WESTELL TECHNOLOGIES INC, 10-K, 1997-06-30

WESTELL TECHNOLOGIES INC
10-K, 1997-06-30
TELEPHONE & TELEGRAPH APPARATUS

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K
(Mark One)

/X/ Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 [Fee Required] for the fiscal year ended March 31, 1997 or

/ / Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required] for the transition period from
to .

Commission file number: 0-27266

WESTELL TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)

DELAWARE 36-3154957
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

750 N. COMMONS DRIVE
AURORA, ILLINOIS 60504
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: (630) 898-2500

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

Securities registered pursuant to Section 12(g) of the Act:

CLASS A COMMON STOCK, $.01 PAR VALUE
(Title of Class)

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes /X/ No / /

Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (section229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K. / /

The registrant estimates that the aggregate market value of the registrant's
Class A Common Stock (including Class B Common Stock which automatically
converts into Class A Common Stock upon a transfer of such stock except
transfers to certain permitted transferees) held by non-affiliates (within
the meaning of the term under the applicable regulations of the Securities
and Exchange Commission) on June 24, 1997 (based upon an estimate that 35.7%
of the shares are so owned by non-affiliates and upon the average of the
closing bid and asked prices for the Class A Common Stock on the NASDAQ
National Market on that date) was approximately $295,677,786. Determination
of stock ownership by non-affiliates was made solely for the purpose of
responding to this requirement and registrant is not bound by this
determination for any other purpose.

As of June 24, 1997, 15,074,811 shares of the registrant's Class A Common
Stock were outstanding and 21,245,913 shares of registrant's Class B Common
Stock (which automatically converts into Class A Common Stock upon a transfer
of such stock except transfers to certain permitted transferees) were
outstanding.

The following documents are incorporated into this Form 10-K by reference:

Proxy Statement for 1997 Annual Meeting of Stockholders (Part III).

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

Certain statements contained under "Management's Discussion and Analysis
of Financial Condition and Results of Operations," such as those concerning
future product sales and gross margins, certain statements contained under
"Business," such as statements concerning the development and introduction of
new products and the development of alternative Digital Subscriber Line
("DSL") technology, and other statements contained in this Annual Report on
Form 10-K for the fiscal year ended March 31, 1997 (the "Form 10-K")
regarding matters that are not historical facts are forward-looking
statements (as such term is defined in the rules promulgated pursuant to the
Securities Act of 1933, as amended (the "Securities Act")). Because such
forward-looking statements include risks and uncertainties, actual results
may differ materially from those expressed in or implied by such
forward-looking statements. Factors that could cause actual results to differ
materially include, but are not limited to, those discussed herein under
"Risk Factors" beginning on page 31. Westell Technologies, Inc. ("Westell"
or the "Company") undertakes no obligation to release publicly the result of
any revisions to these forward-looking statements that may be made to reflect
events or circumstances after the date hereof or to reflect the occurrence of
unanticipated events.

PART I

ITEM 1. BUSINESS

Since 1980, Westell has developed telecommunications products that
address the needs of telephone companies ("telcos") to upgrade their existing
network infrastructures continually in order to deliver advanced data and
voice services to their customers. The Company designs, manufactures, markets
and services a broad range of digital and analog products used by telcos to
deliver services primarily over existing copper telephone wires that connect
end users to a telco's central office (the "local access network"). The
Company also markets its products and services to other telecommunications
and information service providers seeking direct access to end-user
customers. The Company's principal customers include all seven Regional Bell
Operating Companies (the "RBOCs") as well as GTE. In addition, Westell sells
products to several other entities, including public telephone
administrations located outside the U.S., independent domestic local exchange
carriers, competitive access providers, interexchange carriers, internet
service providers and the U.S. federal government.

Westell is a leading worldwide innovator and developer of broadband
telecommunications access systems using an emerging technology known as
Asymmetric Digital Subscriber Line ("ADSL"). ADSL systems will allow telcos
and other local access providers to provide interactive multimedia services
over existing copper wire, thus offering a more cost-effective and faster
deployment alternative to fiber optic cable in the "last mile" of the local
access network. ADSL systems enable interactive multimedia services such as
advanced data applications, including high speed Internet access, local area
network ("LAN") extension, telecommuting and medical imaging, as well as
emerging video applications, including video-on-demand, distance learning,
video conferencing and work at home. Currently, over 100 domestic and
international customers, including Ameritech, Bell Atlantic, Bell Canada,
British Telecom, GTE, MCI, US West !nterprise Telecom Italia and leading
Internet service providers are conducting technical or marketing trials for
new interactive multimedia services that rely on the Company's ADSL systems.
These ADSL trials primarily began in 1995 and 1996, except for the Bell
Atlantic trial which commenced in 1993. Early trials focused on video
applications such as video on demand and distance learning. Currently the
focus is on more intense data applications such as high speed internet access
LAN extension and telecommuting. The Company is unable to predict the outcome
of such trials or when such trials will be completed. See "-- Marketing,
Sales and Distribution."

INDUSTRY OVERVIEW

Since the early 1980s, the telecommunications industry has experienced an
increased demand for the number of services provided to end users. Not only
has traditional telephone voice traffic increased, but the growth of personal
computers and modems has created significant data traffic from a wide variety
of services such as fax, e-mail and on-line access. For example, businesses
with multiple locations increasingly require geographically dispersed LANs to
be linked in sophisticated wide area networks ("WANs") that must handle large
volumes of telecommunications traffic. In addition, the Internet continues
to expand beyond its traditional data transmission and file-sharing functions
to offer e-mail, video and graphically rich content over the World Wide Web,
commercial services, transaction processing, independent bulletin boards, and
voice transmission. Business and residential based end-user demand for
telecommunications services is expected to continue to grow as telcos and
information service providers increase their offerings of new interactive
multimedia services, including data applications such as high speed Internet
access, LAN extension, medical imaging and telecommuting, and video
applications such as video-on-demand, distance learning, video conferencing
and work at home. To handle the growing volume of data communications traffic
and to provide faster and higher quality transmission, telcos and information
service providers have continually upgraded the capacity and speed of their
networks.

Deregulation. Deregulation of the telecommunications industry has
increased the number of competitors in the local access network and has
further accelerated telcos' needs to upgrade their networks and increase
their telecommunications service offerings. For example, alternative access
providers have deployed fiber and wireless systems for high volume data
transmission to business centers and other high density metropolitan areas.
As alternative access providers' costs decline and deregulation continues,
alternative access providers are likely to create additional competition for
telcos by developing new products and services for end users. Recent
deregulation also allows interexchange carriers, information service
providers and cable operators to deploy competitive services in the local
access network leading to a new class of service providers known as a
Competitive Local Exchange Carrier or "CLEC." Cable operators are seeking to
compete with telcos in the delivery of high speed digital transmission as
well as traditional local telephone service. Currently available high speed
cable modems enable cable operators to provide data transmission services to
customers in addition to standard television services. In addition, this
trend toward continued deregulation of the telecommunications industry may
further decrease the current restrictions and regulations affecting telcos'
ability to provide nontraditional telco services such as video-on-demand.

Existing Telco Infrastructure. Traditionally, telcos have provided local
access services using analog technology, which does not have the bandwidth or
functionality to support the growing demand for new services over telephone
wires. In contrast, digital technology permits high speed, high volume and
more reliable data transmission by reducing all forms of images, sounds and
data to digital signals, thereby increasing the variety and bandwidth of
services that can be provided in the local access network. To handle the
growing demand for digital traffic, telcos have deployed broadband optical
fiber in their network "backbone" interconnecting their geographically
dispersed central offices. Telcos have also used fiber to interconnect their
central offices to high density telecommunications traffic areas. Deployment
of fiber in the local access network connecting end users to a telco's
central office, however, has proven labor intensive, complicated, time
consuming and expensive. Consequently, this "last mile" of the telco's
network still predominantly consists of low speed analog transmission over
copper wire.

Given the challenges of widespread replacement of copper wire in the
local access network, telcos have turned to systems suppliers for
cost-effective technology that can expand the ability of the existing copper
wire infrastructure to accommodate high speed digital transmission. Digital
conversion of the analog network has been built on the multiplexing format
known as T-1 (E-1 in most countries outside of the U.S.). T-1/E-1
transmission utilizes a data rate of 1.544 (2.048 outside the U.S.) Megabits
per second ("Mbps"), which can be aggregated or subdivided into channels to
deliver data communication services tailored to specific end-user
requirements.

Existing and Emerging Technologies. Systems suppliers have developed, and
are currently developing, numerous products that have increased the quality,
speed and cost-effectiveness of digital transmission over copper wire. These
products include:

ISDN. In the early 1980s, telcos introduced basic rate Integrated Service
Digital Network ("ISDN") technology, which provides digital transmission
at rates up to 144 Kilobits per second ("Kbps") as well as a means to
aggregate multiple channels into a single higher speed link over copper
wire. Telcos have only recently begun to deploy basic rate ISDN
technology widely with the emergence of nationwide standards and a
decline in costs for basic rate ISDN service. The market penetration of
existing basic rate ISDN technology, however, may be constrained due to
its limited bandwidth (which does not allow telcos to offer advanced
data and video services which are generally more bandwidth intensive),
its inability to provide existing telephone service over the same wire
and its relatively high installation costs. In addition, as a switched
service, ISDN deployment will place greater demands on central office
switches, thereby requiring telcos to increase their central office
switch capacity to maintain network reliability.

HDSL. In 1992, telcos introduced High bit-rate Digital Subscriber Line
("HDSL") technology, which reduces the costs of installing and upgrading
T-1/E-1 service. Traditional T-1/E-1 service requires the installation
of one or more mid-span repeaters for line lengths greater than 3,000
feet and the expensive and time consuming "conditioning" of copper wire.
HDSL increases the non-repeater distance of T-1/E-1 transmission
(1.544/2.048 Mbps) over two pairs of copper wires to approximately
12,000 feet, which reduces the need for repeaters and conditioning. As a
result, telcos are deploying HDSL technology in their local access
networks where the end user requires a high-speed symmetrical digital
communication stream and does not require a telephone channel to run on
the same wire.

ADSL. An emerging DSL technology known as Asymmetric Digital Subscriber
Line ("ADSL") permits even greater digital transmission capacity over
copper wire than is possible with existing HDSL and ISDN products. ADSL
technology allows the simultaneous transmission of data at speeds from
32 Kbps to 8.0 Mbps in one direction and from 32 Kpbs to 1 Mbps in the
reverse direction, while also providing standard analog telephone
service over a single pair of copper wires at distances of up to 18,000
feet, depending on the transmission rate. ADSL products enable telcos to
provide interactive multimedia services over copper wire, such as high
speed Internet access, video-on-demand, telemedicine, video conferencing
and telecommuting, while simultaneously carrying traditional telephone
services.

To increase utilization of broadband copper wire transmission,
manufacturers have introduced a new ADSL technology, Rate Adaptive DSL
("RADSL"). This new technology will automatically adjust the digital
transmission rate based upon the quality of the copper telephone wire
and the distance transmitted in order to maximize the digital capacity
of the wire and to facilitate the installation of ADSL systems.
Symmetric Digital Subscriber Line ("SDSL") technology is being offered
by configuring RADSL to a symmetrical service offering which, in
contrast to current HDSL and ISDN systems, can provide both a
symmetrical digital and an analog channel over a single pair of copper
wires.

A new ADSL technology called Very High Speed Digital Subscriber Line
("VDSL") is currently being developed that will increase both the
downstream and upstream data transmission capacity over copper wires to
up to 52.0 Mbps and 2.0 Mbps, respectively.

Digital Subscriber Line Access Multiplexer (DSLAM). As network service
providers begin deploying DSL based services, the need for DSL line
concentration at central sites arises. DSL access multiplexers, or
"DSLAMs," are ATM based multiplexers that consolidate multiple DSL
access lines into a higher speed line back to the switching network
(typically OC-3c, STM-1, DS-3 or E3 electrical interfaces), thereby
reducing costs and operational complexity at the central site.

THE WESTELL SOLUTION

Westell designs, manufactures and markets a broad range of
telecommunications products that provide its telco customers and other local
access providers with dependable, high quality transmission systems in the
local access network. The Company believes that its extensive experience in
the local access network strategically positions it to identify product
applications that will enhance existing telco services as well as expand
telco service offerings to end users. Westell is a leading provider of ADSL
systems, which allow telcos to provide high speed interactive multimedia
services over existing copper wire, thus offering a cost-effective
alternative to the deployment of fiber optic cable in the "last mile" of the
local access network. Westell's ADSL systems also enable telcos to use their
existing infrastructures to respond to competition from cable operators that
may offer these services using cable modems. The Company continues to develop
products aggressively based upon new technologies, such as RADSL, as well as
enhance its existing product offerings in the analog, digital and DSL
markets. In the last decade, Westell has introduced a number of intelligent
products that enable telcos to increase productivity and transmission quality
over their local access networks through self-diagnostic and performance
monitoring applications. For example, in 1986, Westell introduced NIUs,
which provide maintenance and performance monitoring capabilities to aid
telcos in the provisioning and maintenance of T-1 lines. Westell also
continues to focus on the relationships that it has built with its customers
during its 16-year history. Rapid technological evolution has provided the
Company with an opportunity to forge strategic alliances with customers and
technology suppliers in order to accelerate the time to market for new
products. In addition, the Company continues to redefine its products to
increase their functionality and interface capacity with other products while
decreasing product costs in order to meet market demand pricing, to achieve
mass deployment of ADSL systems and to facilitate the numerous applications
of high speed digital transmission required by telcos' and other local access
providers.

STRATEGY

Westell's objective is to be a global leader in providing low cost and
high quality local access network products that enable telcos(both Incumbent
Local Exchange Carriers ("ILECs") and CLECs), to meet the growing demand for
digital service offerings. Key elements of the Company's strategy include:

Leverage Global Leadership in ADSL Market. The Company seeks to leverage
its leadership position in the ADSL market to capture emerging global
market opportunities as telcos and other local access providers expand
their interactive multimedia, data and video services. Currently over
100 domestic and international customers, including Ameritech, Bell
Atlantic, Bell Canada, British Telecom, GTE, US West !nterprise, Telecom
Italia and leading Internet service providers, are conducting technical
or marketing trials for new services that rely on the Company's ADSL
systems. In addition, the Company is currently shipping broadband access
systems based on RADSL technology, which complements the Company's ADSL
systems and the Company believes will have performance advantages over
alternative ISDN and HDSL systems.

Deliver Mass Market Solutions for High Speed Online and Internet Access
Services. Due to the rapid emergence and end-user interest in online
information services, the Internet and the World Wide Web, the Company
intends to work with telcos and information service providers to deliver
advanced, high speed data solutions for these applications as well as
additional services, such as interactive video applications, as they
become available. To facilitate mass market deployment of its ADSL
systems, the Company is undertaking a program to increase the level of
integration among its products and improve economies of scale. The
Company seeks to expand the development of DSL systems in the consumer
market by creating DSL software and hardware interfaces that support
multiple consumer applications.

Continue to Create Strategic Relationships and Alliances. The Company
intends to continue to forge strategic relationships and alliances with
key customers and suppliers. The Company has established strategic
relationships to facilitate the Company's ability to develop products
that anticipate customers' product needs. For example, Westell has
entered into an alliance with Microsoft Corporation whereby Westell's
FlexCap ADSL modems will be compatible with Microsoft Corporation's
Windows NT(R) Server Network. In addition, Westell's relationships with
technology and transmission system leaders such as GlobeSpan
Technologies Inc., Nortel, Digital Switch Corporation and Motorola
enable the Company to obtain emerging technologies required in its
product development. These relationships allow the Company to focus on
product applications and to develop products using multiple emerging
technologies.

Maintain Telco Access Products Business Strength and Continue Development
of New Products. The Company has extensive experience in developing and
marketing products for the local access network and has achieved a
leading position in T-1 network interface and performance monitoring
units. The Company intends to continue to capitalize upon its DS0 and
DS1 product development experience and customer relationships to develop
cost-effective and intelligent products for the local access network.
The Company is committed to developing products that are compatible with
existing equipment and technologies, thereby enabling open architecture
network infrastructures. Westell intends to continue to develop products
in its telco access product business, such as SmartLink, which enhance
the efficiency of high speed transmission over copper wire, and
QuadJack, which is one of the Company's first fiber optic products.

Expand International Presence. The Company devotes significant resources
to expanding its international business. Many of Westell's products,
including its ADSL and HDSL systems, support E-1 standards, the
predominant standard for digital transmission outside of North America.
Westell has offices in Canada and England and a distribution and
service network that supports customers in more than 40 countries. The
Company intends to continue to expand its international distribution
arrangements and strategic relationships in an effort to increase its
international presence.

Commitment to Product Quality, Customer Service and Low-Cost
Manufacturing. The Company benefits from a strong reputation for
providing quality products and responsive service. Westell works closely
with customers to provide technical consulting, maintenance and research
assistance. Westell's continuous quality improvement is demonstrated by
the achievement of the British Approvals Board for Telecommunications
("BABT") production quality assurance approval, Bellcore's Customer
Supplier Quality Program ("CSQP") registration and the ISO 9001
registration of its domestic operations. The Company believes that its
commitment to product quality and customer service will enhance its
efforts to reduce production cycle times and product costs.

PRODUCTS

The Company offers a broad range of products that facilitate the
transmission of high speed digital and analog data between a telco's central
office and end-user customers. These products can be categorized into three
groups: (i) products based on DSL technologies, including ADSL, RADSL, SDSL
and HDSL systems ("DSL products"), (ii) Digital Signal Hierarchy Level 1
based products, which are used by telcos to enable high speed digital T-1
transmission at approximately 1.5 Mbps and E-1 transmission at approximately
2.0 Mbps ("DS1 products"), and (iii) Digital Signal Hierarchy Level 0 based
products, which are used by telcos to deliver digital services at speeds
ranging from approximately 2.4 to 64 Kbps and analog services over a 4
Kilohertz bandwidth ("DS0 products").

The prices for the products within each of the product groups of the
Company vary based upon volume, customer specifications and other criteria
and are subject to change due to competition among telecommunications
manufacturers. The Company's DSL products typically command higher average
sales prices than its DS0 and DS1 products but represent fewer of the units
sold by the Company. The following table sets forth the revenues from
Westell's three product groups for the periods indicated:

Fiscal Year Ended March 31,
1995 1996 1997
(in thousands)

DSL products . . . . . . . . . . . . . . . . . . . . . . . . . . . . $15,235 $20,299 $ 8,665
DS1 products . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40,754 44,027 49,353
DS0 products . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,979 9,332 8,963

</TABLE>

DSL Products. The Company is a leading developer and provider of DSL
products and transmission systems that utilize emerging ADSL technology. DSL
technology is also used for RADSL, SDSL and HDSL products. Products based upon
DSL technology can be used by telcos and other local access providers to provide
interactive multimedia services, including data and video applications, while
simultaneously providing traditional telephone services over existing copper
wire. Products based upon DSL technology enable customers to deliver these
interactive multimedia services more quickly and cost-effectively than deploying
broadband fiber networks in the "last mile" of the local access network. The
Company's revenues from RADSL, SDSL and HDSL products to date have not been
significant.

The following table sets forth a representative list of the Company's
current DSL products and their applications:

<TABLE>
<CAPTION>
Year
Product Description Applications Introduced

FlexCap ADSL ADSL transport system that Interactive multimedia, video-on- 1993
delivers 1.5 or 2.0 Mbps of demand, live broadcast, high speed
digital bandwidth to end users. Internet access and LAN
Uses carrierless amplitude/phase interconnect, while providing
modulation ("CAP") technology. simultaneous standard telephone
service.

InterAccess HDSL HDSL system that supports 1.5 or T-1 or E-1 service provisioning. 1994
2.0 Mbps bi-directional services Increases repeaterless distance to
over two pairs of copper wires. up to 12,000 feet over two pairs
of copper wires.

AccessVision Network management system for DSL Management and control of DSL 1995
transport systems. transport systems.

SuperVision DSLAM Broadband platform that consolidates High-speed Internet access, remote 1996
. . . . multiple DSL access lines into a single LAN extension, work at home,
. . . . ATM interface. SuperVision currently corporate training and distance
. . . . supports using a OC-3c or STM-1 learning, while providing
. . . . interfaces back to the switching net simultaneous standard telephone
. . . . work. RADSL access line modules, service.
. . . . which will operate at rates from 640
. . . . Kbps to 7 Mbps downstream and
. . . . from 272 Kbps to 1.088 Mbps
. . . . upstream.

FlexCap2 RADSL Rate Adaptive DSL system that High speed internet access, remote 1997
. . . . operates at rates from 640 Kbps to LAN extension, work at home,
. . . . 2.24 Mbps downstream and 272 Kpbs corporate training and distance learning
. . . . to 1.088 Mbps upstream. The while providing simultaneous standard
. . . . rate adaptive capability enables the telephone service. In addition, RADSL
. . . . operating speed to be automatically system can be configured to near
. . . . provisioned based on signal quality. symmetrical rates to support SDSL
. . . . Uses CAP technology. applications.

</TABLE>

ADSL technology permits the transmission of three communication streams of
varying speeds over existing copper wire. The non-repeater transmission
distances of current ADSL systems vary based upon the data rate, with a maximum
distance of 18,000 feet. The first communication stream provides a one way high
speed digital data transmission from a server, such as may be found on the
Internet or in a stored video program network, to an end user. The second
communication stream provides medium speed bi-directional digital data
transmission to and from the end user which enables the end user to respond and
interact with the incoming high speed data stream. The third communication
stream provides traditional analog voice transmission capabilities permitting
simultaneous telephone service.

Westell's FlexCap ADSL system currently consists of (i) a high speed
uni-directional digital data communication stream at rates up to 1.5 or 2.0
Mbps, (ii) a bi-directional control channel (iii) unidirectional and digital
data communication stream at rates up to 64 Kbps and (iv) a traditional analog
telephone service line. This ADSL system can support high speed data
applications, such as high speed Internet access and remote LAN access, and
video-on-demand services over existing telephone lines.

In early calendar year 1997, Westell introduced rate adaptive FlexCap ADSL
systems using RADSL technology which increased the bi-directional transmission
capacity to up to 1.08 Mbps with maximum uni-directional rate of 2.24 Mbps.
RADSL allows telcos to automatically adjust the digital transmission rate based
upon the quality of the copper telephone wire and the transmission distance.
This rate adaptability allows telcos to maximize the digital capacity of copper
wire and facilitates installation of ADSL systems, thereby increasing the
utilization of poor quality copper telephone wires which traditionally have
required extensive installation and monitoring.

The Company also markets other products that the facilitate incorporation
of DSL technology into their network infrastructures. Westell has worldwide
distribution rights to market AccessVision, an open systems standards-based
software management system that monitors and controls DSL equipment and the
interactive services transmitted through DSL technology. AccessVision was
developed by Atlantech Technologies, Ltd. Westell's distribution rights to
AccessVision expire in December 2001.

Currently over 100 customers have purchased the Company's ADSL systems to
conduct technical and marketing trials for interactive multimedia applications.
Bell Atlantic and British Telecom have connected over 2,000 customers to
Westell's FlexCAP ADSL systems. Telecom Italia has connected a total of 1,000
customers to Westell's FlexCAP ADSL systems, 500 each in Rome and Milan. ADSL
applications in these trials include interactive video-on-demand,
music-on-demand, catalog shopping, financial services, games-on-demand,
television-on-demand and long distance learning services. Internationally,
Westell's DSL systems have been purchased by telephone administrations in
Australia, Belgium, Canada, Hong Kong, Italy, Japan, Norway, Singapore, South
Korea, Spain, Switzerland, Taiwan and the United Kingdom.

The Company's HDSL systems eliminate the need for telcos to condition the
copper wire and to install line repeaters for distances of up to 12,000 feet.
Westell's HDSL systems also contain performance and monitoring functions with
remote accessibility that may supplant the need for repeaters and NIUs. Westell
currently sells its HDSL systems to the federal government and primarily markets
its InterAccess HDSL systems outside the U.S.

The Company's future growth is substantially dependent upon whether DSL
technology, particularly as it relates to ADSL systems, gains widespread
commercial acceptance by telcos. Since 1992, the Company has invested, and
expects to continue to invest, significant resources in the development of DSL
technology. However, the market for products using ADSL technology is only now
emerging as customers have recently begun to consider implementing ADSL
technology in their networks. As a result, revenues from DSL systems have been
difficult for the Company to forecast, and the Company's overall results of
operations have experienced substantial fluctuations in recent periods. The
timing of orders and shipments of DSL systems can have a significant impact on
the Company's revenues and results of operations. For example, during each of
the quarters during fiscal 1997 the Company has generated DSL revenue but at
varying levels. This variability related to DSL revenue has resulted in a
reduction in quarterly revenue when compared to the preceding quarter in four of
the past eight quarters contained in fiscal 1996 and 1997. In addition, during
the third quarter of fiscal 1997 the Company reserved for $5 million in piece
part inventory primarily as a result of a new generation RADSL product reducing
demand for prior generation FlexCap Phase III ADSL products. Due to the
Company's significant ongoing investment in DSL technology, the Company
anticipates losses in each of the fiscal 1998 quarters. The Company's ability to
achieve profitability or revenue growth in the future will depend upon market
acceptance of the Company's ADSL systems and the development and market
acceptance of other DSL products introduced by the Company. Customers have
deployed the Company's DSL systems primarily for technical and marketing trials.
In November 1996, Sasktel, a Canadian Telephone service provider, began offering
service utilizing ADSL in certain areas of its service territory on a commercial
basis. The Company is unable to predict whether other technical and marketing
trials will be successful and when significant commercial deployment will begin,
if at all.

The RBOCs and the Company's other customers are significantly larger than,
and are able to exert a high degree of influence over, the Company. Prior to
selling its products to telcos, the Company must undergo lengthy approval and
purchase processes. Evaluation can take a year or more for complex products
based on new technologies such as ADSL. Historically, telcos have been cautious
in implementing new technologies. Telcos' and other customers' deployment of
DSL technology may be prevented or delayed by a number of factors, including
lengthy product approval and purchase processes, decisions to defer product
orders in anticipation of new product developments, cost, regulatory barriers
that prevent or restrict telcos from providing interactive multimedia services,
the lack of demand for interactive multimedia services, the lack of sufficient
programming for interactive multimedia services, the availability of alternative
technologies, such as ISDN, cable modems, optical fiber, wireless local loop and
policies that favor the use of such alternative technologies over ADSL
technology. As a result of these factors, there can be no assurance that
customers will pursue the deployment of products using ADSL technology. Even if
customers adopt policies favoring full-scale implementation of DSL technology,
there is no assurance that sales of the Company's DSL systems will become
significant or that the Company will be able to successfully introduce on a
timely basis or achieve sales of ADSL systems and other products based upon DSL
technology planned for future introduction. Due to increased competition, low
barriers to entry, product pricing pressures and new product introductions in
the Company's core DS0 and DS1 markets, these DS0 and DS1 product groups are not
expected to generate sufficient revenues or profits to offset any losses that
the Company may experience due to a lack of sales of ADSL systems and other DSL
products currently under development. As a result, if telcos fail to deploy the
Company's DSL systems, and the Company therefore does not receive significant
revenues from DSL sales, then the Company's business and results of operations
will be materially adversely affected and there can be no assurance that the
Company will achieve profitability in the future.

