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Proc-Type: 2001,MIC-CLEAR
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<SEC-DOCUMENT>0001104659-03-014431.txt : 20030710
<SEC-HEADER>0001104659-03-014431.hdr.sgml : 20030710
<ACCEPTANCE-DATETIME>20030710171150
ACCESSION NUMBER:		0001104659-03-014431
CONFORMED SUBMISSION TYPE:	8-K
PUBLIC DOCUMENT COUNT:		1
CONFORMED PERIOD OF REPORT:	20030710
ITEM INFORMATION:		Other events
FILED AS OF DATE:		20030710

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			UTSTARCOM INC
		CENTRAL INDEX KEY:			0001030471
		STANDARD INDUSTRIAL CLASSIFICATION:	COMMUNICATIONS EQUIPMENT, NEC [3669]
		IRS NUMBER:				521782500
		STATE OF INCORPORATION:			DE
		FISCAL YEAR END:			1231

	FILING VALUES:
		FORM TYPE:		8-K
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	000-29661
		FILM NUMBER:		03782429

	BUSINESS ADDRESS:	
		STREET 1:		1275 HARBOR BAY PARKWAY
		STREET 2:		STE 100
		CITY:			ALAMEDA
		STATE:			CA
		ZIP:			94502
		BUSINESS PHONE:		5108648800

	MAIL ADDRESS:	
		STREET 1:		1275 HARBOR BAY PARKWAY
		STREET 2:		STE 100
		CITY:			ALAMEDA
		STATE:			CA
		ZIP:			94502
</SEC-HEADER>
<DOCUMENT>
<TYPE>8-K
<SEQUENCE>1
<FILENAME>j2913_8k.htm
<DESCRIPTION>8-K
<TEXT>
<html>

<head>

<title>  </title>

</head>

<body>

<div style="font-family:'Times New Roman';">

<div style="border:none;border-top:double windowtext 9.0pt;padding:0in 0in 0in 0in;">

<p style="border:none;margin:0in 0in .0001pt;padding:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

</div>

<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="5" face="Times New Roman" style="font-size:18.0pt;font-weight:bold;">SECURITIES
AND EXCHANGE COMMISSION</font></b></p>

<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">Washington,
D.C. 20549-1004</font></b></p>

<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="5" face="Times New Roman" style="font-size:18.0pt;font-weight:bold;">FORM 8-K</font></b></p>

<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="3" face="Times New Roman" style="font-size:12.0pt;font-weight:bold;">CURRENT
REPORT</font></b></p>

<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="3" face="Times New Roman" style="font-size:12.0pt;font-weight:bold;">Pursuant to
Section 13 or 15(d) of <br>
the Securities Exchange Act of 1934</font></b></p>

<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">July 10, 2003</font></b></p>

<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Date of Report
(Date of Earliest Event Reported)</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="5" face="Times New Roman" style="font-size:18.0pt;font-weight:bold;">UTSTARCOM,
INC.</font></b></p>

<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(Exact name of
registrant as specified in its charter)</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<div align="center">

<table border="0" cellspacing="0" cellpadding="0" width="100%" style="border-collapse:collapse;width:100.0%;">
 <tr>
  <td width="25%" valign="top" style="padding:0in 0in 0in 0in;width:25.0%;">
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">Delaware</font></b></p>
  </td>
  <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.7%;">
  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>
  </td>
  <td width="15%" valign="top" style="padding:0in 0in 0in 0in;width:15.0%;">
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">002-29661</font></b></p>
  </td>
  <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.7%;">
  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>
  </td>
  <td width="25%" valign="top" style="padding:0in 0in 0in 0in;width:25.0%;">
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">52-1782500</font></b></p>
  </td>
 </tr>
 <tr>
  <td width="25%" valign="top" style="padding:0in 0in 0in 0in;width:25.0%;">
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(State or other
  jurisdiction of incorporation)</font></p>
  </td>
  <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.7%;">
  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>
  </td>
  <td width="15%" valign="top" style="padding:0in 0in 0in 0in;width:15.0%;">
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(Commission File
  Number)</font></p>
  </td>
  <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.7%;">
  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>
  </td>
  <td width="25%" valign="top" style="padding:0in 0in 0in 0in;width:25.0%;">
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(I.R.S. Employer
  Identification No.)</font></p>
  </td>
 </tr>
</table>

</div>

<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p align="center" style="font-size:10.0pt;margin:0in 0in .0001pt;text-align:center;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">1275 Harbor Bay Parkway</font></b><br>
<b><font style="font-weight:bold;">Alameda, California 94502</font></b></p>

<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(Address of principal
executive offices)&nbsp;&nbsp;&nbsp;(Zip code)</font></p>

<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">(510)
864-8800</font></b></p>

<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(Registrant&#146;s
telephone number, including area code)</font></p>

<div style="border:none;border-bottom:double windowtext 9.0pt;padding:0in 0in 0in 0in;">

<p style="border:none;margin:0in 0in .0001pt;padding:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

</div>

<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>


<div style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">

<hr size="2" width="100%" noshade color="gray" align="left">

</font></div>

<font size="2" face="Times New Roman" style="font-size:10.0pt;">
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</font>

<p align="center" style="font-size:10.0pt;margin:0in 0in .0001pt;text-align:center;">&nbsp;</p>

<p style="font-size:10.0pt;margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">Item 5.</font></b><b><font size="1" style="font-size:3.0pt;font-weight:bold;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>Other Events.</b></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The
following are risks related to UTStarcom, Inc., which were included in its
Registration Statement on Form S-3 filed as of the date hereof.</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">Risks
Related to Our Company</font></b></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">Our future product sales are
unpredictable, our operating results are likely to fluctuate from quarter to
quarter, and if we fail to meet the expectations of securities analysts or
investors, our stock price could decline significantly.</font></b></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Our quarterly and annual operating results have
fluctuated in the past and are likely to fluctuate in the future due to a
variety of factors, some of which are outside of our control.&#160; As a result, period-to-period comparisons of
our operating results are not necessarily meaningful or indicative of future
performance.&#160; Furthermore, it is likely
that in some future quarters our operating results will fall below the
expectations of securities analysts or investors.&#160; If this occurs, the trading price of our common stock could
decline.</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Factors that may affect our future operating results
include:</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="3" face="Times New Roman" style="font-size:12.0pt;">&#149;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>the
timing, number and size of orders for our products, as well as the relative mix
of orders for each of our products, particularly the volume of lower margin
handsets;</p>

<p style="margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="3" face="Times New Roman" style="font-size:12.0pt;">&#149;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>cancellation,
deferment or delay in implementation of large contracts;</p>

<p style="margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="3" face="Times New Roman" style="font-size:12.0pt;">&#149;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>the
evolving and unpredictable nature of the economic, regulatory, competitive and
political environments in China and other countries in which we market or plan
to market our products;</p>

<p style="margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="3" face="Times New Roman" style="font-size:12.0pt;">&#149;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>price
reductions by our competitors;</p>

<p style="margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="3" face="Times New Roman" style="font-size:12.0pt;">&#149;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>competitive
market pressures resulting in decreased gross margins or increased inventory
levels;</p>

<p style="margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="3" face="Times New Roman" style="font-size:12.0pt;">&#149;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>changes
in our customers&#146; subscriber growth rate;</p>

<p style="margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="3" face="Times New Roman" style="font-size:12.0pt;">&#149;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>currency
fluctuations;</p>

<p style="margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="3" face="Times New Roman" style="font-size:12.0pt;">&#149;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>market
acceptance of our products and product enhancements;</p>

<p style="margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="3" face="Times New Roman" style="font-size:12.0pt;">&#149;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>the
lengthy and unpredictable sales cycles associated with sales of our products
combined with the impact of this variability on our suppliers&#146; ability to
provide us with components on a timely basis;</p>

<p style="margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="3" face="Times New Roman" style="font-size:12.0pt;">&#149;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>the
impact of changes in general world and domestic economic conditions in light of
the military and political situation in Iraq;</p>

<p style="margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="3" face="Times New Roman" style="font-size:12.0pt;">&#149;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>longer
collection periods of accounts receivable in China and other countries; and</p>

<p style="margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="3" face="Times New Roman" style="font-size:12.0pt;">&#149;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>the
decline in business activity we typically experience during the Lunar New Year,
which leads to decreased sales during our first fiscal quarter.</p>

<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">2</font></p>


<div style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">

<hr size="2" width="100%" noshade color="gray" align="left">

</font></div>

<font size="2" face="Times New Roman" style="font-size:10.0pt;">
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<p align="center" style="font-size:10.0pt;margin:0in 0in .0001pt;text-align:center;">&nbsp;</p>

<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The limited performance history of some of our
products, our limited forecasting experience and processes and the emerging
nature of our target markets make forecasting our future sales and operating
results difficult.&#160; Our expense levels
are based, in part, on our expectations regarding future sales, and these
expenses are largely fixed, particularly in the short term.&#160; In addition, to enable us to promptly fill
orders, we maintain inventories of finished goods, components and raw
materials.&#160; As a result, we commit to
considerable costs in advance of anticipated sales.&#160; In the past, a substantial portion of our sales in each quarter
resulted from orders received and shipped in that quarter, and we have operated
with a limited backlog of unfilled orders.&#160;
Accordingly, we may not be able to reduce our costs in a timely manner
to compensate for any unexpected shortfall between forecasted and actual
sales.&#160; Any significant shortfall of
sales may require us to maintain higher levels of inventories of finished
goods, components and raw materials than we require, thereby increasing our
risk of inventory obsolescence and corresponding inventory write-downs and
write-offs.</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">Competition
in our markets may lead to reduced prices, revenues and market share.</font></b></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">We are increasingly facing intense competition in our
target markets, especially from domestic companies in China.&#160; We believe that our strongest competition in
the future may come from these companies, many of which operate under lower
cost structures and more favorable governmental policies and have much larger
sales forces than we do.&#160; Furthermore,
other companies not presently offering competing products may also enter our
target markets, particularly with the reduction of trade restrictions as a
result of China&#146;s admission to the World Trade Organization, or WTO.&#160; Many of our competitors have significantly
greater financial, technical, product development, sales, marketing and other
resources than we do.&#160; As a result, our
competitors may be able to respond more quickly to new or emerging technologies
and changes in service provider requirements.&#160;
Our competitors may also be able to devote greater resources than we can
to the development, promotion and sale of new products.&#160; These competitors may also be able to offer
significant financing arrangements to service providers, in some cases
facilitated by government policies, which is a competitive advantage in selling
systems to service providers with limited financial and currency
resources.&#160; Increased competition is
likely to result in price reductions, reduced gross profit as a percentage of
net sales and loss of market share, any one of which could materially harm our
business, financial condition and results of operations.</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Moreover, current and potential competitors have
established or may establish cooperative relationships among themselves or with
third parties, including Telecommunications Administrations, Telecommunications
Bureaus and other local organizations, to increase the ability of their
products to address the needs of prospective customers in our target markets.&#160; Accordingly, alliances among competitors or
between competitors and third parties may emerge and rapidly acquire
significant market share.&#160; To remain
competitive, we believe that we must continue to partner with Telecommunications
Administrations and other local organizations, maintain a high level of
investment in research and development and in sales and marketing, and
manufacture and deliver products to service providers on a timely basis and
without significant defects.&#160; If we fail
to meet any of these objectives, our business, financial condition and results
of operations could be harmed.</font></p>

