<SUBMISSION>
<ACCESSION-NUMBER>0001095811-01-503707
<TYPE>10-Q
<PUBLIC-DOCUMENT-COUNT>3
<PERIOD>20010630
<FILING-DATE>20010807
<FILER>
<COMPANY-DATA>
<CONFORMED-NAME>NOVATEL WIRELESS INC
<CIK>0001022652
<ASSIGNED-SIC>7370
<IRS-NUMBER>860824673
<STATE-OF-INCORPORATION>DE
</COMPANY-DATA>
<FILING-VALUES>
<FORM-TYPE>10-Q
<ACT>34
<FILE-NUMBER>000-31659
<FILM-NUMBER>1699881
</FILING-VALUES>
<BUSINESS-ADDRESS>
<STREET1>9360 TOWNE CENTRE DR
<STREET2>SUITE 110
<CITY>SAN DIEGO
<STATE>CA
<ZIP>92121
<PHONE>8583208800
</BUSINESS-ADDRESS>
<MAIL-ADDRESS>
<STREET1>9360 TOWNE CENTRE DR
<STREET2>SUITE 110
<CITY>SAN DIEGO
<STATE>CA
<ZIP>92121
</MAIL-ADDRESS>
</FILER>
<DOCUMENT>
<TYPE>10-Q
<SEQUENCE>1
<FILENAME>a74385e10-q.htm
<DESCRIPTION>FORM 10-Q QUARTERLY PERIOD ENDED JUNE 30, 2001
<TEXT>
<HTML>
<HEAD>
<TITLE>Novatel Wireless, Inc. Form 10-Q</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
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<H5 align="left"><A HREF="#toc">Table of Contents</A></H5><P>

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<P align="center"><FONT size="5"><B>UNITED STATES<BR>
SECURITIES AND EXCHANGE COMMISSION</B></FONT>

<DIV align="center"><FONT size="2"><B>Washington, D.C. 20549</B></FONT></DIV>

<P align="center"><FONT size="4"><B>FORM 10-Q</B></FONT>

<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
        <TD width="6%" align="center" nowrap><FONT size="3"><B>&#091;X&#093;</B></FONT></TD>
        <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="93%"><FONT size="3"><B> QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934</B></FONT></TD>
</TR>
</TABLE>
<P align="center"><FONT size="2"><B>For the quarterly period ended June&nbsp;30, 2001</B></FONT>

<P align="center"><FONT size="2"><B>OR</B></FONT>

<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
        <TD width="6%" align="center" nowrap><FONT size="3"><B>&#091;&nbsp;&nbsp;&nbsp; &#093;</B></FONT></TD>
        <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="93%"><FONT size="3"><B> TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)</B></FONT></TD>
</TR>
</TABLE>
<P align="center"><FONT size="2"><B>For the transition period from _________________ to _________________.</B></FONT>

<P align="center"><FONT size="2"><B>Commission file number: 0-31659</B></FONT>

<P align="center"><FONT size="5"><B>NOVATEL WIRELESS, INC.</B></FONT>

<DIV align="center"><FONT size="2"><B>(exact name of registrant as specified in its charter)</B></FONT></DIV>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
        <TD width="50%">&nbsp;</TD>
        <TD width="5%">&nbsp;</TD>
        <TD width="45%">&nbsp;</TD>
</TR>
<TR valign="bottom">
        <TD align="center" valign="top"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B>Delaware<BR>
(State or other jurisdiction<BR>
or incorporation or organization)</B></FONT></DIV></TD>
        <TD>&nbsp;</TD>
        <TD align="center" valign="top"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">
<B>86-0824673<BR>
(I.R.S. Employer<BR>
Identification No.)</B></FONT></DIV></TD>
</TR>

<TR><TD>&nbsp;</TD></TR>


<TR valign="bottom">
        <TD align="center" valign="top"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B>9360 Towne Centre Drive, San Diego, California<BR>
(Address of principal executive offices)</B></FONT></DIV></TD>
        <TD>&nbsp;</TD>
        <TD align="center" valign="top"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">
<B>92121<BR>
(zip code)</B></FONT></DIV></TD>
</TR>
</TABLE>
</CENTER>
<P align="center"><FONT size="2"><B>Registrant&#146;s telephone number, including area code: (858)&nbsp;320-8800</B></FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Indicate by check mark whether the registrant (1)&nbsp;has filed all reports
required to be filed by Section&nbsp;13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12&nbsp;months (or for such shorter period that the
registrant was required to file such reports), and (2)&nbsp;has been subject to such
filing requirements for the past 90&nbsp;days. Yes &#091;X&#093;&nbsp;&nbsp;&nbsp; No &#091;&nbsp;&nbsp;&nbsp; &#093;.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The number of shares of the Registrant&#146;s common stock outstanding as of
July&nbsp;25, 2001 was 54,418,475.
</FONT>
<P>
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<A name="toc"><DIV align="CENTER"><U><B>TABLE OF CONTENTS</B></U></DIV></A>

<P><CENTER>
<TABLE border="0" width="90%" cellpadding="0" cellspacing="0">
<TR>
	<TD width="3%"></TD>
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	<TD width="76%"></TD>
</TR>
<TR><TD colspan="9"><A HREF="#000">PART I &#151; FINANCIAL INFORMATION</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#001">Item&nbsp;1. Financial Statements</A></TD></TR>
<TR><TD></TD><TD></TD><TD colspan="7"><A HREF="#002">CONSOLIDATED BALANCE SHEETS</A></TD></TR>
<TR><TD></TD><TD></TD><TD colspan="7"><A HREF="#003">CONSOLIDATED STATEMENTS OF OPERATIONS</A></TD></TR>
<TR><TD></TD><TD></TD><TD colspan="7"><A HREF="#004">CONSOLIDATED STATEMENTS OF CASH FLOWS</A></TD></TR>
<TR><TD></TD><TD></TD><TD colspan="7"><A HREF="#005">NOTES TO CONSOLIDATED FINANCIAL STATEMENTS</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#006">Item&nbsp;2. Management&#146;s Discussion and Analysis of Financial Condition and Results of Operations</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#007">Item&nbsp;3. Quantitative and Qualitative Disclosures About Market Risk</A></TD></TR>
<TR><TD colspan="9"><A HREF="#008">PART II &#151; OTHER INFORMATION</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#009">Item&nbsp;1. Legal Proceedings</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#010">Item&nbsp;2. Changes in Securities and Use of Proceeds</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#011">Item&nbsp;4. Submission of Matters to a Vote of Security Holders</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#012">Item&nbsp;6. Exhibits</A></TD></TR>
<TR><TD colspan="9"><A HREF="#013">SIGNATURES</A></TD></TR>
<TR><TD colspan="9"><A HREF="a74385ex10-1.txt">EXHIBIT 10.1</A></TD></TR>
<TR><TD colspan="9"><A HREF="a74385ex10-2.txt">EXHIBIT 10.2</A></TD></TR>
</TABLE>
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<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As used in this report on Form&nbsp;10-Q, unless the context otherwise
requires, the terms &#147;we&#148;, &#147;us&#148;, &#147;the Company&#148; and &#147;Novatel Wireless&#148; refer to
Novatel Wireless Inc., a Delaware corporation and its wholly-owned
subsidiaries.
</FONT>
<P align="left"><FONT size="2"><B>Forward Looking Statements</B></FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This report contains
forward-looking statements within the meaning of Section&nbsp;27A of
the Securities Act of 1933 and Section&nbsp;21E of the Securities
Exchange Act of 1934 based on our current
expectations, assumptions, estimates and projections about Novatel Wireless and
our industry. For this purpose, statements contained herein that are not
statements of historical fact may be deemed to be forward-looking statements.
Without limiting the foregoing, the words &#147;believes,&#148; &#147;anticipates,&#148; &#147;plans,&#148;
&#147;expects,&#148; &#147;estimates&#148; and similar expressions are intended to identify
forward-looking statements. These forward-looking statements involve risks and
uncertainties and are not guarantees of future performance. Actual results may
differ materially from those indicated in such forward-looking statements.
Novatel Wireless undertakes no obligation to update publicly any
forward-looking statements.
</FONT>
<P align="left"><FONT size="2"><B>Trademarks</B></FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Novatel Wireless logo, Minstrel, Minstrel III, Minstrel IIIc, Minstrel V,
Minstrel S, Minstrel Plus, Minstrel 540, Merlin, Sage, Lancer, Lancer 3W,
Contact, Expedite, MissionONE and Viking are trademarks of Novatel Wireless.
Minstrel and Sage are registered with the U.S. Patent and Trademark Office. All
other brands, products and company names mentioned herein are trademarks of
their respective holders.
</FONT>

<DIV>&nbsp;</DIV>
<P align="center"><FONT size="2">1
</FONT>


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<P align="center"><FONT size="2"><B>PART I &#151; FINANCIAL INFORMATION</B></FONT>

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<DIV align="left"><A NAME="001"></A></DIV>
<DIV align="left"><A name="a001"></A></DIV>
<P align="left"><FONT size="2"><B>Item&nbsp;1. </B><B><I>Financial Statements</I></B></FONT>

<!-- link3 "CONSOLIDATED BALANCE SHEETS" -->
<DIV align="left"><A NAME="002"></A></DIV>
<DIV align="left"><A name="a002"></A></DIV>

<P align="center"><FONT size="2"><B>NOVATEL WIRELESS, INC.</B></FONT>

<P align="center"><FONT size="2"><B>CONSOLIDATED BALANCE SHEETS</B></FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="95%">
<TR valign="bottom">
        <TD width="3%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
        <TD width="64%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
        <TD width="6%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="6%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
        <TD width="5%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="5%">&nbsp;</TD>
</TR>
<TR valign="bottom">
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="center" colspan="3"><FONT size="1"><B>June 30,</B></FONT></TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="center" colspan="3"><FONT size="1"><B>December 31,</B></FONT></TD>
</TR>
<TR valign="bottom">
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001</B></FONT></TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="center" colspan="3"><FONT size="1"><B>2000</B></FONT></TD>
</TR>
<TR valign="bottom">
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD colspan="3"><HR size="1" noshade></TD>
        <TD>&nbsp;</TD>
        <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="center" colspan="3"><FONT size="1"><B>(unaudited)</B></FONT></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
        <TD align="center" colspan="11"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B>ASSETS</B></FONT></DIV></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Current assets:</FONT></DIV></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD>&nbsp;</TD>
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Cash and cash equivalents, including $14,750,000 (2001)&nbsp;and $0
(2000)&nbsp;of restricted cash</FONT></DIV></TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">32,672,000</FONT></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">66,826,000</FONT></TD>
        <TD>&nbsp;</TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD>&nbsp;</TD>
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Accounts receivable, net of allowance for doubtful accounts of $222,000
(2001)&nbsp;and $253,000 (2000)</FONT></DIV></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">6,581,000</FONT></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">8,093,000</FONT></TD>
        <TD>&nbsp;</TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD>&nbsp;</TD>
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Accounts receivable &#151; related parties (Note 6)</FONT></DIV></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">1,574,000</FONT></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">7,446,000</FONT></TD>
        <TD>&nbsp;</TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD>&nbsp;</TD>
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Inventories</FONT></DIV></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">16,841,000</FONT></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">13,123,000</FONT></TD>
        <TD>&nbsp;</TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD>&nbsp;</TD>
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Prepaid expenses and other</FONT></DIV></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">1,830,000</FONT></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">3,388,000</FONT></TD>
        <TD>&nbsp;</TD>
</TR>
<TR>
        <TD colspan="3">&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD><HR size="1" noshade></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD><HR size="1" noshade></TD>
        <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Total current assets</FONT></DIV></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">59,498,000</FONT></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">98,876,000</FONT></TD>
        <TD>&nbsp;</TD>
</TR>
<TR>
        <TD colspan="3">&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD><HR size="1" noshade></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD><HR size="1" noshade></TD>
        <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
        <TD>&nbsp;</TD>
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Property and equipment, net</FONT></DIV></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">11,748,000</FONT></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">8,986,000</FONT></TD>
        <TD>&nbsp;</TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD>&nbsp;</TD>
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Intangible assets</FONT></DIV></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">3,757,000</FONT></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">2,260,000</FONT></TD>
        <TD>&nbsp;</TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD>&nbsp;</TD>
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Other assets</FONT></DIV></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">456,000</FONT></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">702,000</FONT></TD>
        <TD>&nbsp;</TD>
</TR>
<TR>
        <TD colspan="3">&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD><HR size="1" noshade></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD><HR size="1" noshade></TD>
        <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
        <TD colspan="3">&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">75,459,000</FONT></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">110,824,000</FONT></TD>
        <TD>&nbsp;</TD>
</TR>
<TR>
        <TD colspan="3">&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD><HR size="4" noshade></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD><HR size="4" noshade></TD>
        <TD>&nbsp;</TD>
</TR>

<TR><TD>&nbsp;</TD></TR>

<TR valign="bottom">
        <TD align="center" colspan="11"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B>LIABILITIES AND STOCKHOLDERS&#146; EQUITY</B></FONT></DIV></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Current liabilities:</FONT></DIV></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD>&nbsp;</TD>
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Accounts payable</FONT></DIV></TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">14,829,000</FONT></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">23,829,000</FONT></TD>
        <TD>&nbsp;</TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD>&nbsp;</TD>
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Accrued expenses</FONT></DIV></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">13,513,000</FONT></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">5,390,000</FONT></TD>
        <TD>&nbsp;</TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD>&nbsp;</TD>
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Line of credit payable</FONT></DIV></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">8,500,000</FONT></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD>&nbsp;</TD>
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Restructuring accrual</FONT></DIV></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">2,519,000</FONT></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD>&nbsp;</TD>
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Deferred revenues</FONT></DIV></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">505,000</FONT></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">1,996,000</FONT></TD>
        <TD>&nbsp;</TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD>&nbsp;</TD>
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Current portion of capital lease obligations</FONT></DIV></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">132,000</FONT></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">182,000</FONT></TD>
        <TD>&nbsp;</TD>
</TR>
<TR>
        <TD colspan="3">&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD><HR size="1" noshade></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD><HR size="1" noshade></TD>
        <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Total current liabilities</FONT></DIV></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">39,998,000</FONT></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">31,397,000</FONT></TD>
        <TD>&nbsp;</TD>
</TR>
<TR>
        <TD colspan="3">&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD><HR size="1" noshade></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD><HR size="1" noshade></TD>
        <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
        <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Capital lease obligations, net of current portion</FONT></DIV></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">131,000</FONT></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">205,000</FONT></TD>
        <TD>&nbsp;</TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Commitments and contingencies (Note 7)</FONT></DIV></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Stockholders&#146; equity:</FONT></DIV></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD>&nbsp;</TD>
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Preferred stock, par value $.001, 15,000,000 shares authorized, no
shares issued or outstanding</FONT></DIV></TD>


