UTSTARCOM INC, S-1, 1999-12-20

UTSTARCOM INC
S-1, 1999-12-20

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 20, 1999
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------

FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------

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

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<S> <C> <C>
DELAWARE 3661 52-1782500
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>

1275 HARBOR BAY PARKWAY, SUITE 100
ALAMEDA, CA 94502
(510) 864-8800
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)

HONG L. LU
PRESIDENT AND CHIEF EXECUTIVE OFFICER
UTSTARCOM, INC.
1275 HARBOR BAY PARKWAY, SUITE 100
ALAMEDA, CA 94502
(510) 864-8800
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
--------------------------

COPIES TO:

<TABLE>
<S> <C>
STEVEN E. BOCHNER, ESQ. ALAN F. DENENBERG, ESQ.
STEVEN L. BERSON, ESQ. Shearman & Sterling
CARMEN C. CHANG, ESQ. 1550 El Camino Real
Wilson Sonsini Goodrich & Rosati Menlo Park, CA 94025-4100
Professional Corporation (650) 330-2200
650 Page Mill Road
Palo Alto, CA 94304-1050
(650) 493-9300
</TABLE>

--------------------------

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
--------------------------

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act,
check the following box. / /

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / / __________

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / __________

If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for same offering. / / __________

If the delivery of the prospectus is expected to be made pursuant to
Rule 434, please check the following box. / /
--------------------------

CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
PROPOSED MAXIMUM
AGGREGATE OFFERING AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES TO BE REGISTERED PRICE(1) REGISTRATION FEE
<S> <C> <C>
Common Stock, $0.00125 par value..................... $125,000,000 $33,000
</TABLE>

(1) Estimated solely for the purpose of computing the amount of the registration
fee pursuant to Rule 457(o) under the Securities Act.
--------------------------

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.

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<PAGE>
EXPLANATORY NOTE

THIS REGISTRATION STATEMENT CONTAINS TWO SEPARATE PROSPECTUSES. THE FIRST
PROSPECTUS RELATES TO A PUBLIC OFFERING OF SHARES OF COMMON STOCK IN THE UNITED
STATES AND CANADA (THE "U.S. PROSPECTUS"). THE SECOND PROSPECTUS RELATES TO A
CONCURRENT OFFERING OF COMMON STOCK OUTSIDE THE UNITED STATES AND CANADA (THE
"INTERNATIONAL PROSPECTUS"). THE U.S. PROSPECTUS AND THE INTERNATIONAL
PROSPECTUS ARE IDENTICAL IN ALL RESPECTS, OTHER THAN THE FRONT COVER PAGE, THE
"UNDERWRITING" SECTION AND THE BACK COVER PAGE. THE ALTERNATE PAGES FOR THE
INTERNATIONAL PROSPECTUS APPEAR IN THIS REGISTRATION STATEMENT IMMEDIATELY
FOLLOWING THE COMPLETE U.S. PROSPECTUS.
<PAGE>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED , 2000

P_R_O_S_P_E_C_T_U_S

[LOGO]

COMMON STOCK

--------------

This is UTStarcom, Inc.'s initial public offering of common stock. The
U.S. underwriters are offering shares in the United States and Canada and
the international managers are offering
shares outside the United States and Canada.

We expect the public offering price to be between $ and $
per share. Currently, no public market exists for the shares. After pricing of
the offering, we expect that the common stock will trade on the Nasdaq National
Market under the symbol "UTSI."

INVESTING IN THE COMMON STOCK INVOLVES RISKS WHICH ARE DESCRIBED IN THE
"RISK FACTORS" SECTION BEGINNING ON PAGE 5 OF THIS PROSPECTUS.

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<CAPTION>
PER SHARE TOTAL
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<S> <C> <C>
Public offering price...................................... $ $
Underwriting discount...................................... $ $
Proceeds, before expenses, to UTStarcom, Inc. ............. $ $
</TABLE>

The U.S. underwriters may also purchase up to an additional
shares from UTStarcom at the public offering price, less the underwriting
discount, within 30 days from the date of this prospectus to cover
over-allotments. The international managers may similarly purchase up to an
additional shares from UTStarcom.

Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.

The shares of common stock will be ready for delivery in New York, New
York on or about , 2000.

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MERRILL LYNCH & CO.
BANC OF AMERICA SECURITIES LLC
U.S. BANCORP PIPER JAFFRAY
------------

The date of this prospectus is , 2000.
<PAGE>
[INSIDE FRONT COVER PAGE]

PHOTOGRAPHS, DESCRIPTIONS AND CAPTIONS

1. Top: Color photos of radio port controller, indoor radio port, outdoor
radio port, remote subscriber terminal and handset.

Caption: Airstar City-Wide Wireless Mobile Phone System. Our Personal Access
System allows service providers that operate wireless networks to provide
cost-effective voice and data services for several hundred thousand subscribers.

2. Middle: Color photos of AN-2000 access node and OMUX optical
multiplexor.

Caption: AN-2000 / OMUX. Our standards-based AN-2000 system and OMUX product
allow service providers to offer voice and high-speed data broadband services.

3. Bottom: Color photo of WACOS IP-based switching system.

Caption: WACOS IP-Based Multi-Service Switching System. Our WACOS system
provides IP-based switching services in multiple networks.

4. Bottom left: UTStarcom logo.

[INSIDE GATE-FOLD OF FRONT COVER PAGE]

IMAGES, DIAGRAM, DIAGRAM DESCRIPTIONS AND CAPTIONS.

1. Top left: UTStarcom logo.

2. Top caption: COMMUNICATIONS ACCESS NETWORK SOLUTIONS.

3. Center: Diagram of a linked communications network depicting our
AN-2000, Airstar and WACOS systems.

4. Center left: Diagram of an AN-2000 deployment. A long distance switch
connects to a central office switch over a standard digital interface. The
central office switch connects to a remotely located AN-2000 central office
terminal over a standard digital interface. Internet and data services connect
to the same central office terminal over a standard digital interface. The
central office terminal connects to two AN-2000 remote terminals. The
connections are made through a high performance robust digital transmission
technology, known as SDH. A computer using our Netman software is connected to
and manages the central office terminal and the remote terminals. The remote
terminals connect to subscribers to provide telephone and data services.

5. Center middle: Diagram of an Airstar deployment. A long distance switch
connects to a central office switch over a standard digital interface. A second
long distance switch connects to a second central office switch over a standard
digital interface. The two central office switches connect to two separate
Personal Access System, or PAS, remote terminals. Internet and data services
connect to one of the PAS remote terminals over a standard digital interface. An
air traffic controller connects to each of the PAS remote terminals to provide
wireless channel and traffic-mobility management throughout the system. A
computer using our Netman software is connected to and manages the air traffic
controller and the PAS remote terminals. The PAS remote terminals connect to
radio ports over a standard digital interface. The radio ports provide wireless
city-wide mobile phone, fixed wireless voice and wireless mobile data services.

6. Center right: Diagram of a WACOS deployment. A long distance switch is
connected over legacy telephony protocols to the local access network through a
WACOS public switched telephone network gateway. Internet services are connected
to the local access network through the WACOS Internet gateway. A WACOS standard
digital protocol wireless gateway and a WACOS broadband gateway are located on
the access network. The gateways connect with the Airstar and AN-2000 systems to
provide wireless and wireline voice, data and Internet services. The gateways
also allow for large-scale wireless mobile phone service, voice over IP and
broadband access. An operational support system provides customer care, billing
and management capabilities.
<PAGE>
[INSIDE BACK COVER PAGE]

IMAGES, A MAP AND CAPTIONS

1. Top left: UTStarcom Logo

Caption: Locations and Customers

2. Map of Asia. Red dots depict the location of UTStarcom installations.
Blue dots depict the location of UTStarcom offices. Colored shading on the map
depicts estimated telecommunications service revenues.
<PAGE>
TABLE OF CONTENTS

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PAGE
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Prospectus Summary.......................................... 1
Risk Factors................................................ 5
Forward-Looking Statements.................................. 22
Use of Proceeds............................................. 23
Dividend Policy............................................. 23
Capitalization.............................................. 24
Dilution.................................................... 25
Selected Consolidated Financial Data........................ 27
Selected Pro Forma Combined Financial Data.................. 29
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 30
Business.................................................... 40
Management.................................................. 57
Related Party Transactions.................................. 65
Principal Stockholders...................................... 68
Description of Capital Stock................................ 70
Material United States Federal Tax Consequences to
Non-United States Holders................................. 73
Shares Eligible for Future Sale............................. 76
Underwriting................................................ 78
Legal Matters............................................... 82
Experts..................................................... 82
Where You Can Find More Information......................... 82
Index to Financial Statements and Financial Information..... F-1
</TABLE>

INFORMATION IN PROSPECTUS

In this prospectus, references to and statements regarding China refer to
the People's Republic of China, excluding Hong Kong, Macau and Taiwan,
references to "U.S. dollars," or "$" are to United States Dollars, and
references to "Renminbi" are to Renminbi, the legal currency of China.

Unless specifically stated, information in this prospectus gives effect to a
2-for-1 stock split effected in December 1999 and assumes:

- an exchange rate of 8.3 Renminbi for one U.S. dollar;

- all outstanding shares of our preferred stock have been converted into an
aggregate of 69,762,112 shares of common stock; and

- the underwriters will not exercise their over-allotment option and no
other person will exercise any other outstanding options or warrants.

You should rely only on the information contained in this prospectus.
Neither we nor the underwriters have authorized any person to provide you with
different information. If anyone provides you with different or inconsistent
information, you should not rely on it. Information contained on our Web site is
not part of this prospectus. We and the underwriters are not making an offer to
sell these securities in any jurisdiction where the offer or sale is not
permitted. You should assume that the information appearing in this prospectus
is accurate as of the date on the front cover of this prospectus only. Our
business, financial condition, results of operations and prospects may have
changed since that date.

UTStarcom is registered as a trademark in the United States. UTStarcom,
Airstar and WLL are registered as trademarks in China. This prospectus also
includes product names, trade names and trademarks of other companies. All other
product names, trade names and trademarks appearing in this prospectus are the
property of their respective holders.
<PAGE>
PROSPECTUS SUMMARY

THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION CONTAINED ELSEWHERE IN THIS
PROSPECTUS. YOU SHOULD READ THE ENTIRE PROSPECTUS CAREFULLY, INCLUDING "RISK
FACTORS" AND THE FINANCIAL DATA AND RELATED NOTES, BEFORE MAKING AN INVESTMENT
DECISION.

UTSTARCOM, INC.

We provide communications equipment for service providers that operate
wireless and wireline networks in rapidly growing communications markets. Our
integrated suite of network access systems, optical transmission products and
subscriber terminal products allows service providers to offer efficient and
scalable voice, data and Internet access services. Service providers can easily
integrate our standards-based systems into their existing networks and deploy
our systems in new broadband, Internet Protocol and wireless network rollouts.
To date, substantially all of our sales have been to service providers in China.

China has one of the fastest growing communications markets in the world.
Growth in China's communications equipment and services markets is being driven
by the government's commitment to infrastructure build-out, pent-up demand for
communications services and robust economic growth. According to 1998 statistics
from the International Telecommunication Union, China has only 7.0 phone lines
per 100 people. In comparison, the United States has approximately 66.1 phone
lines per 100 people. China's low telephone penetration rate combined with its
population of 1.2 billion presents a significant market opportunity for
providers of voice and data communications services and equipment. Furthermore,
the number of Internet subscribers within China is expected to dramatically
increase, resulting in further infrastructure buildout for data services and
increased demand for communications equipment capable of providing those
services.

Service providers in China often require network solutions with a suite of
integrated products that address all of their access needs, including wireline
and wireless, voice and data. These comprehensive product offerings enable
service providers to quickly, and with minimal incremental investment, address
the changing communications demands of their subscribers. In addition, given the
rapid growth in China's emerging communications market, network solutions must
be efficient and scalable so that the same architecture can provide an
affordable entry level solution for hundreds of subscribers yet economically
scale to hundreds of thousands of subscribers. Additionally, service providers
in China often require vendors to continually develop products to meet evolving
market needs and to have an extensive local service, support and manufacturing
presence. Our wireless and wireline access and switching systems are designed to
deliver the following key benefits to service providers:

INTEGRATED, COMPREHENSIVE PRODUCT OFFERING. By offering communications
systems that link the backbone network, access network and subscribers'
premises, we supply service providers with solutions that enable them to quickly
deploy services to subscribers. Furthermore, as subscriber needs evolve from
voice to data, we offer solutions to meet these needs.

FLEXIBILITY FOR VOICE AND DATA SERVICES. We have designed our systems to
offer a high degree of flexibility in terms of the number of subscribers and
types of traffic delivered to those subscribers. This flexibility is
particularly important in China as the communications services market is
undergoing rapid change and growth. Our access systems allow service providers
to quickly and cost-effectively implement upgrades for new services, including
high-speed data services, compared to alternative solutions which may require
the purchase of an entirely new system to provide these services.

LEADING PRICE AND PERFORMANCE SOLUTION. We have designed our systems so
that service providers in developing markets such as China can quickly deploy
multiple services from our platform in a cost-effective manner. By delivering a
modular system, we allow service providers to purchase only the functionality
and capacity needed and to purchase additional functionality and capacity over
time as

1
<PAGE>
subscriber demand warrants. Furthermore, as demand for communications services
in China grows, our scalable systems will allow service providers to scale up
from a small initial subscriber base to hundreds of thousands of subscribers in
a cost-effective and efficient manner.

STANDARDS-BASED ARCHITECTURE. We have designed our systems to comply with
key international open communication standards for multi-vendor
interoperability. Our standards-based systems incorporate open interfaces that
allow service providers to connect our products to equipment from multiple
vendors and thus integrate multiple voice and data traffic types within one
system. Our compliance with open standards lowers costs by permitting service
providers to shorten evaluation times and eases integration of our products with
other systems in the service providers' networks.

LOCAL PRESENCE. We have established a strong local presence in China that
allows us to be responsive to the needs of service providers and their
subscribers. We manufacture the majority of our products at two facilities
located in the cities of Huizhou in Guangdong province and Hangzhou in Zhejiang
province that are owned by joint ventures between us and the affiliates of
corresponding provincial Posts and Telecommunications Administrations, or PTAs.
By using local facilities in China, we have helped create new jobs within the
provinces and have strengthened our relationships with the PTAs in some of
China's most modernized and rapidly growing provinces. We also maintain nine
sales and customer support sites in China that allow us to deploy a customer
support representative anywhere in China within 24 hours. Additionally, we have
developed relationships at the national, provincial and local levels which
provide us with a continuous flow of information on market changes and insight
into unique service provider needs and related opportunities.

Our objective is to be a leading provider of broadband, Internet Protocol,
or IP, and wireless network equipment to high growth communications markets. The
principal elements of our strategy are as follows:

- leverage our installed base of wireless and wireline access systems as
demand for broadband and high-speed data services grows in China;

- continue to develop products and technologies for market-driven solutions
and penetrate the emerging IP-based switching market;

- further capitalize on China's low penetration rate and increasing demand
for communications services by increasing our sales, support and
development staff and delivering new products and technologies; and

- leverage our success in China to address other high-growth markets.

Service providers have installed over 900,000 lines of our Airstar wireless
access system, which we believe is the most widely deployed wireless local
access system in China. Over 1.2 million lines of our wireline AN-2000 access
system have been deployed in China, including installations in the six largest
regional communications markets. Our OMUX product provides optical transmission
and is often bundled with our Airstar and AN-2000 systems. The OMUX is currently
installed as a stand-alone or bundled product at over 5,000 locations for over
200 communications service providers. Our newest product, WACOS, is targeted at
the emerging broadband, IP-based switching and wireless markets.

We incorporated in Delaware as Unitech Industries Inc. in 1991. In 1994, we
changed our name to Unitech Telecom, Inc. In 1995, we acquired StarCom Network
Systems, Inc. and changed our name to UTStarcom, Inc. Our principal executive
offices are located at 1275 Harbor Bay Parkway, Alameda, California, and our
telephone number is (510) 864-8800.

2
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THE OFFERING

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<S> <C>
Common stock offered:

U.S. offering......................... shares

International offering................ shares

Total............................... shares

Common stock to be outstanding after
this offering......................... shares

Use of proceeds......................... We intend to use the proceeds from this offering for
general corporate purposes, including research and
development, expansion of our sales and marketing
organization and working capital. We may also use a
portion of the proceeds from this offering to acquire
or invest in complementary businesses, technologies
or products.

Proposed Nasdaq National Market
symbol................................ UTSI
</TABLE>

- ----------

The number of shares that will be outstanding after the offering is based on
the number of shares outstanding as of December 14, 1999 and excludes:

- 18,856,646 shares of common stock authorized for issuance under our stock
option plans, under which options to purchase 12,431,342 shares were
outstanding and 4,266,926 shares were available for grant as of
December 14, 1999;

- 532,000 shares of common stock reserved for issuance upon the exercise of
warrants outstanding as of December 14, 1999 at a weighted average
exercise price of $6.025 per share; and

- an option held by Intel Pacific, Inc. to purchase up to 615,210 shares of
our Series F preferred stock at a price of $8.1273 per share. This option
expires on January 13, 2000.

3
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SUMMARY FINANCIAL DATA

The summary financial data below should be read together with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the consolidated financial statements, the unaudited pro forma combined
financial information and the related notes included elsewhere in this
prospectus.

<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1998(2) SEPTEMBER 30, 1999(2)
-------------------- ---------------------
(UNAUDITED)
<S> <C> <C>
PRO FORMA COMBINED STATEMENT OF OPERATIONS DATA:
Net sales................................................... $105,167 $124,701
Gross profit................................................ 39,921 52,024
Operating income (loss)..................................... (621) 9,905
Net income (loss) (3,277) 9,992
Pro forma earnings (loss) per share:
Basic..................................................... (0.04) 0.13
Diluted................................................... (0.04) 0.12
Shares used in per share calculations:
Basic..................................................... 76,051 79,013
Diluted................................................... 76,051 84,947
</TABLE>

<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
-------------------------
ACTUAL AS ADJUSTED(3)
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(IN THOUSANDS)
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents(4)................................ $ 35,275 $
Working capital............................................. 65,464
Total assets................................................ 176,683
Total short-term debt....................................... 42,324
Total stockholders' equity.................................. 79,924
</TABLE>

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(1) Based on the number of shares outstanding as of September 30, 1999. Excludes
(i) 13,621,534 shares of common stock authorized for issuance under our
stock option plans, under which options to purchase 11,451,990 shares were
outstanding as of September 30, 1999 with a weighted average exercise price
of $2.21 per share and 153,140 shares were available for grant and
(ii) 532,000 shares of common stock reserved for issuance upon the exercise
of warrants outstanding as of September 30, 1999 with a weighted average
exercise price of $6.025 per share.

(2) Adjusted to reflect:

- the issuance of 6,152,106 shares of Series F preferred stock at
$8.1273 per share in November and December 1999 in connection with a
private round of financing;

- the issuance of 4,523,700 shares of Series G preferred stock in
December 1999 in connection with our acquisition of Wacos Inc.; and

- to give effect to the conversion of all outstanding shares of preferred
stock into common stock upon the completion of this offering.

(3) Adjusted to reflect the receipt of the estimated net proceeds from the sale
of shares of common stock offered by this prospectus at an
assumed initial public offering price of $ per share, after deducting the
estimated underwriting discount and estimated offering expenses.

(4) Includes restricted cash of $14,292 as of September 30, 1999.

4
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RISK FACTORS

YOU SHOULD CAREFULLY CONSIDER THE RISKS DESCRIBED BELOW BEFORE MAKING A
DECISION TO BUY OUR COMMON STOCK. IF ANY OF THE FOLLOWING RISKS ACTUALLY OCCUR,
OUR BUSINESS COULD BE HARMED, THE TRADING PRICE OF OUR COMMON STOCK COULD
DECLINE AND YOU MAY LOSE ALL OR PART OF YOUR INVESTMENT. YOU SHOULD ALSO REFER
TO THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS, INCLUDING THE FINANCIAL
STATEMENTS AND RELATED NOTES.

RISKS RELATING TO OUR COMPANY

OUR FUTURE SALES ARE UNPREDICTABLE, OUR OPERATING RESULTS ARE LIKELY TO
FLUCTUATE FROM QUARTER TO QUARTER, AND IF WE FAIL TO MEET THE EXPECTATIONS OF
SECURITIES ANALYSTS OR INVESTORS, OUR STOCK PRICE COULD DECLINE SIGNIFICANTLY

Our quarterly and annual operating results have fluctuated in the past and
are likely to fluctuate in the future due to a variety of factors, some of which
are outside of our control. Factors that may affect our future operating results
include:

- the timing, number and size of orders for our products, as well as the
relative mix of orders for each of our products, particularly the volume
of lower margin telephone handsets;

- the evolving and unpredictable nature of the economic, regulatory and
political environments in China and other countries in which we market or
plan to market our products;

- aggressive price reductions by our competitors;

- currency fluctuations;

- market acceptance of our products and product enhancements;

- the lengthy and unpredictable sales cycles associated with sales of our
products combined with the impact of this variability on our suppliers'
ability to provide us with components on a timely basis; and

- longer collection periods of accounts receivable in China and other
countries.

The limited performance history of some of our products, our limited
forecasting experience and processes and the emerging nature of our target
markets make forecasting our future sales and operating results difficult. Our
expense levels are based, in part, on our expectations regarding future sales,
and these expenses are largely fixed, particularly in the short term. In
addition, to enable us to promptly fill orders, we maintain inventories of
finished goods, components and raw materials. As a result, we commit to
considerable costs in advance of anticipated sales. In the past, a substantial
portion of our sales in each quarter resulted from orders received and shipped
in that quarter, and we have operated with a limited backlog of unfilled orders.
Accordingly, we may not be able to reduce our costs in a timely manner to
compensate for any unexpected shortfall between forecasted and actual sales. Any
significant shortfall of sales may require us to maintain higher levels of
inventories of finished goods, components and raw materials than we require,
thereby increasing our risk of inventory obsolescence and corresponding
inventory write-downs and write-offs. Although we have reserved against
inventory obsolescence, we cannot guarantee that these reserves will be adequate
to offset such write-downs or write-offs.

Due to these and other factors, our future sales, costs, expenses and
results of operations are likely to vary significantly from period to period. As
a result, period to period comparisons of our operating results are not
necessarily meaningful or indicative of future performance. Furthermore, it is
likely that in some future quarters our operating results will fall below the
expectations of public market analysts or investors. If this occurs, the trading
price of our common stock could decline.

5
<PAGE>
WE HAVE A HISTORY OF LOSSES AND AN ACCUMULATED DEFICIT

As of September 30, 1999, we had an accumulated deficit of approximately
$4.9 million. We anticipate continuing to incur significant sales and marketing,
research and development and general and administrative expenses and, as a
result, we will need to continue to generate higher revenues to sustain
profitability. Numerous factors could negatively impact our results of
operations, including a decrease in sales, price pressures and a fixed cost
structure which could limit our ability to respond to declining revenues.
Although our sales have grown in recent quarters, our past results should not be
relied on as indications of our future performance. We cannot assure you that we
will be able to remain profitable in future periods.

COMPETITION IN OUR MARKETS MAY LEAD TO REDUCED PRICES, REVENUES AND MARKET SHARE

We face intense competition in our target markets and expect competition to
increase. Our principal competitors for our different product lines include the
following:

- AIRSTAR SYSTEM: Alcatel Alsthom CGE, S.A.; Ericsson LM Telephone Co.;
Huawei Technology Co., Ltd.; Lucent Technologies, Inc.; Motorola, Inc.;
NEC Corporation; Siemens AG; and Zhongxing Telecommunications Equipment.

- AN-2000 AND OMUX: Advanced Fibre Communications, Inc.; Alcatel; Bosch
Telecom GmbH; ECI Telecom Ltd.; Ericsson; Fujitsu Limited; Huawei; Lucent;
NEC; Nokia Corporation; Shanghai Bell Alcatel Mobile Communication;
Siemens; and Zhongxing.

- WACOS SYSTEM: Alcatel; Cisco Systems, Inc.; Clarent Corporation; Ericsson;
Huawei; Lucent; Motorola; Nokia; Nortel Networks Corporation; Nuera
Communications, Inc.; Siemens; Tachion Networks, Inc.; and Vienna Systems
Corp.

We are increasingly facing competition from domestic companies in China and
believe that our strongest competition in the future may come from these
companies, many of which operate under lower cost structures and more favorable
governmental policies and with much larger sales forces than we do. Furthermore,
other companies not presently offering competing products may also enter our
target markets. Many of our competitors have significantly greater financial,
technical, product development, sales, marketing and other resources than we do.
Additionally, some competitors may be able to offer significant financing
arrangements to service providers, in some cases facilitated by favorable
government policies. Moreover, current and potential competitors have
established or may establish cooperative relationships among themselves or with
third parties, including our current customers, to increase their ability to
produce products that address the needs of service providers in our target
markets. Increased competition in our target markets may result in price
reductions, reduced gross profit as a percentage of net sales and loss of market
share, any one of which could materially adversely affect our business,
financial condition and results of operations.

THE SUCCESS OF OUR BUSINESS DEPENDS ON A RELATIVELY SMALL NUMBER OF LARGE SYSTEM
DEPLOYMENTS, AND ANY CANCELLATION, REDUCTION OR DELAY IN THESE DEPLOYMENTS COULD
HARM OUR BUSINESS

Our business is characterized by large system deployments for a relatively
small number of service providers. In the nine months ended September 30, 1999,
two customers accounted for 21.5% and 15.9%, respectively, of our net sales. Our
dependence on large system buildouts makes our ability to deploy systems in a
timely and cost-effective manner critically important to our business. We have
in the past experienced delays and encountered other difficulties in the
installation and implementation of our systems. Various factors could cause
future delays, including technical problems and the shortage of qualified
technicians. Any delays or difficulties in deploying our systems, or the
cancellation of any orders by service providers, could significantly harm our
business.

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WE DO NOT HAVE SOME OF THE LICENSES WE REQUIRE TO SELL OUR NETWORK ACCESS
PRODUCTS IN CHINA

Beginning January 1, 1999, China's government required that all
telecommunications equipment connected to public or private telecommunications
networks within China be approved by the Ministry of Information Industry, or
the MII, and the manufacturer of the equipment obtain a network access license
for each of its products. The network access license is valid for a period of
three years and may be renewed upon application, subject to re-examination by
the MII. Sellers are prohibited from selling or advertising for sale equipment
for which its manufacturer has not obtained a network access license and may be
liable for penalties in an amount up to three times earnings from the sale of
any equipment sold beginning January 1, 1999 without a license. In addition, any
unlicensed equipment may be required to be removed from the network. The
regulations implementing these requirements are not very detailed, have not been
applied by a court and may be interpreted and enforced by regulatory authorities
in a number of different ways. Accordingly, we have obtained an opinion from our
counsel in China as to which licenses we are required to obtain. Based upon this
counsel's advice, we believe that we have obtained the required network access
licenses for our AN-2000 system and bundled OMUX product. We do not yet have a
network access license for our Airstar system, but have applied to the MII for
the required license. We have also applied for network access licenses for our
stand-alone OMUX product and for other products which we are no longer
manufacturing but had previously sold to service providers in China. Network
access licenses will be required for any additional products that we may develop
for sale in China, including our WACOS system. Based upon verbal inquiries made
by our counsel in China to the MII, we believe that for products which we sold
before January 1, 1999, such as the Airstar system, no penalties will be imposed
by the MII for sales we have made or will make during the period an application
is pending. Our counsel in China has advised us that China's governmental
authorities, including the MII, or courts may interpret or apply the regulations
with respect to which licenses are required and the ability to sell a product
while an application for the product license is pending differently. Failure to
obtain the required licenses could require us to remove previously installed
equipment and would prohibit us from making further sales of the product, which
could have a material adverse effect on our business, financial condition and
results of operations.

OUR BUSINESS MAY SUFFER IF WE ARE UNABLE TO COLLECT PAYMENTS FROM OUR CUSTOMERS
ON A TIMELY BASIS

Our customers often must make a significant commitment of capital to
purchase our products. As a result, any downturn in a customer's business or its
failure to pay on a timely basis could materially adversely affect our business,
financial condition and results of operations. In particular, accounts
receivable collection cycles historically tend to be much longer in China than
in other markets. The failure of any of our customers to make timely payments
could require us to write-off accounts receivable or increase our accounts
receivable reserves, either of which could adversely affect our business,
financial condition and results of operations.

A DECLINE IN BUSINESS ACTIVITY DURING CHINA'S LUNAR NEW YEAR MAY RESULT IN
DECREASED SALES DURING OUR FIRST QUARTER

Business activity in China declines considerably during the first quarter of
each year in observance of the Lunar New Year. As a result, sales during the
first quarter of our fiscal year have in the past typically not exceeded, and we
expect that in the future will not exceed, sales during the fourth quarter of
the preceding year. We will continue to face this seasonality in the future and
do not have the ability to forecast with any degree of certainty the impact of
the decreased business activity during the Lunar New Year on our sales and
operating results.

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OUR MARKET IS SUBJECT TO RAPID TECHNOLOGICAL CHANGE, AND TO COMPETE EFFECTIVELY,
WE MUST CONTINUALLY INTRODUCE NEW PRODUCTS THAT ACHIEVE MARKET ACCEPTANCE

The emerging market for communications equipment in developing countries is
characterized by rapid technological developments, frequent new product
introductions and evolving industry and regulatory standards. Our success will
depend in large part on our ability to enhance our network access and switching
technologies and develop and introduce new products and product enhancements
that anticipate changing service provider requirements and technological
developments. We may need to make substantial capital expenditures and incur
significant research and development costs to develop and introduce new products
and enhancements. If we fail to timely develop and introduce new products or
enhancements to existing products that effectively respond to technological
change, our business, financial condition and results of operations could be
materially adversely affected.

From time to time, we or our competitors may announce new products or
product enhancements, services or technologies that have the potential to
replace or shorten the life cycles of our products and that may cause customers
to defer purchasing our existing products, resulting in inventory obsolescence.
Future technological advances in the communications industry may diminish or
inhibit market acceptance of our existing or future products or render our
products obsolete.

Even if we are able to develop and introduce new products, we cannot assure
you that they will gain market acceptance. Market acceptance of our products
will depend on various factors including:

- our ability to obtain necessary approvals from regulatory organizations;

- the perceived advantages of the new products over competing products;

- our ability to attract customers who have existing relationships with our
competitors;

- product cost relative to performance; and

- the level of customer service available to support new products.

Specifically, sales of our AN-2000 system outside of China depend, in part,
on the adoption of the V5.2 standard in these markets. Additionally, sales of
our Personal Access System, or PAS, the mobile component of our Airstar wireless
system, will depend in part upon consumer acceptance of the mobility limitations
of this service. The introduction of inexpensive wireless telephone service or
other competitive services in China may have a material adverse effect on sales
of our Airstar systems in China. If our existing or new products fail to achieve
market acceptance for any reason, our business, financial condition and results
of operations could be materially adversely affected.

OUR BUSINESS WILL SUFFER IF WE ARE UNABLE TO DELIVER QUALITY PRODUCTS ON A
TIMELY AND COST EFFECTIVE BASIS

Our operating results depend on our ability to manufacture products on a
timely and cost effective basis. In the past, we have experienced reductions in
yields as a result of various factors, including defects in component parts and
human error in assembly. If we experience a deterioration in manufacturing
performance or a delay in production of any of our products, we could experience
delays in shipments and cancellations of orders. Moreover, networking products
frequently contain undetected software or hardware defects when first introduced
or as new versions are released. In addition, our products are often embedded in
or deployed in conjunction with service providers' products which incorporate a
variety of components produced by third parties. As a result, when problems
occur, it may be difficult to identify the source of the problem. These problems
may cause us to incur significant warranty and repair costs, divert the
attention of our engineering personnel from our product development efforts and
cause significant customer relation problems or loss of customers, any one of
which could harm our business.

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If future demand for our products requires additional manufacturing
capacity, we may invest in and build additional manufacturing facilities, most
likely in China. However, we cannot assure you that the new manufacturing
facilities will attain the same quality or level of efficiencies as our existing
facilities. Alternatively, or in addition, we may contract with third party
manufacturing facilities over which we may be unable to exercise the same degree
of quality control as we can over our own facilities. We currently have no
arrangements with any independent manufacturing facility, and we may not be able
to obtain independent manufacturing sources on commercially attractive terms if
and when needed. Any failure to obtain a sufficient level of high quality
manufacturing capacity could result in a material adverse effect on our
business, financial condition and results of operations.

WE DEPEND ON SOME SOLE SOURCE AND OTHER KEY SUPPLIERS FOR HANDSETS, COMPONENTS
AND MATERIALS USED IN OUR PRODUCTS, AND IF THESE SUPPLIERS FAIL TO PROVIDE US
WITH ADEQUATE SUPPLIES OF HIGH QUALITY PRODUCTS, OUR COMPETITIVE POSITION,
REPUTATION AND BUSINESS COULD BE HARMED

Some handsets, components and materials used in our products are purchased
from a single supplier or a limited group of suppliers. In particular, we rely
on a limited number of suppliers to manufacture and supply mobile phone
handsets, radios and radio controllers used with our Airstar system. In
addition, we obtain various integrated circuits used in our products from sole
source suppliers. If any supplier is unwilling or unable to provide us with
these components and materials, we may not be able to find alternative sources
on favorable terms, in a timely manner, or at all. Our inability to obtain or to
develop alternative sources if and as required could result in delays or
reductions in manufacturing or product shipments, which, in turn, could have a
material adverse effect on our business, financial condition and results of
operations. Moreover, if these suppliers delay product shipments or supply us
with inferior quality products, our competitive position, reputation and
business could suffer.

OUR ABILITY TO SOURCE A SUFFICIENT QUANTITY OF HIGH QUALITY HANDSETS AND OTHER
COMPONENTS USED IN OUR PRODUCTS MAY BE LIMITED BY CHINA'S IMPORT RESTRICTIONS AS
WELL AS OUR ABILITY TO OBTAIN SUFFICIENT DOMESTIC MANUFACTURING CAPACITY

We require a significant number of imported components to manufacture our
products in China. Imported electronic components are subject to a variety of
permit requirements, approval procedures and import duties. Failure to obtain
necessary permits or approvals or administrative actions by China's government
to limit imports of certain components could adversely affect our ability to
manufacture and sell our products in China. In addition, import duties increase
the cost of our products and may make them less competitive.

In particular, an integral component of our Airstar PAS system is the
handset used by subscribers to make and receive mobile telephone calls.
Currently, a worldwide shortage of handsets exists. Although we have contracted
with Japanese vendors to manufacture handsets under the UTStarcom label, we
cannot assure you that they will be able to supply adequate quantities of
handsets. Moreover, we must pay an import duty on each handset that we import
into China, which may result in a competitive cost advantage for our competitors
who produce handsets in China. As a result, we are evaluating various
manufacturing alternatives within China. Currently, we are in the early stages
of negotiations with third parties to manufacture handsets for us in China. We
may be unable to enter into arrangements with third parties who are capable of
producing adequate quantities of high-quality handsets. We also intend to
develop the capacity to manufacture our own handsets. However, we may be
unsuccessful in our efforts to do so. Additionally, to comply with manufacturing
regulations in China we will need to obtain components for our handsets from
local sources. These sources may not be able to produce adequate quantities of
components that meet our quality standards. Our inability to obtain a sufficient
number of high quality handsets could result in a material adverse effect on our
business, financial condition and results of operations.

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IF WE ARE UNABLE TO EXPAND OUR DIRECT SALES OPERATION IN CHINA AND INDIRECT
DISTRIBUTION CHANNELS ELSEWHERE OR SUCCESSFULLY MANAGE OUR EXPANDED SALES
ORGANIZATION, OUR OPERATING RESULTS MAY SUFFER

Our distribution strategy focuses primarily on developing and expanding our
direct sales organization in China and our indirect distribution channels
outside of China. We may not be able to successfully expand our direct sales
organization in China and the cost of any expansion may exceed the revenue
generated from these efforts. Even if we are successful in expanding our direct
sales organization in China, we may not be able to compete successfully against
the significantly larger and better-funded sales and marketing operations of
current or potential competitors. In addition, if we fail to develop
relationships with significant international resellers or manufacturers'
representatives, or if these resellers or representatives are not successful in
their sales or marketing efforts, we may be unsuccessful in our expansion
efforts outside China.

WE EXPECT AVERAGE SELLING PRICES OF OUR PRODUCTS TO DECREASE WHICH MAY REDUCE
OUR REVENUES, AND, AS A RESULT, WE MUST INTRODUCE NEW PRODUCTS AND REDUCE OUR
COSTS IN ORDER TO MAINTAIN PROFITABILITY

The average selling prices for communications access and switching systems
and subscriber terminal products, such as handsets, in China have been declining
as a result of a number of factors, including:

- increased competition;

- aggressive price reductions by competitors;

- rapid technological change; and

- price and performance enhancements.

We have in the past experienced and expect in the future to experience
substantial period-to-period fluctuations in operating results due to declining
average selling prices. We anticipate that average selling prices of our
products will decrease in the future in response to product introductions by us
or our competitors or other factors, including price pressures from customers.
Therefore, we must continue to develop and introduce new products and
enhancements to existing products that incorporate features that can be sold at
higher average selling prices. Failure to do so could cause our revenues and
gross profit, as a percentage of net sales, to decline, which could have a
material adverse effect on our business, financial condition and results of
operations.

Our cost reduction efforts may not allow us to keep pace with competitive
pricing pressures or lead to improved gross profit, as a percentage of net
sales. In order to be competitive, we must continually reduce the cost of
manufacturing our products through design and engineering changes. We may not be
successful in redesigning our products or delivering our products to market in a
timely manner. We cannot assure you that any redesign will result in sufficient
cost reductions to allow us to reduce the prices of our products to remain
competitive or to improve or maintain our gross profit, as a percentage of net
sales.

SERVICE PROVIDERS SOMETIMES EVALUATE OUR PRODUCTS FOR LONG AND UNPREDICTABLE
PERIODS WHICH CAUSES THE TIMING OF PURCHASES AND OUR RESULTS OF OPERATIONS TO BE
UNPREDICTABLE

The period of time between our initial contact with a service provider and
the receipt of an actual purchase order may span a year or more. During this
time, service providers may subject our products to an extensive and lengthy
evaluation process before making a purchase. The length of these qualification
processes may vary substantially by product and service provider, making our
results of operations unpredictable. We may incur substantial sales and
marketing expenses and expend significant management effort during this process,
which ultimately may not result in a sale. These qualification processes often
make it difficult to obtain new customers, as service providers are reluctant to
expend the resources necessary to qualify a new supplier if they have one or
more existing qualified sources.

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OUR INABILITY TO EXERCISE COMPLETE CONTROL OVER OUR SUBSIDIARIES MAY BE
DETRIMENTAL TO OUR BUSINESS

A considerable portion of our operations is and will continue to be
conducted through direct and indirect subsidiaries. For example, we own an 88%
interest in a joint venture which operates the Zhejiang manufacturing facility
and a 51% interest in a joint venture which operates the Guangdong manufacturing
facility. Under China law governing Sino-foreign joint ventures, equity holders
exercise rights primarily through the board of directors, which constitutes the
highest authority of the joint venture. Under China law, some significant
corporate actions require unanimous approval of the board of directors, such as:

- amendment of the Articles of Association of the joint venture;

- liquidation or dissolution of the joint venture;

- any increase, decrease or transfer of equity interests of any party to the
joint venture; and

- a merger of the joint venture with another economic entity.

As a result, even though we may own a majority interest in a joint venture,
we do not have sole power to control all of the policies and decisions of these
jointly-owned subsidiaries. In particular, although we own a majority of the
Guangdong joint venture, we are only entitled to appoint a minority of the
directors to the joint venture's board of directors.

Our operating results and cash flow depend on the operating results and cash
flow of our subsidiaries and the payment of funds by those subsidiaries to us.
These subsidiaries are separate and distinct legal entities and have no
obligation, contingent or otherwise, to pay dividends or otherwise provide
financial benefits to us. Moreover, with respect to our Guangdong manufacturing
joint venture, any payment of dividends to us must be agreed to by our joint
venture partner, whose interests in receiving dividend distributions may not
coincide with ours. In addition, applicable law in some countries including
China limits the ability of a subsidiary to pay dividends for various reasons
including the absence of sufficient distributable reserves. In the event of any
insolvency, bankruptcy or similar proceedings, creditors of the subsidiaries
would generally be entitled to priority over us with respect to assets of the
affected subsidiary. In addition, because our joint venture partners in both
Zhejiang and Guangdong provinces are affiliated with the provincial Posts and
Telecommunications Administrations, or PTAs, that operate the telecommunication
networks in these areas, if we fail to maintain these joint ventures, sales to
customers located in the jurisdictions of these PTAs may decrease. A reduction
in sales in those areas could have a material adverse effect on our business,
financial condition and results of operations.

OUR MULTI-NATIONAL OPERATIONS SUBJECT US TO VARIOUS ECONOMIC, POLITICAL,
REGULATORY AND LEGAL RISKS

We market and sell our products in China and other markets. The expansion of
our existing multi-national operations and entry into additional international
markets will require significant management attention and financial resources.
Multi-national operations are subject to inherent risks, including:

- difficulties in designing products that are compatible with varying
international communications standards;

- longer accounts receivable collection periods and greater difficulty in
accounts receivable collection;

- unexpected changes in regulatory requirements;

- changes to import and export regulations, including quotas, tariffs and
other trade barriers;

- delays or difficulties in obtaining export and import licenses;

- potential foreign exchange controls and repatriation controls on foreign
earnings;

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- exchange rate fluctuations and currency conversion restrictions;

- the burdens of complying with a variety of foreign laws and regulations;

- difficulties and costs of staffing and managing multi-national operations;

- reduced protection for intellectual property rights in some countries;

- potentially adverse tax consequences; and

- political and economic instability.

In markets outside of China, we rely on a number of original equipment
manufacturers, or OEMs, and third-party distributors and agents to market and
sell our network access products. If these OEMs, distributors or agents fail to
provide the support and effort necessary to service developing markets
effectively, our ability to maintain or expand our operations outside of China
will be materially affected. We cannot assure you that we will successfully
compete in these markets, that our products will be accepted or that the risks
associated with international transactions will not adversely affect our
business, financial condition and results of operations.

Our international sales are generally denominated in local currencies. Due
to the limitations on converting Renminbi, we are limited in our ability to
engage in currency hedging activities in China. We do not currently engage in
currency hedging activities with respect to any other currencies. Although the
impact of currency fluctuations to date has been insignificant, we cannot
guarantee that fluctuations in currency exchange rates in the future will not
have a material adverse effect on revenues from international sales and,
correspondingly, on our business, financial condition and results of operations.