DS1 Products. Westell's DS1 products provide telcos with cost-effective
solutions to transport, maintain and improve the reliability of T-1 services
over copper and fiber lines in the local access network.

The following table sets forth a representative list of the Company's DS1
products and their applications:

Year
Product Description Applications Introduced

NIU Network Interface Unit providing Facilitates the maintenance of T-1 1986
for maintenance of T-1 facilities. facilities to access services such
as frame relay and primary rate
ISDN.

NIU-PM Network Interface Unit with Facilitates the maintenance and 1992
Performance Monitoring that stores provides performance monitoring of
information for seven days. T-1 facilities to access services
such as frame relay and primary
rate ISDN.

QuadJack Transport system that provides Provides transport and facilitates 1994
transmission medium for one to maintenance for high speed digital
four DS1 signals over fiber. circuits over fiber optic
facilities.

SmartLink Automatic Protection System for up Increases the reliability of T-1 1995
to 8 T-1 customer lines. and other high speed digital
. . . . . . . . . . . facilities. Used for critical circuits
. . . . . . . . . . . such as those used to provide
. . . . . . . . . . . service to cellular telephone sites.

</TABLE>

Many of the Company's DS1 products, such as its NIUs, smart line repeaters,
office repeaters and T-1 maintenance service switches, function to monitor and
control the quality of digital transmission over copper wire. The Company's NIU
products allow telcos to monitor transmission conditions and to detect
performance problems in circuits from remote locations. All of the RBOC's and
GTE have purchased the Company's NIUs. Westell also developed and co-patented
with Ameritech a second generation NIU known as NIU-PM which monitors and stores
information for seven days so that telcos can study and detect any irregular
operations and performance of a line over time. The Company customizes its NIU
products to meet customers' particular needs. Sales of NIU products represented
45.5% and 52.5% of the Company's revenues in fiscal 1996 and 1997, respectively.

In fiscal year 1997, the Company began volume shipments of its newest NIU
platform coined "SlimJack." These new units are half the size of previous NIU
units and make extensive use of Surface-mount Manufacturing Technology ("SMT").
In addition, the Company also introduced its Multiplexer Termination System
("MTS") to the market in fiscal 1997. The MTS system is used as an adjunct to
lightwave fiber optic multiplexers that are providing DS1 service to the
customer premise. The MTS system employs application optimized NIUs to provide
maintenance loopback and testing.

To address growing wireless and Personal Computer System ("PCS") markets,
Westell introduced its FlexPack line of outside plant environmental enclosures.
These enclosures are used by Telcos to facilitate the provisioning of wireless
or fiber optic entrance links to PCS and other wireless communication sites. The
FlexPack enclosures can be equipped with T-1 NIUs, HDSL remote units or
Westell's QuadJack fiber optic multiplexers.

The Company's SmartLink Automatic Protection Switch system ("APS") monitors
up to eight customer T-1 channels and allows telcos to provide uninterrupted
service in the event of a fault of any channel. Once the APS detects a fault in
one channel, it automatically places that signal on a protection channel and
generates a notification alarm at the telco's central office, thereby
significantly reducing network downtime and costly data interruption. APS is
currently being deployed by three RBOCs and is in field trials with two
additional RBOCs.

Westell's QuadJack product is specifically designed to provide transmission
for one to four customer T-1 signals over fiber lines, which results in a
cost-effective means of providing T-1 services to small business customers who
typically do not require the standard 28 or more T-1 lines that fiber-based
transmission delivers to an end user.

DS0 Products. Westell's DS0 products are used by telcos to deliver digital
and analog service across copper wire in the local access network at speeds
ranging from approximately 2.4 to 64 Kbps for digital transmission or 4
Kilohertz for analog transmission.

The following table sets forth a representative list of the Company's DS0
products and their applications:

Year
Product Description Applications Introduced

DST Data Station Termination unit Point of sale, lottery and other 1983
providing maintenance and analog data.
equalization of data transmission.

Tandem Provides DS0 and analog channel Special services inter-office 1987
cross connections in tandem D4 cross connections.
environment.

TwinLine Allows second channel to be added Business and second lines. 1994
to a single pair of copper wires.

Campus Loopback
Unit Maintenance loopback for analog Private data networks. 1995
data.

</TABLE>

In some circumstances, analog data lines are the only practical way to
add a terminal to an existing analog data network. Consequently, analog
transmission is often the most economical, most easily installed or the only
service available in certain locations. Westell's DST unit provides the
interface between analog transmission and an end user's modem. The Company's
other DS0 products include voice frequency channel units and mountings, which
are used to provide dedicated analog data lines, smart repeaters, which boost
analog signals, and other products which incorporate performance testing and
monitoring functions designed to improve the quality of analog transmission
over copper wire.

RESEARCH AND PRODUCT DEVELOPMENT

The Company believes that its future success depends on its ability to
maintain its technological leadership through enhancements of its existing
products and development of new products that meet customer needs. Westell
works closely with its current and potential customers as part of the product
development process. The Company regularly customizes products to address
particular customer product needs. For the fiscal years ended March 31, 1995
and 1996, the Company recognized income of $800,000 and $2.6 million,
respectively, for customer sponsored research and development. Research and
development expenses for fiscal 1995, 1996 and 1997 were $10.8 million, $12.6
million, and $22.0 million, respectively. To date, all research and
development costs have been charged to operating expense as incurred. From
time to time, development programs are conducted by other firms under
contract with the Company, and related costs are also charged to operations
as incurred.

The following table sets forth some of the products under development by
the Company:

Product Description Applications

SuperVision DSLAM . Broadband platform that consolidates Aggregates many DSL facilities providing
. . . . . . . . . . multiple DSL lines into a single ATM efficient network backbone transport.
. . . . . . . . . . interface using DS-3 or E3 interface.

SuperVision CAP . . An ADSL transport system that delivers Interactive multimedia, video-on-demand,
RADSL Line Cards . up to 7.0 Mbps of digital bandwidth live broadcast, high speed Internet
downstream to end users and up to 1 Mbps access and LAN interconnect, while
upstream of rate adaptive digital bandwidth. providing simultaneous standard
Uses CAP technology. Used in connection telephone service.
with SuperVision multiplexers.

SuperVision DMT . . An ADSL transport system that delivers Interactive multimedia, video-on-demand,
ADSL Line Cards . . up to 8.0 Mbps of digital bandwidth live broadcast, high speed Internet
downstream to end users and up access and LAN interconnect, while
to 1 Mbps upstream of rate adaptive digital providing simultaneous standard
bandwidth. Uses discrete multi-tone telephone service.
("DMT") technology. Used in connection
with SuperVision multiplexers.

</TABLE>

To provide a more efficient transport of individual DSL facilities over
telephone networks, Westell is developing its SuperVision access multiplexer.
This SuperVision system will aggregate many DSL systems into a single high
speed optical link thereby facilitating the connection between copper wire
digital transmission used in the local access network and the optical fiber
transmission in the network "backbone." In addition, the Company announced
the development of the associated SuperVision line card to provide up to 8.0
Mbps of bandwidth supporting multiple simultaneous video-on-demand channels
of information. Westell's current FlexCap and SuperVision systems are based
on CAP technology. Westell is also developing a similar SuperVision line card
which will utilize DMT technology instead of CAP technology and which is
expected to provide up to 8.0 Mbps of downstream data and 1 Mbps upstream as
well as traditional telephone service.

The Company currently anticipates that it will introduce the products
listed in the above table in fiscal year 1998. However, there can be no
assurance that the Company will be able to introduce such products as
planned, and the failure of the Company to do so would have a material
adverse effect on the Company's business and results of operations. In
addition, there can be no assurance that the Company's future development
efforts will result in commercially successful products or that the Company's
products will not be rendered obsolete by changing technology, new industry
standards or new product announcements by competitors. The markets for the
Company's products are characterized by intense competition, rapid
technological advances, evolving industry standards, changes in end-user
requirements, frequent new product introductions and enhancements, and
evolving telco service offerings. If technologies or standards applicable to
the Company's products (or telco service offerings based on the Company's
products) become obsolete or fail to gain widespread commercial acceptance,
then the Company's business and results of operations will be materially
adversely affected. Moreover, the introduction of products embodying new
technology, the emergence of new industry standards or changes in telco
services could render the Company's existing products, as well as products
under development, obsolete and unmarketable. For instance, during the third
quarter of fiscal 1997, the Company reserved for $5 million in piece part
inventory primarily as a the result of a new generation RADSL product
reducing demand for prior generation FlexCap Phase III ADSL products. In
addition, the Company believes that the continued deployment of new
technologies in the U.S., such as HDSL, in the local access network will
adversely affect demand for certain of its existing products such as NIUs,
which accounted for 45.5% and 52.5% of the Company's revenues in fiscal 1996
and 1997, respectively, and that its future success will largely depend upon
its ability to continue to enhance its existing products and to successfully
develop and market new products on a cost-effective and timely basis. In this
regard, most of the Company's current product offerings apply primarily to
the delivery of digital communications over copper wire in the local access
network. While the Company has competed successfully to date by developing
high performance products for transmission over copper wire, it expects that
the increasing deployment of fiber and wireless broadband transmission in the
local access network (each of which uses a significantly different process of
delivery) will require the Company to develop new products to meet the
demands of these emerging transmission media.

The Company's past sales and profitability have resulted, to a
significant extent, from its ability to anticipate changes in technology,
industry standards and telco service offerings, and to develop and introduce
new and enhanced products. The Company's continued ability to adapt to such
changes will be a significant factor in maintaining or improving its
competitive position and its prospects for growth. Due to rapid technological
changes in the telecommunications industry, the RBOCs' lengthy product
approval and purchase processes and the Company's reliance on third-party
technology for the development of new products, there can be no assurance
that the Company will successfully introduce new products on a timely basis
or achieve sales of new products in the future. In addition, there can be no
assurance that the Company will have the financial and manufacturing
resources necessary to continue to successfully develop new products based on
emerging technology or to otherwise successfully respond to changing
technology, industry standards and telco service offerings.

The Company's product development programs are carried out by engineers
and engineering support personnel based in Aurora, Illinois and Cambridge,
England. The Company's domestic engineering is conducted in accordance with
ISO 9001, which is the international standard for quality management systems
for design, manufacturing and service. The Company's research and development
personnel are organized into product development teams. Each product
development team is generally responsible for sustaining technical support of
existing products, decreasing manufacturing costs, conceiving new products in
cooperation with other groups within the Company and adapting standard
products or technology to meet new customer needs. In particular, each
product development team is charged with implementing the Company's
engineering strategy of reducing product costs for each succeeding generation
of the Company's products in an effort to be a low cost, high quality
provider, without compromising functionality or serviceability. The Company
believes that the key to this strategy is choosing an initial architecture
for each product that enables engineering innovations to result in future
cost reductions. Successful execution of this strategy also requires that the
Company continue to attract and recruit highly qualified engineers.

CUSTOMERS

The Company's principal customers historically have been U.S. telcos.
Since fiscal 1993, the Company has also marketed its products
internationally. The Company's customers include all seven RBOCs, GTE,
British Telecom and Telecom Italia. In addition, Westell sells products to
several other entities, including public telephone administrations located
outside the U.S., independent domestic local exchange carriers, competitive
access providers, interexchange carriers and the U.S. federal government.
International revenues represented approximately $3.7 million, $19.8 million
and $4.4 million of the Company's revenues in fiscal 1995, 1996 and 1997,
respectively, accounting for 5.0%, 23.8% and 5.5% of the Company's revenues
in such periods.

The following table lists certain customers of the Company and end users
of the Company's products:

Domestic International

<S> <C>

Ameritech Belgacom
Bell Atlantic BC Tel Canada
Bell South Bell Canada
GTE British Telecom
MCI Entel Chile
NYNEX Hong Kong Telecom
Pacific Telesis Korea Telecom
SBC Communications Singapore Telecom
Sprint Swiss Telecom
US West Sask Tel Canada
Telecom Finland LTD
Telecom Italia
Telecom Malaysia
Telefonica Spain
Telenor
Telecom Australia

</TABLE>

Sales to the RBOCs and British Telecom accounted for 74.3%, 64.9% and
62.7% of the Company's revenues in fiscal 1995, 1996 and 1997, respectively.
The Company's future success will depend significantly upon the timeliness
and size of future purchase orders from the RBOCs, the product requirements
of the RBOCs, the success of the RBOCs' services that use the Company's
products and the financial and operating success of these providers. Sales to
Ameritech and U.S. West accounted for 18.3% and 11.1% of the Company's
revenues in fiscal 1997, respectively.

The Company depends, and will continue to depend, on the RBOCs and other
independent local exchange carriers for substantially all of its revenues.
Sales to the RBOCs accounted for 74.3%, 53.8% and 61.9% of the Company's
revenues in fiscal 1995, 1996 and 1997, respectively. Consequently, the
Company's future success will depend significantly upon the timeliness and
size of future purchase orders from the RBOCs, the product requirements of
the RBOCs, the financial and operating success of the RBOCs, and the success
of the RBOCs' services that use the Company's products. Any attempt by an
RBOC or other telco access providers to seek out additional or alternative
suppliers or to undertake, as permitted under applicable regulations, the
internal production of products would have a material adverse effect on the
Company's business and results of operations. In addition, the Company's
sales to its largest customers have in the past fluctuated and in the future
are expected to fluctuate significantly from quarter to quarter and year to
year. The loss of such customers or the occurrence of such sales fluctuations
would materially adversely affect the Company's business and results of
operations. Bell Atlantic and NYNEX has recently completed a merger and
Pacific Telesis and SBC Communications have announced their intent to merge.
The Company is unable to predict what effect either of these mergers will
have on the demand for the Company's ADSL systems or other products.

MARKETING, SALES AND DISTRIBUTION

The Company sells its products in the U.S. principally through its
domestic field sales organization. The Company markets its products
internationally in over 40 countries under various distribution arrangements
that include OEM agreements, technology licenses and distributors supported
by partners and internationally based sales personnel. The Company's field
sales organizations and distributors receive support from internal marketing,
sales and customer support groups. As of March 31, 1997, the Company's
marketing, sales and distribution programs were conducted by 154 employees.

International revenues represented 23.8% and 5.5% of the Company's
revenues in fiscal 1996 and 1997, respectively. The Company's international
operations are based in Aurora, Illinois and are also conducted through
business operations in Ottawa, Canada, Cambridge, England, Hong Kong and
Singapore, and a distribution and service network that supports customers in
more than 40 countries. The Company expects to continue to pursue
international market opportunities by focusing primarily on sales of DSL
products in international markets. The Company believes that there is a
greater demand for DSL products in international markets compared to DS0 and
DS1 products due to a growing demand in foreign countries for services that
require high speed digital transmission.

The Company believes that international revenues will represent a
significant percentage of revenues in the future. Due to its export sales,
the Company is subject to the risks of conducting business internationally,
including unexpected changes in regulatory requirements, foreign currency
fluctuations which could result in reduced revenues or increased operating
expenses, tariffs and trade barriers, potentially longer payment cycles,
difficulty in accounts receivable collection, foreign taxes, and the burdens
of complying with a variety of foreign laws and telecommunications standards.
The Company's contracts with its international customers are typically
denominated in foreign currency and any decline in the value of such currency
could have a significant impact on the Company's business and results of
operations. For example, in fiscal 1996, the Company incurred a $270,000
transaction loss on receivable due to foreign currency fluctuations. To date,
the Company has not engaged in hedging with respect to its foreign currency
exposure but may do so in the future. The Company also is subject to general
geopolitical risks, such as political and economic instability and changes in
diplomatic and trade relationships, in connection with its international
operations. In addition, the laws of certain foreign countries may not
protect the Company's proprietary technology to the same extent as do the
laws of the U.S. There can be no assurance that the risks associated with the
Company's international operations will not materially adversely affect the
Company's business and results of operations in the future or require the
Company to modify significantly its current business practices.

Although the telco approval processes may vary to some extent depending
on the customer and the product being evaluated, they generally are conducted
as follows:

Laboratory Evaluation. The product's function and performance are tested
against all relevant industry standards, including those established by
Bellcore.

Technical Trial. A number of telephone lines are equipped with the
product for simulated operation in a field trial. The field trial is
used to evaluate performance, assess ease of installation and establish
troubleshooting procedures.

Marketing Trial. Emerging products such as ADSL are tested for market
acceptance of new services. Marketing trials usually involve a greater
number of systems than technical trials because systems are deployed at
several locations in the telco's network. This stage gives telcos an
opportunity to establish procedures, train employees to install and
maintain the new product and to obtain more feedback on the product from
a wider range of operations personnel.

Commercial Deployment. Commercial deployment usually involves
substantially greater numbers of systems and locations than the
marketing trial stage. In the first phase of commercial deployment, a
telco initially installs the equipment in select locations for select
applications. This phase is followed by general deployment involving
greater numbers of systems and locations. General deployment does not
usually mean that one supplier's product is purchased for all of the
telcos' needs throughout the system as telcos often rely upon multiple
suppliers to ensure that their needs can be met. Subsequent orders, if
any, are generally placed under single or multi-year supply agreements
that are generally not subject to minimum volume commitments.

In most international markets, there is one major telco per country with
limited or few alternate carriers or independent telcos. Typically, these
telcos are highly regulated, government-owned agencies that have approval and
purchase processes similar to those followed by the RBOCs.

CUSTOMER SERVICE AND SUPPORT

Westell maintains 24-hour, 7-day-a-week telephone support and provides
on-site support. The Company also provides technical consulting, research
assistance and training to its customers with respect to the installation,
operation and maintenance of its products.

The Company has supply contracts with most of its major customers. These
contracts typically do not establish minimum purchase commitments, and they
may require the Company to accept returns of products or indemnify such
customers against certain liabilities arising out of the use of the Company's
products. Although, to date, the Company has not experienced any significant
product returns or indemnification claims under these contracts, any such
claims or returns could have a material adverse effect on the Company's
business and results of operations. While the Company maintains a
comprehensive quality control program, there can be no assurance that the
Company's products will not suffer from defects or other deficiencies or that
the Company will not experience a material product recall in the future.
Complex products such as those offered by the Company may contain undetected
errors or failures when first introduced or as new versions are released. Any
product recall as a result of such errors or failures, and the associated
negative publicity, could result in the loss of or delay in market acceptance
of the Company's products and have a material adverse effect on the Company's
business and results of operations.

The Company's products are required to meet rigorous standards imposed
by its customers. Most of the Company's products carry a limited warranty
ranging from one to seven years, which generally covers defects in materials
or workmanship and failure to meet published specifications, but excludes
damages caused by improper use and all other express or implied warranties.
In the event there are material deficiencies or defects in the design or
manufacture of the Company's products, the affected products could be subject
to recall. For the past five fiscal years, the Company's warranty expenses
have been relatively insignificant. Although the Company maintains a
comprehensive quality control program, there can be no assurance that the
Company's products will not suffer from defects or other deficiencies or that
the Company will not experience a material product recall in the future.
Complex products such as those offered by the Company may contain undetected
errors or failures when first introduced or as new versions are released. Any
product recall as a result of such errors or failures, and the associated
negative publicity, could result in the loss of or delay in market acceptance
of the Company's products and have a material adverse effect on the Company's
business and results of operations. The Company's standard limited warranty
for its ADSL products ranges from one to five years. Since the Company's DSL
products are new, with limited time in service, the Company cannot predict
the level of warranty claims that it will experience for these products.
Despite testing by the Company and its customers, there can be no assurance
that existing or future products based on DSL or other technology will not
contain undetected errors or failures when first introduced or as new
versions are released. Such errors or failures could result in warranty
returns in excess of those historically experienced by the Company and have a
material adverse effect on the Company's business and results of operations.

MANUFACTURING

The Company purchases parts and components for its products from a
number of suppliers through a worldwide sourcing program. Certain key
components, such as integrated circuits and other electronic components, used
in the Company's products are currently available from only one source or a
limited number of suppliers. For instance, the Company currently depends on
GlobeSpan Technologies to provide critical integrated circuits used in the
Company's ADSL products. In addition, certain electronic components are
currently in short supply and are provided on an allocation basis to the
Company and other users, based upon past usage. There can be no assurance
that the Company will be able to continue to obtain sufficient quantities of
integrated circuits or other electronic components as required, or that such
components, if obtained, will be available to the Company on commercially
reasonable terms. The Company purchases integrated circuits from GlobeSpan
Technologies on a purchase order basis under a formal supply arrangement.
GlobeSpan Technologies in turn sources these integrated circuits from Lucent
Technologies. The Company anticipates that integrated circuit production
capacity and availability of certain electronic components of its suppliers
may be insufficient to meet demand for such components in the future.
Integrated circuits and electronic components are key components in all of
the Company's products and are fundamental to the Company's business strategy
of developing new and succeeding generations of products at reduced unit
costs without compromising functionality or serviceability. In the past,
however, the Company has experienced delays in the receipt of certain of its
key components, such as integrated circuits, which have resulted in delays in
related product deliveries. There can be no assurance that delays in key
components or product deliveries will not occur in the future due to
shortages resulting from the limited number of suppliers, the financial or
other difficulties of such suppliers or the possible limitations in
integrated circuit production capacity or electronic component availability
because of significant worldwide demand for these components. The inability
to obtain sufficient key components or to develop alternative sources for
such components, if and as required in the future, could result in delays or
reductions in product shipments, which in turn could have a material adverse
effect on the Company's customer relationships, its business and results of
operations.

The Company currently manufactures most of its products internally while
relying on a few subcontractors in the U.S. and the United Kingdom for
various assemblies. As part of its strategic plan to meet the potential
worldwide demand for its ADSL systems, however, the Company currently is in
the process of developing the manufacturing capabilities necessary to supply
and support large volumes of ADSL systems and in the future may become
increasingly dependent on subcontractors. The Company has entered into
discussions to establish subcontracting relationships for the assembly of its
ADSL systems. A reliance on third-party subcontractors involves several
risks, including the potential absence of adequate capacity and reduced
control over product quality, delivery schedules, manufacturing yields and
costs. Although the Company believes that alternative subcontractors or
sources could be developed if necessary, the use of subcontractors could
result in material delays or interruption of supply as a consequence of
required re-tooling, retraining and other activities related to establishing
and developing a new subcontractor or supplier relationship. Any material
delays or difficulties in connection with increased manufacturing production
or the use of subcontractors could have a material adverse effect on the
Company's business and results of operations. There can be no assurance that
the Company will be successful in increasing its manufacturing capacity in a
timely and cost-effective manner or that the possible transition to
subcontracting will not materially adversely affect the Company's business
and results of operations. The Company's failure to effectively manage its
growth would have a material adverse effect on the Company's business and
results of operations.

A substantial portion of the Company's shipments in any fiscal period
relate to orders for certain products received in that period. Further, a
significant percentage of orders, such as NIUs, require delivery within 48
hours. To meet this demand, the Company maintains raw materials inventory and
limited finished goods inventory at its manufacturing facility. In addition,
the Company maintains some finished goods inventory at the customer's site
pursuant to an agreement that the customer will eventually purchase such
inventory. Final testing and shipment of products to customers occurs in the
Company's Aurora, Illinois facilities. The Company's domestic facilities are
certified pursuant to ISO 9001.

The Company's backlog for its DS1 and DS0 products at March 31, 1997
was $1.3 million. The Company believes that because a substantial portion of
customer orders for DS1 and DS0 products are filled within the quarter of
receipt, the Company's backlog is not a meaningful indicator of actual
revenues for these products for any succeeding period. In general, customers
purchasing DSL products may reschedule orders without penalty to the
customer. As a result, the quantities of the Company's products to be
delivered and their delivery schedules may be revised by customers to reflect
changes in their DSL product needs. Since backlog of DSL products can be
rescheduled without penalty, the Company does not believe that its backlog of
DSL products is a meaningful indicator of future revenues from DSL products.

COMPETITION

The markets for the Company's products are intensely competitive and the
Company expects competition to increase in the future, especially in the
emerging ADSL market. Westell's principal competitors in the DS0 market are
Adtran, Inc., Pulsecom, Tellabs, Inc. and Teltrend, Inc. Westell's principal
competitors in the DS1 market are ADC Telecommunications Inc., Applied
Digital Access Inc., PairGain Technologies, Inc. and Teltrend, Inc. The
Company's current competitors in the ADSL market include Alcatel Network
Systems, Amati Communications Corp., Paradyne, ECI Telecom, Inc., Ericsson,
Netspeed, AGCS, Diamond Lane, US Robotics, PairGain Technologies, Inc.,
Orckit Communications, Ltd. and Performance Telecom Corp. The Company expects
competition in the ADSL market in the near future from numerous other
companies. In addition, the Telecommunications Act which was signed into law
on February 8, 1996, permits the RBOCs to engage in manufacturing activities
after the FCC authorizes an RBOC to provide long distance services within its
service territory. An RBOC must first meet specific statutory and regulatory
tests demonstrating that its monopoly market for local exchange services is
open to competition before it will be permitted to enter the long distance
market. When these tests are met, an RBOC will be permitted to engage in
manufacturing activities. Therefore, RBOCs, which are the Company's largest
customers, may potentially become the Company's competitors as well. Many of
the Company's competitors and potential competitors have greater financial,
technological, manufacturing, marketing and human resources than the Company.
Any increase in competition could reduce the Company's gross margin, require
increased spending by the Company on research and development and sales and
marketing, and otherwise materially adversely affect the Company's business
and results of operations.