</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD>&nbsp;</TD>
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Common stock, par value $.001, 350,000,000 shares authorized,
54,401,600 (2001)&nbsp;and 53,800,830 (2000)&nbsp;shares issued and outstanding</FONT></DIV></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">54,000</FONT></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">54,000</FONT></TD>
        <TD>&nbsp;</TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD>&nbsp;</TD>
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Additional paid-in capital</FONT></DIV></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">183,863,000</FONT></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">183,300,000</FONT></TD>
        <TD>&nbsp;</TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD>&nbsp;</TD>
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Deferred stock compensation</FONT></DIV></TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(11,596,000</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(18,234,000</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD>&nbsp;</TD>
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Accumulated deficit</FONT></DIV></TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(136,991,000</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(85,898,000</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR>
        <TD colspan="3">&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD><HR size="1" noshade></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD><HR size="1" noshade></TD>
        <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Total stockholders&#146; equity</FONT></DIV></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">35,330,000</FONT></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">79,222,000</FONT></TD>
        <TD>&nbsp;</TD>
</TR>
<TR>
        <TD colspan="3">&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD><HR size="1" noshade></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD><HR size="1" noshade></TD>
        <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
        <TD colspan="3">&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">75,459,000</FONT></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">110,824,000</FONT></TD>
        <TD>&nbsp;</TD>
</TR>
<TR>
        <TD colspan="3">&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD><HR size="4" noshade></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD><HR size="4" noshade></TD>
        <TD>&nbsp;</TD>
</TR>
</TABLE>
</CENTER>
<P align="center"><FONT size="2">See accompanying notes to consolidated financial statements.</FONT>


<DIV>&nbsp;</DIV>
<P align="center"><FONT size="2">2
</FONT>


<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left"><A HREF="#toc">Table of Contents</A></H5><P>


<!-- link3 "CONSOLIDATED STATEMENTS OF OPERATIONS" -->
<DIV align="left"><A NAME="003"></A></DIV>
<DIV align="left"><A name="a003"></A></DIV>

<P align="center"><FONT size="2"><B>NOVATEL WIRELESS, INC.</B></FONT>

<P align="center"><FONT size="2"><B>CONSOLIDATED STATEMENTS OF OPERATIONS<BR>
(unaudited)</B></FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="90%">
<TR valign="bottom">
        <TD width="3%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
        <TD width="28%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
        <TD width="5%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="6%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
        <TD width="5%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="6%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
        <TD width="5%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="6%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
        <TD width="5%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="6%">&nbsp;</TD>
</TR>
<TR valign="bottom">
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="center" colspan="7"><FONT size="1"><B>Three Months Ended June 30,</B></FONT></TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="center" colspan="7"><FONT size="1"><B>Six Months Ended June 30,</B></FONT></TD>
</TR>
<TR valign="bottom">
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD colspan="7"><HR size="1" noshade></TD>
        <TD>&nbsp;</TD>
        <TD colspan="7"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001</B></FONT></TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="center" colspan="3"><FONT size="1"><B>2000</B></FONT></TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001</B></FONT></TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="center" colspan="3"><FONT size="1"><B>2000</B></FONT></TD>
</TR>
<TR valign="bottom">
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD colspan="3"><HR size="1" noshade></TD>
        <TD>&nbsp;</TD>
        <TD colspan="3"><HR size="1" noshade></TD>
        <TD>&nbsp;</TD>
        <TD colspan="3"><HR size="1" noshade></TD>
        <TD>&nbsp;</TD>
        <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
        <TD colspan="5"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Revenue</FONT></DIV></TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">11,173,000</FONT></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">8,715,000</FONT></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">28,833,000</FONT></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">15,207,000</FONT></TD>
        <TD>&nbsp;</TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD colspan="5"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Revenue &#151; related parties</FONT></DIV></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">1,335,000</FONT></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">379,000</FONT></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">3,411,000</FONT></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">724,000</FONT></TD>
        <TD>&nbsp;</TD>
</TR>
<TR>
        <TD colspan="5">&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD><HR size="1" noshade></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD><HR size="1" noshade></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD><HR size="1" noshade></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD><HR size="1" noshade></TD>
        <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Total revenue</FONT></DIV></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">12,508,000</FONT></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">9,094,000</FONT></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">32,244,000</FONT></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">15,931,000</FONT></TD>
        <TD>&nbsp;</TD>
</TR>
<TR>
        <TD colspan="5">&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD><HR size="1" noshade></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD><HR size="1" noshade></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD><HR size="1" noshade></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD><HR size="1" noshade></TD>
        <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
        <TD colspan="5"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Cost of revenue</FONT></DIV></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">23,991,000</FONT></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">9,857,000</FONT></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">47,293,000</FONT></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">17,449,000</FONT></TD>
        <TD>&nbsp;</TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD colspan="5"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Cost of revenue &#151; related parties</FONT></DIV></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">936,000</FONT></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">292,000</FONT></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">2,555,000</FONT></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">565,000</FONT></TD>
        <TD>&nbsp;</TD>
</TR>
<TR>
        <TD colspan="5">&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD><HR size="1" noshade></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD><HR size="1" noshade></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD><HR size="1" noshade></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD><HR size="1" noshade></TD>
        <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Total cost of revenue</FONT></DIV></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">24,927,000</FONT></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">10,149,000</FONT></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">49,848,000</FONT></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">18,014,000</FONT></TD>
        <TD>&nbsp;</TD>
</TR>
<TR>
        <TD colspan="5">&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD><HR size="1" noshade></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD><HR size="1" noshade></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD><HR size="1" noshade></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD><HR size="1" noshade></TD>
        <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Gross margin</FONT></DIV></TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(12,419,000</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(1,055,000</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(17,604,000</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(2,083,000</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR>
        <TD colspan="5">&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD><HR size="1" noshade></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD><HR size="1" noshade></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD><HR size="1" noshade></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD><HR size="1" noshade></TD>
        <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
        <TD colspan="5"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Operating costs and expenses:</FONT></DIV></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD>&nbsp;</TD>
        <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Research and development</FONT></DIV></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">5,054,000</FONT></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">3,127,000</FONT></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">11,676,000</FONT></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">5,203,000</FONT></TD>
        <TD>&nbsp;</TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD>&nbsp;</TD>
        <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Sales and marketing</FONT></DIV></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">3,453,000</FONT></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">4,153,000</FONT></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">8,088,000</FONT></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">6,472,000</FONT></TD>
        <TD>&nbsp;</TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD>&nbsp;</TD>
        <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">General and administrative</FONT></DIV></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">1,884,000</FONT></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">1,246,000</FONT></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">4,271,000</FONT></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">2,192,000</FONT></TD>
        <TD>&nbsp;</TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD>&nbsp;</TD>
        <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Restructuring charges</FONT></DIV></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">3,900,000</FONT></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD>&nbsp;</TD>
        <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Amortization of deferred stock
compensation(*)</FONT></DIV></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">3,319,000</FONT></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">142,000</FONT></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">6,638,000</FONT></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">262,000</FONT></TD>
        <TD>&nbsp;</TD>
</TR>
<TR>
        <TD colspan="5">&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD><HR size="1" noshade></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD><HR size="1" noshade></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD><HR size="1" noshade></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD><HR size="1" noshade></TD>
        <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Total operating costs and expenses</FONT></DIV></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">13,710,000</FONT></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">8,668,000</FONT></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">34,573,000</FONT></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">14,129,000</FONT></TD>
        <TD>&nbsp;</TD>
</TR>
<TR>
        <TD colspan="5">&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD><HR size="1" noshade></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD><HR size="1" noshade></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD><HR size="1" noshade></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD><HR size="1" noshade></TD>
        <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Operating loss</FONT></DIV></TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(26,129,000</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(9,723,000</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(52,177,000</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(16,212,000</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD colspan="5"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Other income (expense):</FONT></DIV></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD>&nbsp;</TD>
        <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Interest income</FONT></DIV></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">417,000</FONT></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">75,000</FONT></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">1,224,000</FONT></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">290,000</FONT></TD>
        <TD>&nbsp;</TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD>&nbsp;</TD>
        <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Interest expense</FONT></DIV></TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(72,000</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(9,000</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(136,000</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(20,000</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD>&nbsp;</TD>
        <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Other, net</FONT></DIV></TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(2,000</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(11,000</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(4,000</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">6,000</FONT></TD>
        <TD>&nbsp;</TD>
</TR>
<TR>
        <TD colspan="5">&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD><HR size="1" noshade></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD><HR size="1" noshade></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD><HR size="1" noshade></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD><HR size="1" noshade></TD>
        <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Net loss</FONT></DIV></TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">(25,786,000</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">(9,668,000</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">(51,093,000</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">(15,936,000</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR>
        <TD colspan="5">&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD><HR size="4" noshade></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD><HR size="4" noshade></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD><HR size="4" noshade></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD><HR size="4" noshade></TD>
        <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
        <TD colspan="5"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Accretion of preferred dividends and
amortization of offering costs</FONT></DIV></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">1,100,000</FONT></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">2,200,000</FONT></TD>
        <TD>&nbsp;</TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD colspan="5"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Net loss applicable to
common stockholders</FONT></DIV></TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">(25,786,000</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">(10,768,000</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">(51,093,000</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">(18,136,000</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR>
        <TD colspan="5">&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD><HR size="4" noshade></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD><HR size="4" noshade></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD><HR size="4" noshade></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD><HR size="4" noshade></TD>
        <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
        <TD colspan="5"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Per share data:</FONT></DIV></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD>&nbsp;</TD>
        <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Weighted average shares
used in computation of
basic and diluted net
loss per common share</FONT></DIV></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">54,290,863</FONT></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">10,157,327</FONT></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">52,995,366</FONT></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">10,088,661</FONT></TD>
        <TD>&nbsp;</TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD>&nbsp;</TD>
        <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Basic and diluted net
loss per common share</FONT></DIV></TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">(0.48</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">(1.06</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">(0.96</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">(1.80</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR>
        <TD colspan="5">&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD><HR size="4" noshade></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD><HR size="4" noshade></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD><HR size="4" noshade></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD><HR size="4" noshade></TD>
        <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
        <TD colspan="5"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">(*) Amortization of deferred
stock compensation:</FONT></DIV></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Cost of revenue</FONT></DIV></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">125,000</FONT></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">250,000</FONT></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Research and development</FONT></DIV></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">331,000</FONT></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">662,000</FONT></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Sales and Marketing</FONT></DIV></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">322,000</FONT></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">644,000</FONT></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">General and Administrative</FONT></DIV></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">2,541,000</FONT></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">142,000</FONT></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">5,082,000</FONT></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">262,000</FONT></TD>
        <TD>&nbsp;</TD>
</TR>
</TABLE>
</CENTER>
<P align="center"><FONT size="2">See accompanying notes to consolidated financial statements.</FONT>



<DIV>&nbsp;</DIV>
<P align="center"><FONT size="2">3
</FONT>


<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left"><A HREF="#toc">Table of Contents</A></H5><P>


<!-- link3 "CONSOLIDATED STATEMENTS OF CASH FLOWS" -->
<DIV align="left"><A NAME="004"></A></DIV>
<DIV align="left"><A name="a004"></A></DIV>

<P align="center"><FONT size="2"><B>NOVATEL WIRELESS, INC.</B></FONT>

<P align="center"><FONT size="2"><B>CONSOLIDATED STATEMENTS OF CASH FLOWS<BR>
(unaudited)</B></FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="90%">
<TR valign="bottom">
        <TD width="3%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
        <TD width="60%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
        <TD width="5%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="5%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
        <TD width="5%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="5%">&nbsp;</TD>
</TR>
<TR valign="bottom">
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="center" colspan="7"><FONT size="1"><B>Six Months Ended June 30,</B></FONT></TD>
</TR>
<TR valign="bottom">
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD colspan="7"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001</B></FONT></TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="center" colspan="3"><FONT size="1"><B>2000</B></FONT></TD>
</TR>
<TR valign="bottom">
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD colspan="3"><HR size="1" noshade></TD>
        <TD>&nbsp;</TD>
        <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
        <TD colspan="5"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Operating activities:</FONT></DIV></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD>&nbsp;</TD>
        <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Net loss</FONT></DIV></TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">(51,093,000</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">(15,936,000</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD>&nbsp;</TD>
        <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Adjustments to reconcile net loss to net cash used in operating activities:</FONT></DIV></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Depreciation and amortization</FONT></DIV></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">2,258,000</FONT></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">493,000</FONT></TD>
        <TD>&nbsp;</TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Provision for bad debt</FONT></DIV></TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(31,000</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">51,000</FONT></TD>
        <TD>&nbsp;</TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Non-cash charge for excess and obsolete inventory</FONT></DIV></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">19,000,000</FONT></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Non-cash portion of restructuring accrual</FONT></DIV></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">3,035,000</FONT></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Amortization of deferred stock compensation</FONT></DIV></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">6,638,000</FONT></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">262,000</FONT></TD>
        <TD>&nbsp;</TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Non-cash recognition of deferred revenues</FONT></DIV></TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(1,491,000</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(3,105,000</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Changes in assets and liabilities:</FONT></DIV></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Accounts receivable</FONT></DIV></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">1,543,000</FONT></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(3,841,000</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Accounts receivable &#151; related parties</FONT></DIV></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">5,872,000</FONT></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Inventories</FONT></DIV></TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(12,594,000</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(1,477,000</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Prepaid expenses and other</FONT></DIV></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">1,558,000</FONT></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(1,075,000</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Other assets</FONT></DIV></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">246,000</FONT></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(120,000</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Accounts payable</FONT></DIV></TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(9,000,000</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">4,672,000</FONT></TD>
        <TD>&nbsp;</TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Accrued expenses</FONT></DIV></TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(2,001,000</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">863,000</FONT></TD>
        <TD>&nbsp;</TD>
</TR>
<TR>
        <TD colspan="5">&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD><HR size="1" noshade></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD><HR size="1" noshade></TD>
        <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Net cash used in operating activities</FONT></DIV></TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(36,060,000</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(19,213,000</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR>
        <TD colspan="5">&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD><HR size="1" noshade></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD><HR size="1" noshade></TD>
        <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
        <TD colspan="5"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Investing activities:</FONT></DIV></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD>&nbsp;</TD>
        <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Purchases of property and equipment</FONT></DIV></TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(5,536,000</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(2,637,000</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD>&nbsp;</TD>
        <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Purchase of intangible assets</FONT></DIV></TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(848,000</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD>&nbsp;</TD>
        <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Capitalized software development costs</FONT></DIV></TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(649,000</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD>&nbsp;</TD>
        <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Net change in short-term investments</FONT></DIV></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(1,250,000</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR>
        <TD colspan="5">&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD><HR size="1" noshade></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD><HR size="1" noshade></TD>
        <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Net cash used in investing activities</FONT></DIV></TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(7,033,000</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(3,887,000</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR>
        <TD colspan="5">&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD><HR size="1" noshade></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD><HR size="1" noshade></TD>
        <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
        <TD colspan="5"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Financing activities:</FONT></DIV></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD>&nbsp;</TD>
        <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Proceeds from borrowings on line of credit</FONT></DIV></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">8,500,000</FONT></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD>&nbsp;</TD>
        <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Issuance of convertible preferred stock</FONT></DIV></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">30,254,000</FONT></TD>
        <TD>&nbsp;</TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD>&nbsp;</TD>
        <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Proceeds from exercise of stock options and warrants</FONT></DIV></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">563,000</FONT></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">172,000</FONT></TD>
        <TD>&nbsp;</TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD>&nbsp;</TD>
        <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Payments under capital lease obligation</FONT></DIV></TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(124,000</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(46,000</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR>
        <TD colspan="5">&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD><HR size="1" noshade></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD><HR size="1" noshade></TD>
        <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Net cash provided by financing activities</FONT></DIV></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">8,939,000</FONT></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">30,380,000</FONT></TD>
        <TD>&nbsp;</TD>
</TR>
<TR>
        <TD colspan="5">&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD><HR size="1" noshade></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD><HR size="1" noshade></TD>
        <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Net increase (decrease)&nbsp;in cash and cash equivalents</FONT></DIV></TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(34,154,000</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">7,280,000</FONT></TD>
        <TD>&nbsp;</TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD colspan="5"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Cash and cash equivalents, beginning of period</FONT></DIV></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">66,826,000</FONT></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">25,455,000</FONT></TD>
        <TD>&nbsp;</TD>
</TR>
<TR>
        <TD colspan="5">&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD><HR size="1" noshade></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD><HR size="1" noshade></TD>
        <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
        <TD colspan="5"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Cash and cash equivalents, end of period</FONT></DIV></TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">32,672,000</FONT></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">32,735,000</FONT></TD>
        <TD>&nbsp;</TD>
</TR>
<TR>
        <TD colspan="5">&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD><HR size="4" noshade></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD><HR size="4" noshade></TD>
        <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
        <TD colspan="5"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Supplemental disclosures of non-cash investing and financing activities:</FONT></DIV></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD>&nbsp;</TD>
        <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Accretion of dividends on minority interest</FONT></DIV></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">(142,000</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD>&nbsp;</TD>
        <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Accretion of dividends on convertible and redeemable preferred stock</FONT></DIV></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(1,767,000</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD>&nbsp;</TD>
        <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Amortization of offering costs for convertible and redeemable preferred
stock</FONT></DIV></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(291,000</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD>&nbsp;</TD>
        <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Deferred compensation for stock options issued</FONT></DIV></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">464,000</FONT></TD>
        <TD>&nbsp;</TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD>&nbsp;</TD>

<TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Fixed
assets retired against restructuring accrual</FONT></DIV></TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">516,000</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>

<TR valign="bottom">
        <TD colspan="5"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Supplemental disclosures of cash flow information:</FONT></DIV></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD>&nbsp;</TD>
        <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Cash paid during the period for:</FONT></DIV></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Interest</FONT></DIV></TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">44,000</FONT></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">3,000</FONT></TD>
        <TD>&nbsp;</TD>
</TR>
</TABLE>
</CENTER>
<P align="center"><FONT size="2">See accompanying notes to consolidated financial statements.</FONT>



<DIV>&nbsp;</DIV>
<P align="center"><FONT size="2">4
</FONT>


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<!-- link3 "NOTES TO CONSOLIDATED FINANCIAL STATEMENTS" -->
<DIV align="left"><A NAME="005"></A></DIV>
<DIV align="left"><A name="a005"></A></DIV>

<P align="center"><FONT size="2"><B>NOVATEL WIRELESS, INC.<BR>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS<BR>
(unaudited)</B></FONT>

<P align="left"><FONT size="2"><B>1. Basis of Presentation</B></FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The information contained herein has been prepared by Novatel Wireless,
Inc. (the &#147;Company&#148;) in accordance with the rules of the Securities and
Exchange Commission. The information at June&nbsp;30, 2001 and for the three month
and six month periods ended June&nbsp;30, 2001 and 2000 is unaudited. The
consolidated financial statements reflect all adjustments, consisting of only
normal recurring accruals which are, in the opinion of management, necessary
for a fair statement of the results of the interim periods presented. These
consolidated financial statements and notes thereto should be read in
conjunction with the audited financial statements and notes thereto included in
the Company&#146;s annual report on Form&nbsp;10-K for the year ended December&nbsp;31, 2000.
The results of operations for the interim periods are not necessarily
indicative of results to be expected for any other interim period or for the
year as a whole.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All intercompany transactions and balances
are eliminated in consolidation. Certain reclassifications have been made to
amounts included in the prior period&#146;s financial statements to conform to the
presentation for the periods ended June&nbsp;30, 2001.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect amounts reported in the consolidated
financial statements and related notes. Changes in those estimates may affect
amounts reported in future periods.
</FONT>

<P align="left"><FONT size="2"><B>2. Operational Overview and Restructuring Charges</B></FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our financial condition, results of operations and cash flows were
adversely affected during the first six months of 2001 by decreases in demand
for wireless products and decreases in demand for wireless access services for
the transmission of data, including the bankruptcy of Metricom which accounted
for 16.8% of our revenue for the first six months of 2001. If demand for
wireless products and services decreases from current levels, our financial
condition, results of operations and cash flows may be further adversely
affected for the remainder of 2001 and in future years. Assuming that our
revenue for each of the third and fourth quarters of 2001 equals or exceeds our
revenue for the second quarter of 2001, excluding sales to Metricom, we believe
that our available cash reserves together with our operating cash flows will be
sufficient to fund operations and satisfy our working capital requirements and
anticipated capital expenditures for the remainder of the year. Management currently is evaluating debt and
equity financing alternatives to meet our future capital requirements. However,
additional financing may not be available when needed, on favorable terms, or
at all.</FONT>


<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As a result of the economic slowdown in the Company&#146;s industry sector, in
the first quarter of 2001, the Company announced and began implementing an
operational restructuring plan to reduce its operating costs and streamline its
organizational structure. As a result of this plan, the Company recorded a
restructuring charge of $3.9&nbsp;million during the first quarter of 2001. The
restructuring plan provided for the reduction of employee staff, consultants
and temporary labor, resulting in severance payments and other employee related
expenses of approximately $2.2&nbsp;million. The restructuring also provided for
the closure of the Company&#146;s fulfillment and distribution facility. This
function has been transitioned to one of the Company&#146;s contract manufacturers.
As a result of the closure of this facility, the restructuring charge includes
$1.7&nbsp;million of the impairment for assets that will no longer be used and
facility lease termination and other closure costs. During the second quarter
of 2001, the Company began reducing its employee staff, consultants and
temporary labor, and expects to make additional head count reductions during
the balance of 2001. As of June&nbsp;30, 2001, the Company had closed its
fulfillment and
</FONT>

<DIV>&nbsp;</DIV>
<P align="center"><FONT size="2">5
</FONT>


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<H5 align="left"><A HREF="#toc">Table of Contents</A></H5><P>


<P><FONT size="2">distribution facility located in Carlsbad, California and is in the
process of disposing of fixed assets associated with the facility.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table displays the activity and balances of the
restructuring reserve from March&nbsp;31, 2001 to June&nbsp;30, 2001:
</FONT>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="75%">
<TR valign="bottom">
        <TD width="32%">&nbsp;</TD>
        <TD width="5%">&nbsp;</TD>
        <TD width="5%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="6%">&nbsp;</TD>
        <TD width="5%">&nbsp;</TD>
        <TD width="5%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="6%">&nbsp;</TD>
        <TD width="5%">&nbsp;</TD>
        <TD width="5%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="6%">&nbsp;</TD>
        <TD width="5%">&nbsp;</TD>
        <TD width="5%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="6%">&nbsp;</TD>
</TR>
<TR valign="bottom">
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="center" colspan="3"><FONT size="1"><B>Cash</B></FONT></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
        <TD nowrap align="center"><FONT size="1"><B>Type of Cost</B></FONT></TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="center" colspan="3"><FONT size="1"><B>March 31, 2001</B></FONT></TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="center" colspan="3"><FONT size="1"><B>Payments</B></FONT></TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="center" colspan="3"><FONT size="1"><B>Asset Disposals</B></FONT></TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="center" colspan="3"><FONT size="1"><B>June 30, 2001</B></FONT></TD>
</TR>
<TR valign="bottom">
        <TD nowrap align="center"><HR size="1" noshade></TD>
        <TD>&nbsp;</TD>
        <TD colspan="3"><HR size="1" noshade></TD>
        <TD>&nbsp;</TD>
        <TD colspan="3"><HR size="1" noshade></TD>
        <TD>&nbsp;</TD>
        <TD colspan="3"><HR size="1" noshade></TD>
        <TD>&nbsp;</TD>
        <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Employee separations</FONT></DIV></TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">2,200,000</FONT></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">(633,000</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">1,567,000</FONT></TD>
        <TD>&nbsp;</TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Facility closing</FONT></DIV></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">1,700,000</FONT></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(232,000</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">(516,000</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">952,000</FONT></TD>
        <TD>&nbsp;</TD>
</TR>
<TR>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD><HR size="1" noshade></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD><HR size="1" noshade></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD><HR size="1" noshade></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD><HR size="1" noshade></TD>
        <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">3,900,000</FONT></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">(865,000</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">(516,000</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">2,519,000</FONT></TD>
        <TD>&nbsp;</TD>
</TR>
<TR>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD><HR size="4" noshade></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD><HR size="4" noshade></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD><HR size="4" noshade></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD><HR size="4" noshade></TD>
        <TD>&nbsp;</TD>
</TR>
</TABLE>
</CENTER>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In connection with the first quarter of 2001 restructuring activities, the
Company also determined that certain components in inventory had been adversely
impacted by the slowing economy. Accordingly, the Company recorded a charge of
$6&nbsp;million for excess and obsolete raw material components and finished goods
in the first quarter of 2001. In accordance with Emerging Issues Task Force
96-9, &#147;Classification of Inventory Markdowns and Other Costs Associated with a
Restructuring,&#148; all inventory adjustments are classified in &#147;Cost of revenue&#148;
in the accompanying consolidated statements of operations. In the second
quarter of 2001, economic conditions in the Company&#146;s industry sector worsened
resulting in reduced demand for the Company&#146;s products. Consequently, the
Company recorded an additional charge of $13&nbsp;million (see Note 3).
</FONT>
<P align="left"><FONT size="2"><B>3. Inventories</B></FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Inventories consist of the following:
</FONT>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="65%">
<TR valign="bottom">
        <TD width="54%">&nbsp;</TD>
        <TD width="5%">&nbsp;</TD>
        <TD width="8%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="9%">&nbsp;</TD>
        <TD width="5%">&nbsp;</TD>
        <TD width="8%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="9%">&nbsp;</TD>
</TR>
<TR valign="bottom">
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="center" colspan="3"><FONT size="1"><B>June 30,</B></FONT></TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="center" colspan="3"><FONT size="1"><B>December 31,</B></FONT></TD>
</TR>
<TR valign="bottom">
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001</B></FONT></TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="center" colspan="3"><FONT size="1"><B>2000</B></FONT></TD>
</TR>

<TR valign="bottom">
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="center" colspan="3"><FONT size="1"><B>(unaudited)</B></FONT></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
</TR>




<TR valign="bottom">
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD colspan="3"><HR size="1" noshade></TD>
        <TD>&nbsp;</TD>
        <TD colspan="3"><HR size="1" noshade></TD>
</TR>

<TR valign="bottom">
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Finished goods</FONT></DIV></TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">8,680,000</FONT></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">4,503,000</FONT></TD>
        <TD>&nbsp;</TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Raw materials and components</FONT></DIV></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">8,161,000</FONT></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">8,620,000</FONT></TD>
        <TD>&nbsp;</TD>
</TR>
<TR>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD><HR size="1" noshade></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD><HR size="1" noshade></TD>
        <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">16,841,000</FONT></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">13,123,000</FONT></TD>
        <TD>&nbsp;</TD>
</TR>
<TR>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD><HR size="4" noshade></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD><HR size="4" noshade></TD>
        <TD>&nbsp;</TD>
</TR>
</TABLE>
</CENTER>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During the second quarter of 2001, the Company recorded a charge to
write-off $13&nbsp;million of raw material components and finished goods that are
considered excess or obsolete as a result of decreased demand. Approximately
$5.3&nbsp;million of this charge relates to products shipped to Metricom, which
filed for bankruptcy subsequent to shipment and prior to making payment,
inventory on hand for future shipments to Metricom, and inventory purchase
commitments for future shipments to Metricom. In addition, approximately $4.3
million of this charge relates to excess and obsolete inventory on hand and the
remaining $3.4&nbsp;million of this charge relates to excess and obsolete inventory
under purchase commitments.
</FONT>
<P align="left"><FONT size="2"><B>4. Capitalized Software Development Costs</B></FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company accounts for software development costs in accordance with
SFAS No.&nbsp;86, &#147;Accounting for the Costs of Computer Software to be Sold, Leased
or Otherwise Marketed,&#148; whereby costs for the development of new software
products and substantial enhancements to existing software products are
expensed as incurred until technological feasibility has been established, at
which time any additional costs are capitalized. During 2001, the Company
began using the detail program design method for certain products for
determining when technological feasibility has been established. During the
second quarter of 2001, the Company reached technological feasibility with
regards to certain software development activities. Software development costs
of approximately $649,000 incurred subsequent to the establishment of
technological feasibility have been capitalized in Intangible assets in the
accompanying balance sheet at June&nbsp;30, 2001. These costs are amortized on a
product-by-product basis, using the greater of the ratio of current revenue for
a product to the total of current and anticipated future revenue for that
product, or the straight-line method over the remaining estimated economic life
of the product, which is currently estimated to be a five-year period.
</FONT>

<DIV>&nbsp;</DIV>
<P align="center"><FONT size="2">6
</FONT>


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<H5 align="left"><A HREF="#toc">Table of Contents</A></H5><P>