OUR FAILURE TO MEET INTERNATIONAL AND GOVERNMENTAL PRODUCT STANDARDS COULD BE
DETRIMENTAL TO OUR BUSINESS

Many of our products are required to comply with numerous government
regulations and standards, which vary by market. As standards for products
continue to evolve, we will need to modify our products or develop and support
new versions of our products to meet emerging industry standards, comply with
government regulations and satisfy the requirements necessary to obtain
approvals. The products we sell or manufacture within China must comply with the
technical standards stipulated by the MII. In international markets outside of
China, our products must comply with recommendations issued by the International
Telecommunications Union and requirements established by the respective regional
service providers which specify the technical standards for equipment connected
to the networks they operate. Our inability to obtain regulatory approval and
meet established standards could delay or prevent entrance into or force
departure from markets and materially adversely affect our business, financial
condition and results of operations.

OUR RECENT GROWTH HAS STRAINED OUR RESOURCES, AND IF WE ARE UNABLE TO MANAGE AND
SUSTAIN OUR GROWTH, OUR OPERATING RESULTS WILL BE NEGATIVELY AFFECTED

We have recently experienced a period of rapid growth and anticipate that we
must continue to expand our operations to address potential market
opportunities. Our expansion has placed and will continue to place a significant
strain on our management, operational, financial and other resources. Many of
the members of our management team have limited experience in the management of
rapidly growing companies. To manage our growth effectively, we will need to
take various actions, including:

- enhancing management information systems and forecasting procedures;

- further developing our operating, administrative, financial and accounting
systems and controls;

- maintaining close coordination among our engineering, accounting, finance,
marketing, sales and operations organizations;

- expanding, training and managing our employee base; and

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- expanding our finance, administrative and operations staff.

If we fail to implement or improve systems or controls or to manage any
future growth and expansion effectively, our business, financial condition and
results of operations could suffer.

OUR SUCCESS IS DEPENDENT ON CONTINUING TO HIRE AND RETAIN QUALIFIED PERSONNEL,
AND IF WE ARE NOT SUCCESSFUL IN ATTRACTING AND RETAINING THESE PERSONNEL, OUR
BUSINESS MAY BE HARMED

The success of our business depends in significant part upon the continued
contributions of key technical and senior management personnel, many of whom
would be difficult to replace. In particular, our success depends in large part
on the knowledge, expertise and services of Hong Liang Lu, our President and
Chief Executive Officer, and Ying Wu, our Executive Vice President and Chief
Executive Officer of China Operations. The loss of any key employee, the failure
of any key employee to perform satisfactorily in his or her current position or
our failure to attract and retain other key technical and senior management
employees could have a material adverse effect on our business, financial
condition and results of operations.

To effectively manage our recent growth as well as any future growth, we
will need to recruit, train, assimilate, motivate and retain qualified
employees. Competition for qualified employees is intense, and the process of
recruiting personnel with the combination of skills and attributes required to
execute our business strategy can be difficult, time-consuming and expensive. We
are actively searching for research and development engineers and sales and
marketing personnel, who are in short supply. Additionally, we have a need for
and have experienced difficulty in finding qualified accounting personnel
knowledgeable in U.S. and China accounting standards. The failure to attract,
hire, assimilate or retain qualified personnel could have a material adverse
effect on our business, financial condition and results of operations.

Competitors and others have in the past and may in the future attempt to
recruit our employees. In addition, companies in the communications industry
whose employees accept positions with competitors frequently claim that the
competitors have engaged in unfair hiring practices. We may be the subject of
these types of claims in the future as we seek to hire qualified personnel. Some
of these claims may result in material litigation and disruption to our
operations. We could incur substantial costs in defending ourselves against
these claims, regardless of their merits.

ANY ACQUISITIONS THAT WE UNDERTAKE COULD BE DIFFICULT TO INTEGRATE, DISRUPT OUR
BUSINESS, DILUTE OUR STOCKHOLDERS AND HARM OUR OPERATING RESULTS

We recently acquired Wacos, Inc., a research and development subsidiary,
through a merger. We continually evaluate additional acquisition prospects that
would complement our existing product offerings, augment our market coverage,
enhance our technological capabilities, or that may otherwise offer growth
opportunities. Acquisitions of other companies may result in dilutive issuances
of equity securities, the incurrence of debt and the amortization of expenses
related to goodwill and other intangible assets, any of which could materially
adversely affect our business, financial condition and results of operations. In
addition, acquisitions involve numerous risks, including difficulties in the
assimilation of operations, technologies, products and personnel of the acquired
company, diversion of management's attention from other business concerns, risks
of entering markets in which we have no direct or limited prior experience, and
the potential loss of key employees of ours and the acquired company.

WE MAY EXPERIENCE DIFFICULTY IN IDENTIFYING, FORMING AND MAINTAINING NEW
BUSINESS VENTURES THAT ARE IMPORTANT TO THE DEVELOPMENT OF OUR BUSINESS

We have invested, and expect to continue to invest, significant capital in
new business ventures. We cannot assure you that we will be able to continue to
identify suitable parties for new ventures in the future. The failure to form or
maintain new ventures could significantly limit our ability to expand our

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operations and could have a material adverse effect on our business, financial
condition and results of operations. These new ventures or investments require
significant management time, involve a high degree of risk and will present
significant challenges. We cannot assure you that these activities will be
successful, that we will realize appropriate returns on these activities or
that, if any venture or investment fails, it will not have a material adverse
effect on our business, financial condition and results of operations.

WE MAY BE UNABLE TO ADEQUATELY PROTECT OUR INTELLECTUAL PROPERTY AND MAY BE
SUBJECT TO CLAIMS THAT WE INFRINGE THE INTELLECTUAL PROPERTY OF OTHERS, EITHER
OF WHICH COULD SUBSTANTIALLY HARM OUR BUSINESS

We rely on a combination of patents, copyrights, trade secret laws and
contractual obligations to protect our technology. Although we have applied for
several patents in the United States, one of which has issued, as well as in
other countries, we cannot assure you that any additional patents will issue as
a result of pending patent applications or that our issued patents will be
upheld. Moreover, we have not yet obtained patents in China. We can give no
assurance that we will be able to obtain patents in China on our products or the
technology that we use to manufacture our products. Our joint ventures in China
rely upon our trademarks, technology and know-how to manufacture and sell our
products. We cannot guarantee that these and other intellectual property
protection measures will be sufficient to prevent misappropriation of our
technology or that our competitors will not independently develop technologies
that are substantially equivalent or superior to ours. In addition, the legal
systems of many foreign countries, including China, do not protect intellectual
property rights to the same extent as the legal system of the United States. If
we are unable to adequately protect our proprietary information, our business,
financial condition and results of operations could be materially adversely
affected.

The increasing dependence of the communications industry on proprietary
technology has resulted in frequent litigation based on allegations of the
infringement of patents and other intellectual property. In the future we may be
subject to litigation to defend against claimed infringements of the rights of
others or to determine the scope and validity of the proprietary rights of
others. Future litigation also may be necessary to enforce and protect our trade
secrets and other intellectual property rights. Any intellectual property
litigation could be costly and could cause diversion of management's attention,
either of which could have a material adverse effect on our business, financial
condition and results of operations. Adverse determinations in any litigation
could result in the loss of our proprietary rights, subject us to significant
liabilities or require us to seek licenses from third parties which may not be
available on commercially reasonable terms, if at all. We could also be subject
to court orders preventing us from manufacturing or selling our products. Any
one of the above events could have a material adverse effect on our business,
financial condition and results of operations.

PROBLEMS RELATED TO YEAR 2000 ISSUE COULD HARM OUR BUSINESS

The potential for software failures due to processing errors from
calculations using the year 2000 date is a known risk. We recognize the need to
ensure that our operations and products will not be adversely impacted by year
2000 software failures. We have established procedures for evaluating and
managing the risks and costs associated with this problem and believe that our
internal computer systems, including our accounting, sales and technical support
automation systems, are currently year 2000 compliant. The failure to address
this issue adequately and in a timely fashion could have a material adverse
effect on our business, financial condition and results of operations.
Furthermore, we cannot guarantee that the systems of other companies on which
our systems and operations rely will be year 2000 compliant. Even if our
internal systems are not materially affected by the year 2000 issue, our
business could be affected through disruptions in the operation of the entities
with which we interact.

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RISKS RELATING TO CHINA

Sales in China account for substantially all of our sales. Approximately
$102.9 million, or 97.9%, of our sales in 1998, and $124.2 million, or 99.6% of
our sales in the nine months ended September 30, 1999, occurred in China.
Additionally, a substantial portion of our fixed assets are located in China. Of
our total fixed assets, approximately 46.4% as of December 31, 1998 and 46.5% as
of September 30, 1999 were in China. We expect to make further investments in
China in the future. Therefore, our business, financial condition and results of
operations are to a significant degree subject to economic, political and social
events in China.

DEVALUATION IN THE VALUE OF THE RENMINBI AND FLUCTUATIONS IN EXCHANGE RATES
COULD ADVERSELY AFFECT OUR FINANCIAL RESULTS

We purchase substantially all of our materials in the United States and
Japan and a significant portion of our cost of goods sold is incurred in U.S.
dollars and Japanese yen. A significant portion of our operating expenses are
incurred in U.S. dollars. At the same time, most of our sales are denominated in
Renminbi. The value of the Renminbi is subject to changes in China's
governmental policies and to international economic and political developments.
Although the official exchange rate for the conversion of Renminbi to U.S.
dollars has remained stable, with the Renminbi appreciating slightly against the
U.S. dollar since 1994, the exchange rate experienced significant volatility
prior to 1994 including periods of sharp devaluation. There can be no assurance
that exchange rates will not become volatile or that the Renminbi will not
devalue again against the U.S. dollar. Exchange rate fluctuations could have a
material adverse effect on our business, financial condition and results of
operations.

In the past, financial markets in many Asian countries have experienced
severe volatility and, as a result, some Asian currencies have experienced
significant devaluation from time to time. The devaluation of some Asian
currencies may have the effect of rendering exports from China more expensive
and less competitive and therefore place pressure on China's government to
devalue the Renminbi. Due to the limitations on the convertibility of Renminbi,
we are limited in our ability to engage in currency hedging activities in China
and do not currently engage in currency hedging activities with respect to
international sales outside of China. There can be no assurance that China's
government will not devalue the Renminbi in the future. Any devaluation of the
Renminbi could result in an increase in volatility of Asian currency and capital
markets. Future volatility of Asian financial markets could have an adverse
impact on our ability to expand our product sales into Asian markets outside of
China.

CURRENCY RESTRICTIONS IN CHINA MAY LIMIT THE ABILITY OF OUR CHINA AFFILIATES TO
OBTAIN FOREIGN CURRENCY NECESSARY FOR THE PURCHASE OF IMPORTED COMPONENTS AND
MAY LIMIT OUR ABILITY TO OBTAIN FOREIGN CURRENCY IN EXCHANGE FOR RENMINBI
EARNINGS

China's government imposes controls on the convertibility of Renminbi into
foreign currencies. The People's Bank of China publishes a daily exchange rate
for Renminbi based on the previous day's transactions in the inter-bank foreign
exchange market. Financial institutions authorized to deal in foreign currency
may enter into foreign exchange transactions at exchange rates within an
authorized range above or below the exchange rate set by the People's Bank of
China according to market conditions.

Under existing foreign exchange laws, Renminbi held by our China
subsidiaries can be converted into foreign currencies to pay current account
items such as payments to suppliers for imports, labor services, payment of
interest on foreign exchange loans and distributions of dividends so long as the
subsidiaries have adequate amounts of Renminbi to purchase the foreign currency.
Expenses of a capital nature such as the repayment of bank loans denominated in
foreign currencies, however, require approval from appropriate governmental
authorities before Renminbi can be used to purchase foreign

15
<PAGE>
currency. This system could be changed at any time by executive decision of the
State Council to impose limits on current account convertibility of the Renminbi
or other similar restrictions. Moreover, even though the Renminbi is intended to
be freely convertible under the current account, the State Administration of
Foreign Exchange, or SAFE, which is responsible for administering China's
foreign currency market, has a significant degree of administrative discretion
in implementing the laws. From time to time, SAFE has used this discretion in
ways which effectively limit the convertibility of current account payments.
Furthermore, in many circumstances SAFE must approve foreign currency
conversions. Under the current foreign exchange control system, sufficient
foreign currency may not be available at a given exchange rate to satisfy our
currency demands. Additionally, we may experience difficulties in completing the
administrative procedures necessary to obtain needed foreign currency. Shortages
in the availability of foreign currency may restrict the ability of our Chinese
subsidiaries to obtain sufficient foreign currency to pay dividends to us or
otherwise satisfy their foreign currency denominated obligations. Moreover, we
cannot assure you that China's government will continue the policy of making the
Renminbi convertible under current accounts. Our inability to convert our sales
received in Renminbi into U.S. dollars could have a material adverse effect on
our business, financial condition and results of operations.

CHANGES WITHIN CHINA'S COMMUNICATIONS MARKET COULD HARM OUR BUSINESS

We derive substantially all of our sales from sales to local
telecommunications service providers in China which utilize network access
equipment in the continued expansion and upgrading of China's communications
infrastructure. The continued development of the communications infrastructure
in China correspondingly depends, in part, on the demand for voice and data
services in China and China's governmental policy. Although this industry has
grown rapidly in the past, we cannot assure you that it will continue to grow in
the future. Any reduced demand for voice and data services, any other downturn
or other adverse changes in the China communications industry or the adoption or
enforcement of government policies that limit or prohibit our ability to
manufacture, market or sell our products could have a material adverse effect on
our business, financial condition and results of operations.

CHINA'S TELECOMMUNICATIONS INDUSTRY IS SUBJECT TO EXTENSIVE GOVERNMENT
REGULATION AND HAS RECENTLY BEEN RESTRUCTURED, WHICH HAS LED TO UNCERTAINTY

China's telecommunications industry is heavily regulated by the MII. The MII
controls the 33 provincial PTAs that exercise regulatory responsibility over the
telecommunications industries in their respective provinces. The MII has broad
discretion and authority to regulate all aspects of the telecommunications and
information technology industry in China including managing spectrum bandwidths,
setting network equipment specifications and standards and drafting laws and
regulations related to the electronics and telecommunications industries.

As part of the Chinese government's industry restructuring initiatives, the
regulatory functions of the MII and the PTAs will be separated from the
operational functions of the state-owned companies under their control.
Following this separation, it is expected that the MII will act exclusively as
the industry regulator and will no longer manage the day-to-day operations of
telecommunications service providers in China. The separation of the regulatory
and operational functions of the MII and the PTAs has not been completed. As a
result, the MII continues to exercise administrative control over the
operational goals and policies of telecommunications service providers formerly
under the control of the China Telecom system. In addition, the provincial PTAs
continue to operate the fixed line telephone systems in their respective
provinces. We cannot predict when complete separation of the regulatory and
operational functions of the MII and the provincial PTAs will be achieved.

China does not yet have a national telecommunications law. The MII, under
the direction of the State Council, is currently preparing a draft of the
Telecommunications Law of the People's Republic of China for ultimate submission
to the National People's Congress for review and adoption. It is unclear if and
when the Telecommunications Law will be adopted. If the Telecommunications Law
is adopted, we expect it to become the basic telecommunications statute and the
source of telecommunications regulations in China. Although we expect that a
Telecommunications Law would have a positive effect on the overall development
of the telecommunications industry in China, we do not know the nature and scope
of regulation that it would create. Accordingly, we cannot predict whether it
will have a positive or negative effect on us or on some or all aspects of our
business.

16
<PAGE>
The MII has broad discretion to apply standards in deciding what types of
equipment may be connected to the national telecommunications networks, the
forms and types of services that may be offered to the public and the content of
material available in China over the Internet. If the MII sets standards with
which we are unable to comply, our ability to sell product in China may be
limited which would materially adversely affect our business, financial
condition and results of operations.

CHINA CLOSELY RESTRICTS ACTIVITIES OF FOREIGN INVESTORS IN THE
TELECOMMUNICATIONS INDUSTRY

China's government and its agencies, including the MII and the State
Council, regulate foreign investment in the telecommunications industry through
the promulgation of various laws and regulations and the issuance of various
administrative orders and decisions. Foreign investment enterprises, companies
and individuals are prohibited from investing and participating in the operation
and management of telecommunications networks without special approval by the
State Council. In addition, they are restricted from manufacturing analog mobile
communications systems, including wireless telephones. We cannot assure you that
China will not promulgate new laws or regulations, or issue administrative or
judicial decisions or interpretations, which would further restrict or bar
foreigners from engaging in telecommunications-related activities. The
promulgation of laws or regulations or the issuance of administrative orders or
judicial decisions or interpretations restricting or prohibiting
telecommunications activities by foreigners could have a material adverse effect
on our business, financial condition and results of operations.

OUR CUSTOMERS IN CHINA ARE PART OF THE CHINA TELECOM SYSTEM AND ARE SUBJECT TO
ITS ULTIMATE CONTROL. WE UNDERSTAND THAT CHINA TELECOM RECENTLY PROHIBITED ALL
PTBS IN CHINA FROM PURCHASING LOW-MOBILITY WIRELESS ACCESS SYSTEMS, SUCH AS OUR
PAS SYSTEM, FOR IMPLEMENTATION IN LARGE CITIES

Each of the local Posts and Telecommunications Bureaus, or PTBs, in China
which comprise our existing or potential customers is part of the China Telecom
system and subject to its ultimate control. Accordingly, China Telecom may issue
policy statements or make other decisions which govern the equipment purchasing
decisions of all of our customers in China. For example, we understand that
China Telecom recently prohibited all PTBs from purchasing low-mobility wireless
access systems, such as our PAS system, for implementation in large cities.
While to date we have not marketed or sold our PAS systems in large cities, we
may wish to do so in the future. This decision of China Telecom or other
decisions by China Telecom could have a material adverse effect on our business,
financial condition and results of operations.

CHINA'S GOVERNMENT POLICIES COULD IMPACT OUR BUSINESS

Since 1978, China's government has been and is expected to continue
reforming its economic and political systems. These reforms have resulted in and
are expected to continue to result in significant economic and social
development in China. Many of the reforms are unprecedented or experimental and
may be subject to change or readjustment due to a number of political, economic
and social factors. We believe that the basic principles underlying the
political and economic reforms will continue to be implemented and provide the
framework for China's political and economic system. New reforms or the
readjustment of previously implemented reforms could have a significant negative
effect on our operations. Changes in China's political, economic and social
conditions and governmental policies, including new laws and regulations or the
interpretation of those laws and regulations, the introduction of measures to
control inflation or stimulate growth, changes in the rate or method of
taxation, or the imposition of additional restrictions on currency conversion
and remittances abroad, could have a material adverse effect on our business,
financial condition and results of operations. In addition, any actions by
China's government which limit our ability to develop or sell our products in
China will adversely affect our business, financial condition and results of
operations.

17
<PAGE>
CHINA'S ECONOMIC POLICIES COULD IMPACT OUR BUSINESS

The economy of China differs from the economies of most countries belonging
to the Organization for Economic Cooperation and Development in various respects
such as structure, government involvement, level of development, growth rate,
capital reinvestment, allocation of resources, self-sufficiency, rate of
inflation and balance of payments position. In the past, the economy of China
has been primarily a planned economy subject to one- and five-year state plans
adopted by central government authorities and largely implemented by provincial
and local authorities which set production and development targets.

Since 1978, increasing emphasis had been placed on decentralization and the
utilization of market forces in the development of China's economy. Economic
reform measures adopted by China's government may be inconsistent or
ineffectual, and we may not in all cases be able to capitalize on any reforms.
Further, these measures may be adjusted or modified in ways which could result
in economic liberalization measures that are inconsistent from time to time or
from industry to industry or across different regions of the country. China's
economy has experienced significant growth in the past decade. This growth,
however, has been accompanied by imbalances in China's economy and has resulted
in significant fluctuations in general price levels, including periods of
inflation. China's government has implemented policies from time to time to
increase or restrain the rate of economic growth, control periods of inflation
or otherwise regulate economic expansion. While we may be able to benefit from
the effects of some of these policies, these policies and other measures taken
by China's government to regulate the economy could also have a significant
overall impact on economic conditions in China which could have a material
adverse affect on our business, financial condition and results of operations.

CHINA'S EXPECTED ENTRY INTO THE WTO CREATES UNCERTAINTY AS TO THE FUTURE
ECONOMIC AND BUSINESS ENVIRONMENTS IN CHINA

China has been attempting to join the World Trade Organization and recently
signed a bilateral trade agreement with the United States which has enabled
China to gain the support of the United States in China's attempt to enter the
WTO. With this agreement concluded, and subject to the support of other member
countries, China is expected to enter into the WTO as early as some time in
2000. Although China has been reducing tariff levels over the past several
years, entry into the WTO will require China to further reduce tariffs and
eliminate other trade restrictions. While China's entry into the WTO and related
relaxation of trade restrictions may lead to increases in foreign investment, it
may also lead to increased competition in China's markets from international
companies. Whether or not China is accepted into the WTO, the impact on China's
economy and our business is uncertain. Any of these developments could have a
material adverse effect on our business, financial condition and results of
operation.

IF TAX BENEFITS AVAILABLE TO OUR SUBSIDIARIES LOCATED IN CHINA ARE REDUCED OR
REPEALED, OUR BUSINESS COULD SUFFER

Our subsidiaries located in China enjoy tax benefits in China which are
generally available to foreign investment enterprises, including full exemption
from national enterprise income tax for two years starting from the first
profit-making year and/or a 50% reduction in national income tax rate for the
following three years. In addition, local enterprise income tax is often waived
or reduced during this tax holiday/incentive period. Under current regulations
in China, foreign investment enterprises that have been accredited as
technologically advanced enterprises are entitled to additional tax incentives.
These tax incentives vary in different locales and could include preferential
national enterprise income tax treatment at 50% of the usual rates for different
periods of time. Three of our four subsidiaries in China were accredited as
technologically advanced enterprises. Our fourth subsidiary is applying for
accreditation. We have no guarantee that the tax incentives will not be

18
<PAGE>
repealed or reduced in the future. If these tax incentives are abolished before
our subsidiaries in China can take full advantage of them, the tax liability of
these subsidiaries will increase which could have a material adverse effect on
our business, financial condition and results of operations.

CHINA'S LEGAL SYSTEM EMBODIES UNCERTAINTIES THAT COULD NEGATIVELY IMPACT OUR
BUSINESS

China has a civil law legal system. Although often used by judges for
guidance, decided court cases do not have binding legal effect on future
decisions. Since 1979, many new laws and regulations covering general economic
matters have been promulgated in China. Despite this activity to develop the
legal system, China's system of laws is not yet complete. Even where adequate
law exists in China, enforcement of existing laws or contracts based on existing
law may be uncertain and sporadic and it may be difficult to obtain swift and
equitable enforcement, or to obtain enforcement of a judgment by a court of
another jurisdiction. The relative inexperience of China's judiciary in many
cases creates additional uncertainty as to the outcome of any litigation.
Further, interpretation of statutes and regulations may be subject to government
policies reflecting domestic political changes.

China has adopted a broad range of related laws, administrative rules and
regulations that govern the conduct and operations of foreign investment
enterprises and restrict the ability of foreign companies to conduct business in
China. These laws, rules and regulations provide some incentives to encourage
the flow of investment into China, but also subject foreign companies, and
foreign investment enterprises including our subsidiaries in China, to a set of
restrictions which may not always apply to domestic companies in China. Although
China is increasingly according foreign companies and foreign investment
enterprises established in China the same rights and privileges as Chinese
domestic companies in anticipation of China's entry into the WTO, these special
laws, administrative rules and regulations governing foreign companies and
foreign investment enterprises may still place us and our subsidiaries at a
disadvantage in relation to Chinese domestic companies and may adversely affect
our competitive position.

As China's legal system develops, the promulgation of new laws, changes to
existing laws and the pre-emption of local regulations by national laws may
adversely affect foreign investors and companies. We cannot assure you that the
promulgation of new laws in China, changes in current laws or the interpretation
thereof will not have a material adverse effect on our business, financial
condition and results of operations.

Many of our activities and products in China are subject to administrative
review and approval by various national and local agencies of China's
government. Because of the changes occurring in China's legal and regulatory
structure, there can be no assurance that we will be able to secure the
requisite governmental approval for our activities and products. Failure to
obtain the requisite government approval for any of our activities or products
could have a material adverse effect on our business, financial condition and
results of operations.

RISKS RELATED TO THE OFFERING

OUR STOCK PRICE MAY BE VOLATILE AND YOU MAY BE UNABLE TO SELL YOUR SHARES AT OR
ABOVE THE OFFERING PRICE

Prior to this offering, there has been no public market for our common
stock. We cannot assure you that an active public market for our common stock
will develop or be sustained after the offering. The initial public offering
price will be determined by negotiations between us and the underwriters, and
may not be indicative of the market price of our common stock after the
offering. Investors may not be able to resell their shares at or above the
initial public offering price due to a number of factors, including:

- actual or anticipated fluctuations in operating results;

19
<PAGE>
- changes in expectations as to future financial performance or changes in
financial estimates or buy/sell recommendations of securities analysts;

- publications or technological innovations by us or our competitors; and

- the operating and stock price performance of other comparable companies.

In addition, stock markets have experienced extreme price and trading volume
volatility, particularly in the high technology sectors of these markets. This
volatility has significantly affected the market prices of securities of many
technology companies for reasons often unrelated to the operating performance of
the specific companies. These fluctuations may adversely affect the trading
price of our common stock, regardless of our actual operating performance.

OUR EXISTING STOCKHOLDERS HAVE SIGNIFICANT CONTROL OF OUR MANAGEMENT AND
AFFAIRS, WHICH THEY COULD EXERCISE AGAINST YOUR BEST INTERESTS

Following the completion of this offering, SOFTBANK CORP. and its affiliates
will beneficially own % of our outstanding stock and our officers and
directors will beneficially own % of our outstanding stock. As a result,
SOFTBANK acting alone or in conjunction with our officers and directors will
have the ability to exert significant influence over all matters submitted to
our stockholders for approval as well as our management and affairs. This
concentration of ownership may delay or prevent a change of control or
discourage a potential acquiror from making a tender offer or otherwise
attempting to obtain control of our company, which could decrease the market
price of our common stock. Matters that could require stockholder approval
include:

- election and removal of directors;

- merger or consolidation of our company; and

- sale of all or substantially all of our assets.

Given the contractual and business relationships between SOFTBANK and us,
the interests of SOFTBANK may not always coincide with our interests. SOFTBANK,
acting through its designees on the Board of Directors and through its ownership
of voting securities, will have the ability to exert significant influence over
our actions irrespective of the desires of our other stockholders or directors.

YOU WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION IN THE NET TANGIBLE BOOK
VALUE OF THE STOCK YOU PURCHASE

The initial public offering price of our common stock will be substantially
higher than the book value per share of the outstanding common stock after this
offering. Therefore, based on an assumed initial offering price of $ per
share, if you purchase our common stock in this offering you will suffer
immediate dilution of approximately $ per share. If additional shares are
sold by the underwriters following exercise of their over-allotment option, or
if outstanding options and warrants to purchase our common stock are exercised,
you will experience additional dilution.

FOLLOWING THIS OFFERING, SUBSTANTIAL NUMBERS OF SHARES OF OUR COMMON STOCK WILL
BECOME AVAILABLE FOR SALE IN THE PUBLIC MARKET, WHICH COULD CAUSE THE MARKET
PRICE OF OUR STOCK TO DECLINE

Upon completion of this offering, shares of our common stock
will be outstanding, assuming no exercise of the underwriters' over-allotment
option and no exercise of outstanding options or warrants after December 14,
1999. Of these shares, all of the shares sold in this offering will be freely
tradable without restriction under the Securities Act, unless purchased by our
"affiliates" as that term is defined in Rule 144 under the Securities Act.

The remaining 78,597,194 shares of our common stock outstanding as of
December 14, 1999 are subject to restrictions under Rule 144 of the Securities
Act. Of those shares, substantially all of the

20
<PAGE>
shares are subject to a lock-up agreement with the underwriters and will not
become eligible for sale in the public market until 180 days following the date
of this prospectus, unless earlier released from the lock-up by the
underwriters. As restrictions on resale end, the market price of our common
stock could drop significantly if the holders of these restricted shares sell
them or are perceived by the market as intending to sell them. In addition to
the adverse effect a price decline could have on the holders of our common
stock, a price decline would likely impede our ability to raise additional
capital through the issuance of additional shares of our common stock or other
equity securities.

Shortly after this offering, we intend to file a registration statement
covering 2,000,000 shares of common stock reserved for issuance under our
employee stock purchase plan and 16,698,268 shares of common stock reserved for
issuance under our stock option plans. Any vested shares registered under the
registration statement will immediately become available for sale in the open
market, subject to the preceding contractual restrictions and Rule 144 volume
limitations applicable to our affiliates.

DELAWARE LAW AND OUR CHARTER DOCUMENTS CONTAIN PROVISIONS THAT COULD DISCOURAGE
OR PREVENT A POTENTIAL TAKEOVER, EVEN IF THE TRANSACTION WOULD BENEFIT OUR
STOCKHOLDERS

Some provisions of our Certificate of Incorporation and Bylaws, as well as
provisions of Delaware law, may discourage, delay or prevent a merger or
acquisition that a stockholder may consider favorable. These provisions include:

- authorizing the Board of Directors to issue additional preferred stock;

- prohibiting cumulative voting in the election of directors;

- limiting the persons who may call special meetings of stockholders;

- prohibiting stockholder action by written consent;

- creating a classified Board of Directors pursuant to which our directors
are elected for staggered three year terms; and

- establishing advance notice requirements for nominations for election to
the Board of Directors and for proposing matters that can be acted on by
stockholders at stockholder meetings.

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<PAGE>
FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements. We use words like
"anticipates," "believes," "plans," "expects," "future," "intends" and similar
expressions to identify these forward-looking statements. We have based these
forward-looking statements on our current expectations and projections about
future events. These forward-looking statements are subject to risks,
uncertainties and assumptions about us, including, but not limited to, the
following:

- devaluation of the Renminbi and fluctuations of exchange rates;

- changes in China's government, economic or regulatory policies;

- uncertainty regarding the commercial acceptance of our network access and
switching equipment and technologies;

- uncertainty regarding our future operating results;

- our ability to introduce new products;

- delays or losses of sales due to long sales and delivery cycles for our
products;

- the possibility of lower prices, reduced gross profit as a percentage of
net sales and loss of market share due to increased competition; and

- increased demands on our resources due to anticipated growth.

In light of these risks, uncertainties and assumptions, the forward-looking
events discussed in this prospectus might not occur. We undertake no obligation
to publicly update or revise any forward-looking statements, whether as a result
of new information or future events.

22
<PAGE>
USE OF PROCEEDS

We estimate our net proceeds from the sale of the shares of our common
stock offered in this offering will be approximately $ , or
approximately $ if the underwriters exercise their over-allotment option
in full, based on an assumed initial public offering price of $
per share and after deducting the estimated underwriting discount and estimated
offering expenses.

We intend to use the net proceeds from this offering for general corporate
purposes, including research and development, expansion of our sales and
marketing organization and working capital. Pending these uses, we intend to
invest the net proceeds from this offering in short-term, investment-grade,
interest-bearing securities.

From time to time, we may evaluate opportunities to acquire or invest in
complementary businesses, technologies or products and may use a portion of the
net proceeds from this offering to enter into these type of transactions.

DIVIDEND POLICY

We have never declared or paid cash dividends on our capital stock. We
currently intend to retain future earnings to finance the growth and development
of our business, and we do not anticipate paying any cash dividends in the
foreseeable future. In addition, the terms of our revolving line of credit
agreement prohibit us from paying cash dividends without the prior consent of
the bank.

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<PAGE>
CAPITALIZATION

The following table summarizes our short-term debt and capitalization as of
September 30, 1999:

- on an actual basis;

- on a pro forma basis to reflect the issuance of 6,152,106 shares of
Series F preferred stock at $8.1273 per share in November and December
1999 in connection with a private round of financing, and 4,523,700 shares
of Series G preferred stock in December 1999 in connection with our
acquisition of Wacos, Inc. and to give effect to the conversion of all
outstanding shares of preferred stock into common stock upon the
completion of this offering; and

- on a pro forma as adjusted basis to reflect the receipt of the net
proceeds from the sale of shares offered hereby at an assumed
initial public offering price of $ per share, after deducting the
estimated underwriting discount and estimated offering expenses.

<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1999
------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Total short-term debt..................................... $ 42,324 $ 42,324 $
======== ======== ========
Stockholders' equity:
Convertible preferred stock, $0.00125 par value;
actual--80,200,000 shares authorized, 59,086,306
shares issued and outstanding; pro forma and as
adjusted--5,000,000 shares authorized, no shares
issued and outstanding................................ 73 --
Common stock, $0.00125 par value; actual--123,614,032
shares authorized, 10,049,174 shares issued and
outstanding;
pro forma--242,000,000 shares authorized, 78,462,900
shares issued and outstanding; as adjusted--
shares issued and outstanding(1)...................... 13 94
Common stock warrant.................................... 389 389
Additional paid-in capital.............................. 93,179 167,612(2)
Deferred stock compensation............................. (5,270) (5,270)
Accumulated deficit..................................... (4,938) (21,524)(2)
Notes receivable from stockholders...................... (557) (557)
Cumulative translation adjustment....................... 95 95
Treasury stock.......................................... (3,060) (3,060)
-------- --------
Total stockholders' equity............................ 79,924 137,779
-------- --------
Total capitalization................................ $ 79,924 $137,779
======== ========
</TABLE>

- ------------------------

(1) Excludes 11,451,990 shares of common stock issuable upon exercise of options
outstanding as of September 30, 1999 at a weighted average exercise price of
$2.21 per share. Also excludes 532,000 shares of common stock issuable upon
exercise of warrants outstanding as of September 30, 1999 with a weighted
average exercise price of $6.025 per share. For additional information
regarding our capital structure, see "Management--Employee Benefit Plans,"
"Related Party Transactions," "Description of Capital Stock" and
Notes 15-18 of Notes to Consolidated Financial Statements.

(2) Includes an outstanding option held by Intel Pacific, Inc. to purchase up to
615,210 shares of our Series F preferred stock at a price of $8.1273 per
share. This option expires on January 13, 2000. For additional information,
see Notes to Unaudited Pro Forma Combined Financial Information.

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<PAGE>
DILUTION

The pro forma net tangible book value of our common stock as of
September 30, 1999 was approximately $132,353 million, or $1.69 per share. Pro
forma net tangible book value per share represents the amount of our total
assets, excluding net intangible assets, less our total liabilities, divided by
the total number of shares of our common stock outstanding, after giving effect
to:

- the issuance of 6,152,106 shares of Series F preferred stock in
November and December 1999 in connection with a private round of
financing;

- the issuance of 4,523,700 shares of Series G preferred stock in connection
with our acquisition of Wacos, Inc. in December 1999; and

- the conversion of all outstanding shares of preferred stock into an
aggregate of 69,762,112 shares of common stock.

Without taking into account any other changes in net tangible book value
after September 30, 1999, other than to give effect to the sale of shares of
common stock offered by this prospectus at an assumed initial public offering
price of $ per share and after deducting the estimated underwriting discount
and estimated offering expenses payable us, the pro forma net tangible book
value of our common stock as of September 30, 1999 would have been approximately
$ million, or $ per share. This represents an immediate increase in net
tangible book value of $ per share to existing stockholders and an immediate
dilution of $ per share to new investors purchasing common stock in this
offering. The following table illustrates this per share dilution:

<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $
Pro forma net tangible book value per share as of
September 30, 1999.................................... $ 1.69
Increase per share attributable to new investors........
------
Pro forma net tangible book value per share after this
offering..................................................
------
Dilution per share to new investors......................... $
======
</TABLE>

The following table summarizes, on a pro forma basis, as of September 30,
1999:

- the total number of shares of common stock purchased from us;

- the total consideration paid and the average price per share paid by
existing stockholders and by new investors, assuming an initial public
offering price of $ per share; and

- before deducting the estimated underwriting discount and estimated
offering expenses payable by us.

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
--------------------- ----------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- -------- ------------ -------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders............... 78,462,900 % $161,204,000 % $2.05
New investors.......................
---------- ----- ------------ -----
Total............................. 100.0% $ 100.0%
========== ===== ============ =====
</TABLE>

The foregoing discussion and table assume (i) no exercise of an option held
by Intel Pacific, Inc. to purchase up to 615,210 shares of our Series F
preferred stock at a price of $8.1273 per share and (ii) no exercise of any
stock options or warrants outstanding as of September 30, 1999. As of
September 30, 1999, there were:

- options outstanding to purchase a total of 11,451,990 shares of common
stock at a weighted average exercise price of $2.21 per share;

25
<PAGE>
- 13,621,534 shares authorized for issuance under our stock option plans of
which 153,140 were available for grant; and

- warrants outstanding to purchase a total of 532,000 shares of common stock
at a weighted average exercise price of $6.025 per share.

To the extent that any of the outstanding options or warrants are exercised,
or additional options are issued and exercised, there will be further dilution
to new investors. For additional information about our capitalization and the
options and warrants described above, see "Management--Employee Benefit Plans,"
"Related Party Transactions," "Description of Capital Stock" and Notes 17
and 18 of Notes to Consolidated Financial Statements.

26
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA

You should read the following selected consolidated financial data in
conjunction with our consolidated financial statements and the related notes and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this prospectus. The consolidated statement of
operations data for the years ended December 31, 1996, 1997 and 1998 and
consolidated balance sheet data at December 31, 1997 and 1998 are derived from,
and are qualified by reference to, our audited consolidated financial statements
included elsewhere in this prospectus. The consolidated statement of operations
data for the year ended December 31, 1994 and 1995 and the consolidated balance
sheet data at December 31, 1994, 1995 and 1996 have been derived from audited
financial statements not included in this prospectus. The consolidated statement
of operations data for the nine months ended September 30, 1999 and the
consolidated balance sheet data at September 30, 1999 have been derived from,
and are qualified by reference to, audited interim financial statements
contained elsewhere in this prospectus. The consolidated statement of operations
data for the nine months ended September 30, 1998 are derived from our unaudited
financial statements which are included elsewhere in this prospectus. The
results of operations for the nine months ended September 30, 1999 are not
necessarily indicative of results that may be expected for the full fiscal year
or any future period.

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------------------------------- -------------------------
1994 1995 1996 1997 1998 1998 1999
----------- ----------- ----------- ----------- ----------- ----------- -----------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Net sales....................... $ 3,941 $ 10,006 $ 35,542 $ 75,597 $105,167 $ 79,878 $124,701
Cost of sales................... 2,316 4,289 22,322 48,795 65,246 48,670 72,677
-------- -------- -------- -------- -------- -------- --------
Gross profit.................... 1,625 5,717 13,220 26,802 39,921 31,208 52,024
Operating expenses:
Selling, general and
administrative.............. 1,813 3,452 8,042 21,211 23,233 17,672 24,096
Research and development...... 324 612 3,899 8,228 12,694 8,494 12,490
In-process research and
development................. -- 10,611 -- -- -- -- --
Amortization of deferred stock
compensation................ -- -- -- -- -- -- 3,521
Amortization of intangible
assets...................... 21 42 40 120 65 112
-------- -------- -------- -------- -------- -------- --------
Total operating expenses.... 2,137 14,696 11,983 29,479 36,047 26,231 40,219
-------- -------- -------- -------- -------- -------- --------
Operating income (loss)......... (512) (8,979) 1,237 (2,677) 3,874 4,977 11,805
Interest and other income
(expenses)...................... 75 163 858 1,987 (1,244) (335) (687)
Equity in net income (loss) of
affiliated companies............ 162 -- (291) (161) (596) (646) 984
-------- -------- -------- -------- -------- -------- --------
Income (loss) before income
taxes and minority interest..... (275) (8,816) 1,804 (851) 2,034 3,996 12,102
Income tax expense (benefit).... 1 54 575 400 1,414 828 (1,023)
Minority interest in (earnings)
loss of consolidated
subsidiaries.................... (211) (701) (743) 228 746 134 (1,233)
-------- -------- -------- -------- -------- -------- --------
Income (loss) from continuing
operations...................... (487) (9,571) 486 (1,023) 1,366 3,302 11,892
Income (loss) from discontinued
operations...................... -- -- 301 1,413 (893) (796) (1,656)
-------- -------- -------- -------- -------- -------- --------
Net income (loss)............... (487) (9,571) 787 390 473 2,506 10,236
Mandatorily redeemable
convertible preferred stock
dividend requirement............ -- (270) (1,097) -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Net income (loss) applicable to
common stock.................... $ (487) $ (9,841) $ (310) $ 390 $ 473 $ 2,506 $ 10,236
======== ======== ======== ======== ======== ======== ========
Earnings (loss) per share(1):
Basic......................... $ (0.18) $ (2.40) $ (0.04) $ 0.05 $ 0.06 $ 0.32 $ 1.19
======== ======== ======== ======== ======== ======== ========
Diluted....................... $ (0.18) $ (2.40) $ (0.04) $ 0.05 $ 0.01 $ 0.03 $ 0.14
======== ======== ======== ======== ======== ======== ========
Shares used in per share
calculations(1):
Basic......................... 2,651 4,108 8,344 7,320 7,582 7,792 8,640
======== ======== ======== ======== ======== ======== ========
Diluted....................... 2,651 4,108 8,344 7,320 77,050 76,220 73,532
======== ======== ======== ======== ======== ======== ========
</TABLE>

27
<PAGE>

<TABLE>
<CAPTION>
AS OF
AS OF DECEMBER 31, SEPTEMBER 30,
---------------------------------------------------- --------------
1994 1995 1996 1997 1998 1999
-------- -------- -------- -------- -------- --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents(2)........................ $ 651 $12,531 $18,246 $31,481 $ 17,626 $ 35,275
Working capital..................................... 1,159 14,905 34,382 55,415 56,312 65,464
Total assets........................................ 4,099 26,318 49,610 95,936 142,121 176,683
Total short-term debt............................... 754 5,704 1,127 1,579 37,115 42,324
Redeemable convertible preferred stock.............. -- 13,917 39,912 -- -- --
Total stockholders' equity.......................... 1,435 1,350 39,519 67,873 71,207 79,924
</TABLE>

- ------------------------------

(1) Based on the number of shares outstanding as of September 30, 1999. Excludes
(i) 13,621,534 shares of common stock authorized for issuance under our
stock option plans, under which options to purchase 11,451,990 shares were
outstanding as of September 30, 1999 with a weighted average exercise price
of $2.21 per share and 153,140 shares were available for grant and
(ii) 532,000 shares of common stock reserved for issuance upon the exercise
of warrants outstanding as of September 30, 1999 with a weighted average
exercise price of $6.025 per share.

(2) Includes restricted cash of $1,500 at December 31, 1998 and $14,292 at
September 30, 1999.

28
<PAGE>
SELECTED PRO FORMA COMBINED FINANCIAL DATA

You should read the following selected financial data in conjunction with
our pro forma combined financial information and the related notes and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this prospectus. On December 14, 1999, we
acquired Wacos, Inc., a research and development subsidiary, through a merger.
The acquisition was accounted for using the purchase method of accounting and,
accordingly, the purchase price was allocated to the tangible and intangible
assets acquired and liabilities assumed on the basis of their fair values on the
acquisition date. The adjustments used to prepare the unaudited combined
statement of operations data reflect preliminary adjustments based on our best
estimates. A third party valuation of the assets acquired will be used to
finalize the adjustments. The following unaudited pro forma combined statement
of operations data reflects the acquisition of Wacos, Inc.'s minority interest
as if the acquisition had occurred on January 1, 1998. This data may not be
indicative of the results of operations had the acquisition actually occurred on
January 1, 1998, nor do they purport to indicate our future results of
operations.