<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">3</font></p>


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<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The introduction of inexpensive wireless telephone
service or other competitive services in China may also have an adverse impact
on sales of our PAS systems and handsets in China.&#160; We may not be able to compete successfully against current or
future competitors, and competitive pressures in the future may materially
adversely affect our business, financial condition and results of operations.</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">Our
business may suffer if we are unable to collect payments from our customers on
a timely basis.</font></b></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Our customers often must make a significant commitment
of capital to purchase our products.&#160; As
a result, any downturn in a customer&#146;s business that affects the customer&#146;s
ability to pay us could harm our financial condition.&#160; Moreover, accounts receivable collection cycles historically tend
to be much longer in China than in other markets.&#160; The failure of any of our customers to make timely payments could
require us to write-off accounts receivable or increase our accounts receivable
reserves, either of which could adversely affect our financial condition.</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">Our
acquisition of CommWorks could be difficult to integrate, may disrupt our
business and could harm our operating results.</font></b></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">In May, 2003, we completed our acquisition of certain
assets of 3Com Corporation&#146;s CommWorks division (&#147;CommWorks&#148;). However, our
management and financial controls, personnel, computer systems and other corporate
support systems may not be adequate to manage the increase in the size and
scope of our operations as a result of the completed acquisition.&#160; In addition, we may not be able to generate
revenue from the CommWorks operations consistent with historical results.&#160; We may not be able to realize the synergies
that we expect will result from the addition of the CommWorks assets to our
business.&#160; Although our acquisition of
CommWorks is structured as the acquisition of selected assets and liabilities,
we cannot assure you that we will not assume or become subject to, as a result
of the acquisition, liabilities that have an adverse impact on our financial
position or results of operations.&#160; We
also expect that CommWorks will need a significant working capital investment
from us and/or an available debt facility.&#160;
If additional financing is needed to fund the CommWorks operations, we
cannot assure you that such financing will be available to us on commercially
reasonable terms, or at all.</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Moreover, based on information provided by 3Com
Corporation, CommWorks has experienced sequentially declining annual revenue
for the past several years and has experienced substantial operating losses
during these periods.&#160; There can be no
assurance that CommWorks will not continue to do so following its acquisition
by us.&#160; Furthermore, historical results
of the CommWorks operations may not be indicative of the results to be expected
from those operations as they are integrated into our business.</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">Our
market is subject to rapid technological change, and to compete effectively, we
must continually introduce new products that achieve market acceptance.</font></b></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The emerging market for communications equipment in
developing countries is characterized by rapid technological developments, frequent
new product introductions and evolving industry and regulatory standards.&#160; Our success will depend in large part on our
ability to enhance our network access and switching technologies and develop
and introduce new products and product enhancements that anticipate changing
service provider requirements and technological</font></p>

<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">4</font></p>


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</font></div>

<font size="2" face="Times New Roman" style="font-size:10.0pt;">
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<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">developments.&#160; We may need to make substantial capital
expenditures and incur significant research and development costs to develop and
introduce new products and enhancements.&#160;
If we fail to timely develop and introduce new products or enhancements
to existing products that effectively respond to technological change, our
business, financial condition and results of operations could be materially
adversely affected.&#160; From time to time,
our competitors or we may announce new products or product enhancements,
technologies or services that have the potential to replace or shorten the life
cycles of our products and that may cause customers to defer purchasing our
existing products, resulting in inventory obsolescence.&#160; Future technological advances in the
communications industry may diminish or inhibit market acceptance of our
existing or future products or render our products obsolete.</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Even if we are able to develop and introduce new
products, they may not gain market acceptance.&#160;
Market acceptance of our products will depend on various factors
including:</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="3" face="Times New Roman" style="font-size:12.0pt;">&#149;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>our
ability to obtain necessary approvals from regulatory organizations;</p>

<p style="margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="3" face="Times New Roman" style="font-size:12.0pt;">&#149;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>the
perceived advantages of the new products over competing products;</p>

<p style="margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="3" face="Times New Roman" style="font-size:12.0pt;">&#149;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>our
ability to attract customers who have existing relationships with our
competitors;</p>

<p style="margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="3" face="Times New Roman" style="font-size:12.0pt;">&#149;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>product
cost relative to performance; and</p>

<p style="margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="3" face="Times New Roman" style="font-size:12.0pt;">&#149;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>the
level of customer service available to support new products.</p>

<p style="margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Specifically, sales of PAS, our wireless access
system, will depend in part upon consumer acceptance of the mobility
limitations of this service relative to other wireless service systems, such as
GSM or CDMA.&#160; If our existing or new
products fail to achieve market acceptance for any reason, our business could
be seriously harmed.</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">Our
business will suffer if we are unable to deliver quality products on a timely
and cost effective basis.</font></b></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Our operating results depend on our ability to
manufacture products on a timely and cost effective basis.&#160; In the past, we have experienced reductions
in yields as a result of various factors, including defects in components and
human error in assembly.&#160; If we
experience deterioration in manufacturing performance or a delay in production
of any of our products, we could experience delays in shipments and
cancellations of orders.&#160; Moreover,
networking products frequently contain undetected software or hardware defects
when first introduced or as new versions are released.&#160; In addition, our products are often embedded
in or deployed in conjunction with service providers&#146; products, which
incorporate a variety of components produced by third parties.&#160; As a result, when a problem occurs, it may
be difficult to identify the source of the problem.&#160; These problems may cause us to incur significant warranty and
repair costs, divert the attention of our engineering personnel from our
product development efforts and cause significant customer relation problems or
loss of customers, any one of which could harm our business.</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">We contract with third parties in China to undertake
high volume manufacturing and assembly of our handsets.&#160; In addition, we sometimes use third parties
for high volume assembly of</font></p>

<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">5</font></p>


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</font></div>

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<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">circuit boards.&#160; We do not have any long-term contracts with
these third party manufacturers, and in the event that these manufacturers are
unable or unwilling to continue to manufacture our products, we may be unable
to secure alternative manufacturers or could experience delays in qualifying
new manufacturers.</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">We
depend on some sole source and other key suppliers for handsets, base stations,
components and materials used in our products, and if these suppliers fail to
provide us with adequate supplies of high quality products at competitive
prices, our competitive position, reputation and business could be harmed.</font></b></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Some components and materials used in our products are
purchased from a single supplier or a limited group of suppliers.&#160; If any supplier is unwilling or unable to
provide us with high quality components and materials in the quantities
required and at the costs specified by us, we may not be able to find
alternative sources on favorable terms, in a timely manner, or at all.&#160; Our inability to obtain or to develop
alternative sources if and as required could result in delays or reductions in
manufacturing or product shipments.&#160;
Moreover, these suppliers may delay product shipments or supply us with
inferior quality products.&#160; If any of
these events occur, our competitive position, reputation and business could
suffer.</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Our ability to source a sufficient quantity of high
quality components used in our products may be limited by China&#146;s import
restrictions and duties.&#160; We require a
significant number of imported components to manufacture our products in
China.&#160; Imported electronic components
and other imported goods used in the operation of our business are subject to a
variety of permit requirements, approval procedures, import duties and
registration requirements.&#160; Non-payment
of required import duties could subject us to penalties and fines and could
adversely affect our ability to manufacture and sell our products in China.&#160; In addition, import duties increase the cost
of our products and may make them less competitive.</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">In particular, components
of our PAS system include the handset used by subscribers to make and receive
mobile telephone calls and the base station unit.&#160; Our inability to obtain a sufficient number of high quality
components and assemblies for handsets and base stations could severely harm
our business.&#160; From time to time, there
has been a worldwide shortage of handsets, and there currently exists a
shortage of low-priced handsets, which we have found to be popular with many
consumers in China.&#160; We have only used
third parties to assemble and manufacture handsets in China for us for a
limited period of time.&#160; These
manufacturers may be unable to produce adequate quantities of high-quality
handsets to meet the demand of our customers.&#160;
In addition, we may be unable to obtain adequate quantities of base
stations and may be unable to find alternative sources on favorable terms, in a
timely manner, or at all.&#160; Our inability
to obtain or to develop alternative sources if and as required could result in
delays or reductions in manufacturing or product shipments.</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">If we
are unable to expand our direct sales operation in China and indirect
distribution channels elsewhere or successfully manage our expanded sales organization,
our operating results may suffer.</font></b></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Our distribution strategy
focuses primarily on developing and expanding our direct sales organization in
China and our indirect distribution channels outside of China.&#160; We may not be able to successfully expand
our direct sales organization in China and the cost of any expansion may exceed
the revenue generated from these efforts.&#160;
Even if we are successful in expanding our direct sales</font></p>

<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">6</font></p>


<div style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">

<hr size="2" width="100%" noshade color="gray" align="left">

</font></div>

<font size="2" face="Times New Roman" style="font-size:10.0pt;">
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<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">organization in China, we
may not be able to compete successfully against the significantly larger and
better-funded sales and marketing operations of current or potential
competitors.&#160; In addition, if we fail to
develop relationships with significant international resellers or
manufacturers&#146; representatives, or if these resellers or representatives are
not successful in their sales or marketing efforts, we may be unsuccessful in
our expansion efforts outside China.</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">We
expect average selling prices of our products to decrease which may reduce our
revenues and our gross margin as a percentage of net sales, and, as a result,
we must introduce new products and reduce our costs in order to maintain
profitability.</font></b></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The average selling
prices for communications access and switching systems and subscriber terminal
products, such as handsets, in China have been declining as a result of a
number of factors, including:</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="3" face="Times New Roman" style="font-size:12.0pt;">&#149;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>increased
competition;</p>

<p style="margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="3" face="Times New Roman" style="font-size:12.0pt;">&#149;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>aggressive
price reductions by competitors; and</p>

<p style="margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="3" face="Times New Roman" style="font-size:12.0pt;">&#149;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>rapid
technological change.</p>