Products that increase the efficiency of digital transmission over
copper wire face competition from fiber, wireless, cable modems and other
products delivering broadband digital transmission. Many telcos and other
local access providers have adopted policies that favor the deployment of
fiber. To the extent that customers choose to install fiber and other
transmission media between the central office and the end user, the Company
expects that demand for its copper wire-based products will decline. Telcos
face competition from cable operators, new local access providers and
wireless service providers that are capable of providing high speed digital
transmission to end users. To the extent telcos decide not to aggressively
respond to this competition and fail to offer high speed digital
transmission, the overall demand for ADSL products could decline. In
addition, the deployment of certain products and technologies for copper wire
may also reduce the demand for the types of products currently manufactured
by the Company. Specifically, the deployment of HDSL systems in the U.S.,
which reduces telcos' need for T-1 repeaters and NIUs, may result in a
decrease in demand for Westell's DS1-based products. Further, the Company
believes that the domestic market for many of its DS0-based products is
decreasing, and will likely continue to decrease, as high capacity digital
transmission becomes less expensive and more widely deployed.

TELECONFERENCE SERVICES

Conference Plus provides operator-assisted and automatic
teleconferencing services to customers throughout the U.S. The Company
manages its teleconferencing services through its operations center located
in Schaumburg, Illinois. Teleconferencing services allow organizations and
individuals to collect and disseminate information faster, more accurately
and without the associated costs of face-to-face meetings. The Company's
strategy in this market is to apply its expertise as a telecommunications
products manufacturer to provide cost-effective and quality teleconferencing
services to satisfy the growing customer demand for these services.
Conference Plus was started by the Company in October 1988, and generated
$6.8 million, $7.7 million and $10.3 million in revenues in fiscal 1995, 1996
and 1997, respectively.

Competition in the teleconferencing business is intense and the Company
expects that competition will increase due to low barriers to entry and
recent entrants into the audio teleconferencing service market. Many of
Conference Plus' competitors, including AT&T, MCI Communications and Sprint
Communications, have much greater name recognition, more extensive customer
service and marketing capabilities and substantially greater financial,
technological and personnel resources than the Company. There can be no
assurance that the Company will be able to successfully compete in this
market in the future or that competitive pressures will not result in price
reductions that would materially adversely affect the Company's business and
results of operations.

GOVERNMENT REGULATION

The telecommunications industry, including most of the Company's
customers, is subject to regulation from federal and state agencies,
including the FCC and various state public utility and service commissions.
While such regulation does not affect the Company directly, the effects of
such regulations on the Company's customers may, in turn, adversely impact
the Company's business and results of operations. For example, FCC regulatory
policies affecting the availability of telco services and other terms on
which telcos conduct their business may impede the Company's penetration of
certain markets. The Telecommunications Act lifted certain restrictions on
telcos' ability to provide interactive multimedia services including video on
demand. The Telecommunications Act establishes new regulations whereby telcos
may provide various types of video services. Rules to implement these new
statutory provisions are now being considered by the FCC. While the statutory
and regulatory framework for telcos providing video products has become more
favorable, it is uncertain at this time how this will affect telcos' demand
for products based upon ADSL technology.

In addition, the Telecommunications Act permits the RBOCs to engage in
manufacturing activities after the FCC authorizes an RBOC to provide long
distance services within its service territory. An RBOC must first meet
specific statutory and regulatory tests demonstrating that its monopoly
market for local exchange services is open to competition before it will be
permitted to enter the long distance market. When these tests are met, an
RBOC will be permitted to engage in manufacturing activities and the RBOCs,
which are the Company's largest customers, may become the Company's
competitors as well.

The Company's business and operating results may also be adversely
affected by the imposition of certain tariffs, duties and other import
restrictions on components that the Company obtains from non-domestic
suppliers or by the imposition of export restrictions on products that the
Company sells internationally. Internationally, governments of the United
Kingdom, Canada, Australia and numerous other countries actively promote and
create competition in the telecommunications industry. Changes in current or
future laws or regulations, in the U.S. or elsewhere, could materially and
adversely affect the Company's business and results of operations.

PROPRIETARY RIGHTS

The Company's success and future revenue growth will depend, in part, on
its ability to protect trade secrets, obtain or license patents and operate
without infringing on the rights of others. Although the Company regards its
technology as proprietary, it has only one patent on such technology. The
Company expects to seek additional patents from time to time related to its
research and development activities. The Company relies on a combination of
technical leadership, trade secrets, copyright and trademark law and
nondisclosure agreements to protect its unpatented proprietary know-how.
There can be no assurance, however, that these measures will provide
meaningful protection for the Company's trade secrets or other proprietary
information. Moreover, the Company's business and results of operations may
be materially adversely affected by competitors who independently develop
substantially equivalent technology. In addition, the laws of some foreign
countries do not protect the Company's proprietary rights to the same extent
as U.S. law. The telecommunications industry is also characterized by the
existence of an increasing number of patents and frequent litigation based on
allegations of patent and other intellectual property infringement. From time
to time, the Company receives communications from third parties alleging
infringement of exclusive patent, copyright and other intellectual property
rights to technologies that are important to the Company. There can be no
assurance that third parties will not assert infringement claims against the
Company in the future, that assertions by such parties will not result in
costly litigation, or that the Company would prevail in any such litigation
or be able to license any valid and infringed patents from third parties on
commercially reasonable terms. Further, such litigation, regardless of its
outcome, could result in substantial costs to and diversion of effort by the
Company. Any infringement claim or other litigation against or by the Company
could have a material adverse effect on the Company's business and results of
operations.

Many of the Company's products incorporate technology developed and
owned by third parties. Consequently, the Company must rely upon third
parties to develop and introduce technologies which enhance the Company's
current products and enable the Company, in turn, to develop its own products
on a timely and cost-effective basis to meet changing customer needs and
technological trends in the telecommunications industry. Any impairment or
termination of the Company's relationship with any licensers of third-party
technology would force the Company to find other developers on a timely basis
or develop its own technology. There can be no assurance that the Company
will be able to obtain the third-party technology necessary to continue to
develop and introduce new and enhanced products, that the Company will obtain
third-party technology on commercially reasonable terms or that the Company
will be able to replace third-party technology in the event such technology
becomes unavailable, obsolete or incompatible with future versions of the
Company's products. The absence of or any significant delay in the
replacement of third-party technology would have a material adverse effect on
the Company's business and results of operations.

The Company's ADSL products are dependent upon a CAP transceiver
technology licensed from GlobeSpan Technologies, Inc. GlobeSpan Technologies
is currently the sole provider of this CAP transceiver technology and the
Company currently would not be able to produce any of its ADSL systems
without using this technology. The GlobeSpan license (the "GlobeSpan
License"), which expires in December 2002, is nonexclusive and this
technology has been licensed to numerous manufacturers. The Company has
entered into cooperation and development agreements with other technology
suppliers who are developing alternative DSL transceiver technologies, such
as DMT technology. Consequently, in the event GlobeSpan fails to renew the
GlobeSpan License, the Company believes that it will have sufficient access
to alternative sources of DSL technology prior to December 2002 so that it
will be able to continue to produce ADSL systems. However, the cancellation
or failure of GlobeSpan to renew the GlobeSpan License would materially
adversely affect the Company's business and results of operations if other
sources of DSL technology do not become readily available on similar terms or
telcos elect not to deploy DSL systems utilizing alternative DSL
technologies, such as DMT transceiver technology.

In addition, the owner of GlobeSpan (Texas Pacific Group) has formed a
business unit (Paradyne) that develops and markets products competitive with
the Company's products, such as ADSL. Although this newly-formed business
unit does not affect the GlobeSpan License and is a separate company from
GlobeSpan, there can be no assurance that the formation of this business unit
will not affect the Company's ability to license CAP transceiver technology
from GlobeSpan after the license expires.

Rapid technological evolution has resulted in the need to implement
strategic alliances with customers and technology suppliers in order to
accelerate the time to market for new products. Without such relationships
and due to the lengthy telco product approval and purchase cycles, the
technology may be obsolete by the time it is implemented. Relationships in
place with companies such as AT&T Paradyne, Analog Devices, Inc., Motorola
and certain customers enable the Company to develop products at the same time
that the Company undergoes the product approval and purchase processes for
products in development. This can result in much quicker introduction of new
products while the technology is still in demand. Westell has cooperation and
development relationships with Atlantech Technologies Ltd., a software
development company based in Scotland, Scientific Generics, an innovative
technology development company based in Cambridge, England, and Sungmi
Electronics, an industry leader in the supply of high speed switching,
transmission and local access systems based in Seoul, Korea.

EMPLOYEES

As of March 31, 1997, the Company had 795 full-time employees. Westell's
telecommunications business had a total of 692 full-time employees,
consisting of 154 in sales, marketing, distribution and service, 154 in
research and development, 348 in manufacturing and 36 in administration.
Conference Plus had a total of 103 full-time employees. None of the
Company's employees are represented by a collective bargaining agreement nor
has the Company ever experienced any work stoppage. The Company believes its
relationship with its employees is good.

ITEM 2. PROPERTIES

During fiscal 1997 the Company moved into approximately 185,000 square
feet of office, development and manufacturing space in Aurora, Illinois, a
suburb of Chicago. The Company also leases facilities in Schaumburg, Illinois
for Conference Plus, and in Tampa, Florida and Cambridge, England for its
international operations. The Aurora facility was constructed through a
Limited Liability Corporation ("LLC") with a real estate developer. The
Company has entered into a 15 year lease of this facility with the LLC. Since
the Company has funded the construction, the lease payments have been abated.
It is the Company's intent to sell this property, repay any financing and
lease the facility from a third party.

While the Company believes its current facilities are adequate to
support its present level of operations, it believes that it will require
additional space in the next two years to accommodate additional expansion of
its business operations. The Company estimates that its manufacturing
facilities are operating at a utilization rate of approximately 50%.

ITEM 3. LEGAL PROCEEDINGS

The Company has been involved from time to time in litigation in the
normal course of business. In January 1995, a former officer of a subsidiary
of the Company filed a suit against the Company alleging damages suffered as
a result of wrongful termination and breach of contract. During fiscal year
1997, a settlement was reached with the plaintiff and the Company received a
partial reimbursement from their insurance carrier. The net settlement
expense of approximately $400,000 is included in Other Income (Expense) in
the accompanying statements of operations for the year ending March 31, 1997.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.

The Company effected its initial public offering on November 30, 1995 at
a price to the public of $6.50 per share. The Company's Class A Common Stock
is quoted on the NASDAQ National Market under the symbol "WSTL." The
following table sets forth for the periods indicated the high and low closing
sale prices for the Class A Common Stock as reported on the NASDAQ National
Market, which prices reflect the two-for-one Stock Split of the Company's
Class A and Class B Common Stock to holders of record on May 20, 1996 and
paid on June 7, 1996 (the "Stock Split").

High Low

Fiscal Year 1996
Third Quarter (from December 1, 1995) . . . . . . . . . . . . . . . . . $13 13/16 $ 9 3/4
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 9 5/8
Fiscal Year 1997
First Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 18 5/8
Second Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 1/4 19 1/4
Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 3/8 21
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 7/8 8 5/8
Fiscal Year 1998
First Quarter (through June 24, 1997) . . . . . . . . . . . . . . . . . 25 7/8 10 3/4

</TABLE>

As of June 24, 1997, there were approximately 352 holders of record of
the outstanding shares of Class A Common Stock.

Issuance of Class A Common Stock

On June 26, 1996, the Company completed a public offering in which
1,665,000 shares of Class A Common Stock were sold by the Company and 335,000
shares of Class A Common Stock were sold by certain stockholders of the
Company for a price to the public of $39.00 per share. Net proceeds to the
Company from the sale of the Class A Common Stock were approximately $61.6
million and will be used to fund capital equipment purchases and for general
corporate purposes including working capital funding.

Dividends

The Company has never declared or paid any cash dividends on its Common
Stock and does not anticipate paying any cash dividends in the foreseeable
future. The Company currently intends to retain any future earnings to
finance the growth and development of its business.

ITEM 6. SELECTED FINANCIAL DATA.

The following selected consolidated financial data as of March 31, 1993,
1994, 1995, 1996 and 1997 and for each of the five fiscal years in the period
ended March 31, 1997 have been derived from the Company's consolidated
financial statements, which have been audited by Arthur Andersen LLP,
independent public accountants. The data set forth below is qualified by
reference to, and should be read in conjunction with, "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
the Consolidated Financial Statements and the related Notes thereto and other
financial information appearing elsewhere in this Form 10-K

Fiscal Year Ended March 31,
1993 1994 1995 1996 1997
(in thousands, except per share data)

Statement of Operations Data:
Revenues . . . . . . . . . . . . . . . . . . . . $ 43,221 $ 51,051 $ 74,029 $ 83,236 $ 79,385

Cost of goods sold . . . . . . . . . . . . . . . 25,358 30,250 44,494 50,779 57,832
Gross margin . . . . . . . . . . . . . . . . 17,863 20,801 29,535 32,457 21,553
Operating expenses:
Sales and marketing . . . . . . . . . . . . . . 5,688 8,068 12,169 13,744 16,214
Research and development . . . . . . . . . . . 5,284 7,695 10,843 12,603 21,994
General and administrative . . . . . . . . . . 4,092 5,502 6,701 8,364 9,757
Total operating expenses . . . . . . . . . . 15,064 21,265 29,713 34,711 47,965
Operating income (loss) from continuing
operations . . . . . . . . . . . . . . . . . . 2,799 (464) (178) (2,254) (26,412)
Other income (expense), net . . . . . . . . . . . (14) (36) 34 (226) 2221
Interest expense . . . . . . . . . . . . . . . . 137 176 769 859 330
Income (loss) from continuing operations before
income taxes . . . . . . . . . . . . . . . . . 2,648 (676) (913) (3,339) (24,521)
Provision (benefit) for income taxes . . . . . . 913 (989) (788) (1,886) (9,820)
Income (loss) from continuing operations . . . . 1,735 313 (125) (1,453) (14,701)
Discontinued operations (loss) . . . . . . . . . (37) (100) (383) (622) (5)
Net income (loss) . . . . . . . . . . . . . . . . $ 1,698 $ 213 $ (508) $ (2,075) $(14,706)
Net income (loss) per share:<F1>
Continuing operations . . . . . . . . . . . . . $ 0.06 $ 0.01 $ (0.01) $ (0.05) $ (0.41)
Discontinued operations . . . . . . . . . . . . -- (0.00) (0.01) (0.02) (0.00)
Net income (loss) per share . . . . . . . . . . . $ 0.06 $ 0.01 $ (0.02) $ (0.07) $ (0.41)
Dividends declared per share . . . . . . . . . . $ -- $ -- $ -- $ -- $ --
Average number of common shares outstanding <F1>. 27,620 28,486 28,952 30,846 35,940

March 31,
1993 1994 1995 1996 1997

Balance Sheet Data:
Working capital . . . . . . . . . . . . . . . . . $ 5,137 $ 3,053 $ 1,280 $ 28,741 $ 65,105
Total assets . . . . . . . . . . . . . . . . . . 15,777 29,327 40,276 64,448 108,049
Revolving promissory notes . . . . . . . . . . . 1,700 1,700 11,089 -- --
Long-term debt, including current portion . . . . 704 3,339 4,129 4,427 6,487
Total stockholders' equity . . . . . . . . . . . 7,719 8,002 7,558 38,985 86,188

<FN>
<F1> Adjusted to reflect the Stock Split. See Notes 1 and 11 of Notes to Consolidated Financial Statements.

</TABLE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.

OVERVIEW

The Company commenced operations in 1980 as a provider of
telecommunications network transmission products that enable advanced
telecommunications services over copper telephone wires. Until fiscal 1994,
the Company derived substantially all of its revenues from its DS0 and DS1
product lines, particularly the sale of NIUs and related products, which
accounted for at least 45% of revenues in each of the last three fiscal
years. The Company introduced its first DSL products in fiscal 1993 and these
products represented 20.6%, 24.4% and 10.9% of revenues in fiscal 1995, 1996
and 1997, respectively. The Company has also provided audio teleconferencing
services since fiscal 1989 and consumer products claims processing services
since fiscal 1994. Revenues from audio teleconferencing services constituted
9.2% of the Company's revenues in both fiscal 1995 and 1996 and 13.0% in
fiscal 1997. In July 1996, the Company completed the disposition of KPINS,
its consumer products claims processing subsidiary, which is presented in the
results of operations as a discontinued operation.

The Company's customer base is comprised primarily of the RBOCs,
independent domestic local exchange carriers and public telephone
administrations located outside the U.S. Due to the stringent quality
specifications of its customers and the regulated environment in which its
customers operate, the Company must undergo lengthy approval and procurement
processes prior to selling its products. Accordingly, the Company must make
significant up front investments in product and market development prior to
actual commencement of sales of new products. In late fiscal 1992, the
Company significantly increased its investment in new product development
based on emerging technologies, particularly ADSL, and began expanding its
sales and marketing efforts to cover new product lines and planned expansion
into international markets. International operations accounted for 5.0%,
23.8% and 5.5% of the Company's revenues in fiscal 1995, 1996 and 1997,
respectively. As a result of the significant increases in research and
development and sales and marketing expenses related to new product and
market development, the Company's results of operations were adversely
impacted in fiscal 1995, 1996 and 1997.

The Company expects to continue to evaluate new product opportunities
and engage in extensive research and development activities. This will
require the Company to continue to invest heavily in research and development
and sales and marketing, which is expected to adversely affect short-term
results of operations. Due to the Company's significant ongoing investment in
DSL technology, the Company anticipates losses in each of the fiscal 1998
quarters. The Company believes that its future revenue growth and
profitability will principally depend on its success in increasing sales of
ADSL products and developing new and enhanced DS1 and other DSL products. For
instance, in the current fiscal year, the majority of the DSL revenue has
been generated by data dial tone ADSL shipments. Customer focus has migrated
from video dial tone applications (i.e., video on demand, distance learning,
etc.) to data dial tone applications (i.e., Internet access, work at home,
etc.) due to the growth in users accessing the World Wide Web through the
Internet and the need to increase the transmission speed when down loading
large text, graphics, and video files. In view of the Company's reliance on
the emerging ADSL market for growth and the unpredictability of orders and
subsequent revenues, the Company believes that period to period comparisons
of its financial results are not necessarily meaningful and should not be
relied upon as an indication of future performance. Revenues from DS0
products have declined in recent years as telcos continue to move from analog
to digital transmission services. The Company also expects that revenues from
NIU products in its DS1 product group may decline as telcos increase the use
of alternative technologies such as HDSL. Failure to increase revenues from
new products, whether due to lack of market acceptance, competition,
technological change or otherwise, would have a material adverse effect on
the Company's business and results of operations.

RESULTS OF OPERATIONS

The following table sets forth the percentage of revenues represented by
certain items in the Company's statements of operations for the periods
indicated:

Fiscal Year Ended March 31,
1995 1996 1997

Equipment sales . . . . . . . . . . . . . . . . . . . . . . . . . . . 90.8% 90.7% 87.0%
Service revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.2 9.3 13.0
Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . 100.0 100.0 100.0

Cost of equipment sales . . . . . . . . . . . . . . . . . . . . . . . 55.0 55.5 64.9
Cost of services . . . . . . . . . . . . . . . . . . . . . . . . . . 5.1 5.5 8.0
Total cost of goods sold . . . . . . . . . . . . . . . . . . . . . 60.1 61.0 72.9

Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . 39.9 39.0 27.1

Operating expenses:
Sales and marketing . . . . . . . . . . . . . . . . . . . . . . . . 16.4 16.5 20.4
Research and development . . . . . . . . . . . . . . . . . . . . . 14.6 15.2 27.7
General and administrative . . . . . . . . . . . . . . . . . . . . 9.1 10.0 12.3

Total operating expenses . . . . . . . . . . . . . . . . . . . . 40.1 41.7 60.4

Operating income (loss) from continuing operations . . . . . . . . . (0.2) (2.7) (33.3)
Other income (expense), net . . . . . . . . . . . . . . . . . . . . . 0.0 (0.3) 2.8
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . 1.0 1.0 0.4

Income (loss) from continuing operations before income taxes . . . . (1.2) (4.0) (30.9)
Provision (benefit) for income taxes . . . . . . . . . . . . . . . . (1.0) (2.3) (12.4)

Income (loss) from continuing operations . . . . . . . . . . . . . . (0.2) (1.7) (18.5)
Discontinued operations (loss) . . . . . . . . . . . . . . . . . . . (0.5) (0.8) (0.0)

Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . (0.7)% (2.5)% (18.5)%

</TABLE>

FISCAL YEARS ENDED MARCH 31, 1995, 1996 AND 1997

Revenues. Revenues were $74.0 million, $83.2 million and $79.4 million
in fiscal 1995, 1996 and 1997 respectively. Revenues increased 12.4% from
fiscal 1995 to 1996 and decreased 4.6% from 1996 to 1997. The fiscal 1996
increase was primarily due to a $5.1 million increase in DSL equipment
revenues reflecting video dial tone trial shipments to two international
customers offset in part by video dial tone trial shipments to one domestic
customer made in fiscal 1995. DS1 product revenues increased $3.3 million
from fiscal 1995 to 1996 due primarily to overall unit volume increases which
were offset in part by lower average unit sales prices due to change in
product sales mix and competitive pricing pressure on unit sales prices. The
fiscal 1997 decrease in equipment revenue of $6.5 million was primarily due
to a $11.6 decrease in DSL equipment revenues offset by an increase in DS1
equipment revenues of $5.3 million. The decrease in DSL revenue was more than
accounted for by the absence of $14.0 million in video dial tone trial
shipments to two foreign telephone operators as telephone operators in
general migrated their focus from video dial tone trial activity (video on
demand) to data trials of DSL equipment. DSL shipments in fiscal 1997
consisted primarily of data dial tone product shipments for field and
marketing trials. Unit shipments of DSL products have increased, but have a
lower average sales price when compared to the DSL product sales made in
fiscal 1996. The lower average sales price of DSL equipment is primarily a
result of product integration efforts. The fiscal 1997 increase in DS1 sales
was caused by overall unit volume increases and slightly higher average unit
sales prices as a result of change in product mix which was offset in part by
continued competitive pricing pressures on unit sales prices when compared to
fiscal 1996. Service revenues increased $900,000 and $2.6 million in fiscal
1996 and 1997, respectively, due primarily to increased audio conference
calling volume from the Company's Conference Plus subsidiary.

Gross Margin. Gross margin decreased as a percentage of revenues from
39.9% in fiscal 1995 to 39.0% in fiscal 1996 and to 27.1% in fiscal 1997.
These decreases were due to product pricing pressures and changes in product
mix within the Company's DS1 and DS0 product lines. In fiscal 1996 this
decrease was offset in part by higher gross margins received on video dial
tone units shipped to two foreign telephone operators. The 1997 decrease in
gross profit margin was also significantly effected by a reserve taken for
ADSL Phase III piece part inventories in the amount of $5.0 million during
the third quarter of 1997. This inventory reserve was the result of the new
generation RADSL platform reducing demand for the prior generation FlexCap
III ADSL products. Excluding the impact of this inventory reserve, the gross
profit margin would have been 33.4% for fiscal 1997. The gross margin for
fiscal 1997 was additionally impacted by a large video teleconference
equipment OEM sale with a lower margin than the Company's other equipment
sales.

Sales and Marketing. Sales and marketing expenses were $12.2 million,
$13.7 million and $16.2 million in fiscal 1995, 1996 and 1997, respectively,
constituting 16.4%, 16.5% and 20.4% of revenues, respectively. These
increases in sales and marketing expenses were primarily due to staff
additions, in both domestic and international markets, to support and promote
the Company's product lines, particularly ADSL products. The Company believes
that continued investment in sales and marketing will be required to expand
its product lines, bring new products to market and service customers. The
Company anticipates that sales and marketing expenses will continue to
increase in absolute dollars.

Research and Development. Research and development expenses were $10.8
million, $12.6 million and $22.0 million in fiscal 1995 1996 and 1997,
respectively, constituting 14.6%, 15.2% and 27.7% of revenues, respectively.
These increases in research and development expenses were due primarily to
costs associated to additional hiring and increased prototype material costs
to support new and existing product development for ADSL, RADSL and other
emerging technology products. Furthermore, the Company had received
nonrecurring engineering project funding of $800,000 and $2.6 million in
fiscal 1995 and 1996, respectively, for a customer sponsored research and
development project that was not present in fiscal 1997. The Company believes
that a continued commitment to research and development will be required for
the Company to remain competitive and anticipates that research and
development costs will increase in absolute dollars.

General and Administrative. General and administrative expenses were
$6.7 million, $8.4 million and $9.8 million in fiscal 1995, 1996 and 1997
respectively, constituting 9.1%, 10.0% and 12.3% of revenues, respectively.
The dollar increases in general and administration expenses were due
primarily to additional personnel to handle expanded corporate infrastructure
in domestic and international markets. The Company anticipates that general
and administrative costs will continue to increase in absolute dollars as the
Company hires additional personnel.

Interest Expense. Interest expense was $769,000, $859,000 and $330,000
for fiscal 1995, 1996 and 1997, respectively. Interest expense increased, in
fiscal 1995 and 1996, as a result of interest expense incurred by the Company
in connection with borrowings under its revolving promissory notes to fund
expanded working capital requirements and, to a lesser extent, interest
incurred under capital lease obligations. The 1997 decrease in interest
expense was a result of the Company utilizing approximately $11.1 million of
the proceeds generated in the Company's initial public offering of Class A
Common Stock in November 1995 to repay amounts outstanding under the
Company's revolving promissory notes.

Benefit for Income Taxes. Benefit for income taxes was $788,000, $1.9
million and $9.8 million in fiscal 1995, 1996 and 1997, respectively. In each
of these fiscal years, in addition to the tax benefit generated by the loss
before income taxes, the Company was able to utilize $632,000, $790,000 and
$398,000, respectively, in tax credits primarily generated by increasing
research and development activities. The Company has approximately $3.1
million in income tax credit carry forwards and a tax benefit of $8.9 million
related to a net operating loss carryforward that is available to offset
future taxable income. The tax credit carryforwards begin to expire in 2008
and the net operating loss carryforward begins to expire in 2012.

QUARTERLY RESULTS OF OPERATIONS

The following tables present the Company's results of operations for
each of the last eight fiscal quarters and the percentage relationship of
certain items to revenues for the respective periods. The Company believes
that the information regarding each of these quarters is prepared on the same
basis as the audited Consolidated Financial Statements of the Company
appearing elsewhere in this Form 10-K. In the opinion of management, all
necessary adjustments (consisting only of normal recurring adjustments) have
been included to present fairly the unaudited quarterly results when read in
conjunction with the audited Consolidated Financial Statements of the Company
and the Notes thereto appearing elsewhere in this Form 10-K. These quarterly
results of operations are not necessarily indicative of the results for any
future period.