<P align="left"><FONT size="2"><B>5. Line of Credit, Letter of Credit and Restricted Cash</B></FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In June 2001, the Company entered into a $10&nbsp;million credit facility with
a bank. This credit facility bears interest at prime minus 1.25% (5.5% at June
30, 2001), is secured by $10&nbsp;million cash, that the Company has deposited in a
restricted certificate of deposit, and expires on July&nbsp;1, 2002. The line of
credit and certificate of deposit is cancelable at any time by the Company prior to the expiration date.
As of June&nbsp;30, 2001, $8.5&nbsp;million of borrowings were outstanding under this
facility. At June&nbsp;30, 2001, the Company was in violation of a financial
covenant requiring a specific level of earnings as defined in the line of
credit facility. The covenant violation was caused substantially by
the inventory write-off discussed in Note&nbsp;3. The Company has obtained a waiver from the bank related to
such covenant violation.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In March 2001, the Company entered into a letter of credit with one of its
vendors in the amount of $4.75&nbsp;million. This letter of credit expires on
September&nbsp;14, 2001 and is secured by $4.75&nbsp;million cash, which the Company has
deposited in a restricted certificate of deposit.
</FONT>
<P align="left"><FONT size="2"><B>6. Segment Information, Concentrations of Risk and Related Parties</B></FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Segment Information</I>
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company operates in the wireless data modem technology industry and
all sales of the Company&#146;s products and services are made in this segment.
Management makes decisions about allocating resources based on this one
operating segment.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company has operations in the United States and Canada. The
distribution of the Company&#146;s assets in the United States and Canada as of June
30, 2001, and December&nbsp;31, 2000 are $63.2&nbsp;million and $12.3&nbsp;million, and $100.2
and $10.6&nbsp;million, respectively.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Concentrations of Risk and Related Parties</I>
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;@Road, Metricom and Hewlett Packard accounted for 18.8%, 14.4% and 9.8% of
revenues, respectively, for the three months ended June&nbsp;30, 2001. @Road and
OmniSky accounted for 22.0% and 20.4% of revenues, respectively, for the three
months ended June&nbsp;30, 2000. Metricom, Hewlett Packard and @Road accounted for
16.8%, 14.5% and 12.0% of revenues, respectively, for the six months ended June
30, 2001. @Road and OmniSky accounted for 22.7% and 22.4% of revenues,
respectively, for the six months ended June&nbsp;30, 2000. Substantially all of the
Company&#146;s revenues come from wireless Internet products. Any further decline in
market acceptance of the Company&#146;s products or a further decline in the
financial condition of our existing customers may impair the Company&#146;s ability
to operate effectively.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company sells products to Airlink Communications, Inc., (&#147;Airlink&#148;) a
wireless software infrastructure business. Airlink&#146;s Chairman of the Board is
also a member of the Company&#146;s Board of Directors and a shareholder. Sales to
Airlink were $1.2&nbsp;million and $379,000 for the three months ended June&nbsp;30, 2001
and 2000, respectively (unaudited)&nbsp;and $1.8&nbsp;million and $724,000 for the six
months ended June&nbsp;30, 2001 and 2000, respectively (unaudited). Receivables
from Airlink amounted to $1.6&nbsp;million as of June&nbsp;30, 2001 (unaudited). In May
2001, the Company and Airlink entered into an agreement for the payment of
products sold to Airlink. Specifically, Airlink will pay $1.6&nbsp;million for
product purchases under terms of a promissory note with the first payment of
$300,000, plus accrued interest due September&nbsp;1, 2001, and the remaining
principal balance due in equal installments, plus accrued interest, over eight
monthly equal installments with the final payment due May&nbsp;1, 2002. The note
bears interest at prime plus 3% (9.75% at June&nbsp;30, 2001) and is secured by all
of Airlink&#146;s assets. Airlink&#146;s Chairman of the Board has also personally
guaranteed this promissory note. We have sold similar products to other
parties at unit prices similar to those under our arrangement with Airlink. As
of June&nbsp;30, 2001, accounts receivable from Airlink totaled $1,574,000.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On June&nbsp;30, 2000, Aether Capital, LLC, purchased $20&nbsp;million of the
Company&#146;s Series&nbsp;D convertible preferred stock. Aether Capital, LLC is the
investment arm of Aether Systems, Inc., which is the sole member of Aether
Capital, LLC. David S. Oros, one of the Company&#146;s directors, who joined the
Company&#146;s board in July 2000, serves
</FONT>

<DIV>&nbsp;</DIV>
<P align="center"><FONT size="2">7
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<P><FONT size="2">as Chairman, Chief Executive Officer and President of Aether Systems, Inc.
Mr.&nbsp;Oros is also a director of OmniSky Corporation (&#147;OmniSky&#148;), in which Aether
Systems, Inc. is an investor. As a result of this capital transaction, OmniSky,
a significant customer, became a related party and the Company commenced
recording sales to OmniSky as &#147;Revenue &#151; Related Party&#148; in the third quarter of
2000. Sales to OmniSky amounted to $148,000 and $1.9&nbsp;million for the three
months ended June&nbsp;30, 2001 and 2000, respectively (unaudited)&nbsp;and $1.6&nbsp;million
and $3.6&nbsp;million for the six months ended June&nbsp;30, 2001 and 2000, respectively
(unaudited). As of June&nbsp;30, 2001, no amounts were due from OmniSky.
</FONT>
<P align="left"><FONT size="2"><B>7. Commitments and Contingencies</B></FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Legal proceedings</I>
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On July&nbsp;18, 2001, Sanmina Corporation and Sanmina Canada ULC (collectively
&#147;Sanmina&#148;) filed suit against the Company in California Superior Court, San
Diego County. The complaint alleges breach of contract with respect to the
Company&#146;s modification and cancellation of certain purchase orders and revision
of certain forecasts, which the Company issued in connection with Sanmina&#146;s
procurement of components and manufacture of goods. The suit seeks payments for
cancellation charges of $18.8&nbsp;million and outstanding trade payables of $7.4
million. Sanmina is also seeking a writ of attachment prior to resolution of
the lawsuit, which, if granted by the court, would limit the Company&#146;s ability
to sell, transfer or dispose of those assets attached, and limit the Company&#146;s
ability to use its working capital up to the amount of the attachment.
Management believes that the Company has meritorious defenses regarding various
elements of the claim and intends to contest those matters vigorously, though
the Company cannot predict the ultimate outcome of this litigation. If this
action were determined unfavorably to the Company, it could have a material
adverse affect on the Company&#146;s financial condition, results of operations and
cash flows.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Purchase commitments</I>
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company has entered into a firm purchase commitment of approximately
$4.9&nbsp;million with one of its contract manufacturers for inventory purchases
with scheduled receipts and payments through December 2001.
</FONT>
<!-- link2 "Item&nbsp;2. Management&#146;s Discussion and Analysis of Financial Condition and Results of Operations" -->
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<DIV align="left"><A name="a006"></A></DIV>
<P align="left"><FONT size="2"><B>Item&nbsp;2. </B><B><I>Management&#146;s Discussion and Analysis of Financial Condition and Results
of Operations</I></B></FONT>

<P align="left"><FONT size="2"><B>Overview</B></FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following information should be read in conjunction with the
consolidated financial statements and the accompanying notes included in Item&nbsp;1
of this quarterly report, as well as the audited financial statements and
accompanying notes and Management&#146;s Discussion and Analysis of Financial
Condition and Results of Operations for the year ended December&nbsp;31, 2000
contained in our 2000 annual report on Form&nbsp;10-K.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our financial condition, results of operations and cash flows were
adversely affected during the first six months of 2001 by decreases in demand
for wireless products and decreases in demand for wireless access services for
the transmission of data, including the bankruptcy of Metricom which accounted
for 16.8% of our revenue for the first six months of 2001. If demand for
wireless products and services decreases from current levels, our financial
condition, results of operations and cash flows may be further adversely
affected for the remainder of 2001 and in future years. See discussion under
&#147;Liquidity and Capital Resources.&#148;
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Revenue.</I>
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our results of operations depend upon factors outside of our control including, among other things:
</FONT>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
        <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
        <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="93%"><FONT size="2">our ability to maintain and increase our sales volumes with existing customers;</FONT></TD>
</TR>
</TABLE>

<DIV>&nbsp;</DIV>
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</FONT>


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<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
        <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
        <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="93%"><FONT size="2">our ability to attract new customers for our product offerings;</FONT></TD>
</TR>
<TR>
        <TD>&nbsp;</TD>
</TR>
<TR valign="top">
        <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
        <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="93%"><FONT size="2">the demand for wireless technology access
services and wireless technology products, including Personal
Data Administration devices; and</FONT></TD>
</TR>
<TR>
        <TD>&nbsp;</TD>
</TR>
<TR valign="top">
        <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
        <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="93%"><FONT size="2">the on-going financial condition of our existing
customers and suppliers.</FONT></TD>
</TR>
</TABLE>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We cannot predict with any certainty whether we will be able to maintain
or improve upon our historical sales volumes with our existing customers, or
whether we will be able to attract new customers for our wireless technology
products. Continued decreases in the demand for the services of our wireless
service customers could lead to a decrease in the demand for our wireless
products used by these customers, and adversely impact our revenue, results of
operations and cash flows.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Operating Costs and Expenses</I>.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We continue to monitor and focus on reducing our operating costs and
expenses and, as a result of our restructuring efforts, we have reduced our
operating costs and expenses. If our operating costs and expenses were to
increase significantly, our financial condition, results of operations and cash
flows could be adversely affected.
</FONT>
<P align="left"><FONT size="2"><B>Results of Operations</B></FONT>

<P align="left"><FONT size="2"><B>Three Months Ended June&nbsp;30, 2001 Compared to Three Months Ended June&nbsp;30, 2000</B></FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Revenue. </I>Revenue for the three months ended June&nbsp;30, 2001 increased $3.4
million, or 38%, to $12.5&nbsp;million compared to $9.1&nbsp;million for the same period
in 2000. For the three months ended June&nbsp;30, 2001, sales of our PC cards
increased by $2.6&nbsp;million, OEM product sales increased by $1.5&nbsp;million and
cradle product sales decreased by $700,000 compared to the same period in 2000.
The overall increase in product sales is due to the introduction of new
products compared to the same period a year ago. New products contributed to
the overall sales increases by $4.4&nbsp;million with the introduction of the
Minstrel 540 Wireless Modem for the HP Jornada Pocket PC in October 2000, the
Minstrel S for the Handspring &#153; Visor &#153; in October 2000 and the Merlin Wireless
PC Card for Metricom&#146;s 128 kbps Ricochet network in November 2000. Sales of
existing products decreased by $1.1&nbsp;million.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Cost of Revenue. </I>Our cost of revenue for the three months ended June&nbsp;30,
2001 increased $14.8&nbsp;million, or 146%, to $24.9&nbsp;million compared to $10.1
million for the same period in 2000. The increase in cost of revenue was
primarily the result of $13&nbsp;million of charges relating to excess and obsolete
inventory recorded in the second quarter of 2001, sales of new products
(approximately $3.2&nbsp;million), offset by a reduction in costs associated with
the production and sales of existing products (approximately $1.1&nbsp;million) and
a reduction in costs associated with our manufacturing operating capacity
(approximately $300,000).
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Gross Margin. </I>Our gross margin for the three months ended June&nbsp;30 2001
decreased by $11.4&nbsp;million, or 92%, to negative $12.4&nbsp;million compared to
negative $1.1&nbsp;million during the same period in 2000. Excluding the $13&nbsp;million
excess and obsolete inventory charge, our gross margin increased by $1.6
million, or 155% to $600,000 compared to negative $1.1&nbsp;million.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Research and Development. </I>Our research and development expenses for the
three months ended June&nbsp;30, 2001 increased $1.9&nbsp;million, or 62%, to $5.1
million compared to $3.1&nbsp;million for the same period in 2000. The increase was
due to an increase in personnel expenses of approximately $700,000, an increase
in depreciation and facility overhead expenses of approximately $600,000, an
increase in research supplies and expendable equipment of approximately
$400,000, an increase in travel costs of approximately $100,000 and an increase
in other expenses relating to projects in development of approximately
$100,000. During the second quarter of 2001, the Company reached technological
feasibility with regards to certain software development activities and has
capitalized approximately $649,000 as compared to $0 during the same period in
2000.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Sales and Marketing. </I>Sales and marketing expenses for the three months
ended June&nbsp;30, 2001 decreased $700,000, or 17%, to $3.5&nbsp;million compared to
$4.2&nbsp;million for the same period in 2000. The decrease was the result
</FONT>

<DIV>&nbsp;</DIV>
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<P><FONT size="2">of a reduction in advertising and marketing costs of approximately $1.0
million, a reduction in facility overhead expenses of approximately $200,000,
offset by increased personnel expenses of $400,000 and outside services and
consulting costs of approximately $100,000.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>General and Administrative. </I>General and administrative expenses for the
three months ended June&nbsp;30, 2001 increased $600,000, or 51%, to $1.9&nbsp;million
compared to $1.3&nbsp;million for the same period in 2000. This increase was
primarily due to an increase in facility expenses of approximately $300,000, an
increase in insurance expense of approximately $200,000, an increase in
depreciation expense of approximately $200,000 and a decrease in the foreign
currency exchange transaction gain of approximately $100,000. These increases were
offset by a reduction in professional fees of approximately $100,000 and a
reduction in payroll costs of approximately $100,000.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Restructuring Charges. </I>As a result of the restructuring efforts
implemented during the first quarter of 2001, the Company expects to realize
approximately $22&nbsp;million in annual cost savings. During the three months
ended June&nbsp;30, 2001, the Company&#146;s cost reductions amounted to approximately
$2.9&nbsp;million as compared to the immediately preceding quarter.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Amortization of deferred stock compensation. </I>Amortization of deferred
stock compensation for the three months ended June&nbsp;30, 2001 increased $3.2
million to $3.3&nbsp;million compared to $100,000 for the same period in 2000. This
increase is due to the issuance of a significant number of stock options during
the third quarter of 2000, resulting in gross deferred compensation of $30.3
million.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Interest Income. </I>Interest income for the three months ended June&nbsp;30, 2001
increased $300,000 to $400,000 compared to $100,000 for the same period in
2000. The increase was due to income from the investment of proceeds from our
initial public offering in November 2000.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Net Loss. </I>The net loss for the three months ended June&nbsp;30, 2001 increased
$16.1&nbsp;million, or 167%, to $25.8&nbsp;million compared to $9.7&nbsp;million for the same
period in 2000.
</FONT>
<P align="left"><FONT size="2"><B>Six Months Ended June&nbsp;30, 2001 Compared to Six Months Ended June&nbsp;30, 2000</B></FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Revenue. </I>Revenue for the six months ended June&nbsp;30, 2001 increased $16.3
million, or 102%, to $32.2&nbsp;million compared to $15.9&nbsp;million for the same
period in 2000. For the six months ended June&nbsp;30, 2001, sales of our PC cards
increased by $11.8&nbsp;million, cradle product sales increased by $3.3&nbsp;million and
OEM product sales increased by $1.2&nbsp;million compared to the same period in
2000. The overall increase in product sales is due to the introduction of new
products and increased demand for existing products compared to the same period
a year ago. New products contributed to the overall sales increases by $14.1
million with the introduction of the Minstrel 540 Wireless Modem for the HP
Jornada Pocket PC in October 2000, the Minstrel S for the Handspring &#153; Visor &#153;
in October 2000 and the Merlin Wireless PC Card for Metricom&#146;s 128 kbps
Ricochet network in November 2000. Sales of existing products increased by $2.2
million.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Cost of Revenue. </I>Our cost of revenue for the six months ended June&nbsp;30,
2001 increased $31.8&nbsp;million, or 177%, to $49.8&nbsp;million compared to $18.0
million for the same period in 2000. The increase in cost of revenue was
primarily the result of $19&nbsp;million of charges relating to excess and obsolete
inventory recorded during 2001, sales of new products (approximately $11.5
million), an increase in costs associated with the production and sales of
existing products (approximately $1.6&nbsp;million), offset by a reduction in costs
associated with our manufacturing operating capacity (approximately $300,000).
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Gross Margin. </I>Our gross margin for the six months ended June&nbsp;30 2001
decreased by $15.5&nbsp;million to negative $17.6&nbsp;million compared to negative $2.1
million during the same period in 2000. Excluding the $19&nbsp;million excess and
obsolete inventory charges, our gross margins increased by $3.5&nbsp;million, or
167%, to $1.4&nbsp;million compared to negative $2.1&nbsp;million during the same period
in 2000.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Research and Development. </I>Our research and development expenses for the
six months ended June&nbsp;30, 2001 increased $6.5&nbsp;million, or 124%, to $11.7
million compared to $5.2&nbsp;million for the same period in 2000. The increase was
due to an increase in personnel expenses of approximately $2.8&nbsp;million, an
increase in depreciation and facility overhead expenses of approximately $1.7
million, an increase in research supplies and expendable equipment of
approximately $1.3&nbsp;million, an increase in travel costs of approximately
$300,000, an increase in
</FONT>