<p style="margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">We anticipate that
average selling prices of our products will decrease in the future in response
to product introductions by us or our competitors or other factors, including
price pressures from customers.&#160;
Therefore, we must continue to develop and introduce new products and
enhancements to existing products that incorporate features that can be sold at
higher average selling prices.&#160; Failure
to do so could cause our revenues and gross profit, as a percentage of net
sales, to decline.</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Our cost reduction
efforts may not allow us to keep pace with competitive pricing pressures or
lead to improved gross profit, as a percentage of net sales.&#160; In order to be competitive, we must
continually reduce the cost of manufacturing our products through design and
engineering changes.&#160; We may not be
successful in these efforts or delivering our products to market in a timely
manner.&#160; Any redesign may not result in
sufficient cost reductions to allow us to reduce the prices of our products to
remain competitive or to improve or maintain our gross profit, as a percentage
of net sales.</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">Shifts
in our product mix may result in declines in gross profit, as a percentage of
net sales.</font></b></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Our gross profit, as a
percentage of net sales, varies among our product groups.&#160; Our gross profit, as a percentage of net
sales, is generally higher on our access network system products and is
significantly lower on our handsets.&#160; We
also anticipate that the gross profit, as a percentage of net sales, may be
lower for our newly developed products due to start-up costs and may improve as
unit volumes increase and efficiencies can be realized.&#160; Our overall gross profit, as a percentage of
net sales, has fluctuated from period to period as a result of shifts in
product mix, the introduction of new products, decreases in average selling
prices for older products and our ability to reduce manufacturing costs.</font></p>

<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">7</font></p>


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<hr size="2" width="100%" noshade color="gray" align="left">

</font></div>

<font size="2" face="Times New Roman" style="font-size:10.0pt;">
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<p align="center" style="font-size:10.0pt;margin:0in 0in .0001pt;text-align:center;">&nbsp;</p>

<p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">Service
providers sometimes evaluate our products for long and unpredictable periods
which causes the timing of purchases and our results of operations to be
unpredictable.</font></b></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The period of time
between our initial contact with a service provider and the receipt of an
actual purchase order may span a year or more.&#160;
During this time, service providers may subject our products to an
extensive and lengthy evaluation process before making a purchase.&#160; The length of these qualification processes
may vary substantially by product and service provider, making our results of
operations unpredictable.&#160; We may incur
substantial sales and marketing expenses and expend significant management
effort during this process, which ultimately may not result in a sale.&#160; These qualification processes often make it
difficult to obtain new customers, as service providers are reluctant to expend
the resources necessary to qualify a new supplier if they have one or more
existing qualified sources.</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">Our
multi-national operations subject us to various economic, political, regulatory
and legal risks.</font></b></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">We market and sell our
products in China and other markets, including Taiwan, Japan, Vietnam, India
and Latin America.&#160; The expansion of our
existing multi-national operations and entry into additional international
markets will require significant management attention and financial
resources.&#160; Multi-national operations
are subject to inherent risks, including:</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="3" face="Times New Roman" style="font-size:12.0pt;">&#149;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>difficulties
in designing products that are compatible with varying international
communications standards;</p>

<p style="margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="3" face="Times New Roman" style="font-size:12.0pt;">&#149;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>longer
accounts receivable collection periods and greater difficulty in accounts
receivable collection;</p>

<p style="margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="3" face="Times New Roman" style="font-size:12.0pt;">&#149;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>unexpected
changes in regulatory requirements or the regulatory environment;</p>

<p style="margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="3" face="Times New Roman" style="font-size:12.0pt;">&#149;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>changes
in governmental control or influence over our customers;</p>

<p style="margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="3" face="Times New Roman" style="font-size:12.0pt;">&#149;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>changes
to import and export regulations, including quotas, tariffs and other trade
barriers;</p>

<p style="margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="3" face="Times New Roman" style="font-size:12.0pt;">&#149;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>delays
or difficulties in obtaining export and import licenses;</p>

<p style="margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="3" face="Times New Roman" style="font-size:12.0pt;">&#149;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>potential
foreign exchange controls and repatriation controls on foreign earnings;</p>

<p style="margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="3" face="Times New Roman" style="font-size:12.0pt;">&#149;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>exchange
rate fluctuations and currency conversion restrictions;</p>

<p style="margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="3" face="Times New Roman" style="font-size:12.0pt;">&#149;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>the
burdens of complying with a variety of foreign laws and regulations;</p>

<p style="margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="3" face="Times New Roman" style="font-size:12.0pt;">&#149;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>difficulties
and costs of staffing and managing multi-national operations, including but not
limited to internal control and compliance;</p>

<p style="margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="3" face="Times New Roman" style="font-size:12.0pt;">&#149;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>reduced
protection for intellectual property rights in some countries;</p>

<p style="margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="3" face="Times New Roman" style="font-size:12.0pt;">&#149;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>potentially
adverse tax consequences; and</p>

<p style="margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="3" face="Times New Roman" style="font-size:12.0pt;">&#149;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>political
and economic instability.</p>

<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">8</font></p>


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<hr size="2" width="100%" noshade color="gray" align="left">

</font></div>

<font size="2" face="Times New Roman" style="font-size:10.0pt;">
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<p align="center" style="font-size:10.0pt;margin:0in 0in .0001pt;text-align:center;">&nbsp;</p>

<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Multi-national companies
are required to establish intercompany pricing for transactions between their
separate legal entities operating in different taxing jurisdictions.&#160; These intercompany transactions are subject
to audit by taxing authorities in the jurisdictions in which multi-national
companies operate.&#160; An additional tax
liability may be incurred if it is determined that intercompany pricing was not
done at arm&#146;s length.&#160; We believe we
have adequately estimated and recorded our liability arising from intercompany
pricing, but an additional tax liability may result from audits of our
intercompany pricing policies.</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">In markets outside of
China, we rely on a number of original equipment manufacturers, or OEMs, and
third-party distributors and agents to market and sell our network access
products.&#160; If these OEMs, distributors
or agents fail to provide the support and effort necessary to service
developing markets effectively, our ability to maintain or expand our
operations outside of China will be negatively impacted.&#160; We may not successfully compete in these markets,
our products may not be accepted and we may not successfully overcome the risks
associated with international operations.</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Moreover, in less
developed markets we may face additional risks, such as inconsistent
infrastructure support, unstable political and economic environments, and lack
of a secure environment for our personnel, facilities and equipment.&#160; We have in the past experienced cases of
vandalism and armed theft of our equipment that had been or was being installed
in the field.&#160; If disruptions for any of
these reasons become too severe in any particular market, it may become
necessary for us to terminate contracts and withdraw from that market and
suffer the associated costs and lost revenue.</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Due to the multi-national
nature of our business and operations, we are subject to regulation in multiple
governmental jurisdictions.&#160;
Furthermore, as a result of the heavily regulated nature of the markets
in which we operate, we are continually subject to the risk of governmental
investigations regarding our compliance with the rules and regulations of such
jurisdictions.&#160; Should we become subject
to any such investigations, there may be significant and unanticipated
expenses, and risks such as the distraction of our key employees and
disruptions to our operations.&#160; Such
expenses and risks may result even in the event that such investigations are
decided in our favor and no instances of non-compliance are found.</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">We are
subject to risks relating to currency exchange rate fluctuations.</font></b></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">We are exposed to foreign
exchange rate risk because our sales to China are denominated in Renminbi and
portions of our accounts payable are denominated in Japanese Yen.&#160; Due to the limitations on converting
Renminbi, we are limited in our ability to engage in currency hedging
activities in China.&#160; Although the impact
of currency fluctuations of Renminbi to date has been insignificant,
fluctuations in currency exchange rates in the future may have a material
adverse effect on our results of operations.</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">Our
failure to meet international and governmental product standards could be
detrimental to our business.</font></b></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Many of our products are
required to comply with numerous government regulations and standards, which
vary by market.&#160; As standards for
products continue to evolve, we will need to</font></p>

<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">9</font></p>


<div style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">

<hr size="2" width="100%" noshade color="gray" align="left">

</font></div>

<font size="2" face="Times New Roman" style="font-size:10.0pt;">
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<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">modify our products or
develop and support new versions of our products to meet emerging industry
standards, comply with government regulations and satisfy the requirements
necessary to obtain approvals.&#160; Our
inability to obtain regulatory approval and meet established standards could
delay or prevent our entrance into or force our departure from particular
markets.</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">Our
recent growth has strained our resources, and if we are unable to manage and
sustain our growth, our operating results will be negatively affected.</font></b></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">We have recently
experienced a period of rapid growth and anticipate that we must continue to
expand our operations to address potential market opportunities.&#160; If we fail to implement or improve systems
or controls or to manage any future growth and expansion effectively, our
business could suffer.</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Our expansion has placed
and will continue to place a significant strain on our management, operational,
financial and other resources.&#160; To
manage our growth effectively, we will need to take various actions, including:</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="3" face="Times New Roman" style="font-size:12.0pt;">&#149;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>enhancing
management information systems and forecasting procedures;</p>

<p style="margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="3" face="Times New Roman" style="font-size:12.0pt;">&#149;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>further
developing our operating, administrative, financial and accounting systems and
controls;</p>

<p style="margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="3" face="Times New Roman" style="font-size:12.0pt;">&#149;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>maintaining
close coordination among our engineering, accounting, finance, marketing, sales
and operations organizations;</p>

<p style="margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="3" face="Times New Roman" style="font-size:12.0pt;">&#149;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>expanding,
training and managing our employee base; and</p>

<p style="margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="3" face="Times New Roman" style="font-size:12.0pt;">&#149;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>expanding
our finance, administrative and operations staff.</p>

<p style="margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">We may
not be able to sustain profitability.</font></b></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">We may not be able to
remain profitable in future periods.&#160; We
anticipate continuing to incur significant sales and marketing, research and
development and general and administrative expenses and, as a result, we will
need to generate higher revenues to remain profitable.&#160; Numerous factors could negatively impact our
results of operations, including a decrease in sales, price pressures and
significant fixed costs.&#160; Our past results
should not be relied on as an indication of our future performance.</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">Our success
is dependent on continuing to hire and retain qualified personnel, and if we
are not successful in attracting and retaining these personnel, our business
would be harmed.</font></b></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The success of our
business depends in significant part upon the continued contributions of key
technical and senior management personnel, many of whom would be difficult to
replace.&#160; In particular, our success
depends in large part on the knowledge, expertise and services of Hong Liang
Lu, our Chairman of the Board, President and Chief Executive Officer, and Ying
Wu, our Executive Vice President and Chief Executive Officer of China
Operations.&#160; The loss of any key
employee, the failure of any key employee to perform satisfactorily in his or
her current position or our failure to attract and retain other key technical
and senior management employees could have a significant negative impact on our
operations.</font></p>

<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">10</font></p>


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<p align="center" style="font-size:10.0pt;margin:0in 0in .0001pt;text-align:center;">&nbsp;</p>