Quarter Ended
Fiscal 1996 Fiscal 1997

June 30, Sept. 30, Dec. 31, Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31,
1995 1995 1995 1996 1996 1996 1996 1997
(in thousands)

Equipment sales . . . . $20,562 $18,639 $19,429 $16,889 $17,412 $18,677 $15,670 $17,307
Service revenue . . . . 1,925 1,821 1,917 2,054 2,846 2,375 2,387 2,711
Total revenues . . . 22,487 20,460 21,346 18,943 20,258 21,052 18,057 20,018
Cost of equipment sales 11,739 11,479 12,057 10,887 11,220 12,830 15,363 12,130
Cost of services . . . 1,083 1,132 1,168 1,234 1,779 1,251 1,557 1,702
Total cost of goods sold 12,822 12,611 13,225 12,121 12,999 14,081 16,920 13,832
Gross margin . . . 9,665 7,849 8,121 6,822 7,259 6,971 1,137 6,186

Operating expenses:
Sales and marketing . 3,685 3,428 3,671 2,960 3,922 3,627 4,200 4,465
Research and
development . . . . 3,024 3,358 3,252 2,969 4,222 4,737 5,851 7,184
General and
administrative . . 2,021 2,065 2,236 2,042 2,224 2,115 2,730 2,688
Total operating
expenses . . . . 8,730 8,851 9,159 7,971 10,368 10,479 12,781 14,337

Operating income (loss)
from continuing
operations . . . . . 935 (1,002) (1,038) (1,149) (3,109) (3,508) (11,644) (8,151)

Other income (expense),
net . . . . . . . . . (258) 55 82 (105) 228 473 631 889
Interest expense . . . 260 261 290 48 97 100 30 103

Income (loss) from
continuing operations
before income taxes . 417 (1,208) (1,246) (1,302) (2,978) (3,135) (11,043) (7,365)
Provision (benefit) for
income taxes . . . . 28 (586) (617) (711) (1,290) (1,205) (4,295) (3,030)

Income (loss) from
continuing
operations . . . . . 389 (622) (629) (591) (1,688) (1,930) (6,748) (4,335)
Discontinued operations
(loss) . . . . . . . (65) (529) (24) (4) (7) 3 (0) (1)
. . . . . . . . . . . .

Net income (loss) . . . $ 324 $(1,151) $ (653) $ (595) $ (1,695) $ (1,927) $ (6,748) $ (4,336)

Quarter Ended
Fiscal 1996 Fiscal 1997

June 30, Sept. 30, Dec. 31, Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31,
1995 1995 1995 1996 1996 1996 1996 1997

Equipment sales 91.4% 91.1% 91.0% 89.2% 86.0% 88.7% 86.8% 86.5%
Service revenue 8.6 8.9 9.0 10.8 14.0 11.3 13.2 13.5
Total revenues 100.0 100.0 100.0 100.0 100.0 100.0% 100.0% 100.0%

Cost of equipment sales 52.2 56.1 56.5 57.5 55.4 60.9 85.1 60.6
Cost of services 4.8 5.5 5.5 6.5 8.8 6.0 8.6 8.5
Total cost of goods sold 57.0 61.6 62.0 64.0 64.2 66.9 93.7 69.1

Gross margin 43.0 38.4 38.0 36.0 35.8 33.1 6.3 30.9

Operating expenses:
Sales and marketing 16.4 16.8 17.2 15.6 19.4 17.2 23.3 22.3
Research and
development 13.4 16.4 15.2 15.7 20.8 22.5 32.4 35.9
General and
administrative 9.0 10.1 10.5 10.8 11.0 10.0 15.1 13.4

Total operating
expenses 38.8 43.3 42.9 42.1 51.2 49.7 70.8 71.6

Operating income (loss)
from continuing
operations 4.2 (4.9) (4.9) (6.1) (15.3) (16.7) (64.5) (40.7)

Other income (expense),
net (1.2) 0.3 0.4 (0.6) 1.1 2.2 3.5 4.4
Interest expense 1.2 1.3 1.3 0.2 0.5 0.5 0.2 0.5

Income (loss) from
continuing operations
before income taxes 1.8 (5.9) (5.8) (6.9) (14.7) (14.9) (61.2) (36.8)
Provision (benefit) for
income taxes 0.1 (2.9) (2.9) (3.8) (6.4) (5.7) (23.8) (15.1)

Income (loss) from
continuing
operations 1.7 (3.0) (2.9) (3.1) (8.3) (9.2) (37.4) (21.7)
Discontinued operations
(loss) (0.3) (2.6) (0.1) 0.0 0.0 0.0 0.0 0.0

Net income (loss) 1.4% (5.6)% (3.0)% (3.1)% (8.3)% (9.2)% (37.4)% (21.7)%

</TABLE>

The Company's quarterly equipment revenues have decreased from the
levels reported in the June 30, 1995 quarter due in part to a large shipment
of ADSL video dial tone trial systems to one foreign telephone operator in
the June 1995 quarter. Additional shipments of video dial tone ADSL trial
systems occurred in the September 1995 and December 1995 quarters to another
foreign telephone operator but at reduced levels from the June 1995 quarter.
In the March 1996 quarter, telephone operators' interest switched from
trialing video dial tone systems for video on demand and distance learning
applications to trialing data dial tone applications related to Internet
access and work at home applications due to the growth in users accessing the
World Wide Web through the Internet and the need to increase the transmission
speed when down loading large text, graphics, and video files. The Company
has shipped ADSL systems in each of the quarters presented but at varying
levels depending on trial level demands. This variability has resulted in
decreased revenue levels particularly from quarters which included large
video dial tone shipments made to two foreign telephone operators in the
first three quarters of fiscal 1996. Service revenues have seen steady growth
throughout the eight quarters presented due primarily to increased audio
conference calling traffic volume.

Gross margin as a percentage of revenues has decreased each quarter
since the first quarter of fiscal 1996 as a result of product pricing
pressures and product mix changes in each of the Company's product lines as
well as investments in manufacturing infrastructure for anticipated ADSL
production. The second and third quarter of fiscal 1996 saw margins declining
less significantly due to higher margin ADSL video dial tone trial system
shipments to a foreign telephone operator. In the third quarter of fiscal
1997, the gross margin was negatively effected by a reserve taken for ADSL
Phase III piece part inventories in the amount of $5.0 million. This
inventory reserve was the result of the new generation RADSL platform
reducing demand for the prior generation FlexCap III ADSL products. Excluding
the impact of this inventory reserve, the gross profit margin would have been
34.0% for the quarter. The Company believes that its gross margin in future
periods will depend on a number of factors, including market demand for the
Company's DSL products, pricing pressures, competitive technologies and
manufacturing expenses. There can be no assurance that the Company will be
able to increase gross margins in future periods even if its DSL products
achieve market acceptance due to these factors.

Operating expenses increased during the first three quarters of fiscal
1996 but decreased in the fourth quarter of fiscal 1996 primarily as a result
of nonrecurring engineering project funding from a third party in the amount
of $1.1 million which offset research and development expenses as the Company
continued to make significant investments to support DSL product development.
Operating expenses increased in each quarter of fiscal 1997 as the Company
continued to increase operating expenses, primarily the hiring of additional
personnel, to support the development, introduction and promotion of DSL
systems and other new products. And, in the fourth quarter of fiscal 1997,
research and development costs were up significantly due to prototyping
expenses related to the RADSL and Access Multiplexer platforms. The Company
expects to continue to increase operating expenses to support the
development, introduction and promotion of DSL systems and other new
products. As a result of fluctuations in the timing of revenues of DSL
products and increased research and development and sales and marketing
expenses, the Company currently anticipates net losses in each of the
quarters of fiscal 1998. The Company also recorded a charge of approximately
$520,000, net of tax, in the second quarter of fiscal 1996 in connection with
the disposition of KPINS.

The Company expects to continue to experience significant fluctuations
in quarterly results of operations. The Company believes that fluctuations in
quarterly results may cause the market price of the Class A Common Stock to
fluctuate, perhaps substantially. Factors which have had an influence on and
may continue to influence the Company's results of operations in a particular
quarter include the size and timing of customer orders and subsequent
shipments, customer order deferrals in anticipation of new products, timing
of product introductions or enhancements by the Company or its competitors,
market acceptance of new products, technological changes in the
telecommunications industry, competitive pricing pressures, accuracy of
customer forecasts of end-user demand, changes in the Company's operating
expenses, personnel changes, foreign currency fluctuations, changes in the
mix of products sold, quality control of products sold, disruption in sources
of supply, regulatory changes, capital spending, delays of payments by
customers and general economic conditions. Sales to the Company's customers
typically involve long approval and procurement cycles and can involve large
purchase commitments. Accordingly, cancellation or deferral of one or a small
number of orders could cause significant fluctuations in the Company's
quarterly results of operations. As a result, the Company believes that
period-to-period comparisons of its results of operations are not necessarily
meaningful and should not be relied upon as indications of future
performance.

Because the Company generally ships products within a short period after
receipt of an order, the Company typically does not have a material backlog
of unfilled orders, and revenues in any quarter are substantially dependent
on orders booked in that quarter. The Company's expense levels are based in
large part on anticipated future revenues and are relatively fixed in the
short-term. Therefore, the Company may be unable to adjust spending in a
timely manner to compensate for any unexpected shortfall of orders.
Accordingly, any significant shortfall of demand in relation to the Company's
expectations or any material delay of customer orders would have an almost
immediate adverse impact on the Company's business and results of operations
and on its ability to achieve profitability.

LIQUIDITY AND CAPITAL RESOURCES

In November 1995, the Company effected the initial public offering of
its Class A Common Stock which generated approximately $33.3 million in
corporate funding. The Company used the proceeds from the offering to repay
revolving promissory bank notes of approximately $11.1 million which
primarily financed working capital. The Company also completed a secondary
public offering of Class A Common Stock in June 1996 which generated $61.6
million. At March 31, 1997 the Company had $39.3 million in cash and short
term investments consisting primarily of federal government agency
instruments and the highest rated grade corporate commercial paper. As of
March 31, 1997, the Company had no amounts outstanding under its secured
revolving promissory notes and $6.1 million outstanding under its equipment
borrowing facility. As of March 31, 1997, the Company had approximately $16.3
million available under these facilities. The revolving promissory notes and
the equipment borrowing facility require the maintenance of a minimum cash
to current maturity ratio, a current ratio and a maximum debt to net worth
ratio. The Company is currently in compliance with all such covenants.

The Company's operating activities generated cash of $6.5 million in
fiscal 1996 and used cash of $5.3 million and $22.5 million in fiscal 1995
and 1997, respectively. Cash used by operations in fiscal 1995 resulted
primarily from decreases in customer deposits and increases in receivables
and inventory, offset in part by increases in accounts payable. Cash
generated from operating activities in fiscal 1996 was a result primarily of
decreases in receivable and inventory and an increase in customer deposits
offset in part by an increase in short term investments and a decrease in
accounts payable. Cash used by operations in fiscal 1997 resulted primarily
from a loss from continuing operations of $18.3 million (net of depreciation)
and working capital required by an increase in short term investments and
receivables, and a decrease in customer deposits.

Capital expenditures in fiscal 1995, 1996 and 1997 were $5.2 million,
$6.3 million and $9.4 million, respectively. These expenditures were
principally for machinery, computer and research equipment purchases. The
Company expects to spend approximately $7.0 million in fiscal 1998 for
capital equipment.

In September 1995, the Company entered into an agreement to form a
limited liability company, Westell-Meridian LLC ("LLC"), for the purpose of
developing a 16.4 acre site in Aurora, Illinois into a 185,000 square foot
corporate facility to house manufacturing, engineering, sales, marketing and
administration. In connection therewith, the Company currently has a 60%
equity ownership interest in the LLC. In December 1996, the Company began
occupying the constructed facility held by the LLC (the "Aurora facility").
During the construction period, the Company advanced the LLC the construction
funding, which as of March 31, 1997, was $14.4 million. The construction
advances to the LLC are non-interest bearing in exchange for abatement of the
Aurora facility lease payments to the LLC by the Company. Had the Company
been required to make lease payments under the existing 15 year lease
agreement with the LLC, the Aurora facility lease costs would have increased
by $67,500 for the three months ended March 31, 1997. Minimum future rental
payments under the existing lease at March 31, 1997 to the LLC would have
been $1,840,000 for each of the years 1998 through 2002 and $20,800,000 over
the remaining term of the lease. The Company has the option to buy out the
other investor in the LLC and thereby purchase the facility developed by the
LLC or sell its interest in the LLC. It is management's intent to sell its
interest in the LLC within the next fiscal year, have the LLC repay the
construction advances and lease the Aurora facility from a third party.
Accordingly, the Aurora facility is presented as a current asset held for
sale and the 40% minority interest related to the LLC is included in accrued
expenses in the accompanying March 31, 1997 balance sheet

At March 31, 1997, the Company's principal sources of liquidity were
$28.4 million of cash and cash equivalents, $10.9 million in short term
investments and $12.4 million and $3.9 million available under its secured
revolving promissory notes and equipment borrowing facility, respectively.
Borrowings under the secured revolving promissory notes and equipment
borrowing facility currently bear interest at the bank's prime rate (8.5% at
March 31, 1997). These revolving promissory notes are due on, and the
equipment borrowing facility expires in, September 1997 and the Company
anticipates that such revolving promissory notes and equipment borrowing
facility will be renewed on no less favorable terms.

The Company had a deferred tax asset of approximately $14.5 million at
March 31, 1997. This deferred tax asset relates to (i) tax credit
carryforwards of approximately $3.1 million, (ii) a net operating loss
carryforward tax benefit of approximately $8.9 million and (iii) temporary
differences between the amount of assets and liabilities for financial
reporting purposes and such amounts measured by tax laws. Of such tax credit
carryforwards, the first $243,000 of credits expire in 2008 and $722,000 of
credits may be carried forward indefinitely. The net operating loss
carryforward begins to expire in 2012. Realization of deferred tax assets
associated with the Company's future deductible temporary differences, net
operating loss carryforwards and tax credit carryforwards is dependent upon
generating sufficient taxable income prior to their expiration. Although
realization of the deferred tax assets is not assured, management believes it
is more likely than not that the deferred tax assets will be realized through
future taxable income or by using a tax strategy currently available to the
Company. On a quarterly basis, management will assess whether it remains more
likely than not that the deferred tax assets will be realized. This
assessment could be impacted by a combination of continuing operating losses
and a determination that the tax strategy is no longer sufficient to realize
some or all of the deferred tax assets. If management determines that it is
no longer more likely than not that the deferred tax assets will be realized,
a valuation allowance will be required against some or all of the deferred
tax assets. This would require a charge to the income tax provision, and such
charge could be material to the Company's results of operations.

RECENTLY ISSUED ACCOUNTING STANDARDS

In February 1997, the Financial Accounting Standards Board issued SFAS
No. 128, "Earnings Per Share" (SFAS No. 128), which simplifies the standards
for computing earnings per share. It replaces the presentation of primary EPS
with a presentation of basic EPS. It also requires dual presentation of basic
and diluted EPS on the face of the income statement and requires a
reconciliation between the basic EPS computation to the diluted EPS
computation. The SFAS No. 128 presentation is required effective December 31,
1997, and will be adopted by the Company at that time. Had the Company
calculated EPS using SFAS No. 128, basic EPS would not have changed from that
presented for the year ended March 31, 1997.

______________________

RISK FACTORS

The following risk factors relate to the Company's business environment.
Before making an investment decision in the Company, investors should review
the following Risk Factors section which identifies certain risk factors that
the occurrence of any one or some combination thereof could have a material
adverse effect on the Company's business, financial condition and results of
operations.

RELIANCE ON EMERGING MARKET FOR ADSL TECHNOLOGY; LOSSES

The Company's future growth is substantially dependent upon whether DSL
technology, particularly as it relates to ADSL systems, gains widespread
commercial acceptance by telcos. Since 1992, the Company has invested, and
expects to continue to invest, significant resources in the development of
DSL technology. However, the market for products using ADSL technology is
only now emerging as customers have recently begun to consider implementing
ADSL technology in their networks. As a result, revenues from DSL systems
have been difficult for the Company to forecast, and the Company's overall
results of operations have experienced substantial fluctuations in recent
periods. The timing of orders and shipments of DSL systems can have a
significant impact on the Company's revenues and results of operations. For
example, during each of the quarters during fiscal 1997, the Company has
generated DSL revenue but at varying levels. This variability related to DSL
revenue has resulted in a reduction in quarterly revenue when compared to the
preceding quarter in four of the past eight quarters contained in fiscal 1996
and 1997. In addition, during the third quarter of fiscal 1997 the Company
reserved for $5 million in piece part inventory primarily as a result of a
new generation RADSL product reducing demand for prior generation FlexCap
Phase III ADSL products. Due to the Company's significant ongoing investment
in DSL technology, the Company anticipates losses in each of the fiscal 1998
quarters. The Company's ability to achieve profitability or revenue growth in
the future will depend upon market acceptance of the Company's ADSL systems
and the development and market acceptance of other DSL products introduced by
the Company. Customers have deployed the Company's DSL systems primarily for
technical and marketing trials. The Company is unable to predict whether
other technical and marketing trials will be successful and when commercial
deployment will begin, if at all.

Prior to selling its products to telcos, the Company must undergo
lengthy approval and purchase processes. Evaluation can take a year or more
for complex products based on new technologies such as ADSL. Historically,
telcos have been cautious in implementing new technologies. Telcos' and other
customers' deployment of ADSL technology may be prevented or delayed by a
number of factors, including lengthy product approval and purchase processes,
decisions to defer product orders in anticipation of new product
developments, cost, regulatory barriers that prevent or restrict telcos from
providing interactive multimedia services, the lack of demand for interactive
multimedia services, the lack of sufficient programming for interactive
multimedia services, the availability of alternative technologies, such as
ISDN, cable modems and optical fiber, and policies that favor the use of such
alternative technologies over ADSL technology. As a result of these factors,
there can be no assurance that customers will pursue the deployment of
products using ADSL technology. Even if customers adopt policies favoring
full-scale implementation of DSL technology, there is no assurance that sales
of the Company's DSL systems will become significant or that the Company will
be able to successfully introduce on a timely basis or achieve sales of ADSL
systems and other products based upon DSL technology planned for future
introduction. Due to increased competition, low barriers to entry, product
pricing pressures and new product introductions in the Company's core DS0 and
DS1 markets, these DS0 and DS1 product groups are not expected to generate
sufficient revenues or profits to offset any losses that the Company may
experience due to a lack of sales of ADSL systems and other DSL products
currently under development. As a result, if telcos fail to deploy the
Company's DSL systems, and the Company therefore does not receive significant
revenues from DSL sales, then the Company's business and results of
operations will be materially adversely affected and there can be no
assurance that the Company will achieve profitability in the future.

FLUCTUATIONS IN QUARTERLY RESULTS; LACK OF BACKLOG

The Company expects to continue to experience significant fluctuations
in quarterly results of operations. Factors which have had an influence on
and may continue to influence the Company's results of operations in a
particular quarter include the size and timing of customer orders and
subsequent shipments, customer order deferrals in anticipation of new
products, timing of product introductions or enhancements by the Company or
its competitors, market acceptance of new products, technological changes in
the telecommunications industry, competitive pricing pressures, accuracy of
customer forecasts of end-user demand, changes in the Company's operating
expenses, personnel changes, foreign currency fluctuations, changes in the
mix of products sold, quality control of products sold, disruption in sources
of supply, regulatory changes, capital spending, delays of payments by
customers and general economic conditions. Sales to the Company's customers
typically involve long approval and procurement cycles and can involve large
purchase commitments. Accordingly, cancellation or deferral of one or a small
number of orders could cause significant fluctuations in the Company's
quarterly results of operations.

The Company expects to continue to evaluate new product opportunities and
engage in extensive research and development activities. This will require
the Company to continue to invest heavily in research and development and
sales and marketing, which is expected to adversely affect short-term results
of operations. Due to the Company's significant ongoing investment in DSL
technology, the Company anticipates losses in each of the fiscal 1998
quarters. The Company believes that its future revenue growth and
profitability will principally depend on its success in increasing sales of
ADSL products and developing new and enhanced DS1 and other DSL products. For
instance, in the current fiscal year, the majority of the DSL revenue has
been generated by data dial tone ADSL shipments. Customer focus has migrated
from video dial tone applications (for example, video on demand, distance
learning, etc.) to data dial tone applications (for example, internet access
and work at home) due to the growth in users accessing the World Wide Web
through the internet and end users' need to increase the transmission speed
when down loading large text, graphics, and video files. In view of the
Company's reliance on the emerging ADSL market for growth and the
unpredictability of orders and subsequent revenues, the Company believes that
period to period comparisons of its financial results are not necessarily
meaningful and should not be relied upon as an indication of future
performance. Revenues from DS0 products have declined in recent years as
telcos continue to move from analog to digital transmission services. The
Company also expects that revenues from NIU products in its DS1 product group
may decline as telcos increase the use of alternative technologies such as
HDSL. Failure to increase revenues from new products, whether due to lack of
market acceptance, competition, technological change or otherwise, would have
a material adverse effect on the Company's business and quarterly results of
operations.

RAPID TECHNOLOGICAL CHANGE; DEPENDENCE ON NEW PRODUCTS

There can be no assurance that the Company's future development efforts
will result in commercially successful products or that the Company's
products will not be rendered obsolete by changing technology, new industry
standards or new product announcements by competitors. The markets for the
Company's products are characterized by intense competition, rapid
technological advances, evolving industry standards, changes in end-user
requirements, frequent new product introductions and enhancements, and
evolving telco service offerings. If technologies or standards applicable to
the Company's products (or telco service offerings based on the Company's
products) become obsolete or fail to gain widespread commercial acceptance,
then the Company's business and results of operations will be materially
adversely affected. Moreover, the introduction of products embodying new
technology, the emergence of new industry standards or changes in telco
services could render the Company's existing products, as well as products
under development, obsolete and unmarketable. For instance, during the third
quarter of fiscal 1997, the Company reserved for $5 million in piece part
inventory primarily as a the result of a new generation RADSL product
reducing demand for prior generation FlexCap Phase III ADSL products. In
addition, the Company believes that the continued deployment of new
technologies in the U.S., such as HDSL, in the local access network will
adversely affect demand for certain of its existing products such as NIUs,
which accounted for 45.5% and 52.5% of the Company's revenues in fiscal 1996
and 1997, respectively, and that its future success will largely depend upon
its ability to continue to enhance its existing products and to successfully
develop and market new products on a cost-effective and timely basis. In this
regard, most of the Company's current product offerings apply primarily to
the delivery of digital communications over copper wire in the local access
network. While the Company has competed successfully to date by developing
high performance products for transmission over copper wire, it expects that
the increasing deployment of fiber and wireless broadband transmission in the
local access network (each of which uses a significantly different process of
delivery) will require the Company to develop new products to meet the
demands of these emerging transmission media.

The Company's past sales and profitability have resulted, to a
significant extent, from its ability to anticipate changes in technology,
industry standards and telco service offerings, and to develop and introduce
new and enhanced products. The Company's continued ability to adapt to such
changes will be a significant factor in maintaining or improving its
competitive position and its prospects for growth. Due to rapid technological
changes in the telecommunications industry, the RBOCs' lengthy product
approval and purchase processes and the Company's reliance on third-party
technology for the development of new products, however, there can be no
assurance that the Company will successfully introduce new products on a
timely basis or achieve sales of new products in the future. In addition,
there can be no assurance that the Company will have the financial and
manufacturing resources necessary to continue to successfully develop new
products based on emerging technology or to otherwise successfully respond to
changing technology, industry standards and telco service offerings.

COMPETITION

The markets for the Company's products are intensely competitive and the
Company expects competition to increase in the future, especially in the
emerging ADSL market. Westell's principal competitors in the DS0 market are
Adtran, Inc., Pulsecom, Tellabs, Inc. and Teltrend, Inc. Westell's principal
competitors in the DS1 market are ADC Telecommunications, Inc., Applied
Digital Access, Inc., PairGain Technologies, Inc. and Teltrend, Inc. The
Company's current competitors in the ADSL market include Alcatel Network
Systems, Amati Communications Corp., Paradyne, ECI Telecom, Inc., Ericsson,
Netspeed, AGCS, Diamond Lane, US Robotics, PairGain Technologies, Inc.,
Orckit Communications, Ltd. and Performance Telecom Corp. The Company expects
competition in the ADSL market in the near future from numerous other
companies. In addition, the Telecommunications Act which was signed into law
on February 8, 1996, permits the RBOCs to engage in manufacturing activities
after the FCC authorizes an RBOC to provide long distance services within its
service territory. An RBOC must first meet specific statutory and regulatory
tests demonstrating that its monopoly market for local exchange services is
open to competition before it will be permitted to enter the long distance
market. When these tests are met, an RBOC will be permitted to engage in
manufacturing activities. Therefore, RBOCs, which are the Company's largest
customers, may potentially become the Company's competitors as well. Many of
the Company's competitors and potential competitors have greater financial,
technological, manufacturing, marketing and human resources than the Company.
Any increase in competition could reduce the Company's gross margin, require
increased spending by the Company on research and development and sales and
marketing, and otherwise materially adversely affect the Company's business
and results of operations.

Products that increase the efficiency of digital transmission over
copper wire face competition from fiber, wireless, cable modems and other
products delivering broadband digital transmission. Many telcos have adopted
policies that favor the deployment of fiber. To the extent that telcos choose
to install fiber and other transmission media between the central office and
the end user, the Company expects that demand for its copper wire-based
products will decline. Telcos face competition from cable operators, new
local access providers and wireless service providers that are capable of
providing high speed digital transmission to end users. To the extent telcos
decide not to aggressively respond to this competition and fail to offer high
speed digital transmission, the overall demand for ADSL products could
decline. In addition, the deployment of certain products and technologies for
copper wire may also reduce the demand for the types of products currently
manufactured by the Company. Specifically, the deployment of HDSL in the
U.S., which reduces telcos' need for T-1 repeaters and NIUs, may result in a
decrease in demand for Westell's DS1-based products. Further, the Company
believes that the domestic market for many of its DS0-based products is
decreasing, and will likely continue to decrease, as high capacity digital
transmission becomes less expensive and more widely deployed.