<DIV>&nbsp;</DIV>
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</FONT>


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<P><FONT size="2">outside consulting services of approximately $300,000 and an increase in
other expenses relating to projects in development of approximately $100,000.
During the second quarter of 2001, the Company reached technological
feasibility with regards to certain software development activities and has
capitalized approximately $649,000 compared to $0 during the same period in
2000.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Sales and Marketing. </I>Sales and marketing expenses for the six months ended
June&nbsp;30, 2001 increased $1.6&nbsp;million, or 25%, to $8.1&nbsp;million compared to $6.5
million for the same period in 2000. The increase was the result of an increase
in personnel expenses of $1.9&nbsp;million, an increase in consulting and outside
services of approximately $200,000, an increase in travel costs of $200,000 and
an increase of $200,000 to support new products and to expand distribution
channels. This increase is offset by a decrease in advertising and marketing
costs of approximately $900,000.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>General and Administrative. </I>General and administrative expenses for the
six months ended June&nbsp;30, 2001 increased $2.1&nbsp;million, or 95%, to $4.3&nbsp;million
compared to $2.2&nbsp;million for the same period in 2000. This increase was
primarily due to an increase in facility expenses of approximately $400,000, an
increase in insurance expense of approximately $300,000, an increase in
depreciation expense of approximately $300,000, an increase in professional
fees of approximately $300,000, an increase in consulting expense of
approximately $300,000, and a decrease in the foreign currency
exchange transaction gain
of approximately $200,000. The remaining increase of $300,000 relates to
additional expenses associated with operating as a public company.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Restructuring Charges. </I>Restructuring charges for the six months ended June
30, 2001 amounted to $3.9&nbsp;million as a result of the implementation of an
operational restructuring plan. These costs are made up of personnel
termination benefits approximating $2.2&nbsp;million and facility lease termination
and other closure costs of approximately $1.7&nbsp;million.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Amortization of deferred stock compensation. </I>Amortization of deferred
stock compensation for the six months ended June&nbsp;30, 2001 increased $6.4
million to $6.6&nbsp;million compared to $300,000 for the same period in 2000. This
increase is due to the issuance of a significant number of stock options during
the third quarter of 2000, resulting in gross deferred compensation of $30.3
million.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Interest Income. </I>Interest income for the six months ended June&nbsp;30, 2001
increased $900,000 to $1.2&nbsp;million compared to $300,000 for the same period in
2000. The increase was due to income from the investment of proceeds from our
initial public offering in November 2000.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Net Loss. </I>The net loss for the six months ended June&nbsp;30, 2001 increased
$35.2&nbsp;million, or 221%, to $51.1&nbsp;million compared to $15.9&nbsp;million for the same
period in 2000.
</FONT>
<P align="left"><FONT size="2"><B>Liquidity and Capital Resources</B></FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As a result of cost reduction measures implemented during the first two
quarters of 2001, and assuming that our revenue for each of the third and
fourth quarters of 2001 equals or exceeds our revenue for the second quarter of
2001, excluding sales to Metricom, we believe that our available cash reserves
together with our operating cash flows will be sufficient to fund operations
and to satisfy our working capital requirements and anticipated capital
expenditures for the remainder of the year. If, however, we experience
decreases in revenue or increases in our operating costs and expenses, or
otherwise experience a decrease in anticipated cash flows, we may be required
to further reduce our operating costs or seek alternative sources of additional debt or equity financing sooner than
otherwise planned. Management currently
is evaluating debt and equity financing alternatives to meet our future capital
requirements. However, additional financing may not be available when needed,
on favorable terms, or at all.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have funded our operations primarily through sales of our equity
securities and the issuance of debt instruments, and to a lesser extent,
capital lease arrangements and borrowings under our line of credit. To date,
gross proceeds from these transactions have totaled approximately $149.3
million, including the gross proceeds from our initial public offering in
November 2000 of $64.2&nbsp;million. At June&nbsp;30, 2001 we had approximately $32.7
million in cash and cash equivalents, of which $14.8&nbsp;million is restricted cash
pursuant to our line of credit and letter of credit facilities as discussed in
Note 5 to our consolidated financial statements.
</FONT>

<DIV>&nbsp;</DIV>
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</FONT>


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<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For the six months ended June&nbsp;30, 2001, we used net cash in operating
activities of $36.1&nbsp;million compared to $19.2&nbsp;million during the same period in
2000. Our operating activities during the six months ended June&nbsp;30, 2001,
included major uses of cash to fund our net loss of $51.1&nbsp;million, which
includes $19.0&nbsp;million of non-cash inventory charges, a $6.6&nbsp;million non-cash
charge for deferred compensation expenses related to stock options issued to
employees during 2000, a $3.9&nbsp;million non-cash restructuring charge, a
depreciation and amortization expense of approximately $2.3&nbsp;million and
non-cash recognition of deferred revenues of approximately $1.5&nbsp;million. During
the six months ended June&nbsp;30, 2001, we used cash by increasing inventories by
$12.6&nbsp;million, decreasing accounts payable by $9.0&nbsp;million, decreasing accrued
expenses by $2.0&nbsp;million and decreasing the restructuring
accrual by $900,000, offset by cash generated from decreasing accounts receivable by $7.4
million and decreasing prepaid expenses and other assets by $1.8&nbsp;million.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our net cash used in investing activities for the six months ended June
30, 2001 was $7.0&nbsp;million, which included purchases of property and equipment
of $5.5&nbsp;million, purchases of intangible assets of $800,000 and software
development costs of $700,000. Our net cash used in investing activities for
the six months ended June&nbsp;30, 2000 was $3.9&nbsp;million and was primarily for
purchases of property and equipment. These capital expenditures were primarily
investments for equipment to test our products and to support our business.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Cash provided from financing activities for the six months ended June&nbsp;30,
2001 was $8.9&nbsp;million, primarily from borrowings on our line of credit of $8.5
million, exercise of stock options and warrants of approximately $600,000,
offset by payments of capital lease obligations of $200,000. Cash provided by
financing activities for the six months ended June&nbsp;30, 2000, amounted to $30.4
primarily due to proceeds from the issuance of convertible preferred stock.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In June 2001, we entered into a credit facility with a bank, which allows
the Company to borrow up to $10&nbsp;million. This credit facility bears interest
at prime minus 1.25% (5.5% at June&nbsp;30, 2001), is secured by $10&nbsp;million cash,
that the Company has deposited in a restricted certificate of deposit, and
expires on July&nbsp;1, 2002. The line of credit is cancelable at any time by the
Company prior to the expiration date. As of June&nbsp;30, 2001, $8.5&nbsp;million of
borrowings were outstanding under this facility. At June&nbsp;30, 2001, the Company
was in violation of a financial covenant requiring a specific level of earnings
as defined in the line of credit facility. The covenant violation was caused
substantially by the inventory write-off discussed in Note 3. The Company has
obtained a waiver from the bank related to such covenant violation.
</FONT>
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<P align="left"><FONT size="2"><B>Item&nbsp;3. </B><B><I>Quantitative and Qualitative Disclosures About Market Risk</I></B></FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We do not currently use derivative financial instruments. We generally
place our cash and short-term investments in high-credit quality instruments,
primarily U.S. Government obligations and corporate obligations with
contractual maturities of less than one year. These investments are not held
for trading or other speculative purposes. Changes in interest rates affect the
investment income we earn on our investments and therefore, impact our cash
flows and results of operations. The Company&#146;s credit facility and related
interest cost on borrowings is affected by the variations in the U.S. prime
rate of interest. As of June&nbsp;30, 2001, we had $8.5&nbsp;million outstanding under
our line of credit. We do not expect any material loss from our cash and cash
equivalents and therefore believe that our potential interest rate exposure is
not material; however, these investments are subject to interest rate risk. We
do not currently enter into foreign currency hedge transactions. Through June
30, 2001, we had a foreign currency gain of approximately $160,000 recorded in
general and administrative expenses as a result of foreign currency
exchange transactions related to
our Canadian subsidiary. Revenues generated outside the United States, as a
percentage of total revenues were 9.0% for the six months ended June&nbsp;30, 2001
and 5.4% for the same period in 2000. Fluctuations in foreign exchange rates
could impact future operating results.
</FONT>

<DIV>&nbsp;</DIV>
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<P align="center"><FONT size="2"><B>PART II &#151; OTHER INFORMATION</B></FONT>

<!-- link2 "Item&nbsp;1. Legal Proceedings" -->
<DIV align="left"><A NAME="009"></A></DIV>
<DIV align="left"><A name="a009"></A></DIV>
<P align="left"><FONT size="2"><B>Item&nbsp;1. </B><B><I>Legal Proceedings</I></B></FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;See Note 7 to our consolidated financial statements.
</FONT>
<!-- link2 "Item&nbsp;2. Changes in Securities and Use of Proceeds" -->
<DIV align="left"><A NAME="010"></A></DIV>
<DIV align="left"><A name="a010"></A></DIV>
<P align="left"><FONT size="2"><B>Item&nbsp;2. </B><B><I>Changes in Securities and Use of Proceeds</I></B></FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our Registration Statement on Form&nbsp;S-1 (Registration No.&nbsp;333-42570)
related to our initial public offering was declared effective by the SEC on
November&nbsp;15, 2000. A total of 8,025,000 shares of our common stock were
registered on our behalf. Net offering proceeds to us (after deducting
underwriting discounts and commissions and offering expenses) were
approximately $57.2&nbsp;million. As of June&nbsp;30, 2001, approximately $33.0&nbsp;million
of these net offering proceeds had been used for operating activities and the
remainder had been held as cash and cash equivalents.
</FONT>
<!-- link2 "Item&nbsp;4. Submission of Matters to a Vote of Security Holders" -->
<DIV align="left"><A NAME="011"></A></DIV>
<DIV align="left"><A name="a011"></A></DIV>
<P align="left"><FONT size="2"><B>Item&nbsp;4. </B><B><I>Submission of Matters to a Vote of Security Holders</I></B></FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On May&nbsp;10, 2001, we held our annual meeting at which our stockholders
voted upon the election of two nominees to our board of directors to serve for
three-year terms and until their respective successors are duly elected and
qualified, and the ratification of the appointment of Arthur Andersen LLP as
our independent public accountants for the fiscal year ending December&nbsp;31,
2001.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our stockholders elected both nominees to three-year terms as members of
our board of directors and ratified the appointment of Arthur Andersen LLP as
our independent public accountants for the 2001 fiscal year. The number of
votes cast for, against or withheld, and the number of abstentions with respect
to each matter voted upon is set forth below.
</FONT>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="75%">
<TR valign="bottom">
        <TD width="8%">&nbsp;</TD>
        <TD width="5%">&nbsp;</TD>
        <TD width="19%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="19%">&nbsp;</TD>
        <TD width="5%">&nbsp;</TD>
        <TD width="7%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="7%">&nbsp;</TD>
        <TD width="5%">&nbsp;</TD>
        <TD width="6%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="6%">&nbsp;</TD>
        <TD width="5%">&nbsp;</TD>
        <TD width="2%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="2%">&nbsp;</TD>
</TR>
<TR valign="bottom">
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="center" colspan="3"><FONT size="1"><B>For</B></FONT></TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="center" colspan="3"><FONT size="1"><B>Against/Withheld</B></FONT></TD>
        <TD>&nbsp;</TD>
        <TD nowrap align="center" colspan="3"><FONT size="1"><B>Abstentions</B></FONT></TD>
</TR>
<TR valign="bottom">
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD colspan="3"><HR size="1" noshade></TD>
        <TD>&nbsp;</TD>
        <TD colspan="3"><HR size="1" noshade></TD>
        <TD>&nbsp;</TD>
        <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">1</FONT></DIV></TD>
        <TD>&nbsp;</TD>
        <TD colspan="3" align="center"><FONT size="2">Election of Directors:</FONT></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD colspan="3" align="center"><FONT size="2">Robert Getz</FONT></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">42,405,271</FONT></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">70,205</FONT></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD colspan="3" align="center"><FONT size="2">Peng K. Lim</FONT></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">39,448,972</FONT></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">3,026,504</FONT></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
</TR>

<TR><TD>&nbsp;</TD></TR>


<TR valign="bottom">
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">2</FONT></DIV></TD>
        <TD>&nbsp;</TD>
        <TD colspan="3" align="center"><FONT size="2">Ratification of Independent</FONT></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD colspan="3" align="center"><FONT size="2">Public Accountants</FONT></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">42,345,768</FONT></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">122,102</FONT></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="right"><FONT size="2">7,606</FONT></TD>
        <TD>&nbsp;</TD>
</TR>
</TABLE>
</CENTER>
<!-- link2 "Item&nbsp;6. Exhibits" -->
<DIV align="left"><A NAME="012"></A></DIV>
<DIV align="left"><A name="a012"></A></DIV>
<P align="left"><FONT size="2"><B>Item&nbsp;6. </B><B><I>Exhibits</I></B></FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="85%">
<TR valign="bottom">
        <TD width="10%">&nbsp;</TD>
        <TD width="5%">&nbsp;</TD>
        <TD width="42%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="42%">&nbsp;</TD>
</TR>
<TR valign="bottom">
        <TD nowrap align="center"><FONT size="1">Exhibit No.</FONT></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
        <TD nowrap align="center"><HR size="1" noshade></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
        <TD align="center"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">10.1</FONT></DIV></TD>
        <TD>&nbsp;</TD>
        <TD colspan="3" align="left"><FONT size="2">Business Loan Agreement</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD align="center"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">10.2</FONT></DIV></TD>
        <TD>&nbsp;</TD>
        <TD colspan="3" align="left"><FONT size="2">First Amendment to Business Loan Agreement</FONT></TD>
</TR>
</TABLE>
</CENTER>

<DIV>&nbsp;</DIV>
<P align="center"><FONT size="2">13
</FONT>


<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left"><A HREF="#toc">Table of Contents</A></H5><P>


<!-- link1 "SIGNATURES" -->
<DIV align="left"><A NAME="013"></A></DIV>
<DIV align="left"><A name="a013"></A></DIV>
<P align="center"><FONT size="2"><B>SIGNATURES</B></FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report on Form&nbsp;10-Q to be signed on its behalf
by the undersigned, thereunto duly authorized.
</FONT>

<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR>
        <TD width="50%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="49%">&nbsp;</TD>
</TR>
<TR valign="top">
        <TD><FONT size="2">Date: August&nbsp;6, 2001</FONT></TD>
        <TD colspan="2"><FONT size="2">Novatel Wireless, Inc.</FONT></TD>
</TR>
<TR><TD>&nbsp;<BR>&nbsp;</TD></TR>
<TR valign="top">
        <TD>&nbsp;</TD>
        <TD><FONT size="2">By:&nbsp;</FONT></TD>
        <TD align="center"><FONT size="2">/s/ MELVIN L. FLOWERS</FONT></TD>
</TR>
<TR>
        <TD colspan="2">&nbsp;</TD>
        <TD><HR size="1" noshade></TD>
</TR>
<TR valign="top">
        <TD colspan="2">&nbsp;</TD>
        <TD align="center"><FONT size="2">Melvin L. Flowers<BR>
<I>Senior Vice President of Finance, Chief<BR>
Financial Officer and Secretary</I></FONT></TD>
</TR>
</TABLE>


<DIV>&nbsp;</DIV>
<P align="center"><FONT size="2">14</FONT>


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<DOCUMENT>
<TYPE>EX-10.1
<SEQUENCE>3
<FILENAME>a74385ex10-1.txt
<DESCRIPTION>EXHIBIT 10.1
<TEXT>
<PAGE>   1

                                                                    EXHIBIT 10.1

                             BUSINESS LOAN AGREEMENT

        This Agreement dated as of June 28, 2001, is between Bank of America,
N.A. (the "Bank") and Novatel Wireless, Inc. (the "Borrower").