<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1998 1999
-------------- -----------------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C>
COMBINED STATEMENT OF OPERATIONS DATA:
Net sales................................................... $105,167 $124,701
Cost of sales............................................... 65,246 72,677
-------- --------
Gross profit................................................ 39,921 52,024
Operating expenses:
Selling, general and administrative....................... 23,233 24,096
Research and development.................................. 14,655 12,490
Amortization of deferred stock compensation............... -- 3,521
Amortization of intangible assets......................... 2,654 2,013
-------- --------
Total operating expenses................................ 40,542 42,120
-------- --------
Operating income (loss)..................................... (621) 9,905
Interest and other income (expenses)........................ (1,139) (687)
Equity in net income (loss) of affiliated companies......... 331 984
-------- --------
Income (loss) before income taxes and minority interest..... (1,429) 10,202
Income tax expense (benefit)................................ 1,427 (1,023)
Minority interest in (earnings) loss of consolidated
subsidiaries.............................................. (421) (1,233)
-------- --------
Income (loss) from continuing operations.................... (3,277) 9,992
Pro forma earnings (loss) per share(1):
Basic..................................................... $ (0.04) $ 0.13
======== ========
Diluted................................................... $ (0.04) $ 0.12
======== ========
Shares used in pro forma per share calculations(1):
Basic..................................................... 76,051 79,013
======== ========
Diluted................................................... 76,051 84,947
======== ========
</TABLE>

- --------------------------

(1) Adjusted to reflect:

- the issuance of 6,152,106 shares of Series F preferred stock at $8.1273
per share in November and December 1999 in connection with a private round
of financing;

- the issuance of 4,523,700 shares of Series G preferred stock in December
1999 in connection with our acquisition of Wacos, Inc.; and

- to give effect to the conversion of all outstanding shares of preferred
stock into common stock upon the completion of this offering.

29
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

THE FOLLOWING DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE
RISKS AND UNCERTAINTIES. OUR ACTUAL RESULTS COULD DIFFER SUBSTANTIALLY FROM
THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF MANY
FACTORS, INCLUDING THOSE DISCUSSED IN "RISK FACTORS" AND ELSEWHERE IN THIS
PROSPECTUS. THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH OUR
CONSOLIDATED FINANCIAL STATEMENTS AND RELATED NOTES THERETO APPEARING ELSEWHERE
IN THIS PROSPECTUS.

OVERVIEW

We provide communications equipment for service providers that operate
wireless and wireline networks in rapidly growing communications markets. Our
integrated suite of network access systems, optical transmission products and
subscriber terminal products allows service providers to offer efficient and
scalable voice, data and Internet access services. Service providers can easily
integrate our standards-based systems into their existing networks and deploy
our systems in new broadband, IP-based and wireless network rollouts. To date,
substantially all of our sales have been to service providers in China.

We incorporated in Delaware as Unitech Industries Inc. in 1991. Since our
incorporation, we have focused our resources on developing products for China's
communications market. We shipped our first network access products in 1993. In
1994, we changed our name to Unitech Telecom, Inc. In 1995, we acquired StarCom
Network Systems, Inc. and changed our name to UTStarcom, Inc. During 1996, we
introduced our advanced, V5.1 and V5.2 compliant, multi-service network access
product, the AN-2000. Late in 1996, we introduced our Airstar wireless access
system. In December 1999, we completed the acquisition of Wacos, Inc., a
research and development subsidiary that develops IP-based switching systems. As
part of our business operations in China, we have established a wholly owned
subsidiary and two joint ventures.

To date, we have derived substantially all of our revenues from sales of
communications equipment to service providers in China. Each of the PTBs to whom
we sell our equipment in China is part of the China Telecom system and subject
to its ultimate control. However, equipment purchasing decisions are generally
made at the individual PTB level. Our customers often make a large initial
purchase of our equipment followed by supplemental purchases of enhancements and
upgrades. As a result, our largest revenue-producing customers typically vary
from period-to-period. For example, in the nine months ended September 30, 1999,
two of our customers together accounted for over 37% of our sales. However, we
expect that different customers will be our largest source of revenues in
subsequent periods.

Over 99% of our sales for the nine months ended September 30, 1999 were made
in China. Accordingly, our business, financial condition and results of
operations may be influenced by the political, economic and legal environment in
China, and by the general state of China's economy. Our operations in China are
subject to special considerations and significant risks not typically associated
with companies in the United States. These include risks associated with, among
others, the political, economic and legal environments and foreign currency
exchange. Our results may be adversely affected by, among other things, changes
in the political, economic and social conditions in China, and by changes in
governmental policies with respect to laws and regulations, changes in China's
telecommunications industry and regulatory rules and policies, anti-inflationary
measures, currency conversion and remittance abroad, and rates and methods of
taxation.

30
<PAGE>
purchase foreign currency, regulations restrict the ability of our subsidiaries
to transfer funds to us through intercompany loans and advances.

We sell our products in China through a direct sales force. The evaluation
period for our products may span a year or more. Revenue from product sales is
recognized when title is passed and all significant contractual obligations have
been satisfied and collection of the resulting receivable is reasonably assured.
Revenues and estimated profits on longer term contracts, typically lasting no
more than three to four months, are generally recognized using the percentage of
completion method based on the costs incurred relative to total estimated costs.

Cost of sales consists primarily of material costs, third party commissions,
costs associated with assembly and testing of products, costs associated with
installation and customer training and overhead and warranty costs. Cost of
sales also includes import taxes on components.

Our gross profit has been affected by material costs, product mix, average
selling prices, and the type of distribution channel through which we sell our
products. Our gross profit, as a percentage of net sales, varies among our
product families. The gross profits, as a percentage of net sales, on our mobile
phone handsets are very low. We expect that our overall gross profit, as a
percentage of net sales, will fluctuate from period to period as a result of
shifts in product mix, anticipated decreases in average selling prices and our
ability to reduce product costs.

Selling, general and administrative expenses include compensation and
benefits, professional fees, sales commissions, provision for uncollectible
accounts receivable and travel and entertainment costs. We intend to pursue
aggressive selling and marketing campaigns and to expand our direct sales
organization and, as a result, our sales and marketing expenses will increase in
future periods. We also expect that in support of our continued growth and our
operations as a public company general and administrative expenses will continue
to increase for the foreseeable future.

Research and development expenses consist primarily of salaries and related
costs of employees engaged in research, design and development activities, the
cost of parts for prototypes, equipment depreciation and third party development
expenses. We believe that continued investment in research and development is
critical to our long-term success. Accordingly, we expect that our research and
development expenses will increase in future periods.

Recent financing rounds of preferred stock included a yield enhancement
feature pursuant to which the preferred stock converts into common stock on a
one-for-one basis at a price below the expected offering price upon the
completion of our initial public offering. This will result in a charge to net
income in the fiscal period ending December 31, 1999 of approximately $14.8
million.

In connection with the grant of stock options to some of our employees, we
recorded deferred compensation of $8.8 million during the nine months ended
September 30, 1999, representing the difference between the deemed fair value of
common stock for accounting purposes and the option exercise price for these
options at the date of grant. Deferred compensation is presented as a reduction
of stockholders' equity, with amortization recorded over the four year vesting
period of the option. We recorded amortization of deferred stock compensation of
approximately $3.5 million during the nine month period ended September 30,
1999. At September 30, 1999, approximately $5.3 million remained to be
amortized.

Amortization of intangible assets consists primarily of the amortization of
intangible assets associated with acquisitions in China. Amortization of
intangible assets will increase in 2000 as a result of our acquisition of the
Wacos, Inc. research and development joint venture.

Consolidated equity in net income (loss) of affiliated companies comprises
our share of the earnings from our Guangdong manufacturing joint venture and,
prior to July 1998, our share of the costs from our Wacos, Inc. subsidiary.

31
<PAGE>
Under current regulations in China, foreign investment enterprises that have
been accredited as technologically advanced enterprises are entitled to
additional tax incentives. These tax incentives vary in different locales and
could include preferential national enterprise income tax treatment at 50% of
the usual rates for different periods of time. Three of our four subsidiaries in
China were accredited as technologically advanced enterprises. Our fourth
subsidiary is applying for accreditation. We have no guarantee that the tax
incentives will not be repealed or reduced in the future.

Minority interest in (earnings) loss of consolidated subsidiaries represents
the share of earnings in our Zhejiang manufacturing joint venture that is owned
by our joint venture partner. From July to December 1998, minority interest also
included the share of losses in our Wacos, Inc. subsidiary not owned by us.

RESULTS OF OPERATIONS

The following table sets forth the percentage of net sales represented by
certain items reflected in our consolidated statements of operations:

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------ --------------------
1996 1997 1998 1998 1999
-------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
PERCENTAGE OF NET SALES:
Net sales........................................ 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales.................................... 62.8 64.5 62.0 60.9 58.3
----- ----- ----- ----- -----
Gross profit..................................... 37.2 35.5 38.0 39.1 41.7

Operating expenses:
Selling, general and administrative............ 22.6 28.1 22.1 22.1 19.3
Research and development....................... 11.0 10.9 12.1 10.6 10.0
Amortization of deferred stock compensation.... 0.0 0.0 0.0 0.0 2.8
Amortization of intangible assets.............. 0.1 0.1 0.1 0.1 0.1
----- ----- ----- ----- -----
Total operating expenses..................... 33.7 39.1 34.3 32.8 32.2
----- ----- ----- ----- -----

Operating income (loss).......................... 3.5 (3.5) 3.7 6.2 9.5
Interest and other income (expenses)............. 2.4 2.6 (1.2) (0.4) (0.6)
Equity in net income (loss) of affiliated
companies...................................... (0.8) (0.2) (0.6) (0.8) 0.8
----- ----- ----- ----- -----
Income (loss) before income taxes and minority
interest....................................... 5.1 (1.1) 1.9 5.0 9.7
Income tax expense (benefit)..................... 1.6 0.5 1.3 1.0 (0.8)
Minority interest in (earnings) loss of
consolidated subsidiaries...................... (2.1) 0.3 0.7 0.2 (1.0)
----- ----- ----- ----- -----
Income (loss) from continuing operations......... 1.4 (1.4) 1.3 4.1 9.5
Income (loss) from discontinued operations....... 0.8 1.9 (0.8) (1.0) (1.3)
----- ----- ----- ----- -----
Net income (loss)................................ 2.2% 0.5% 0.5% 3.1% 8.2%
===== ===== ===== ===== =====
</TABLE>

COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999

NET SALES. Our net sales increased 56% from $79.9 million in the nine
months ended September 30, 1998 to $124.7 million in the nine months ended
September 30, 1999. This increase was primarily due to an increase in sales
volume of our Airstar system. In the nine months ended September 30, 1999, sales
to Xi'an PTB accounted for 21.5% of our net sales and sales to Kunming PTB
accounted for 15.9% of our net sales. In the nine months ended September 30,
1998, no customers accounted for over 10% of our sales.

32
<PAGE>
GROSS PROFIT. Gross profit increased 67% from $31.2 million in the nine
months ended September 30, 1998 to $52.0 million in the nine months ended
September 30, 1999. Gross profit, as a percentage of net sales, increased from
39% in the nine months ended September 30, 1998 to 42% in the nine months ended
September 30, 1999. The increase in gross profit, as a percentage of net sales,
was primarily due to changes in the mix of products sold during the two periods.

SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses increased 36% from $17.7 million in the nine months ended
September 30, 1998 to $24.1 million in the nine months ended September 30, 1999.
The increase in selling, general and administrative expenses was primarily due
to the hiring of additional sales and customer support staff. Selling, general
and administrative expenses as a percentage of net sales decreased from 22% in
the nine months ended September 30, 1998 to 19% in the nine months ended
September 30, 1999.

RESEARCH AND DEVELOPMENT. Research and development expenses increased 47%
from $8.5 million in the nine months ended September 30, 1998 to $12.5 million
in the nine months ended September 30, 1999. The increase in research and
development expenses was primarily due to the hiring of additional technical
personnel to support our research and development efforts. As a percentage of
net sales, research and development expenses decreased from 11% in the nine
months ended September 30, 1998 to 10% in the nine months ended September 30,
1999.

AMORTIZATION OF DEFERRED STOCK COMPENSATION. Amortization of deferred stock
compensation increased from $0 in the nine months ended September 30, 1998 to
$3.5 million for the nine months ended September 30, 1999. This amortization is
due to deferred compensation of approximately $8.8 million, related to stock
options granted in the nine months ended September 30, 1999, which we are
amortizing over the vesting periods of the applicable options beginning in 1999.

AMORTIZATION OF INTANGIBLE ASSETS. Amortization of intangible assets
increased from $65,000 in the nine months ended September 30, 1998 to $112,000
in the nine months ended September 30, 1999. The increase in amortization of
intangible assets was due to the addition of amortization of our Wacos, Inc.
subsidiary beginning in the third quarter of 1998.

INTEREST INCOME (EXPENSES). Interest income (expenses) were $(0.2) million
for the nine months ended September 30, 1998 and $(0.9) million for the nine
months ended September 30, 1999. The increase in interest expense was primarily
due to decreased interest income from lower average cash balances.

OTHER INCOME (EXPENSES). Other income (expenses) were $(0.1) million for
the nine months ended September 30, 1998 and $0.2 million for the nine months
ended September 30, 1999. The increase in other income was primarily due to
various miscellaneous charges.

EQUITY IN INCOME (LOSS) OF AFFILIATED COMPANIES. Equity in net income
(loss) of affiliated companies increased from $(0.6) million in the nine months
ended September 30, 1998 to $1.0 million in the nine months ended September 30,
1999. The change between the two periods reflects the increased profitability of
our Guangdong manufacturing joint venture in 1999, and losses incurred by our
Wacos, Inc. subsidiary in the first half of 1998.

INCOME TAX EXPENSE (BENEFIT). Income tax expense was $0.8 million for the
nine months ended September 30, 1998 compared to a $(1.0) million benefit for
the nine months ended September 30, 1999 due to tax incentives and one time tax
refunds of $(0.4) million in China. We have not provided for U.S. taxes on our
foreign subsidiaries' undistributed earnings because such earnings are intended
to be indefinitely reinvested in those subsidiaries.

MINORITY INTEREST IN (EARNINGS) LOSS OF CONSOLIDATED SUBSIDIARIES. Minority
interest in (earnings) loss of consolidated subsidiaries was $0.1 million in the
nine months ended September 30, 1998 and $(1.2) million in the nine months ended
September 30, 1999. The change between the two periods is

33
<PAGE>
primarily due to the increased profitability at our Zhejiang manufacturing joint
venture in 1999, and losses incurred by our Wacos, Inc. subsidiary in the third
quarter of 1998.

COMPARISON OF YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998

NET SALES. Our net sales increased from $35.5 million in 1996 to
$75.6 million in 1997 and $105.2 million in 1998. The 113% increase from 1996 to
1997 and the 39% increase from 1997 to 1998 were primarily attributable to
significant increases in the sales volume of network access systems and, to a
lesser extent, mobile phone handsets. Sales growth in 1998 was partially offset
by a slowdown in the overall industry due to the restructuring of China's
telecommunications industry.

GROSS PROFIT. Gross profit increased from $13.2 million in 1996 to
$26.8 million in 1997 and $39.9 million in 1998. Gross profit, as a percentage
of net sales, was 37% in 1996, 36% in 1997 and 38% in 1998. Gross profit, as a
percentage of net sales, declined from 1996 to 1997 due to declining average
selling prices for network access equipment resulting from increased competition
in China's communication market, and, to a lesser extent, changes in product
mix. Gross profit, as a percentage of net sales, improved from 1997 to 1998
primarily due to manufacturing economies of scale and, to a lesser extent,
changes in product mix.

SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses increased from $8.0 million in 1996 to $21.2 million in 1997 and
$23.2 million in 1998. These increases were primarily due to increased sales and
administrative personnel associated with the growth in net sales and the
expansion of our overall level of business activity. Selling, general and
administrative expenses as a percentage of net sales were 23% in 1996, 28% in
1997 and 22% in 1998.

RESEARCH AND DEVELOPMENT. Research and development expenses increased from
$3.9 million in 1996 to $8.2 million in 1997 and $12.7 million in 1998. These
increases were primarily due to the hiring of additional technical personnel and
the purchase of laboratory tools and test equipment necessary to support our
product development efforts. The increase in research and development expenses
from 1997 to 1998 is also attributable to the consolidation of our Wacos, Inc.
research and development subsidiary. Research and development expenses as a
percentage of net sales were 11% in 1996, 11% in 1997 and 12% in 1998.

AMORTIZATION OF INTANGIBLE ASSETS. Amortization of intangible assets was
$42,000 in 1996, $40,000 in 1997 and $120,000 in 1998. The increase in
amortization of intangible assets from 1997 to 1998 was primarily due to the
increase in our investment in our Guangdong manufacturing joint venture and the
addition of amortization of our Wacos, Inc. subsidiary beginning in the third
quarter of 1998.

INTEREST INCOME (EXPENSES). Interest income (expenses) was $0.6 million in
1996, $2.0 million in 1997 and $(0.2) million in 1998. The increase in interest
income from 1996 to 1997 reflects our larger cash balances primarily from the
sale of preferred stock. The change from 1997 to 1998 was primarily due to
increased interest charges on higher debt balances combined with decreased
interest income from lower cash balances.

OTHER INCOME (EXPENSES). Other income (expenses) was $0.2 million in 1996,
$5,000 in 1997 and $(1.0) million in 1998. The decrease in other income from
1996 to 1997 was primarily due to various miscellaneous charges. The change from
1997 to 1998 is primarily due to a $1.3 million loss on one investment.

EQUITY IN INCOME (LOSS) OF AFFILIATED COMPANIES. Consolidated equity in net
income (loss) of affiliated companies was $(0.3) million in 1996, $(0.2) million
in 1997 and $(0.6) million in 1998. The change from 1996 to 1997 reflects the
increasing profitability of our Guangdong manufacturing joint venture, partially
offset by losses incurred by our Wacos, Inc. subsidiary in 1997. The change from
1997 to 1998 reflects increases in losses at our Wacos, Inc. subsidiary
partially offset by increasing profitability of our Guangdong manufacturing
joint venture.

INCOME TAX EXPENSE (BENEFIT). We recorded a provision for income taxes of
$0.6 million in 1996, $0.4 million in 1997 and $1.4 million in 1998. The
increase from 1997 to 1998 reflects our increasing income and required
adjustments to our deferred tax asset valuation allowance.

MINORITY INTEREST IN (EARNINGS) LOSS OF CONSOLIDATED SUBSIDIARIES. Minority
interest in (earnings) loss of consolidated subsidiaries was $(0.7) million in
1996, $0.2 million in 1997 and $0.7 million in 1998. The change in minority
interest in (earnings) loss from 1996 to 1997 was primarily a result of
decreased profitability of our Zhejiang manufacturing joint venture. The change
in minority interest in earnings (loss) between 1997 and 1998 was primarily a
result of losses incurred by our Wacos, Inc. subsidiary, which was first
consolidated in July 1998, offset by increased profits by our Zhejiang
manufacturing joint venture.

34
<PAGE>
QUARTERLY RESULTS OF OPERATIONS

The following tables present unaudited quarterly statement of operations
data, in dollars and as a percentage of net sales, for each of the six quarters
ended September 30, 1999. This unaudited quarterly information has been prepared
on the same basis as the annual information presented elsewhere in this
prospectus and reflects all normal non-recurring adjustments that we consider
necessary for a fair presentation of such information in accordance with
generally accepted accounting principles. The operating results for any quarter
are not necessarily indicative of results for any future period.

<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------------------------
JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30,
1998 1998 1998 1999 1999 1999
--------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net sales............................................. $33,028 $31,352 $25,289 $27,551 $42,131 $55,019
Cost of sales......................................... 19,114 19,982 16,576 16,848 23,873 31,956
------- ------- ------- ------- ------- -------
Gross profit.......................................... 13,914 11,370 8,713 10,703 18,258 23,063
Operating expenses:
Selling, general and administrative................. 6,250 6,216 5,562 5,587 8,292 10,217
Research and development............................ 2,574 3,668 4,200 4,045 4,138 4,307
Amortization of deferred stock compensation......... -- -- -- 637 1,669 1,215
Amortization of intangible assets................... 21 22 55 37 37 38
------- ------- ------- ------- ------- -------
Total operating expenses.......................... 8,845 9,906 9,817 10,306 14,136 15,777
------- ------- ------- ------- ------- -------
Operating income (loss)............................... 5,069 1,464 (1,104) 397 4,122 7,286
Interest and other income (expenses).................. (319) (370) (910) (220) (489) 22
Equity in income (loss) of affiliated companies....... (489) 236 50 190 702 92
------- ------- ------- ------- ------- -------
Income (loss) before income taxes and minority
interest............................................ 4,261 1,330 (1,964) 367 4,335 7,400
Income tax expense (benefit).......................... 477 185 586 222 242 (1,487)
Minority interest in (earnings) loss of consolidated
subsidiaries........................................ (512) 734 612 (486) (103) (644)
------- ------- ------- ------- ------- -------
Income (loss) from continuing operations.............. 3,272 1,879 (1,938) (341) 3,990 8,243
Income (loss) from discontinued operations............ (270) (454) (97) (267) (1,389) --
------- ------- ------- ------- ------- -------
Net income (loss)..................................... $ 3,002 $ 1,425 $(2,035) $ (608) $ 2,601 $ 8,243
======= ======= ======= ======= ======= =======
AS A PERCENTAGE OF NET SALES:
Net sales............................................. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales......................................... 57.9 63.7 65.5 61.2 56.7 58.1
------- ------- ------- ------- ------- -------
Gross profit.......................................... 42.1 36.3 34.5 38.8 43.3 41.9
Operating expenses:
Selling, general and administrative................. 18.9 19.8 22.0 20.3 19.7 18.6
Research and development............................ 7.8 11.7 16.6 14.7 9.8 7.8
Amortization of deferred stock compensation......... 0.0 0.0 0.0 2.3 4.0 2.2
Amortization of intangible assets................... 0.1 0.1 0.2 0.1 0.1 0.1
------- ------- ------- ------- ------- -------
Total operating expenses.......................... 26.8 31.6 38.8 37.4 33.6 28.7
------- ------- ------- ------- ------- -------
Operating income (loss)............................... 15.3 4.7 (4.4) 1.4 9.7 13.2
Interest and other income (expenses).................. (1.0) (1.2) (3.6) (0.8) (1.2) 0.0
Equity in income (loss) of affiliated companies....... (1.5) 0.8 0.2 0.7 1.7 0.2
------- ------- ------- ------- ------- -------
Income (loss) before income taxes and minority
interest............................................ 12.8 4.3 (7.8) 1.3 10.2 13.5
Income tax expense (benefit).......................... 1.4 0.6 2.3 0.8 0.6 (2.7)
Minority interest in (earnings) loss of consolidated
subsidiaries........................................ (1.6) 2.3 2.4 (1.8) (0.2) (1.2)
------- ------- ------- ------- ------- -------
Income (loss) from continuing operations.............. 9.8 6.0 (7.7) (1.2) 9.5 15.0
Income (loss) from discontinued operations............ (0.8) (1.4) (0.4) (1.0) (3.3) 0.0
------- ------- ------- ------- ------- -------
Net income (loss)..................................... 9.0% 4.6% (8.1)% (2.2)% 6.2% 15.0%
======= ======= ======= ======= ======= =======
</TABLE>

35
<PAGE>
Our net sales have increased in each quarter since the fourth quarter of
1998. The increase in net sales was primarily due to significant increases in
sales of network access products, particularly our Airstar system. Sales during
the third and fourth quarters of 1998 were negatively impacted by the weaker
demand experienced during the reorganization of the telecommunications industry
in China. Business activity in China declines significantly during the first
quarter of each year in observance of the Lunar New Year. Although the usual
seasonal slowdown was present during the first quarter of 1999, it was not
evident because of the relatively low level of fourth quarter 1998 sales.

Gross profit has increased in each quarter since the fourth quarter of 1998.
The increase in gross profit was primarily due to significant increases in sales
of network access products, particularly our Airstar system. Gross profit, as a
percentage of net sales, has fluctuated from quarter to quarter primarily due to
product mix. Gross profit, as a percentage of net sales, generally has increased
since the fourth quarter of 1998, primarily due to significant increases in
sales of higher margin network access products and a shift in product mix toward
higher margin network access products. The decrease in gross profit, as a
percentage of net sales, from the second quarter to the third quarter and from
the third quarter to the fourth quarter of 1998 was primarily due to decreases
in sales volume and price pressures resulting from a slowdown in the overall
industry due to the restructuring of China's telecommunications industry.

Operating expenses have generally increased in absolute dollars over the
quarters shown as we have increased staffing in research and development, sales
and marketing and administrative functions. The recent decline in selling,
general and administrative expenses as a percentage of net sales reflects the
relatively higher sales level as well as a leveling off of the proportion of
expenses that are variable to sales, such as commissions and bad debt expense.
Research and development expenses as a percent of net sales have generally
declined as our net sales have increased.

Our quarterly operating results have fluctuated in the past and are likely
to fluctuate in the future as a result of a variety of factors. These factors,
some of which are beyond our control, include:

- the timing, number and size of orders for our products as well as product
mix;

- market acceptance of our products and product enhancements;

- the evolving and unpredictable nature of the economic, regulatory and
political environments in China and other countries in which we market or
plan to market our products;

- longer collection periods of accounts receivable in China and other
countries;

- the lengthy and unpredictable sales cycles associated with sales of our
products;

- our ability to secure and maintain regulatory and governmental
authorizations for our products; and

- the decline in business activity in the first quarter associated with the
Lunar New Year.

Our net sales and gross profit, as a percentage of net sales, have also
fluctuated and are likely to continue to fluctuate in large part due to the
volatility of the volume of sales of lower margin mobile phone handsets and
competitive pricing pressure across product lines. As a result of the foregoing
factors, we believe period to period comparisons are not necessarily meaningful
and should not be relied upon as indicative of future results.

LIQUIDITY AND CAPITAL RESOURCES

Since our inception, we have financed our operations through private sales
of equity securities and, to a lesser degree, bank lines of credit. We have a
line of credit arrangement with a bank in China permitting Renminbi denominated
borrowings of up to $48.2 million. This facility bears interest at rates ranging
from 5.6% to 6.4% and matures from January to July 2000. At September 30, 1999,
the

36
<PAGE>
equivalent of $26.5 million was outstanding under this facility. In June 1998,
we entered into a loan agreement with SOFTBANK for the total amount of
$25.0 million, of which $9.1 million was outstanding as of September 30, 1999.
Borrowings under this facility were repaid in full in December 1999. In December
1998, we guaranteed a bank loan incurred by one of our customers in the amount
of $1.6 million in conjunction with the sale of equipment. As of September 30,
1999, we had working capital of $65.5 million, including $35.3 million in cash
and cash equivalents and $28.0 million worth of Renminbi denominated bank
borrowings. In November and December 1999, we secured private equity financing
totaling $50.0 million.

As of September 30, 1999, we had cash and cash equivalents totaling
$35.3 million. Of this amount, $14.3 million was restricted. Of the restricted
amount, $11.3 million related to cash from asset sales pending completion of
contractual obligations. The remaining restricted amount was for collateral on
letters of credit.

The net proceeds from the private financing will be used as follows:

- $10.0 million to establish an investment fund with SOFTBANK CORP. focused
on investments in Internet companies in China;

- $9.1 million to repay outstanding indebtedness to SOFTBANK CORP.; and

- the remainder to fund the continued growth and development of our
business.

Net cash used in operations was $12.2 million in 1996, $26.4 million in 1997
and $46.4 million in 1998. For the nine months ended September 30, 1999, net
cash provided by operations was $2.2 million. The substantial increase in net
cash used by operations from 1996 to 1998 was a result of the increase in
accounts receivable and inventory levels associated with net sales growth. The
net cash provided by operations in the nine months ended September 30, 1999 was
a result of increased profitability and cash collections.

Net cash used in investing activities was $1.0 million in 1996,
$3.7 million in 1997, $1.7 million in 1998 and $2.0 million in the nine months
ended September 30, 1999. These expenditures included additions to property,
plant and equipment of $2.5 million in 1996, $3.2 million in 1997, $2.8 million
in 1998 and $2.5 million in the nine months ended September 30, 1999.

Net cash provided by financing activities was $19.2 million in 1996,
$43.2 million in 1997, $34.5 million in 1998 and $17.2 million in the nine
months ended September 30, 1999. Net cash provided by financing activities in
1996 and 1997 primarily consisted of net proceeds from the sale of preferred
stock. Net cash provided by financing activities in 1998 and in the nine months
ended September 30, 1999 primarily consisted of borrowings under a short-term
line of credit.

We believe that the net proceeds of this offering, together with cash
generated from operations and funds available under our credit facilities, will
be sufficient to meet our capital requirements for at least the next 12 months.
Our future cash requirements will depend on many factors, including but not
limited to:

- the extent to which average sales prices for our products decline;

- the levels at which we maintain inventory;

37
<PAGE>
- the timing and extent of spending to support product development;

- sales and marketing and customer support efforts;

- the timing of introductions of new products and enhancements to existing
products; and

- market acceptance of our products.

To the extent that the funds generated by this offering, together with
existing resources and future earnings, are insufficient to fund our future
activities, we may need to raise additional funds through public or private
financing, which could include the issuance of additional equity. We are also
exploring the possibility of securing additional equity investments by third
parties in our joint ventures in China. We cannot assure you that additional
financing will be available or that, if available, such financing will be
obtainable on favorable terms.

IMPACT OF YEAR 2000

Many currently installed computer systems and software products are coded to
accept only two-digit entries in date code fields. Beginning in the year 2000,
these date code fields will need to accept four-digit entries to distinguish
21st century dates from 20th century dates. Computer programs or hardware that
have date-sensitive software or embedded chips and have not been upgraded to
comply with these "year 2000" requirements may recognize a date using "00" as
the year 1900 rather that the year 2000. This could result in a system failure
or miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices or engage
in similar normal business activities.

GENERAL READINESS ASSESSMENT. The year 2000 problem can affect the
computers, software and other equipment that we use in our operations. As a
result, we have instituted a year 2000 compliance plan, implemented by a team of
our internal information technology staff responsible for monitoring the
assessment and remediation of our year 2000 projects and reporting that status
to our executive staff. This project team has assessed the potential effect and
costs of remediating the year 2000 problem for our internal systems.

ASSESSMENT OF OUR PRODUCTS. We have assessed the ability of our products to
operate properly in the year 2000. We believe that our current products are year
2000 compliant. Accordingly, we do not believe that the year 2000 issue presents
a material exposure as it relates to our products.

ASSESSMENT OF INTERNAL INFRASTRUCTURE. We believe that we have identified
most of the major computers, software applications and related equipment used in
connection with our internal operations that need to be evaluated to determine
if they must be modified, upgraded or replaced to minimize the possibility of a
material disruption to our business. Based on a review of these computer
systems, we have determined that our computer systems and applications are
compliant with the year 2000 format.

SYSTEMS OTHER THAN INFORMATION TECHNOLOGY SYSTEMS. In addition to computers
and related systems, the operation of office and facilities equipment, such as
fax machines, telephone switches, security systems and other common devices, may
be affected by the year 2000 problem. We have assessed the potential effect of
the year 2000 problem on our office and facilities equipment and have determined
that no problems exist that cannot be remediated by the replacement of
relatively inexpensive equipment.

COSTS OF REMEDIATION. Our total cost of completing required modifications,
upgrades or replacements of our internal systems was less than $100,000. Based
on the activities described above, we do not believe that the year 2000 problem
will have a material adverse effect on our business or operating results.

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<PAGE>
SUPPLIERS. As part of our review of the year 2000 problem, we have
contacted third-party suppliers of components and key contractors used in the
assembly of our products to identify and, to the extent possible, resolve issues
involving the year 2000 problem. However, we have limited or no control over the
actions of these third-party suppliers and subcontractors. Thus, while we
believe that we have resolved any significant year 2000 problems with these
third parties, there can be no assurance that these suppliers have resolved any
or all year 2000 problems before the occurrence of a material disruption to the
operation of our business. Any failure on the part of these third parties to
timely resolve year 2000 problems with their systems in a timely manner could
have a material adverse effect on our business.

MOST LIKELY CONSEQUENCES OF YEAR 2000 PROBLEMS. We believe that we have
identified and resolved all year 2000 problems that could materially adversely
affect our business operations before December 31, 1999. However, we believe
that it is not possible to determine with complete certainty that all year 2000
problems affecting us have been identified or corrected. The number of devices
and systems that could be affected and the interactions among these devices and
systems are too numerous to address. In addition, no one can accurately predict
whether failures will occur as a result of the year 2000 problem or the
severity, timing, duration or financial consequences of these potential
failures. As a result, we believe that the following consequences are possible:

- a significant number of operational inconveniences and inefficiencies for
us, our contract manufacturers and our customers that will divert
management's time and attention and financial and human resources from
ordinary business activities;

- possible business disputes and claims, including claims under product
warranty, due to year 2000 problems experienced by our customers and
incorrectly attributed to our products, which we believe will be resolved
in the ordinary course of business; and

- a few serious business disputes alleging that we failed to comply with the
terms of contracts or industry standards of performance, some of which
could result in litigation or contract termination.

CONTINGENCY PLANS. We have developed contingency plans to be implemented if
our efforts to identify and correct year 2000 problems affecting our internal
systems are not effective. Depending on the systems affected, these plans
include:

- accelerated replacement of affected equipment or software;

- short- to medium-term use of backup equipment or software or other
redundant systems;

- increased work hours for our personnel or the hiring of additional
information technology staff; and

- the use of contract personnel to correct, on an accelerated basis, any
year 2000 problems that arise or to provide interim alternate solutions
for information system deficiencies.

Our implementation of any of these strategies could have a material adverse
effect on our business.

DISCLAIMER. The discussion of our efforts and expectations relating to year
2000 compliance are forward-looking statements. Our ability to achieve year 2000
compliance, and the level of incremental costs associated therewith, could be
adversely affected by, among other things, the availability and cost of contract
personnel and external resources, third-party suppliers' ability to modify
proprietary software and unanticipated problems not identified in the ongoing
compliance review.

39
<PAGE>
BUSINESS

OVERVIEW

We provide communications equipment for service providers that operate
wireless and wireline networks in rapidly growing communications markets. Our
integrated suite of network access systems, optical transmission products and
subscriber terminal products allows service providers to offer efficient and
scalable voice, data and Internet access services. Service providers can easily
integrate our standards-based systems into their existing networks and deploy
our systems in new broadband, Internet Protocol, or IP, and wireless network
rollouts. To date, substantially all of our sales have been to service providers
in China.

Our integrated suite of products consists of Airstar, AN-2000, OMUX and
WACOS. Our Airstar network access system allows service providers to offer voice
and data services over fixed wireless and city-wide wireless mobile networks.
With over 900,000 lines installed at 12 large commercial sites, we believe that
Airstar is the most widely deployed wireless local access system in China. For
wireline networks, we provide a broadband-ready access system called AN-2000.
Over 1.2 million lines of our wireline AN-2000 access system have been deployed
in China, including deployments in the six largest regional communications
markets. Our optical multiplexing, or OMUX, products provide optical
transmission and are often bundled with our AN-2000 and Airstar systems. The
OMUX, either as a stand-alone or bundled product, is currently installed at over
5,000 locations for over 200 communications service providers. Our newest
product, WACOS, is an IP-based switch designed to deliver multiple voice and
data services using a highly distributed architecture. We expect to begin
initial shipments of WACOS in 2000. Our access and switching systems are
currently designed to address the unique performance requirements of rapidly
expanding communications infrastructure markets such as China.

INDUSTRY BACKGROUND

COMMUNICATIONS NEEDS OF DEVELOPING COUNTRIES. Demand for voice and data
communications services in developing nations continues to grow rapidly and is
driven by both public sector infrastructure investment and private sector
business growth. The governments of many developing countries have identified
the buildout of a communications infrastructure as a key driver of modernization
and economic growth. According to a 1998 report by the International
Telecommunication Union, developing countries are investing in communications
infrastructure at a rate of $53.1 billion annually, representing 31.9% of all
communications infrastructure spending worldwide. Governments are increasingly
implementing and funding buildouts through privatization of state-owned
telecommunications service providers. These service providers, in turn, are
deploying advanced networks for voice and data services. In addition,
increasingly affluent businesses and residential consumers in the highest growth
regions of these countries are demanding state-of-the-art voice and data
communications solutions to interact and compete on a global basis.

GROWTH IN CHINA'S COMMUNICATIONS MARKET. China has one of the fastest
growing communications markets in the world. Growth in China's communications
equipment and services markets is being driven by the government's commitment to
infrastructure build-out, pent-up demand for communication services and robust
economic growth. Dataquest estimates that the market for communications
equipment and services in China will grow from $44.2 billion in 1998 to
$89.9 billion in 2002, representing a compound annual growth rate of 19.4%.
Dataquest forecasts that the market for access equipment in China will grow at a
compound annual rate of 32.8% from 1998 to 2002. This market represents the
fastest growing segment of the communications market in China and the fastest
growing access equipment market in the world. China's demand for communication
services is highlighted by its relatively low teledensity rate, which is a
measure of the number of lines per hundred people. According to 1998 statistics
from the International Telecommunication Union, China, with a

40
<PAGE>
population of 1.2 billion, has a teledensity rate of only 7.0% compared to
teledensity rates in Brazil of 12.1%, in Western Europe of 53.1%, in Hong Kong
of 55.8% and in the United States of 66.1%. While growth in the China
communications market is currently driven predominantly by voice services, the
increasing demand for data services presents a growing opportunity. The
Strategis Group and BDA China Limited estimate that Internet subscribers in
China will grow from 2.1 million in 1998 to 40.4 million in 2003, representing a
compound annual growth rate of 80.6%. China's ability to invest heavily in its
communications infrastructure is fueled by the country's strong economic
activity, primarily in its coastal provinces which represented 41.1% of China's
gross domestic product of $961 billion in 1998. In addition, the World Bank
estimates China's GDP will grow at a compound annual rate of 7% from 1999 to
2003.

STRUCTURE OF CHINA'S TELECOMMUNICATIONS INDUSTRY. Historically, the China
Telecom system was the sole provider of public telecommunications services in
China. In 1993, the State Council, in an effort to promote competition, began
issuing licenses to new telecommunications operators including China United
Telecommunications Corporation, or Unicom, a provider of mobile communication
services, and Jitong Communications Co., Ltd., a provider of data communications
and Internet access services. In February 1999, the State Council approved a
restructuring plan for the China Telecom system. The plan separated the
telecommunications operations of the China Telecom system along four business
lines: fixed line, mobile, paging and satellite communications services. Under
the new structure, a new state-owned company, China Mobile, holds and operates
the nationwide mobile communications assets. China Mobile also controls China
Telecom (Hong Kong) Limited, a public company, that operates cellular services
in six of China's provinces. A new state-owned company, China Satellite, holds
and operates the satellite assets. The paging operations have been merged into
Unicom. China Telecom holds and operates the fixed line telephone and data
communications assets. China Telecom operates through a network of approximately
2,400 local level telephone companies called Posts and Telecommunications
Bureaus, or PTBs. PTBs are responsible for purchasing, installing and operating
the voice and data communications services in their local markets.

GOVERNMENT REGULATION OF THE TELECOMMUNICATIONS INDUSTRY. The China
telecommunications industry is regulated at the national, provincial and local
levels. At the national level, the Ministry of Information Industry, or MII,
regulates the industry. The MII was established in March 1998 to assume the
regulatory, administrative and other governmental duties of the former Ministry
of Posts and Telecommunications. The MII has broad authority to regulate all
aspects of the telecommunications and information technology industries in China
including managing spectrum bandwidths, setting network equipment specifications
and standards, regulating the Internet and drafting laws and regulations related
to the electronics and telecommunications industries. We believe that the MII's
general telecommunications equipment strategy is to ensure that China's
infrastructure is based on advanced open architectures that are scalable, cost
efficient and quickly deployed. The MII also oversees the 33 Post and
Telecommunications Administrations, or PTAs, that have regulatory responsibility
over the telecommunications industry in their respective provinces. In China
today, each PTA oversees all local PTBs in its region and approves a subset of
telecommunications products that meet MII standards from which PTBs can then
select the specific products they purchase, install and operate. Although
historically the MII has shared regulation and operation of China's
telecommunications industry with the China Telecom system, as part of the
Chinese government's industry restructuring, the regulatory functions of the MII
and the PTAs are in the process of being separated from the operational
functions of the state-owned PTBs under their control. Following this
separation, it is expected that the MII will act exclusively as the industry
regulator and that the local PTBs will act exclusively as operators. Given the
multi-level regulatory environment, equipment providers in China must generally
market intensively to all three levels of the communications industry.

COMMUNICATIONS NETWORK ARCHITECTURE IN CHINA. The buildout of China's
communications infrastructure involves not only installing a nationwide network
of high-bandwidth fiber-optic

41
<PAGE>
backbones, but also locally connecting each business and residential subscriber
to these backbones. The systems of wireline or wireless connections that link
local subscribers to these backbone networks are often referred to as the "last
mile" or the local access network. Because of the high growth rate, geographic
dispersion and diverse communications needs of residences and businesses in
China, the direct wiring of subscribers to the backbone network using
traditional copper connections is a lengthy, costly and inefficient process.
Direct wiring of subscribers to traditional telephone switches often locks those
subscribers into a limited set of communications services and limits scalability
and migration to other services. In contrast, service providers in China require
communications equipment that allows them to rollout different services quickly,
efficiently and cost-effectively. Given the relative absence of a legacy
communications infrastructure, these service providers are less constrained and
thus often deploy the latest, "best-of-breed" systems with the flexibility to
handle future services such as data. This is true in both the local access
networks and the backbone networks.

A new trend in access network design is the use of remote nodes that push
network intelligence closer to a group of subscribers, thus making it easier and
more efficient to deliver multiple services from the backbone network to
subscribers at the local level. These nodes use a standard digital protocol
known as V5.2 to communicate with backbone networks. This open protocol allows
equipment from various vendors to be interconnected seamlessly and allows
service providers to deliver a variety of services from multiple backbones over
the same access network thus reducing costs. By deploying small, intelligent
nodes close to subscribers, service providers can deploy fewer central office
switches, each covering larger areas, optimizing manageability and lowering
per-subscriber cost. Because of these benefits, service providers in China are
deploying open architecture switches capable of interacting with access networks
at most new installations.

Another new trend can be seen in the backbone network, where an increasing
portion of traffic travels across IP-based systems instead of traditional voice
systems using circuit switches. IP-based architectures differ fundamentally from
circuit-switched architectures in the way information travels from point to
point through networks. IP-based technology does not require a dedicated
connection or circuit between the callers. Instead, the caller's voice is
divided into numerous small packages of information called packets. These
packets are sent over the network intermixed with other packets of data, such as
fax, email or Internet content, to be reassembled at the destination of the
call. In contrast, traditional telephone technology requires that a circuit
between the callers be established and maintained during the length of the call,
and voice and data cannot easily be transmitted simultaneously over this
circuit. This is inefficient because much of a phone call is silence which
effectively wastes capacity on the circuit. This inefficiency has caused service
providers to seek new switches based on IP-based technology.