<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">To effectively manage our
recent growth as well as any future growth, we will need to recruit, train,
assimilate, motivate and retain qualified employees.&#160; Competition for qualified employees is intense, and the process
of recruiting personnel with the combination of skills and attributes required
to execute our business strategy can be difficult, time-consuming and
expensive.&#160; We are actively searching
for research and development engineers and sales and marketing personnel, who
are in short supply.&#160; Additionally, we
have a need for and have experienced difficulty in finding qualified accounting
personnel knowledgeable in U.S. and China accounting standards who are resident
in China.&#160; If we fail to attract, hire,
assimilate or retain qualified personnel, our business would be harmed.</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Competitors and others
have in the past and may in the future attempt to recruit our employees.&#160; In addition, companies in the
telecommunications industry whose employees accept positions with competitors
frequently claim that the competitors have engaged in unfair hiring
practices.&#160; We may be the subject of
these types of claims in the future as we seek to hire qualified
personnel.&#160; Some of these claims may
result in material litigation and disruption to our operations.&#160; We could incur substantial costs in
defending ourselves against these claims, regardless of their merit.</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">Any
acquisitions that we undertake could be difficult to integrate, disrupt our
business, dilute our stockholders and harm our operating results.</font></b></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">We may acquire other
businesses, products and technologies.&#160;
For example, on May 23, 2003, we purchased certain assets and
liabilities of the CommWorks division of 3Com Corporation for $100.0 million in
cash.&#160; In addition, during 2002 we
acquired Issanni, a remote access server and local access technology company
and assets and intellectual property of Shanghai Yi Yun, a provider of
synchronous digital hierarchy transmission equipment.&#160; Any anticipated benefits of an acquisition may not be
realized.&#160; We have in the past and will
continue to evaluate acquisition prospects that would complement our existing
product offerings, augment our market coverage, enhance our technological
capabilities, or that may otherwise offer growth opportunities.&#160; Acquisitions may result in dilutive
issuances of equity securities, use of our cash resources, the incurrence of
debt and the amortization of expenses related to intangible assets.&#160; In addition, acquisitions involve numerous
risks, including difficulties in the assimilation of operations, technologies,
products and personnel of the acquired company, diversion of management&#146;s
attention from other business concerns, risks of entering markets in which we
have no direct or limited prior experience, and the potential loss of key
employees of the acquired company.</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">We may
be unable to adequately protect our intellectual property which could
substantially harm our business.</font></b></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">We rely on a combination
of patents, copyrights, trademarks, trade secret laws and contractual
obligations to protect our technology.&#160;
We have applied for patents in the United States, three of which have
been issued.&#160; We have also filed patent
applications in other countries.&#160;
Additional patents may not be issued from our pending patent
applications and our issued patents may not be upheld.&#160; In addition, we have, from time to time,
chosen to abandon previously filed applications.&#160; Moreover, we have not yet obtained, and may not be able to
obtain, patents in China on our products or the technology that we use to
manufacture our products.&#160; Our
subsidiaries and joint ventures in China rely</font></p>

<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">11</font></p>


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<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">upon our trademarks,
technology and know-how to manufacture and sell our products.&#160; We cannot guarantee that these and other
intellectual property protection measures will be sufficient to prevent
misappropriation of our technology or that our competitors will not
independently develop technologies that are substantially equivalent or
superior to ours.&#160; In addition, the
legal systems of many foreign countries, including China, do not protect
intellectual property rights to the same extent as the legal system of the
United States.</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">We may
be subject to claims that we infringe the intellectual property of others,
which could substantially harm our business.</font></b></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The industry in which we
compete is moving towards aggressive assertion, licensing, and litigation of
patents and other intellectual property rights.&#160; From time to time, we have become aware of the possibility or
have been notified that we may be infringing certain patents or other
intellectual property rights of others.&#160;
Regardless of their merit, responding to such claims could be time
consuming, divert management&#146;s attention and resources and cause us to incur
significant expenses.</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">We may, in the future,
become subject to litigation to defend against claimed infringements of the
rights of others or to determine the scope and validity of the proprietary
rights of others.&#160; Future litigation may
also be necessary to enforce and protect our trade secrets and other intellectual
property rights.&#160; Any intellectual property
litigation or threatened intellectual property litigation could be costly, and
adverse determinations or settlements could result in the loss of our
proprietary rights, subject us to significant liabilities, require us to seek
licenses from or pay royalties to third parties which may not be available on
commercially reasonable terms, if at all, and/or prevent us from manufacturing
or selling our products, which could cause disruptions to our operations or the
markets in which we compete.</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">In the event that there
is a successful claim of infringement against us and we fail to develop
non-infringing technology or license the propriety rights on commercially
reasonable terms and conditions, our business, results of operations or
financial condition could be materially and adversely impacted.</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">Business
interruptions could adversely affect our business.</font></b></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Our operations are
vulnerable to interruption by fire, earthquake, power loss, telecommunications
failure and other events beyond our control.&#160;
We do not have a detailed disaster recovery plan.&#160; Our headquarters facility in the State of
California was subject to electrical blackouts as a consequence of a shortage
of available electrical power.&#160; In the
event these blackouts resume, they could disrupt the operations at our
headquarters.&#160; In addition, we do not
carry sufficient business interruption insurance to compensate us for losses
that may occur and any losses or damages incurred by us could have a material
adverse effect on our business.</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">We are
exposed to fluctuations in the values of our portfolio investments.</font></b></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">We maintain an investment
portfolio of various holdings, types, and maturities.&#160; Part of this portfolio includes equity investments in publicly
traded companies, the value of which are subject to market price
volatility.&#160; Recent events have
adversely affected the public equities market and general economic conditions
may continue to worsen.&#160; Should the fair
value of our publicly traded equity</font></p>

<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">12</font></p>


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<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">investments decline below
their cost basis in a manner deemed to be other-than-temporary, it may become
necessary for us to take an impairment charge.</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">We have also invested in
several privately held companies as well as investment funds which invest
primarily in privately held companies, many of which can still be considered in
the start-up or development stages.&#160;
These investments are inherently risky, as the market for the
technologies or products they have under development are typically in the early
stages and may never materialize.&#160; We
could lose our entire initial investment in these companies and investment
funds.</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">If we
seek to secure additional financing we may not be able to do so.&#160; If we are able to secure additional
financing our stockholders may experience dilution of their ownership interest
or we may be subject to limitations on our operations.</font></b></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">We currently anticipate
that our available cash resources, which include existing cash and cash
equivalents, short-term investments and cash from operations, will be
sufficient to meet our anticipated needs for working capital and capital
expenditure during the next 12 months.&#160;
If we are unable to generate sufficient cash flows from operations to
meet our anticipated needs for working capital and capital expenditures, we may
need to raise additional funds to develop new or enhanced products, respond to
competitive pressures, take advantage of acquisition opportunities or raise
capital for strategic purposes.&#160; If we
raise additional funds through the issuance of equity securities, our
stockholders may experience dilution of their ownership interest, and the newly
issued securities may have rights superior to those of common stock.&#160; If we raise additional funds by issuing
debt, we may be subject to limitations on our operations.</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">We have
been named as a defendant in securities litigation.</font></b></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">We, and various
underwriters for our initial public offering are defendants in a putative
shareholder class action.&#160; The complaint
alleges undisclosed improper underwriting practices concerning the allocation
of IPO shares, in violation of the federal securities laws.&#160; Similar complaints have been filed
concerning the IPOs of more than 300 companies, and the litigation has been
coordinated in federal court for the Southern District of New York as <i><font style="font-style:italic;">In re Initial Public Offering Securities Litigation</font></i>,
21 MC 92.&#160; We believe we have
meritorious defenses to the claims against us and intend to defend the
litigation vigorously.&#160; However, as
litigation is by its nature uncertain, an unfavorable resolution of the lawsuit
could have a material adverse effect on our business, results of operations, or
financial condition.&#160; A proposal to
settle the action has been made, and the Company is currently engaged in
settlement discussions.&#160; However, at
this stage there can be no assurance that any settlement will be effectuated.</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">Risks
Relating to the Structure and Regulation of<br>
China&#146;s Telecommunications Industry</font></b></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">China&#146;s
telecommunications industry is subject to extensive government regulation.</font></b></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">China&#146;s
telecommunications industry is heavily regulated by the Ministry of Information
Industry.&#160; The Ministry of Information
Industry has broad discretion and authority to regulate all aspects of the
telecommunications and information technology industry in China, including
managing spectrum bandwidths, setting network equipment specifications and
standards and drafting </font></p>

<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

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<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">laws and regulations
related to the electronics and telecommunications industries.&#160; Additionally, the Ministry of Information
Industry can unilaterally, or in concert with other relevant authorities,
decide what types of equipment may be connected to the national
telecommunications networks, the forms and types of services that may be offered
to the public, the rates that are charged to subscribers for those services and
the content of material available in China over the Internet.&#160; If the Ministry of Information Industry sets
standards with which we are unable to comply or which render our products
noncompetitive, our ability to sell products in China may be limited, resulting
in substantial harm to our operations.</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">At the end of May 2000,
we became aware of an internal notice, circulated within the Ministry of
Information Industry, announcing a review of PHS-based telecommunications
equipment for future installation into China&#146;s telecommunications
infrastructure.&#160; The Ministry of
Information Industry requested service providers to temporarily halt new
deployments of PHS-based telecommunications equipment, including our PAS
systems and handsets, pending conclusion of a review by the Ministry of
Information Industry.&#160; Subsequently, at
the end of June 2000, the Ministry of Information Industry issued a notice
stating that it had concluded its review of PHS-based equipment and that the
continued deployment of PHS-based systems, such as our PAS systems and
handsets, in China&#146;s county-level cities, towns and villages would be
permitted.&#160; In addition, the notice
stated that deployments within large and medium-sized cities would only be
allowed in very limited areas of dense population, such as campuses, commercial
buildings and special development zones.&#160;
The notice confirmed, however, that new citywide deployments of our PAS
system in large and medium cities would not be permitted.&#160; Failure of the Ministry of Information
Industry to permit the sale or deployment of our PAS systems and handsets, or
the sale or deployment of our other products, or the imposition of additional
limitations on their sale in the future could have a material adverse effect on
our business and financial condition.&#160;
The Ministry of Information Industry may conduct further reviews or
evaluations of PHS-based telecommunications equipment or may change its
position regarding PHS-based systems in the future.</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">China&#146;s
telecommunications regulatory framework is in the process of being developed,
which has led to uncertainties regarding how to conduct our business in China.</font></b></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">China does not yet have a
national telecommunications law.&#160;
However, to provide a uniform regulatory framework for the
telecommunication industry, the Chinese government is currently preparing a
draft of such a law (the &#147;Telecommunication Law&#148;).&#160; If and when the Telecommunication Law is adopted by the National People&#146;s
Congress or its standing committee, it is expected to provide a new regulatory
framework for telecommunications regulation in China.&#160; We do not yet know the final nature or scope of the regulation
that would be created if the Telecommunications Law is passed.&#160; Accordingly, we cannot predict whether it
will have a positive or negative effect on us or on some or all aspects of our
business.</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">China&#146;s
telecommunications regulatory framework is in the process of being
developed.&#160; In September 2000, China&#146;s
State Council issued the Telecommunications Regulations of the People&#146;s
Republic of China, known as the Telecom Regulations.&#160; The Telecom Regulations cover telecommunications services and
market regulations, pricing, interconnection and connection, as well as
telecommunications construction and security issues.&#160; In May 2001, China&#146;s Ministry of Information Industry issued the
Administrative Measures of Network Access Licenses to implement</font></p>