1. LINE OF CREDIT AMOUNT AND TERMS

        1.1 Line of Credit Amount.

                (a) During the availability period described below, the Bank
        will provide a line of credit to the Borrower. The amount of the line of
        credit (the "Commitment") is Ten Million Dollars ($10,000,000.00).

                (b) This is a revolving line of credit providing for cash
        advances and letters of credit. During the availability period, the
        Borrower may repay principal amounts and reborrow them.

                (c) The Borrower agrees not to permit the outstanding principal
        balance of advances under the line of credit plus the outstanding
        amounts of any letters of credit, including amounts drawn on letters of
        credit and not yet reimbursed, to exceed the Commitment.

        1.2 Availability Period. The line of credit is available between the
date of this Agreement and July 1, 2002, or such earlier date as the
availability may terminate as provided in this Agreement (the "Expiration
Date").

        1.3 Interest Rate.

                (a) Unless the Borrower elects an optional interest rate as
        described below, the interest rate is a rate per year equal to the
        Bank's Prime Rate minus one and one quarter (1.25) percentage points.

                (b) The Prime Rate is the rate of interest publicly announced
        from time to time by the Bank as its Prime Rate. The Prime Rate is set
        by the Bank based on various factors, including the Bank's costs and
        desired return, general economic conditions and other factors, and is
        used as a reference point for pricing some loans. The Bank may price
        loans to its customers at, above, or below the Prime Rate. Any change in
        the Prime Rate shall take effect at the opening of business on the day
        specified in the public announcement of a change in the Bank's Prime
        Rate.

        1.4 Repayment Terms.

                (a) The Borrower will pay interest on August 1, 2001, and then
        monthly thereafter until payment in full of any principal outstanding
        under this line of credit.

                (b) The Borrower will repay in full all principal and any unpaid
        interest or other charges outstanding under this line of credit no later
        than the Expiration Date. Any



                                      -1-
<PAGE>   2

        interest period for an optional interest rate (as described below) shall
        expire no later than the Expiration Date.

        1.5 Optional Interest Rates. Instead of the interest rate based on the
Bank's Prime Rate, the Borrower may elect the optional interest rates listed
below during interest periods agreed to by the Bank and the Borrower. The
optional interest rates shall be subject to the terms and conditions described
later in this Agreement. Any principal amount bearing interest at an optional
rate under this Agreement is referred to as a "Portion." The following optional
interest rates are available:

                (a) the IBOR Rate plus one and three quarters (1.75) percentage
        points.

        1.6 Letters of Credit.

                (a) This line of credit may be used for financing:

                        (i) commercial letters of credit with a maximum maturity
                of 180 days but not to extend beyond the Expiration Date. Each
                commercial letter of credit will require drafts payable at
                sight.

                        (ii) standby letters of credit with a maximum maturity
                of 360 days but not to extend beyond the Expiration Date.
                Standby letters of credit shall not include any provision for
                automatic renewal or extension of the maturity date.

                (b) The Borrower agrees:

                        (i) any sum drawn under a letter of credit may, at the
                option of the Bank, be added to the principal amount outstanding
                under this Agreement. The amount will bear interest and be due
                as described elsewhere in this Agreement.

                        (ii) if there is a default under this Agreement, or if
                any letter of credit remains outstanding beyond the Expiration
                Date, to immediately prepay and make the Bank whole for any
                outstanding letters of credit.

                        (iii) the issuance of any letter of credit and any
                amendment to a letter of credit is subject to the Bank's written
                approval and must be in form and content satisfactory to the
                Bank and in favor of a beneficiary acceptable to the Bank.

                        (iv) to sign the Bank's form Application and Agreement
                for Commercial Letter of Credit or Application and Agreement for
                Standby Letter of Credit, as applicable.

                        (v) to pay any issuance and/or other fees that the Bank
                notifies the Borrower will be charged for issuing and processing
                letters of credit for the Borrower.



                                      -2-
<PAGE>   3

                        (vi) to allow the Bank to automatically charge its
                checking account for applicable fees, discounts, and other
                charges.

                        (vii) to pay the Bank a non-refundable fee equal to
                1.75% per annum of the outstanding undrawn amount of each
                standby letter of credit, payable quarterly in advance,
                calculated on the basis of the face amount outstanding on the
                day the fee is calculated. If there is a default under this
                Agreement, at the Bank's option, the amount of the fee shall be
                increased to 4.75% per annum, effective starting on the day the
                Bank provides notice of the increase to the Borrower.

2. OPTIONAL INTEREST RATES

        2.1 Optional Rates. Each optional interest rate is a rate per year.
Interest will be paid on the last day of each interest period, and, if the
interest period is longer than one month, then on the last day of each month
during the interest period. At the end of any interest period, the interest rate
will revert to the rate based on the Prime Rate, unless the Borrower has
designated another optional interest rate for the Portion. No Portion will be
converted to a different interest rate during the applicable interest period.
Upon the occurrence of an event of default under this Agreement, the Bank may
terminate the availability of optional interest rates for interest periods
commencing after the default occurs.

        2.2 IBOR Rate. The election of IBOR Rates shall be subject to the
following terms and requirements:

                (a) The interest period during which the IBOR Rate will be in
        effect will be no shorter than 30 days and no longer than 90 days. The
        last day of the interest period will be determined by the Bank using the
        practices of the offshore dollar inter-bank market.

                (b) Each IBOR Rate Portion will be for an amount not less than
        One Million Dollars ($1,000,000).

                (c) The "IBOR Rate" means the interest rate determined by the
        following formula, rounded upward to the nearest 1/100 of one percent.
        (All amounts in the calculation will be determined by the Bank as of the
        first day of the interest period.)

                       IBOR Rate =            IBOR Base Rate
                                      ---------------------------
                                      (1.00 - Reserve Percentage)

        Where,

                        (i) "IBOR Base Rate" means the interest rate at which
                the Bank's Grand Cayman Banking Center, Grand Cayman, British
                West Indies, would offer U.S. dollar deposits for the applicable
                interest period to other major banks in the offshore dollar
                inter-bank market.



                                      -3-
<PAGE>   4

                        (ii) "Reserve Percentage" means the total of the maximum
                reserve percentages for determining the reserves to be
                maintained by member banks of the Federal Reserve System for
                Eurocurrency Liabilities, as defined in Federal Reserve Board
                Regulation D, rounded upward to the nearest 1/100 of one
                percent. The percentage will be expressed as a decimal, and will
                include, but not be limited to, marginal, emergency,
                supplemental, special, and other reserve percentages.

                (d) Each prepayment of an IBOR Rate Portion, whether voluntary,
        by reason of acceleration or otherwise, will be accompanied by the
        amount of accrued interest on the amount prepaid, and a prepayment fee
        as described below. A "prepayment" is a payment of an amount on a date
        earlier than the scheduled payment date for such amount as required by
        this Agreement.

                (e) The prepayment fee shall be equal to the amount (if any) by
        which:

                        (i) the additional interest which would have been
                payable during the interest period on the amount prepaid had it
                not been prepaid, exceeds

                        (ii) the interest which would have been recoverable by
                the Bank by placing the amount prepaid on deposit in the
                domestic certificate of deposit market, the eurodollar deposit
                market, or other appropriate money market selected by the Bank
                for a period starting on the date on which it was prepaid and
                ending on the last day of the interest period for such Portion
                (or the scheduled payment date for the amount prepaid, if
                earlier).

                (f) The Bank will have no obligation to accept an election for
        an IBOR Rate Portion if any of the following described events has
        occurred and is continuing:

                        (i) Dollar deposits in the principal amount, and for
                periods equal to the interest period, of an IBOR Rate Portion
                are not available in the offshore dollar inter-bank market; or

                        (ii) the IBOR Rate does not accurately reflect the cost
                of an IBOR Rate Portion.




                                      -4-
<PAGE>   5

3. FEES AND EXPENSES

        3.1 Fees.

                (a) Loan fee. The Borrower agrees to pay a loan fee in the
        amount of Ten Thousand Dollars ($10,000.00). This fee is due on or
        before the date of this Agreement.

                (b) Unused commitment fee. The Borrower agrees to pay a fee on
        any difference between the Commitment and the amount of credit it
        actually uses, determined by the weighted average credit outstanding
        during the specified period. The fee will be calculated at 0.10% per
        year. The calculation of credit outstanding shall include he undrawn
        amount of letters of credit.

        This fee is due on September 30, 2001, and quarterly thereafter until
        the expiration of the availability period.

                (c) Waiver Fee. If the Bank, at its discretion, agrees to waive
        or amend any terms of this Agreement, the Borrower will, at the Bank's
        option, pay the Bank a fee for each waiver or amendment in an amount
        advised by the Bank at the time the Borrower requests the waiver or
        amendment. Nothing in this paragraph shall imply that the Bank is
        obligated to agree to any waiver or amendment requested by the Borrower.
        The Bank may impose additional requirements as a condition to any waiver
        or amendment.

                (d) Late Fee. To the extent permitted by law, the Borrower
        agrees to pay a late fee in an amount not to exceed four percent (4%) of
        any payment that is more than fifteen (15) days late. The imposition and
        payment of a late fee shall not constitute a waiver of the Bank's rights
        with respect to the default.

        3.2 Expenses. The Borrower agrees to immediately repay the Bank for
expenses that include, but are not limited to, filing, recording and search fees
and documentation fees.

        3.3 Reimbursement Costs. The Borrower agrees to reimburse the Bank for
any expenses it incurs in the preparation of this Agreement and any agreement or
instrument required by this Agreement. Expenses include, but are not limited to,
reasonable attorneys' fees, including any allocated costs of the Bank's in-house
counsel.

4. COLLATERAL

        4.1 Personal Property. The Borrower's obligations to the Bank under this
Agreement will be secured by personal property the Borrower now owns or will own
in the future as listed below. The collateral is further defined in security
agreement(s) executed by the Borrower.

                (a) Bank of America time deposits in an amount not less than Ten
        Million Dollars ($10,000,000.00).



                                      -5-
<PAGE>   6

5. DISBURSEMENTS, PAYMENTS AND COSTS

        5.1 Requests for Credit. Each request for an extension of credit will be
made in writing in a manner acceptable to the Bank, or by another means
acceptable to the Bank.

        5.2 Disbursements and Payments.

                (a) Each payment by the Borrower will be made at the Bank's
        banking center (or other location) selected by the Bank from time to
        time; and will be made in immediately available funds, or such other
        type of funds selected by the Bank.

                (b) Each disbursement by the Bank and each payment by the
        Borrower will be evidenced by records kept by the Bank. In addition, the
        Bank may, at its discretion, require the Borrower to sign one or more
        promissory notes.

        5.3 Telephone and Telefax Authorization.

                (a) The Bank may honor telephone or telefax instructions for
        advances or repayments or for the designation of optional interest rates
        and telefax requests for the issuance of letters of credit given, or
        purported to be given, by any one of the individuals authorized to sign
        loan agreements on behalf of the Borrower, or any other individual
        designated by any one of such authorized signers.

                (b) Advances will be deposited in and repayments will be
        withdrawn from the Borrower's account number 14504-09078, or such other
        of the Borrower's accounts with the Bank as designated in writing by the
        Borrower.

                (c) The Borrower will indemnify and hold the Bank harmless from
        all liability, loss, and costs in connection with any act resulting from
        telephone or telefax instructions the Bank reasonably believes are made
        by any individual authorized by the Borrower to give such instructions.
        This paragraph will survive this Agreement's termination, and will
        benefit the Bank and its officers, employees, and agents.

        5.4 Direct Debit (Pre-Billing).

                (a) The Borrower agrees that the Bank will debit the Borrower's
        deposit account number 14504-09078, or such other of the Borrower's
        accounts with the Bank as designated in writing by the Borrower (the
        "Designated Account") on the date each payment of principal and interest
        and any fees from the Borrower becomes due (the "Due Date").

                (b) Approximately 10 days prior to each Due Date, the Bank will
        mail to the Borrower a statement of the amounts that will be due on that
        Due Date (the "Billed Amount"). The calculation will be made on the
        assumption that no new extensions of credit or payments will be made
        between the date of the billing statement and the Due Date, and that
        there will be no changes in the applicable interest rate.



                                      -6-
<PAGE>   7

                (c) The Bank will debit the Designated Account for the Billed
        Amount, regardless of the actual amount due on that date (the "Accrued
        Amount"). If the Billed Amount debited to the Designated Account differs
        from the Accrued Amount, the discrepancy will be treated as follows:

                        (i) If the Billed Amount is less than the Accrued
                Amount, the Billed Amount for the following Due Date will be
                increased by the amount of the discrepancy. The Borrower will
                not be in default by reason of any such discrepancy.

                        (ii) If the Billed Amount is more than the Accrued
                Amount, the Billed Amount for the following Due Date will be
                decreased by the amount of the discrepancy.

        Regardless of any such discrepancy, interest will continue to accrue
        based on the actual amount of principal outstanding without compounding.
        The Bank will not pay the Borrower interest on any overpayment.

                (d) The Borrower will maintain sufficient funds in the
        Designated Account to cover each debit. If there are insufficient funds
        in the Designated Account on the date the Bank enters any debit
        authorized by this Agreement, the Bank may reverse the debit.

        5.5 Banking Days. Unless otherwise provided in this Agreement, a banking
day is a day other than a Saturday, Sunday or other day on which commercial
banks are authorized to close, or are in fact closed, in the state where the
Bank's lending office is located, and, if such day relates to amounts bearing
interest at an offshore rate (if any), means any such day on which dealings in
dollar deposits are conducted among banks in the offshore dollar interbank
market. All payments and disbursements which would be due on a day which is not
a banking day will be due on the next banking day. All payments received on a
day which is not a banking day will be applied to the credit on the next banking
day.

        5.6 Taxes.

                (a) If any payments to the Bank under this Agreement are made
        from outside the United States, the Borrower will not deduct any foreign
        taxes from any payments it makes to the Bank. If any such taxes are
        imposed on any payments made by the Borrower (including payments under
        this paragraph), the Borrower will pay the taxes and will also pay to
        the Bank, at the time interest is paid, any additional amount which the
        Bank specifies as necessary to preserve the after-tax yield the Bank
        would have received if such taxes had not been imposed. The Borrower
        will confirm that it has paid the taxes by giving the Bank official tax
        receipts (or notarized copies) within thirty (30) days after the due
        date.



                                      -7-
<PAGE>   8

        5.7 Additional Costs. The Borrower will pay the Bank, on demand, for the
Bank's costs or losses arising from any statute or regulation, or any request or
requirement of a regulatory agency which is applicable to all national banks or
a class of all national banks. The costs and losses will be allocated to the
loan in a manner determined by the Bank, using any reasonable method. The costs
include the following:

                (a) any reserve or deposit requirements; and

                (b) any capital requirements relating to the Bank's assets and
        commitments for credit.

        5.8 Interest Calculation. Except as otherwise stated in this Agreement,
all interest and fees, if any, will be computed on the basis of a 360-day year
and the actual number of days elapsed. This results in more interest or a higher
fee than if a 365-day year is used. Installments of principal which are not paid
when due under this Agreement shall continue to bear interest until paid.