NEEDS OF CHINA'S COMMUNICATIONS SERVICE PROVIDERS. Service providers in
China often require network solutions with a suite of integrated products that
address all of their access needs, including wireline and wireless, voice and
data. These comprehensive product offerings enable service providers to quickly,
and with minimal incremental investment, address the changing demands of their
subscribers for expanded or more advanced services over time. Service providers
also require solutions that are standards-based to ease installation and avoid
duplicate buildout of separate networks. In addition, given the rapid growth in
China's emerging communications market, network solutions must be efficient and
scalable so that the same architecture can provide an affordable entry level
solution for as few as hundreds of subscribers yet economically scale to
hundreds of thousands of subscribers over time. Additionally, service providers
in China will often require the vendors to continually develop products to meet
evolving market needs and to have a local service and support presence.

Although markets such as China represent substantial opportunities for
communications equipment vendors, to date, few companies have delivered the
combination of leading technology, market specific products and a local presence
that service providers require.

42
<PAGE>
THE UTSTARCOM SOLUTION

Our wireless and wireline access and switching systems are designed to
deliver the following key benefits to service providers:

INTEGRATED, COMPREHENSIVE PRODUCT OFFERING. By offering communications
systems that link the backbone network, the access network and subscribers'
premises, we supply service providers with solutions that enable them to quickly
deploy services to subscribers. For the implementation of completely new
networks, which is typical in China, service providers can choose to deploy our
complete suite of product offerings. By contrast, for locations where some
network infrastructure is already in place, service providers can deploy a
subset of our products and integrate them into their existing networks.
Furthermore, as subscriber needs evolve from voice to data, we offer solutions
to meet these needs. All of our products can be managed from a single integrated
management station through the use of our Netman software.

FLEXIBILITY FOR VOICE AND DATA SERVICES. We have designed our systems to
offer a high degree of flexibility in terms of the number of subscribers and
types of traffic delivered to those subscribers. Our equipment can be flexibly
configured to offer a variety of services in response to subscriber demand. This
flexibility is particularly important in China, as the communications services
market is undergoing rapid change and growth. As Internet usage achieves greater
penetration in China, service providers will desire systems which are designed
to deliver high-speed data capability. Our access systems allow service
providers to quickly and cost-effectively implement upgrades for new services,
including high-speed data capability, compared to alternative solutions which
may require the purchase of an entirely new system to provide these services.

LEADING PRICE AND PERFORMANCE SOLUTION. All of our products are based on a
modular design, using cost effective off-the-shelf components wherever possible
and realizing most of the products' added value through our software. By
delivering a modular system, we allow service providers to purchase only the
functionality and capacity needed and to purchase additional functionality and
capacity over time as subscriber demand warrants. In response to large pent-up
demand, most service providers in China are currently delivering voice services.
However, we expect demand for data services to increase dramatically in China.
To meet this growing demand, service providers will be able to deliver data
traffic with modular upgrades to our systems rather than through large-scale
purchases of replacement equipment. Furthermore, as demand for communications
services in China grows, our scalable systems will allow service providers to
scale up from a small initial subscriber base to hundreds of thousands of
subscribers in a cost-effective and efficient manner.

STANDARDS-BASED ARCHITECTURE. Our products are designed to comply with key
international open communication standards for multi-vendor interoperability,
which are consistent with standards established by the MII. For example, we were
one of the first companies to deliver an access system to the China market that
incorporated an open interface to central office switches. This open interface,
known as the V5.2 protocol, allows service providers to connect our products to
equipment from multiple vendors and thus integrate multiple voice and data
traffic types within one system. In this manner an operator can deploy our
system for voice services first, but offer mobile or Internet services at a
later time as the market for these services develops. Furthermore, our
compliance with open standards lowers costs by permitting service providers to
shorten evaluation times and ease integration of our products with other systems
in the service providers' networks.

LOCAL PRESENCE. We have established a strong local presence in China that
allows us to be responsive to the needs of service providers and their
subscribers. We manufacture our products primarily at two facilities located in
the cities of Huizhou in the Guangdong province and Hangzhou in the Zhejiang
province that are owned by joint ventures between us and affiliates of the
corresponding PTAs. By using local facilities in China, we have helped create
new jobs within the provinces and have strengthened our relationships with the
PTAs in some of China's most modernized and rapidly growing

43
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provinces. We also maintain nine sales and customer support sites in China that
allow us to deploy a customer support representative onsite anywhere in China
within 24 hours. Our sales force develops direct relationships with decision
makers at both the provincial and the local level through pre-sales design and
consulting services, as well as performing more traditional product sales
functions. Additionally, through our relationships at the national, provincial
and local levels we receive a continuous flow of information on market changes
and insight into unique service provider needs and related opportunities.

STRATEGY

Our objective is to be a leading provider of broadband, IP and wireless
network equipment to high growth communications markets. The principal elements
of our strategy are as follows:

LEVERAGE OUR INSTALLED BASE AS DEMAND FOR BROADBAND AND HIGH-SPEED DATA
GROWS IN CHINA. We believe we are a leading supplier of both wireline and
wireless access systems in China. Communications service providers currently
face a large subscriber demand for voice services. Accordingly, our systems are
being used primarily for voice services. However, given the increasing demand
for Internet and data access in China, we believe we are well positioned to
leverage our installed base of systems and service provider relationships to
deliver additional data capabilities. We intend to capitalize on this
opportunity by supplying systems that enable service providers to offer
broadband services over copper connections through digitial subscriber line, or
xDSL, technologies and over fiber optic connections. We also intend to enable
high-speed data services over 64 Kilobits per second, or Kbps, wireless links.

DEVELOP PRODUCTS AND TECHNOLOGIES FOR MARKET-DRIVEN SOLUTIONS; PENETRATE
EMERGING IP-BASED SWITCHING MARKET. By working closely with multiple service
providers over the last five years, we have gained unique insight into future
service provider requirements. For example, we developed our Personal Access
System, or PAS, wireless access system in response to a market need for a
low-cost, community-based mobile service. We believe PAS has been deployed in
more cities in China than any other city-wide wireless mobile service. We
believe increases in Internet usage, particularly voice over IP traffic, have
resulted in a market need for a next-generation switching platform optimized for
IP traffic. Accordingly, we have made a substantial investment in developing our
WACOS IP-based switching system which we expect to ship in 2000. WACOS is
designed to integrate with our existing products and to scale over time as
demand for new services grows. We believe that WACOS can deliver value to
service providers, as a stand-alone platform or in conjunction with expansions
to our Airstar PAS system installations. We have a history of developing unique
systems, such as PAS and WACOS, and we intend to continue to provide
market-driven solutions to our customers.

EXPAND PRESENCE IN CHINA. We intend to further capitalize on China's large
population, low teledensity and increasing demand for communications services.
Since our inception, we have focused our engineering, product development and
sales and marketing efforts primarily on communications equipment for China.
This focus has enabled us to be a leader in this market by quickly identifying
the needs of service providers in China and rapidly developing market-specific
products to address those needs. We intend to expand our presence in this market
by:

- increasing the number of sales and support staff and offices within China;

- developing new products to address the demands of our existing and
emerging customer base;

- migrating our installed base from voice to data as market demand warrants;
and

- increasing our local research and development and manufacturing
capabilities.

LEVERAGE SUCCESS IN CHINA TO ADDRESS OTHER HIGH-GROWTH COMMUNICATIONS
MARKETS. Since our products comply with many international standard protocols
and are attractive and readily adaptable to

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the requirements of service providers in many markets outside of China, we
intend to leverage our success in China to penetrate other high-growth
communications markets. We anticipate supplying these markets through original
equipment manufacturer, or OEM, sales relationships or through the development
of local sales agency and distributor relationships within the specific
communications market. We are initiating this strategy with NEC Corporation,
which offers our AN-2000 as an OEM through its worldwide sales organization. We
have also established strategic relationships in Brazil, Colombia, India, the
Philippines, Russia and other countries.

PRODUCTS

Our integrated suite of network access, optical multiplexing, subscriber
terminal and IP-based switching products gives service providers in high-growth
markets an efficient means to offer voice and data services. Our product lines
include Airstar, AN-2000, OMUX, Netman and WACOS.

AIRSTAR

Airstar is a wireless access system that enables voice and data access over
fixed and city-wide wireless links. The following diagram shows how our Airstar
system is deployed.

[Diagram depicting our Airstar system.]

A typical Airstar installation consists of several remote terminals based on
our AN-2000 architecture, each coupled through one or more digital radio port
controllers to many small indoor and outdoor radio ports, and various subscriber
terminals. The remote terminals connect to the central office switch to provide
local and long distance telephone service over a standard V5.2 interface or an
analog 2-wire interface for switches without V5.2 capability. This provides for
an open interface to the central office switch which benefits service providers
by shifting network intelligence to the access network, thus reducing reliance
on costly and proprietary distributed central office switch architectures. The
remote terminals pass traffic through the radio port controllers to the radio
ports, which each serve multiple subscribers. From the radio port, the signal is
passed to a remote subscriber terminal or handset. The air traffic controller
provides wireless traffic-channel and mobility management throughout the system.

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Airstar enables rapid and reliable deployment of communications services to
subscriber communities where the installation of a wireline alternative may be
uneconomical. Airstar can also be used in large indoor spaces such as office
buildings, airports and shopping malls. Airstar is optimized for high-capacity
urban or suburban traffic densities and can deliver wireline equivalent voice
quality, including voice-band modem and fax support, with the advantages of
simple planning for radio siting, immunity to inter-radio interference, low
power consumption and scalability. Our Airstar system operates in China in the
1900-1915 MHz band allocated by the Radio Regulatory Bureau of the MII.

Service providers have installed our Airstar system at 12 large commercial
sites in China representing a total installed base of over 900,000 lines. We
currently offer the Airstar for two different applications: Personal Access
System, or PAS, and wireless local loop, or WLL.

PERSONAL ACCESS SYSTEM

PAS provides city-wide wireless mobile phone service for a community of
up to several hundred thousand subscribers at traffic densities of upwards
of 2,000 subscribers per square kilometer. PAS targets first-time
subscribers, second line subscribers and small businesses. PAS provides
distinct benefits to both service providers and subscribers. Service
providers can quickly illuminate entire communities with strategically
located low-power radios, creating the potential for new revenue streams
from city-wide mobile service. Additionally, compared to traditional
cellular systems, PAS mobility functions are completely integrated into the
access network architecture and thus require no central office switch
modification or incremental mobile switching hardware. By integrating PAS
into the existing access network, service providers can take advantage of
unused central office switching capacity to carry incremental wireless
traffic loads. This integration also allows a service provider to offer
existing switch-based services, such as caller ID, call forwarding, and
voice mail, to its wireless subscribers. Subscribers benefit from rapid
service activation and enjoy the mobility of small handsets weighing less
than three ounces with over 800 hours of standby battery capacity and up to
6.5 hours of talk time. We have contracted with multiple Japanese vendors to
manufacture a variety of handsets under the UTStarcom label.

With the PAS system, a service provider does not need to modify its
existing billing system. However, PAS does provide separate call detail
records that the service provider can use for specific mobility-related
billing policies such as premium billing for roaming calls or wireless data
calls, or for pre-paid PAS services.

An additional benefit of PAS is its support of wireless data
transmission of 32Kbps, upgradeable to 64Kbps. This enables wireless
Internet access at speeds faster than those possible with many wireline
dial-up modems. We believe PAS allows faster Internet access than other
wireless technologies currently commercially deployed in China.

WIRELESS LOCAL LOOP

WLL provides for fixed, as opposed to mobile, wireless network access.
In a WLL deployment, small and inexpensive radios located strategically
throughout the service area provide a wireless digital link to the
subscriber's home or business. We believe this offers both a cost and
time-to-market advantage over some traditional copper deployments. A fixed
subscriber unit located in the subscriber's home or business converts the
wireless signals to a standard analog telephone interface that can be
distributed through conventional inside-building wiring.

AN-2000

Our AN-2000 is a digital wireline network access system that delivers a
variety of services to subscribers over copper, fiber or microwave radio links.
These services include:

- traditional analog voice;

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- dialed voice and data in digital format over integrated services digital
network, or ISDN, lines;

- analog leased lines; and

- business data services over integrated digital subscriber line, or IDSL,
and high-data-rate digital subscriber line, or HDSL.

Service providers have deployed over 1.2 million AN-2000 subscriber lines.
In response to a developing market need, in the second half of year 2000 the
AN-2000 will be enhanced to enable high-performance, always-on Internet access
for residential and business subscribers using advanced asymmetric digital
subscriber line, or ADSL, technology.

The following diagram depicts a typical AN-2000 deployment.

[Diagram depicting our AN-2000 system.]

The AN-2000 system consists of both central office terminals and remote
terminals which are linked together to form a digital access network using
copper, fiber or microwave radio. The AN-2000 connects to the access ring
through either our OMUX product or a high performance robust transmission
technology, known as synchronous digital hierarchy, or SDH. A central office
AN-2000, or CT, connects the access ring to Internet access, local and long
distance and dedicated data services. A remote AN-2000, or RT, connects to the
access ring and offers voice and data services to the subscribers. A regional
access network has the potential to contain hundreds of AN-2000s servicing
hundreds of thousands of subscribers.

The AN-2000 provides several important features which together form a
cost-effective access platform for the delivery of voice and data services. We
were among the earliest to offer a V5.2 switch interface to the China market.
This capability benefits service providers by shifting network intelligence out
into the access network, reducing reliance on costly and proprietary distributed
central office switch

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architectures. In addition, we designed the AN-2000 to provide high capacity,
scalability and redundancy, offering reliable operation and economical service
management. For service providers whose switches are not yet V5.2 compliant, we
provide a migration capability whereby the AN-2000 terminates analog and ISDN
ports in the central office, effectively creating a V5.2 interface to the remote
AN-2000s. We believe that the AN-2000 is currently the leading system available
that can convert existing analog central office interfaces to V5.2.

Our OMUX product, which converts data transmission between electrical and
optical formats, is often bundled with our Airstar and AN-2000 systems.
Together, these products can comprise a complete access platform. In addition to
bundled sales, the OMUX is used by cellular service providers to connect base
station controllers to base stations and by other enterprises for private data
networks and data collection applications.

The primary advantage of the OMUX is its ability to offer highly competitive
price and performance characteristics to service providers, particularly in low
capacity implementations. The OMUX employs our SPDH technology, which provides
the reliability of higher priced synchronous digital hierarchy, or SDH, networks
for lower capacity access networks and enables highly reliable operations. The
OMUX is available in varying capacities depending on network configuration and
service provider requirements. To date, service providers have deployed the OMUX
at over 5,000 locations, both as a stand-alone product and bundled with Airstar
and AN-2000.

NETMAN

Our Netman network management system, which is integrated with our network
access products, provides for centralized management of our Airstar, AN-2000 and
OMUX products. Netman provides the ability to manage individual network
components and to report the status of the network as a whole. It runs on a
personal computer using a Microsoft Windows-based graphical user interface
software. With Netman, a service provider can add and drop subscribers
independently, saving configuration and installation time. Netman can
continuously monitor all access network elements, providing for real-time
reporting and alarms in addition to performance management and optimization and
distribution of software updates. The scalability of Netman allows a single
system to serve an entire distributed network of up to several thousand remote
nodes under normal network conditions. Netman can also be installed on a
portable personal computer to be used as the local on-site maintenance terminal
wherever remote nodes are installed.

WACOS

Our WACOS system is an IP-based switching system which is deployed as a
layered network architecture designed to support end-to-end communications and
data services. The WACOS system supports communication between legacy telephone
equipment and next-generation IP devices. In addition, operational support
system, or OSS, software provided with WACOS enables management of WACOS
equipment, billing for WACOS services and customer care for WACOS subscribers.
The use of IP technology to transmit voice and data over a single network
enables the use of lower cost equipment and improves bandwidth efficiency for
service providers. This results in a wider variety of communications
applications at lower per subscriber cost. The WACOS family includes:

- PSTN Gateway devices which support connection to the public switched
telephone network, or PSTN, through standard interfaces;

- Wireless Gateways which support expansion of PAS networks; and

- OSS Server Cluster which supports management, billing and customer care
functions.

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The following diagram depicts our WACOS system.

[Diagram depicting our WACOS system.]

MARKETS AND CUSTOMERS

Market opportunities within China's 31 provinces vary greatly by region,
with the more densely populated coastal provinces experiencing the strongest
economic development. While we provide our communications equipment to PTBs in a
wide variety of provinces, to date, we have focused on marketing and selling our
products to PTBs in Guangdong, Zhejiang, Fujian, Shandong and Jiangsu provinces
and the municipality of Shanghai. The PRC State Statistical Bureau estimates
that in 1997, these six regions represented 26.3% of China's population and
41.1% of China's gross domestic product. These regions also represent a
disproportionately high percentage of China's wireline and wireless subscribers
and influence adoption of technology among other regions. While each of the PTBs
is part of the China Telecom system and subject to its ultimate control,
equipment purchasing decisions are generally made at the individual PTB level.

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The following table is a list of our customers in China who have each
purchased more than $200,000 of our products during 1999.

BEIJING MUNICIPALITY
Beijing PTA
The People's Bank of China

FUJIAN PROVINCE
Fujian CUIEC
Putian PTB
Quanzhou PTB

GANSU PROVINCE
Shizhuishan PTB

GUANGDONG PROVINCE
Foshan PTB
Guangzhou PTB
Huizhou PTB
Shengda Telecommunication Co.
Shenzhen PTB
Yunfu PTB
Zhaoqing PTB

GUIZHOU PROVINCE
Agriculture Bank in
Gui Yang City

HEBEI PROVINCE
Baoding PTB
Huabei Oil Field

HEILONGJIANG PROVINCE
Haerbin PTB

HUBEI PROVINCE
Wuhan CUIEC

JIANGSU PROVINCE
Changzhou PTB
Kunshan Power Supplier
Administration
Taizhou PTB
Xuzhou PTB

LIAONING PROVINCE
Shenyang PTB

NINGXIA PROVINCE
Pingluo PTB
Wuzhong City PTB

SHAANXI PROVINCE
Xi'an PTB

SHANDONG PROVINCE
Dongying PTB
Jinan PTB
Jining PTB
Qingdao CUIEC
Qingdao PTB
Zhoucheng PTB

SHANGHAI MUNICIPALITY
Songjiang PTB

SHANXI PROVINCE
Datong PTB

SICHUAN PROVINCE
Chengdu PTB
Chongqing PTB

TIANJIN MUNICIPALITY
Dezun Tel. & Comm.
Material Co.

YUNNAN PROVINCE
Kunming PTB

ZHEJIANG PROVINCE
Hangzhou PTB
Ningbo PTB
Ruian PTB
Shaoxing PTB
Shengzhou PTB
Xiaoshan Tel. & Comm.
Material Co.
Yuhang PTB
Zhejiang CUIEC
Zhuji PTB

We also sell our network access equipment to service providers in high
growth communications markets outside of China. Markets outside of China will
account for less than 1.0% of our total sales in 1999.

SALES, MARKETING AND CUSTOMER SUPPORT

We pursue a direct sales and marketing strategy in China, targeting sales to
individual PTBs and to manufacturers or equipment distributors with closely
associated customers. We maintain sales and customer support sites in Beijing,
Shanghai, Guangzhou, Shenyang, Wuhan, Xi'an, Hangzhou, Jinan and Chengdu. We
also sell through relationships with regional government-owned
telecommunications manufacturing companies, which act as agents in the sale of
our products to PTBs.

We believe our customer support services allow us to distinguish ourselves
from competing equipment providers and build customer loyalty. The customer
service operation in Hangzhou is co-located with the manufacturing joint venture
and serves as both a technical resource and liaison to our product development
organization. In China, customer service technicians are distributed in the
regional sales and customer support sites to provide a local presence. We
provide additional support on a 24-hour, 365-day basis from the customer support
center in Hangzhou in the form of field dispatch

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personnel, who also provide training on installation, operation and maintenance
of equipment. As of December 1, 1999, we employed 406 people in sales, marketing
and customer support.

Our sales efforts in markets outside of China combine direct sales, original
equipment manufacturer, or OEM, sales and manufacturing licensing. Our OEM sales
focus on the AN-2000. Our most significant customers outside of China are NEC,
which will sell the AN-2000 under a private label, and Kyocera Corporation,
which incorporated the AN-2000 into its wireless local loop product. Itochu
Corporation and Kanematsu Corporation have also helped us sell our products
outside of China.

TECHNOLOGY

Our research and development efforts have led to the creation of key
technologies that have contributed to the success of our products in the
marketplace.

V5.2 PROTOCOL AND DYNAMIC SWITCHING. The AN-2000 and Airstar intelligent
call processor and 2,048 timeslot interchange allow these systems to fully
exploit the power of the V5.2 interface protocol between the central office
switch and access node, which requests voice channel allocation from the switch
on a call-by-call basis. Since most subscriber telephones are idle most of the
time, a small number of channels can be shared by many subscribers, saving money
and increasing reliability. The AN-2000 and Airstar can economically split a
large bundle of V5.2 voice channels from the central office switch into many
smaller, more economical bundles to be transmitted to the remote access nodes
that may contain fewer subscribers than the switch is optimized for. This
capability increases switch utilization, reduces the number and expense of V5.2
interfaces provided by the central office switch and economically allows the
deployment of many small remote access nodes. Our V5.2 interface product is
extensively deployed throughout China and is interoperable with the products of
major switch vendors.

SDH OPTICAL TRANSMISSION. Service providers have widely chosen to adopt and
deploy fiber optic transmission systems conforming to the synchronous digital
hierarchy, or SDH, standard promulgated by the International Telecommunications
Union. The SDH standard is the international equivalent of the North American
SONET standard. The SDH standards for first tier capacity allow up to 1,953
information channels to be transmitted over optical fiber between nodes that can
be structured in a redundant ring configuration. If the fiber in the ring is cut
accidentally, the SDH system can recover its operation immediately and maintain
service while the cut is repaired. The AN-2000 fully integrates the SDH fiber
with self-healing ring capability into a single plug-in module in contrast to
earlier generation equipment that required a separate external SDH multiplexer.
This configuration saves expense and provides a simple unified management
structure for the SDH and access node functions.

AIRSTAR MOBILITY MANAGEMENT. We have developed a specially configured
AN-2000 node, called the air traffic controller, or ATC, in the PAS to provide
the function of wireless traffic-channel and mobility management. Airstar
subscribers are assigned wireless traffic channels at the time they become
active on a call and the precise channel may be different from call to call or,
in the case of PAS users, may change during a call, because of variable channel
availability and also movement of the subscriber. The ATC collects all of these
dynamically assigned channels and re-maps them to fixed channels on the access
network interface, providing wireless benefits without alteration of the access
network. Service providers can mix and match wireline and wireless service
delivery in a seamless manner without regard for access network compatibility or
special provisioning. Airstar PAS can manage hundreds of thousands of air
traffic channels by arranging a network of ATCs into a two-stage configuration
with regional nodes handling local traffic and a network of central nodes
handling traffic between regional nodes.

WACOS IP-BASED SWITCHING AND SERVICE DELIVERY PLATFORM. The WACOS system is
deployed as a layered network architecture designed to support end-to-end
communications and data services. This type of architecture is rapidly gaining
worldwide acceptance with a large number of vendors and service

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providers cooperating in the creation of new standards for IP-based networks. In
the WACOS implementation, unlike current telephone networks, service providers
and subscribers are able to quickly and easily deploy new services and features
based on these emerging standard protocols.

WACOS is a complete telecommunications system that offers technology at
several levels:

- TRADITIONAL PHONES AND IP APPLIANCES. Innovative protocols used by WACOS
provide support for traditional telephone service and provide the
foundation for next-generation IP-based appliances such as IP-enabled cell
phones and personal digital assistants.

- IP ACCESS NETWORK. The WACOS gateway converts between legacy telephony
protocols such as SS7 and V5.2 and modern IP-based services. The gateway
provides an open platform for the development of enhanced services, such
as unified messaging, by us or third party developers.

- BACKBONE NETWORK. WACOS relies on industry standard IP-based network
architecture. Initially based on widely deployed IP over asynchronous
transfer mode, or ATM, technology, WACOS is capable of economical upgrade
to emerging packet over SONET and gigabit ethernet standards.

- OPERATIONAL SUPPORT SYSTEM. The operational support system, or OSS, is
implemental using industry-standard computing platforms based on
Windows NT or Unix, depending on customer preference. The OSS allows
service providers to flexibly tailor billing policies and allows
subscriber self-provisioning through on-line account access. Web-based
graphic user interfaces provide precise management information to support
staff with minimal training requirements, reducing operational costs.

RESEARCH AND DEVELOPMENT

We believe that continued and timely development and introduction of new and
enhanced products are essential if we are to maintain our competitive position.
While we use competitive analyses and technology trends as factors in our
product development plans, the primary input for new products and product
enhancements comes from soliciting and analyzing information about service
providers' needs. Our MII, PTA and PTB relationships and full-service post-sale
customer support provide our research and development organization with insight
into trends and developments in the marketplace. The insights provided from
these relationships allowed us to develop unique, market-driven products such as
PAS and WACOS. Current projects include the development of:

- high speed IP-based switching technologies;

- locator functions for Airstar PAS;

- broadband ADSL delivery for AN-2000 and the WACOS network;

- increased wireless data rates for Airstar PAS;

- significantly enhanced network management capabilities; and

- an OMUX product using the SDH architecture.

We maintain a strong relationship between our U.S. and China research
centers. Projects are typically designed and developed in the United States by
one team and tested in China by another, allowing us to conduct research and
development activities 24 hours a day. We rotate engineers between the U.S. and
China research centers to further integrate our research and development
operations. We have been able to cost-effectively hire highly skilled technical
employees from a large pool of qualified candidates in China. Our research and
development efforts are conducted at the following facilities:

- The New Jersey Technical Center, with 94 engineers as of December 1, 1999,
provides technical leadership on PAS and AN-2000 developments, including
hardware and software development,

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system engineering and system architecture, as well as project management
and engineering methodology.

- The Hangzhou Technical Center, with 61 engineers as of December 1, 1999,
takes leadership on most transmission system developments, and also
participates in AN-2000 and PAS projects, performing software, hardware
and mechanical design. It also provides manufacturing engineering support,
high-level field support and takes the lead in operations systems
development for the China market.

- The Alameda Technical Center, with 35 engineers as of December 1, 1999,
focuses primarily on IP gateways and distributed switching for wireless
communications.

- The Hefei Technical Center, with 25 engineers as of December 1, 1999,
focuses on the development of wireless technology. The Hefei facility is
located at the University of Science and Technology of China.

In the past we have made, and expect to continue to make, significant
investments in research and development. Our research and development
expenditures totaled $3.9 million in 1996, $8.2 million in 1997, $12.7 million
in 1998 and $12.5 million in the nine months ended September 30, 1999.

MANUFACTURING, ASSEMBLY AND TESTING

We manufacture or engage in the final assembly and testing of our Airstar
systems, AN-2000 and OMUX products at the facilities of our two manufacturing
joint ventures in China. In Zhejiang province, we have a joint venture with
Zhejiang Telecommunication Equipment Factory. In Guangdong province, we have a
joint venture with Guangdong Nanfang Communications Group Corporation. These
manufacturing operations consist of circuit board assembly, final system
assembly, software installation and testing. We assemble circuit boards
primarily using surface mount technology. Assembled boards are individually
tested prior to final assembly and tested again at the system level prior to
system shipment. We use internally developed functional and parametric tests for
quality management and process control and have developed an internal system to
track quality statistics at a serial number level.

Both the Guangdong and the Zhejiang manufacturing facilities are ISO 9002
certified. ISO 9002 certification requires that the certified entity establish,
maintain and follow an auditable quality process including documentation,
requirements, development, training, testing and continuous improvement and
which is periodically audited by an independent outside auditor.

We have contracted with Matsushita Electric Industrial Co., Ltd., which
distributes products under the Panasonic brand, to manufacture the Airstar
wireless infrastructure components and handsets for distribution under the
UTStarcom label. We have also contracted with Kyocera Corporation to provide
handsets under the UTStarcom label and with Sharp Corporation to provide
handsets and repeaters under the UTStarcom label. Our AN-2000 product line
integrates some third party products for subscriber premises equipment and
testing. In order to gain more control over the quality of the products, further
reduce the cost and ease restrictions on China's import license quotas, we have
started and will continue local assembly of the wireless infrastructure
components and handsets in China. We anticipate that we will enter into
arrangements with third parties to manufacture handsets in China. We also intend
to develop the capacity to manufacture our own handsets.

STRATEGIC RELATIONSHIPS

We benefit from strategic relationships with other major companies that act
as our suppliers, investors and customers. SOFTBANK CORP. is a major investor in
our company and holds two seats on our Board of Directors. Prior to this
offering, we intend to establish an investment fund with SOFTBANK focused on
investments in Internet companies in China. Intel Pacific, Inc., a wholly owned

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subsidiary of Intel Corporation, is another one of our investors. We have agreed
to work together with Intel to evaluate and develop new technologies primarily
related to our IP-based switching systems. Matsushita Communication Industrial
Co., Ltd. is a major supplier of radio and terminal equipment for the Airstar
system, and is also an investor and has funded custom developments related to
the WACOS system. Mitsubishi Electric Corporation has also invested in our
company. Affiliates of the Guangdong and Zhejiang PTAs are our manufacturing
joint venture partners in China. We have entered into a memorandum of
understanding with Himachal Futuristic Communications Ltd. to manufacture our
AN-2000 system for the Indian market. NEC Corporation is marketing our AN-2000
system under a private label worldwide.

COMPETITION

We face intense competition in our target markets and expect competition to
increase. Our principal competitors in our various product lines include:

We are increasingly facing competition from domestic companies in China. We
believe that our strongest competition in the future may come from these
companies, many of which operate under lower cost structures and more favorable
governmental policies and have much larger sales forces than we do. Furthermore,
other companies not presently offering competing products may also enter our
target markets. Many of our competitors have significantly greater financial,
technical, product development, sales, marketing and other resources than we do.
As a result, our competitors may be able to respond more quickly to new or
emerging technologies and changes in service provider requirements. Our
competitors may also be able to devote greater resources than we can to the
development, promotion and sale of new products. These competitors may also be
able to offer significant financing arrangements to service providers, in some
cases facilitated by government policies, which is a competitive advantage in
selling systems to service providers with limited financial and currency
resources. Increased competition is likely to result in price reductions,
reduced gross profit as a percentage of net sales and loss of market share, any
one of which could materially harm our business, financial condition and results
of operations.

Moreover, current and potential competitors have established or may
establish cooperative relationships among themselves or with third parties,
including PTAs, PTBs and other local organizations, to increase the ability of
their products to address the needs of prospective customers in our target
markets. Accordingly, alliances among competitors or between competitors and
third parties may emerge and rapidly acquire significant market share. To remain
competitive, we believe that we must continue to partner with PTAs and other
local organizations, maintain a high level of investment in research and
development and in sales and marketing, and manufacture and deliver products to
service providers on a timely basis and without significant defects. If we fail
to meet any of these objectives, our business, financial condition and results
of operations could be harmed.

The introduction of inexpensive wireless telephone service or other
competitive services in China may also have an adverse impact on sales of our
Airstar system in China. We cannot assure you that

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we will be able to compete successfully against current or future competitors or
that competitive pressures in the future will not materially adversely effect
our business, financial condition and results of operations.

We believe that the principal competitive factors affecting the market for
our network access products include:

- total initial cost of solution;

- short delivery and installation intervals;

- design and installation support;

- ease of integration with the backbone network;

- flexibility in supporting multiple interfaces and services

- life-cycle cost determined by reliability; and

- manageability of the solution and scalability.

We believe we have in the past generally competed favorably with offerings
of our competitors on the basis of these factors. However, we may not be able to
compete effectively against current and future competitors based on these or any
other competitive factors in the future, and the failure to do so would have a
material adverse effect on our business, financial condition and results of
operations.

INTELLECTUAL PROPERTY

Our success and ability to compete is dependent in part on our proprietary
technology. We rely on a combination of patent, copyright, trademark and trade
secret laws, as well as confidentiality agreements and licensing arrangements,
to establish and protect our proprietary rights. To date, we have relied
primarily on proprietary processes and know-how to protect our intellectual
property. We presently hold one U.S. patent for existing products and have
submitted ten U.S. patent applications and four foreign patent applications. We
cannot assure you that any of our patent applications will be granted or that
any patents issued will cover the scope of the claims sought in the
applications. Our U.S. patents do not afford any intellectual property
protection in China or other international jurisdictions. Moreover, we have not
yet obtained patents in China. We can give no assurance that we will be able to
obtain patents in China on our products or the technology that we use to
manufacture our products. Our joint ventures in China rely upon our trademarks,
technology and know-how to manufacture and sell our products. Under the terms of
our joint venture agreements, any modifications or enhancements to or
derivatives of our intellectual property developed by the joint ventures will be
owned by the joint ventures. Any infringement of our proprietary rights could
result in significant litigation costs, and any failure to adequately protect
our proprietary rights could result in our competitors offering similar
products, potentially resulting in loss of a competitive advantage and decreased
revenues. Despite our efforts to protect our proprietary rights, existing
patent, copyright, trademark and trade secret laws afford only limited
protection. In addition, the legal systems of some foreign countries, including
China, do not protect our proprietary rights to the same extent as does the
legal system of the United States. Attempts may be made to copy or reverse
engineer aspects of our products or to obtain and use information that we regard
as proprietary. Accordingly, we may not be able to prevent misappropriation of
our technology or deter others from developing similar technology. Furthermore,
policing the unauthorized use of our products is difficult. Litigation may be
necessary in the future to enforce our intellectual property rights or to
determine the validity and scope of the proprietary rights of others. This
litigation could result in substantial costs and diversion of resources and
could significantly harm our business.

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<PAGE>
The communications industry is characterized by the existence of a large
number of patents and frequent litigation based on allegations of patent
infringement. From time to time, third parties may assert patent, copyright,
trademark and other intellectual property rights to technologies and in various
jurisdictions that are important to our business. Any claims asserting that our
products infringe or may infringe proprietary rights of third parties, if
determined adversely to us, could significantly harm our business. Any claims,
with or without merit, could be time-consuming, result in costly litigation,
divert the efforts of our technical and management personnel, cause product
shipment delays or require us to enter into royalty or licensing agreements, any
of which could significantly harm our business. Royalty or licensing agreements,
if required, may not be available on terms acceptable to us, if at all. In the
event a claim against us was successful and we could not obtain a license to the
relevant technology on acceptable terms or license a substitute technology or
redesign our products to avoid infringement, our business would be significantly
harmed.

We have an agreement with a third party that also uses the Airstar trademark
for one of its products. Under the terms of this agreement, we have rights to
the Airstar trademark in China and the third party has trademark rights outside
of China.

EMPLOYEES

As of December 1, 1999, we employed a total of 877 full-time employees. We
also from time to time employ part-time employees and hire contractors. Of the
total number of full-time employees, 215 are in research and development, 135 in
manufacturing, 406 in marketing, sales and support, and 121 in administration.
We have 720 employees located in China, including 212 employees at the Zhejiang
manufacturing joint venture, with the remaining 157 employees located in the
United States. In addition, the Guangdong manufacturing joint venture has 119
employees. Our employees are not represented by any collective bargaining
agreement, and we have never experienced a work stoppage. We believe that our
employee relations are good.

FACILITIES

Our corporate headquarters are located in a 25,756 square foot leased
facility in Alameda, California. We use this facility for sales, marketing,
administration, purchasing and research and development. Our lease expires in
January 2003. Our main research and development facility is located in a 27,238
square foot facility in Iselin, New Jersey, under a lease which expires in July
2002. We also have research and development facilities in Hefei and Hangzhou. We
lease two facilities in China for manufacturing and multiple offices for sales,
marketing, support and administration in China. Our Zhejiang joint venture
manufacturing facility is a 83,926 square foot facility with a lease that
expires in March 2002. Our Guangdong joint venture manufacturing facility is a
44,250 square foot facility with a lease that expires on December 31, 1999. We
are currently renegotiating this lease. We believe our current facilities are
well maintained, are in good operating condition and will be adequate to meet
our anticipated level of operations over the next twelve months.

LEGAL PROCEEDINGS

We may become involved in legal proceedings from time to time in the
ordinary course of business. As of the date of this prospectus, we are not
involved in any pending material legal proceedings.

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MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

Our executive officers and directors, and their ages as of September 30,
1999, are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION(S)
- ---- -------- -----------
<S> <C> <C>
Masayoshi Son............................. 42 Chairman of the Board of Directors
Hong Liang Lu............................. 44 President, Chief Executive Officer and
Director
Ying Wu................................... 40 Vice Chairman of the Board of Directors,
Executive Vice President and Chief
Executive Officer, China Operations
Michael Sophie............................ 42 Vice President of Finance, Chief Financial
Officer and Assistant Secretary
Bill Huang................................ 37 Vice President, Chief Technology Officer
Shao-Ning J. Chou......................... 37 Executive Vice President and Chief
Operating Officer, China Operations
Paul Berkowitz............................ 47 Vice President, International Sales
Gerald Soloway............................ 50 Vice President, Engineering
Yoshitaka Kitao........................... 48 Director
Charles Xue............................... 46 Vice Chairman of the Board of Directors
and Secretary
Thomas J. Toy............................. 44 Director
Chauncey Shey............................. 42 Director
</TABLE>

MASAYOSHI SON has been our Chairman of the Board since October 1995. For
more than 15 years, Mr. Son has been President and Chief Executive Officer of
SOFTBANK CORP., a leading global provider of Internet content, technology and
services. Mr. Son is currently a director of Cisco Systems, Inc., E*Trade Group,
Inc. and Ziff-Davis, Inc. Mr. Son holds a B.A. in Economics from the University
of California at Berkeley.

HONG LIANG LU has been our President and Chief Executive Officer and a
director since June 1991. Mr. Lu co-founded UTStarcom under its prior name,
Unitech Telecom, Inc., in June 1991 which subsequently acquired StarCom Network
Systems, Inc. in September 1995. From 1986 through December 1990, Mr. Lu was
President and Chief Executive Officer of Kyocera Unison, a majority-owned
subsidiary of Kyocera International, Inc. From 1983 until its merger with
Kyocera in 1986, he was President and Chief Executive Officer of Unison
World, Inc., a software development company. From 1979 to 1983 he was Vice
President and Chief Operating Officer of Unison World, Inc. Mr. Lu holds a B.S.
in Civil Engineering from the University of California at Berkeley.

YING WU has been our Executive Vice President and Vice Chairman of the Board
of Directors since October 1995. Mr. Wu has also been the President of one of
our subsidiaries, UTStarcom China, since October 1995. From 1992 to 1995,
Mr. Wu was a co-founder and co-owner of StarCom Network Systems, Inc., a company
that marketed and distributed third party telecommunications equipment. From
1988 to 1991, Mr. Wu was a member of the technical staff of Bellcore
Laboratories. From 1987 through 1988, Mr. Wu was a consultant at AT&T Bell Labs.
He holds a B.S. in Electrical Engineering from Beijing Industrial University and
an M.S. in Electrical Engineering from the New Jersey Institute of Technology.

MICHAEL SOPHIE has been our Vice President of Finance and Chief Financial
Officer since August 1999. Prior to joining our company, Mr. Sophie held
executive positions at P-Com, Inc. from August 1993 to August 1999 as Vice
President Finance, Chief Financial Officer and Group President. From 1989
through 1993, Mr. Sophie was Vice President of Finance at Loral Fairchild
Corporation. He holds

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<PAGE>
a B.S. degree from California State University, Chico and an M.B.A. from the
University of Santa Clara.

BILL HUANG has been our Chief Technology Officer since September 1999. From
December 1996 to September 1999, he was our Vice President of Strategic Product
Planning. From June 1995 to December 1996, Mr. Huang served as our Vice
President, China Operations. From 1994 to June 1995, Mr. Huang was our Director,
Engineering. From 1992 to 1994, he was a Member of the Technical Staff and
Project Leader at AT&T Systems. Mr. Huang serves on the board of Shenzhen Gin De
(Group) Ltd., a real estate investment company in China. Mr. Huang holds a B.S.
in Electrical Engineering from Huazhong University of Science & Technology, and
an M.S. in Electrical Engineering and Computer Sciences from the University of
Illinois.

SHAO-NING J. CHOU has been our Executive Vice President and Chief Operating
Officer of China Operations since January 1999. From April 1997 to January 1999,
he was Vice President of China Operations and from July 1996 to April 1997, he
served as Vice President of Engineering. From 1995 to 1996, he was director of
engineering for wireless systems and software with Lucent Technologies
Microelectronics IC group. From 1993 to 1995, he was a Technical Manager for the
Global Wireless product group with AT&T consumer products where he led multiple
development teams for handset and wireless personal base station products. From
1985 to 1993, Mr. Chou was team leader and a member of the technical staff for
advanced digital communication research in Bell Laboratories where he led and
engaged in data communication equipment and multimedia product development.
Mr. Chou holds a B.S. in Electrical Engineering from City College of New York,
an M.S. in Engineering from Princeton University and an M.B.A. from the State
University of New Jersey, Rutgers.

PAUL BERKOWITZ has been our Vice President of International Sales since July
1997. From July 1996 to July 1997, he was our Vice President of Product
Management & Planning, and from January to June 1996, he served as our Vice
President of Engineering. From 1994 to 1995, Mr. Berkowitz was Director of
Application Software of AT&T Network Systems where he managed, among other
things, an international team in marketing, architecture, and development of
software involving a portfolio of advanced GUI and client-server products for
telecommunications services. Between 1992 and 1994, he led the planning and
development effort for a 1 Gigabit/sec Asynchronous Transfer Mode switch support
Wide Area Network services including TDM and Frame Relay in the AT&T Paradyne
Unit. Mr. Berkowitz has been granted four patents and holds a B.S. and an M.S.
in Electrical Engineering from Columbia University.

GERALD SOLOWAY has been our Vice President of Engineering since January
1999. From April 1998 to January 1999, he served as our Director of Strategic
Marketing. Prior to this, Dr. Soloway worked for Lucent Technologies, formerly
Bell Labs, for 29 years. At Lucent, Dr. Soloway held executive positions in
Consumer Products, Business Terminal Development, PBX Systems Engineering, Key
System Development and Access Systems Development. He holds a Ph.D. from
Polytechnic Institute of New York, an M.S. from New York University, and a B.S.
from Cooper Union, all in Electrical Engineering. Dr. Soloway also holds seven
patents in communications and computer graphics technology.

YOSHITAKA KITAO has been a director since April 1998. Mr. Kitao has served
as Executive Vice President and Chief Financial Officer of SOFTBANK CORP. since
July 1995 and President and Chief Executive Officer of SOFTBANK Contents
Partners Corporation since May 1997. From June 1992 to May 1995, Mr. Kitao was
the general manager of the Corporate Finance and Service department of Nomura
Securities Co., Ltd. Mr. Kitao is a director of INSWEB Corporation and
Ziff-Davis, Inc. Mr. Kitao holds a B.A. in Economics from Keio University and a
B.A. in Economics from Cambridge University.