<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

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<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">the Telecom
Regulations.&#160; Regulations in this area
often require subjective interpretation and, given the relative infancy of the
Telecom Regulations and the implementing regulations, we do not know how the
regulations will be interpreted or enforced.&#160;
As a result, our attempts to comply with these regulations may be deemed
insufficient by the appropriate regulatory agencies, which could subject us to
penalties that adversely affect our business.</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">Our
business may suffer as a result of the recent restructuring of China Telecom.</font></b></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">In February 1999, China&#146;s
State Council approved a restructuring plan for the China Telecom system, under
which the telecommunications operations of the China Telecom system were
separated along four business lines: fixed line, mobile, paging and satellite
communications services.&#160; Following the
announcement, we observed a reduction in orders from our main customers in
China, the local telecommunications companies (the &#147;Telecommunications
Companies&#148;), which we attributed to the uncertainties surrounding the
restructuring and the ultimate impact the restructuring would have on the
Telecommunications Companies.</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Effective in May 2002,
China Telecom was split into two entities by region, northern and
southern.&#160; The 10 northern provinces,
municipalities and autonomous regions of China Telecom were merged with China
Netcom Co.&nbsp;Ltd. and China Jitong Network Communications Co.&nbsp;Ltd. to
form a new company known as China Netcom (&#147;China Netcom&#148;).&#160; The remaining 21 provinces, municipalities
and autonomous regions now constitute the southern entity, and have kept the
name of China Telecom (the &#147;New China Telecom&#148;).&#160; China Netcom inherited 30% of the old China Telecom&#146;s national
backbone network, with the rest going to the New China Telecom.&#160; As this change is very recent, we cannot be
certain what impact the restructuring of China Telecom will have on our
business operations.&#160; However, we may
experience another decline in orders and related revenues similar to that which
we experienced following the 1999 restructuring, resulting from uncertainty
among our Telecommunications Company customers associated with the
restructuring.&#160; Additionally, China
Telecom completed its initial public offering in November 2002, and is now publicly
listed on the New York Stock Exchange.&#160;
Moreover, following any restructuring, China Netcom, the New China
Telecom or any other entity that may replace it as a result of any subsequent
restructuring may restrict or prohibit the sales of our products, which could
cause substantial harm to our business.</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">We do
not have some of the licenses we are required to have to sell our network
access products in China.</font></b></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Under China&#146;s current
regulatory structure, the communications products that we offer in China must
meet government and industry standards, and a network access license for the
equipment must be obtained.&#160; Without the
license, the equipment is not allowed to be connected to public
telecommunications networks or sold in China.&#160;
Moreover, we must ensure that the quality of the telecommunications
equipment for which we have obtained a network access license is stable and
reliable, and may not lower the quality or performance of other installed
licensed products.&#160; China&#146;s State
Council&#146;s product quality supervision department, in concert with China&#146;s
Ministry of Information Industry, performs spot checks to track and supervise
the quality of licensed telecommunications equipment and publishes the results
of such spot checks.</font></p>

<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

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<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The regulations implementing
these requirements are not very detailed, have not been applied by a court and
may be interpreted and enforced by regulatory authorities in a number of
different ways.&#160; We have obtained the
required network access licenses for our AN-2000B platform.&#160; We have also obtained a probationary network
access license for our mSwitch product, and after the trial period, an official
network access license will be issued if the trial demonstrates that mSwitch
satisfies all the applicable government and industry standards.&#160; We have applied for, but have not yet
received, a network access license for our PAS systems and handsets.&#160; Based upon conversations with China&#146;s
Ministry of Information Industry, we understand that our PAS systems and
handsets are considered to still be in the trial period and that sales of our
PAS systems and handsets may continue to be made by us during this trial
period, but a license will ultimately be required.&#160; Network access licenses will also be required for most additional
products that we are selling or may sell in China, including our mSwitch
platform.&#160; If we fail to obtain the
required licenses, we could be prohibited from making further sales of the
unlicensed products, including our PAS systems and handsets, in China, which would
substantially harm our business, financial condition and results of
operations.&#160; Our counsel in China has
advised us that China&#146;s governmental authorities may interpret or apply the
regulations with respect to which licenses are required and the ability to sell
a product while a product is in the trial period in a manner that is
inconsistent with the information received by our counsel in China, either of
which could have a material adverse effect on our business, financial condition
and results of operations.</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">We are
required to register the software incorporated in our products in accordance
with relevant Chinese regulations.</font></b></p>

<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">In October 2000, the
Ministry of Information Industry issued regulations which prohibit the
production and sale of software products, or products incorporating software,
in China unless the software is registered with the government.&#160; We have accomplished the necessary
registration with regards to the software incorporated in our AN-2000, PAS and
mSwitch products.&#160; However, additional
registration is required for software incorporated in additional products that
we are selling or may sell in China.&#160;
Based upon verbal advice received from the Ministry of Information
Industry, we believe that we will be able to sell products incorporating our
software while any of our applications for registration may be pending.&#160; However, the Chinese government may
interpret or apply the regulations in such a way as to prohibit sales of
products incorporating our unregistered software prior to registration.&#160; If the government prohibits sales pending
registration, or if we fail in our efforts to register any software required to
be registered, we could be prohibited from making further sales of products
incorporating our unregistered software in China, which could substantially
harm our business and financial condition.</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">Most of
our customers in China have historically been part of the China Telecom system
and under China Telecom&#146;s ultimate control; following the recent restructuring
of China Telecom, most of our customers in China are now part of the New China
Telecom or China Netcom, and are subject to their ultimate control.</font></b></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Our main customers in
China are the local Telecommunications Companies (formerly known as
Telecommunications Bureaus) which historically operated under China Telecom,
China&#146;s state-owned fixed line operator, and were subject to its ultimate
control.&#160; Following the recent
restructuring of China Telecom, the Telecommunications Companies now operate
under the ultimate </font></p>

<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">16</font></p>


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</font></div>

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<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">control of either the New
China Telecom or China Netcom.&#160; China
Telecom completed its initial public offering in November 2002, and is listed
on the New York Stock Exchange.&#160; Policy
statements may be issued and decisions may be made by New China Telecom and
China Netcom, which govern the equipment purchasing decisions of most of our
customers in China.&#160; For example, in
late 1999, China Telecom prohibited all Telecommunications Companies from
purchasing PHS systems, such as our PAS systems, for implementation in large
cities, even before these sales were prohibited by China&#146;s Ministry of
Information Industry.&#160; As most of our
sales are generated from our operations in China, any decisions by the New
China Telecom or China Netcom restricting or prohibiting the sales or
deployment of our products could cause significant harm to our business.</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">Our
customer base in China could effectively become increasingly concentrated if
more purchasing decisions are coordinated or made by provincial or greater
regional telecommunications service entities rather than by local
telecommunications service providers.</font></b></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">We have historically
considered local telecommunications service providers serving municipalities
and counties to be our primary customers in China.&#160; Recently, however, the provincial-level telecommunications
service entity in the Zhejiang province of China has begun to consolidate
telecommunications purchasing decisions for that province.&#160; As a result of this trend in the Zhejiang
province, we have grouped all customers in Zhejiang province together and have
treated these as one customer for the three months ended March&nbsp;31, 2003
and the comparative periods presented.&#160;
For the three months ended March&nbsp;31, 2003, sales to Zhejiang province
did not account for 10% or more of our consolidated net sales.&#160; For the three months ended March&nbsp;31,
2002, sales to Zhejiang province accounted for 24% of our net sales.&#160; At March&nbsp;31, 2003, we have
approximately nineteen customers in Zhejiang province.</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Whether this represents
the beginning of a greater trend throughout China towards increased
consolidation of negotiations and purchasing decisions into the control of
provincial-level telecommunications service entities is unclear.&#160; If an increasing number of purchasing
decisions and negotiations are controlled on a larger regional level in China
by provincial-level telecommunications service entities, this would effectively
result in a concentration of our customer base.&#160; Our financial results may increasingly depend in significant part
upon the success of a few major customers and our ability to meet their future
capital equipment needs.&#160; Although the
composition of the group comprising our largest customers may vary from period
to period, the loss of a significant customer or any reduction in orders by any
significant customer, including reductions due to market, economic or
competitive conditions in the telecommunications industry, may have a material
adverse effect on our business, financial condition and results of
operations.&#160; In addition to the business
risks associated with dependence on major customers, significant customer
concentration may also result in significant concentrations of accounts
receivable.&#160; Significant and
concentrated receivables would expose us to additional risks, including the
risk of default by one or more customers representing a significant portion of
our total receivables.&#160; If we are
required to take additional accounts receivable reserves, our business,
financial condition and results of operations would be materially adversely
affected.</font></p>