DEPENDENCE ON LIMITED NUMBER OF CUSTOMERS; LENGTHY SALES CYCLES

The Company depends, and will continue to depend, on the RBOCs and other
independent local exchange carriers for substantially all of its revenues.
Sales to the RBOCs accounted for 74.3%, 53.8% and 61.9% of the Company's
revenues in fiscal 1995, 1996 and 1997, respectively. Consequently, the
Company's future success will depend significantly upon the timeliness and
size of future purchase orders from the RBOCs, the product requirements of
the RBOCs, the financial and operating success of the RBOCs, and the success
of the RBOCs' services that use the Company's products. Any attempt by an
RBOC or other telco access providers to seek out additional or alternative
suppliers or to undertake, as permitted under applicable regulations, the
internal production of products would have a material adverse effect on the
Company's business and results of operations. In addition, the Company's
sales to its largest customers have in the past fluctuated and in the future
are expected to fluctuate significantly from quarter to quarter and year to
year. The loss of such customers or the occurrence of such sales fluctuations
would materially adversely affect the Company's business and results of
operations. Bell Atlantic and NYNEX and Pacific Telesis and SBC
Communications, respectively, have recently announced their intent to merge.
The Company is unable to predict what effect either of these mergers, if
completed, would have on the demand for the Company's ADSL systems or other
products.

DEPENDENCE ON THIRD-PARTY TECHNOLOGY; RELATIONSHIP WITH GLOBESPAN

The Company's ADSL products are dependent upon a CAP transceiver
technology licensed from GlobeSpan Technologies, Inc. GlobeSpan Technologies
is currently the sole provider of this CAP transceiver technology and the
Company currently would not be able to produce any of its ADSL systems
without using this technology. The GlobeSpan License, which expires in
December 2002, is nonexclusive and this technology has been licensed to
numerous manufacturers. The Company has entered into cooperation and
development agreements with other technology suppliers who are developing
alternative DSL transceiver technologies, such as DMT technology.
Consequently, in the event GlobeSpan fails to renew the GlobeSpan License,
the Company believes that it will have sufficient access to alternative
sources of DSL technology prior to December 2002 so that it will be able to
continue to produce ADSL systems. However, the cancellation or failure of
GlobeSpan to renew the GlobeSpan License would materially adversely affect
the Company's business and results of operations if other sources of DSL
technology do not become readily available on similar terms or telcos elect
not to deploy DSL systems utilizing alternative DSL technologies, such as DMT
DSL technology.

In addition, the owner of GlobeSpan (Texas Pacific Group) has formed a
business unit (Paradyne) that develops and markets products competitive with
the Company's products, such as ADSL Although this business unit does not
affect the Company's license and is a separate company from GlobeSpan, there
can be no assurance that the formation of this business unit will not affect
the Company's ability to license CAP transceiver technology from GlobeSpan
after the license expires.

DEPENDENCE ON SOLE OR LIMITED SOURCE SUPPLIERS

Certain key components, such as integrated circuits and other electronic
components, used in the Company's products are currently available from only
one source or a limited number of suppliers. For instance, the Company
currently depends on GlobeSpan Technologies to provide critical integrated
circuits used in the Company's ADSL products. In addition, certain electronic
components are currently in short supply and are provided on an allocation
basis to the Company and other users, based upon past usage. There can be no
assurance that the Company will be able to continue to obtain sufficient
quantities of integrated circuits or other electronic components as required,
or that such components, if obtained, will be available to the Company on
commercially reasonable terms. The Company purchases integrated circuits from
GlobeSpan Technologies on a purchase order basis under a formal supply
arrangement. GlobeSpan Technologies in turn sources the integrated circuits
from Lucent Technologies. The Company anticipates that integrated circuit
production capacity and availability of certain electronic components of its
suppliers may be insufficient to meet demand for such components in the
future. Integrated circuits and electronic components are key components in
all of the Company's products and are fundamental to the Company's business
strategy of developing new and succeeding generations of products at reduced
unit costs without compromising functionality or serviceability. In the past,
however, the Company has experienced delays in the receipt of certain of its
key components, such as integrated circuits, which have resulted in delays in
related product deliveries. There can be no assurance that delays in key
components or product deliveries will not occur in the future due to
shortages resulting from the limited number of suppliers, the financial or
other difficulties of such suppliers or the possible limitations in
integrated circuit production capacity or electronic component availability
because of significant worldwide demand for these components. The inability
to obtain sufficient key components or to develop alternative sources for
such components, if and as required in the future, could result in delays or
reductions in product shipments, which in turn could have a material adverse
effect on the Company's customer relationships, its business and results of
operations.

GOVERNMENT REGULATION

Federal and state agencies, including the FCC and various state public
utility and service commissions. While such regulation does not affect the
Company directly, the effects of such regulations on the Company's customers
may, in turn, adversely impact the Company's business and results of
operations. For example, FCC regulatory policies affecting the availability
of telco services and other terms on which telcos conduct their business may
impede the Company's penetration of certain markets. The Telecommunications
Act lifted certain restrictions on telcos' ability to provide interactive
multimedia services including video on demand. The Telecommunications Act
establishes new regulations whereby telcos may provide various types of video
services. Rules to implement these new statutory provisions are now being
considered by the FCC. While the statutory and regulatory framework for
telcos providing video products has become more favorable, it is uncertain at
this time how this will affect telcos' demand for products based upon ADSL
technology. In addition, the Company's business and operating results may
also be adversely affected by the imposition of certain tariffs, duties and
other import restrictions on components that the Company obtains from
non-domestic suppliers or by the imposition of export restrictions on
products that the Company sells internationally. Internationally, governments
of the United Kingdom, Canada, Australia and numerous other countries
actively promote and create competition in the telecommunications industry.
Changes in current or future laws or regulations, in the U.S. or elsewhere,
could materially and adversely affect the Company's business and results of
operations.

POTENTIAL PRODUCT RECALLS; WARRANTY EXPENSES

The Company's products are required to meet rigorous standards imposed by
its customers. Most of the Company's products carry a limited warranty
ranging from one to seven years, which generally covers defects in materials
or workmanship and failure to meet published specifications, but excludes
damages caused by improper use and all other express or implied warranties.
In the event there are material deficiencies or defects in the design or
manufacture of the Company's products, the affected products could be subject
to recall. For the past five fiscal years, the Company's warranty expenses
have been relatively insignificant. Although the Company maintains a
comprehensive quality control program, there can be no assurance that the
Company's products will not suffer from defects or other deficiencies or that
the Company will not experience a material product recall in the future.
Complex products such as those offered by the Company may contain undetected
errors or failures when first introduced or as new versions are released. Any
product recall as a result of such errors or failures, and the associated
negative publicity, could result in the loss of or delay in market acceptance
of the Company's products and have a material adverse effect on the Company's
business and results of operations. The Company's standard limited warranty
for its ADSL products ranges from one to five years. Since the Company's DSL
products are new, with limited time in service, the Company cannot predict
the level of warranty claims that it will experience for these products.
Despite testing by the Company and its customers, there can be no assurance
that existing or future products based on DSL or other technology will not
contain undetected errors or failures when first introduced or as new
versions are released. Such errors or failures could result in warranty
returns in excess of those historically experienced by the Company and have a
material adverse effect on the Company's business and results of operations.

RISKS DUE TO EXPANDING INTERNATIONAL OPERATIONS

International revenues represented 23.8% and 5.5% of the Company's
revenues in fiscal 1996 and 1997, respectively. The Company believes that
international revenues will represent a significant percentage of revenues in
the future. Due to its export sales, the Company is subject to the risks of
conducting business internationally, including unexpected changes in
regulatory requirements, foreign currency fluctuations which could result in
reduced revenues or increased operating expenses, tariffs and trade barriers,
potentially longer payment cycles, difficulty in accounts receivable
collection, foreign taxes, and the burdens of complying with a variety of
foreign laws and telecommunications standards. The Company's contracts with
its international customers are typically denominated in foreign currency and
any decline in the value of such currency could have a significant impact on
the Company's business and results of operations. For example, in fiscal
1996, the Company incurred a $270,000 transaction loss on receivable due to
foreign currency fluctuations. To date, the Company has not engaged in
hedging with respect to its foreign currency exposure but may do so in the
future. The Company also is subject to general geopolitical risks, such as
political and economic instability and changes in diplomatic and trade
relationships, in connection with its international operations. In addition,
the laws of certain foreign countries may not protect the Company's
proprietary technology to the same extent as do the laws of the U.S. There
can be no assurance that the risks associated with the Company's
international operations will not materially adversely affect the Company's
business and results of operations in the future or require the Company to
modify significantly its current business practices.

FACTORS AFFECTING ABILITY TO MANAGE AND SUSTAIN GROWTH

The Company is in the process of developing the manufacturing
capabilities necessary to supply and support large volumes of ADSL systems
and in the future may become increasingly dependent on subcontractors. The
Company has entered into discussions to establish subcontracting
relationships for the assembly of its ADSL systems. A reliance on third-party
subcontractors involves several risks, including the potential absence of
adequate capacity and reduced control over product quality, delivery
schedules, manufacturing yields and costs. Although the Company believes that
alternative subcontractors or sources could be developed if necessary, the
use of subcontractors could result in material delays or interruption of
supply as a consequence of required re-tooling, retraining and other
activities related to establishing and developing a new subcontractor or
supplier relationship. Any material delays or difficulties in connection with
increased manufacturing production or the use of subcontractors could have a
material adverse effect on the Company's business and results of operations.
There can be no assurance that the Company will be successful in increasing
its manufacturing capacity in a timely and cost-effective manner or that the
possible transition to subcontracting will not materially adversely affect
the Company's business and results of operations. The Company's failure to
effectively manage its growth would have a material adverse effect on the
Company's business and results of operations.

PROPRIETARY TECHNOLOGY; RISK OF THIRD-PARTY CLAIMS OF INFRINGEMENT

The Company's success and future revenue growth will depend, in part, on
its ability to protect trade secrets, obtain or license patents and operate
without infringing on the rights of others. Although the Company regards its
technology as proprietary, it has only one patent on such technology related
to NIUs. The Company expects to seek additional patents from time to time
related to its research and development activities. The Company relies on a
combination of technical leadership, trade secrets, copyright and trademark
law and nondisclosure agreements to protect its unpatented proprietary
know-how. There can be no assurance, however, that these measures will
provide meaningful protection for the Company's trade secrets or other
proprietary information. Moreover, the Company's business and results of
operations may be materially adversely affected by competitors who
independently develop substantially equivalent technology. In addition, the
laws of some foreign countries do not protect the Company's proprietary
rights to the same extent as U.S. law. The telecommunications industry is
also characterized by the existence of an increasing number of patents and
frequent litigation based on allegations of patent and other intellectual
property infringement. From time to time, the Company receives communications
from third parties alleging infringement of exclusive patent, copyright and
other intellectual property rights to technologies that are important to the
Company. There can be no assurance that third parties will not assert
infringement claims against the Company in the future, that assertions by
such parties will not result in costly litigation, or that the Company would
prevail in any such litigation or be able to license any valid and infringed
patents from third parties on commercially reasonable terms. Further, such
litigation, regardless of its outcome, could result in substantial costs to
and diversion of effort by the Company. Any infringement claim or other
litigation against or by the Company could have a material adverse effect on
the Company's business and results of operations.

DEPENDENCE ON KEY PERSONNEL

The success of the Company is dependent, in part, on its ability to
attract and retain qualified technical, marketing, sales and management
personnel. Competition for such personnel is intense and the Company's
inability to attract and retain additional key employees or the loss of one
or more of its current key employees could materially adversely affect the
Company's business and results of operations. The Company does not have
employment contracts or noncompete agreements with any of its executive
officers except Richard Riviere, the Vice President of Transaction Services
and President of Conference Plus, Inc., a subsidiary of the Company. Mr.
Riviere has agreed not to compete with the Company for two years after the
termination of his employment with the Company. There can be no assurance
that the Company will be successful in hiring or retaining key personnel.

EXPECTED VOLATILITY OF STOCK PRICE

The market price of the Company's Class A Common Stock has been highly
volatile since the Company's initial public offering in November 1995 and
has experienced extreme price fluctuations. The Class A Common Stock is
quoted on the NASDAQ National Market, which market has experienced and is
likely to experience in the future significant price and volume fluctuations.

Market fluctuations may adversely affect the market price of the
Company's Class A Common Stock without regard to the operating performance of
the Company. In addition, the Company believes that factors such as
announcements of developments related to the Company's business, fluctuations
in the Company's results of operations, sales of substantial amounts of
securities of the Company into the marketplace, general conditions in the
telecommunications industry or the worldwide economy, an outbreak of
hostilities, a shortfall in revenues or earnings compared to analysts'
expectations, changes in analysts' recommendations or projections,
announcements of new products by the Company or its competitors or
developments in the Company's relationships with its suppliers or customers
could cause the price of the Class A Common Stock to fluctuate in the future,
perhaps substantially. There can be no assurance that the market price of
the Company's Class A Common Stock will not experience significant
fluctuations in the future, including fluctuations that are unrelated to the
Company's performance. General market price declines or market volatility in
the future could adversely affect the market price of the Class A Common
Stock, and the current market price of the Class A Common Stock may not be
indicative of future market prices.

CONTROL BY PRINCIPAL STOCKHOLDERS

The Company's capital stock consists of Class A Common Stock and Class B
Common Stock (collectively, the "Common Stock"). Holders of Class A Common
Stock are entitled to one vote per share and holders of the Class B Common
Stock are entitled to four votes per share. At June 24, 1997, as Trustees of
the Voting Trust, Robert C. Penny III and Melvin J. Simon have the exclusive
power to vote over 75% of the votes entitled to be cast by the holders of the
Company's Common Stock, according to the mutual determination by Messrs.
Penny and Simon as to the best interests of the beneficiaries of the Voting
Trust, consisting of the Penny family and the Simon family. In addition, all
members of the Penny family who are beneficiaries under the Voting Trust are
parties to a Stock Transfer Restriction Agreement which prohibits such
beneficiaries from transferring any Common Stock or their beneficial
interests in the Voting Trust acquired prior to November 30, 1995 without
first offering such Common Stock to the other members of the Penny family.
Consequently, Messrs. Penny and Simon, as Trustees, will effectively control
the Company and generally have sufficient voting power to elect all of the
directors and to determine the outcome of any corporate transaction or other
matter submitted to the stockholders for approval. Such control may have the
effect of discouraging certain types of transactions involving an actual or
potential change of control of the Company, including transactions in which
the holders of Class A Common Stock might otherwise receive a premium for
their shares over the then-current market price.

ANTI-TAKEOVER PROVISIONS

The Company's Board of Directors has the authority to issue up to
1,000,000 shares of Preferred Stock and to determine the relative
preferences, limitations and relative rights of those shares with respect to
dividends, redemption, payments on liquidation, sinking fund provisions,
conversion privileges and voting rights without any further vote or action by
the stockholders. The rights of the holders of Class A Common Stock will be
subject to, and may be adversely affected by, the rights of the holders of
any Preferred Stock that may be issued in the future. While the Company has
no present intention to issue shares of Preferred Stock, any such issuance
could have the effect of making it more difficult for a third party to
acquire control of the Company. In addition, the Company is subject to the
anti-takeover provisions of Section 203 of the Delaware General Corporation
Law, which could have the effect of delaying or preventing a change of
control of the Company. Furthermore, certain provisions of the Company's
Amended and Restated Certificate of Incorporation (the "Amended Certificate
of Incorporation") and By-laws may individually or collectively have the
effect of delaying or preventing changes in control or management of the
Company and could have a depressive effect on the market price of the
Company's Class A Common Stock. For example, the Company's Amended
Certificate of Incorporation and By-laws contain provisions that limit the
right of stockholders to call special stockholders meetings and require that
stockholders follow an advance notification procedure for certain stockholder
nominations of candidates to the Board of Directors and for new business to
be conducted at stockholders meetings.

NO DIVIDENDS

The Company intends to retain all future earnings for use in the
development of its business and does not anticipate paying any cash dividends
in the foreseeable future.

ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The Company's financial statements required by Item 8, together with the
report thereon of the independent accountants dated May 16, 1997 are set
forth on pages 45 - 63 of this report. The financial statement schedules
listed under Item 14(a)2, together with the report thereon of the independent
accountants dated May 16, 1997 are set forth on pages 64 and 65 of this
report and should be read in conjunction with the financial statements.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

(a) Directors of the Company

The information required by this Item is set forth in registrant's Proxy
Statement for the Annual Meeting of Stockholders to be held on September
10, 1997 under the caption "Election of Directors," which information is
herein by reference.

(b) Executive officers of the Company

The information required by this Item is set forth in registrant's Proxy
Statement for the Annual Meeting of Stockholders to be held on September
10, 1997 under the caption "Executive Officers," which information is
herein by reference.

ITEM 11. EXECUTIVE COMPENSATION

The information required by this Item is set forth in registrant's Proxy
Statement for the Annual Meeting of Stockholders to be held on September
10, 1997 under the caption "Compensation of Directors and Executive
Officers," and "Report of the Compensation of the Board of Directors,"
which information is herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by this Item is set forth in registrant's Proxy
Statement for the Annual Meeting of Stockholders to be held on September
10, 1997 under the caption "Ownership of the Capital Stock of the
Company," which information is herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

The information required by this Item is set forth in registrant's Proxy
Statement for the Annual Meeting of Stockholders to be held on September
10, 1997 under the caption "Certain Relationships and Related
Transactions," which information is herein by reference.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a) (1) Financial Statements

The consolidated financial statements of Westell
Technologies, Inc. for the fiscal year ended March 31,
1997, together with the Report of Independent Public
Accountants, are set forth on pages 45 through 63 of this
Report.

The supplemental financial information listed and appearing
hereafter should be read in conjunction with the consolidated
financial statements included in the report.

(2) Financial Statement Schedules

The following are included in Part IV of this Report for each
of the years ended March 31, 1995, 1996 and 1997 as
applicable:

Report of Independent Public Accountants - page 64

Schedule II - Valuation and Qualifying Accounts - page 65

Financial statement schedules not included in this report have
been omitted either because they are not applicable or because
the required information is shown in the consolidated
financial statements or notes thereto, included in this
report.

(3) Exhibits

3.1 Amended and Restated Certificate of Incorporation, as
amended (incorporated herein by reference to Exhibit 3.2
to Westell Technologies, Inc.'s Registration Statement
on Form S-1, as amended, Registration No. 33-98024).
3.2 Amended and Restated By-laws (incorporated herein by
reference to Exhibit 3.3 to Westell Technologies, Inc.'s
Registration Statement on Form S-1, as amended,
Registration No. 33-98024).
9.1 Voting Trust Agreement dated February 23, 1994, as
amended (incorporated herein by reference to Exhibit 9.1
to Westell Technologies, Inc.'s Registration Statement
on Form S-1, as amended, Registration No. 33-98024).
*10.1 Form of Restricted Stock Award granted by the Company to
its officers and directors other than Gary F. Seamans
and Melvin J. Simon (incorporated herein by reference to
Exhibit 10.1 to the Westell Technologies, Inc.'s
Registration Statement on Form S-1, as amended,
Registration No. 33-98024).
*10.2 Restricted Stock Award granted December 17, 1991 by the
Company to Gary F. Seamans (incorporated herein by
reference to Exhibit 10.2 to Westell Technologies,
Inc.'s Registration Statement on Form S-1, as amended,
Registration No. 33-98024).
*10.3 Form of Restricted Stock Awards granted by the Company
to Gary F. Seamans and Melvin J. Simon (incorporated
herein by reference to Exhibit 10.3 to Westell
Technologies, Inc.'s Registration Statement on Form S-1,
as amended, Registration No. 33-98024).
10.4 Stock Transfer Restriction Agreement entered into by
members of the Penny family, as amended, (incorporated
herein by reference to Exhibits 10.4 and 10.16 to
Westell Technologies, Inc.'s Registration Statement on
Form S-1, as amended, Registration No. 33-98024).
10.5 Form of Registration Rights Agreement among the Company
and Robert C. Penny III and Melvin J. Simon, as trustees
of the Voting Trust dated February 23, 1994
(incorporated herein by reference to Exhibit 10.5 to
Westell Technologies, Inc.'s Registration Statement on
Form S-1, as amended, Registration No. 33-98024).
*10.6 1995 Stock Incentive Plan (incorporated herein by
reference to Exhibit 10.6 to Westell Technologies,
Inc.'s Registration Statement on Form S-1, as amended,
Registration No. 33-98024).
*10.7 Employee Stock Purchase Plan (incorporated herein by
reference to Exhibit 10.7 to Westell Technologies,
Inc.'s Registration Statement on Form S-1, as amended,
Registration No. 33-98024).
10.8 Consulting Agreement dated July 28, 1988 between
Florence Penny and Westell, Inc. (incorporated herein by
reference to Exhibit 10.8 to Westell Technologies,
Inc.'s Registration Statement on Form S-1, as amended,
Registration No. 33-98024).
10.9 Lease Agreement dated July 15, 1986 between Kendall
Point Associates, Ltd. and Westell, Inc., as amended on
August 26, 1991 (incorporated herein by reference to
Exhibit 10.9 to Westell Technologies, Inc.'s
Registration Statement on Form S-1, as amended,
Registration No. 33-98024).
10.10 Limited Liability Company Operating Agreement dated as
of September 23, 1995 by Westell, Inc. and Kingsland
Properties, Ltd. (incorporated herein by reference to
Exhibit 10.10 to Westell Technologies, Inc.'s
Registration Statement on Form S-1, as amended,
Registration No. 33-98024).
10.11 Lease dated September 25, 1995 between Westell-Meridian
LLC and Westell, Inc. (incorporated herein by reference
to Exhibit 10.11 to Westell Technologies, Inc.'s
Registration Statement on Form S-1, as amended,
Registration No. 33-98024).
10.12 Credit Agreement dated March 7, 1995 between the Company
and Bank One Chicago, N.A. (incorporated herein by
reference to Exhibit 10.12 to Westell Technologies,
Inc.'s Registration Statement on Form S-1, as amended,
Registration No. 33-98024).
10.13 Cooperation and Development Agreement between Westell,
Inc. and GlobeSpan Technologies Inc.
10.14 Agreement dated September 13, 1988 between Richard
Riviere and Westell Technologies, Inc., as amended
(incorporated herein by reference to Exhibit 10.14 to
Westell Technologies, Inc.'s Registration Statement on
Form S-1, as amended, Registration No. 33-98024).
+10.15 (Intentionally omitted).
10.16 Credit Agreement dated April 30, 1996 between the
Company and Bank One Chicago, N.A. (incorporated herein
by reference to the exhibit of equivalent number to the
Company's Registration Statement on Form S-1, as
amended, Registration No. 333-4973).
10.17 Lease for Three National Plaza at Woodfield dated
December 24, 1991 by and between the First National Bank
of Boston, as Trustee pursuant to that certain Pooling
and Security Agreement dated April 1, 1988, and
Conference Plus, Inc., as amended and modified.
(incorporated herein by reference to the exhibit of
equal number to the Company's form 10-K for fiscal year
ended March 21, 1996).
10.18 Lease dated December 10, 1993 between LaSalle National
Trust, N.A., as Trustee under Trust Agreement dated
August 1, 1979, known as Trust No. 101293, and Westell
Incorporated, as amended and modified. (incorporated
herein by reference to the exhibit of equal number to
the Company's form 10-K for fiscal year ended March 21,
1996).
21.1 Subsidiaries of the Registrant (incorporated herein by
reference to Exhibit 21.1 to Westell Technologies,
Inc.'s Registration Statement on Form S-1, as amended,
Registration No. 33-98024).
23.1 Consent of Arthur Andersen LLP.
27 Financial Data Schedule.

+ Confidential treatment requested for certain portions of this document.
Certain portions of this document are being filed separately with the
Securities and Exchange Commission.
* Management contract or compensatory plan or arrangement.

(b) Reports on Form 8-K

There were no reports on Form 8-K filed for the three months ended
March 31, 1997.

The exhibits filed as part of this Annual Report on Form 10-K are
as specified in Item 14(a)(3) herein.

(d) Financial Statement Schedules

The financial statement schedules filed as part of this Annual
Report on Form 10-K are as specified in item 14(a)(2) herein.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized on June 30, 1997.

WESTELL TECHNOLOGIES, INC.

By /s/ GARY F. SEAMANS
Gary F. Seamans,
Chairman of the Board of Directors,
President and Chief Executive Officer

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

Signature Title Date

/s/ GARY F. SEAMANS Chairman of the Board of Directors, June 30, 1997
Gary F. Seamans President and Chief Executive Officer
(Principal Executive Officer)

/s/ ROBERT H. GAYNOR Vice-Chairman of the Board of Directors June 30, 1997
Robert H. Gaynor

/s/ MELVIN J. SIMON Assistant Secretary and Treasurer and June 30, 1997
Melvin J. Simon Director

/s/ STEPHEN J. HAWRYSZ Chief Financial Officer, Vice President, June 30, 1997
Stephen J. Hawrysz Secretary and Treasurer (Principal
Financial Officer and Principal Accounting
Officer)

/s/ STEFAN D. ABRAMS Director June 30, 1997
Stefan D. Abrams

/s/ MICHAEL A. BRUNNER Director June 30, 1997
Michael A. Brunner

/s/ PAUL A. DWYER Director June 30, 1997
Paul A. Dwyer

/s/ ORMAND J. WADE Director June 30, 1997
Ormand J. Wade

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND SUPPLEMENTARY DATA

Item Page

Consolidated Financial Statements:

Report of Independent Public Accountants . . . . . . . .
Consolidated Balance Sheets -- March 31, 1996 and 1997 .
Consolidated Statements of Operations for the years ended March 31, 1995,
1996 and 1997 . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Stockholders' Equity for the years ended March
31, 1995, 1996 and 1997 . . . . . . . . . . . . . .
Consolidated Statements of Cash Flows for the years ended March 31, 1995,
1996 and 1997 . . . . . . . . . . . . . . . . . . .
Notes to Consolidated Financial Statements . . . . . . .

Financial Statement Schedules:

Report of Independent Public Accountant . . . . . . . . .
Schedule II -- Valuation and Qualifying Accounts . . . .

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and Stockholders of
Westell Technologies, Inc.:

We have audited the accompanying consolidated balance sheets of Westell
Technologies, Inc. (a Delaware corporation) and Subsidiaries as of March 31,
1996 and 1997 and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended March 31, 1997. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.

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

In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Westell
Technologies, Inc. and Subsidiaries as of March 31, 1996 and 1997, and the
results of their operations and their cash flows for each of the three years
in the period ended March 31, 1997, in conformity with generally accepted
accounting principles.