CHARLES XUE has been our Vice Chairman of the Board of Directors since 1995.
Prior to our acquisition of StarCom Network Systems, Inc., from 1991 to 1995,
Mr. Xue served as our Chairman of

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<PAGE>
the Board. Mr. Xue has served as Chairman of the Board and Chief Executive
Officer of C&A Investment, Inc., a real estate investment company, since 1989
and Chairman of the Board and Chief Executive Officer of United Medical
Industrial Group Inc. since 1991. Mr. Xue is a director of Asia Pacific Wire &
Cable Corporation Limited. Mr. Xue has an M.A. in Asian Studies with a
specialization in Chinese foreign relations from the University of California at
Berkeley and is a graduate of the Master's program of the Beijing Academy of
Social Science.

THOMAS J. TOY has been a director since July 1995. Mr. Toy is managing
director of PacRim Venture Partners, a professional venture capital firm
specializing in investments in the information technology sector. Prior to that
he was a partner at Technology Funding, a professional venture capital firm,
from 1987 to 1999. While at Technology Funding, Mr. Toy was Managing Director of
Corporate Finance and headed the firm's investment committee. Mr. Toy is also a
director of White Electronic Designs Inc. Mr. Toy holds B.A. and M.M. degrees
from Northwestern University.

CHAUNCEY SHEY has been a director since October 1995. From October 1995 to
July 1999, Mr. Shey was our Executive Vice President in charge of Research and
Development. From March to October 1995, he was Executive Vice President of
StarCom Network Systems, Inc., where he worked in research and development as
well as in operation and strategy planning. From March 1991 to March 1995, he
was Executive Vice President of StarCom Products, Inc., a consulting business
that developed software products and provided expertise in the fields of
computers and telecommunications. In that position he was responsible for
operations, financial management and marketing. From December 1990 to December
1991, Mr. Shey was a consultant at Bell Labs. He holds a B.S. in Electrical
Engineering from Shanghai Jiao Tong University and an M.S. in Computer Science
from the State University of New York at New Paltz.

CLASSIFIED BOARD OF DIRECTORS

Our Board of Directors will be divided into three classes of directors who
will serve in staggered three-year terms upon the closing of this offering. As a
result, approximately one-third of the Board of Directors will be elected each
year. Provisions in our bylaws and certificate of incorporation allow the Board
of Directors to fill vacancies on or increase the size of the Board of
Directors. These provisions, along with having a classified board of directors,
may make it difficult for our stockholders to remove incumbent directors and
fill vacancies with their own nominees to gain control of the Board.

Our Board of Directors has designated that Messrs. Toy and Xue will serve as
Class I Directors, whose terms expire at the 2000 annual meeting of
stockholders. Messrs. Kitao and Shey will serve as Class II Directors whose
terms will expire at the 2001 annual meeting of stockholders. Messrs. Lu, Son
and Wu will serve as Class III Directors whose terms will expire at the 2002
annual meeting of stockholders.

BOARD COMMITTEES

Our Board of Directors has established three standing committees: the
Executive Committee, the Audit Committee and the Compensation Committee. The
Executive Committee approves and authorizes material agreements and obligations
up to $3.0 million in value. The Executive Committee consists of Messrs. Lu,
Kitao and Toy.

Among other functions, the Audit Committee makes recommendations to the
Board of Directors regarding the appointment of independent auditors for the
annual audit of our financial statements, reviews the results and scope of the
audit and other services provided by our independent auditors, reviews our
financial statements, and reviews and evaluates our internal audit and control
functions. The Audit Committee consists of Messrs. Kitao, Toy and Xue.

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<PAGE>
The Compensation Committee reviews and approves the compensation and
benefits of our executive officers, grants stock options under our stock option
plans and makes recommendations to the Board of Directors regarding these
matters. The Compensation Committee consists of Messrs. Toy and Xue.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

No interlocking relationship exists between the Board or the Compensation
Committee and the board of directors or compensation committee of any other
company and no interlocking relationship has existed in the past.

DIRECTOR COMPENSATION

Directors do not receive any cash fees for their service on the Board or any
Committee of the Board. They are entitled to reimbursement of all reasonable
out-of-pocket expenses incurred in connection with their attendance at Board or
Committee meetings. To the extent that a director is an employee, the director
can participate in our 1997 stock plan and, upon stockholder approval, in our
2000 employee stock purchase plan.

EXECUTIVE COMPENSATION

The following table sets forth information regarding compensation received
during the fiscal year ended December 31, 1998 by our Chief Executive Officer
and each of our other four most highly compensated executive officers.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
ANNUAL COMPENSATION NUMBER OF
---------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION OPTIONS COMPENSATION(1)
- --------------------------- -------- -------- ------------ ------------ ---------------
<S> <C> <C> <C> <C> <C>
Hong Liang Lu...................... $223,176 $ -- $ -- -- $5,475
President and Chief Executive
Officer
Ying Wu............................ 199,833 -- -- -- 7,043
Executive Vice President and
Chief Executive Officer, China
Operations
Shao-Ning J. Chou.................. 158,333 -- -- -- 7,194
Executive Vice President and
Chief Operating Officer, China
Operations
Chauncey Shey...................... 154,667 -- -- -- 2,850
Executive Vice President,
Research and Development(2)
Paul Berkowitz..................... 140,167 -- -- -- 3,082
Vice President, International
Sales
</TABLE>

- ----------

(1) Consists of health insurance premiums paid by us on behalf of the officers.

(2) Mr. Shey served as our Executive Vice President, Research and Development
until July 1999.

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<PAGE>
STOCK OPTION GRANTS IN LAST FISCAL YEAR

We did not grant any stock options or stock appreciation rights to any of
the executive officers named in the Summary Compensation Table above during the
fiscal year ended December 31, 1998.

OPTION EXERCISES AND HOLDINGS

The following table provides summary information concerning the shares of
our common stock subject to outstanding stock options held as of December 31,
1998 by each of the executive officers named in the Summary Compensation Table
above. These officers did not exercise any stock options during the year ended
December 31, 1998.

<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES DECEMBER 31, 1998 DECEMBER 31, 1998(1)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Hong Liang Lu..................... -- -- 133,332 66,668 $ 372,327 $174,993
Ying Wu........................... -- -- 926,480 -- 3,378,131 --
Shao-Ning J. Chou................. -- -- 216,138 167,562 710,096 527,489
Chauncey Shey..................... -- -- 926,480 -- 3,378,131 --
Paul Berkowitz.................... -- -- 438,924 13,332 1,590,916 26,664
</TABLE>

- ----------

(1) The value of unexercised in-the-money options is calculated based on the
fair market value of our common stock, which our Board of Directors
determined to be $4.50 per share on December 31, 1998, minus the exercise
price for the shares, multiplied by the number of shares underlying the
option.

EMPLOYEE BENEFIT PLANS

1992 OMNIBUS EQUITY INCENTIVE PLAN. On April 12, 1992, the Board of
Directors adopted our 1992 Omnibus Equity Incentive Plan, which our stockholders
ratified on December 9, 1994. Under the 1992 plan, directors, employees and
consultants were eligible to acquire shares of common stock pursuant to options,
stock purchase rights and stock appreciation rights. At the time of adoption,
2,400,000 shares of common stock were reserved for issuance under the 1992 plan.
As of December 14, 1999, there were options to purchase 41,728 shares of common
stock outstanding under the 1992 plan. On July 31, 1995, the Board of Directors
elected not to grant any further options under the 1992 plan.

THE 1995 STOCK PLAN. On July 31, 1995, the Board of Directors adopted, and
in October 1995, our stockholders approved, our 1995 Stock Plan. Under the 1995
plan, officers, employees and consultants were eligible to acquire shares of
common stock pursuant to options or stock purchase rights. At the time of
adoption, 3,705,232 shares of common stock were reserved for issuance under the
1995 plan. In 1995 and 1996, our Board and stockholders added an additional
5,400,000 shares to the 1995 plan, raising the total number of authorized shares
reserved under the 1995 plan to 9,105,232. As of December 14, 1999, there were
options to purchase 6,167,644 shares of common stock outstanding under the 1995
plan. On January 31, 1997, the Board of Directors elected not to grant any
further options under the 1995 plan. Upon the adoption of the 1997 plan, all
remaining unissued shares under the 1995 plan not already subject to options or
other awards ceased to be reserved for issuance under the 1995 plan.

THE 1997 STOCK PLAN. On January 31, 1997, the Board of Directors adopted,
and our stockholders approved, our 1997 Stock Plan. Under the 1997 plan,
officers, employees and consultants are eligible to receive options to purchase
shares of common stock and stock purchase rights. In December 1999, the Board of
Directors amended the 1997 plan, which we expect the stockholders to approve
shortly before the closing of this offering. Under the amended plan, we are
authorized to issue up to 10,524,574

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<PAGE>
shares of common stock. During the term of the 1997 plan, the number of shares
issuable under the plan will be increased annually on the first day of each
fiscal year beginning in 2001 by an amount equal to the lesser of 6,000,000
shares or 4% of the outstanding shares of our common stock on that date, or a
lesser amount determined by the Board. The plan terminates in January 2007, but
may be terminated earlier by the Board of Directors. As of December 14, 1999,
there were options to purchase 6,221,970 shares of common stock outstanding
under the 1997 plan. The Compensation Committee administers the 1997 plan.

Options granted under the 1997 plan may be incentive stock options, or ISOs,
which are intended to qualify for favorable federal income tax treatment under
the provisions of Section 422 of the Internal Revenue Code of 1986, as amended,
or non-qualified stock options, or NSOs, which do not so qualify. The
Compensation Committee selects the eligible persons to whom options will be
granted and determines the grant date, amounts, exercise prices, vesting periods
and other relevant terms of the options, including whether the options will be
ISOs or NSOs. The exercise price of ISOs granted under the 1997 plan may not be
less than 100% of the fair market value of our common stock on the grant date,
while the exercise price of NSOs can be determined by the Compensation Committee
in its discretion. Options are generally not transferable during the life of the
optionee.

Options vest and become exercisable as determined by the Compensation
Committee. Options may generally be exercised at any time after they vest and
before their expiration date as determined by the Compensation Committee.
However, no option may be exercised more than 10 years after the grant date.
Options will generally terminate (i) 12 months after the death or permanent
disability of an optionee and (ii) 90 days after termination of employment for
any other reason. The aggregate fair market value of the shares of common stock
represented by ISOs that become exercisable in any calendar year may not exceed
$100,000. Options in excess of this limit are treated as NSOs.

In the event we are merged with or into another corporation, or all or
substantially all of our assets are sold, each outstanding option will be
assumed or an equivalent option or right will be substituted by the successor
corporation or its parent or subsidiary. If the successor corporation refuses to
assume or substitute for the option or right, the options or rights will
automatically vest and become exercisable in full for a period of at least
fifteen days, after which time the option will terminate.

Under the 1997 plan, we may grant stock purchase rights to eligible
participants. Any shares purchased pursuant to stock purchase rights will be
subject to a restricted stock purchase agreement. Unless the Compensation
Committee determines otherwise, this agreement will grant us a right to
repurchase the stock upon the voluntary or involuntary termination of the
employee for any reason, including death or disability. The purchase price for
repurchased shares will be the original price paid and may be paid by
cancellation of any indebtedness owed to us. The shares of stock subject to the
right of repurchase lapse over time.

As of December 14, 1999, an aggregate of 18,856,646 shares of common stock
were authorized for issuance under our stock plans, 12,431,342 of which were
subject to outstanding options and 4,266,926 of which were available for grant.

2000 EMPLOYEE STOCK PURCHASE PLAN. In December 1999, the Board of Directors
adopted the 2000 Employee Stock Purchase Plan. Subject to meeting federal and
state securities law requirements and obtaining stockholder approval, the stock
purchase plan will become effective upon the consummation of this offering, or
as soon as practicable thereafter.

The purpose of the stock purchase plan is to provide a competitive equity
compensation program and to provide our employees with an opportunity and
incentive to acquire an ownership interest in our company, which more closely
aligns the interests of our employees and stockholders. We have reserved
2,000,000 shares of common stock for sale under the stock purchase plan. The
number of shares reserved for sale under the plan will be increased annually on
the first day of each fiscal year beginning in 2001 by an amount equal to the
lesser of 4,000,000 shares or 2% of the outstanding shares

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<PAGE>
of our common stock on that date, or a lesser amount determined by the Board of
Directors. The stock purchase plan will be administered by the Board or a
committee appointed by the Board.

The stock purchase plan is implemented by offering periods, the duration of
which may not exceed 24 months. Offering periods may contain interim purchase
periods. Shares purchased under the stock purchase plan will be held in separate
accounts for each participant. The first offering period shall begin on the
effective date of this offering and shall end on the last trading day on or
before January 31, 2002.

Employees will be eligible to participate in the stock purchase plan if they
are employed by us for more than 20 hours per week and more than five months in
a calendar year. The stock purchase plan permits eligible employees to purchase
our common stock through payroll deductions, which may not exceed 15% of the
employee's total compensation. Stock may be purchased under the plan at a price
equal to 85% of the fair market value of our stock on either the date of
purchase or the first day of the offering period, whichever is lower. However,
the Board of Directors may in its discretion provide that the price at which
shares of common stock are purchased under the plan shall be 85% of the fair
market value of our shares on the date of purchase. Participants may not
purchase shares of common stock having a value greater than $25,000 during any
calendar year.

Participants may increase or decrease their payroll deductions at any time
during an offering period, subject to limits imposed by the Board of Directors.
If a participant withdraws from the stock purchase plan, any contributions that
have not been used to purchase shares shall be refunded. A participant who has
withdrawn may not participate in the stock purchase plan again until the next
offering period. In the event of retirement or cessation of employment for any
reason, any contributions that have not yet been used to purchase shares will be
refunded to the participant, or to the participant's designated beneficiary in
the case of death, and a certificate will be issued for the full shares in the
participant's account.

The Board of Directors may terminate or amend the stock purchase plan,
subject to stockholder approval in some circumstances. Unless terminated earlier
by the Board, the stock purchase plan will have a term of 10 years.

EMPLOYMENT AGREEMENTS

Mr. Lu is a party to an employment and non-competition agreement dated
October 6, 1995. Under this agreement, Mr. Lu is to be paid $150,000 annually,
which amount may be increased by the Board of Directors, and is entitled to a
bonus each year as determined by the Board. Although Mr. Lu's employment is "at
will," we must give him 60 days notice of termination for any reason other than
voluntary termination, termination as a result of death of disability or
termination for cause.

Mr. Wu is a party to an employment and non-competition agreement dated
October 6, 1995. Under this agreements, Mr. Wu is to be paid $150,000 annually,
which amount may be increased by the Board of Directors, and is entitled to a
bonus each year as determined by the Board. Although Mr. Wu's employment is "at
will," we must give him 60 days notice of termination for any reason other than
voluntary termination, termination as a result of death of disability or
termination for cause.

INDEMNIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS AND LIMITATION OF LIABILITY

We have adopted provisions in our certificate of incorporation that limit
the personal liability of our directors for monetary damages arising from their
breach of fiduciary duty as directors to the fullest extent permitted by
Delaware law. This limitation of liability does not apply to liabilities arising
under the federal securities laws and does not affect the availability of
equitable remedies such as injunctive relief or recession.

Our certificate of incorporation also authorizes us to indemnify our
officers, directors, employees and agents who are made or threatened to be made
a party to an action or proceeding, whether criminal, civil, administrative or
investigative, to the fullest extent permitted under Delaware law.

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<PAGE>
As permitted by the Delaware General Corporation Law, our bylaws which will
become effective upon the completion of this offering provide that:

- we are required to indemnify our directors and officers to the fullest
extent permitted by the Delaware General Corporation Law;

- we are required to advance expenses, as incurred, to our directors and
officers in connection with a legal proceeding to the fullest extent
permitted by the Delaware General Corporation Law;

- we may indemnify our other employees and agents to the extent that we
indemnify our officers and directors; and

- the rights to indemnification provided in the bylaws are not exclusive.

We have entered into indemnification agreements with each of our current
directors and some of our executive officers. In addition, we intend to enter
into indemnification agreements with each of our other executive officers. These
agreements provide our directors and executive officers with additional
protection regarding the scope of the indemnification set forth in our
certificate of incorporation and bylaws.

We currently have a directors' and officers' insurance policy. At present,
there is no pending litigation or proceeding involving any director, officer or
employee of ours in which indemnification by us is sought. In addition, we are
not aware of any threatened litigation or proceeding that may result in a claim
for indemnification.

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RELATED PARTY TRANSACTIONS

COMMON STOCK AND PREFERRED STOCK ISSUANCES

Since January 1, 1996, we have issued and sold in private placement
transactions shares of our common stock, preferred stock and warrants for the
purchase of our common stock to our executive officers, directors and/or greater
than 5% stockholders as described below.

From October 1995 to December 1996 in three separate closings, we issued and
sold an aggregate of 14,492,752 shares of Series B preferred stock at an average
share price of $2.07 per share to SOFTBANK Holdings Inc., a wholly owned
subsidiary of SOFTBANK CORP. Masayoshi Son, our Chairman of the Board, is
President and Chief Executive Officer of SOFTBANK CORP. and Yoshitaka Kitao, one
of our directors, is Executive Vice President and Chief Financial Officer of
SOFTBANK CORP. SOFTBANK Holdings Inc. has subsequently transferred its shares of
Series B preferred stock to SOFTBANK America Inc., a wholly owned subsidiary of
SOFTBANK Holdings Inc.

From December 1996 to February 1997, we issued and sold 12,209,302 shares of
Series C preferred stock at $3.44 per share and 1,379,754 shares of Series C
preferred stock at $4.13 per share. The investors in the Series C financing
included SOFTBANK Ventures, Inc., a wholly owned subsidiary of SOFTBANK CORP.,
which purchased 2,034,884 shares of Series C preferred stock for $7,000,000 in
cash and SOFTBANK Holdings Inc., which purchased 10,174,418 shares of Series C
preferred stock for $12,718.02 in cash and $34,987,281.98 payable in accordance
with a promissory note. The promissory note has been paid in full. SOFTBANK
Holdings Inc. has subsequently transferred its shares of Series C preferred
stock to SOFTBANK America Inc., a wholly owned subsidiary of SOFTBANK Holdings
Inc.

In October 1997, the Company issued and sold 8,032,128 shares of Series D
preferred stock at $6.225 per share to SOFTBANK Holdings, which purchased
5,918,410 shares of Series D preferred stock and SOFTBANK Contents Fund, a
Japanese partnership of which SOFTBANK Partners is a managing partner, which
purchased 2,113,718 shares of Series D preferred stock. SOFTBANK Holdings Inc.
and SOFTBANK Contents Fund have subsequently transferred their shares of
Series D preferred stock to SOFTBANK America Inc., a wholly owned subsidiary of
SOFTBANK Holdings Inc.

From October 1997 to March 1998, we issued an aggregate of 30,269,318 shares
of Series E preferred stock in a one-for-one exchange for shares of our common
stock pursuant to an Exchange Agreement and a Regulation S Exchange Agreement.
All of our stockholders were eligible to participate in the exchange on a pro
rata basis. Stockholders who received shares of Series E Preferred stock as part
of the exchange include: Hong Lu, our President, Chief Executive Officer and one
of our directors, who received 3,121,182 shares; Ying Wu, our Vice Chairman of
the Board of Directors, Executive Vice President and Chief Executive Officer,
China Operations, who received 2,971,776 shares; Yalang Wang Wu, the wife of
Mr. Wu, who received 160,000 shares; Chauncey Shey, one of our directors, who
received 2,575,776 shares; Charles Xue, our Vice Chairman of the Board of
Directors and Secretary, who received 2,105,554 shares; Bill Huang, our Vice
President and Chief Technology Officer, who received 256,000 shares; Paul
Berkowitz, our Vice President of International Sales, who received 187,536
shares; William Wittmeyer, then one of our directors, who received 21,328
shares; UT Finance LTD, which received 363,640 shares; and Technology Funding
Ventures IV and V, for which Thomas J. Toy, one of our directors, was a partner,
received an aggregate of 581,824 shares.

Following the Series E share exchange, several of our stockholders sold an
aggregate of 5,459,944 shares of Series E preferred stock at $5.445 per share to
SOFTBANK Holdings, Inc. and SOFTBANK Contents Fund. Stockholders who sold shares
to SOFTBANK Holdings include: Hong Lu, our President, Chief Executive Officer
and one of our directors, who sold 200,000 shares; Ying Wu, our Vice Chairman of
the Board of Directors, Executive Vice President and Chief Executive Officer,
China Operations, who sold 400,000 shares; Chauncey Shey, one of our directors,
who sold 400,000 shares;

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Charles Xue, our Vice Chairman of the Board of Directors and Secretary, who sold
300,000 shares; Bill Huang, our Vice President and Chief Technology Officer, who
sold 20,000 shares; William Wittmeyer, then one of our directors, who sold
21,328 shares; and Technology Funding Ventures IV and V, which sold an aggregate
of 581,824 shares. SOFTBANK Holdings and SOFTBANK Contents Fund later
transferred the 5,459,944 shares to SOFTBANK America Inc.

In August 1999, we distributed all of the shares of DirecTouch
Communications Limited, a wholly owned subsidiary, to our stockholders on a pro
rata basis. Stockholders who received this distribution of DirecTouch shares
included: SOFTBANK America Inc., which received 30,177,968 shares; SOFTBANK
Ventures Inc., which received 2,034,884 shares; Hong Lu, who received 3,086,872
shares; Ying Wu, who received 2,745,696 shares; Yalan Wang Wu, Ying Wu's wife,
who received 160,000 shares; Ashley Wu, Mr. Wu's daughter, who received 21,040
shares; Richard Wu, Mr. Wu's son, who received 21,040 shares; Wu Partners, a
California limited partnership, which received 2,200,000 shares; Chauncey Shey,
who received 2,175,776 shares; Qiwei Qiu, Trustee of the Rebecca Shey
Trust--1997 UTA dated December 20, 1997, who received 12,000 shares; Shey
Partners, a California limited partnership, which received 2,740,000 shares;
Bill Huang, who received 433,016 shares; Alexander Huang, Mr. Huang's son, who
received 2,000 shares; Helen Huang, Mr. Huang's daughter, who received 2,000
shares; Paul Berkowitz, who received 45,208 shares; Patricia Berkowitz,
Mr. Berkowitz's wife, who received 61,120 shares; and Paul Berkowitz as
custodian for his children Amy, Karen and Lisa, who received an aggregate of
42,000 shares. In connection with the distribution of DirecTouch shares, we
adopted a 1999 Special Stock Option Plan to distribute options to purchase
shares of DirecTouch common stock to each of our optionees who held vested
options. We distributed options to purchase an aggregate of 7,024,242 shares of
DirecTouch common stock. Optionees who received the vested options to purchase
DirecTouch shares included: Hong Lu, who received options to purchase 133,336
shares; Ying Wu, who received options to purchase 962,480 shares; Chauncey Shey,
who received options to purchase 926,480 shares; Bill Huang, who received
options to purchase 353,334 shares; Shao-Ning J. Chou, who received options to
purchase 288,938 shares; Paul Berkowitz, who received options to purchase
432,256 shares; and Gerald Soloway, who received options to purchase 14,000
shares.

From November 1999 through December 1999, we issued and sold an aggregate of
6,152,106 shares of Series F preferred stock at $8.1273 per share. The investors
that participated in the financing included Intel Pacific, Inc., which purchased
4,306,474 shares of Series F preferred stock for $35,000,006. Intel has the
option to purchase up to an additional 615,210 shares of our Series F preferred
stock at $8.1273 per share. The option expires on January 13, 2000.

In December 1999, we acquired our Wacos, Inc. subsidiary through a statutory
merger. The outstanding shares of Wacos common stock and preferred stock were
converted into shares of our Series G preferred stock. The Wacos stockholders
who received our Series G preferred stock in the merger included: SOFTBANK
America Inc., which received 3,691,534 shares; Hong Lu, who received
39,582 shares; Ying Wu, who received 35,984 shares; Chauncey Shey, who received
35,984 shares; Bill Huang, who received 359,844 shares; and Paul Berkowitz, who
received 14,392 shares.

LOANS

In June 1996, we loaned Bill Huang, our Vice President and Chief Technology
Officer and one of our stockholders, the sum of $138,554.22 to purchase a house.
The loan bears simple interest at the rate of 6% per annum, with annual payments
of $17,759.51 due and payable beginning June 1, 1997 with the last payment due
June 1, 2006. The outstanding balance, including accrued interest, as of
November 30, 1999 was $146,615.

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In June 1998, we entered into a loan agreement in which SOFTBANK CORP.
agreed to loan us up to $55,000,000 in multiple installments. The first
installment of $25,000,000 was made on June 30, 1998. This loan has been repaid
in full.

In February 1999, we loaned Bill Huang $153,453 to allow him to exercise
expiring stock options. The loan is secured by a deed of trust. The loan bears
no interest and is due and payable within three years.

CERTAIN BUSINESS RELATIONSHIPS

In October 1995, we entered into a Contract on Joint Development of Internet
Services with China Jitong Communications Co., Ltd. This contract was superseded
in June 1998 by the Information Service Project Contract between UTStarcom
(China) Ltd., our subsidiary, and Jitong, whereby we agreed to provide equipment
to Jitong for this project. In connection with this arrangement, we entered into
a Payment Agent Contract with UTStarcom China, Jitong and SOFTBANK, under which
SOFTBANK agreed to provide a support fund of U.S. $10 million for our equipment
and Jitong's construction costs. On August 30, 1999, we entered into a contract
termination agreement with Jitong, SOFTBANK and UTStarcom China under which the
parties agreed to terminate all existing contracts and agreements regarding the
project. Under the termination agreement, Jitong agreed to repay SOFTBANK the
equivalent of $11.6 million. On September 24, 1999, Jitong made an installment
payment of the equivalent of $6.0 million. Jitong's final payment to SOFTBANK of
the equivalent of $5.6 million is due on December 31, 1999.

We believe that all of the transactions set forth above were made on terms
no less favorable to us than could have been obtained from unaffiliated third
parties. We intend that all future transactions, including loans, between us and
our officers, directors, principal stockholders and their affiliates will be
approved by a majority of the Board of Directors, including a majority of the
independent and disinterested directors on the Board of Directors, and will be
on terms no less favorable to us than could be obtained from unaffiliated third
parties.

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PRINCIPAL STOCKHOLDERS

The following table sets forth information known to us regarding the
beneficial ownership of our common stock as of December 14, 1999, and as
adjusted to reflect the sale of shares of common stock offered by this
prospectus, by:

- each stockholder who is known by us to beneficially own more than 5% of
our common stock;

- each of our executive officers listed on the Summary Compensation Table
under "Management;"

- each of our directors; and

- all of our executive officers and directors as a group.

<TABLE>
<CAPTION>
PERCENT
NUMBER OF SHARES BENEFICIALLY OWNED(1)
BENEFICIALLY --------------------------------
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED(1) BEFORE OFFERING AFTER OFFERING
- ------------------------------------ ---------------- --------------- --------------
<S> <C> <C> <C>
Entities affiliated with SOFTBANK CORP.(2)......... 46,686,514 59.4%
c/o SOFTBANK CORP.
24-1 Nihonbashi-Hakozakicho
Chuo-ku, Tokyo 103-8501 JAPAN
Masayoshi Son(3)................................... 46,686,514 59.4%
c/o SOFTBANK CORP.
24-1 Nihonbashi-Hakozakicho
Chuo-ku, Tokyo 103-8501 JAPAN
Yoshitaka Kitao(4)................................. 46,686,514 59.4%
c/o SOFTBANK CORP.
24-1 Nihonbashi-Hakozakicho
Chuo-ku, Tokyo 103-8501 JAPAN
Ying Wu(5)......................................... 6,110,240 7.7%
c/o UTStarcom (China) Ltd.
11th Floor, CNT Manhattan Building
No. 6 Chao Yang Men Be Da Jie Street
Beijing, 100027 China
Chauncey Shey(6)................................... 5,497,146 6.9%
788 Hong Xu Road, #43
Suite 1501
Shanghai, 201103 China
Intel Pacific, Inc.(7)............................. 4,921,684 6.2%
2200 Mission College Blvd.
Santa Clara, CA 95052-8119
Hong Lu(8)......................................... 3,326,454 4.2%
Charles Xue........................................ 1,917,328 2.4%
Thomas J. Toy...................................... -- --
Shao-Ning J. Chou(9)............................... 337,034 *
Paul Berkowitz(10)................................. 610,910 *
All executive officers and directors as a
group (12 persons)(11)........................... 65,728,182 80.3%
</TABLE>

- ----------

* Less than 1%.

(1) Assumes no exercise of the underwriters' over-allotment option. Beneficial
ownership is determined in accordance with the rules of the Securities and
Exchange Commission and generally includes voting power or investment power
with respect to securities. All shares of

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common stock subject to options exercisable within 60 days following
December 14, 1999 are deemed to be outstanding and beneficially owned by
the person holding those options for the purpose of computing the number of
shares beneficially owned and the percentage ownership of that person. They
are not, however, deemed to be outstanding and beneficially owned for the
purpose of computing the percentage ownership of any other person.
Accordingly, percent ownership is based on: (i) before this offering,
78,597,194 shares of common stock outstanding as of December 14, 1999 plus
any shares issuable pursuant to options held by the person or group in
question which may be exercised within 60 days of December 14, 1999; and
(ii) after this offering, an additional shares to be issued in
the offering. Except as indicated in the other footnotes to this table and
subject to applicable community property laws, based on information
provided by persons named in the table, each person or entity has sole
voting and investment power with respect to the shares shown as
beneficially owned.

(2) Includes 40,960,096 shares registered in the name of SOFTBANK
America, Inc., a Delaware corporation, and 2,034,884 shares registered in
the name of SOFTBANK Ventures, Inc., a Japanese corporation. SOFTBANK
America, Inc., is a wholly owned subsidiary of SOFTBANK Holdings Inc., a
Massachusetts corporation. SOFTBANK Holdings Inc. and SOFTBANK
Ventures, Inc., are wholly owned subsidiaries of SOFTBANK CORP., a Japanese
corporation.

(3) Represents 46,686,514 shares beneficially owned by entities affiliated with
SOFTBANK CORP. Mr. Son is President, Chief Executive Officer and major
stockholder of SOFTBANK CORP. Mr. Son disclaims beneficial ownership of
these shares except to the extent of his proportionate ownership interest
of SOFTBANK CORP.

(4) Represents 46,686,514 shares beneficially owned by entities affiliated with
SOFTBANK CORP. Mr. Kitao is Executive Vice President and Chief Financial
Officer of SOFTBANK CORP. Mr. Kitao disclaims beneficial ownership of these
shares except to the extent of his proportionate ownership interest of
SOFTBANK CORP.

(5) Includes 2,200,000 shares registered in the name of Wu Partners, a
California Limited Partnership, of which Mr. Wu is general partner.
Includes 160,000 shares registered in the name of Yalan Wang Wu, 21,040
shares registered in the name of Ashley Wu, and 21,040 shares registered in
the name of Richard Wu. Yalan Wang Wu is Mr. Wu's wife and Ashley Wu and
Richard Wu are Mr. Wu's children. Mr. Wu may be deemed the beneficial owner
of the shares. Includes 926,480 shares issuable upon exercise of options
that are exercisable within 60 days of December 14, 1999.

(6) Includes 2,740,000 shares owned by Shey Partners, a California Limited
Partnership, of which Mr. Shey is a general partner and 12,000 shares
registered in the name of Qiwei Qiu, trustee of the Rebecca Shey
Trust--1997 UTA dated December 20, 1997. Qiwei Qiu, trustee, is Mr. Shey's
wife and Rebecca Shey is Mr. Shey's daughter. Mr. Shey may be deemed the
beneficial owner of the shares. Includes 926,480 shares issuable upon
exercise of options that are exercisable within 60 days of December 14,
1999.

(7) Includes 615,210 shares issuable upon exercise of an option that is
exercisable within 60 days of December 14, 1999.

(8) Includes 200,000 shares issuable upon exercise of options that are
exercisable within 60 days of December 14, 1999.

(9) Includes 337,034 shares issuable upon exercise of options that are
exercisable within 60 days of December 14, 1999.

(10) Includes 14,000 shares held as custodian for Amy Beth Berkowitz, 14,000
shares held as custodian for Karen Louise Berkowitz, and 14,000 shares
held as custodian for Lisa Ann Berkowitz under the New Jersey Uniform
Gifts to Minors Act. Also includes 61,120 shares registered in the name of
Patricia Berkowitz. Amy Beth Berkowitz, Karen Louise Berkowitz and Lisa
Ann Berkowitz are Mr. Berkowitz's children. Patricia Berkowitz is
Mr. Berkowitz's spouse. Includes 445,590 shares issuable upon exercise of
options that are exercisable within 60 days of December 14, 1999.

(11) Includes 3,295,580 shares issuable upon exercise of options that are
exercisable within 60 days of December 14, 1999.

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DESCRIPTION OF CAPITAL STOCK

Upon the closing of this offering, our authorized capital stock will consist
of shares of common stock, $0.00125 par value, and 5,000,000 shares of
preferred stock, $0.00125 par value.

The following is a summary of the material terms of our common stock and
preferred stock. Please see our certificate of incorporation, filed as an
exhibit to the registration statement of which this prospectus is a part, for
more detailed information.

COMMON STOCK

As of December 14, 1999, there were 78,597,194 shares of common stock
outstanding held of record by 143 stockholders, after giving effect to the
conversion of all shares of preferred stock outstanding. Additionally, options
to purchase an aggregate of 12,431,342 shares of common stock were outstanding
under our stock plans. The holders of our common stock are entitled to one vote
per share on all matters submitted to a vote of stockholders. Subject to
preferences that may be applicable to outstanding preferred stock, the holders
of common stock are entitled to receive ratably any dividends as may be declared
from time to time by the Board of Directors out of funds legally available for
dividends. If our company is liquidated, dissolved or wound up, the holders of
common stock are entitled to share ratably in all assets remaining after the
payment of liabilities, subject to prior rights of any outstanding preferred
stock. Holders of common stock have no preemptive, conversion or redemption
rights. Each outstanding share of common stock is, and all shares of common
stock to be outstanding upon completion of this offering will be, fully paid and
non-assessable.

PREFERRED STOCK

Upon the closing of this offering, all outstanding shares of preferred stock
will be converted into an aggregate of 69,762,112 shares of common stock.
Thereafter, up to 5,000,000 shares of undesignated preferred stock will be
authorized for issuance. Our Board of Directors has the authority, without
further action by our stockholders, to issue up to 5,000,000 shares of preferred
stock in one or more series and to fix the rights, preferences and privileges of
any preferred stock it determines to issue. Any or all of these rights may be
greater than the rights of the common stock.

The issuance of preferred stock may have the effect of delaying or
preventing a change in control of our company or make removal of our management
more difficult. Additionally, the issuance of preferred stock could decrease the
amount of earnings and assets available for distribution to the holders of
common stock or could adversely affect the rights and powers, including voting
rights, of the holders of common stock. The issuance of preferred stock could
also cause the market price of our common stock to decline. At present, we have
no plans to issue any shares of preferred stock.

WARRANTS

As of December 14, 1999, warrants to purchase an aggregate of 532,000 shares
of our common stock were outstanding. One warrant is for the purchase of 32,000
shares of common stock at an exercise price of $2.50 per share and expires on
February 5, 2008. The other warrant is for the purchase of 500,000 shares of
common stock at an exercise price of $6.25 per share. The warrant for 500,000
shares expires on the earlier of December 11, 2003 or the closing of this
offering.

REGISTRATION RIGHTS

Under an agreement dated December 14, 1999, the holders of 49,639,742 shares
of common stock and warrants to purchase approximately 532,000 shares of common
stock are entitled to have us register these shares under the Securities Act.
Subject to the terms of the agreement, the holders may require us on one
occasion to register these securities for public resale at our expense. Demand
for

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registration may be made by the holders of at least one-third of the shares that
are entitled to this registration. Furthermore, the holders have the right to
require us on not more than two occasions during any twelve-month period, to
register all or a portion of their shares with registration rights on Form S-3
under the Securities Act. We are also limited from registering securities for
our own account for 90 days after an effective registration initiated by these
holders. In addition, if we intend to register any of our common stock either
for our own account or for the account of other security holders, holders
possessing registration rights must consent to the offering and can elect to
participate in the offering. All registration rights are subject to conditions
and limitations, including the right of the underwriters of an offering to limit
the number of shares included in such registration.

ANTI-TAKEOVER PROVISIONS UNDER DELAWARE LAW

We are subject to Section 203 of the Delaware General Corporation Law
regulating corporate takeovers, which prohibits us from engaging in a "business
combination" with an "interested stockholder," for a period of three years after
the date the person became an interested stockholder unless:

- prior to that date, the Board of Directors approved either the business
combination or the transaction which resulted in the stockholder becoming
an interested stockholder;

- upon consummation of the transaction which resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at
least 85% of our voting stock outstanding at the time the transaction
commenced, excluding for purposes of determining the number of shares
outstanding shares owned by persons who are directors and also officers,
and employee stock plans in which employee participants do not have the
right to determine confidentially whether shares held subject to the plan
will be tendered in a tender or exchange offer; or

- on or subsequent to that date, the business combination is approved by the
Board of Directors and authorized at an annual or special meeting of
stockholders by the affirmative vote of at least 66 2/3% of the
outstanding voting stock which is not owned by the interested stockholder.

A "business combination" is defined to include mergers, asset or stock sales
and other transactions resulting in financial benefit to a stockholder. Except
as specified in Section 203, an "interested stockholder" is a person who,
together with affiliates and associates, owns, or within three years did own,
15% or more of our outstanding voting stock.

Our certificate of incorporation and bylaws do not exclude us from the
restrictions imposed under Section 203. The existence of Section 203 would be
expected to have the effect of discouraging hostile takeover attempts or
delaying changes in control of our company, which could depress the market price
of our common stock and deprive stockholders of opportunities to realize a
premium on shares of common stock held by them.

CHARTER AND BYLAW PROVISIONS REGARDING ANTI-TAKEOVER PROVISIONS

Some provisions of our certificate of incorporation and bylaws may
discourage, delay or prevent a change in control of our company or management
that a stockholder may consider favorable. These provisions include:

- authorizing the Board of Directors to issue additional preferred stock;

- prohibiting cumulative voting in the election of directors;

- limiting the persons who may call special meetings of stockholders;

- prohibiting stockholder action by written consent;

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- creating a classified Board of Directors pursuant to which our directors
are elected for staggered three year terms; and

- establishing advance notice requirements for nominations for election to
the Board of Directors or for proposing matters that can be acted on by
stockholders at stockholder meetings.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for our common stock is Boston EquiServe
LLP. The transfer agent's telephone number is (781) 575-3010. The transfer
agent's address is 150 Royall Street, Canton, Massachusetts 02021.

LISTING

We expect our common stock to be approved for listing on the Nasdaq National
Market under the trading symbol "UTSI."

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MATERIAL UNITED STATES FEDERAL TAX CONSEQUENCES
TO NON-UNITED STATES HOLDERS

GENERAL

The following is a general discussion of the material United States federal
income and estate tax consequences of the ownership and disposition of common
stock that may be relevant to you if you are a non-United States Holder. In
general, a "non-United States Holder" is any person or entity that is, for
United States federal income tax purposes, a foreign corporation, a nonresident
alien individual, a foreign partnership or a foreign estate or trust. This
discussion is based on current law, which is subject to change, possibly with
retroactive effect, or different interpretations. This discussion is limited to
non-United States Holders who hold shares of common stock as capital assets.
Moreover, this discussion is for general information only and does not address
all of the tax consequences that may be relevant to you in light of your
personal circumstances, nor does it discuss special tax provisions which may
apply to you if you relinquished United States citizenship or residence.

If you are an individual, you may, in many cases, be deemed to be a resident
alien, as opposed to a nonresident alien, by virtue of being present in the
United States for at least 31 days in the calendar year and for an aggregate of
at least 183 days during a three-year period ending in the current calendar year
(counting for such purposes all of the days present in the current year,
one-third of the days present in the immediately preceding year, and one-sixth
of the days present in the second preceding year). Resident aliens are subject
to United States federal income tax as if they were United States citizens.

EACH PROSPECTIVE PURCHASER OF COMMON STOCK IS ADVISED TO CONSULT A TAX
ADVISOR WITH RESPECT TO CURRENT AND POSSIBLE FUTURE TAX CONSEQUENCES OF
PURCHASING, OWNING AND DISPOSING OF OUR COMMON STOCK AS WELL AS ANY TAX
CONSEQUENCES THAT MAY ARISE UNDER THE LAWS OF ANY UNITED STATES STATE,
MUNICIPALITY OR OTHER TAXING JURISDICTION.

DIVIDENDS

Dividends paid to non-United States Holders generally are subject to
withholding of United States federal income tax at a 30% rate or a lower rate as
may be specified by an applicable income tax treaty. However, as long as more
than 80% of our gross income (including the gross income actually distributed to
us by our subsidiaries) over the three taxable years prior to a dividend payment
is derived from income outside the United States, a substantial percentage of
the dividend will not be subject to United States withholding tax. The
percentage of a dividend payment not subject to withholding generally will be
the percentage that our gross income from outside the United States (including
the gross income actually distributed to us by our subsidiaries) bears to our
total gross income. To claim the benefit of a lower rate under an income tax
treaty, you must properly file with the payor an IRS Form 1001, or successor
form, claiming an exemption from or reduction in withholding under the
applicable tax treaty.

If dividends are considered effectively connected with the conduct of a
trade or business by you within the United States and, where a tax treaty
applies, are attributable to a United States permanent establishment of yours,
those dividends will not be subject to withholding tax, but instead will be
subject to United States federal income tax on a net basis at applicable
graduated individual or corporate rates, provided an IRS Form 4224, or successor
form, is filed with the payor. If you are a foreign corporation, any effectively
connected dividends may, under certain circumstances, be subject to an
additional "branch profits tax" at a rate of 30% or a lower rate as may be
specified by an applicable income tax treaty.

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Unless the payor has knowledge to the contrary, dividends paid prior to
January 1, 2001 to an address outside the United States are presumed to be paid
to a resident of such country for purposes of the withholding discussed above
and for purposes of determining the applicability of a tax treaty rate. However,
recently finalized Treasury Regulations pertaining to United States federal
withholding tax provide that you must comply with certification procedures, or,
in the case of payments made outside the United States with respect to an
offshore account, certain documentary evidence procedures, directly or under
certain circumstances through an intermediary, to obtain the benefits of a
reduced rate under an income tax treaty with respect to dividends paid after
December 31, 2000. In addition, these regulations will require you, if you
provide an IRS Form 4224 or successor form, as discussed above, to also provide
your identification number. If you are eligible for a reduced rate of United
States withholding tax pursuant to an income tax treaty, you may obtain a refund
of any excess amounts withheld by filing an appropriate claim for refund with
the IRS.

