------------------------------------------------------------------------------------------------- | -------
|
|
|
|
|Equity Compensation Plans Approved by Security Holders        |  | 1,106,399 |  | $ | 18.72 |                                                                                                                                             | 154,469
|Equity Compensation Plans Not Approved by Security Holders(3) |  | 173,489   |  | $ | 10.59 |                                                                                                                                             | 214,912
|                                                              |  |           |  |   |       |                                                                                                                                             |        
|Total                                                         |  | 1,279,888 |  | $ | 17.61 |                                                                                                                                             | 369,381
|                                                              |  |           |  |   |       |                                                                                                                                             |        

---

Item 13. Certain Relationships and Related Transactions

The information required by this item is incorporated herein by reference to the fiscal 2003 definitive Proxy Statement under the caption "Certain Relationships
and Related Party Transactions."

Item 14. Principal Accountant Fees and Services

The information required by this item is incorporated herein by reference to the fiscal 2003 definitive Proxy Statement under the caption "Audit Committee
Report."

90

---



PART IV

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



SCHEDULE IIVALUATION AND QUALIFYING ACCOUNTS  Years ended June 30, 2003, 2002, 2001  (in thousands)

|                                         |  | Balance Beginning of Year |       | Additions |   | Deductions* |  | Balance End of Year
|---------------------------------------- |  | ------------------------- | ----- | --------- | - | ----------- |  | -------------------
|2003:                                    |  |                           |       |           |   |             |  |                    
|Allowance for doubtful trade receivables |  | $                         | 5,422 |           | $ |            |  | $                  
|2002:                                    |  |                           |       |           |   |             |  |                    
|Allowance for doubtful trade receivables |  | $                         | 9,157 |           | $ | 2,125       |  | $                  
|2001:                                    |  |                           |       |           |   |             |  |                    
|Allowance for doubtful trade receivables |  | $                         | 634   |           | $ | 10,363      |  | $                  

---





91

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EXHIBIT INDEX

|Exhibits |     | Description                                                                                                                                        
|-------- | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------
|3.2      | (1) | Amended and Restated Bye-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                                                                                        
|10.13    | (1) | Amended and Restated Rights Agreement by and among Registrant and certain shareholders, dated in August 1999                                       
|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                                                          
|10.21    | (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                             
|10.23    | (2) | 2001 Supplemental Stock Option Plan and form of subscription agreement.                                                                            
|10.24    | (3) | Asset Purchase Agreement, by and among Registrant, interWAVE Advanced Communications, Inc. and GBase Communications, dated August 16, 2002*        
|10.25    | (3) | Amendment to OEM Agreement between UTStarcom, Inc. and Registrant, dated September 27, 2002*                                                       
|10.26    | (4) | Technology License Agreement by and between Registrant, interWAVE Advanced Communications, Inc. and Telos Engineering LTD., dated October 10, 2002*
|10.27    |     | Letter of Employment between Registrant and Erwin F. Leichtle dated May 6, 2003                                                                    
|10.28    |     | Lease termination agreement between Tyco Electronics Corporation and interWAVE Communications, Inc. dated September 19, 2003                       
|10.29    |     | Lease agreement between Stoesser Enterprises and interWAVE Communications, Inc. dated May 5, 2003.                                                 
|11.1     | (5) | Statement re computation of earnings per share                                                                                                     
|21.1     |     | List of Subsidiaries                                                                                                                               
|23.1     |     | Independent Auditors' Consent                                                                                                                      
|24.1     | (6) | Power of Attorney                                                                                                                                  
|31.1     |     | Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) under the Securities Exchange Act of 1934, as amended.               
|31.2     |     | Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) under the Securities Exchange Act of 1934, as amended.               
|         |     |                                                                                                                                                    

92

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|32.1 |  | Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------
|32.2 |  | Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

---

93

---



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 Mountain View, State of California, on September 29, 2003.

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

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Erwin F. Leichtle 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/ERWIN F. LEICHTLEErwin F. Leichtle |  | President and Chief Executive Officer and Director (Principal Executive Officer)               |  | September 29, 2003
|/s/CAL R. HOAGLANDCal R. Hoagland     |  | Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) |  | September 29, 2003
|/s/PRISCILLA M. LUPriscilla M. Lu     |  | Chairwoman of the Board of Directors                                                           |  | September 29, 2003
|/s/THOMAS R. GIBIANThomas R. Gibian   |  | Director                                                                                       |  | September 29, 2003
|/s/WILLIAM E. GIBSONWilliam E. Gibson |  | Director                                                                                       |  | September 29, 2003
|/s/KER ZHANGKer Zhang                 |  | Director                                                                                       |  | September 29, 2003
|/s/NIEN DAK SZENien Dak Sze           |  | Director                                                                                       |  | September 29, 2003
|/s/ANDREW C. WANGAndrew C. Wang       |  | Director                                                                                       |  | September 29, 2003

94

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