<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

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<p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">Our
ability to sell our PAS wireless systems and handsets could be significantly
impaired if the New China Telecom or China Netcom are granted, or if they
otherwise acquire, mobile licenses allowing the New China Telecom or China
Netcom to deliver cellular services.</font></b></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The New China Telecom and
China Netcom hold and operate the fixed line telephone and data communications
assets in China, and currently do not have the licenses necessary to offer
cellular services.&#160; To offer wireless
services to end users, the Telecommunications Companies must offer services
that can be delivered over wireline networks, such as those delivered over our
PAS wireless systems and handsets.&#160;
China&#146;s media sources have widely reported that after the restructuring
of China Telecom, China&#146;s Ministry of Information Industry may grant mobile
licenses to New China Telecom or China Netcom, or to both.&#160; If China&#146;s Ministry of Information Industry
does grant a mobile license to New China Telecom or China Netcom, or to both,
or if such entities otherwise acquire mobile licenses, local Telecommunications
Companies will be free to offer cellular services such as GSM or CDMA to their
customers, and they may therefore elect not to deploy our PAS systems and
handsets.&#160; If this were to occur, we
could lose current and potential customers for our PAS systems and handsets,
and our financial condition and results of operations could be materially
adversely affected.</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">Changes
in telecommunications rates or pricing policies may result in decreased demand
for our products.</font></b></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">In November 2000, China&#146;s
Ministry of Information Industry announced significant changes in rates for
telecommunications services in China.&#160;
While long distance, international, leased line and Internet connection
fees were cut by up to 70%, the rates for local telephone services, which
include certain types of wireless access services such as those offered over our
PAS systems and handsets, were increased, from approximately $0.01 per minute
to approximately $0.02 per minute.&#160; The
increase in rates may result in a reduced demand by end users for wireless
services delivered over our PAS system and a corresponding decline in demand
for our products.&#160; In addition, mobile
operators are offering price incentive plans that could impact demand for our
products.&#160; Additionally, China&#146;s
Ministry of Information Industry may implement future rate changes for wireline
or wireless services in China or change telecommunications pricing policies,
including allowing carriers to set prices based on market conditions, any of
which may lead to reduced demand for our systems and products and result in a
material adverse effect on our business or results of operations.</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">Promotional
or incentive programs offered by mobile operators such as China Mobile and
China Unicom may adversely impact the competitiveness and pricing of our PAS
Systems and related products.</font></b></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The official tariffs and
per-minute usage rates charged to mobile users in China are generally set by
the Ministry of Information Industry and the National Development and Reform
Commission, and are usually adhered to by mobile operators. However, from time
to time, certain mobile operators such as China Mobile and China Unicom have
offered special promotional pricing or incentives to customers, such as free
incoming calls or free mobile-to-mobile calls.&#160;
The continued use of such incentive programs by mobile operators may
adversely impact the competitiveness and pricing of our PAS Systems and related
products and their rollout by New China Telecom and China Netcom.&#160; Such incentive programs may continue or be
expanded in the future.&#160; We cannot be
certain as to what impact such incentive programs may have on our financial
condition.&#160; However, it is possible that
the continuation or expansion of such programs may have a material adverse
effect on our business or results of operations.</font></p>

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<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">Risks
Relating to Conducting Operations in China</font></b></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">Sales in
China have accounted for most of our sales, and therefore, our business,
financial condition and results of operations are to a significant degree
subject to economic, political and social events in China.</font></b></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Approximately
$268.9&nbsp;million, or 81.4% and $167.2 million or 91.0%, of our net sales in
the three months ending March&nbsp;31, 2003 and 2002, respectively occurred in
China.&#160; Additionally, a substantial
portion of our fixed assets are located in China.&#160; Of our total fixed assets, approximately 96.8% and 87.8%, as of
March&nbsp;31, 2003 and December&nbsp;31, 2002, respectively, were in
China.&#160; We expect to make further investments
in China in the future.&#160; Therefore, our
business, financial condition and results of operations are to a significant
degree subject to economic, political, social and other events in China.</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">Devaluation
in the value of the Renminbi and fluctuations in exchange rates could adversely
affect our financial results.</font></b></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Exchange rate fluctuations
could have a substantial negative impact on our financial condition and results
of operations.&#160; We purchase
substantially all of our materials in the United States and Japan and a
significant portion of our cost of goods sold is incurred in U.S. dollars and
Japanese yen.&#160; A significant portion of
our operating expenses is incurred in U.S. dollars.&#160; At the same time, most of our sales are denominated in Renminbi.&#160; The value of the Renminbi is fixed by
China&#146;s national government and is subject to changes in China&#146;s governmental
policies and to international economic and political developments.&#160; China may choose to devalue the Renminbi
against the U.S. dollar.&#160; Additionally,
China&#146;s government has considered from time to time whether to partially or
fully abandon the official exchange rate for Renminbi to the U.S. dollar.&#160; The abandonment of this official exchange
rate policy may lead to sharp depreciation of the Renminbi against the U.S.
dollar and other foreign currencies and to significantly more volatility in the
Renminbi exchange rate in the future, both of which would adversely affect our
financial results and make our future results more subject to fluctuation.</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">In the past, financial
markets in many Asian countries have experienced severe volatility and, as a
result, some Asian currencies have experienced significant devaluation from
time to time.&#160; The devaluation of some
Asian currencies may have the effect of rendering exports from China more
expensive and less competitive and therefore place pressure on China&#146;s
government to devalue the Renminbi.&#160; Any
devaluation of the Renminbi could result in an increase in volatility of Asian
currency and capital markets.&#160; Future
volatility of Asian financial markets could have an adverse impact on our
ability to expand our product sales into Asian markets outside of China.&#160; Moreover, due to the limitations on the
convertibility of Renminbi, we are limited in our ability to engage in currency
hedging activities in China and do not currently engage in currency hedging
activities with respect to international sales outside of China.</font></p>

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<p align="center" style="font-size:10.0pt;margin:0in 0in .0001pt;text-align:center;">&nbsp;</p>

<p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">Currency
restrictions in China may limit the ability of our subsidiaries and joint
ventures in China to obtain and remit foreign currency necessary for the
purchase of imported components and may limit our ability to obtain and remit
foreign currency in exchange for Renminbi earnings.</font></b></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">China&#146;s government
imposes controls on the convertibility of Renminbi into foreign currencies and,
in certain cases, the remittance of currency out of China.&#160; Under the current foreign exchange control
system, sufficient foreign currency may not be available to satisfy our
currency needs.&#160; Shortages in the
availability of foreign currency may restrict the ability of our Chinese
subsidiaries to obtain and remit sufficient foreign currency to pay dividends
to us, or otherwise satisfy their foreign currency denominated obligations,
such as payments to us for components which we export to them and for technology
licensing fees.&#160; We may also experience
difficulties in completing the administrative procedures necessary to obtain
and remit needed foreign currency.&#160; Our
business could be substantially harmed if we are unable to convert and remit
our sales received in Renminbi into U.S. dollars.&#160; Under existing foreign exchange laws, Renminbi held by our China
subsidiaries can be converted into foreign currencies and remitted out of China
to pay current account items such as payments to suppliers for imports, labor
services, payment of interest on foreign exchange loans and distributions of
dividends so long as the subsidiaries have adequate amounts of Renminbi to
purchase the foreign currency.&#160; Expenses
of a capital nature such as the repayment of bank loans denominated in foreign
currencies, however, require approval from appropriate governmental authorities
before Renminbi can be used to purchase foreign currency and then remitted out
of China.&#160; This system could be changed
at any time by executive decision of China&#146;s State Council to impose limits on
current account convertibility of the Renminbi or other similar
restrictions.&#160; Moreover, even though the
Renminbi is intended to be freely convertible under the current account, the
State Administration of Foreign Exchange, which is responsible for
administering China&#146;s foreign currency market, has a significant degree of
administrative discretion in implementing the laws.&#160; From time to time, the State Administration of Foreign Exchange
has used this discretion in ways which effectively limit the convertibility of
current account payments and restrict remittances out of China.&#160; Furthermore, in many circumstances the State
Administration of Foreign Exchange must approve foreign currency conversions
and remittances.&#160; Under the current
foreign exchange control system, sufficient foreign currency may not be
available at a given exchange rate to satisfy our currency demands.</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">China
subjects foreign investors in the telecommunications industry to ownership and
geographic limitations.</font></b></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">China&#146;s government and
its agencies, including China&#146;s Ministry of Information Industry and China&#146;s
State Council, regulate foreign investment in the telecommunications industry
through the promulgation of various laws and regulations and the issuance of
various administrative orders and decisions.&#160;
Currently, foreign investors may engage in such activities only in
accordance with certain ownership and geographic limitations.&#160; China may promulgate new laws or
regulations, or issue administrative or judicial decisions or interpretations,
which would further restrict or bar foreigners from engaging in
telecommunications-related activities.&#160;
The promulgation of laws or regulations or the issuance of
administrative orders or judicial decisions or interpretations restricting or
prohibiting telecommunications activities by foreigners could have a
substantial impact on our ongoing operations.</font></p>

<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

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<p align="center" style="font-size:10.0pt;margin:0in 0in .0001pt;text-align:center;">&nbsp;</p>

<p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">Governmental
policies in China could impact our business.</font></b></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Since 1978, China&#146;s
government has been and is expected to continue reforming its economic and
political systems.&#160; These reforms have
resulted in and are expected to continue to result in significant economic and
social development in China.&#160; Many of
the reforms are unprecedented or experimental and may be subject to change or
readjustment due to a number of political, economic and social factors.&#160; We believe that the basic principles
underlying the political and economic reforms will continue to be implemented
and provide the framework for China&#146;s political and economic system.&#160; New reforms or the readjustment of
previously implemented reforms could have a significant negative effect on our
operations.&#160; Changes in China&#146;s
political, economic and social conditions and governmental policies which could
have a substantial impact on our business include:</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="3" face="Times New Roman" style="font-size:12.0pt;">&#149;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>new
laws and regulations or the interpretation of those laws and regulations;</p>

<p style="margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="3" face="Times New Roman" style="font-size:12.0pt;">&#149;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>the
introduction of measures to control inflation or stimulate growth;</p>

<p style="margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="3" face="Times New Roman" style="font-size:12.0pt;">&#149;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>changes
in the rate or method of taxation;</p>

<p style="margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="3" face="Times New Roman" style="font-size:12.0pt;">&#149;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>the
imposition of additional restrictions on currency conversion and remittances
abroad; and</p>

<p style="margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="3" face="Times New Roman" style="font-size:12.0pt;">&#149;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>any
actions which limit our ability to develop, manufacture, import or sell our
products in China, or to finance and operate our business in China.</p>

<p style="margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">Economic
policies in China could impact our business.</font></b></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The economy of China
differs from the economies of most countries belonging to the Organization for
Economic Cooperation and Development in various respects such as structure,
government involvement, level of development, growth rate, capital
reinvestment, allocation of resources, self-sufficiency, rate of inflation and
balance of payments position.&#160; In the
past, the economy of China has been primarily a planned economy subject to one-
and five-year state plans adopted by central government authorities and largely
implemented by provincial and local authorities, which set production and
development targets.</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Since 1978, increasing
emphasis had been placed on decentralization and the utilization of market
forces in the development of China&#146;s economy.&#160;
Economic reform measures adopted by China&#146;s government may be
inconsistent or ineffectual, and we may not in all cases be able to capitalize on
any reforms.&#160; Further, these measures may
be adjusted or modified in ways which could result in economic liberalization
measures that are inconsistent from time to time or from industry to industry
or across different regions of the country.&#160;
China&#146;s economy has experienced significant growth in the past
decade.&#160; This growth, however, has been
accompanied by imbalances in China&#146;s economy and has resulted in significant
fluctuations in general price levels, including periods of inflation.&#160; China&#146;s government has implemented policies
from time to time to increase or restrain the rate of economic growth, control
periods of inflation or otherwise regulate economic expansion.&#160; While we may be able to benefit from the
effects of some of these policies, these policies and other measures taken by
China&#146;s government to regulate the economy could also have a significant
negative impact on economic conditions in China with a resulting negative
impact on our business.</font></p>