GAIN ON DISPOSITION OF COMMON STOCK

As a non-United States Holder, you generally will not be subject to United
States federal income tax on any gain recognized on the sale or other
disposition of common stock unless:

- the gain is considered effectively connected with the conduct of a trade
or business by you within the United States and, where a tax treaty
applies, is attributable to a United States permanent establishment of
yours (and, in which case, if you are a foreign corporation, you may be
subject to an additional branch profits tax equal to 30% or a lower rate
as may be specified by an applicable income tax treaty).

- you are an individual who holds the common stock as a capital asset and
are present in the United States for 183 or more days in the taxable year
of the sale or other disposition and other conditions are met; or

- we are or have been a "United States real property holding corporation",
or a USRPHC, for United States federal income tax purposes. We believe
that we are not currently, and are likely not to become, a USRPHC. If we
were to become a USRPHC, then gain on the sale or other disposition of
common stock by you generally would not be subject to United States
federal income tax provided the common stock was "regularly traded" on an
established securities market and you do not actually or constructively
own more than 5% of the common stock during the shorter of the five-year
period preceding the disposition or your holding period.

FEDERAL ESTATE TAX

If you are an individual, common stock held at the time of your death will
be included in your gross estate for United States federal estate tax purposes,
and may be subject to United States federal estate tax, unless an applicable
estate tax treaty provides otherwise.

INFORMATION REPORTING AND BACKUP WITHHOLDING TAX

We must report annually to the IRS and to each of you the amount of
dividends paid to you and the tax withheld with respect to those dividends,
regardless or whether withholding was required. Copies of the information
returns reporting those dividends and withholding may also be made available to
the tax authorities in the country in which you reside under the provisions of
an applicable income tax treaty or other applicable agreements.

Backup withholding is generally imposed at the rate of 31% on certain
payments to persons that fail to furnish the necessary identifying information
to the payor. Backup withholding generally will not apply to dividends paid
prior to January 1, 2001 to a non-United States Holder at an address outside the
United States, unless the payor has knowledge that the payee is a United States
person. In the case

74
<PAGE>
of dividends paid after December 31, 2000, the recently finalized Treasury
Regulations provide that you generally will be subject to withholding tax at a
31% rate unless you certify your non-United States status.

The payment of proceeds of a sale of common stock effected by or through a
United States office of a broker is subject to both backup withholding and
information reporting unless you provide the payor with your name and address
and you certify your non-United States status or you otherwise establish an
exemption. In general, backup withholding and information reporting will not
apply to the payment of the proceeds of a sale of common stock by or through a
foreign office of a broker. If, however, such broker is, for United States
federal income tax purposes, a United States person, a controlled foreign
corporation, or a foreign person that derives 50% or more of its gross income
for certain periods from the conduct of a trade or business in the United
States, or, in addition, for periods after December 31, 2000, a foreign
partnership that at any time during its tax year either is engaged in the
conduct of a trade or business in the United States or has as partners one of
more United States persons that, in the aggregate, hold more than 50% of the
income or capital interest in the partnership, such payments will be subject to
information reporting, but not backup withholding, unless such broker has
documentary evidence in its records that you are a non-United States Holder and
certain other conditions are met or you otherwise establish an exemption.

Any amounts withheld under the backup withholding rules generally will be
allowed as a refund or a credit against your United States federal income tax
liability provided the required information is furnished in a timely manner to
the IRS.

75
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE

Prior to this offering, there has not been a public market for our common
stock. Future sales of substantial amounts of our common stock in the public
market, or the possibility of these sales, could cause the trading price of our
common stock to decrease.

Upon completion of this offering, we will have outstanding
shares of common stock, assuming no exercise of the underwriters' over-allotment
options and no exercise of outstanding options or warrants to purchase common
stock after December 14, 1999. Of these shares, the shares sold in
this offering will be freely tradable without restriction, except for shares
purchased by our affiliates, as defined in Rule 144 under the Securities Act,
which would be subject to the limitations and restrictions described below.

The remaining 78,597,194 shares of common stock outstanding upon completion
of this offering will be "restricted securities" as defined in Rule 144. These
shares may be sold in the public market only if registered under the Securities
Act or if they qualify for an exemption from registration under Rules 144 or 701
of the Securities Act, which are summarized below.

Holders of substantially all of these restricted securities, including all
of our officers and directors and the entities affiliated with them, have
entered into lock-up agreements. The agreements provide that, subject to limited
exceptions, the holders will not sell, directly or indirectly, any common stock
for a period of 180 days after the date of this prospectus without the prior
consent of Merrill Lynch.

On the date the lock-up agreement expires, 72,445,088 of the restricted
securities will become eligible for sale pursuant to Rule 144. The remaining
6,152,106 shares of common stock will be eligible for sale under Rule 144 at
varying times after expiration of the lock-up period.

In general, under Rule 144, beginning 90 days after the date of this
prospectus, a person, or persons whose shares are aggregated, who has
beneficially owned restricted securities for at least one year, including
persons who may be deemed to be our "affiliates," would be entitled to sell
within any three-month period a number of shares that does not exceed the
greater of one percent of the then outstanding shares of our common stock or the
average weekly trading volume of our common stock during the four calendar weeks
before the sale. Sales under Rule 144 are also subject to manner of sale and
notice requirements, as well as the availability of current public information
about us.

Under Rule 144(k), a person who is not deemed to have been our affiliate at
any time during the 90 days preceding a sale, and who has beneficially owned the
shares proposed to be sold for at least two years, is entitled to sell the
shares without complying with the manner of sale, public information, volume
limitation or notice provisions of Rule 144.

Shares issued upon exercise of options granted by us prior to the date of
this prospectus will be available for sale in the public market under Rule 701
of the Securities Act. Rule 701 provides that, beginning 90 days after the date
of this prospectus, persons other than affiliates may sell shares of our common
stock acquired from us in connection with our stock option plans, subject only
to the manner of sale provisions of Rule 144. Beginning 90 days after the date
of this prospectus, affiliates may sell these shares of our common stock subject
to all provisions of Rule 144 except the one year minimum holding period.

As of December 14, 1999, options to purchase an aggregate of
12,431,342 shares of common stock were outstanding under our stock option plans.
Shortly after this offering, we intend to file registration statements on
Form S-8 under the Securities Act to register 2,000,000 shares of common stock
reserved for issuance under our employee stock purchase plan and
16,698,268 shares of common stock reserved for issuance under our stock option
plans. Any vested shares registered under these registration statements will be
available for sale in the open market immediately upon effectiveness of the

76
<PAGE>
registration statement, subject to the expiration of the lock-up period and
Rule 144 volume limitations applicable to our affiliates.

In addition, after this offering, the holders of 49,639,742 shares of common
stock and warrants to purchase 532,000 shares of common stock are entitled to
registration rights. Registration of these shares under the Securities Act would
result in these shares becoming freely tradable without restriction under the
Securities Act immediately upon the effectiveness of the registration statement,
subject to the expiration of the lock-up period.

77
<PAGE>
UNDERWRITING

GENERAL

We intend to offer our common stock in the United States and Canada through
the U.S. underwriters and outside the United States and Canada through the
international managers. Merrill Lynch, Pierce, Fenner & Smith Incorporated, Banc
of America Securities LLC and U.S. Bancorp Piper Jaffray Inc. are acting as U.S.
representatives for the U.S. underwriters named below. Subject to the terms and
conditions in a U.S. purchase agreement among us and the U.S. underwriters, and
concurrently with the sale of shares of our common stock to the
international managers, we have agreed to sell to the U.S. underwriters, and
each of the U.S. underwriters severally and not jointly has agreed to purchase
from us, the number of shares of our common stock listed opposite its name
below.

<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
- ------------ ---------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated......................................
Banc of America Securities LLC..............................
U.S. Bancorp Piper Jaffray Inc..............................

-------
Total.............................................
=======
</TABLE>

We have also entered into an international purchase agreement with the
international managers for the sale of the shares of our common stock outside
the United States and Canada for whom Merrill Lynch International, Bank of
America International Limited and U.S. Bancorp Piper Jaffray Inc. are acting as
lead managers. Subject to the terms and conditions in the international purchase
agreement, and concurrently with the sale of shares of our common
stock to the U.S. underwriters pursuant to the U.S. purchase agreement, we have
agreed to sell to the international managers and the international managers
severally have agreed to purchase from us shares of our common
stock. The initial public offering price per share and the total underwriting
discount per share of our common stock are identical under the U.S. purchase
agreement and the international purchase agreement.

Subject to the terms and conditions in the U.S. purchase agreement and the
international purchase agreement, the U.S. underwriters and the international
managers have agreed to purchase all of the shares of our common stock being
sold pursuant to each of the purchase agreements if any shares of our common
stock are purchased. If a U.S. underwriter or an international manager defaults,
the U.S. purchase agreement and the international purchase agreement provide
that the purchase commitments of the nondefaulting U.S. underwriters and
international managers may be increased or the purchase agreements may be
terminated. The closings for the sale of shares of our common stock to be
purchased by the U.S. underwriters and the international managers are
conditioned on one another.

We have agreed to indemnify the U.S. underwriters and the international
managers against some liabilities, including liabilities under the Securities
Act, and to contribute to payments the U.S. underwriters and the international
managers may be required to make in respect of those liabilities.

78
<PAGE>
The U.S. underwriters and the international managers are offering the shares
of our common stock, subject to prior sale, when, as and if issued to and
accepted by them, subject to approval of various legal matters by their counsel,
including the validity of the shares, and other conditions contained in the
purchase agreements, such as the receipt of officer's certificates and legal
opinions. The U.S. underwriters and the international managers reserve the right
to withdraw, cancel or modify offers to the public and to reject orders in whole
or in part.

COMMISSIONS AND DISCOUNTS

The U.S. representatives have advised us that the U.S. underwriters propose
initially to offer the shares of our common stock to the public at the initial
public offering price on the cover page of this prospectus, and to dealers at
that price less a concession not in excess of $ per share of our common stock.
The U.S. underwriters may allow, and the dealers may reallow, a discount not in
excess of $ per share of our common stock to other dealers. After the initial
public offering, the public offering price, concession and discount may be
changed.

The following table shows the per share and total public offering price,
underwriting discount to be paid by us to the U.S. underwriters and the
international managers and the proceeds before expenses to us. This information
assumes either no exercise or full exercise by the U.S. underwriters and the
international managers of their over-allotment options.

<TABLE>
<CAPTION>
PER SHARE WITHOUT OPTION WITH OPTION
--------- -------------- -----------
<S> <C> <C> <C>
Public offering price..................................... $ $ $
Underwriting discount..................................... $ $ $
Proceeds, before expenses, to UTStarcom................... $ $ $
</TABLE>

The expenses of the offering, not including the underwriting discount, are
estimated at $ and are payable by us.

OVER-ALLOTMENT OPTION

We have granted an option to the U.S. underwriters, to purchase up to
additional shares of our common stock at the public offering price
on the cover page of this prospectus less the underwriting discount. The U.S.
underwriters may exercise this option for 30 days from the date of this
prospectus solely to cover any over-allotments. If the U.S. underwriters
exercise this option, each U.S. underwriter will be obligated, subject to
conditions contained in the U.S. purchase agreement, to purchase a number of
additional shares of our common stock proportionate to that U.S. underwriter's
initial amount reflected in the table above.

We have also granted options to the international managers, exercisable for
30 days from the date of this prospectus, to purchase up to
additional shares of our common stock to cover any over-allotments
on terms similar to those granted to the U.S. underwriters.

INTERSYNDICATE AGREEMENT

The U.S. underwriters and the international managers have entered into an
intersyndicate agreement that provides for the coordination of their activities.
Under the intersyndicate agreement, the U.S. underwriters and the international
managers may sell shares of our common stock to each other for purposes of
resale at the initial public offering price, less an amount not greater than the
selling concession. Under the intersyndicate agreement, the U.S. underwriters
and any dealer to whom they sell shares of our common stock will not offer to
sell or sell shares of our common stock to non-U.S. or non-Canadian persons or
to persons they believe intend to resell to non-U.S. or non-Canadian persons,
except in the case of transactions under the intersyndicate agreement.
Similarly, the international managers and any dealer to whom they sell shares of
our common stock will not offer

79
<PAGE>
to sell or sell shares of our common stock to U.S. persons or Canadian persons
or to persons they believe intend to resell to U.S. or Canadian persons, except
in the case of transactions under the intersyndicate agreement.

RESERVED SHARES

At our request, the U.S. underwriters and the international managers have
reserved for sale, at the initial public offering price, up to shares, or
%, of the shares of our common stock offered by this prospectus for sale to
some of our directors, officers and employees and their family members, and
other persons with relationships with us. The number of shares of our common
stock available for sale to the general public will be reduced to the extent
those persons purchase the reserved shares. Any reserved shares which are not
orally confirmed for purchase within one day of the pricing of this offering
will be offered by the U.S. underwriters and the international managers to the
general public on the same terms as the other shares offered by this prospectus.

NO SALES OF SIMILAR SECURITIES

We, our executive officers, directors and substantially all of our
stockholders, have agreed, with exceptions, not to sell or transfer any shares
of our common stock for 180 days after the date of this prospectus without first
obtaining the written consent of Merrill Lynch. Specifically, we and these other
individuals have agreed not to directly or indirectly:

- offer, pledge, sell or contract to sell any shares of our common stock;

- sell any option or contract to purchase any shares of our common stock;

- purchase any option or contract to sell any shares of our common stock;

- grant any option, right or warrant for the sale of any shares of our
common stock;

- lend or otherwise dispose of or transfer any shares of our common stock;

- request or demand that we file a registration statement related to the
shares of our common stock; or

- enter into any swap or other agreement that transfers, in whole or in
part, the economic consequence of ownership of any shares of our common
stock whether any such swap or transaction is to be settled by delivery of
shares or other securities, in cash or otherwise.

This lockup provision applies to shares of our common stock and to
securities convertible into or exchangeable or exercisable for or repayable with
shares of our common stock. It also applies to shares of our common stock owned
now or acquired later by the person executing the agreement or for which the
person executing the agreement later acquires the power of disposition.

NASDAQ NATIONAL MARKET LISTING

We expect our common stock will be quoted on the Nasdaq National Market
under the symbol "UTSI."

Before this offering, there has been no public market for our common stock.
The initial public offering price will be determined through negotiations
between us, the U.S. representatives and the lead managers. In addition to
prevailing market conditions, the factors to be considered in determining the
initial public offering price are:

- the valuation multiples of publicly traded companies that the U.S.
representatives and the lead managers believe to be comparable to us;

- our financial information;

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<PAGE>
- the history of, and the prospects for, our company and the industry in
which we compete;

- an assessment of our management, its past and present operations, and the
prospects for, and timing of, our future revenues;

- the present state of our development; and

- the above factors in relation to market values and various valuation
measures of other companies engaged in activities similar to ours.

An active trading market for the shares of our common stock may not develop.
It is also possible that after the offering the shares of our common stock will
not trade in the public market at or above the initial public offering price.

The U.S. underwriters and the international managers do not expect to sell
more than 5% of the shares of our common stock in the aggregate to accounts over
which they exercise discretionary authority.

PRICE STABILIZATION, SHORT POSITIONS AND PENALTY BIDS

Until the distribution of our common stock is completed, rules of the
Securities and Exchange Commission may limit the U.S. underwriters and the
international managers and selling group members from bidding for and purchasing
shares of our common stock. However, the U.S. representatives and the lead
managers may engage in transactions that stabilize the price of our common
stock, such as bids or purchases to peg, fix or maintain that price.

If the U.S. underwriters and the international managers create a short
position in our common stock in connection with this offering, i.e., if they
sell more shares of our common stock than are listed on the cover page of this
prospectus, the U.S. representatives and the lead managers may reduce that short
position by purchasing shares of our common stock in the open market. The U.S.
representatives and the lead managers may also elect to reduce any short
position by exercising all or part of the over-allotment option described above.
Purchases of shares of our common stock to stabilize its price or to reduce a
short position may cause the price of shares of our common stock to be higher
than it might be in the absence of these purchases.

The U.S. representatives and the lead managers may also impose a penalty bid
on the U.S. underwriters and the international managers and selling group
members. This means that if the U.S. representatives and the lead managers
purchase shares of our common stock in the open market to reduce their short
position or to stabilize the price of these shares, they may reclaim the amount
of the selling concession from the U.S. underwriters and the international
managers and selling group members who sold those shares. The imposition of a
penalty bid may also affect the price of shares of our common stock in that it
discourages resales of those shares.

Neither we nor any of the U.S. underwriters or the international managers
makes any representation or prediction as to the direction or magnitude of any
effect that the transactions described above may have on the price of shares of
our common stock. In addition, neither we nor any of the U.S. underwriters or
the international managers makes any representation that the U.S.
representatives or the lead managers will engage in these transactions or that
these transactions, once commenced, will not be discontinued without notice.

81
<PAGE>
LEGAL MATTERS

The validity of the common stock offered by this prospectus will be passed
upon for UTStarcom by Wilson Sonsini Goodrich & Rosati, Professional
Corporation, Palo Alto, California. Certain legal matters as to the laws in
China are being passed upon for UTStarcom by Jun He Law Offices, Beijing, China.
Certain legal matters in connection with this offering will be passed upon for
the underwriters by Shearman & Sterling, Menlo Park, California.

EXPERTS

Our consolidated financial statements as of December 31, 1997 and 1998, and
September 30, 1999, and for each of the years ended December 31, 1997 and 1998,
and for the nine-month period ended September 30, 1999 have been included in
this prospectus and in the registration statement of which this prospectus is a
part in reliance on the report of PricewaterhouseCoopers LLP, independent
accountants, given upon the authority of said firm as experts in auditing and
accounting.

WHERE YOU CAN FIND MORE INFORMATION

We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act. This prospectus, which is a part
of the registration statement, does not contain all of the information set forth
in the registration statement, including items contained in the exhibits to the
registration statement. For further information about our company and the common
stock being offered by this prospectus, you should see the registration
statement and the exhibits, financial statements and notes filed with the
registration statement. Statements made in this prospectus concerning other
documents are not necessarily complete. The registration statement, including
exhibits, financial statements and notes, may be inspected without charge at the
public reference facilities maintained by the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the regional offices of the Commission
located at Seven World Trade Center, 13th Floor, New York, NY 10048, and the
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies may be obtained from the Commission upon payment of fees
prescribed by the Commission. Information on the operation of the public
reference room may be obtained by calling the Commission at 1-800-SEC-0330.
These reports and other information about our company may also be inspected
without charge at a Web site maintained by the Commission at http://www.sec.gov.

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<PAGE>
UTSTARCOM, INC. AND SUBSIDIARIES

INDEX TO FINANCIAL STATEMENTS AND FINANCIAL INFORMATION

<TABLE>
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Accountants........................... F-2

Consolidated Balance Sheets................................. F-3

Consolidated Statements of Operations....................... F-4

Consolidated Statements of Stockholders' Equity............. F-5

Consolidated Statements of Cash Flows....................... F-6

Notes to Consolidated Financial Statements.................. F-7

UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION.......... F-30

Pro Forma Combined Statement of Operations--Year Ended
December 31, 1998......................................... F-31

Pro Forma Combined Statement of Operations--Nine Months
Ended September 30, 1999.................................. F-32

Pro Forma Combined Balance Sheet as of September 30, 1999... F-33

Notes to Unaudited Pro Forma Combined Financial
Information............................................... F-34
</TABLE>

F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of UTStarcom, Inc.:

In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations and changes in stockholders' equity and of
cash flows present fairly, in all material respects, the financial position of
UTStarcom, Inc. and subsidiaries at December 31, 1997, 1998 and September 30,
1999 and the results of their operations and their cash flows for each of the
years ended December 31, 1996, 1997 and 1998, and for the nine months ended
September 30, 1999 in conformity with generally accepted accounting principles.
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 of these financial statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audits 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, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.

/s/ PRICEWATERHOUSECOOPERS LLP
PricewaterhouseCoopers LLP
San Francisco, California
December 16, 1999

F-2
<PAGE>
UTSTARCOM, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
DECEMBER 31,
------------------- SEPTEMBER 30,
1997 1998 1999
-------- -------- --------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents, including restricted cash of
$1,500 and $14,292 at December 31, 1998 and
September 30, 1999..................................... $31,481 $ 17,626 $ 35,275
Accounts receivable, net of allowance for doubtful
accounts of $3,312, $3,957 and $5,718 at December 31,
1997, 1998 and September 30, 1999...................... 29,669 59,995 84,593
Receivable from related parties.......................... 3,333 24,829 4,012
Inventories, net of allowance for obsolete inventory of
$1,779, $2,445 and $3,699 at December 31, 1997, 1998
and September 30, 1999................................. 15,189 19,540 28,388
Other.................................................... 1,664 2,569 6,053
------- -------- --------
Total current assets....................................... 81,336 124,559 158,321
Property, plant and equipment, net......................... 6,726 8,345 7,902
Investment in affiliated companies......................... 1,676 3,496 5,200
Intangible assets, net..................................... 1,608 1,585 1,473
Net assets from discontinued operations.................... 3,557 2,146 --
Other...................................................... 1,033 1,990 3,787
------- -------- --------
Total assets............................................. $95,936 $142,121 $176,683
======= ======== ========
LIABILITIES, MINORITY INTEREST AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable......................................... $18,242 $ 15,101 $ 21,161
Payable to related parties............................... -- 1,311 1,311
Third party debt......................................... 1,579 10,865 27,968
Debt to shareholder...................................... -- 26,250 14,356
Income taxes payable..................................... 365 1,297 2,457
Advance billings......................................... -- -- 2,665
Other.................................................... 5,735 13,423 22,939
------- -------- --------
Total current liabilities.................................. 25,921 68,247 92,857
------- -------- --------
Minority interest in consolidated subsidiaries............. 2,142 2,667 3,902
Stockholders' equity:
Convertible preferred stock: $.00125 par value; authorized:
80,200,000 shares; issued 57,518,068 at December 31,
1997, 59,635,754 at December 31, 1998, and 59,086,306 at
September 30, 1999; liquidation value of $167,829 at
September 30, 1999....................................... 72 74 73
Common stock: $.00125 par value; authorized: 123,614,032
shares; issued and outstanding: 9,807,006 at
December 31, 1997, 9,172,864 at December 31, 1998, and
10,049,174 at September 30 1999, including shares held in
treasury................................................. 12 12 13
Common stock warrant....................................... -- 1,983 389
Additional paid-in capital................................. 85,864 87,639 93,179
Deferred stock compensation................................ -- -- (5,270)
Accumulated deficit........................................ (15,647) (15,174) (4,938)
Notes receivable from shareholders......................... -- (369) (557)
Cumulative translation adjustment.......................... 172 95 95
------- -------- --------
70,473 74,260 82,984
Less cost of common stock held in treasury, 1,240,000
shares at December 31, 1997, 1,340,694 shares at
December 31, 1998, and 1,348,386 shares at September 30,
1999..................................................... (2,600) (3,053) (3,060)
------- -------- --------
Total stockholders' equity................................. 67,873 71,207 79,924
------- -------- --------
Total liabilities, minority interest, and stockholders'
equity................................................. $95,936 $142,121 $176,683
======= ======== ========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-3
<PAGE>
UTSTARCOM, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------ ----------------------
1996 1997 1998 1998 1999
-------- -------- -------- ----------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales.......................................... $35,542 $75,597 $105,167 $79,878 $124,701
Cost of sales...................................... 22,322 48,795 65,246 48,670 72,677
------- ------- -------- ------- --------
Gross profit....................................... 13,220 26,802 39,921 31,208 52,024

Operating expenses:
Selling, general and administrative expenses..... 8,042 21,211 23,233 17,672 24,096
Research and development expenses................ 3,899 8,228 12,694 8,494 12,490
Amortization of deferred stock compensation...... -- -- -- -- 3,521
Amortization of intangible assets................ 42 40 120 65 112
------- ------- -------- ------- --------
Total operating expenses........................... 11,983 29,479 36,047 26,231 40,219
------- ------- -------- ------- --------
Operating income (loss)............................ 1,237 (2,677) 3,874 4,977 11,805

Interest income.................................... 677 2,738 1,711 2,450 1,384
Interest expenses.................................. (89) (756) (1,924) (2,684) (2,269)
Other income (expenses)............................ 270 5 (1,031) (101) 198
Equity in net income (loss) of affiliated
companies........................................ (291) (161) (596) (646) 984
------- ------- -------- ------- --------
Income (loss) before income taxes and minority
interest......................................... 1,804 (851) 2,034 3,996 12,102
Income tax expense (benefit)....................... 575 400 1,414 828 (1,023)
------- ------- -------- ------- --------
Income (loss) before minority interest............. 1,229 (1,251) 620 3,168 13,125

Minority interest in (earnings) loss of
consolidated subsidiaries........................ (743) 228 746 134 (1,233)
------- ------- -------- ------- --------
Income (loss) from continuing operations........... 486 (1,023) 1,366 3,302 11,892
Income (loss) from discontinued operations......... 301 1,413 (893) (796) (1,656)
------- ------- -------- ------- --------
Net income (loss)................................ 787 390 473 2,506 10,236
Mandatorily redeemable convertible preferred stock
dividend requirement............................. (1,097) -- -- -- --
------- ------- -------- ------- --------
Net income (loss) applicable to common stock..... $ (310) $ 390 $ 473 $ 2,506 $ 10,236
======= ======= ======== ======= ========
Basic earnings (loss) per share:
Income (loss) from continuing operations......... $ (0.07) $ (0.14) $ 0.18 $ 0.42 $ 1.38
Income (loss) from discontinued operations....... 0.03 0.19 (0.12) (0.10) (0.19)
------- ------- -------- ------- --------
Net income (loss)................................ $ (0.04) $ 0.05 $ 0.06 $ 0.32 $ 1.19
======= ======= ======== ======= ========
Diluted earnings (loss) per share:
Income (loss) from continuing operations......... $ (0.07) $ (0.14) $ 0.02 $ 0.04 $ 0.16
Income (loss) from discontinued operations....... 0.03 0.19 (0.01) (0.01) (0.02)
------- ------- -------- ------- --------
Net income (loss)................................ $ (0.04) $ 0.05 $ 0.01 $ 0.03 $ 0.14
======= ======= ======== ======= ========
Shares used in per-share calculation--basic...... 8,344 7,320 7,582 7,792 8,640
======= ======= ======== ======= ========
Shares used in per-share calculation--diluted.... 8,344 7,320 77,050 76,220 73,532
======= ======= ======== ======= ========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-4
<PAGE>
UTSTARCOM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PREFERRED STOCK
--------------------------------------------------------------------------------------------
SERIES A SERIES B SERIES C SERIES D
-------------------- --------------------- --------------------- ---------------------
ISSUED AMOUNT ISSUED AMOUNT ISSUED AMOUNT ISSUED AMOUNT
--------- -------- ---------- -------- ---------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances, December 31,
1996.......................
Exchange of common for
preferred stock............
Common stock issued upon
exercise of options........
Common stock dividend........
Reacquired common stock......
Common stock issued upon
exercise of warrants.......
Accreted dividends on
preferred stock............
Reclassification of preferred
stock to equity upon
elimination of mandatory
redemption feature......... 2,850,000 $4 14,492,752 $18 13,589,056 $17 8,032,128 $10
Translation adjustment.......
Distribution to
stockholders...............
Net income...................
--------- -- ---------- --- ---------- --- ---------- ---
Balances, December 31,
1997....................... 2,850,000 4 14,492,752 18 13,589,056 17 8,032,128 10
Common stock issued upon
exercise of options........
Stock dividend...............
Exchange of common for
preferred stock............
Contribution from
stockholders...............
Non-employee stock options
expenses...................
Stock warrant issued as
capital distribution.......
Reacquired common stock......
Notes receivable from
stockholders...............
Translation adjustment.......
Net income...................
--------- -- ---------- --- ---------- --- ---------- ---
Balances, December 31,
1998....................... 2,850,000 4 14,492,752 18 13,589,056 17 8,032,128 10
Common stock issued upon
exercise of options........
Reacquired common stock......
Stock reclassification.......
Amendment to stock warrant
issued as capital
distribution...............
Notes receivable from
stockholders...............
Deferred compensation related
to grant of stock
options....................
Amortization of deferred
stock compensation.........
Employee stock options
expenses...................
Distribution to
stockholders...............
Net income...................
--------- -- ---------- --- ---------- --- ---------- ---
Balances, September 30,
1999....................... 2,850,000 $4 14,492,752 $18 13,589,056 $17 8,032,128 $10
========= == ========== === ========== === ========== ===

<CAPTION>
PREFERRED STOCK
----------------------
SERIES E COMMON STOCK ADDITIONAL DEFERRED
---------------------- ---------------------- PAID-IN ACCUMULATED STOCK
ISSUED AMOUNT SHARES AMOUNT CAPITAL DEFICIT COMPENSATION
----------- -------- ----------- -------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, December 31,
1996....................... 25,055,312 $31 $ 12,338 $(11,459)
Exchange of common for
preferred stock............ 18,554,132 $23 (18,554,132) (23)
Common stock issued upon
exercise of options........ 184,002 210
Common stock dividend........ 2,540,000 3 13,825
Reacquired common stock......
Common stock issued upon
exercise of warrants....... 581,824 1 199
Accreted dividends on
preferred stock............ 4,578 (4,578)
Reclassification of preferred
stock to equity upon
elimination of mandatory
redemption feature......... 130,544
Translation adjustment.......
Distribution to
stockholders............... (75,830)
Net income................... 390
----------- --- ----------- --- -------- -------- -------
Balances, December 31,
1997....................... 18,554,332 23 9,807,006 12 85,864 (15,647) --
Common stock issued upon
exercise of options........ 483,544 1 479
Stock dividend............... 945,850 1 54,150
Exchange of common for
preferred stock............ 1,171,836 1 (1,171,836) (1)
Contribution from
stockholders............... 2,867
Non-employee stock options
expenses................... 412
Stock warrant issued as
capital distribution....... (1,983)
Reacquired common stock......
Notes receivable from
stockholders...............
Translation adjustment.......
Net income................... 473
----------- --- ----------- --- -------- -------- -------
Balances, December 31,
1998....................... 20,671,818 25 9,172,864 12 87,639 (15,174) --
Common stock issued upon
exercise of options........ 319,170 244
Reacquired common stock...... 7,692
Stock reclassification....... (549,448) (1) 549,448 1
Amendment to stock warrant
issued as capital
distribution............... 1,594
Notes receivable from
stockholders...............
Deferred compensation related
to grant of stock
options.................... 8,791 $(8,791)
Amortization of deferred
stock compensation......... 3,521
Employee stock options
expenses................... 1,461
Distribution to
stockholders............... (6,550)
Net income................... 10,236
----------- --- ----------- --- -------- -------- -------
Balances, September 30,
1999....................... 20,122,370 $24 10,049,174 $13 $ 93,179 $ (4,938) $(5,270)
=========== === =========== === ======== ======== =======

NOTES CUMULATIVE COMMON TOTAL
RECEIVABLE TRANSLATION STOCK TREASURY STOCKHOLDERS'
FROM STOCKHOLDERS ADJUSTMENT WARRANT STOCK EQUITY
----------------- ----------- -------- -------- -------------
<S> <C> <C> <C> <C> <C>
Balances, December 31,
1996....................... $197 $(1,500) $ (393)
Exchange of common for
preferred stock............ --
Common stock issued upon
exercise of options........ 210
Common stock dividend........ 13,828
Reacquired common stock...... (1,100) (1,100)
Common stock issued upon
exercise of warrants....... 200
Accreted dividends on
preferred stock............ --
Reclassification of preferred
stock to equity upon
elimination of mandatory
redemption feature......... 130,593
Translation adjustment....... (25) (25)
Distribution to
stockholders............... (75,830)
Net income................... 390
----- ---- ------- ------- --------
Balances, December 31,
1997....................... -- 172 -- (2,600) 67,873
Common stock issued upon
exercise of options........ 480
Stock dividend............... 1
Exchange of common for
preferred stock............ --
Contribution from
stockholders............... 2,867
Non-employee stock options
expenses................... 412
Stock warrant issued as
capital distribution....... $ 1,983 --
Reacquired common stock...... (453) (453)
Notes receivable from
stockholders............... $(369) (369)
Translation adjustment....... (77) (77)
Net income................... 473
----- ---- ------- ------- --------
Balances, December 31,
1998....................... (369) 95 1,983 (3,053) 71,207
Common stock issued upon
exercise of options........ 244
Reacquired common stock...... (7) (7)
Stock reclassification....... --
Amendment to stock warrant
issued as capital
distribution............... (1,594) --
Notes receivable from
stockholders............... (188) (188)
Deferred compensation related
to grant of stock
options.................... --
Amortization of deferred
stock compensation......... 3,521
Employee stock options
expenses................... 1,461
Distribution to
stockholders............... (6,550)
Net income................... 10,236
----- ---- ------- ------- --------
Balances, September 30,
1999....................... $(557) $ 95 $ 389 $(3,060) $ 79,924
===== ==== ======= ======= ========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-5
<PAGE>
UTSTARCOM, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------ ----------------------
1996 1997 1998 1998 1999
-------- -------- -------- ----------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................. $ 787 $ 390 $ 473 $ 2,506 $ 10,236
Adjustments to reconcile net income to net cash used in
operating activities:
(Income) loss from discontinued opeations................. (301) (1,413) 893 796 1,656
Depreciation and amortization............................. 512 1,255 2,520 1,214 1,977
Net loss on sale of assets................................ -- -- 73 254 470
Amortization of deferred stock compensation............... -- -- -- -- 3,521
Non-employee stock option expenses........................ -- -- 411 -- 1,461
Equity in net income (loss) of affiliated companies....... 291 161 596 646 (984)
Provision for doubtful accounts........................... 360 2,653 645 124 1,761
Provision for inventory obsolescence...................... 784 1,612 666 1,910 1,254
Minority interest......................................... 743 (228) (779) (135) 1,233
Changes in operating assets and liabilities:
Accounts receivable and receivable from related
parties............................................... (15,583) (22,371) (52,451) (55,001) (11,102)
Inventories............................................. (3,255) (10,535) (5,080) (3,600) (10,102)
Other current and non-current assets.................... 827 (4,262) (874) (3,403) (2,989)
Deferred tax assets..................................... (59) (59) (1,348) (1,348) (2,697)
Accounts payable and payable to related parties......... 2,899 2,379 (1,956) (1,774) (5,835)
Income taxes payable.................................... 328 (151) 930 1,833 1,160
Other current liabilities............................... 363 4,638 8,635 6,746 9,016
Deferred revenue........................................ (1,063) (475) -- 31 2,664
-------- -------- -------- -------- --------
Net cash (used in) provided by continuing operations........ (12,367) (26,406) (46,646) (49,201) 2,700
Net cash (used in) provided by discontinued operations...... 204 23 207 244 (530)
-------- -------- -------- -------- --------
Net cash (used in) provided by operating activities......... (12,163) (26,383) (46,439) (48,957) 2,170
-------- -------- -------- -------- --------

CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment.................. (2,491) (3,244) (2,751) (2,358) (2,483)
Investment in affiliates, net of cash acquired.............. (3,659) (321) 1,097 995 (719)
Proceeds from disposal of property.......................... -- -- -- -- 997
Restricted cash............................................. 5,000 -- -- -- --
-------- -------- -------- -------- --------
Net cash used in continuing operations...................... (1,150) (3,565) (1,654) (1,363) (2,205)
Net cash (used in) provided by discontinued operations...... 149 (133) (36) (36) 179
-------- -------- -------- -------- --------
Net cash used in investing activities....................... (1,001) (3,698) (1,690) (1,399) (2,026)
-------- -------- -------- -------- --------

CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock.................................... 47 410 480 273 56
Issuance of subsidiary common stock to minority
stockholders.............................................. 346 -- -- -- --
Reacquired common stock..................................... (1,500) (1,100) (453) -- (7)
Distribution of cash to shareholders........................ -- (50,820) -- -- --
Proceeds from borrowing..................................... 438 1,147 48,122 43,313 31,935
Payments on borrowing....................................... (16) (1,128) (13,627) (9,528) (14,830)
Issuance of preferred stock................................. 26,968 55,678 -- -- --
Reacquired preferred stock.................................. (2,070) -- -- -- --
Payments on shareholder note receivable..................... -- 35,000 -- -- --
Advance from affiliate...................................... (5,000) 4,042 -- -- --
-------- -------- -------- -------- --------
Net cash provided by financing activities of continuing
operations................................................ 19,213 43,229 34,522 34,058 17,154
Effects of exchange rates on cash........................... 21 (25) (77) (58) --
-------- -------- -------- -------- --------
Net increase (decrease) in cash and cash equivalents........ 6,070 13,123 (13,684) (16,356) 17,298
Less cash (used in) provided by discontinued operations..... 353 (110) 171 208 (351)
-------- -------- -------- -------- --------
Net increase (decrease) in cash and cash equivalents........ 5,717 13,233 (13,855) (16,564) 17,649
Cash and cash equivalents at beginning of period............ 12,531 18,248 31,481 31,481 17,626
-------- -------- -------- -------- --------
Cash and cash equivalents at end of period.................. $ 18,248 $ 31,481 $ 17,626 $ 14,917 $ 35,275
======== ======== ======== ======== ========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-6
<PAGE>
UTSTARCOM, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

1. ORGANIZATION:

UTStarcom, Inc. (the Company), a Delaware corporation, provides
communications equipment including network access systems, optical transmission
products and subscriber terminal products for service providers that operate
wireless and wireline networks. The Company's operations are conducted primarily
by its foreign subsidiaries that manufacture, distribute, and support the
Company's products in international markets, principally the People's Republic
of China (China).

The following lists the Company's active subsidiaries, its percentage
ownership, and business each subsidiary operates as of September 30, 1999:

<TABLE>
<CAPTION>
PERCENTAGE
NAME OWNED TYPE OF OPERATIONS
- ---- ---------- ------------------
<S> <C> <C>
UTStarcom-China (UTSC).............. 100% Marketing and sales of telecom equipment
Hangzhou UTStarcom, Ltd. (HUTS)..... 88% Manufacturing of telecom equipment
Guangdong UTStarcom, Ltd. (GUTS).... 51% Manufacturing of telecom equipment
Wacos, Inc. (Wacos)................. 51% Conducting research & development
</TABLE>

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

BASIS OF PRESENTATION:

The accompanying consolidated financial statements include the accounts of
the Company and its wholly and majority (50 percent or more) owned subsidiaries,
except for GUTS which is accounted for using the equity method as the Company
does not have voting control over all significant matters. All significant
intercompany accounts and transactions have been eliminated in preparation of
the consolidated financial statements. Minority interest in consolidated
subsidiaries and equity in affiliated companies are shown separately in the
consolidated financial statements. Investments in affiliated companies, of which
none represent greater than 10 percent ownership, are accounted for using the
cost method.

UNAUDITED INTERIM FINANCIAL INFORMATION:

The accompanying interim statement of operations and cash flows for the nine
months ended September 30, 1998 are unaudited. The unaudited interim financial
statements have been prepared on the same basis as the annual financial
statements and financial statements for the period ended September 30, 1999 and,
in the opinion of management, reflect all adjustments, which include only normal
recurring adjustments, necessary to present fairly the Company's results of
operations and cash flows for the nine months ended September 30, 1998. The
financial data and other information related to this period that are disclosed
in these notes to consolidated financial statements are unaudited.

RESTATEMENT AND RECLASSIFICATION:

The consolidated financial statements of the Company have been restated to
reflect the disposition of Nanjing UTStarcom, Ltd. (NUTS). (See Note 4).
Accordingly, the revenues, costs and expenses, assets and liabilities and cash
flows of these discontinued operations have been excluded from the respective
captions in the Consolidated Balance Sheets, Consolidated Statements of
Operations and Consolidated Statements of Cash Flows, and have been reported
through the dates of dispositions as

F-7
<PAGE>
UTSTARCOM, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)

"Net assets from discontinued operations", "Income (loss) from discontinued
operations" and "Net cash (used in) provided by discontinued operations" for all
periods presented.

Certain reclassifications have been made in the prior years financial
statements to conform with the 1999 presentation.

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
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

CASH AND CASH EQUIVALENTS:

Cash and cash equivalents consist of highly liquid investments with original
maturity of three months or less at date of purchase. Restricted cash at
December 31, 1998 and September 30, 1999 consisted of the following:

<TABLE>
<CAPTION>
1998 1999
-------- --------
<S> <C> <C>
Collateral for letters of credit........................... $ -- $ 1,488
Cash in escrow............................................. -- 11,304
Cash collateral............................................ 1,500 1,500
------ -------
$1,500 $14,292
====== =======
</TABLE>

Restricted cash balances are expected to be released within three months of
being recorded and are treated as part of cash and cash equivalents.

INVENTORIES:

Inventories are stated at the lower of cost or market, net of allowance for
obsolescence. Cost is computed using standard cost, which approximates to actual
cost on a first-in, first-out basis.

WARRANTY COSTS:

A warranty is provided under the terms of the Company's contract for a
period not greater than one year. The Company provides for these costs at the
time of revenue recognition based upon prior experience.

PROPERTY, PLANT AND EQUIPMENT:

Property, plant and equipment are recorded at cost and are stated net of
accumulated depreciation. Depreciation is provided for on a straight-line basis
over the estimated useful lives of the related assets, generally ranging from
two to ten years. Leasehold improvements are amortized on a straight-line basis
over the shorter of the useful life of the improvements or the term of the
lease.

F-8
<PAGE>
UTSTARCOM, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)

When assets are disposed of, the cost and related accumulated depreciation are
removed from the accounts and the resulting gains or losses are included in the
results of operations. The Company generally depreciates its assets over the
following periods:

<TABLE>
<S> <C>
Buildings................................................... 10 years
Leasehold improvements...................................... 2-10 years
Automobiles................................................. 5 years
Equipment and furniture..................................... 2-7 years
</TABLE>

INTANGIBLE ASSETS:

Intangible assets are the excess of costs of acquired companies over the
fair value of net assets acquired (goodwill) and are amortized on a
straight-line basis generally over 5 years.

IMPAIRMENT OF LONG-LIVED ASSETS:

Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of"
("SFAS 121"), requires that long-lived assets and certain intangible assets be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount may not be recoverable. If undiscounted expected future
cash flows are less than the carrying value of the assets, an impairment loss is
to be recognized based on the fair value of the assets. The Company considers
the requirements of SFAS 121 on an ongoing basis.

STOCK-BASED COMPENSATION

The Company accounts for employee stock option grants in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB 25") and has adopted the disclosure-only alternative of
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123").

The value of warrants, options or stock exchanged for services is expensed
over the period benefitted. The warrants and options are valued using the
Black-Scholes option pricing model. To calculate the expense, the Company uses
either the fair value of the consideration received or the fair value of the
equity instruments issued, whichever is more reliably measurable.

COMPREHENSIVE INCOME

In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income" ("SFAS No. 130"). SFAS No. 130
establishes standards for reporting and display of comprehensive income and its
components and is effective for periods beginning after December 15, 1997. The
Company's comprehensive income approximated net income for all periods
presented.

F-9
<PAGE>
UTSTARCOM, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)

INCOME TAXES:

Deferred income taxes are established based on enacted tax rates. Valuation
allowances are established when necessary to reduce deferred tax assets to the
amount expected to be realized.