        5.9 Default Rate. Upon the occurrence of any default under this
Agreement, principal amounts outstanding under this Agreement will at the option
of the Bank bear interest at a rate which is 3 percentage point(s) higher than
the rate of interest otherwise provided under this Agreement. This will not
constitute a waiver of any default.

        5.10 Interest Compounding. At the Bank's sole option in each instance,
any interest, fees or costs which are not paid when due under this Agreement
shall bear interest from the due date at the Bank's Prime Rate plus 3 percentage
points. This may result in compounding of interest.

6. CONDITIONS

        The Bank must receive the following items, in form and content
acceptable to the Bank, before it is required to extend any credit to the
Borrower under this Agreement:

        6.1 Authorizations. Evidence that the execution, delivery and
performance by the Borrower of this Agreement and any instrument or agreement
required under this Agreement have been duly authorized.

        6.2 Governing Documents. A copy of the Borrower's articles of
incorporation.

        6.3 Security Agreements. Signed original security agreements,
assignments, which the Bank requires.

        6.4 Perfection and Evidence of Priority. Financing statements and
fixture filings (and any collateral in which the Bank requires a possessory
security interest), together with evidence that the security interests and liens
in favor of the Bank are valid, enforceable, and prior to all others' rights and
interests, except those the Bank consents to in writing.



                                      -8-
<PAGE>   9

        6.5 Insurance. Evidence of insurance coverage, as required in the
"Covenants" section of this Agreement.

        6.6 Good Standing. Certificates of good standing for the Borrower from
its state of formation and from any other state in which the Borrower is
required to qualify to conduct its business.

        6.7 Payment of Fees. Payment of all accrued and unpaid expenses incurred
by the Bank as required by the paragraph entitled "Reimbursement Costs."

        6.8 Other Items. Any other items that the Bank reasonably requires.

7. REPRESENTATIONS AND WARRANTIES

        When the Borrower signs this Agreement, and until the Bank is repaid in
full, the Borrower makes the following representations and warranties. Each
request for an extension of credit constitutes a renewal of these
representations and warranties as of the date of the request:

        7.1 Organization of Borrower. The Borrower is a corporation duly formed
and existing under the laws of the state where organized.

        7.2 Authorization. This Agreement, and any instrument or agreement
required hereunder, are within the Borrower's powers, have been duly authorized,
and do not conflict with any of its organizational papers.

        7.3 Enforceable Agreement. This Agreement is a legal, valid and binding
agreement of the Borrower, enforceable against the Borrower in accordance with
its terms, and any instrument or agreement required hereunder, when executed and
delivered, will be similarly legal, valid, binding and enforceable.

        7.4 Good Standing. In each state in which the Borrower does business, it
is properly licensed, in good standing, and, where required, in compliance with
fictitious name statutes.

        7.5 No Conflicts. This Agreement does not conflict with any law,
agreement, or obligation by which the Borrower is bound.

        7.6 Financial Information. All financial and other information that has
been or will be supplied to the Bank is sufficiently complete to give the Bank
accurate knowledge of the Borrower's (and any guarantor's) financial condition,
including all material contingent liabilities. Since the date of the most recent
financial statement provided to the Bank, there has been no material adverse
change in the business condition (financial or otherwise), operations,
properties or prospects of the Borrower (or any guarantor).



                                      -9-
<PAGE>   10

        7.7 Lawsuits. There is no lawsuit, tax claim or other dispute pending or
threatened against the Borrower which, if lost, would impair the Borrower's
financial condition or ability to repay the loan, except as have been disclosed
in writing to the Bank.

        7.8 Collateral. All collateral required in this Agreement is owned by
the grantor of the security interest free of any title defects or any liens or
interests of others, except those which have been approved by the Bank in
writing.

        7.9 Permits, Franchises. The Borrower possesses all permits,
memberships, franchises, contracts and licenses required and all trademark
rights, trade name rights, patent rights and fictitious name rights necessary to
enable it to conduct the business in which it is now engaged.

        7.10 Other Obligations. The Borrower is not in default on any obligation
for borrowed money, any purchase money obligation or any other material lease,
commitment, contract, instrument or obligation.

        7.11 Tax Matters. The Borrower has no knowledge of any pending
assessments or adjustments of its income tax for any year and all taxes due have
been paid[, except as have been disclosed in writing to the Bank.

        7.12 No Tax Avoidance Plan. The Borrower's obtaining of credit from the
Bank under this Agreement does not have as a principal purpose the avoidance of
U.S. withholding taxes.

        7.13 No Event of Default. There is no event which is, or with notice or
lapse of time or both would be, a default under this Agreement.

        7.14 Insurance. The Borrower has obtained, and maintained in effect, the
insurance coverage required in the "Covenants" section of this Agreement.

        7.15 ERISA Plans.

                (a) Each Plan (other than a multiemployer plan) is in compliance
        in all material respects with the applicable provisions of ERISA, the
        Code and other federal or state law. Each Plan has received a favorable
        determination letter from the IRS and to the best knowledge of the
        Borrower, nothing has occurred which would cause the loss of such
        qualification. The Borrower has fulfilled its obligations, if any, under
        the minimum funding standards of ERISA and the Code with respect to each
        Plan, and has not incurred any liability with respect to any Plan under
        Title IV of ERISA.

                (b) There are no claims, lawsuits or actions (including by any
        governmental authority), and there has been no prohibited transaction or
        violation of the fiduciary responsibility rules, with respect to any
        Plan which has resulted or could reasonably be expected to result in a
        material adverse effect.



                                      -10-
<PAGE>   11

                (c) With respect to any Plan subject to Title IV of ERISA:

                        (i) No reportable event has occurred under Section
                4043(c) of ERISA for which the PBGC requires 30-day notice.

                        (ii) No action by the Borrower or any ERISA Affiliate to
                terminate or withdraw from any Plan has been taken and no notice
                of intent to terminate a Plan has been filed under Section 4041
                of ERISA.

                        (iii) No termination proceeding has been commenced with
                respect to a Plan under Section 4042 of ERISA, and no event has
                occurred or condition exists which might constitute grounds for
                the commencement of such a proceeding.

                (d) The following terms have the meanings indicated for purposes
        of this Agreement:

                        (i) "Code" means the Internal Revenue Code of 1986, as
                amended from time to time.

                        (ii) "ERISA" means the Employee Retirement Income
                Security Act of 1974, as amended from time to time.

                        (iii) "ERISA Affiliate" means any trade or business
                (whether or not incorporated) under common control with the
                Borrower within the meaning of Section 414(b) or (c) of the
                Code.

                        (iv) "PBGC" means the Pension Benefit Guaranty
                Corporation.

                        (v) "Plan" means a pension, profit-sharing, or stock
                bonus plan intended to qualify under Section 401(a) of the Code,
                maintained or contributed to by the Borrower or any ERISA
                Affiliate, including any multiemployer plan within the meaning
                of Section 4001(a)(3) of ERISA.

        7.19 Location of Borrower. The Borrower's place of business (or, if the
Borrower has more than one place of business, its chief executive office) is
located at the address listed under the Borrower's signature on this Agreement.


8. COVENANTS

        The Borrower agrees, so long as credit is available under this Agreement
and until the Bank is repaid in full:

        8.1 Use of Proceeds. To use the proceeds of the credit only for general
corporate purposes.



                                      -11-
<PAGE>   12

        8.2 Financial Information. To provide the following financial
information and statements in form and content acceptable to the Bank, and such
additional information as requested by the Bank from time to time:

                (a) Within 90 days of the Borrower's fiscal year end, the
        Borrower's annual financial statements. These financial statements must
        be audited (with an unqualified opinion) by a Certified Public
        Accountant acceptable to the Bank. The statements shall be prepared on a
        consolidated basis.

                (b) Within 45 days of the period's end (including the last
        period in each fiscal year), the Borrower's quarterly financial
        statements, certified and dated by an authorized financial officer of
        the Borrower. These financial statements may be Borrower prepared. The
        statements shall be prepared on a consolidated basis.

                (c) Promptly, upon sending or receipt, copies of any management
        letters and correspondence relating to management letters, sent or
        received by the Borrower to or from the Borrower's auditor, or, if no
        management letter is prepared, a letter from such auditor stating that
        no deficiencies were noted that would otherwise be addressed in a
        management letter.

                (d) Copies of the Borrower's Form 10-K Annual Report, Form 10-Q
        Quarterly Report and Form 8-K Current Report within 30 days after the
        date of filing with the Securities and Exchange Commission.

                (e) Within the period(s) provided in (a) and (b) above, a
        compliance certificate of the Borrower, substantially in the form of
        Exhibit A hereto, signed by an authorized financial officer of the
        Borrower setting forth (i) the information and computations (in
        sufficient detail) to establish that the Borrower is in compliance with
        all financial covenants at the end of the period covered by the
        financial statements then being furnished and (ii) whether there existed
        as of the date of such financial statements and whether there exists as
        of the date of the certificate, any default under this Agreement and, if
        any such default exists, specifying the nature thereof and the action
        the Borrower is taking and proposes to take with respect thereto.

        8.3 Financial Covenants.

                (a) Deficit Earnings. Not incur on a consolidated basis deficit
        earnings before interest (both interest income and interest expense),
        taxes, and non-cash deferred compensation in excess of the amounts shown
        below in any quarterly accounting period indicted below:

<TABLE>
<CAPTION>
                 Quarter Ending                             Maximum Amount
                 --------------                             --------------
                 <S>                                        <C>
                 June 30, 2001                                $11,500,000
                 September 30, 2001                             4,500,000
                 December 31, 2001                              2,300,000
                 March 31, 2002                                 1,200,000
</TABLE>



                                      -12-
<PAGE>   13

                (b) Positive Earnings. Commencing with the quarter ending June
        30, 2002, maintain on a consolidated basis positive earnings before
        interest (both interest income and interest expense), taxes, and
        non-cash deferred compensation of at least Fifty Thousand Dollars
        ($50,000.00).

        8.4 Change of Control. Not to cause, permit or suffer to exist any
Change of Control of the Borrower. For the purposes hereof, "Change of Control"
means (i) each and every issue, sale, series of sales or other disposition or
purchase or series of purchases of shares of voting stock of the Borrower which
results in a Person or a group of Persons acting in concert obtaining majority
voting control or the right to elect the majority of the Board of Directors of
the Borrower, or (ii) the consolidation or merger by the Borrower with another
corporation, other than a wholly-owned subsidiary of the Borrower, in a
transaction in which any of the then outstanding voting stock of the Borrower is
exchanged. For purposes hereof "Person" means an individual, partnership,
corporation, trust or unincorporated organization.

        8.5 Notices to Bank. To promptly notify the Bank in writing of:

                (a) any lawsuit over Two Hundred Fifty Thousand Dollars
        ($250,000) against the Borrower.

                (b) any substantial dispute between the Borrower and any
        government authority.

                (c) any event of default under this Agreement, or any event
        which, with notice or lapse of time or both, would constitute an event
        of default.

                (d) any material adverse change in the Borrower's business
        condition (financial or otherwise), operations, properties or prospects,
        or ability to repay the credit.

                (e) any change in the Borrower's name, legal structure, place of
        business, or chief executive office if the Borrower has more than one
        place of business.

        8.6 Books and Records. To maintain adequate books and records.

        8.7 Compliance with Laws. To comply with the laws (including any
fictitious name statute), regulations, and orders of any government body with
authority over the Borrower's business.

        8.8 Preservation of Rights. To maintain and preserve all rights,
privileges, and franchises the Borrower now has.

        8.9 Maintenance of Properties. To make any repairs, renewals, or
replacements to keep the Borrower's properties in good working condition.



                                      -13-
<PAGE>   14

        8.10 Perfection of Liens. To help the Bank perfect and protect its
security interests and liens, and reimburse it for related costs it incurs to
protect its security interests and liens.

        8.11 Cooperation. To take any action reasonably requested by the Bank to
carry out the intent of this Agreement.

        8.12 General Business Insurance.

                (a) To maintain insurance satisfactory to the Bank as to amount,
        nature and carrier covering property damage (including loss of use and
        occupancy) to any of the Borrower's properties, public liability
        insurance including coverage for contractual liability, product
        liability, workers' compensation, business interruption and any other
        insurance which is usual for the Borrower's business.

                (b) Evidence of Insurance. Upon the request of the Bank, to
        deliver to the Bank a copy of each insurance policy, or, if permitted by
        the Bank, a certificate of insurance listing all insurance in force.

        8.13 Additional Negative Covenants. Not to, without the Bank's written
consent:

                (a) engage in any business activities substantially different
        from the Borrower's present business.

                (b) liquidate or dissolve the Borrower's business.

                (c) voluntarily suspend its business for more than 7 days in any
        30 day period.

        8.14 Bank as Principal Depository. To maintain the Bank as its principal
depository bank, including for the maintenance of business, cash management,
operating and administrative deposit accounts.

        8.15 ERISA Plans. With respect to a Plan subject to Title IV of ERISA,
to give prompt written notice to the Bank of:

                (a) The occurrence of any reportable event under Section 4043(c)
        of ERISA for which the PBGC requires 30-day notice.

                (b) Any action by the Borrower or any ERISA Affiliate to
        terminate or withdraw from a Plan or the filing of any notice of intent
        to terminate under Section 4041 of ERISA.

                (c) The commencement of any proceeding with respect to a Plan
        under Section 4042 of ERISA.



                                      -14-
<PAGE>   15

9. HAZARDOUS SUBSTANCES

        9.1 Indemnity Regarding Hazardous Substances. The Borrower will
indemnify and hold harmless the Bank from any loss or liability the Bank incurs
in connection with or as a result of this Agreement, which directly or
indirectly arises out of the use, generation, manufacture, production, storage,
release, threatened release, discharge, disposal or presence of a hazardous
substance. This indemnity will apply whether the hazardous substance is on,
under or about the Borrower's property or operations or property leased to the
Borrower. The indemnity includes but is not limited to attorneys' fees
(including the reasonable estimate of the allocated cost of in-house counsel and
staff). The indemnity extends to the Bank, its parent, subsidiaries and all of
their directors, officers, employees, agents, successors, attorneys and assigns.

        9.2 Definition of Hazardous Substances. "Hazardous substances" means any
substance, material or waste that is or becomes designated or regulated as
"toxic," "hazardous," "pollutant," or "contaminant" or a similar designation or
regulation under any federal, state or local law (whether under common law,
statute, regulation or otherwise) or judicial or administrative interpretation
of such, including without limitation petroleum or natural gas. This indemnity
will survive repayment of the Borrower's obligations to the Bank.

10. DEFAULT

        If any of the following events occurs, the Bank may do one or more of
the following: declare the Borrower in default, stop making any additional
credit available to the Borrower, and require the Borrower to repay its entire
debt immediately and without prior notice. If an event of default occurs under
the paragraph entitled "Bankruptcy," below, with respect to the Borrower, then
the entire debt outstanding under this Agreement will automatically be due
immediately.

        10.1 Failure to Pay. The Borrower fails to make a payment under this
Agreement when due.

        10.2 Lien Priority. The Bank fails to have an enforceable first lien
(except for any prior liens to which the Bank has consented in writing) on or
security interest in any property given as security for this Agreement (or any
guaranty).

        10.3 False Information. The Borrower or any guarantor or any party
pledging collateral to the Bank (each an "Obligor") has given the Bank false or
misleading information or representations.