<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">21</font></p>


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</font></div>

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<p align="center" style="font-size:10.0pt;margin:0in 0in .0001pt;text-align:center;">&nbsp;</p>

<p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">China&#146;s
entry into the World Trade Organization creates uncertainty as to the future
economic and business environments in China.</font></b></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">China&#146;s entry into the
WTO was approved in September 2001.&#160;
Entry into the WTO will require China to further reduce tariffs and
eliminate non-tariff barriers, which include quotas, licenses and other
restrictions by 2005 at the latest.&#160;
While China&#146;s entry into the WTO and the related relaxation of trade
restrictions may lead to increased foreign investment, it may also lead to
increased competition in China&#146;s markets from international companies.&#160; China&#146;s entry into the WTO could have a
negative impact on China&#146;s economy with a resulting negative impact on our
business.</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">If tax
benefits available to our subsidiaries located in China are reduced or
repealed, our business could suffer.</font></b></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Our subsidiaries and
joint ventures located in China enjoy tax benefits in China which are generally
available to foreign investment enterprises, including full exemption from
national enterprise income tax for two years starting from the first
profit-making year and/or a 50% reduction in national income tax rate for the
following three years.&#160; In addition,
local enterprise income tax is often waived or reduced during this tax
holiday/incentive period.&#160; Under current
regulations in China, foreign investment enterprises that have been accredited
as technologically advanced enterprises are entitled to additional tax
incentives.&#160; These tax incentives vary
in different locales and could include preferential national enterprise income
tax treatment at 50% of the usual rates for different periods of time.&#160; All of our active subsidiaries in China were
accredited as technologically advanced enterprises.&#160; The tax holidays applicable to our wholly-owned subsidiaries,
UTStarcom China and HUTS, which together accounted for approximately 63.2% of
our revenues in the first quarter of 2003, expired at the end of 2002 and 2001,
respectively.&#160; The tax holidays were not
extended for the entities, and for 2003, the national enterprise tax rates were
increased from 7.5% to 15% and from 10% to 15%, respectively, which could
negatively impact our financial condition and results of operations.&#160; During the fourth quarter of 2002, we formed
a new entity, Hangzhou UTStarcom Telecom Co., Ltd., to manufacture and sell
handsets.&#160; This entity will benefit from
a two-year national enterprise income tax exemption from the first
profit-making year, and a 50% national enterprise income tax reduction in the
following three years.&#160; The Chinese
government is considering the imposition of &#147;unified&#148; corporate income tax that
would phase out, over time, the preferential tax treatment to which foreign
investment enterprises, such as UTStarcom, are currently entitled.&#160; While it is not certain whether the
government will implement such a unified tax structure or whether, if
implemented, UTStarcom will be grandfathered into the new tax structure, if the
new tax structure is implemented, it will adversely affect our financial
condition.</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">China&#146;s
legal system embodies uncertainties that could negatively impact our business.</font></b></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">China has a civil law
system.&#160; Decided court cases do not have
binding legal effect on future decisions.&#160;
Since 1979, many new laws and regulations covering general economic matters
have been promulgated in China.&#160; Despite
this activity to develop the legal system, China&#146;s system of laws is not yet
complete.&#160; Even where adequate law
exists in China, enforcement of existing laws or contracts based on existing
law may be uncertain and sporadic and it may be difficult to obtain swift and
equitable enforcement, or to obtain enforcement of a judgment by a court of
another jurisdiction.</font></p>

<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">22</font></p>


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</font></div>

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<p align="center" style="font-size:10.0pt;margin:0in 0in .0001pt;text-align:center;">&nbsp;</p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The relative inexperience
of China&#146;s judiciary in many cases creates additional uncertainty as to the
outcome of any litigation.&#160; Further,
interpretation of statutes and regulations may be subject to government
policies reflecting domestic political changes.&#160; Moreover, government policies and internal rules promulgated by
governmental agencies may not be published in time, or at all.&#160; As a result, we may operate our business in
violation of new rules and policies without having any knowledge of their
existence.</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">China has adopted a broad
range of related laws, administrative rules and regulations that govern the
conduct and operations of foreign investment enterprises and restrict the
ability of foreign companies to conduct business in China.&#160; These laws, rules and regulations provide
some incentives to encourage the flow of investment into China, but also
subject foreign companies, and foreign investment enterprises, including our
subsidiaries in China, to a set of restrictions that may not always apply to
domestic companies in China.&#160; As a
result of its admission into the WTO, China is increasingly according foreign
companies and foreign investment enterprises established in China the same
rights and privileges as Chinese domestic companies.&#160; These special laws, administrative rules and regulations governing
foreign companies and foreign investment enterprises may still place us and our
subsidiaries at a disadvantage in relation to Chinese domestic companies and
may adversely affect our competitive position.&#160;
Moreover, as China&#146;s legal system develops, the promulgation of new
laws, changes to existing laws and the pre-emption of local regulations by
national laws may adversely affect foreign investors and companies.&#160; Many of our activities and products in China
are subject to administrative review and approval by various national and local
agencies of China&#146;s government.&#160; Because
of the changes occurring in China&#146;s legal and regulatory structure, we may not
be able to secure the requisite governmental approval for our activities and
products.&#160; Failure to obtain the
requisite government approval for any of our activities or products could
substantially harm our business.</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">New
manufacturing facility.</font></b></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">We have purchased the
rights to use 49 acres of land located in Zhejiang Science and Technology
Industry Garden of Hangzhou Hi-tech Industry Development Zone.&#160; As of March&nbsp;31, 2003, we have completed
the foundation and groundwork and have commenced construction of the
building.&#160; We expect that construction
of the new facility will be completed in 2003 or 2004 at a projected cost of
approximately $95.6&nbsp;million.&#160;
Capital expenditures for the facility were $38.6&nbsp;million in 2002
and $5.2&nbsp;million in the three months ended March&nbsp;31, 2003.&#160; If we are unable to complete the
construction on a timely basis our business may be harmed.</font></p>

<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">23</font></p>


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<p align="center" style="font-size:10.0pt;margin:0in 0in .0001pt;text-align:center;">&nbsp;</p>

<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">RISKS
RELATING TO OUR STOCK PERFORMANCE AND<br>
CONVERTIBLE DEBT SECURITIES</font></b></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">Our
stock price is highly volatile.</font></b></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The trading price of our
common stock has fluctuated significantly since our initial public offering in
March 2000.&#160; Our stock price could be
subject to wide fluctuations in the future in response to many events or
factors, including those discussed in the preceding risk factors relating to
our operations, as well as:</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="3" face="Times New Roman" style="font-size:12.0pt;">&#149;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>actual
or anticipated fluctuations in operating results, actual or anticipated gross
profit as a percentage of net sales, levels of inventory, our actual or
anticipated rate of growth and our actual or anticipated earnings per share;</p>

<p style="margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="3" face="Times New Roman" style="font-size:12.0pt;">&#149;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>changes
in expectations as to future financial performance or changes in financial
estimates or buy/sell recommendations of securities analysts;</p>

<p style="margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="3" face="Times New Roman" style="font-size:12.0pt;">&#149;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>changes
in governmental regulations or policies in China, such as the temporary
suspension of sales of our PAS systems that occurred in May and June of 2000,
which caused our stock price to drop;</p>

<p style="margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="3" face="Times New Roman" style="font-size:12.0pt;">&#149;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>our,
or a competitor&#146;s, announcement of new products, services or technological
innovations;</p>

<p style="margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="3" face="Times New Roman" style="font-size:12.0pt;">&#149;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>the
operating and stock price performance of other comparable companies; and</p>

<p style="margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="3" face="Times New Roman" style="font-size:12.0pt;">&#149;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>news
and commentary emanating from the media, securities analysts, and government
bodies in China relating to UTStarcom and to the industry in general.</p>

<p style="margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">General market conditions
and domestic or international macroeconomic factors unrelated to our
performance may also affect our stock price.&#160;
For these reasons, investors should not rely on recent trends to predict
future stock prices or financial results.&#160;
In addition, following periods of volatility in a company&#146;s securities,
securities class action litigation against a company is sometimes
instituted.&#160; This type of litigation
could result in substantial costs and the diversion of management time and
resources.</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">Softbank
Corp. and its related entities, including Softbank America Inc., has
significant influence over our management and affairs, which it could exercise
against your best interests.</font></b></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">SOFTBANK CORP. and its
related entities, including SOFTBANK America Inc., beneficially owned
approximately 14.4% of our outstanding stock as of June 30, 2003.&#160; As a result, SOFTBANK CORP. and its related
entities, including SOFTBANK America Inc., have the ability to exercise
influence over all matters submitted to our stockholders for approval and exert
significant influence over our management and affairs.&#160; This concentration of ownership may delay or
prevent a change of control or discourage a potential acquirer from making a
tender offer or otherwise attempting to obtain control of our company, which
could decrease the market price of our common stock.&#160; Matters that could require stockholder approval include:</font></p>

<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">24</font></p>


<div style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">

<hr size="2" width="100%" noshade color="gray" align="left">

</font></div>

<font size="2" face="Times New Roman" style="font-size:10.0pt;">
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<p align="center" style="font-size:10.0pt;margin:0in 0in .0001pt;text-align:center;">&nbsp;</p>

<p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="3" face="Times New Roman" style="font-size:12.0pt;">&#149;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>election
and removal of directors;</p>

<p style="margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="3" face="Times New Roman" style="font-size:12.0pt;">&#149;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>merger
or consolidation of our company; and</p>

<p style="margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="3" face="Times New Roman" style="font-size:12.0pt;">&#149;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>sale
of all or substantially all of our assets.</p>

<p style="margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The interests of SOFTBANK
America&nbsp;Inc. may not always coincide with our interests.&#160; SOFTBANK America&nbsp;Inc., acting through
its designees on our board of directors and through its ownership of voting
securities, will have the ability to exercise significant influence over our
actions irrespective of the desires of our other stockholders or directors.</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">SOFTBANK has entered into
an agreement with us not to offer, sell or otherwise dispose of our common
stock prior to March 7, 2004, subject to a number of exceptions.</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">Delaware
law and our charter documents contain provisions that could discourage or
prevent a potential takeover, even if the transaction would benefit our
stockholders.</font></b></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Other companies may seek
to acquire or merge with us.&#160; An
acquisition or merger of our company could result in benefits to our
stockholders, including an increase in the value of our common stock.&#160; Some provisions of our Certificate of
Incorporation and Bylaws, as well as provisions of Delaware law, may
discourage, delay or prevent a merger or acquisition that a stockholder may
consider favorable.&#160; These provisions include:</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="3" face="Times New Roman" style="font-size:12.0pt;">&#149;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>authorizing
the board of directors to issue additional preferred stock;</p>