The Company does not provide for U.S Federal taxes on undistributed earnings
of its foreign subsidiaries or affiliates as they are considered to be
reinvested for an indefinite period.

REVENUE RECOGNITION:

Revenue from product sales of hardware is recognized when title is passed,
all significant contractual obligations have been satisfied and collection of
the resulting receivable is reasonably assured. Revenues and estimated profits
on longer term contracts, typically lasting no more than three to four months,
are generally recognized under the percentage of completion method based on the
costs incurred relative to total estimated costs. Percentage of completion
profit estimates are revised periodically based on changes in facts and any
losses on contracts are recognized immediately. The introduction of longer term
contracts in 1999 led to advance billings of $2,665 being recognized on the
balance sheet.

SEGMENT REPORTING:

Effective May 1, 1998, the Company adopted the Statement of Financial
Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and
Related Information" ("SFAS 131"). SFAS 131 requires that an enterprise report
financial and descriptive information about its reportable operating segments.
Generally, financial information is required to be reported on the basis that is
used internally for evaluating segment performance and deciding how to allocate
resources to segments. The Company has determined that they operate in a single
segment as defined by SFAS 131, providing communications equipment through an
integrated suite of network access systems, optical transmission products and
subscriber terminal products. Adoption of this standard does not affect the
Company's results of operations or financial position.

DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS:

Financial instruments consist of cash and cash equivalents, accounts
receivable and payable, and debt. The carrying amounts of cash and cash
equivalents, accounts receivable and payable approximate their fair values
because of the short term nature of those instruments. The carrying amounts of
debt approximate their fair values because of either the short maturity or the
variable interest rates of those instruments.

FOREIGN CURRENCY TRANSLATIONS:

Operations of the Company's subsidiaries are conducted primarily in China
and the financial statements of those subsidiaries are translated from China's
Renminbi, as functional currency, into U.S. Dollars in accordance with the
Statement of Financial Accounting Standards No. 52, "Foreign Currency
Translation" ("SFAS 52"). Accordingly, all foreign currency assets and
liabilities are translated at period-end exchange rates, while revenue and
expenses are translated at the average exchange rate for the period. The effects
of translating the financial statements of foreign subsidiaries into U.S.
dollars

F-10
<PAGE>
UTSTARCOM, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)

are reported as a cumulative translation adjustment, a separate component of
stockholders' equity. Foreign currency translation gains and losses have not
been material for 1997, 1998 and the nine months ended September 30, 1999.

EARNINGS (LOSS) PER SHARE:

The Company computes earnings (loss) per share pursuant to the Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128"). Basic
earnings (loss) per share is computed by dividing income or loss applicable to
common stockholders by the weighted average number of shares of the Company's
common stock outstanding during the period. Diluted earnings (loss) per share is
determined in the same manner as basic earnings (loss) per share except that the
number of shares is increased assuming exercise of dilutive stock options and
warrants using the treasury stock method and conversion of the Company's
convertible preferred stock. (See Note 3)

F-11
<PAGE>
UTSTARCOM, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS, EXCEPT PER SHARE DATA)

3. EARNINGS (LOSS) PER SHARE:

The following table presents the calculation of basic and diluted earnings
(loss) per share:

<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
---------------------------------------- ------------------------
1996 1997 1998 1998 1999
----------- ------------ ----------- ----------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Numerator:
Income (loss) from continuing
operations......................... $ 486 $ (1,023) $ 1,366 $ 3,302 $ 11,892
Mandatory redeemable convertible
preferred stock dividend
requirement........................ (1,097) -- -- -- --
----------- ------------ ----------- ----------- ----------
Income (loss) from continuing
operations after preferred stock
dividend requirement............... (611) (1,023) 1,366 3,302 11,892
Income (loss) from discontinued
operations......................... 301 1,413 (893) (796) (1,656)
----------- ------------ ----------- ----------- ----------
Net income (loss) applicable to
common stock....................... $ (310) $ 390 $ 473 $ 2,506 $ 10,236
=========== ============ =========== =========== ==========

Denominator:
Weighted-average shares
outstanding........................ 8,344 7,320 7,582 7,792 8,640
Dilutive warrants.................... -- -- 10 6 14
Dilutive convertible preferred
shares............................. -- -- 63,608 62,722 59,086
Dilutive options..................... -- -- 5,850 5,700 5,792
----------- ------------ ----------- ----------- ----------
8,344 7,320 77,050 76,220 73,532
=========== ============ =========== =========== ==========

Basic earnings (loss) per share:
Income (loss) from continuing
operations......................... $ (0.07) $ (0.14) $ 0.18 $ 0.42 $ 1.38
Income (loss) from discontinued
operations......................... 0.03 0.19 (0.12) (0.10) (0.19)
----------- ------------ ----------- ----------- ----------
$ (0.04) $ 0.05 $ 0.06 $ 0.32 $ 1.19
=========== ============ =========== =========== ==========

Diluted earnings (loss) per share:
Income (loss) from continuing
operations......................... $ (0.07) $ (0.14) $ 0.02 $ 0.04 $ 0.16
Income (loss) from discontinued
operations......................... 0.03 0.19 (0.01) (0.01) (0.02)
----------- ------------ ----------- ----------- ----------
$ (0.04) $ 0.05 $ 0.01 $ 0.03 $ 0.14
=========== ============ =========== =========== ==========
</TABLE>

4. DISCONTINUED OPERATIONS:

During September 1999, the Company closed NUTS in China. NUTS, which was 100%
owned, was engaged in telephone network and internet network services unrelated
to the remaining Company operations. NUTS sold substantially all of its assets
prior to closure. The close of NUTS was accounted for as a discontinued
operation.

F-12
<PAGE>
UTSTARCOM, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

The Company's previous interests in the net revenues and expenses of NUTS'
operations prior to September 30, 1999 are classified separately as income
(loss) from discontinued operations in the income statements. The components of
the income or loss are summarized as follows:

<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS
DECEMBER 31, ENDED
------------------------------ SEPTEMBER 30,
1996 1997 1998 1999
-------- -------- -------- --------------
<S> <C> <C> <C> <C>
Net sales............................... $3,141 $8,499 $4,457 $ 298
Operating expenses and cost of sales.... 2,840 7,029 5,345 1,369
------ ------ ------ -------
Operating income (loss)................. 301 1,470 (888) (1,071)
Other income (expenses)................. -- (57) (5) (585)
------ ------ ------ -------
Income (loss) from discontinued
operations............................ $ 301 $1,413 $ (893) $(1,656)
====== ====== ====== =======
</TABLE>

The Company's previous interest in the net assets and liabilities of NUTS is
classified as net assets from discontinued operations in the Company's balance
sheets. The components of these net assets are summarized below:

<TABLE>
<CAPTION>
DECEMBER 31,
------------------- SEPTEMBER 30,
1997 1998 1999
-------- -------- --------------
<S> <C> <C> <C>
Current assets................................. $ 7,339 $2,650 --
Noncurrent assets.............................. 211 182 --
Current liabilities............................ (3,993) (686) --
------- ------ ------
Net assets from discontinued operations........ $ 3,557 $2,146 --
======= ====== ======
</TABLE>

The Company's cash flow statements include separately the cash flows from
discontinued operations.

5. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
------------------------------ ----------------------
1996 1997 1998 1998 1999
-------- -------- -------- ----------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash paid during the period for:
Interest........................... $119 $ 184 $ 564 $341 $2,493
Income taxes....................... $548 $1,654 $1,076 $523 $1,120
</TABLE>

F-13
<PAGE>
UTSTARCOM, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

5. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: (CONTINUED)

Noncash investing and financing activities were as follows:

<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
------------------------------ ----------------------
1996 1997 1998 1998 1999
-------- -------- -------- ----------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Note received for mandatorily redeemable
convertible preferred stock.................. $35,000 $ -- $ -- $ -- $ --
Exchange of common stock for preferred stock... $ -- $35,253 $ -- $ -- $ --
Share in APIC of minority shareholder in
Wacos........................................ $ -- $ -- $2,867 $2,867 $ --
Distribution of net assets to shareholders..... $ -- $25,010 $1,983 $ -- $4,956
</TABLE>

6. ACQUISITION OF COMPANIES:

During 1996, the Company invested approximately $955 into Zhejiang Unitel
Telecom Equipment, Ltd. (UTL) for an additional 19% ownership interest, thereby
increasing its ownership to 70%. During 1997, the Company merged UTL into HUTS,
thereby owning 86% of the combined new entity. Concurrent with this combination,
the Company acquired approximately a 2% additional interest in the combined
entity for $780 in cash, which increased its ownership interest to 88%. The
purchase of additional interest in the new entity was accounted for as a
purchase resulting in an insignificant excess of the purchase price over the
fair value of the net assets acquired.

In February 1996, the Company purchased a 65% interest in NST for
approximately $1,200. This transaction was accounted for as a purchase resulting
in an intangible asset for the insignificant excess of the purchase price of NST
over the fair value of the net assets. The accounts of NST have been included in
the consolidated financial statements subsequent to February 1996.

In September 1996, the Company purchased a 49% interest in GUTS for
approximately $1,200. In February 1998, the Company acquired an additional 2%
interest in GUTS for $80, increasing its ownership interest to 51%. However,
because the Company does not have voting control over all significant matters of
GUTS, the investment in and results of operations of GUTS are included in the
consolidated financial statements using the equity method of accounting. The
purchase of the additional interest in GUTS has been accounted for as a purchase
resulting in an intangible asset for the insignificant excess of the purchase
price of GUTS over the fair value of the net assets.

In February 1997, the Company purchased a 49% interest in Wacos for
approximately $322. From 1997 through June 1998, the Company recorded its
interest in Wacos operations using the equity method of accounting. Since July
1998, when Wacos reacquired 150,000 shares of its common stock and the Company's
ownership increased to 51%, Wacos has been included in the consolidated
financial statements of the Company. The purchase of the additional interest in
Wacos has been accounted for as a purchase resulting in an intangible asset for
the insignificant excess of the purchase price of Wacos over the fair value of
the net assets.

7. DISTRIBUTION TO SHAREHOLDERS:

In August 1999 the Company distributed to its shareholders the net assets of
a previously consolidated yet unrelated business which was acquired in 1997.
This business, which operated in a

F-14
<PAGE>
UTSTARCOM, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

7. DISTRIBUTION TO SHAREHOLDERS: (CONTINUED)

dissimilar market segment, has been managed and financed, in all significant
respects, as if it were autonomous from the Company. These financial statements
have been prepared as if the acquired business was distributed on the original
date of purchase in 1997. The original purchase price totalling $75,830
comprised cash of $50,820, notes payable and other acquisition costs of $11,185,
the issuance of 2,540,000 shares of UTStarcom common stock valued at $13,825 and
additional shares of UTStarcom stock and warrants to be determined based on the
post acquisition performance of the acquired business. Common and Series E
preferred stock was issued in 1998 and subsequently amended in 1999. A warrant
to purchase common stock with a Black-Scholes value of $1,983 was issued in 1998
and was subsequently amended in 1999, resulting in a net value of $389 at
September 30, 1999.

8. INVENTORIES:

As of December 31, 1997, 1998 and September 30, 1999 inventories consist of
the following:

<TABLE>
<CAPTION>
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Raw materials.................................... $10,252 $ 9,572 $16,877
Work in process.................................. 3,221 6,518 3,673
Finished goods................................... 3,495 5,895 11,537
------- ------- -------
$16,968 $21,985 $32,087

Less allowance for obsolete inventory............ 1,779 2,445 3,699
------- ------- -------
$15,189 $19,540 $28,388
======= ======= =======
</TABLE>

9. PROPERTY, PLANT AND EQUIPMENT:

As of December 31, 1997, 1998, and September 30, 1999 property, plant and
equipment consists of the following:

<TABLE>
<CAPTION>
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Buildings......................................... $ 465 $ 362 $ 388
Leasehold improvements............................ 399 128 958
Automobiles....................................... 872 903 1,099
Equipment and furniture........................... 6,479 10,670 11,010
------ ------- -------
8,215 12,063 13,455
Less accumulated depreciation..................... 1,489 3,718 5,553
------ ------- -------
$6,726 $ 8,345 $ 7,902
====== ======= =======
</TABLE>

Depreciation expense was $453, $1,215, $2,402 and $1,865 for the years ended
December 31, 1996, 1997, 1998 and the nine months ended September 30, 1999
respectively.

F-15
<PAGE>
UTSTARCOM, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

10. INTANGIBLE ASSETS:

As of December 31, 1997, 1998, and September 30, 1999 intangible assets
consists of the following:

<TABLE>
<CAPTION>
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Excess of purchase price over net assets acquired... $1,721 $1,816 $1,816
Less accumulated amortization....................... 113 231 343
------ ------ ------
$1,608 $1,585 $1,473
====== ====== ======
</TABLE>

Amortization expense was $42, $40, $120 and $112 for the years ended
December 31, 1996, 1997, 1998 and the nine months ended September 30, 1999
respectively.

11. RELATED PARTY DEBT:

Payable to related parties and debt to shareholder at December 31, 1998 and
September 30, 1999 consist of the following:

<TABLE>
<CAPTION>
1998 1999
-------- --------
<S> <C> <C>
Payable to related party(1)............................... $ 1,311 $ 1,311
======= =======

Debt to shareholder--SOFTBANK CORP.(2).................... $26,250 $ 9,055
Debt to shareholder--SOFTBANK CORP.(3).................... -- 5,301
------- -------
Total debt to shareholder................................. $26,250 $14,356
======= =======
</TABLE>

- ------------------------

(1) Amount bears interest at a rate of 5.5% per annum and has no scheduled
payment terms.

(2) In June 1998, the Company entered into a loan agreement with SOFTBANK CORP.
(SOFTBANK), the Company's principal shareholder, for the total amount of
$25,000. As of September 30, 1999, a $9,055 balance was outstanding
including $55 of accrued interest. The loan bears interest at 10% per annum
and must be repaid on the earlier of (a) two business days after the close
of an initial public offering of the Company's equity securities or (b) two
years after the last drawdown date.

(3) Jitong, a company in China with which the Company had a management
consulting agreement, paid UTSC Renminbi 44,000 ($5,301) for the repayment
of a loan made by SOFTBANK to Jitong. Repayment of this amount to SOFTBANK
is planned for the first quarter of 2000. This payable is a non interest
bearing balance.

F-16
<PAGE>
UTSTARCOM, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

12. THIRD PARTY DEBT:

The following represents the outstanding borrowings at December 31, 1998 and
September 30, 1999:

<TABLE>
<CAPTION>
NOTE RATE MATURITY 1997 1998 1999
- ---- ------------------- ----------------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Bank of China(1).......... From 5.58% to 6.40% From 1/00 to 7/00 $1,566 $ 9,398 $26,506

Industrial & Commercial
Bank of China(2)........ 6.57% 2/00 -- 1,446 1,446

Other..................... Various Various 13 21 16
------------------- ----------------- ------ ------- -------
Total debt................ $1,579 $10,865 $27,968
====== ======= =======
</TABLE>

- ------------------------

(1) Guaranteed by the Company and the minority shareholder of HUTS. This
represents drawings on the Company's line of credit with the bank. This line
of credit allows for borrowings of up to $48,193; therefore, $21,687 is
available under this facility at September 30, 1999.

(2) Collateralized by $1,500 deposited with the bank and is classified as other
assets. This line of credit allows for borrowings of up to $1,446 and
matures on February 3, 2000.

F-17
<PAGE>
UTSTARCOM, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

13. OTHER CURRENT LIABILITIES:

Other current liabilities at December 31, 1997, 1998 and September 30, 1999
consist of the following:

<TABLE>
<CAPTION>
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Customer deposits................................. $1,025 $ 605 $ 1,137
Accrued contract costs............................ 2,453 7,204 12,650
Accrued compensation and bonus.................... 837 1,944 2,602
Accrued other taxes............................... -- -- 1,724
Warranty costs.................................... 548 997 1,997
Other............................................. 872 2,673 2,829
------ ------- -------
$5,735 $13,423 $22,939
====== ======= =======
</TABLE>

14. PROVISION FOR INCOME TAXES:

United States and foreign income (loss) before income taxes, loss on
discontinued operations, and minority interest were as follows:

<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED
------------------------------ SEPTEMBER 30,
1996 1997 1998 1999
-------- -------- -------- --------------
<S> <C> <C> <C> <C>
United States........................ $(1,499) $ 274 $(3,996) $(6,606)
Foreign.............................. 3,303 (1,125) 6,030 18,708
------- ------- ------- -------
$ 1,804 $ (851) $ 2,034 $12,102
======= ======= ======= =======
</TABLE>

Undistributed foreign earnings at September 30, 1999 amounted to $27,835.

The components of the provision for income taxes are as follows:

<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED
------------------------------ SEPTEMBER 30,
1996 1997 1998 1999
-------- -------- -------- --------------
<S> <C> <C> <C> <C>
CURRENT:
Federal................................. $123 $176 $ 0 $ 272
State................................... 2 50 1 18
Foreign................................. 509 190 934 985
DEFERRED:
Federal................................. (19) 113 632 (1,625)
State................................... (40) 15 (239) 30
Foreign................................. -- (144) 86 (703)
---- ---- ------ -------
$575 $400 $1,414 $(1,023)
==== ==== ====== =======
</TABLE>

F-18
<PAGE>
UTSTARCOM, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

14. PROVISION FOR INCOME TAXES: (CONTINUED)

Deferred income taxes arise from temporary differences between the tax basis
of assets and liabilities and their reported amounts in the financial
statements. A summary of the components of net deferred tax assets is as
follows:

<TABLE>
<CAPTION>
U.S. CHINA TOTAL
-------- -------- --------
<S> <C> <C> <C>
DECEMBER 31, 1997:
Deferred tax assets:
Net operating loss carryforward................... $ 10 $ -- $ 10
Allowances and reserves........................... 154 144 298
Tax credit carryforwards.......................... 863 -- 863
------- ------ -------
Total deferred tax assets....................... 1,027 144 1,171
Deferred tax liabilities:
Accelerated depreciation.......................... (181) -- (181)
------- ------ -------
846 144 990
Valuation allowances.............................. (734) -- (734)
------- ------ -------
Net deferred tax assets......................... $ 112 $ 144 $ 256
======= ====== =======
</TABLE>

<TABLE>
<CAPTION>
U.S. CHINA TOTAL
-------- -------- --------
<S> <C> <C> <C>
DECEMBER 31, 1998:
Deferred tax assets:
Net operating loss carryforward................... $ 1,459 $ -- $ 1,459
Allowances and reserves........................... 629 454 1,083
Tax credit carryforwards.......................... 1,168 1,168
------- ------ -------
Total deferred tax assets....................... 3,256 454 3,710
Deferred tax liabilities:
Accelerated depreciation.......................... (280) (280)
------- ------ -------
2,976 454 3,430
Valuation allowances.............................. (1,629) (1,629)
------- ------ -------
Net deferred tax assets......................... $ 1,347 $ 454 $ 1,801
======= ====== =======
</TABLE>

F-19
<PAGE>
UTSTARCOM, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

14. PROVISION FOR INCOME TAXES: (CONTINUED)

<TABLE>
<CAPTION>
U.S. CHINA TOTAL
-------- -------- --------
<S> <C> <C> <C>
SEPTEMBER 30, 1999:
Deferred tax assets:
Net operating loss carryforward................... $ 2,095 $ -- $ 2,095
Allowances and reserves........................... 2,976 1,158 4,134
Tax credit carryforwards.......................... 2,367 2,367
------- ------ -------
Total deferred tax assets....................... 7,438 1,158 8,596
Deferred tax liabilities:
Accelerated depreciation.......................... (284) (284)
------- ------ -------
7,154 1,158 8,312
Valuation allowances.............................. (3,967) (3,967)
------- ------ -------
Net deferred tax assets......................... $ 3,187 $1,158 $ 4,345
======= ====== =======
</TABLE>

Net deferred tax assets are included in other assets on the balance sheet.

As of September 30, 1999, the Company has research and development credit
carryforwards of approximately $1,025 for federal tax purposes expiring in
varying amounts between 2001 and 2012. Due to changes in the Company's
ownership, the amount of research and development credit carryforwards available
to offset future federal income tax liabilities may be limited. The amount of
such limitation, if any, has not been determined. Management believes that the
Company's ability to use their deferred tax assets is limited based on the
expectation that they will not be able to fully utilize either the tax net
operating losses of Wacos, or the research and development credits created in
Wacos and the Company's other research and development center in the US. The
Company has created a partial valuation allowance in consideration of these
expectations.

UTSC and HUTS were granted tax holidays which started to phase out in 1999.
The net impact of these tax holidays was to decrease net loss by approximately
$835 in 1997, increase net income by approximately $305 for the year ended
December 31, 1998, and increase net income of UTSC and HUTS by approximately
$3,050 for the nine months ended September 30, 1999. One time tax refunds of
$360 were received during the nine months ended September 30, 1999.

F-20
<PAGE>
UTSTARCOM, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

14. PROVISION FOR INCOME TAXES: (CONTINUED)

The difference between the Company's effective income tax rate and the
Federal statutory rate is reconciled below:

<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS
DECEMBER 31, ENDED
---------------------- SEPTEMBER 30,
1997 1998 1999
-------- -------- --------------
<S> <C> <C> <C>
Federal statutory rate................................. (34)% 34 % 34 %
State taxes, net of federal income tax benefit......... (2) (6) (1)
Permanent differences.................................. (4) 9 (7)
Effect of difference in foreign taxes rates............ (33) (19) (32)
Change in valuation allowance.......................... 117 44 18
Other.................................................. 3 7 (34)
--- --- ---
Effective rate......................................... 47 % 69 % (22)%
=== === ===
</TABLE>

15. CONVERTIBLE PREFERRED STOCK:

The Company is authorized to issue 80,200,000 shares of convertible
preferred stock, of which: (1) 4,000,000 shares are designated as Series A,
(2) 16,000,000 shares as Series B, (3) 14,000,000 shares as Series C,
(4) 8,200,000 shares as Series D, and (5) 38,000,000 shares as Series E.

Each share of preferred stock is convertible into common stock at the option
of the holder on a one-for-one basis, subject to certain adjustments. Each
series of preferred stock will automatically convert upon the earliest of the
closing date of an underwritten public offering of the Company's common stock
with aggregate proceeds of at least $8,000, or at the option of the holders of
the outstanding shares of such series. The Company has reserved common shares
sufficient to cover any conversion.

Holders of the preferred stock are entitled to one vote for each share of
common stock into which such shares may be converted.

Each share of Series A, Series B, Series C, Series D and Series E preferred
stock entitles the holder to receive annual noncumulative dividends of $0.05,
$0.104, $0.172, $0.311 and $0.272, respectively, in preference to holders of
shares of common stock, if and when declared by the Board of Directors. No
dividends have been declared to date.

In the event of any liquidation or dissolution, the holders of Series A,
Series B, Series C, Series D and Series E would be entitled to receive $1.00,
$2.12, $3.44, $6.225, and $1.90 per share, respectively, plus all declared but
unpaid dividends prior and in preference to any distribution to holders of
common stock. After payment has been made to the holders of the preferred stock,
any remaining assets shall be distributed ratably among the holders of the
preferred and common stock based on the number of shares of common stock held,
or, in the case of preferred stock, the number of shares of common stock which
the preferred stock could be converted into. If the Company's assets are
insufficient to provide for a full preference amount for the preferred stock
outstanding, then such assets shall be distributed ratably among the holders of
the preferred stock in proportion to the preferential amount each such holder
would be entitled to receive.

F-21
<PAGE>
UTSTARCOM, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

15. CONVERTIBLE PREFERRED STOCK: (CONTINUED)

At December 31, 1996, preferred shares and accreted dividends were
classified outside of stockholders' equity because of their mandatory redemption
feature. In December 1997, the shareholders approved the Eighth Amended and
Restated Certificate of Incorporation, which eliminated the mandatory redemption
and cumulative annual dividend features of all outstanding series of preferred
stock. Accordingly, the preferred stock was recorded in stockholders' equity,
and the accreted dividends amounting to $270, $1,097 and $4,578 in 1995, 1996
and 1997, respectively, were recorded in additional paid-in capital.

During 1997, the Company offered to all its common stockholders the option
of exchanging shares of common stock for shares of Series E preferred stock. As
of September 30, 1999, the exchange had been completed, and the Company had
issued 14,581 shares of Series E preferred stock in connection with this
exchange.

16. STOCKHOLDERS' EQUITY:

In connection with the grant of certain stock options to employees, the
Company recorded deferred stock compensation of $8,791 during the nine months
ended September 30, 1999, representing the difference between the deemed fair
value of common stock for accounting purposes and the option exercise price of
these options at the date of grant. Deferred compensation is presented as a
reduction of stockholders' equity, with amortization recorded over the four year
vesting period. The Company recorded amortization of deferred stock compensation
of approximately $3,521 during the nine months ended September 30, 1999. At
September 30, 1999 approximately $5,270 remained to be amortized over the
corresponding vesting period of each respective option, generally four years.
The amortization expense relates to options awarded to employees in all
operating expense categories.

17. COMMON STOCK WARRANTS:

In May 1994, the Company issued warrants to purchase 582,000 shares of
common stock at $0.345 per share through May 31, 1999. These warrants were
issued in conjunction with the Company's Series A preferred stock financing. The
warrants were exercised for $200 in October 1997.

In December 1998, the Company issued warrants to purchase 2,000,000 shares
of common stock at $6.25 per share as part of the acquisition and distribution
of assets to the Company's shareholders as discussed in Note 7. The fair value
of the warrants ($1,983) was determined using a Black-Scholes model. On
September 30, 1999, the Company amended the distribution value, and the number
of shares which may be issued upon exercise of the warrant was reduced to
500,000 shares. The fair value of the warrants was reduced to $389.

18. STOCK OPTION PLANS:

1992 OMNIBUS EQUITY INCENTIVE PLAN. On April 12, 1992, the Board of
Directors adopted our 1992 Omnibus Equity Incentive Plan, which our stockholders
ratified on December 9, 1994. Under the 1992 plan, directors, employees and
consultants were eligible to acquire shares of common stock pursuant to options,
stock purchase rights and stock appreciation rights. At the time of adoption,
2,400,000 shares of common stock were reserved for issuance under the 1992 plan.
On July 31, 1995, the Board of Directors elected not to grant any further
options under the 1992 plan.

F-22
<PAGE>
UTSTARCOM, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

18. STOCK OPTION PLANS: (CONTINUED)

THE 1995 STOCK PLAN. On July 31, 1995, the Board of Directors adopted, and
in October 1995, our stockholders approved, our 1995 Stock Plan. Under the 1995
plan, officers, employees and consultants were eligible to acquire shares of
common stock pursuant to options or stock purchase rights. At the time of
adoption, 3,705,232 shares of common stock were reserved for issuance under the
1995 plan. In 1995 and 1996, our Board and stockholders added an additional
5,400,000 shares to the 1995 plan, raising the total number of authorized shares
reserved under the 1995 plan to 9,105,232. On January 31, 1997, the Board of
Directors elected not to grant any further options under the 1995 plan. Upon the
adoption of the 1997 plan, all remaining unissued shares under the 1995 plan not
already subject to options or other awards ceased to be reserved for issuance
under the 1995 plan.

THE 1997 STOCK PLAN. On January 31, 1997, the Board of Directors adopted,
and our stockholders approved, our 1997 Stock Plan. Under the 1997 plan,
officers, employees and consultants are eligible to receive options to purchase
shares of common stock and stock purchase rights. Under the plan, we are
authorized to issue up to 5,289,462 shares of common stock.

Options under the Company's stock option plans may be either "Incentive
Stock Options", as defined under Section 422 of the Internal Revenue Code, or
"Nonqualified Options". A summary of activity under the Plans follows:

<TABLE>
<CAPTION>
WEIGHTED
SHARES AVAILABLE NUMBER OF AVERAGE
FOR GRANT SHARES EXERCISE PRICE
---------------- ---------- --------------
<S> <C> <C> <C>
Options Outstanding December 31, 1995......... 10,689,462 4,380,224 $0.91
Options Granted............................... (3,444,162) 3,444,162 $1.28
Options Exercised............................. -- (53,328) $0.88
Options Forfeited or Expired.................. 12,000 (12,000) $0.94
---------- ----------
Options Outstanding December 31, 1996......... 7,257,300 7,759,058 $1.07

Options Granted............................... (1,735,178) 1,735,178 $2.50
Options Exercised............................. -- (184,002) $1.14
Options Forfeited or Expired.................. (1,733,838) (358,886) $2.06
---------- ----------
Options Outstanding December 31, 1997......... 3,788,284 8,951,348 $1.31

Options Granted............................... (2,611,198) 2,611,198 $3.53
Options Exercised............................. -- (483,544) $1.00
Options Forfeited or Expired.................. 1,120,010 (1,424,380) $2.71
---------- ----------
Options Outstanding December 31, 1998......... 2,297,096 9,654,622 $1.72

Options Granted............................... (2,717,332) 2,717,332 $4.50
Options Exercised............................. -- (326,862) $0.75
Options Forfeited or Expired.................. 573,376 (593,102) $3.56
---------- ----------
Options Outstanding September 30, 1999........ 153,140 11,451,990 $2.21
========== ==========
</TABLE>

Options to purchase 7,485,050 shares were exercisable as of September 30,
1999.

F-23
<PAGE>
UTSTARCOM, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

18. STOCK OPTION PLANS: (CONTINUED)

The following table summarizes information with respect to stock options
outstanding as of September 30, 1999:

<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
REMAINING WEIGHTED WEIGHTED
RANGE OF SHARES CONTRACTUAL AVERAGE SHARES AVERAGE
EXERCISE PRICE OUTSTANDING LIFE (YEARS) EXERCISE PRICE EXERCISABLE EXERCISE PRICE
- --------------------- ----------- ------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$0.626 160,000 0.085 $0.63 160,000 $0.63
$0.854 5,033,192 1.19 $0.85 5,033,192 $0.85
$0.938-$2.277 2,091,886 3.375 $1.88 1,717,136 $1.93
$2.500-$4.000 1,418,594 3.97 $3.25 481,586 $3.40
$4.098 21,326 3.465 $4.10 21,326 $4.10
$4.500 2,726,992 4.68 $4.50 71,810 $4.50
- --------------------- ---------- ----- ----- --------- -----
$0.626-$4.500 11,451,990 2.755 $2.21 7,485,050 $1.30
===================== ========== ===== ===== ========= =====
</TABLE>

The Company has elected to account for employee stock-based compensation
under APB 25 and has provided the following information as required by SFAS 123,
"Accounting for Stock-Based Compensation."

The following assumptions were used to calculate the fair value of the
options granted:

<TABLE>
<CAPTION>
1996 1997 1998 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Expected remaining term in years............. 3.5 2.8 3.51 1.73
Weight average risk-free interest rate....... 6.22% 5.67% 4.91% 5.00%
Expected dividend rate....................... 0.00% 0.00% 0.00% 0.00%
</TABLE>

Because the Company does not have actively traded equity securities,
volatility is not considered in determining the fair value of stock-based awards
to employees.

The weighted average fair value per share of those options granted in 1996,
1997, 1998 and 1999 was $0.25, $0.22, $0.82 and $3.49, respectively.

In addition the Company granted 2,717,332 options to non-employees in the
nine months to September 30, 1999. Using a volatility of 40% a compensation
expense of $1,461 was calculated using the Black-Scholes model and charged to
selling, general and administrative expenses.

F-24
<PAGE>
UTSTARCOM, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

18. STOCK OPTION PLANS: (CONTINUED)

Using the above method and assumptions, the Company's net income (loss)
applicable to common stock and earnings (loss) per share, on a pro forma basis,
would have been:

<TABLE>
<CAPTION>
EARNINGS EARNINGS
(LOSS) (LOSS)
NET INCOME PER SHARE PER SHARE
(LOSS) BASIC DILUTED
---------- --------- ---------
<S> <C> <C> <C>
YEAR ENDED:
DECEMBER 31, 1996:
Actual....................................... $ (310) $(0.04) $(0.04)
======= ====== ======
Pro forma.................................... $ (467) $(0.06) $(0.06)
======= ====== ======
DECEMBER 31, 1997:
Actual....................................... $ 390 $ 0.05 $ 0.05
======= ====== ======
Pro forma.................................... $ 43 $ 0.01 $ 0.01
======= ====== ======
DECEMBER 31, 1998:
Actual....................................... $ 473 $ 0.06 $ 0.01
======= ====== ======
Pro forma.................................... $ (2) $ 0.00 $ 0.00
======= ====== ======
NINE MONTHS ENDED:
SEPTEMBER 30, 1999:
Actual....................................... $10,236 $ 1.19 $ 0.14
======= ====== ======
Pro forma.................................... $ 8,931 $ 1.04 $ 0.12
======= ====== ======
</TABLE>

These pro forma results are not necessarily indicative of results which may
be expected in the future as additional grants are made each year and options
vest over several years.

19. COMMITMENTS AND CONTINGENCIES:

LEASES:

The Company and its subsidiaries lease certain facilities under
noncancelable operating leases, which expire at various dates through September
30, 2003. The minimum future lease payments under the leases at September 30,
1999 are as follows:

<TABLE>
<CAPTION>
OPERATING LEASES
----------------
<S> <C>
Years ending:
September 30, 2000........................................ $1,461
September 30, 2001........................................ 1,349
September 30, 2002........................................ 1,165
September 30, 2003........................................ 425
------
Total minimum lease payments.............................. $4,400
======
</TABLE>

F-25
<PAGE>
UTSTARCOM, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

19. COMMITMENTS AND CONTINGENCIES: (CONTINUED)

Total rent expense for the years ended December 31, 1997, 1998 and the nine
months ended September 30, 1999 aggregated is $1,376, $1,846, and $1,426,
respectively.

LITIGATION:

The Company and its subsidiaries may become involved in legal proceedings,
claims and litigation from time to time arising in the ordinary course of
business. In the opinion of management, the outcome of such current legal
proceedings, claims and litigation will not have a material effect on the
Company's consolidated operating results, cash flows or financial position.

GUARANTEE:

In conjunction with a sale of equipment, HUTS has guaranteed a bank loan
incurred by a UTSC customer. As of September 30, 1999, the total amount of debt
guaranteed by the Company was $1,552. The debt carries an interest rate of
6.993% per annum and is payable in 3 installments with the final installment due
December 30, 2001.

20. 401(k) PLAN:

The Company adopted a 401(k) plan for employees during 1995. All employees
are eligible to participate immediately after employment. Matching contributions
are at the discretion of the Company. The Company made no matching contribution
to the plan during 1996, 1997, 1998 or the nine months ended September 30, 1999.

21. OPERATING RISKS:

FINANCIAL RISKS:

Financial instruments, which potentially subject the Company to
concentrations of credit risk, consist principally of cash, cash equivalents and
accounts receivable. The Company places its temporary cash investments with
several financial institutions. Approximately $4,877, $11,444 and $25,475 of the
Company's cash was on deposit in foreign accounts at December 31, 1997, 1998 and
September 30, 1999, respectively. The Company invests excess cash in highly
liquid investments with original maturity of three months or less, such as
certificates of deposit and money market funds, which the Company believes have
limited exposure to risk.

CONCENTRATION OF CREDIT RISK AND MAJOR CUSTOMERS:

No customer in the continuing operations accounted for more than 10% of the
Company's sales during 1997 and 1998. The company's first and second largest
customers accounted for 21.5% and 15.9% of the Company's sales and 31% and 6% of
the accounts receivable respectively, as of September 30, 1999. Over 90% of the
Company's sales during the nine month period ended September 30, 1999 were to
China government affiliated entities or state owned enterprises. Accounts
receivable balances from these China government affiliated entities or state
owned enterprises were $86,129 as of September 30, 1999. The Company extends
credit to its customers generally without requiring collateral. The Company
monitors its exposure for credit losses and maintains allowances for
uncollectible accounts.

F-26
<PAGE>
UTSTARCOM, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

21. OPERATING RISKS: (CONTINUED)

No vendor accounted for more than 10% of the Company's cost of sales during
1997 and 1998. One vendor accounted for 26% of the Company's cost of sales and
23% of accounts payable as of September 30, 1999.

COUNTRY RISKS:

Over 99% of the Company's sales for the nine months ended September 30, 1999
were made in China. Accordingly, the Company's business, financial condition and
results of operations may be influenced by the political, economic and legal
environment in China, and by the general state of China's economy. The Company's
operations in China are subject to special considerations and significant risks
not typically associated with companies in the United States. These include
risks associated with, among others, the political, economic and legal
environments and foreign currency exchange. The Company's results may be
adversely affected by, among other things, changes in the political, economic
and social conditions in China, and by changes in governmental policies with
respect to laws and regulations, changes in China's telecommunications industry
and regulatory rules and policies, anti-inflationary measures, currency
conversion and remittance abroad, and rates and methods of taxation.

Specifically, remittances from China which are of a capital nature, such as
the repayment of bank loans denominated in foreign currencies, require approval
from appropriate governmental authorities before Renminbi can be used to
purchase foreign currency. Although the payment of cash dividends is permitted
so long as the subsidiaries have sufficient reserves and adequate amounts of
Renminbi to purchase foreign currency, regulations restrict the ability of the
subsidiaries to transfer funds to the Company through intercompany loans and
advances. The Company had net assets at September 30, 1999 of approximately
$50,000 located in China compared to the Company's total net assets of $80,000.

22. SUBSEQUENT EVENTS:

In December 1999, the Board of Directors authorized the management of the
Company to file a Registration Statement with the Securities and Exchange
Commission concerning the proposed sale of the shares of its common stock to the
public. Upon completion of this proposed sale, all outstanding shares of the
Company's convertible preferred stock will automatically convert into common
stock. Unaudited pro forma stockholders' equity, as adjusted for the assumed
conversion of the convertible preferred stock upon the Company's initial public
offering, is disclosed in the accompanying unaudited pro forma stockholders'
equity balance sheet.

In December 1999, the Board of Directors authorized a two for one stock
split of the Company's authorized and issued shares of common and preferred
stock. The share information in the accompanying financial statements and
related notes has been retroactively restated to reflect the effect of this
stock split for all periods presented.

In November and December 1999, the Company closed its Series F financing
where 6,152,106 shares were sold at a per share price of $8.1273 for a total
purchase price of $50,000. As a condition of investment, one investor was issued
an option to purchase up to an additional 615,210 shares of the Company's
Series F Preferred Stock at $8.1273 for a total purchase price of $5,000. The
option expires January 13, 2000.

F-27
<PAGE>
UTSTARCOM, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

22. SUBSEQUENT EVENTS: (CONTINUED)

Recent financing rounds of preferred stock included a yield enhancement
feature pursuant to which the preferred shares convert into common shares on a
one-for-one basis at a price below the expected offering price upon the
completion of the Company's initial public offering. This will result in a
charge in net income in the fiscal period ending December 31, 1999 of
approximately $14,751.

ACQUISITION:

In December 1999, the Company completed the purchase of the minority
interest in its Wacos subsidiary. At the date of purchase the minority interest
accounted for 5,028,508 shares, or 45.8%, of the total Wacos shares outstanding.

925,043 shares of the minority interest were acquired for a total purchase
price of $12,064 using 832,182 shares of Series G preferred stock valued at
$8.1273 per share and $242 of common stock options valued using Black-Scholes.
Under the terms of the Wacos acquisition agreement, Wacos shareholders received
0.899614 shares of the Company's Series G preferred stock for each Wacos share
for a total value of approximately $6,761.

4,103,465 of Wacos minority interest's shares were held by SOFTBANK, the
majority owner of the Company's voting stock. The Company acquired SOFTBANK's
4,103,465 Wacos shares for 3,691,534 shares of Series G preferred stock. The
acquisition of SOFTBANK's holding occurred as an exchange of shares between
companies under common control. As a transfer between companies under common
control the Company will account for the acquired stock at SOFTBANK's historic
cost.

The preliminary allocation of the Company's aggregate purchase price to the
tangible and identifiable intangible assets acquired and liabilities assumed as
allocated pro rata to the non-SOFTBANK minority interest, was based primarily on
independent appraisals of estimates of fair value and is summarized as follows:

<S> <C>
Purchased research and development... $ 4,075
Fair value of net assets acquired.... 134
Fair value of identified intangible
assets............................. 251
Excess of costs of acquiring Wacos
over fair value of net assets
(goodwill)......................... 7,604
-------
Total purchase price................. $12,064
=======
</TABLE>

The Company does not believe that the final purchase price allocation will
differ significantly from this preliminary purchase price allocation.

At the time of the Wacos acquisition, Wacos was engaged in three distinct
in-process research and development projects in relation to its IP-based
switching system. These projects were in various stages of development but none
had reached the point where technological feasibility had been established.

The values of Wacos in-process research and development projects were
estimated by an excess income approach. Management revenue and operating expense
projections were used to forecast the after-tax net incomes for each of the
relevant future product lines. These forecasted net incomes were reduced by
appropriate amounts to reflect a fair return on the net tangible and collateral
intangible

F-28
<PAGE>
UTSTARCOM, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

22. SUBSEQUENT EVENTS: (CONTINUED)

assets expected to be employed in realizing the forecasted net incomes. The
resulting forecasted "excess" income figures were discounted to present value
using a 37.5% rate of return, reflecting the technological, market and other
risks associated with the subject technologies and future products. The
discounted excess incomes were summed and then, in accordance with methodology
approved by the Securities and Exchange Commission, reduced by an appropriate
percentage completion factor for each project to account for the anticipated
remaining research and development efforts.

The excess for the purchase price over the fair market values of the
tangible and identified intangible assets acquired has been recorded as
goodwill, and is being amortized on a straight-line basis over a period of three
to five years.

In December 1999, the Board of Directors adopted the 2000 Employee Stock
Purchase Plan. Subject to meeting federal and state securities law requirements
and obtaining stockholder approval, the stock purchase plan will become
effective at the consummation of this offering, or as soon as practicable
thereafter. The maximum number of shares of the Company's common stock which
will be made available for sale under the Stock Purchase Plan will be 2,000,000
shares plus an annual increase to occur on the first day of each fiscal year
beginning in 2001 equal to the lesser of 4,000,000 shares or 2% of the
outstanding shares on that date, or a lesser amount as determined by the Board
of Directors. The Stock Purchase Plan will be administered by the Board or a
committee appointed by the Board. The Stock Purchase Plan is implemented by
offering periods, the duration of which may not exceed 24 months. Offering
periods may contain interim purchase periods. The first offering period will
begin on the effective date of this offering and will end on the last trading
day on or before January 31, 2002.

In December 1999, the Board of Directors amended the 1997 Plan, which
authorized the issuance of up to 10,524,574 shares of common stock under this
plan. During the term of the 1997 Plan, the number of shares will be increased
annually on the first day of each fiscal year beginning in 2001 by an amount
equal to the lesser of 6,000,000 shares or 4% of the outstanding shares on that
date, or a lesser amount as determined by the Board of Directors.

F-29
<PAGE>
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION

The unaudited pro forma combined financial information set forth below gives
effect to the Company's acquisition of Wacos as if it had occurred on
January 1, 1998.

See notes to unaudited pro forma combined financial information for further
detail on the accounting treatment.