ARTHUR ANDERSEN LLP

Chicago, Illinois
May 16, 1997

<TABLE>

WESTELL TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

ASSETS

March 31,
1996 1997
(in thousands)

Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . $18,602 $28,437
Short term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,187 10,850
Accounts receivable (net of allowance of $462,000 and $521,000 respectively) . . 10,217 12,119
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,684 10,416
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . 745 1,177
Refundable income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 444 320
Deferred income tax asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,868 2,410
Land and building construction held for sale . . . . . . . . . . . . . . . . . . 4,431 16,203

Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . 50,178 81,932
Property and equipment:
Machinery and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,933 10,703
Office, computer and research equipment . . . . . . . . . . . . . . . . . . . . . 11,520 17,951
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,387 1,277

22,840 29,931
Less accumulated depreciation and amortization . . . . . . . . . . . . . . . . . 11,188 15,293

Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . 11,652 14,638

Deferred income tax asset and other assets . . . . . . . . . . . . . . . . . . . . 2,618 11,479

Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 64,448 $ 108,049

The accompanying notes are an integral part of these Consolidated Balance Sheets Statements.

</TABLE>

<TABLE>

WESTELL TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

LIABILITIES AND STOCKHOLDERS' EQUITY

March 31,
1996 1997
(in thousands)

Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,643 $ 7,111
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,899 4,049
Accrued compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,995 3,133
Current portion of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . 1,591 2,121
Construction financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,968 --
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,341 413

Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . 21,437 16,827

Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,836 4,366

Other long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,040 668

Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150 --

Commitments and contingencies

Stockholders' equity:
Class A common stock, par $0.01 . . . . . . . . . . . . . . . . . . . . . . . . . . 128 150
Authorized -- 43,500,000 shares
Issued and outstanding -- 12,801,606 at March 31, 1996 and 14,984,811 at March 31,
1997
Class B common stock, par $0.01 . . . . . . . . . . . . . . . . . . . . . . . . . . 218 213
Authorized -- 25,000,000 shares
Issued and outstanding -- 21,838,376 at March 31, 1996 and 21,335,913 at March 31,
1997
Preferred stock, par $0.01 . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- --
Authorized -- 1,000,000 shares
Issued and outstanding -- none
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34,285 96,285
Cumulative translation adjustment . . . . . . . . . . . . . . . . . . . . . . . . . (59) (167)
Retained earnings (deficit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,413 (10,293)

Total stockholders' equity . . . . . . . . . . . . . . . . . . . . . . . . . 38,985 86,188

Total liabilities and stockholders' equity . . . . . . . . . . . . . . . $ 64,448 $ 108,049

The accompanying notes are an integral part of these Consolidated Balance Sheets.

</TABLE>

<TABLE>

WESTELL TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

Fiscal Year Ended March 31,
1995 1996 1997
(in thousands,
except per share data)

Equipment sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $67,207 $75,519 $69,066
Service revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,822 7,717 10,319
Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74,029 83,236 79,385

Cost of equipment sales . . . . . . . . . . . . . . . . . . . . . . . . . 40,723 46,162 51,543
Cost of services . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,771 4,617 6,289
Total cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . 44,494 50,779 57,832

Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29,535 32,457 21,553
Operating expenses:
Sales and marketing . . . . . . . . . . . . . . . . . . . . . . . . . . 12,169 13,744 16,214
Research and development . . . . . . . . . . . . . . . . . . . . . . . 10,843 12,603 21,994
General and administrative . . . . . . . . . . . . . . . . . . . . . . 6,701 8,364 9,757

Total operating expenses . . . . . . . . . . . . . . . . . . . . . . 29,713 34,711 47,965

Operating loss from continuing operations . . . . . . . . . . . . . . . . (178) (2,254) (26,412)
Other income (expense), net . . . . . . . . . . . . . . . . . . . . . . . 34 (226) 2,221
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . 769 859 330

Loss from continuing operations before income taxes . . . . . . . . . . . (913) (3,339) (24,521)
Benefit for income taxes . . . . . . . . . . . . . . . . . . . . . . . . (788) (1,886) (9,820)

Loss from continuing operations . . . . . . . . . . . . . . . . . . . . . (125) (1,453) (14,701)
Loss from discontinued operations (net of tax benefits of
$243,000, $394,000 and $ 3,000 respectively) . . . . . . . . . . . . . (383) (622) (5)

Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (508) $(2,075) $(14,706)

Loss per share:
Continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . $ (0.01) $ (0.05) $ (0.41)
Discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . (0.01) (0.02) (0.00)

Net loss per share . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (0.02) $ (0.07) $ (0.41)

Average number of common shares outstanding . . . . . . . . . . . . . . . 28,952 30,846 35,940

The accompanying notes are an integral part of these Consolidated Financial Statements.

</TABLE>

<TABLE>

WESTELL TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

Common Stock
Shares Issued
and Additional Cumulative Total
Outstanding Par Value Paid-in Translation Retained Stockholders'
Class A Class B Class A Class B Capital Adjustment Earnings Equity
(in thousands)

Balance, March 31, 1994 . . . 28,928 -- 289 -- 717 -- 6,996 8,002
Net loss . . . . . . . . . . -- -- -- -- -- -- (508) (508)
Stock awards . . . . . . . -- -- -- -- 64 -- -- 64

Balance, March 31, 1995 . . . 28,928 -- 289 -- 781 -- 6,488 7,558
Net loss . . . . . . . . . -- -- -- -- -- -- (2,075) (2,075)
Stock awards . . . . . . . -- -- -- -- 68 -- -- 68
Translation adjustment . . -- -- -- -- -- (59) -- (59)
Class B Stock Converted to
Class A Stock . . . . . 52 (52) 1 (1) -- -- -- --
Issuance of Class A Common
Stock . . . . . . . . . 5,683 -- 57 -- 33,203 -- -- 33,260
Shares granted under Stock
Incentive Plan . . . . . 25 -- -- -- 164 -- -- 164
Shares sold under Employee
Stock Purchase Plan . . 4 -- -- -- 69 -- -- 69
Recapitalization . . . . . (21,890) 21,890 (219) 219 -- -- -- --

Balance, March 31, 1996 . . . 12,802 21,838 128 218 34,285 (59) 4,413 38,985
Net loss . . . . . . . . . -- -- -- -- -- -- (14,706) (14,706)
Stock awards . . . . . . . -- -- -- -- 68 -- -- 68
Translation adjustment . . -- -- -- -- -- (108) -- (108)
Class B Stock Converted to
Class A Stock . . . . . 502 (502) 5 (5) -- -- -- --
Issuance of Class A Common
Stock . . . . . . . . . 1,665 -- 17 -- 61,586 -- -- 61,603
Shares granted under Stock
Incentive Plan . . . . . 1 -- -- -- 30 -- -- 30
Shares sold under Employee
Stock Purchase Plan . . 14 -- -- -- 316 -- -- 316

Balance, March 31, 1997 . . . 14,985 21,336 $ 150 $ 213 $ 96,285 $ (167) $ (10,293) $ 86,188

The accompanying notes are an integral part of these Consolidated Financial Statements.

</TABLE>

<TABLE>

WESTELL TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Fiscal Year Ended March 31,
1995 1996 1997
(in thousands)

Cash flows from operating activities:
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (508) $(2,075) $(14,706)
Reconciliation of net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . 3,355 4,286 6,175
Stock awards . . . . . . . . . . . . . . . . . . . . . . . . . . . 64 232 98
Deferred taxes . . . . . . . . . . . . . . . . . . . . . . . . . . (1,527) (2,080) (9,190)
Change in assets and liabilities:
(Increase) decrease in accounts receivable . . . . . . . . . . . . . (5,642) 2,359 (2,404)
(Increase) decrease in inventories . . . . . . . . . . . . . . . . . (3,285) 3,509 177
(Increase) decrease in prepaid expenses and other current assets . . 26 (136) (463)
(Increase) decrease in refundable income taxes . . . . . . . . . . . 823 (249) 124
Increase (decrease) in accounts payable and accrued expenses . . . . 6,066 (667) (513)
Increase (decrease) in accrued compensation . . . . . . . . . . . . 1,496 (92) 138
Increase (decrease) in deferred revenues . . . . . . . . . . . . . . (6,215) 1,377 (1,928)

Net cash provided by (used in) operating activities . . . . . . (5,347) 6,464 (22,492)

Cash flows from investing activities:
Purchases of property and equipment . . . . . . . . . . . . . . . . . . (4,913) (4,529) (5,716)
Proceeds from sale of equipment . . . . . . . . . . . . . . . . . . . . 263 -- --
Long term equipment deposit . . . . . . . . . . . . . . . . . . . . . . 1,396 -- --
(Increase) decrease in other assets . . . . . . . . . . . . . . . . . . (75) 58 4
(Increase) in short term investments . . . . . . . . . . . . . . . . . -- (3,187) (7,663)
Purchase of land and building held for sale . . . . . . . . . . . . . . -- (1,463) (14,741)

Net cash used in investing activities . . . . . . . . . . . . . (3,329) (9,121) (28,116)

Cash flows from financing activities:
Net borrowings (repayment) under revolving promissory notes . . . . . . 9,389 (11,089) --
Repayment of long-term debt and leases payable . . . . . . . . . . . . (897) (1,425) (1,543)
Proceeds from issuance of Common Stock . . . . . . . . . . . . . . . . -- 33,329 61,919

Net cash provided by financing activities . . . . . . . . . . . 8,492 20,815 60,376

Effect of exchange rate changes on cash . . . . . . . . . . . . . . . . . -- (6) 67
Net increase (decrease) in cash and cash equivalents . . . . . (184) 18,152 9,835
Cash and cash equivalents, beginning of period . . . . . . . . . . . . . 634 450 18,602

Cash and cash equivalents, end of period . . . . . . . . . . . . . . . . $ 450 $ 18,602 $ 28,437

The accompanying notes are an integral part of these Consolidated Financial Statements.

</TABLE>

WESTELL TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Description of Business

Westell Technologies, Inc. (the "Company") is a holding company. Its
wholly owned subsidiary, Westell, Inc., designs, manufactures and distributes
telecommunications equipment which is sold primarily to major telephone
companies. Westell International, Inc., a wholly owned subsidiary of the
Company , and Westell Europe, Ltd., a wholly owned subsidiary of Westell
International, Inc., market and distribute the Westell, Inc. product line in
international markets. Conference Plus, Inc., an 89.2%-owned subsidiary,
provides teleconferencing services to various customers. Video Conference
Plus, Inc., a wholly owned subsidiary of Conference Plus, Inc., markets video
teleconferencing equipment and services to various customers. KeyPrestige
Information Network Systems, Inc., an 88%-owned subsidiary established in
fiscal 1993 ("KPINS"), utilizes electronic networks to process business
transactions for various customers. KPINS was disposed of during fiscal 1997
(see Note 10). The Company has a majority interest in Westell-Meridian LLC,
established in fiscal 1996 for the purpose of developing a new corporate
facility site (see Note 5).

Principals of Consolidation

The accompanying Consolidated Financial Statements include the accounts
of the Company and its subsidiaries. All significant intercompany accounts
and transactions have been eliminated in consolidation.

Cash and Cash Equivalents

Cash and cash equivalents generally consist of cash, certificates of
deposit, time deposits, commercial paper, short-term government obligations
and other money market instruments. The Company invests its excess cash in
deposits with major financial institutions, in government securities and the
highest grade commercial paper of companies from a variety of industries.
These securities have original maturity dates not exceeding three months.
Such investments are stated at cost, which approximates fair value, and are
considered cash equivalents for purposes of reporting cash flows.

Short Term Investments

Short term investments generally consist of certificates of deposit,
time deposits, commercial paper and short-term government obligations. These
securities have original maturity dates exceeding three months and less than
one year. Such investments are stated at cost, which approximates fair value.

Inventories

Inventories are stated at the lower of first-in, first-out (FIFO) cost
or market. The components of inventories are as follows:

March 31,
1996 1997
(in thousands)

Raw materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,784 $ 6,874
Work in process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 845 467
Finished goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,205 6,223
Reserve for excess and obsolete inventory . . . . . . . . . . . . . . . . . (1,150) (3,148)

$10,684 $10,416

</TABLE>

Property and Equipment

Property and equipment are stated at cost. Depreciation is provided over
the estimated useful lives of the assets which range from 3 to 10 years using
the straight-line method for financial reporting purposes and accelerated
methods for tax purposes. Leasehold improvements are amortized over the lives
of the respective leases, or the useful life of the asset, whichever is
shorter.

Revenue Recognition

Revenue is generally recognized upon shipment of product. On certain
sales contracts, revenue is not recognized until specific customer product
acceptance terms have been met.

Product Warranties

Most of the Company's products carry a limited warranty ranging from one
to seven years. The Company accrues for estimated warranty costs as products
are shipped.

Deferred Revenue

Deferred revenue represents prepayments for goods or services.

Research and Development Costs

Engineering and product development costs are charged to expense as
incurred.

Supplemental Cash Flow Disclosures

The following represents supplemental disclosures to the consolidated
statements of cash flows:

March 31,
1995 1996 1997
(in thousands)

Schedule of noncash investing and financing
activities:
Property purchased under equipment notes . . . . . . . . . . . $1,275 $1,581 $3,669
Construction held for sale financed with
construction loan . . . . . . . . . . . . . . . . . . . . . -- 2,968 --
Property purchased under capital leases . . . . . . . . . . . . 412 142 --
Cash paid for:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . 850 1,023 350
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . 49 419 125

</TABLE>

Disclosures About Fair Value of Financial Instruments

The following methods and assumptions were used to estimate the fair
value of each class of financial instrument held by the Company:

Cash and cash equivalents , short term investments, trade
receivables and trade payables: the carrying amounts approximate fair
value because of the short maturity of these items.

Revolving promissory notes and installment notes payable to a bank:
due to the floating interest rate on these obligations, the carrying
amounts approximate fair value.

Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and revenue and expenses during the period reported. Actual
results could differ from those estimates. Estimates are used when accounting
for allowance for uncollectible accounts receivable, inventory obsolescence,
product warranty, depreciation, employee benefit plans, taxes, and
contingencies, among other things.

Foreign Currency Translation

The financial position and the results of operations of the Company's
foreign subsidiary are measured using local currency as the functional
currency. Assets and liabilities of this subsidiary are translated at the
exchange rate in effect at the end of each period. Income statement accounts
are translated at the average rate of exchange prevailing during the period.
Translation adjustments arising from differences in exchange rates from
period to period are included in the foreign currency translation adjustments
account in stockholders' equity.

The Company recorded a transaction loss of $270,000 and a gain of $8,000
in other income (expense) for fluctuations on foreign currency rates on
accounts receivable in the fiscal years ended March 31, 1996 and 1997,
respectively.

Computation of Net Loss Per Share

Net loss per share is computed using the weighted average number of
common shares outstanding during the period. These shares have been included
in the computation of net loss per share. The computations for net loss per
share reflect the retroactive restatement for the 2-for-1 stock split in the
form of a dividend to holders of record on May 20, 1996, which was effective
on June 7, 1996.

Geographic Information

The Company's financial information by geographic area was as follows
for the years ended March 31:

Domestic International Total
(in thousands)

1996
Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 63,445 $ 19,791 $83,236
Operating income (loss) from continuing operations . . . . . . (6,191) 3,937 (2,254)
Identifiable assets . . . . . . . . . . . . . . . . . . . . . . 57,623 6,825 64,448

1997
Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 75,032 $ 4,353 $79,385
Operating loss from continuing operations . . . . . . . . . . . (15,606) (10,806) (26,412)
Identifiable assets . . . . . . . . . . . . . . . . . . . . . . 103,008 5,041 108,049

</TABLE>

NOTE 2. REVOLVING PROMISSORY NOTES:

The Company has secured revolving promissory notes with a bank which
enable the Company to borrow up to $18.5 million and $15.0 million as of
March 31, 1996 and 1997, respectively, and are due on demand. The notes bear
interest at the bank's prime rate (8.25% and 8.5% at March 31, 1996 and 1997,
respectively), and are secured by substantially all of the assets of the
Company. At March 31, 1996 and 1997, the Company had no borrowings
outstanding under the revolving notes. The Company also had an available
equipment borrowing facility of $6.4 and $10.0 million with the same bank as
of March 31, 1996 and 1997, respectively. Borrowings under this facility
totaled $3.8 million and $6.1 million at March 31, 1996 and 1997,
respectively, and are included as installment notes payable to a bank as
described in Note 3.

These revolving promissory notes are due on, and the equipment borrowing
facility expires in, September 1997 and the Company anticipates that such
revolving promissory notes and equipment borrowing facility will be renewed
on no less favorable terms. The revolving promissory notes and the equipment
financing facility require the maintenance of a minimum cash to current
maturity ratio, a current ratio and a maximum debt to net worth ratio. The
Company is currently in compliance with all such covenants.

Borrowings under the revolving promissory notes facility are limited to
80% of eligible accounts receivable and 40% of eligible inventory, as defined
by the agreement. Given these limitations, the Company had available
borrowings of $12.4 million under the revolving promissory notes facility as
of March 31, 1997.

NOTE 3. LONG-TERM DEBT:

Long-term debt consists of the following:

March 31,
1996 1997
(in thousands)

Note payable to Kendall County, 5%, secured by substantially
all assets of the Company, due through 1998 . . . . . . . . . . . . . . . $ 85 $ 37
Capitalized lease obligations secured by related equipment . . . . . . . . 504 332
Installment notes payable to a bank, interest at prime,
secured by substantially all assets of the Company, due
through April 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,838 6,118

4,427 6,487
Less current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,591) (2,121)

$2,836 $4,366

</TABLE>

Future maturities of long-term debt at March 31, 1997 are as follows (in
thousands):

<S> <C>

1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,121
1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,407
2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,136
2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,001
2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 822

$6,487

</TABLE>

NOTE 4. INCOME TAXES:

Income taxes are provided based upon income reported for financial
reporting purposes using the provisions of Financial Accounting Standards
Board Statement No. 109, Accounting for Income Taxes, which requires the
liability method. The income tax provisions (benefits) charged to net income
are summarized as follows:

Fiscal Year Ended March 31,
1995 1996 1997
(in thousands)

Federal:
Current . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 400 $ (200) $ (540)
Deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,332) (1,793) (8,012)

(932) (1,993) (8,552)

State:
Current . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96 -- (93)
Deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . (195) (287) (1,178)

(99) (287) (1,271)

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . $(1,031) $(2,280) $(9,823)

</TABLE>

The Company utilizes the flow-through method to account for tax credits.
In fiscal 1995, 1996 and 1997, the Company recognized approximately $632,000,
$790,000 and $398,000 respectively, of tax credits.

The statutory federal income tax rate is reconciled to the Company's
effective income tax rates below:

Fiscal Year Ended March 31,
1995 1996 1997

Statutory federal income tax rate . . . . . . . . . . . . . . . (34.0)% (34.0)% (34.0)%
Meals and entertainment . . . . . . . . . . . . . . . . . . . . 5.3 1.9 1.0
State income tax, net of federal tax effect . . . . . . . . . . (4.9) (4.9) (4.9)
Income tax credits recognized . . . . . . . . . . . . . . . . . (41.1) (18.2) (1.6)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.7 2.8 (0.5)

(67.0)% (52.4)% (40.0)%

</TABLE>

Components of the net deferred income tax asset are as follows:

March 31,
1996 1997

(in thousands)

Deferred income tax assets:
Allowance for doubtful accounts . . . . . . . . . . . . . . . . . . . . . $ 189 $ 202
Alternative minimum tax credit . . . . . . . . . . . . . . . . . . . . . 321 722
Research and development credit carryforward . . . . . . . . . . . . . . 1,501 2,335
Compensation accruals . . . . . . . . . . . . . . . . . . . . . . . . . . 246 164
Inventory reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . 617 1,372
Warranty reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . 419 440
Net operating loss carryforward . . . . . . . . . . . . . . . . . . . . . 740 8,947
Reserve for discontinued operations . . . . . . . . . . . . . . . . . . . 330 --
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 322

4,430 14,504

Deferred income tax liabilities:
Property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . -- --
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150 --

150 --

Net deferred income tax asset . . . . . . . . . . . . . . . . . . . . $4,280 $14,504

</TABLE>

Realization of deferred tax assets associated with the Company's future
deductible temporary differences, net operating loss carryforwards and tax
credit carryforwards is dependent upon generating sufficient taxable income
prior to their expiration. Although realization of the deferred tax assets is
not assured, management believes it is more likely than not that the deferred
tax assets will be realized through future taxable income or by using a tax
strategy currently available to the Company. On a quarterly basis, management
will assess whether it remains more likely than not that the deferred tax
assets will be realized. This assessment could be impacted by a combination
of continuing operating losses and a determination that the tax strategy is
no longer sufficient to realize some or all of the deferred tax assets. If
management determines that it is no longer more likely than not that the
deferred tax assets will be realized, a valuation allowance will be required
against some or all of the deferred tax assets. This would require a charge
to the income tax provision, and such charge could be material to the
Company's results of operations.

The Company has approximately $3.1 million in income tax credit
carryforwards and a tax benefit of $8.9 million related to a net operating
loss carryforward that is available to offset taxable income in the future.
The tax credit carryforwards begin to expire in 2008 and the net operating
loss carryforward begins to expire in 2012.

NOTE 5. LEASE COMMITMENTS:

The Company has agreements principally to lease office facilities
through 2000. In addition, the leases require the Company to pay utilities,
insurance and real estate taxes on the facilities. The Company exercised its
option to terminate the Oswego manufacturing facility lease upon moving into
the new facilities discussed below.

Total minimum future rental payments at March 31, 1997 are as follows
(in thousands):

<S> <C>

1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $691
1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 465
2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 342
2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . --

$1,600

</TABLE>

In December 1996, the Company began occupying the constructed facility
held by the LLC (the "Aurora facility"). During the construction period the
Company advanced the LLC the construction funding. As of March 31, 1997,
amounts advanced to the LLC were $14.4 million. The construction advances to
the LLC are non-interest bearing in exchange for abatement of the Aurora
facility lease payments to the LLC by the Company. Had the Company been
required to make lease payments under the existing 15 year agreement, the
Aurora facility lease costs would have increased by $67,500 for the three
months ended March 31, 1997 and the minimum future rental payments at March
31, 1997 to the LLC would have been $1,840,000 for each of the years 1998
through 2002 and $20,800,000 over the remaining term of the lease. The
Company has the option to buy out the other investor in the LLC and thereby
purchase the facility developed by the LLC or sell its interest in the LLC.

It is management's intent to sell its interest in the LLC within the
next fiscal year, have the LLC repay the construction advances and lease the
Aurora facility from a third party. Accordingly, the Aurora facility is
presented as a current asset held for sale and the 40% minority interest
related to the LLC is included in accrued expenses in the accompanying March
31, 1997 balance sheet.

NOTE 6. CAPITAL TRANSACTIONS AND STOCK RESTRICTION AGREEMENTS:

The members of the Penny family (major stockholders) have a Stock
Transfer Restriction Agreement which prohibits, with limited exceptions, such
members from transferring their Common Stock acquired prior to November 30,
1995, without first offering such stock to the other members of the Penny
family. A total of 18,808,770 shares of Common Stock are subject to this
Stock Transfer Restriction Agreement.

During fiscal 1994, common stock awards equal to 312,330 shares were
granted by the Company to certain employees. The number of restricted shares
vested at March 31, 1995, 1996 and 1997 for these stock awards and others
previously granted was 674,724, 740,807 and 806,890 shares, respectively.
The Company valued the stock awards granted during fiscal 1994 at $1.03 per
share. This valuation was based on independent appraisals done at the
approximate date of the grants. Compensation expense of $64,000, $68,000 and
$68,000 was recognized in fiscal 1995, 1996 and 1997, respectively, based on
the fair market value of the shares granted. The remaining compensation
expense to be recognized is $49,000 which will be recognized in 1998.

On May 8, 1996, the Board of Directors authorized a two-for-one stock
split in the form of a dividend to be distributed on June 7, 1996, to
stockholders of record on May 20, 1996. All references in the financial
statements to number of shares and per share amounts of the Company's common
stock have been retroactively restated to reflect the two-for-one stock
split.

NOTE 7. BENEFIT PLAN:

The Company sponsors a 401(k) benefit plan (the "Plan") which covers
substantially all of its employees. The Plan is a salary reduction plan which
allows employees to defer up to 15% of wages subject to Internal Revenue
Service allowed limits. The Plan also allows for Company discretionary
contributions. The Company provided for discretionary and matching
contributions to the Plan totaling approximately $161,000, $229,000 and
$190,000 for fiscal 1995, 1996 and 1997, respectively.

NOTE 8. SIGNIFICANT CUSTOMERS AND CONCENTRATION OF CREDIT:

The Company's primary business relates to the design, manufacture and
distribution of telecommunications equipment which is sold primarily to major
telephone companies. Sales to the Company's largest customers accounted for
the following percentages of revenue:

Fiscal Year Ended
March 31,
1995 1996 1997

Customer A . . . . . . . . . . . . . . . . . . . . . . . . . . 25.0% 5.8% 8.7%
Customer B . . . . . . . . . . . . . . . . . . . . . . . . . . 14.4 12.0 18.3
Customer C . . . . . . . . . . . . . . . . . . . . . . . . . . 10.5 9.9 5.9
Customer D . . . . . . . . . . . . . . . . . . . . . . . . . . 8.9 10.4 11.1
Customer E . . . . . . . . . . . . . . . . . . . . . . . . . . -- 11.1 .8

</TABLE>

Major telephone companies comprise a significant portion of the
Company's trade receivables. One customer represented 10.7% of the trade
receivables balance at March 31, 1996 and two customers represented 22.9% of
the trade receivables balance at March 31, 1997.

NOTE 9. COMMITMENTS AND CONTINGENCIES:

In January 1995, a former officer of a subsidiary of the Company filed a
suit against the Company alleging damages suffered as a result of wrongful
termination and breach of contract. During fiscal 1997, a settlement was
reached with the plaintiff and the Company received a partial reimbursement
from their insurance carrier. The net settlement expense of approximately
$400,000 is included in Other Income (Expense) in the accompanying statements
of operations for the year ending March 31, 1997.

NOTE 10. DISCONTINUED OPERATIONS:

Effective May 1, 1994, the Company acquired the assets of Key Prestige,
Inc. ("KPI") for approximately $200,000 in cash and assumed liabilities of
approximately $190,000. The purchase price was allocated to the assets and
liabilities of KPI based on their relative fair values. Approximately
$340,000 was allocated to fixed assets and $50,000 to a non-compete
agreement. KPI was merged with Information Network Systems, Inc. to form
KPINS in fiscal 1995. The acquisition, which was accounted for as a purchase,
was funded with proceeds from the revolving promissory notes described in
Note 2.