<p style="margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="3" face="Times New Roman" style="font-size:12.0pt;">&#149;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>prohibiting
cumulative voting in the election of directors;</p>

<p style="margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="3" face="Times New Roman" style="font-size:12.0pt;">&#149;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>limiting
the persons who may call special meetings of stockholders;</p>

<p style="margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="3" face="Times New Roman" style="font-size:12.0pt;">&#149;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>prohibiting
stockholder action by written consent;</p>

<p style="margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="3" face="Times New Roman" style="font-size:12.0pt;">&#149;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>creating
a classified board of directors pursuant to which our directors are elected for
staggered three year terms; and</p>

<p style="margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="3" face="Times New Roman" style="font-size:12.0pt;">&#149;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>establishing
advance notice requirements for nominations for election to the board of
directors and for proposing matters that can be acted on by stockholders at
stockholder meetings.</p>

<p style="margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">The
convertible debt securities rank below our senior debt and liabilities of our
subsidiaries, and we may be unable to repay our obligations under the notes.</font></b></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The convertible debt securities
(the &#147;notes&#148;) are unsecured and subordinated in right of payment in full to all
of our existing and future senior debt.&#160;
Because the notes are subordinated to our senior debt, in the event of
(i)&nbsp;our liquidation or insolvency, (ii)&nbsp;a payment default on our
designated senior debt, (iii)&nbsp;a covenant default on our designated senior
debt, or (iv)&nbsp;acceleration of the notes due to an event of default, we
will make payments on the notes only after our senior debt has been paid in
full.&#160; After paying our senior debt in
full, we may not have sufficient assets remaining to pay any or all amounts due
on the notes.</font></p>

<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">25</font></p>


<div style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">

<hr size="2" width="100%" noshade color="gray" align="left">

</font></div>

<font size="2" face="Times New Roman" style="font-size:10.0pt;">
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<p align="center" style="font-size:10.0pt;margin:0in 0in .0001pt;text-align:center;">&nbsp;</p>

<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The notes are obligations
exclusively of UTStarcom.&#160; Since
substantially all of UTStarcom&#146;s operations are conducted through subsidiaries,
our cash flow and our ability to service our debt, including the notes, is
dependent upon the earnings of our subsidiaries and the distribution of those
earnings to us.&#160; Our subsidiaries are
separate legal entities and have no obligation to make any payments on the
notes or make any funds available for payment on the notes, whether by
dividends, loans or other payments.&#160; The
payment of dividends and the making of loans and advances to us by our
subsidiaries may be subject to statutory or contractual restrictions and are
dependent upon the earnings of our subsidiaries.&#160; Our subsidiaries do not guarantee the payment of the notes.&#160; Our right to receive assets of any of our
subsidiaries upon their liquidation or reorganization, and your right to
participate in these assets, are effectively subordinated to the claims of that
subsidiary&#146;s creditors.&#160; Consequently,
the notes will be effectively subordinated to all liabilities, including trade
payables, of any of our subsidiaries and any subsidiaries that we may in the
future acquire or establish, except to the extent that we are recognized as a
creditor of such subsidiary, in which case our claims would still be
subordinate to any security interests in the assets of such subsidiary and any
debt of such subsidiary senior to that held by us.</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">As of March&nbsp;31,
2003, (i)&nbsp;we had no senior debt outstanding, and (ii)&nbsp;our
subsidiaries had no outstanding indebtedness and approximately $367.7 million
of other liabilities, including trade payables, but excluding intercompany
liabilities, as to which the notes would have been effectively
subordinated.&#160; Neither we nor our
subsidiaries are prohibited or limited from incurring debt or acting as guarantors
of debt for others in whom we or our subsidiaries may have an interest under
the indenture.&#160; Our ability to pay our
obligations on the notes could be adversely affected by our or our
subsidiaries&#146; incurrence of additional indebtedness or other liabilities.&#160; We and our subsidiaries may from time to
time incur additional indebtedness and other liabilities, including senior
debt.</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">We may
be limited in our ability to purchase the notes in the event of a change in
control.</font></b></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Our ability to purchase
the notes upon the occurrence of a change in control is subject to
limitations.&#160; We may not have sufficient
financial resources or the ability to arrange financing to pay the purchase
price for all the notes delivered by holders seeking to exercise their purchase
right.&#160; Although we may elect, subject
to satisfaction of certain conditions, to pay the purchase price for the notes
in common stock, our ability to purchase the notes in cash may be limited or
prohibited by the terms of any future borrowing arrangements existing at the
time of a change in control.&#160; Any
failure by us to purchase the notes upon a change in control would result in an
event of default under the indenture, whether or not the purchase is permitted
by the subordination provisions of the indenture.&#160; Any such default may, in turn, cause a default under our senior
debt.&#160; Moreover, the occurrence of a
change in control could result in an event of default under the terms of our
then existing senior debt.&#160; As a result,
any purchase of the notes may be prohibited until the senior debt is paid in
full.</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">In the event we elect to
pay the purchase price in common stock, our common stock will be valued at a
price determined prior to the applicable repurchase date, therefore, holders of
the notes bear the market risk that our common stock will decline in value
between the date the price is calculated and the purchase date.</font></p>

<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">26</font></p>


<div style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">

<hr size="2" width="100%" noshade color="gray" align="left">

</font></div>

<font size="2" face="Times New Roman" style="font-size:10.0pt;">
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<p align="center" style="font-size:10.0pt;margin:0in 0in .0001pt;text-align:center;">&nbsp;</p>

<p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">Absence
of a trading market for the notes.</font></b></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The notes are a new issue
of securities with no established trading market.&#160; At the time of the original issuance of the notes in March 2003,
the initial purchasers of the notes advised us that they intended to make a
market in the notes.&#160; However, as
initial purchasers, they are not obligated to make a market in the notes and
any market making by the initial purchasers may be discontinued at any time at
the sole discretion of the initial purchasers without notice.&#160; We cannot assure you that a market for the
notes will develop and continue upon completion of the offering or that the
market price of the notes will not decline.&#160;
Various factors, such as changes in prevailing interest rates or changes
in perceptions of our creditworthiness could cause the market price of the
notes to fluctuate significantly.&#160; The
trading price of the notes will also be significantly affected by the market
price of our common stock, which could be subject to wide fluctuations in
response to a variety of factors.&#160; The
notes will not be listed on any securities exchange or quoted on the Nasdaq
National Market and will only be traded on the over-the-counter market.</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">We have
significantly increased our leverage as a result of the sale of the notes.</font></b></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">In connection with the
sale of the notes, we incurred $402.5 million of indebtedness.&#160; As a result of this indebtedness, our
principal and interest payment obligations have increased substantially.&#160; The degree to which we are leveraged could
materially and adversely affect our ability to obtain financing for working
capital, acquisitions or other purposes and could make us more vulnerable to
industry downturns and competitive pressures.&#160;
Our ability to meet our debt service obligations will be dependent upon
our future performance, which will be subject to financial, business and other
factors affecting our operations, many of which are beyond our control.</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">Hedging
transactions and other transactions may affect the value of the notes and of
our common stock.</font></b></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">We have entered into
convertible bond hedge and call option transactions with respect to our common
stock, the exposure for which is held by Banc of America Securities LLC and
Credit Suisse First Boston LLC.&#160; The
convertible bond hedge and call option transactions are expected to reduce the
potential dilution from conversion of the notes.&#160; In connection with these hedging arrangements, Banc of America
Securities LLC and Credit Suisse First Boston LLC have taken and/or will take
positions in our common stock in secondary market transactions and/or have
entered and/or will enter into various derivative transactions after the
pricing of the notes.&#160; Such hedging
arrangements could increase the price of our common stock.&#160; Banc of America Securities LLC and Credit
Suisse First Boston LLC are likely to modify their hedge positions from time to
time prior to conversion or maturity of the notes by purchasing and selling
shares of our common stock, other securities of the Company or other
instruments they may wish to use in connection with such hedging.&#160; We cannot assure you that such activity will
not adversely affect the market price of our common stock.</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">The
notes may not be rated or may receive a lower rating than anticipated.</font></b></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">We believe it is unlikely
that the notes will be rated.&#160; However,
if one or more rating agencies rates the notes and assigns the notes a rating
lower than the rating expected by investors, or reduces their rating in the
future, the market price of the notes and our common stock would be harmed.</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">27</font></p>


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<hr size="2" width="100%" noshade color="gray" align="left">

</font></div>

<font size="2" face="Times New Roman" style="font-size:10.0pt;">
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<p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">SIGNATURE</font></b></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Pursuant to the
requirements of the Securities Exchange Act of 1934, the registrant has caused
this report to be signed on its behalf by the undersigned hereunto duly
authorized.</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<table border="0" cellspacing="0" cellpadding="0" width="100%" style="border-collapse:collapse;width:100.0%;">
 <tr>
  <td width="49%" valign="top" style="padding:0in 0in 0in 0in;width:49.46%;">
  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>
  </td>
  <td width="50%" colspan="4" valign="top" style="padding:0in 0in 0in 0in;width:50.54%;">
  <p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">UTSTARCOM, INC.</font></b></p>
  </td>
 </tr>
 <tr>
  <td width="49%" valign="top" style="padding:0in 0in 0in 0in;width:49.46%;">
  <p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>
  </td>
  <td width="50%" colspan="4" valign="top" style="padding:0in 0in 0in 0in;width:50.54%;">
  <p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width="49%" valign="top" style="padding:0in 0in 0in 0in;width:49.46%;">
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Date: July 10, 2003</font></p>
  </td>
  <td width="3%" valign="top" style="padding:0in 0in 0in 0in;width:3.62%;">
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">By: </font></p>
  </td>
  <td width="25%" colspan="2" valign="top" style="border:none;border-bottom:solid windowtext .5pt;padding:0in 0in 0in 0in;width:25.04%;">
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">/s/ Michael Sophie</font></p>
  </td>
  <td width="21%" valign="top" style="padding:0in 0in 0in 0in;width:21.88%;">
  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width="49%" valign="top" style="padding:0in 0in 0in 0in;width:49.46%;">
  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>
  </td>
  <td width="5%" colspan="2" valign="top" style="padding:0in 0in 0in 0in;width:5.78%;">
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Name:</font></p>
  </td>
  <td width="44%" colspan="2" valign="top" style="padding:0in 0in 0in 0in;width:44.76%;">
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Michael Sophie</font></p>
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  <td width="49%" valign="top" style="padding:0in 0in 0in 0in;width:49.46%;">
  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>
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  <td width="5%" colspan="2" valign="top" style="padding:0in 0in 0in 0in;width:5.78%;">
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Title:</font></p>
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  <td width="44%" colspan="2" valign="top" style="padding:0in 0in 0in 0in;width:44.76%;">
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Chief Financial Officer</font></p>
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<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>


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