        10.4 Bankruptcy. The Borrower (or any Obligor) files a bankruptcy
petition, a bankruptcy petition is filed against the Borrower (or any Obligor)
or the Borrower (or any Obligor) makes a general assignment for the benefit of
creditors

        10.5 Receivers. A receiver or similar official is appointed for a
substantial portion of the Borrower's (or any Obligor's) business, or the
business is terminated.



                                      -15-
<PAGE>   16

        10.6 Government Action. Any government authority takes action that the
Bank believes materially adversely affects the Borrower's (or any Obligor's)
financial condition or ability to repay.

        10.7 Material Adverse Change. A material adverse change occurs, or is
reasonably likely to occur, in the Borrower's (or any Obligor's) business
condition (financial or otherwise), operations, properties or prospects, or
ability to repay the credit.

        10.8 Cross-default. Any default occurs under any agreement in connection
with any credit the Borrower (or any Obligor) has obtained from anyone else or
which the Borrower (or any Obligor) has guaranteed in the amount of Five Hundred
Thousand Dollars ($500,000) or more in the aggregate if the default is not cured
within thirty (30) days if the default consists of failing to make a payment
when due or gives the other lender the right to accelerate the obligation.

        10.9 Default under Related Documents. Any default occurs under any
guaranty, subordination agreement, security agreement, deed of trust, mortgage,
or other document required by or delivered in connection with this Agreement or
any such document is no longer in effect, or any guarantor purports to revoke or
disavow the guaranty.

        10.10 Other Bank Agreements. The Borrower (or any Obligor) fails to meet
the conditions of, or fails to perform any obligation under any other agreement
the Borrower (or any Obligor) has with the Bank or any affiliate of the Bank.

        10.11 ERISA Plans. Any one or more of the following events occurs with
respect to a Plan of the Borrower subject to Title IV of ERISA, provided such
event or events could reasonably be expected, in the judgment of the Bank, to
subject the Borrower to any tax, penalty or liability (or any combination of the
foregoing) which, in the aggregate, could have a material adverse effect on the
financial condition of the Borrower:

                (a) A reportable event shall occur under Section 4043(c) of
        ERISA with respect to a Plan.

                (b) Any Plan termination (or commencement of proceedings to
        terminate a Plan) or the full or partial withdrawal from a Plan by the
        Borrower or any ERISA Affiliate.

        10.12 Other Breach Under Agreement. The Borrower fails to meet the
conditions of, or fails to perform any obligation under, any term of this
Agreement not specifically referred to in this Article. This includes any
failure or anticipated failure by the Borrower to comply with any financial
covenants set forth in this Agreement, whether such failure is evidenced by
financial statements delivered to the Bank or is otherwise known to the Borrower
or the Bank



                                      -16-
<PAGE>   17

11. ENFORCING THIS AGREEMENT; MISCELLANEOUS

        11.1 GAAP. Except as otherwise stated in this Agreement, all financial
information provided to the Bank and all financial covenants will be made under
generally accepted accounting principles, consistently applied.

        11.2 California Law. This Agreement is governed by California law.

        11.3 Successors and Assigns. This Agreement is binding on the Borrower's
and the Bank's successors and assignees. The Borrower agrees that it may not
assign this Agreement without the Bank's prior consent. The Bank may sell
participations in or assign this loan, and may exchange financial information
about the Borrower with actual or potential participants or assignees; provided
that such actual or potential participants or assignees shall agree to treat all
financial information exchanged as confidential. If a participation is sold or
the loan is assigned, the purchaser will have the right of set-off against the
Borrower.

        11.4 Arbitration and Waiver of Jury Trial.

                (a) This paragraph concerns the resolution of any controversies
        or claims between the Borrower and the Bank, whether arising in
        contract, tort or by statute, including but not limited to controversies
        or claims that arise out of or relate to: (i) this Agreement (including
        any renewals, extensions or modifications); or (ii) any document related
        to this Agreement (collectively a "Claim").

                (b) At the request of the Borrower or the Bank, any Claim shall
        be resolved by binding arbitration in accordance with the Federal
        Arbitration Act (Title 9, U. S. Code) (the "Act"). The Act will apply
        even though this Agreement provides that it is governed by the law of a
        specified state.

                (c) Arbitration proceedings will be determined in accordance
        with the Act, the applicable rules and procedures for the arbitration of
        disputes of JAMS or any successor thereof ("JAMS"), and the terms of
        this paragraph. In the event of any inconsistency, the terms of this
        paragraph shall control.

                (d) The arbitration shall be administered by JAMS and conducted
        in any U. S. state where real or tangible personal property collateral
        for this credit is located or if there is no such collateral, in
        California. All Claims shall be determined by one arbitrator; however,
        if Claims exceed Five Million Dollars ($5,000,000), upon the request of
        any party, the Claims shall be decided by three arbitrators. All
        arbitration hearings shall commence within ninety (90) days of the
        demand for arbitration and close within ninety (90) days of commencement
        and the award of the arbitrator(s) shall be issued within thirty (30)
        days of the close of the hearing. However, the arbitrator(s), upon a
        showing of good cause, may extend the commencement of the hearing for up
        to an additional sixty (60) days. The arbitrator(s) shall provide a
        concise written statement of reasons for the award. The arbitration
        award may be submitted to any court having jurisdiction to be confirmed
        and enforced.



                                      -17-
<PAGE>   18

                (e) The arbitrator(s) will have the authority to decide whether
        any Claim is barred by the statute of limitations and, if so, to dismiss
        the arbitration on that basis. For purposes of the application of the
        statute of limitations, the service on JAMS under applicable JAMS rules
        of a notice of Claim is the equivalent of the filing of a lawsuit. Any
        dispute concerning this arbitration provision or whether a Claim is
        arbitrable shall be determined by the arbitrator(s). The arbitrator(s)
        shall have the power to award legal fees pursuant to the terms of this
        Agreement.

                (f) This paragraph does not limit the right of the Borrower or
        the Bank to: (i) exercise self-help remedies, such as but not limited
        to, setoff; (ii) initiate judicial or nonjudicial foreclosure against
        any real or personal property collateral; (iii) exercise any judicial or
        power of sale rights, or (iv) act in a court of law to obtain an interim
        remedy, such as but not limited to, injunctive relief, writ of
        possession or appointment of a receiver, or additional or supplementary
        remedies.

                (g) The procedure described above will not apply if the Claim,
        at the time of the proposed submission to arbitration, arises from or
        relates to an obligation to the Bank secured by real property. In this
        case, both the Borrower and the Bank must consent to submission of the
        Claim to arbitration. If both parties do not consent to arbitration, the
        Claim will be resolved as follows: The Borrower and the Bank will
        designate a referee (or a panel of referees) selected under the auspices
        of JAMS in the same manner as arbitrators are selected in JAMS
        administered proceedings. The designated referee(s) will be appointed by
        a court as provided in California Code of Civil Procedure Section 638
        and the following related sections. The referee (or the presiding
        referee of the panel) will be an active attorney or a retired judge. The
        award that results from the decision of the referee(s) will be entered
        as a judgment in the court that appointed the referee, in accordance
        with the provisions of California Code of Civil Procedure Sections 644
        and 645.

                (h) The filing of a court action is not intended to constitute a
        waiver of the right of the Borrower or the Bank, including the suing
        party, thereafter to require submittal of the Claim to arbitration.

                (i) By agreeing to binding arbitration, the parties irrevocably
        and voluntarily waive any right they may have to a trial by jury in
        respect of any Claim. Furthermore, without intending in any way to limit
        this agreement to arbitrate, to the extent any Claim is not arbitrated,
        the parties irrevocably and voluntarily waive any right they may have to
        a trial by jury in respect of such Claim. This provision is a material
        inducement for the parties entering into this Agreement.

        11.5 Severability; Waivers. If any part of this Agreement is not
enforceable, the rest of the Agreement may be enforced. The Bank retains all
rights, even if it makes a loan after default. If the Bank waives a default, it
may enforce a later default. Any consent or waiver under this Agreement must be
in writing.



                                      -18-
<PAGE>   19

        11.6 Administration Costs. The Borrower shall pay the Bank for all
reasonable costs incurred by the Bank in connection with administering this
Agreement.

        11.7 Attorneys' Fees. The Borrower shall reimburse the Bank for any
reasonable costs and attorneys' fees incurred by the Bank in connection with the
enforcement or preservation of any rights or remedies under this Agreement and
any other documents executed in connection with this Agreement, and in
connection with any amendment, waiver, "workout" or restructuring under this
Agreement. In the event of a lawsuit or arbitration proceeding, the prevailing
party is entitled to recover costs and reasonable attorneys' fees incurred in
connection with the lawsuit or arbitration proceeding, as determined by the
court or arbitrator. In the event that any case is commenced by or against the
Borrower under the Bankruptcy Code (Title 11, United States Code) or any similar
or successor statute, the Bank is entitled to recover costs and reasonable
attorneys' fees incurred by the Bank related to the preservation, protection, or
enforcement of any rights of the Bank in such a case. As used in this paragraph,
"attorneys' fees" includes the allocated costs of the Bank's in-house counsel.

        11.8 One Agreement. This Agreement and any related security or other
agreements required by this Agreement, collectively:

                (a) represent the sum of the understandings and agreements
        between the Bank and the Borrower concerning this credit;

                (b) replace any prior oral or written agreements between the
        Bank and the Borrower concerning this credit; and

                (c) are intended by the Bank and the Borrower as the final,
        complete and exclusive statement of the terms agreed to by them.

        event of any conflict between this Agreement and any other agreements
        required by this Agreement, this Agreement will prevail.

        11.9 Waiver of Confidentiality. The Borrower authorizes the Bank to
discuss the Borrower's financial affairs and business operations with any
accountants, auditors, business consultants, or other professional advisors
employed by the Borrower, and authorizes such parties to disclose to the Bank
such financial and business information or reports (including management
letters) concerning the Borrower as the Bank may request.

        11.10 Indemnification. The Borrower will indemnify and hold the Bank
harmless from any loss, liability, damages, judgments, and costs of any kind
relating to or arising directly or indirectly out of (a) this Agreement or any
document required hereunder, (b) any credit extended or committed by the Bank to
the Borrower hereunder, and (c) any litigation or proceeding related to or
arising out of this Agreement, any such document, or any such credit. This
indemnity includes but is not limited to attorneys' fees (including the
allocated cost of in-house counsel). This indemnity extends to the Bank, its
parent, subsidiaries and all of their directors, officers, employees, agents,
successors, attorneys, and assigns. This indemnity will



                                      -19-
<PAGE>   20

survive repayment of the Borrower's obligations to the Bank. All sums due to the
Bank hereunder shall be obligations of the Borrower, due and payable immediately
without demand.

        11.11 Notices. Unless otherwise provided in this Agreement or in another
agreement between the Bank and the Borrower, all notices required under this
Agreement shall be personally delivered or sent by first class mail, postage
prepaid, or by overnight courier, to the addresses on the signature page of this
Agreement, or sent by facsimile to the fax numbers listed on the signature page,
or to such other addresses as the Bank and the Borrower may specify from time to
time in writing. Notices and other communications sent by (a) first class mail
shall be deemed delivered on the earlier of actual receipt or on the fourth
business day after deposit in the U.S. mail, postage prepaid, (b) overnight
courier shall be deemed delivered on the next business day, and (c) telecopy
shall be deemed delivered when transmitted.

        11.12 Headings. Article and paragraph headings are for reference only
and shall not affect the interpretation or meaning of any provisions of this
Agreement.

        11.13 Counterparts. This Agreement may be executed in as many
counterparts as necessary or convenient, and by the different parties on
separate counterparts each of which, when so executed, shall be deemed an
original but all such counterparts shall constitute but one and the same
agreement.

This Agreement is executed as of the date stated at the top of the first page.


Bank of America, N.A.                       Novatel Wireless, Inc.


By: /s/ Susan J. Pepping                    By:  /s/ Dan L. Halvorson
   -------------------------------             ---------------------------------
Typed Name: Susan J. Pepping                Typed Name: Dan L. Halvorson
           -----------------------                     -------------------------
Title: Senior Vice President                Title: Treasurer
      ----------------------------                ------------------------------


                                            By: /s/ Melvin L. Flowers
                                               ---------------------------------
                                            Typed Name:  Melvin L. Flowers
                                                       -------------------------
                                            Title: Senior Vice President and CFO
                                                  ------------------------------




                                      -20-
<PAGE>   21

Address where notices to                    Address where notices to
the Bank are to be sent:                    the Borrower are to be sent:
450 B Street, Suite 100                     9360 Towne Center Drive, Suite 110
San Diego, CA 92101                         San Diego, CA 92121
Facsimile: (619) 515-7524                   Facsimile: 858/812-3414




                                      -21-

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.2
<SEQUENCE>4
<FILENAME>a74385ex10-2.txt
<DESCRIPTION>EXHIBIT 10.2
<TEXT>
<PAGE>   1

                                                                    EXHIBIT 10.2


                   FIRST AMENDMENT TO BUSINESS LOAN AGREEMENT

                This First Amendment to Business Loan Agreement (the
"Amendment") is made as of July 10, 2001, between Bank of America,
N. A. ("Bank"), and Novatel Wireless, Inc. ("Borrower").

                                    RECITALS

        A. Borrower and Bank entered into that certain Business Loan Agreement
dated as of June 28, 2001 (the "Agreement").

        B. Borrower and Bank desire to amend certain terms and provisions of the
Agreement.

                                    AGREEMENT

        1. Definitions. Capitalized terms used but not defined in this Amendment
shall have the meaning given to them in the Agreement.

        2. Amendments. The Agreement is hereby amended as follows:

                2.1 Paragraph 1.6(a) of the Agreement is amended to add clause
(iii) to read as follows:

                        "(iii) The amounts of letters of credit outstanding at
any one time (including amounts drawn on letters of credit and not yet
reimbursed) may not exceed Five Million Dollars ($5,000,000.00)."

                3. Representations and Warranties. Borrower hereby represents
and warrants to Bank that: (i) no default specified in the Agreement and no
event which with notice or lapse of time or both would become such a default has
occurred and is continuing and (ii) the representations and warranties of
Borrower pursuant to the Agreement are true on and as of the date hereof as if
made on and as of said date.

                4. Effect of Amendment. Except as provided in this Amendment,
the Agreement shall remain in full force and effect and shall be performed by
the parties hereto according to its terms and provisions.



                                       1
<PAGE>   2

        IN WITNESS WHEREOF, this Amendment has been executed by the parties
hereto as of the date first above written.

                                       BANK OF AMERICA, N.A.


                                       By:       /s/ Susan J. Pepping
                                           -------------------------------------
                                       Name:   SUSAN J. PEPPING
                                             -----------------------------------
                                       Title:     Senior Vice President
                                              ----------------------------------

                                       NOVATEL WIRELESS, INC.


                                       By:  /s/ Dan L. Halvorson
                                           -------------------------------------
                                       Name: Dan L. Halvorson
                                             -----------------------------------
                                       Title: Treasurer
                                              ----------------------------------


                                       By: /s/ Melvin L. Flowers
                                           -------------------------------------
                                       Name:  Melvin L. Flowers
                                             -----------------------------------
                                       Title:   Senior Vice President and CFO
                                              ----------------------------------



                                        2

</TEXT>
</DOCUMENT>
</SUBMISSION>