In August 1995, the Board of Directors approved a
plan for the disposition of KPINS. The net losses of KPINS have been
segregated in the consolidated statements of operations as "discontinued
operations." The Company sold KPINS during fiscal 1997. The components of the
loss from discontinued operations for the year ended March 31, 1996 and the
four month period ended July 31, 1996 (the date of disposition) are as
follows:

Fiscal For the 4 month
Year Period Ended
1996 July 31, 1996

Loss from operations of KPINS for the year ended March 31, 1996 and
the 4 month period ended July 31, 1996 (net of tax benefits of
$65,000 and $3,000 respectively) . . . . . . . . . . . . . . . . . $102,000 $5,000
Estimated loss of disposal of KPINS (net of tax benefits of
$329,000) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 520,000 -

Loss from discontinued operations . . . . . . . . . . . . . . . . . . $622,000 $5,000

</TABLE>

On July 31, 1996, the Company sold the net assets of this subsidiary to
an executive officer of KPINS in exchange for a $1,000,000 note receivable.
Due to the discontinued nature of this operation, the assets of the Company
were fully reserved for at March 31, 1996. The note receivable related to the
sale will be realized as payment is received since repayment is contingent on
future revenues of KPINS. During fiscal 1997, in accordance with the
agreement, the Company received approximately $116,000 on the note
receivable. This amount is included in Other Income (Expense) in the
accompanying Statements of Operations for the year ended March 31, 1997.

Summarized financial information of KPINS is as follows:

For the 4 month
Fiscal Year Ended Period Ended
March 31, July 31,
1995 1996 1996
(in thousands)

Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . $3,765 $3,263 $7
Current assets . . . . . . . . . . . . . . . . . . . . . . . 992 731 860
Net property, plant and equipment . . . . . . . . . . . . . . 497 301 223
Total liabilities, excluding intercompany
payables . . . . . . . . . . . . . . . . . . . . . . . . . 664 366 306

</TABLE>

NOTE 11. STOCK RECAPITALIZATION:

In July 1995, the Company recapitalized its common stock to increase the
number of authorized shares from 14,500,000 shares of common stock to
17,400,000 shares of Class A Common Stock and 11,605,858 shares of Class B
Common Stock and created Class A Common Stock with voting rights of one vote
per share and Class B Common Stock with voting rights of four votes per
share. On November 30, 1995, the Company filed an Amended and Restated
Certificate of Incorporation that increased the amount of authorized capital
stock to 43,500,000 shares of Class A Common Stock, par value $0.01 per
share, 25,000,000 shares of Class B Common Stock, par value $0.01 per share,
and 1,000,000 shares of undesignated Preferred Stock, par value $0.01 per
share, and effected a 29-for-1 stock split of the Class A and Class B Common
Stock.

The Board of Directors has the authority to issue the newly authorized
Preferred Stock up to 1,000,000 shares in one or more series and to fix the
rights, preferences, privileges and restrictions thereof, including dividend
rights, conversion rights, voting rights, terms of redemption, liquidation
preferences, sinking fund terms and the number of shares constituting any
series or the designation of such series, without any further vote or action
by stockholders.

NOTE 12. STOCK PLANS:

Employee Stock Purchase Plan:

In October 1995, the Company adopted a stock purchase plan that allows
participating employees to purchase, through payroll deductions, shares of
the Company's Class A Common Stock for 85% of the average of the high and low
reported sales prices at specified dates. Under the stock purchase plan,
217,950 shares are authorized. As of March 31,1996 and 1997 there were
213,532 and 199,060 shares, respectively, available for future issuance.

Employee Stock Incentive Plan:

In October 1995, the Company adopted a stock incentive plan that permits
the issuance of Class A Common Stock, restricted shares of Class A Common
Stock, nonqualified stock options and incentive stock options to purchase
Class A Common Stock, performance awards and stock appreciation rights to
selected employees, officers, and non-employee directors of the Company.
Under the stock incentive plan 2,688,050 shares were authorized and 1,554,506
shares were available for future issuance at March 31, 1997. During fiscal
1996 and 1997, the Company granted options for 89,900 and 1,017,750 shares of
Class A Common Stock, of which 5,616 and 26,205 shares were vested at March
31, 1996 and 1997, respectively. The Company also issued 24,624 and 1,270
shares for stock awards under this plan in fiscal 1996 and 1997,
respectively. Compensation expense of $164,000 and $30,000 was recognized in
fiscal 1996 and 1997, respectively for the stock awards granted. In addition,
the Company granted additional compensation to reimburse employees for the
related income taxes on stock awards granted during fiscal 1996 in the amount
of $73,000.

The stock option activity under the Company's Stock Incentive Plan are
as follows:

Weighted
Average
Outstanding Exercise
Options Price

Balance, March 31, 1996 . 89,900 $6.50

Grants . . . . . . . . . . 2,104,250 16.982
Exercises . . . . . . . . -- --
Expirations . . . . . . . -- --
Canceled . . . . . . . . . (1,086,500) 22.0833

Balance, March 31, 1997 . . . . . . 1,107,650 9.4484

</TABLE>

The exercise price of the stock options granted is generally established
at the market price on the date of the grant. During fiscal 1997,
nonqualified stock options issued previously during fiscal 1997 were canceled
and reissued on July 24, 1996 at the then current market price of $21.625. On
March 12, 1997, options issued during fiscal 1997 were repriced to the then
current market price of $9.6875. The Company has reserved Common Stock for
issuance upon exercise of these options granted.

The Company accounts for employee stock options under APB Opinion 25, as
permitted under generally accepted accounting principles. Accordingly, no
compensation cost has been recognized in the accompanying financial
statements related to these options. Had compensation cost for these options
been determined consistent with Statement of Financial Accounting Standards
No. 123 "Accounting for Stock-Based Compensation" ("SFAS 123"), which is an
accounting alternative that is permitted but not required, the Company's net
loss and net loss per share would have been ($2,090,000) and ($16,963,000)
and ($0.07) and ($0.47) for 1996 and 1997, respectively.

The fair value of each option is estimated on the date of grant based on
the Black-Scholes option pricing model assuming, among other things, a risk-
free interest rate of 6.5% and no dividend yield; expected volatility of 73%
and an expected life of 7 years. The options granted to employees in 1997
vest ratably over five years.

Options outstanding at March 31, 1997:

Options Outstanding Options Exercisable

Range of Number Weighted- Number Weighted
Exercise Outstanding at Remaining Average Exercisable at Average
Prices 3/31/97 Life Exercise Price 3/31/97 Exercise Price

$6.5000 89,900 8.67 yrs $6.5000 26,205 $6.5000
9.6875 - 13.1875 1,017,750 9.37 yrs 9.7089 -- --

$6.5000 - 13.1875 1,107,650 9.32 yrs $9.4484 26,205 $6.5000

</TABLE>

NOTE 13. NEW ACCOUNTING PRONOUNCEMENTS:

In February 1997, the Financial Accounting Standards Board issued SFAS
No. 128, "Earnings Per Share" (SFAS No. 128), which simplifies the standards
for computing earnings per share. It replaces the presentation of primary EPS
with a presentation of basic EPS. It also requires dual presentation of basic
and diluted EPS on the face of the income statement and requires a
reconciliation between the basic EPS computation to the diluted EPS
computation. The SFAS No. 128 presentation is required effective December 31,
1997, and will be adopted by the Company at that time. Had the Company
calculated EPS using SFAS No. 128 basic EPS would not have changed from that
presented in the accompanying Statement of Operations for the year ended
March 31, 1997.

NOTE 14. RECLASSIFICATIONS:

Certain 1996 amounts have been reclassified to conform with the 1997
financial statement presentation.

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and Stockholders of Westell Technologies, Inc.

We have audited, in accordance with generally accepted auditing
standards, the financial statements of Westell Technologies, Inc. and its
Subsidiaries included in this Annual Report on Form 10-K and have issued our
report thereon dated May 16, 1997. Our audit was made for the purpose of
forming an opinion on the basic financial statements taken as a whole.
Schedule II, Valuation and Qualifying Accounts, included herein is the
responsibility of the Company's management and is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part
of the basic financial statements. This schedule has been subjected to the
auditing procedures applied in the audit of the basic financial statements
and, in our opinion, fairly states in all material respects the financial
data required to be set forth therein in relation to the basic financial
statements taken as a whole.

ARTHUR ANDERSEN LLP

Chicago, Illinois
May 16, 1997

<TABLE>

WESTELL TECHNOLOGIES, INC. AND SUBSIDIARIES

SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
ACCOUNTS RECEIVABLE ALLOWANCES
(IN THOUSANDS)

1995 1996 1997

Balance at beginning of year . . . . . . . . . . . . . . . . . . . . . . $181 $364 $462
Provision for doubtful accounts . . . . . . . . . . . . . . . . . . . . . 201 274 305
Provision for discounts, allowances and rebates . . . . . . . . . . . . . -- -- --
Write-offs of doubtful accounts, net of recoveries . . . . . . . . . . . (18) (176) (246)
Discounts, allowances and rebates taken . . . . . . . . . . . . . . . . . -- -- --

Balance at end of year . . . . . . . . . . . . . . . . . . . . . . . . . $364 $462 $521

</TABLE>

CONFIDENTIAL TREATMENT REQUESTED FOR PORTIONS OF THIS DOCUMENT. PORTIONS
FOR WHICH CONFIDENTIAL TREATMENT IS REQUESTED ARE NOTED.

EXHIBIT 10.13

COOPERATIVE DEVELOPMENT AGREEMENT

This Agreement is entered into as of December 5, 1996 (the
"Effective Date"), by and between GlobeSpan Technologies Inc., a Delaware
corporation, with offices at 200 Laurel Ave, Middletown, NJ 07748 (GTI), and
Westell Technologies, Inc. a Delaware corporation with offices at 101 Kendall
Point Drive, Oswego, Illinois 60543 (Company).

GTI has developed certain carrierless amplitude/phase modulation
("CAP") transceiver technology hereafter referred to as GlobespanTM
TRANSCEIVER TECHNOLOGY. Company wishes to develop, manufacture and sell a
GlobeSpan DSL (Digital Subscriber Line) product which incorporates the
GlobeSpan TRANSCEIVER TECHNOLOGY (hereinafter "PRODUCT"), and GTI is willing
to grant to Company certain rights regarding such GlobeSpan TRANSCEIVER
TECHNOLOGY.

In consideration of the mutual promises contained herein, GTI and
Company agree as follows:

1. Grant of Technology Rights: GTI grants to Company a personal, worldwide
and non-exclusive right to use the TECHNICAL INFORMATION solely for the
development of, manufacture of, sale and support of, and use of the
PRODUCT which is designed by Company.

1.1 Patent Licenses and Immunities Granted to Company:

(a) GTI grants to Company on a world-wide basis, a non-transferable
license under all Patents issued and patent applications now or
hereafter issued to GTI (collectively the Patents) which are
necessary for the use of the TECHNICAL INFORMATION to develop,
manufacture, use, sell and support PRODUCT. GTI further grants
immunity for the term of this Agreement, under Lucent Technologies
Inc., CAP Patents listed in Exhibit B only to the extent such
patents are essential patents to the GlobeSpan TRANSCEIVER
TECHNOLOGY and are used specifically in conjunction with the
licensed technology for board and system level PRODUCTs and only to
the extent that if a component is specified in the GlobeSpan
TRANSCEIVER TECHNOLOGY, the component is purchased from GTI or a
vendor approved by GTI. Further, GTI warrants to Company that GTI
has the legal right to license all the patents identified as a part
of this Agreement for the purpose of licensing such technology to
Company.

(b) All such licenses granted herein under any Patents shall continue
only for so long as Company's rights under this Agreement remain in
effect. Nothing herein shall be construed as affecting sales or
use of PRODUCTs manufactured by Company pursuant to this Agreement.
(See 17 for Indemnification)

(c) The licenses granted under Patents are for the convenience of
Company and are effective only for the PRODUCT. Accordingly, GTI
is willing to forego any patent royalty for the use of Patents
under these conditions and no separate royalty shall be payable to
GTI with respect to use of the Patents.

1.2 Subcontracting: The rights to manufacture PRODUCT granted to the
Company pursuant to Sections 1 and 1.1 can be exercised by nominated
subcontractors of Company, as long as such subcontractors are not a
direct competitor of GTI in any SIMILAR TECHNOLOGIES, solely for the
manufacture of, development of, sale and support of, and use of the
Product by Company, provided such subcontractors agree in writing to be
bound by the commitments under Sections 4, 9, 11, 16 and 18 of this
Agreement, and further provided that the laws of the jurisdiction
wherein such subcontractor is located are comparable to the laws of the
United States with respect to the protection of intellectual property.
Company shall provide notification of the intent to use such
subcontractor, and GTI will have 10 days to respond with any objections.

1.3 Procurement of GTI Approved Component Parts:

(a) GTI grants to Company a personal and non-exclusive right, as an
attribute of the right granted in Section 1 and 1.1, to disclose to
any supplier or prospective supplier those portions of the
TECHNICAL INFORMATION which are necessary for the procurement by
Company, of component parts and other materials required to
manufacture the PRODUCT. Company must inform GTI in writing if
procurement of the Phase 3 GlobeSpan VLSI chips (, Starlet, Star,
Slade, and 2 Wire Framer) is authorized by Company to a Company
business entity that operates under a different name than Company,
or to a subcontractor business entity that operates under a
different name than the subcontractor nominated in Section 1.2.

(b) Company agrees that it will not make any part of the TECHNICAL
INFORMATION available to any supplier or prospective supplier of
components identified by GTI in the Bill of Materials as containing
Confidential Material except on the agreement in writing of such
supplier or prospective supplier that it accepts as its own
Company's commitments under Sections 4, 9, 11, 16 and 18 of this
Agreement, that supplier will use all TECHNICAL INFORMATION
received from Company only for the purpose of supplying to Company
items of the type to be procured by Company for manufacture of
PRODUCT, and that it will promptly return or destroy each and every
part of such TECHNICAL INFORMATION as directed by Company.

(c) Under the terms of this agreement GTI will supply to Company the
Phase 3 GlobeSpan Starlet, Star, Slide, and 2 Wire Framer VLSI
chips. GTI reserves the right to similarly furnish the 4 Wire HDSL
Framer VLSI chip to Company at a future date. Use of GTI supplied
framers are optional.

1.4 GTI's Duties:

(a) Delivering the TECHNICAL INFORMATION to support Company in the
mechanical and electrical design, build and test process related to
the GlobeSpan transceiver;

(b) Technical Support per Section 3; and

(c) Provide continuous performance improvements using the defined chip
sets listed in 1.3(c) and transceiver platforms per 18.1.

1.5 Company's Duties:

(a) Development, manufacture, marketing, sales and support of the
PRODUCT.

(b) Directly source the approved transceiver component parts specified
in the DESIGN GUIDE for use in PRODUCTs manufactured by or for
Company.

(c) Company will provide GTI a five (5) quarter rolling global forecast
for GlobeSpan VLSI chip sets by DSL application (ADSL, RADSL, SDSL,
HDSL) and optional framers to be ordered by Company. The forecast
shall be delivered to GTI in a form reasonably acceptable to GTI
within thirty (30) days following the end of each quarter. This
forecast shall be used by GTI at its discretion for business
planning purposes and is not a binding commitment on the behalf of
Company.

(d) Commensurate with GTI's own activities, Company agrees to support
GlobeSpan TRANSCEIVER TECHNOLOGY which Company uses or intends to
use in its Products in standards bodies (with written and oral
contributions to such bodies as ANSI or ETSI), public forums and
industry publications on a fair and equitable basis to Company's
representation and support for SIMILAR TECHNOLOGY used in Company's
DSL products.

1.6 Company Licensing of Company DSL PRODUCT Technology and Design: Subject
to the conditions in this Section 1.6, nothing shall preclude Company
from licensing Company's DSL PRODUCT technology or PRODUCT designs
incorporating the GlobeSpan TRANSCEIVER TECHNOLOGY to Westell's
customers (hereafter called Westell Customer) for the purpose of design,
manufacture, and/or distribution of DSL PRODUCT by the Westell Customer.

(a) Each Westell Customer must obtain such GlobeSpan TRANSCEIVER
TECHNOLOGY under a GlobeSpan DSL Technology Cooperative Development
Agreement directly from GTI prior to start of design, manufacture,
or distribution of DSL PRODUCT by Westell Customer.

(b) If GTI has a GlobeSpan DSL Technology Cooperative Development
Agreement in effect with Westell Customer prior to Company license
agreement with Westell Customer, no additional agreements between
GTI and Westell Customer are required for Company to license
Company DSL PRODUCT Technology And Design to Westell Customer.

(c) If GTI does not have a GlobeSpan DSL Technology Cooperative
Development Agreement in effect with Westell Customer prior to
Company license agreement with Westell Customer, GTI, at Company's
request, will cooperate with Company in completing a GlobeSpan DSL
Technology Cooperative Development Agreement directly with Westell
Customer prior to start of design, manufacture, or distribution of
DSL PRODUCT by Westell Customer.

1.6.1 GlobeSpan DSL Technology Cooperative Development Agreement Fee:
Company or Westell Customer, at Company's option, will pay GTI a
one time license fee for the GlobeSpan DSL platform(s) specified in
new or revised GlobeSpan DSL Technology Cooperative Development
Agreement with Westell Customer.

The one time license fee will be per the standard fee applicable at the
time the agreement is executed. The current fees are as follows:
[<F*>] for the first DSL platform, [<F*>] for each additional
platform. The above fees are for a single design center. The fee
for each additional design center is [<F*>] per DSL platform.

1.6.2 Restricted Use of GlobeSpan DSL Technology Cooperative Development:
GTI reserves the right to not enter into a GlobeSpan DSL Technology
Cooperative Development, in cooperation with Company as part of
this Agreement, with any company in South Korea; or with any
company that designs, manufactures, or markets DSL transceiver chip
sets which compete with GTI's GlobeSpan DSL technology.

1.6.3 Technical Support: Technical support to Westell Customer will
optionally be the responsibility of Westell or GTI as defined in
the GlobeSpan DSL Technology Cooperative Development Agreement with
Westell Customer. If Westell requires GTI technical support for
Westell Customer's DSL PRODUCT, support at GTI's facilities will be
at a rate of [<F*>] per day.

1.6.4 GTI Relationship With Westell Customer:

(a) If GTI has a GlobeSpan DSL Technology Cooperative Development
Agreement in effect with Westell Customer prior to Company
licensing agreement with Westell Customer, GTI will continue normal
marketing and support activities with Westell Customer, unless GTI
and Westell Customer mutually agree in writing to a specific
marketing and support plan.

(b) If GTI does not have a GlobeSpan DSL Technology Cooperative
Development Agreement in effect with Westell Customer prior to
Company licensing agreement with Westell Customer, and if requested
in writing by Company, GTI thereafter agrees that it will not
independently solicit, or contact for the purpose of soliciting,
Westell Customer without approval by or the request to do so by
Company (which approval shall not be unreasonably withheld), so
long as Company is not in default of its Agreement with GTI.
Company agrees to make its best effort to promote GlobeSpan
technology with Westell Customer and to keep Westell Customer fully
informed on the state of the technology performance and
advancements as so communicated to Company by GTI.

1.6.5 Public Release of Westell Customer Name: GTI has the right to
publicly announce and distribute the company name of Westell
Customer as a licensee of GTI's GlobeSpan DSL technology as defined
in the GlobeSpan DSL Technology Cooperative Development Agreement
with Westell Customer.

2. Technical Information Delivery. TECHNICAL INFORMATION in Exhibit A will
be supplied upon request by Company. GTI will make its best effort to
deliver currently available TECHNICAL INFORMATION within 10 days and
follow-on TECHNICAL INFORMATION per the scheduled target availability
dates shown in Exhibit A.

3. Technical Support: GTI shall, at no cost to Company, provide Company
with development support to assist in the debug and implementation
testing of the PRODUCTs at GTI's facility if the support is necessary
due to GTI's design or documentation deficiencies. However, if the
support is necessary due to any other reasons, the cost will be [<F*>]
per day. Telephone, facsimile and e-mail support are included at no
additional cost. Technical support included in this Agreement is
available to one design center per Transceiver platform. Technical
support for any additional design centers must be negotiated. Company
shall not provide the TECHNICAL INFORMATION to design centers outside
Company other than to its subcontractors without prior written consent
of GTI.

[FN]
<F*> CONFIDENTIAL TREATMENT REQUESTED - MATERIAL OMITTED HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

4. Confidentiality: As used in this Agreement, "Confidential Information"
means this Agreement and any information which is relating to GTI's or
Company's product plans, product designs, product costs, product prices,
product names, finances, marketing plans, business opportunities,
personnel, research, development or know-how, and which is (i) furnished
to the recipient party in intangible form and designated in writing as
"Proprietary" or "Confidential" whether in written or in machine
readable form, or (ii) disclosed orally or visually to the recipient
party, but only to the extent designated by the disclosing party in a
writing as "Proprietary" or "Confidential" within fifteen (15) days of
such oral or visual disclosure. Such information is Confidential
Information whether acquired or developed by GTI or Company during their
performance under this Agreement, obtained from their employees or
otherwise learned. Except as expressly authorized by the other party or
by this Agreement, neither shall directly nor indirectly divulge to any
person or entity or use the other party's Confidential Information.
Company agrees that it will not, during the term of this Agreement,
without GTI's prior written consent, knowingly use the TECHNICAL
INFORMATION, or Confidential Information provided by GTI for the
development of competing technology or transceiver chip sets or for any
reason other than specified in this Agreement.

4.1 Exceptions: The foregoing restrictions will not apply to information
that:

(a) is known to the non-disclosing Party at the time of disclosure to
such party by the other party,

(b) has become publicly known through no wrongful act of such non-
disclosing party,

(d) has been developed by the non-disclosing party independently
without use of the other party's Confidential Information, or

(e) has been approved for release by written authorization of GTI or
Company, as applicable.

5. Term: This Agreement will commence on the Effective Date and will
continue until December 31, 2002 unless earlier terminated as provided
in this Agreement.

6. TERMINATION:

6.1 Termination for Cause by Either Party: Either party will have the right
to terminate this Agreement at any time if:

(a) The other party is in material breach of any warranty, term,
condition or covenant of this Agreement other than those contained
in Section 4 and fails to cure that breach within thirty (30) days
after receiving notice of that breach and the other party's
intention to terminate or if such breach cannot reasonably be cured
within such 30-day period, the breaching party has not within such
30-day period diligently pursued a cure and then cured the breach
in any event within one hundred twenty (120) days after receiving
such notice;

(b) The other party is in material breach of any warranty, term,
condition or covenant of Section 4;

(c) Company begins commercial distribution of any DSL transceiver chip
set, which is not distributed as part of Company's DSL products,
that competes with the GlobeSpan TRANSCEIVER TECHNOLOGY as
specified in Section 1 of this Agreement;

(d) The other party (i) becomes insolvent; (ii) fails to pay its debts
or is subject to its obligations in the ordinary course of business
as they mature; or (iii) admits in writing its insolvency or
inability to pay its debts or perform any voluntary or involuntary
proceeding in bankruptcy, liquidation, dissolution, receivership,
attachment or composition or general assignment for the benefit of
creditors; provided that if such proceeding is commenced
involuntarily it has not been dismissed, bonded or stayed within
sixty (60) days after it begins.

Termination will become effective under Section 6.1(a) automatically
upon expiration of the cure period in the absence of a cure, and under
Sections 6.1(b) and (c) immediately upon the non-terminating party's
receipt of a notice of termination at any time after the specified event
or the failure of the specified proceeding to be timely dismissed.

6.2 Effect of Termination: Upon any termination of this Agreement, each
party immediately will deliver to the other party all TECHNICAL
INFORMATION and Confidential Information of the other party in its
possession and will destroy all documents or electronic media which
contains the Confidential Information of the other Party; provided,
however, that Company shall be allowed to retain sufficient copies of
such materials containing GTI Confidential Information as are reasonably
required to allow Company, to complete work-in-process for PRODUCT and
to support PRODUCT that has already been sold as of the date of
termination of this Agreement or that will be sold as the work-in-
process is completed. Work in process is defined as fulfillment of any
Purchase Order for VLSI and development of PRODUCT which utilizes that
VLSI. Also upon termination of this Agreement, each Party will be
released from all obligations and liabilities to the other occurring or
arising after the date of such termination, except that any termination
of this Agreement will not relieve Company or GTI of their obligations
under Sections 4 and 6 hereof or any purchase order, nor will any such
termination relieve Company or GTI from any liability arising from any
breach of this Agreement. Neither party will be liable to the other for
damages of any sort solely as a result of terminating this Agreement in
accordance with its terms. Termination of this Agreement will be
without prejudice to any other right or remedy of either party.

(a) Survival of Company's and GTI's Obligations: Any termination by
GTI pursuant to Section 6.1 of the Agreement shall not affect
Company's rights and obligations with respect to any article made
or in the process of being made with the use of any of the
TECHNICAL INFORMATION prior to such termination. In the event of
such termination, GTI shall have no obligation to make any refund;
subject, however, to GTI's ongoing obligations pursuant to Section
18.4. Company's obligations under Section 1.3(b) hereof and
Company's and GTI's obligations under Section 4, 11, & 16 of the
Agreement shall survive and continue after any termination of
rights under the Agreement.

7. Exclusivity: Company expressly agrees that it will not, during the term
of this Agreement, without GTI's prior written consent, knowingly
manufacture, a CAP based product, either for its own account or for any
third Party, or assist any third Party in doing so without the
technology or the GlobeSpan DSL transceiver chip set specified in
Section 1 of this Agreement.

If and when there will be potentially competing technologies, GTI shall
not unreasonably withhold from Company the opportunity to use
alternative CAP technologies provided that:

(1) Company provides GTI with written notice within 90 days of its
intended introduction of products using alternate CAP technologies.

(2) Mutually agreed upon steps are taken to insure that there is no
market confusion regarding which products use the GlobeSpan
Transceiver technology.

7.1 Notification of Events Impacting Forecast: Company agrees to notify GTI
90 days prior, or as soon as known and allowed by law if less than 90
days, to any pending announcements which might impact the forecast per
Section 1.6(c).

8. Relief from Obligations: Except for the requirement to make any
payments hereunder, neither party will be deemed in default of this
Agreement to the extent that performance of its obligations or attempts
to cure any breach are delayed or prevented by reason of any act of God,
fire, natural disaster, accident, act of government, strikes, shortages
of material or supplies or any other cause beyond the reasonable control
of such party ("Force Majeure"), provided that such party gives the
other party written notice thereof promptly and, in any event, within
fifteen (15) days of discovery thereof and uses good faith efforts to so
perform or cure. In the event of such a Force Majeure, the time for
performance or cure will be extended for a period equal to the duration
of the Force Majeure but not in excess of six (6) months.

9. Advertising and Trademarks: Except as specified below, without the
prior written consent of the other party, neither party may use any
trademarks, service marks, trade names, logos or other commercial or
product designations of the other party, including, but not limited to,
in connection with any press releases, promotions, advertisements or
exhibitions. GTI and Company may make press releases or other
announcements relating to this Agreement and the transactions which are
the subject of this Agreement with the prior written approval of the
other party.

9.1 Advertising and Other Promotion: Company agrees that the GlobeSpan
trademark name and logo will be included in all data sheets and
marketing collateral material which describes and/or references the
PRODUCT or the GlobeSpan DSL transmission technology used in connection
with Company's PRODUCT. Company agrees that it will display the
GlobeSpan trademark only in such form or manner as will be specifically
approved by GTI. GTI must supply Company with the GlobeSpan Trademark
and is responsible for updating the information as appropriate. Company
will cause to appear on all materials or documentation with which the
GlobeSpan trademark is used, such legends, markings and notices as GTI
may request in order to give appropriate notice of any trademark rights
therein. Company agrees to reference the use of GTI's GlobeSpan
TRANSCEIVER TECHNOLOGY in all press releases and formal media
communications which are related to GlobeSpan TRANSCEIVER TECHNOLOGY
based products.

(a) Public Announcement of Company GlobeSpan License Agreement:
Company grants GTI permission to publicly list it as a Licensee of
GlobeSpan xDSL technology and to distribute its name to other GTI
GlobeSpan licensees and prospective customers. With written
approval by Company, Company also grants GTI permission to make
either a joint or independent public announcement regarding the
GlobeSpan licensing agreement between GTI and Company.

10. Assignment: The rights and liabilities of the parties under this
Agreement will bind and inure to the benefit of the parties' respective
successors; provided that, except as provided elsewhere in this
paragraph, neither party may assign or delegate its obligations under
this Agreement, either in whole or in part, without the prior written
consent of the other party. Except for any assignment by GTI to its
parent or any affiliate or successor or successors thereof, or GTI, or
any assignment by Company to its current parent or any current affiliate
thereof, any attempted assignment or delegation without consent will be
void. In addition, GTI has the right to assign this Agreement to any
purchaser, or successor, in whole or in part of its business. Provided
Company has given GTI written notice of its intent to assign to a
specific assignee and has either received written approval thereof or no
response to such request within ten (10) days of GTI's receipt thereof
Company shall have the right to assign this Agreement to any purchaser,
or successor, in whole or in part of its business.

11. Export: Each party shall comply with any applicable, United States
export control laws and regulations applicable to the export of the
PRODUCTs, components, specifications or any written or oral information
related thereto, TECHNICAL INFORMATION, Confidential Information, and
technology, and shall obtain any permits and licenses required for the
export or disclosure of controlled products, information and/or
technology.

12. Notices: All notices, reports, requests, acceptances and other
communications required or permitted under this Agreement will be in
writing. They will be deemed given:

(a) when delivered personally,

(b) when sent by confirmed fax or telex,

(d) two weeks after having been sent by registered or certified
airmail, return receipt requested, postage prepaid, or upon actual
receipt thereof, whichever first occurs.

All communications will be sent to the receiving Party's address as set forth
below or to such
other address that the receiving Party may have provided for purpose of
notice as provided in this Section.

To GlobeSpan Technologies Inc.

GlobeSpan Technologies Inc.
200 Laurel Avenue
Middletown, NJ 07748
Attn: President

Also send copy of all communications (which go to GlobeSpan Technologies
Inc.) to:

Jim L. Slattery, Esq.
PO Box 2826
Largo, FL 33779

To Company:

Westell Technologies, Inc.
101 Kendall Point Drive
Oswego, Illinois 60543
Attn: Bob Lambert, VP Procurement

13. Governing Law: This Agreement shall in all respects be governed by and
construed under the laws of the State of Florida without regard to its
conflict of laws provisions.

14. Arbitration: Except for a breach of the provisions of Section 4 which
may be addressed pursuant to Section 16, all disputes between the
parties arising out of or relating to this Agreement or the breach or
alleged breach hereof, shall be submitted to binding arbitration. The
arbitration shall be conducted in accordance with the Commercial
Arbitration Rules of the American Arbitration Association ("AAA"). Each
party shall bear its own expenses; the parties will mutually share the
AAA administrative fees and the arbitrator's expenses. A single
arbitrator shall be selected by the parties in accordance with the AAA
selection rules. The arbitrator shall determine issues of arbitrability
but may not limit, expand or otherwise modify the terms of this
Agreement. The arbitration shall be conducted in English, in Florida,
or in some other location that is mutually agreed to by the parties.
The arbitrator shall have no authority to modify the GlobeSpan VLSI chip
prices, change the provisions of Section 1.1 or to grant injunctive
relief. The award of the arbitrator shall be in writing, shall state
the reasons for the award and shall explain the breakout of any damages
awarded. Judgment upon an award may be entered in any court having
competent jurisdiction. The Federal Arbitration Act 9 U.S.C.
sectionsectionl-14, shall govern the interpretation and enforcement of
this Section. The parties shall be entitled to conduct reasonable
discovery pursuant to the Federal Rules of Civil Procedure.

(a) Confidentiality: All transcripts, documents, things and other
information produced and the testimony given in or attendant to the
arbitration proceeding(s) shall be used only for purposes of the
arbitration proceeding(s).

(b) Return of Materials: Within 30 days after entry of a judgment of
confirmation, or within 120 days after issuance of the
arbitrator's award where judicial confirmation is not sought, each
party and the arbitrator, at the election of the party furnishing
the same shall destroy or return all documents, transcripts or
other things, and any copies thereof as well as all summaries or
other materials containing or disclosing information contained in,
or directly related to, such documents, transcripts or things.
Each party and the arbitrator shall so certify. Notwithstanding
the above, each party's attorneys may retain a complete pleading
file, subject to the confidentiality provisions of this Agreement.

(c) Time Extensions: The parties may expend any period of time by
mutual agreement. The arbitrator may extend any period of time for
good cause, except for the issuance of the decision.

(d) Attorneys' Fees: If an arbitration action is commenced for breach
of this Agreement, the prevailing party shall be entitled to its
attorneys' fees and costs.

15. Amendments, Modifications and Waivers: No delay or failure by either
party to exercise or enforce at any time any right or provision of this
Agreement will be considered a waiver thereof or of such party's right
thereafter to exercise or enforce each and every right and provision of
this Agreement. No single waiver will constitute a continuing or
subsequent waiver. No waiver, modification or amendment of any
provision of this Agreement will be effective unless it is in writing
and signed by the parties, but it need not be supported by
consideration.

16. Equitable Relief: Because each party will have access to and become
acquainted with confidential and proprietary information of the other,
the unauthorized use of disclosure of which would cause irreparable harm
and significant injury which would be difficult to ascertain and which
would not be compensable by damages alone, each party agrees that the
other party will have the right to enforce this Agreement and any of its
provisions by injunction, specific performance or other equitable relief
without prejudice to any other rights and remedies that it may have for
breach of this Agreement.

17. DISCLAIMER: EXCEPT AS SPECIFIED IN SECTION 17.1 AND 17.2, NEITHER GTI
NOR ITS PARENT OR ANY AFFILIATE THEREOF MAKES ANY REPRESENTATION OR
WARRANTIES, EXPRESSLY OR IMPLIED, BY WAY OF EXAMPLE BUT NOT OF
LIMITATION, MAKES NO REPRESENTATIONS OR WARRANTIES OF MERCHANTABILITY OR
FITNESS FOR ANY PARTICULAR PURPOSE, OR THAT THE USE OF THE GLOBESPAN DSL
TECHNOLOGY WILL NOT INFRINGE ANY PATENT OF ANY THIRD PARTY OR OTHER
INTELLECTUAL PROPERTY RIGHT OF ANY THIRD PARTY. NEITHER GTI NOR ITS
PARENT AND THEIR AFFILIATES SHALL BE HELD TO ANY LIABILITY WITH RESPECT
TO ANY CLAIM BY COMPANY OR ITS CUSTOMERS OR ANY OTHER THIRD PARTY ON
ACCOUNT OF OR ARISING FROM THE USE OF GLOBESPAN TECHNOLOGY.

17.1 GTI REPRESENTS THAT AS OF THE DATE OF THIS AGREEMENT, IT HAS NO
KNOWLEDGE OF CAUSES OF ACTION AGAINST IT ALLEGING THAT THE USE BY GTI OF
THE GLOBESPAN DSL TECHNOLOGY INFRINGES ANY PATENT RIGHTS OF A THIRD
PARTY.

17.2 Indemnification: The following terms apply to any infringement, or
claim of infringement, of any U.S. or Canadian patent, trademark,
copyright, trade secret, or other proprietary interest issued prior to
the date of this Agreement based on the GlobeSpan TRANSCEIVER TECHNOLOGY
as furnished by GTI to Company under this Agreement. GTI shall
indemnify Company and its customers for any loss, damage, expense, or
liability that may result by reason of any such infringement or claim,
except where such infringement or claim arises solely from the
technology contributed by Company in the design, fabrication or
manufacture of PRODUCT in which case Company shall so indemnify GTI.
GTI makes no claim as to any patents, trademarks, copyright, trade
secret or other proprietary interest other than U.S. or Canadian in
which case Company shall defend or settle any infringement or claim of
infringement at its own expense. Each party shall notify the other
promptly of any claim of infringement or which the other is responsible,
and shall cooperate with the other in every reasonable way to facilitate
the defense of any such claim.

18. DSL PLATFORM LICENSE, VLSI PROCUREMENT, AND TERMS:

18.1 GlobeSpan DSL Transceiver Platform License(s) Granted to Company: This
Agreement grants Company the use of the following Phase 3 GlobeSpan DSL
transceiver platforms and transceiver configuration options:

4 Wire HDSL (options for: T1, El)
2 Wire SDSL (options for: 160Kbps, 384Kbps, E1 EC (echo cancellation))
2 Wire ADSL (options for: T1/64K, E1/64K, 6M/64K, 7M/640K)
2 Wire RADSL (options for: 640K to 7M/128K to 1M)

18.1.1 GlobeSpan DSL Transceiver Platform License Fee and Terms: No
upfront license fee is due for the rights granted in this
Agreement.

18.2 GlobeSpan DSL Transceiver VLSI Procurement: GlobeSpan Phase 3 VLSI
suppliers are identified in the DESIGN GUIDE Bill Of Materials. VLSI
prices, procurement terms and conditions are defined by the VLSI
suppliers. Where GTI is the VLSI supplier, prices, terms, and
conditions are defined in the GTI document "GlobeSpan VLSI Procurement"
outside of this Agreement.

(a) Company will receive the benefit of the amount of any general
reduction in the pricing for all of its licensees for the VLSI, of
the like quantity and like terms and conditions that may be made by
GTI during the period of this Agreement.

(b) Company agrees not to sell its GlobeSpan Technology based products
at prices and terms and conditions less fair than those for which
it sells its comparable DMT based products.

(c) Company will receive a [<F*>] price reduction per chip set on
orders placed under this new Agreement for the first X=58,027 chip
sets. This number of chip sets is (231,500 - (Y=14,355 chip
sets)x4)/3.

(d) The pricing of chip sets in the "GlobeSpan Procurement" document is
hereby modified as follows: When Company makes the first volume
order for chip sets, the quantity is increased by 25,000 chip sets
for the purpose of establishing the chip set price (prior to
applying the [<F*>] price reduction) for this first order.

18.2.1 RTU Fees Due Under Previous DSL Agreement: Payment of RTU fees for
Y=14,355 Phase 3 chip sets ordered but not yet sold under the
previous DSL Agreement, including Exhibits A through H, with
Company dated December 18, 1992, is due in full on or before the
Invoice due date of the first VLSI chip sets ordered from GTI under
the "effective date" of this new Agreement per the following terms:

(1) RTU fees for 4Q96 DSL unit shipments will be estimated by Company
and this estimate provided to GTI by December 16, 1996. GTI will
invoice Company at an RTU fee of [<F*>] per unit, payable by wire
transfer by December 31, 1996.

(2) RTU fees for the remaining chip set quantity will be paid on a
quarterly period based on actual DSL unit shipments at a rate of
[<F*>] per unit per the previous Agreement until paid in full, or
payment is due in full on the VLSI invoice due date of the first
VLSI chip sets ordered from GTI under this new Agreement, whichever
occurs first. Should payment of RTU fees not be received in full
by the VLSI invoice due date, subsequent chip set orders will not
be accepted from Company.

[FN]
<F*> CONFIDENTIAL TREATMENT REQUESTED - MATERIAL OMITTED HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

18.2.2 Use of Chip Sets in Specified Transceiver Configuration: Under
this Agreement, Company shall not use transceiver chip sets ordered
for one type of DSL PRODUCT in a different type of DSL PRODUCT
without notifying GTI in writing of the change in use and quantity
of chip sets used. Company will notify GTI of change of use within
30 days after Company makes use change. Upon receiving written
notification, GTI will notify Company of any price adjustments
within ten (10) working days.

18.3 Overdue Payments to GTI: Overdue payments hereunder shall be subject to
a late payment charge calculated at an annual rate of three percent (3%)
over the prime rate (as posted in the Wall Street Journal) on a daily
basis during the delinquency period. If the amount of such charge
exceeds the maximum permitted by law, such charge shall be reduced to
such maximum.

18.4 Taxes: Company shall pay any tax, duty, levy, customs fee, or similar
charge ("taxes"), including interest and penalties thereon, however
designated, imposed as a result of the operation or existence of this
agreement, including taxes which Company is required to withhold or
deduct from payments to GTI, except (1) net income taxes imposed upon
GTI by any governmental entity within the United States (the fifty (50)
states and the District of Columbia), and (2) net income taxes imposed
upon GTI by jurisdictions outside the United States which are allowable
as a credit against the United States Federal income tax of GTI or any
of its affiliates. In order for the exception in (2) to be effective,
Company must furnish GTI any evidence required by the United States
taxing authorities to establish that such taxes have been paid.

19. ENTIRE AGREEMENT:

19.1 Agreement Prevails: The terms and conditions of the Agreement shall
prevail in the event of any conflicting terms or legends which may
appear on the TECHNICAL INFORMATION or any purchase order or other
document used by Company to carry out the terms of this Agreement.

19.2 This is the entire agreement between the parties with respect to the
subject matter hereof. This Agreement supersedes all prior agreements,
proposals, or understandings between the parties, whether oral or in
writing, with respect to the licensing of GlobeSpan TRANSCEIVER
TECHNOLOGY.

19.3 Nothing Construed: Except as specified in the Agreements nothing in
this Agreement or in the TECHNICAL INFORMATION shall be construed as:

(a) an additional obligation upon GTI to furnish any person, including
Company, any assistance of any kind whatsoever, or any information
other than the TECHNICAL INFORMATION, or to revise, supplement or
elaborate upon the TECHNICAL INFORMATION; or

(b) providing or implying any arrangement or understanding that GTI or
its affiliates will make any purchase, lease, examination or test
or give any approval.

20. Non-Solicitation: Unless otherwise mutually agreed to by the Parties,
each agrees not to hire or to solicit the employment of any personnel,
including contractors, of the other Party or its affiliate directly or
indirectly associated with the development or marketing of the TECHNICAL
INFORMATION, or the PRODUCT, or DSL products covered under this
Agreement during the term of this Agreement and for a period of twelve
(12) consecutive months thereafter.

DEFINITIONS:

Any term in capital letters used in the Agreement shall have the meaning
specified below:

DESIGN GUIDE means the material provided as TECHNICAL INFORMATION including
but not limited to the following: GlobeSpan Transceiver Specifications,
Transceiver Power Requirements and Considerations, Transceiver Circuit
Schematics, Transceiver Bill Of Materials, Transceiver Layout Guide,
Transceiver Controller Interface Guide, Transceiver or CAD Design Files,
Transceiver Debugging Guide, and Transceiver DSL Operating Firmware.

GLOBESPAN TRANSCEIVER TECHNOLOGY means the GlobeSpan Technologies Inc.
implementation of DSL CAP transceivers utilizing the Phase 3 transceiver
architecture design and the STARLET and SLADE VLSI chip sets.

GLOBESPANTM is a trademark of GlobeSpan Technologies, Inc.

PRODUCT means a DSL (Digital Subscriber Line) product which incorporates
GlobeSpan TRANSCEIVER TECHNOLOGY.

MANUFACTURED PRODUCT means a DSL (Digital Subscriber Line) product
incorporating GTI's GlobeSpan DSL 2 Wire or 4 Wire transceiver platforms not
used for development or demonstration purposes.

PURCHASED means Company has placed a purchase order for Starlet and Slide
VLSI transceiver chip sets and the chip sets have been shipped to Company for
the manufacture of 2 Wire and/or 4 Wire PRODUCT.

SIMILAR TECHNOLOGY includes, any technology that is or could be utilized in
an implementation to support DSL applications. Examples of SIMILAR
TECHNOLOGY includes, but is not limited to DMT, QAM and 2B1Q.

SUBSIDIARY of a company means a corporation or other legal entity (1) the
majority of whose shares or other securities entitled to vote for election of
directors (or other managing authority) is now or hereafter controlled by
such company either directly or indirectly, or (2) which does not have
outstanding shares or securities but the majority of whose ownership interest
representing the right to manage such corporation or other legal entity is
now or hereafter owned and controlled by such company either directly or
indirectly; but any such corporation or other legal entity shall be deemed to
be a SUBSIDIARY of such company only as long as such control or ownership and
control exists.

TECHNICAL INFORMATION means certain informative material, software and
firmware (including all of the copies derived from material furnished
hereunder) relating to GTI GlobeSpan DSL transceiver and framer technology
and the term also means the information available from said material.
Specific technical material includes, but is not limited to the following:
GlobeSpan Transceiver Specifications, Transceiver Power Requirements and
Considerations, Transceiver Circuit Schematics, Transceiver Bill Of
Materials, Transceiver Layout Guide, Transceiver Controller Interface Guide,
Transceiver or CAD Design Files, Transceiver Debugging Guide, and Transceiver
DSL Operating Firmware.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
Effective Date.

GlobeSpan Technologies, Inc. Company

By: /s/ By: /s/ March H. Hafner
Its: President Its: Corporate Vice President,
Business Development

EXHIBIT A

GlobeSpan DSL Transceiver Platform Scheduled Deliverables

1. ADSL, 1.5, 2 Mbps - 2 Wire

Design Guide 4.0 - Currently Available
Includes:
ADSL Schematics
Bill of Material
Interface Control Guide
Design Layout Guide
Specification Sheet
Power Requirements
ADSL debug Guide and debug Firmware to verify transceiver operation
on customer hardware platform
Transceiver Performance Report
Full Feature, Full Performance ADSL Firmware (Release 2) that
supports T1 and E1 speeds.

Design Guide Maintenance Update - Currently Available
Includes:
Updated Schematic and Bill of Material
Firmware Enhancements

2. ADSL, 6 Mbps/64 Kbps - 2 wire

Design Guide Release 4.1 - Currently Available
Includes:
Schematics with Framer
Bill of Materials
Interface Control Guide
Design Layout Guide
Specification Sheet
Power Requirements
Debug Guide
Debug Firmware
Transceiver Performance Report
High performance firmware, Release 1.08.

3. ADSL, 7 Mbps with 640 Kbps Return Channel - 2 Wire

Design Guide Release 3.0 -Currently Available

ADSL Schematics
Bill of Materials
Interface Control Guide
Design Layout Guide
Specification Sheet
Power Requirements
Debug Guide
Debug Firmware
Transceiver Performance Report
Final Full Performance Firmware

Design Guide Update Scheduled for 11/22/96*
Including warm-startup, power down mode and cascade Reed-Solomon.

4. SDSL 160 Kbps

Design Guide 3.0 - Currently Available
Includes:
SDSL Schematics
Bill of Material
Interface Control Guide
Design Layout Guide
Specification Sheet
Power Requirements
Debug Guide
Debug Firmware
Transceiver Performance Report
Final Full Performance Firmware

5. SDSL 384 Kbps

Design Guide 3.0 - Currently Available
Includes-.
SDSL Schematics
Bill of Material
Interface Control Guide
Design Layout Guide
Specification Sheet
Debug Guide
Debug Firmware
Power Requirements
Full Feature, Full Performance SDSL Firmware (Release 3) for 400
Kbps
Transceiver Performance Report
Maintenance Release Firmware to support microinterruptions.

6. E1 SDSL - 2 Wire without POTS (single Pair E1 HDSL)

Design Guide Release 3.0 - Currently Available
Includes:
Schematics
Bill of Material
Interface Control Guide
Design Layout Guide
Specification Sheet
Power Requirements
Transceiver Performance Report
R1 Firmware, Full Performance

7. HDSL, 2 Mbps - 4 Wire

Design Guide 6.1- Currently Available
Includes:
El HDSL Schematics (+-5V line driver supply)
Bill of Material
Interface Control Guide
Design Layout Guide
Specification Sheet
Power Requirements
HDSL debug Guide and debug Firmware to verify transceiver operation
on customer hardware platform
Transceiver Performance Report
Full Feature, Full Performance El HDSL Firmware

8. HDSL, 1.5 Mbps - 4 Wire

Design Guide 6.1 - Currently Available
Includes:
T1 HDSL Schematics (+-8V line driver supply)
Bill of Material
Interface Control Guide
Design Layout Guide
Specification Sheet
Power Requirements
HDSL debug Guide and debug Firmware to verify transceiver operation
on customer hardware platform
Transceiver Performance Report
Full Feature, Full Performance T1 HDSL Firmware

Design Guide Maintenance Update scheduled for 11/15/96
Includes:
Updated schematic with +-5V supply voltage

9.a RADSL I, - 2 Wire

Design Guide 2.1 - Available Now
Preliminary (R0) Firmware for 340 kBaud downstream and 136 kbaud
upstream. Channel speeds set by the wrapper
RADSL Schematics
Bill of Material
Debug Guide
Debug Firmware
Interface Control Guide
Design Layout Guide
Specification Sheet
Power Requirements

Design Guide 3.0 - November 20, 1996
Updates to Design Guide 2.0
Final (R1) Firmware for 340 kbaud downstream and 136 kbaud Upstream
Channel speeds set by the wrapper
Transceiver Performance Report

Design Guide 4.0 -December 23, 1996*
Updates to Design Guide 3.0
Preliminary (R2) Firmware for multiple downstream baud rates

Design Guide 5.0 -January 28,1997*
Updates to Design Guide 4.0
Final (R3) Firmware for multiple downstream baud rates with speed
selection (coordinated with the wrapper)

9.b RADSL II, (two Starlets at CP) - 2 Wire

Design Guide 6.0 - January 10, 1997*
Preliminary (R4) RADSL II Firmware

Design Guide 7.0 - February 4,1997*
Final (R5) RADSL II Firmware

*GTI will make its best effort to meet these target data.

EXHIBIT B

Lucent Technologies Inc Patent List

Patent Number Title

4,247,940 Equalizer for complex data signals
4,304,962 Data Scrambler
4,464,545 Echo Canceller
4,483,012 Differentially convolutional channel coding
with expanded set of signalling
4,651,320 Inband Coding of Secondary Data
4,682,358 Echo Canceller
4,788,694 Trellis coding with substrates
4,924,492 Method and apparatus for wideband transmission
of digital signals between, for example, a
telephone central office and customer premises
4,995,057 Technique for Achieving the Theoretical Coding
Gain of Digital Signals incorporating Error
Correction
5,052,000 Technique for improving the operation of
decision feedback equalizers in communications
systems utilizing error correction
5,056,117 Decision feedback equalization with trellis
coding
5,442,626 Digital Communications System with Symbol
Multiplexers
RE 31253 Echo cancellation in two-wire, two way data
transmission systems
5,488,633 Intersymbol Interference Channel Coding Scheme
5,483,551 Crosstalk Suppression Technique
5,521,949 Synchronization Scheme for Digital
Communications Systems Transporting Data at a
Customer Controlled Rate
5,528,686 Transformerless Hybrid Circuit having Direct
Powered Line-Side Amplifiers
08/215562 Signal Constellation Time Division Multiplexing
4,800,573 Equalization Arrangement
5,214,656 Multiplexed Code Modulation
5,371,762 Technology using Signal Storing Devices
5,406,586 Signal Correlation Technique
08/322878 Hybrid Equalizer Arrangement for DEI
08/547584 Signal Constellation TDM Arrangement

Exhibit 23.1

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the use of our
reports dated May 16, 1997 on the financial statements of Westell Technologies,
Inc. and Subsidiaries (and to all references to our Firm) included in or made
part of this Form 10-K, into the Company's previously filed Registration
Statement File No. 33-99914.

ARTHUR ANDERSEN LLP

Chicago, Illinois
June 27, 1997

<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Westell
Technologies, Inc.'s Form 10-K and is qualified in its entirety by reference to
such Form 10-K filing.
</LEGEND>
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 39,287<F1>
<SECURITIES> 0
<RECEIVABLES> 12,119
<ALLOWANCES> (521)
<INVENTORY> 10,416
<CURRENT-ASSETS> 81,932
<PP&E> 29,931
<DEPRECIATION> (15,293)
<TOTAL-ASSETS> 108,049
<CURRENT-LIABILITIES> 16,827
<BONDS> 0
0
0
<COMMON> 363
<OTHER-SE> 85,825
<TOTAL-LIABILITY-AND-EQUITY> 108,049
<SALES> 0
<TOTAL-REVENUES> 79,385
<CGS> 57,832
<TOTAL-COSTS> 47,965
<OTHER-EXPENSES> (2,221)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 330
<INCOME-PRETAX> (24,521)
<INCOME-TAX> (9,820)
<INCOME-CONTINUING> (14,701)
<DISCONTINUED> (5)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (14,706)
<EPS-PRIMARY> (0.41)
<EPS-DILUTED> 0
<FN>
<F1>$10,850 are short term investments.
</FN>

</TABLE>