On December 14, 1999, the Company acquired the assets of Wacos, Inc. for
approximately $12.1 million. The unaudited pro forma combined balance sheet is
based on the individual unaudited balance sheets of UTStarcom, Inc. and
Wacos, Inc. appearing elsewhere in this prospectus and has been prepared to
reflect the acquisition by the Company of the assets of Wacos as of
September 30, 1999. The unaudited pro forma combined statements of operations is
based on individual historical results of operations of the Company and Wacos
for the year ended December 31, 1998 and for the nine months ended
September 30, 1999, after giving effect to the acquisition of Wacos as if it had
occurred at the beginning of each of the periods presented. Wacos has been a
consolidated subsidiary since July 1, 1998 and as such these unaudited pro forma
combined financial statements reflect certain adjustments, including adjustments
to reflect the amortization of intangible assets and goodwill acquired. These
adjustments are preliminary and are based on our best estimates. A third party
valuation of the assets acquired will be used to finalize these adjustments. The
information set forth below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the consolidated financial statements and the related notes of the Company.

The unaudited pro forma combined financial statements should be read in
conjunction with the consolidated financial statements and notes thereto of
UTStarcom. The unaudited pro forma combined financial information set forth
below does not purport to represent what the consolidated results of operations
or financial condition of the Company would actually have been if the
acquisition and related transactions had in fact occurred on such date or to
project the future consolidated results of operations or financial condition of
the Company.

F-30
<PAGE>
UTSTARCOM, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1998
-----------------------------------------------------------
PRO FORMA
UTS WACOS COMBINED ADJUSTMENTS TOTAL
-------- -------- --------- ----------- --------
<S> <C> <C> <C> <C> <C>
Net sales.............................................. $105,167 $ 53 $105,220 $ (53) $105,167
Cost of sales.......................................... 65,246 22 65,268 (22) 65,246
-------- ------- -------- ------- --------
Gross profit........................................... 39,921 31 39,952 (31) 39,921
Operating expenses:
Selling, general and administrative expenses......... 23,233 23,233 23,233
Research and development expenses.................... 12,694 4,766 17,460 (2,805) 14,655
Amortization of intangible assets.................... 120 120 2,534 2,654
-------- ------- -------- ------- --------
Total operating expenses............................... 36,047 4,766 40,813 (271) 40,542
-------- ------- -------- ------- --------
Operating income (loss)................................ 3,874 (4,735) (861) (240) (621)
Interest income (expenses)............................. (213) 79 (134) (10) (144)
Other income (expenses)................................ (1,031) 36 (995) (995)
Equity in net income (loss) of affiliated companies.... (596) (596) 927 331
-------- ------- -------- ------- --------
Income (loss) before income taxes and minority
interest............................................. 2,034 (4,620) (2,586) 1,157 (1,429)
Income tax expense (benefit)........................... 1,414 136 1,550 (123) 1,427
-------- ------- -------- ------- --------
Income (loss) before minority interest................. 620 (4,756) (4,136) (1,280) (2,856)
Minority interest in (earnings) loss of consolidated
subsidiaries......................................... 746 746 (1,167) (421)
-------- ------- -------- ------- --------
Income (loss) from continuing operations............... $ 1,366 $(4,756) $ (3,390) $ 113 $ (3,277)
======== ======= ======== ======= ========

Earnings (loss) per common share--basic................ $ (0.04)
========
Earnings (loss) per common share--diluted.............. $ (0.04)
========
Shares used in per-share calculation--basic............ 76,051
========
Shares used in per-share calculation--diluted.......... 76,051
========
</TABLE>

See accompanying notes to unaudited pro forma combined financial information.

F-31
<PAGE>
UTSTARCOM, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
----------------------------------------------------------
PRO FORMA
UTS WACOS(7) COMBINED ADJUSTMENTS TOTAL
-------- ---------- --------- ----------- --------
<S> <C> <C> <C> <C> <C>
Net sales.............................................. $124,701 $124,701 $ $124,701
Cost of sales.......................................... 72,677 72,677 72,677
-------- -------- -------- ------- --------
Gross profit........................................... 52,024 52,024 52,024
Operating expenses:
Selling, general and administrative expenses......... 24,096 24,096 24,096
Research and development expenses.................... 12,490 12,490 12,490
Amortization of deferred stock compensation.......... 3,521 3,521 3,521
Amortization of intangible assets.................... 112 112 1,900(2) 2,012
-------- -------- -------- ------- --------
Total operating expenses............................... 40,219 40,219 1,900 42,119
-------- -------- -------- ------- --------
Operating income (loss)................................ 11,805 11,805 (1,900) 9,905
Interest income (expenses)............................. (885) (885) (885)
Other income (expenses)................................ 198 198 198
Equity in net income (loss) of affiliated companies.... 984 984 984
-------- -------- -------- ------- --------
Income (loss) before income taxes and minority
interest............................................. 12,102 12,102 (1,900) 10,202
Income tax expense (benefit)........................... (1,023) (1,023) (1,023)
-------- -------- -------- ------- --------
Income (loss) before minority interest................. 13,125 13,125 (1,900) 11,225
Minority interest in (earnings) loss of consolidated
subsidiaries......................................... (1,233) (1,233) (1,233)
-------- -------- -------- ------- --------
Income (loss) from continuing operations............... $ 11,892 $ 11,892 $(1,900) $ 9,992
======== ======== ======== ======= ========

Earnings per common share--basic....................... $ 0.13
========
Earnings per common share--diluted..................... $ 0.12
========
Shares used in pro forma per-share
calculation--basic................................. 79,013
========
Shares used in pro forma per-share
calculation--diluted............................... 84,947
========
</TABLE>

See accompanying notes to unaudited pro forma combined financial information.

F-32
<PAGE>
UTSTARCOM, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
----------------------------------- PRO FORMA
UTSTARCOM WACOS(7) COMBINED ADJUSTMENTS TOTAL
---------- ---------- --------- ----------- --------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................ $ 35,275 $ 35,275 $50,000 (3) $ 85,275
Accounts receivable, net of allowance for
doubtful accounts.............................. 84,593 84,593 84,593
Receivable from related parties.................. 4,012 4,012 4,012
Inventories, net of allowance for obsolete
inventory...................................... 28,388 28,388 28,388
Other............................................ 6,053 6,053 6,053
-------- ---------- -------- ------- --------
Total current assets............................... 158,321 158,321 208,321
Property, plant and equipment, net................. 7,902 7,902 7,902
Investment in affiliated companies................. 5,200 5,200 5,200
Intangible assets, net............................. 1,473 1,473 7,855 (4) 9,328
Other.............................................. 3,787 3,787 3,787
-------- ---------- -------- ------- --------
Total assets....................................... $176,683 $ -- $176,683 $57,855 $234,538
======== ========== ======== ======= ========

LIABILITIES, MINORITY INTEREST AND STOCKHOLDERS'
EQUITY
Current liabilities:
Accounts payable................................. $ 21,161 $ 21,161 $ 21,161
Payable to related parties....................... 1,311 1,311 1,311
Third party debt................................. 27,968 27,968 27,968
Debt to shareholder.............................. 14,356 14,356 14,356
Income taxes payable............................. 2,457 2,457 2,457
Advance billings................................. 2,665 2,665 2,665
Other............................................ 22,939 22,939 22,939
-------- ---------- -------- ------- --------
Total current liabilities.......................... 92,857 -- 92,857 -- 92,857
-------- ---------- -------- ------- --------
Minority interest in consolidated subsidiaries..... 3,902 3,902 3,902

Stockholders' equity:
Convertible preferred stock: $.00125 par value;
authorized: 80,200,000 shares; issued and
outstanding: 59,086,306 and liquidation value of
$167,829 at September 30, 1999................... 73 73 (73)(5) --
Common stock: $.00125 par value; authorized:
123,614,032 shares; issued and outstanding:
10,049,174, including shares held in treasury at
September 30, 1999............................... 13 13 81 (5) 94
Common stock warrant............................... 389 389 389
Additional paid-in capital......................... 93,179 93,179 74,433 167,612
Deferred stock compensation........................ (5,270) (5,270) (5,270)
Accumulated deficit................................ (4,938) (4,938) (16,586)(6) (21,524)
Notes receivable from shareholders................. (557) (557) (557)
Cumulative translation adjustment.................. 95 95 95
-------- ---------- -------- ------- --------
82,984 -- 82,984 57,855 140,839
Less cost of common stock held in treasury,
1,348,386 shares at September 30, 1999........... (3,060) (3,060) (3,060)
-------- ---------- -------- ------- --------
Total stockholders' equity......................... 79,924 -- 79,924 57,855 137,779
-------- ---------- -------- ------- --------
Total liabilities, minority interest, and
stockholders' equity........................... $176,683 $ -- $176,683 $57,855 $234,538
======== ========== ======== ======= ========
</TABLE>

See accompanying notes to unaudited pro forma combined financial information.

F-33
<PAGE>
UTSTARCOM, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

(A) Pro forma adjustments for the unaudited pro forma combined balance sheet
as of September 30, 1999 and statement of operations for the year ended
December 31, 1998 and the nine months ended September 30, 1999 are as follows:

(1) Represents the operations of Wacos included within the consolidated
operations of UTStarcom from July 1, 1998 to December 31, 1998;

(2) Represents the allocation of the purchase price to goodwill and other
intangible assets;

(3) Represents the cash received on issuance of Series F preferred stock;

(4) Represents the allocation of purchase price for Wacos to goodwill and
other intangible assets, which will be amortized over a period of three
to five years. The intangible assets acquired are believed to include
assembled workforce and goodwill. We are in the process of finalizing a
third party valuation to determine the allocation of intangible assets.
Once we have made a final allocation, changes may be appropriate. The
impact of changes could be material;

(5) Represents the issuance of 6,152,106 shares of Series F preferred stock
at $8.1273 per share in November and December 1999 in connection with a
private round of financing, and 4,523,700 shares of Series G preferred
stock in December 1999 in connection with our acquisition of Wacos, Inc.
and to give effect to the conversion of all outstanding shares of
preferred stock into common stock upon the completion of this offering;

(6) Represents the yield enhancement feature based on recent financings. See
Note 22 of the consolidated financial statements; and

(7) No separate balance sheet or statement of operations is included for
Wacos as Wacos has been included in UTStarcom consolidated financial
statements for the nine months September 30, 1999. In addition no
minority interest remained in the consolidated balance sheet as the
minority interest was not required to contribute for losses.

(B) Pro Forma Net Income (Loss) Per Share

Pro forma net income (loss) per share for the year ended December 31, 1998
and the nine months ended September 30, 1999 is computed based on the weighted
average number of common shares outstanding, the assumed conversion of the
Company's Series A, B, C, D, E, F and G preferred stock into shares of the
Company's common stock that will be effective upon the closing of the Company's
initial public offering, as if such conversion had occurred on January 1, 1998
or at the date of original issuance, if later, and the issuance of an option to
purchase additional Series F preferred stock issued as part of the Series F
preferred stock financing round. The resulting pro forma adjustment includes an
increase (decrease) in the weighted average number of shares used to compute
basic net income (loss) per share of 68,259 and 70,373 and to compute diluted
net income (loss) per share of (169) and 11,415 for the year ended December 31,
1998 and the nine months ended September 30, 1999, respectively.

F-34
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

Through and including , 2000 (the 25th day after the date of
this prospectus), all dealers effecting transactions in these securities,
whether or not participating in this offering, may be required to deliver a
prospectus. This is in addition to the dealers' obligation to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.

[LOGO]

COMMON STOCK

--------------
P R O S P E C T U S
------------------

MERRILL LYNCH & CO.

BANC OF AMERICA SECURITIES LLC

U.S. BANCORP PIPER JAFFRAY

, 2000

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED , 2000

P_R_O_S_P_E_C_T_U_S

[LOGO]

COMMON STOCK

--------------

This is UTStarcom, Inc.'s initial public offering of common stock. The
international managers will offer shares outside the United States and
Canada and the U.S. underwriters will offer shares in the United States and
Canada.

We expect the public offering price to be between $ and $ per
share. Currently, no public market exists for the shares. After pricing of this
offering, we expect that the common stock will be quoted on the Nasdaq National
Market under the symbol "UTSI."

INVESTING IN THE COMMON STOCK INVOLVES RISKS WHICH ARE DESCRIBED IN THE
"RISK FACTORS" SECTION BEGINNING ON PAGE OF THIS PROSPECTUS.

-----------------

The international managers may also purchase up to an additional
shares from UTStarcom at the public offering price, less the underwriting
discount, within 30 days from the date of this prospectus to cover
over-allotments. The U.S. underwriters may similarly purchase up to an aggregate
of an additional shares from UTStarcom.

We expect that the shares of common stock will be ready for delivery in
New York, New York on or about , 2000.

------------------

MERRILL LYNCH INTERNATIONAL
BANK OF AMERICA INTERNATIONAL LIMITED
U.S. BANCORP PIPER JAFFRAY
------------

The date of this prospectus is , 2000.
<PAGE>
UNDERWRITING

GENERAL

We intend to offer our common stock outside the United States and Canada
through the international managers and in the United States and Canada through
the U.S. underwriters. Merrill Lynch International, Bank of America
International Limited and U.S. Bancorp Piper Jaffray Inc. are acting as lead
managers for the international managers named below. Subject to the terms and
conditions described in an international purchase agreement among us and the
international managers, and concurrently with the sale of shares of our common
stock to the U.S. underwriters, we have agreed to sell to the international
managers, and each of the international managers severally and not jointly has
agreed to purchase from us, the number of shares of our common stock listed
opposite its name below.

<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
- ------------ ----------
<S> <C>
Merrill Lynch International.................................
Bank of America International Limited.......................
U.S. Bancorp Piper Jaffray Inc..............................

----------
Total.............................................
==========
</TABLE>

We have also entered into a U.S. purchase agreement with the U.S.
underwriters for the sale of the shares of common stock in the United States and
Canada for whom Merrill Lynch, Pierce, Fenner & Smith Incorporated, Banc of
America Securities LLC and U.S. Bancorp Piper Jaffray Inc. are acting as U.S.
representatives. Subject to the terms and conditions in the U.S. purchase
agreement, and concurrently with the sale of shares of our common
stock to the international managers pursuant to the international purchase
agreement, we have agreed to sell to the U.S. underwriters and the U.S.
underwriters severally have agreed to purchase from us shares of our
common stock. The initial public offering price per share and the total
underwriting discount per share of our common stock are identical under the
international purchase agreement and the U.S. purchase agreement.

Subject to the terms and conditions in the international purchase agreement
and the U.S. purchase agreement, the international managers and the U.S.
underwriters have agreed to purchase all of the shares of our common stock being
sold pursuant to each of the purchase agreements if any shares of our common
stock are purchased. If an international manager or a U.S. underwriter defaults,
the U.S. purchase agreement and the international purchase agreement provide
that the purchase commitments of the nondefaulting international managers or
U.S. underwriters may be increased or the purchase agreements may be terminated.
The closings for the sale of shares of our common stock to be purchased by the
international managers and the U.S. underwriters the are conditioned on one
another.

We have agreed to indemnify the international managers and the U.S.
underwriters against some liabilities, including liabilities under the
Securities Act, and to contribute to payments the international managers and the
U.S. underwriters may be required to make in respect of those liabilities.

A-2

<PAGE>
The international managers and the U.S. underwriters are offering the shares
of our common stock, subject to prior sale, when, as and if issued to and
accepted by them, subject to approval of various legal matters by their counsel,
including the validity of the shares, and other conditions contained in the
purchase agreements, such as the receipt of officer's certificates and legal
opinions. The international managers and the U.S. underwriters reserve the right
to withdraw, cancel or modify offers to the public and to reject orders in whole
or in part.

COMMISSIONS AND DISCOUNTS

The lead managers have advised us that the international managers propose
initially to offer the shares of our common stock to the public at the initial
public offering price on the cover page of this prospectus, and to dealers at
that price less a concession not in excess of $ per share of our common
stock. The international managers may allow, and the dealers may reallow, a
discount not in excess of $ per share of our common stock to other dealers.
After the initial public offering, the public offering price, concession and
discount may be changed.

The following table shows the per share and total public offering price,
underwriting discount to be paid by us to the international managers and the
U.S. underwriters and the proceeds before expenses to us. This information
assumes either no exercise or full exercise by the international managers and
the U.S. underwriters of their over-allotment options.

<TABLE>
<CAPTION>
PER SHARE WITHOUT OPTION WITH OPTION
--------- -------------- -----------
<S> <C> <C> <C>
Public offering price.................................... $ $ $
Underwriting discount.................................... $ $ $
Proceeds, before expenses, to UTStarcom.................. $ $ $
</TABLE>

The expenses of the offerings, not including the underwriting discount, are
estimated at $ and are payable by us.

OVER-ALLOTMENT OPTION

We have granted an option to the international managers to purchase up to
additional shares of our common stock at the public offering price on the
cover page of this prospectus less the underwriting discount. The international
managers may exercise this option for 30 days from the date of this prospectus
solely to cover any over-allotments. If the international managers exercise this
option, each international manager will be obligated, subject to conditions
contained in the international purchase agreement, to purchase a number of
additional shares of our common stock proportionate to that international
manager's initial amount reflected in the table above.

We have also granted an option to the U.S. underwriters, exercisable for 30
days from the date of this prospectus, to purchase up to additional
shares of our common stock to cover any over-allotments on terms similar to
those granted to the international managers.

INTERSYNDICATE AGREEMENT

The international managers and the U.S. underwriters have entered into an
intersyndicate agreement that provides for the coordination of their activities.
Under the intersyndicate agreement, the international managers and the U.S.
underwriters may sell shares of our common stock to each other for purposes of
resale at the initial public offering price, less an amount not greater than the
selling concession. Under the intersyndicate agreement, the international
managers and any dealer to whom they sell shares of our common stock will not
offer to sell or sell shares of our common stock to U.S. or Canadian persons or
to persons they believe intend to resell to U.S. or Canadian persons, except in
the case of transactions under the intersyndicate agreement. Similarly, the U.S.
underwriters and any dealer to whom they sell shares of our common stock will
not offer to sell or sell shares of our

A-3

<PAGE>
common stock to non-U.S. or non-Canadian persons or to persons they believe
intend to resell to non-U.S. or non-Canadian persons, except in the case of
transactions under the intersyndicate agreement.

RESERVED SHARES

At our request, the international managers and the U.S. underwriters have
reserved for sale, at the initial public offering price, up to , or %, of
the shares of our common stock offered by this prospectus for sale to some of
our directors, officers and employees and their family members and other persons
with relationships with us. The number of shares of our common stock available
for sale to the general public will be reduced to the extent those persons
purchase the reserved shares. Any reserved shares that are not orally confirmed
for purchase within one day of the pricing of this offering will be offered by
the international managers and the U.S. underwriters to the general public on
the same terms as the other shares offered by this prospectus.

NO SALES OF SIMILAR SECURITIES

- offer, pledge, sell or contract to sell any shares of our common stock;

- sell any option or contract to purchase any shares of our common stock;

- purchase any option or contract to sell any shares of our common stock;

- grant any option, right or warrant for the sale of any shares of our
common stock;

- lend or otherwise dispose of or transfer any shares of our common stock;

- request or demand that we file a registration statement related to the
shares of our common stock; or

NASDAQ NATIONAL MARKET LISTING

We expect that our common stock will be quoted on the Nasdaq National Market
under the symbol "UTSI."

Before this offering, there has been no public market for our common stock.
The initial public offering price will be determined through negotiations
between us, the lead managers and the U.S. representatives. In addition to
prevailing market conditions, the factors to be considered in determining the
initial public offering price are:

- the valuation multiples of publicly traded companies that the lead
managers and the U.S. representatives believe to be comparable to us;

- our financial information;

A-4

<PAGE>
- the history of, and the prospects for, our company and the industry in
which we compete;

- an assessment of our management, its past and present operations, and the
prospects for, and timing of, our future revenues;

- the present state of our development; and

- the above factors in relation to market values and various valuation
measures of other companies engaged in activities similar to ours.

The international managers and the U.S. underwriters do not expect to sell
more than 5% of the shares of our common stock in the aggregate to accounts over
which they exercise discretionary authority.

PRICE STABILIZATION, SHORT POSITIONS AND PENALTY BIDS

Until the distribution of our common stock is completed, rules of the
Securities and Exchange Commission may limit the international managers and the
U.S. underwriters and selling group members from bidding for and purchasing
common stock. However, the lead managers and the U.S. representatives may engage
in transactions that stabilize the price of our common stock, such as bids or
purchases to peg, fix or maintain that price.

If the international managers and the U.S. underwriters create a short
position in our common stock in connection with this offering, i.e., if they
sell more shares of our common stock than are listed on the cover page of this
prospectus, the lead managers and the U.S. representatives may reduce that short
position by purchasing shares of our common stock in the open market. The lead
managers and the U.S. representatives may also elect to reduce any short
position by exercising all or part of the over-allotment option described above.
Purchases of shares of our common stock to stabilize its price or to reduce a
short position may cause the price of shares of our common stock to be higher
than it might be in the absence of these purchases.

The lead managers and the U.S. representatives may also impose a penalty bid
on the international managers and the U.S. underwriters and selling group
members. This means that if the lead managers and the U.S. representatives
purchase shares of our common stock in the open market to reduce their short
position or to stabilize the price of these shares, they may reclaim the amount
of the selling concession from the international managers and the U.S.
underwriters and selling group members who sold those shares. The imposition of
a penalty bid may also affect the price of shares of our common stock in that it
discourages resales of those shares.

Neither we nor any of the international managers or the U.S. underwriters
makes any representation or prediction as to the direction or magnitude of any
effect that the transactions described above may have on the price of shares of
our common stock. In addition, neither we nor any of the international managers
or the U.S. underwriters makes any representation that the lead managers or the
U.S. representatives will engage in these transactions or that these
transactions, once commenced, will not be discontinued without notice.

UK SELLING RESTRICTIONS

Each international manager has agreed that:

- it has not offered or sold and will not offer or sell any shares of our
common stock to persons in the United Kingdom, except to persons whose
ordinary activities involve them in acquiring;

A-5

<PAGE>
holding, managing or disposing of investments (as principal or agent) for
the purposes of their businesses or otherwise in circumstances which do
not constitute an offer to the public in the United Kingdom within the
meaning of the Public Offers of Securities Regulations 1995;

- it has complied and will comply with all applicable provisions of the
Financial Services Act 1986 with respect to anything done by it in
relation to the shares of our common stock in, from or otherwise involving
the United Kingdom; and

- it has only issued or passed on and will only issue or pass on in the
United Kingdom any document received by it in connection with the issuance
of shares of our common stock to a person who is of a kind described in
Article 11(3) of the Financial Services Act 1986 (Investment
Advertisements) (Exemptions) Order 1996 as amended by the Financial
Services Act 1986 (Investment Advertisements) (Exemptions) Order 1997 or
is a person to whom such document may otherwise lawfully be issued or
passed on.

NO PUBLIC OFFERING OUTSIDE THE UNITED STATES

No action has been or will be taken in any jurisdiction, except in the
United States, that would permit a public offering of the shares of our common
stock, or the possession, circulation or distribution of this prospectus or any
other material relating to us or shares of our common stock in any jurisdiction
where action for that purpose is required. Accordingly, the shares of our common
stock may not be offered or sold, directly or indirectly, and neither this
prospectus nor any other offering material or advertisements in connection with
the shares of our common stock may be distributed or published, in or from any
country or jurisdiction except in compliance with any applicable rules and
regulations of any such country or jurisdiction.

Purchasers of the shares offered by this prospectus may be required to pay
stamp taxes and other charges in accordance with the laws and practices of the
country of purchase in addition to the offering price on the cover page of this
prospectus.

A-6
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

[LOGO]

COMMON STOCK

--------------
P R O S P E C T U S
------------------

MERRILL LYNCH INTERNATIONAL

BANK OF AMERICA INTERNATIONAL LIMITED

U.S. BANCORP PIPER JAFFRAY

, 2000

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable in connection with the sale and
distribution of the securities being registered. All amounts are estimates
except the Securities and Exchange Commission registration fee, the NASD filing
fee and the Nasdaq National Market listing fee.

<TABLE>
<CAPTION>
AMOUNT TO
BE PAID
---------
<S> <C>
Securities and Exchange Commission registration fee......... $33,000
NASD filing fee............................................. 13,000
Nasdaq National Market listing fee..........................
Printing and engraving expenses.............................
Legal fees and expenses.....................................
Accounting fees and expenses................................
Blue sky fees and expenses.................................. 10,000
Transfer agent and registrar fees...........................
Director and officer insurance premiums.....................
Miscellaneous expenses......................................
-------
Total.......................................................
=======
</TABLE>

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Under Section 145 of the Delaware General Corporation Law, we can indemnify
any person who is, or is threatened to be made, a party to any threatened,
pending or completed legal action, suit or proceeding, whether civil, criminal,
administrative or investigative other than action by us or on our behalf, by
reason of the fact that such person is or was one of our officers or directors,
or is or was serving at our request as a director, officer, employee or agent of
another corporation or enterprise. The indemnity may include expenses including
attorneys' fees, judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such action, suit or
proceeding, provided that such officer or director acted in good faith and in a
manner he or she reasonably believed to be in or not opposed to our best
interests, and, for criminal proceedings, had no reasonable cause to believe his
or her conduct was illegal. Under Delaware law, we may also indemnify officers
and directors in an action by us or on our behalf under the same conditions,
except that no indemnification is permitted without judicial approval if the
officer or director is adjudged to be liable to us in the performance of his or
her duty. Where an officer or director is successful on the merits or otherwise
in the defense of any action referred to above, we must indemnify him or her
against the expenses which such officer or director actually and reasonably
incurred.

Our certificate of incorporation contains a provision to limit the personal
liability of our directors for violations of their fiduciary duty. This
provision eliminates each director's liability to us or our stockholders for
monetary damages to the fullest extent permitted by Delaware law. The effect of
this provision is to eliminate the personal liability of directors for monetary
damages for actions involving a breach of their fiduciary duty of care,
including any such actions involving gross negligence.

Our bylaws provide for indemnification of our officers and directors to the
fullest extent permitted by applicable law.

We have entered, or concurrently with this offering, will enter, into
indemnification agreements with our directors and officers, a form of which is
attached as Exhibit 10.1 and incorporated by

II-1
<PAGE>
reference to this registration statement. The indemnification agreements provide
indemnification to our directors and officers under certain circumstances for
acts or omissions which may not be covered by directors' and officers' liability
insurance. We intend to obtain directors' and officers' liability insurance,
which will insure against liabilities that our directors or officers may incur
in such capacities.

The purchase agreement, a form of which is attached as Exhibit 1.1 to this
registration statement, provides for indemnification by the underwriters of us
and our officers and directors, and by us of the underwriters, for certain
liabilities arising under the Securities Act or otherwise.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

Since December 1996, we have issued and sold the following securities which
were not registered under the Securities Act:

(i) Between October 1995 and December 1996, we issued and sold
14,492,752 shares of our Series B preferred stock to one investor for an
aggregate purchase price of $29,999,996.64.

(ii) Between December 1996 and January 1997, we issued and sold
13,589,056 shares of our Series C preferred stock to six investors for an
aggregate purchase price of $46,746,352.64.

(iii) In October 1997, we issued and sold 8,032,128 shares of our
Series D preferred stock to two investors for an aggregate purchase price of
$49,999,996.80.

(iv) In October 1997, we issued 13,686,000 shares of our common stock to
an entity in connection with our acquisition of Talent Group
(International), Limited.

(v) In October 1997, we issued and sold 581,824 shares of common stock
to an entity for an aggregate purchase price of $200,002 upon the entity's
exercise of warrants.

(vi) Between October 1997 and March 1998, we issued an aggregate of
30,269,318 shares of our Series E preferred stock in a one-to-one exchange
of our common stock held by participating stockholders.

(vii) In February 1998, we issued a warrant to purchase 32,000 shares of
our common stock at an exercise price of $2.50 per share to one investor.

(viii) In September 1999, we issued a warrant to purchase 500,000 shares
of our common stock at an exercise price of $6.25 per share to one investor.

(ix) Between November 1999 and December 1999, we issued and sold an
aggregate of 6,152,106 shares of our Series F preferred stock to three
investors for an aggregate purchase price of $50,000,011.

(x) In December 1999, we issued an aggregate of 4,523,700 shares of our
Series G preferred stock in connection with the acquisition of our
subsidiary, Wacos, Inc., through a merger.

The sales and issuances of securities in the transactions described above
were deemed to be exempt from registration under the Securities Act in reliance
upon Section 4(2) of the Securities Act, or Regulation D promulgated thereunder,
or Rule 701 promulgated under Section 3(b) of the Securities Act, as
transactions by an issuer not involving any public offering or transactions
pursuant to compensatory benefit plans and contracts relating to compensations
as provided under Rule 701. The recipients of securities in each such
transaction represented to us their intention to acquire the securities for
investment only and not with a view to or for sale in connection with any
distribution thereof and appropriate legends were affixed to the securities
issued in such transactions. All recipients had adequate access, through their
relationships with us, to information about us.

II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) Exhibits

<TABLE>
<CAPTION>
EXHIBITS
- ---------------------
<C> <S>
1.1 * Form of U.S. Purchase Agreement.

1.2 * Form of International Purchase Agreement.

2.1 Distribution Agreement dated July 30, 1999 between
UTStarcom, Inc. and DirecTouch Communications Limited.

2.2 Agreement and Plan of Merger dated December 14, 1999 between
UTStarcom, Inc. and Wacos, Inc.

3.1 Twelfth Amended and Restated Certificate of Incorporation of
UTStarcom, Inc. as currently in effect.

3.2 Form of Thirteenth Amended and Restated Certificate of
Incorporation of UTStarcom, Inc. to be filed following the
closing of the offering pursuant to this registration
statement.

3.3 Bylaws of UTStarcom, Inc. as currently in effect.

3.4 Form of Amended and Restated Bylaws of UTStarcom, Inc., to
be in effect immediately following the closing of the
offering pursuant to this registration statement.

4.1 * Specimen Common Stock Certificate.

4.2 Third Amended and Restated Registration Rights Agreement
dated December 14, 1999.

5.1 * Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation.

10.1 Form of Indemnification Agreement.

10.2 1992 Omnibus Equity Incentive Plan and form of related
agreement.

10.3 1995 Stock Plan and forms of related agreements.

10.4 1997 Stock Plan, as amended, and forms of related
agreements.

10.5 2000 Employee Stock Purchase Plan and forms of related
agreements.

10.6 Common Stock Purchase Warrant dated February 5, 1998 between
UTStarcom, Inc. and Lintech Limited.

10.7 Common Stock Purchase Warrant dated September 20, 1999
between UTStarcom, Inc. and Talent Group International, Ltd.

10.8 Employment and Non-Competition Agreement dated October 6,
1995 between UTStarcom, Inc. and Hong Lu.

10.9 Employment and Non-Competition Agreement dated October 6,
1995 between UTStarcom, Inc. and Ying Wu.

10.10* Product Manufacture & License Agreement dated May 13, 1997
between UTStarcom, Inc. and Tollgrade Communications, Inc.

10.11* Sales Agreement dated February 12, 1999 between UTStarcom
(China) Ltd. and BaoDing Telecommunication Bureau, Hebei
Province.

10.12* Sales Contract dated August 23, 1999 between UTStarcom
(China) Ltd. and Xi'an Telecommunication Bureau.

10.13* Technical License and Assistance Agreement dated
November 2, 1999 between UTStarcom, Inc. and Mitsubishi
Electric Corporation.
</TABLE>

II-3
<PAGE>

<TABLE>
<CAPTION>
EXHIBITS
- ---------------------
<C> <S>
10.14* Technical Assistance Agreement dated October 1, 1999 between
Matsushita Communication Industrial Co. Ltd. and UTStarcom,
Inc.

10.15* Joint Product Development and Marketing Memorandum and
Understanding dated September 2, 1999 between UTStarcom,
Inc. and Matsushita Communication Industrial Co., Ltd.

10.16* Joint Patent Filing Agreement dated December 1, 1998 between
UTStarcom, Inc. and Matsushita Communication Industrial Co.,
Ltd.

10.17 Loan Agreement dated June 15, 1998 between UTStarcom, Inc.
and SOFTBANK Corp.

10.18* Loan Agreements between Bank of China and UTStarcom Hangzhou
Telecommunications Co., Ltd.

10.19* Joint Venture Agreement dated July 31, 1997 between
UTStarcom, Inc. and Zhejiang Telecommunication Equipment
Factory.

10.20* Joint Venture Agreement dated December 8, 1995 between
UTStarcom, Inc. and Chinese Guangdong Nanfeng
Telecommunication Group Co. Ltd.

10.21* Joint Venture Agreement dated September 12, 1997 between
UTStarcom, Inc. and Zhejiang Nantian Post and
Telecommunication Development Group Co. Ltd.

10.22* Lease dated December 23, 1997 between UTStarcom, Inc. and
Tech Center Partners.

10.23* Lease Agreement dated April 1995, as amended, between
UTStarcom, Inc. and Metro Park Associates.

10.24* Lease Agreements dated December 31, 1997 and May 14, 1998
between Guangdong UTStarcom Telecom Co., Ltd. and Guangdong
Southern Telecom Group Huizhou Company.

10.25* Lease Contract dated December 15, 1996 between UTStarcom
(Hangzhou) Telecommunications Co., Ltd. and Yile Village,
Gudang Township.

21.1 List of Subsidiaries of UTStarcom, Inc. (see Note 1 to Notes
to Consolidated Financial Statements).

23.1 Consent of PricewaterhouseCoopers LLP.

23.2 Consent of Wilson Sonsini Goodrich & Rosati, Professional
Corporation (included in Exhibit 5.1)

24.1 Power of Attorney (see page II-6).

27.1 Financial Data Schedule.
</TABLE>

- ------------------------

* To be filed by amendment.

(b) Financial Statement Schedule

ITEM 17. UNDERTAKINGS

The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the Delaware General Corporation Law, the certificate of
incorporation, the bylaws of Registrant, Indemnification Agreements entered into
between the Registrant and its directors and certain of its officers,

II-4
<PAGE>
Underwriting Agreement, or otherwise, the Registrant has been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act, and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered hereunder, the Registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.

The undersigned Registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of Prospectus shall
be deemed to be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.

II-5
<PAGE>
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, UTStarcom, Inc.
has duly caused this Registration Statement on Form S-1 to be signed on its
behalf by the undersigned thereunto duly authorized, in the City of Alameda,
State of California, on the 17th day of December, 1999.

<TABLE>
<S> <C> <C>
UTSTARCOM, INC.

By: /s/ HONG LIANG LU
-----------------------------------------
Hong Liang Lu
PRESIDENT AND CHIEF EXECUTIVE OFFICER
</TABLE>

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, the undersigned hereby constitute and
appoint Hong Liang Lu and Michael Sophie, and each of them, his true and lawful
attorney-in-fact and agent, each with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement, or any related registration statement filed
pursuant to Rule 462(b) under the Securities Act of 1933, and to file the same,
with exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite or necessary to be done in connection therewith,
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that each of said attorneys-in-fact and agents, or
his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form S-1 has been signed by the following persons in
the capacities and on the dates indicated:

<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<C> <S> <C>
/s/ MASAYOSHI SON
--------------------------------- Chairman of the Board of Directors December 17, 1999
Masayoshi Son

/s/ HONG LIANG LU President, Chief Executive Officer
--------------------------------- and Director (Principal Executive December 17, 1999
Hong Liang Lu Officer)

/s/ MICHAEL SOPHIE Chief Financial Officer and
--------------------------------- Assistant Secretary (Principal December 17, 1999
Michael Sophie Financial and Accounting Officer)

/s/ YING WU
--------------------------------- Director December 17, 1999
Ying Wu
</TABLE>

II-6
<PAGE>

<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<C> <S> <C>
/s/ CHARLES XUE
--------------------------------- Director December 17, 1999
Charles Xue

/s/ YOSHITAKA KITAO
--------------------------------- Director December 17, 1999
Yoshitaka Kitao

/s/ CHAUNCEY SHEY
--------------------------------- Director December 17, 1999
Chauncey Shey

/s/ THOMAS TOY
--------------------------------- Director December 17, 1999
Thomas Toy
</TABLE>

II-7
<PAGE>
SCHEDULE I

Condensed Financial Information at December 31, 1997 and 1998 and
September 30, 1999 and for each of the years ended December 31, 1996, 1997 and
1998 and the nine months ended September 30, 1999. All other schedules are
omitted because they are not applicable or the required information is shown in
the consolidated financial statements or notes thereto.

INDEPENDENT ACCOUNTANTS REPORT ON FINANCIAL STATEMENT SCHEDULE

To the Board of Directors and Stockholders of UTStarcom, Inc.:

Our audits of the consolidated financial statements are referred to in our
report dated December 16, 1999, included an audit of the financial statement
schedule listed in Item F-1 of this Form S-1. In our opinion, this financial
statement schedule presents fairly, in all material respects the information set
forth therein when read in conjunction with the related consolidated financial
statements.

/s/ PRICEWATERHOUSECOOPERS LLP
PricewaterhouseCoopers LLP
San Francisco, California
December 16, 1999

S-1
<PAGE>
SCHEDULE I

UTSTARCOM, INC. (UNCONSOLIDATED)
REGISTRANT BALANCE SHEETS
(in thousands, except per share data)

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- SEPTEMBER 30,
1997 1998 1999
-------- --------- --------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 26,487 $ 6,447 $ 8,274
Accounts receivable....................................... 30,195 65,433 31,745
Receivable from related parties........................... -- -- 4,012
Inventories............................................... 834 1,213 8,972
Other..................................................... 87 839 1,937
-------- --------- --------
Total current assets........................................ 57,603 73,932 54,940
Property, plant and equipment, net.......................... 2,279 3,453 3,072
Investment in affiliated companies.......................... 23,228 24,031 24,031
Other....................................................... 845 840 2,375
-------- --------- --------
Total assets................................................ $ 83,955 $ 102,256 $ 84,418
======== ========= ========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 13,063 $ 2,542 $ 8,393
Payable to related parties................................ -- 1,311 1,311
Third party debt.......................................... 9 22 17
Debt to shareholder....................................... -- 26,250 9,055
Income taxes payable...................................... -- 884 1,386
Advanced billings......................................... -- -- 500
Other..................................................... 1,499 3,041 3,112
-------- --------- --------
Total current liabilities................................... 14,571 34,050 23,774
-------- --------- --------

Stockholders' equity:
Convertible preferred stock: $0.0125 par value; authorized:
80,200,000 shares; issued and outstanding 57,518,068 at
December 31, 1997, 59,635,754 at December 31, 1998, and
59,086,306 at September 30, 1999; liquidation value of
$167,829 at September 30, 1999............................ 72 74 73
Common stock: $0.00125 par value; authorized:
123,614,032 shares; issued and outstanding: 9,807,006 at
December 31, 1997, 9,172,864 at December 31, 1998, and
10,049,174 September 30, 1999, including shares held in
treasury.................................................. 12 12 13
Common stock warrant........................................ 1,983 389
Additional paid-in capital.................................. 85,862 84,771 90,140
Deferred stock compensation................................. -- -- (5,270)
Accumulated deficit......................................... (13,979) (15,229) (21,101)
Notes receivable from shareholders.......................... -- (369) (557)
Cumulative translation adjustment........................... 17 17 17
-------- --------- --------
71,986 71,259 63,704
Less cost of common stock held in treasury,
1,240,000 shares at December 31, 1997, 1,340,694 shares at
December 31, 1998, and 1,348,386 shares at September 30,
1999...................................................... (2,600) (3,053) (3,060)
-------- --------- --------
Total stockholders' equity.................................. 69,386 68,206 60,644
-------- --------- --------
Total liabilities and stockholders' equity.................. $ 83,955 $ 102,256 $ 84,418
======== ========= ========
</TABLE>

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

S-2
<PAGE>
SCHEDULE I

UTSTARCOM, INC. (UNCONSOLIDATED)
CONDENSED INFORMATION AS TO THE
RESULTS OF OPERATIONS
OF THE REGISTRANT
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, NINE MONTHS ENDED SEPTEMBER 30,
------------------------------ -----------------------------------
1996 1997 1998 1998 1999
-------- -------- -------- ---------------- ----------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales........................................... $18,976 $44,896 $48,458 $37,839 $47,671
Cost of sales....................................... 12,286 32,718 36,293 26,642 41,654
------- ------- ------- ------- -------
Gross profit........................................ 6,690 12,178 12,165 11,197 6,017

Operating expenses:
Selling, general and administrative expenses...... 3,115 6,074 5,915 4,186 3,988
Research and development expenses................. 4,070 7,500 9,297 6,992 7,740
Amortization of deferred stock compensation....... -- -- -- -- 3,521
------- ------- ------- ------- -------
Total operating expenses............................ 7,185 13,574 15,212 11,178 15,249
------- ------- ------- ------- -------
Operating income (loss)............................. (495) (1,396) (3,047) 19 (9,232)

Interest income..................................... 676 1,344 3,754 2,404 3,637
Interest expense.................................... (9) 1,587 (1,016) (726) (1,313)
Other income (expenses)............................. 295 (8) (925) (2) (270)
------- ------- ------- ------- -------
Income (loss) before income taxes................... 467 1,527 (1,234) 1,695 (7,178)
Income tax expense (benefit)........................ 66 354 394 74 (1,304)
------- ------- ------- ------- -------
Net income (loss)................................... 401 1,173 (1,628) 1,621 (5,874)
======= ======= ======= ======= =======
</TABLE>

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

S-3
<PAGE>
SCHEDULE I

UTSTARCOM, INC. (UNCONSOLIDATED)
CONDENSED INFORMATION AS TO THE CASH FLOWS OF THE REGISTRANT
(IN THOUSANDS)

<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
------------------------------ -------------------
1996 1997 1998 1998 1999
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................. $ 401 $ 1,173 $ (1,628) $ 1,621 $ (5,874)
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation and amortization............................. 213 519 841 501 756
Gain (loss) on sale of assets............................. -- (65) 107 -- --
Amortization of deferred stock compensation............... -- -- -- -- 3,521
Stock option expenses for non-employees................... -- -- 411 -- 1,461
Provision for doubtful accounts........................... 19 81 30 60 615
Provision for inventory obsolescence...................... (50) 52 4 4 418
Changes in operating assets and liabilities:
Accounts receivable and receivable from related
parties............................................... (5,974) (20,965) (35,268) (48,977) 22,459
Inventories............................................. 436 (432) (384) (377) (8,178)
Other current and non-current assets.................... (545) (168) 496 (4,257) (912)
Deferred tax assets..................................... -- -- (1,235) 112 (1,840)
Accounts payable and payable to related parties......... 61 392 16,000 30,107 (11,376)
Income taxes payable.................................... -- -- 884 1,511 502
Other current liabilities............................... (5,167) 1,232 2,588 1,634 104
Advance billings........................................ (1,450) (88) -- 31 500
-------- -------- -------- -------- --------
Net cash (used in) provided by operating activities......... (12,056) (18,269) (17,154) (18,030) 2,156
-------- -------- -------- -------- --------

CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment.................. (989) (1,456) (2,123) (1,331) (1,026)
Investment in affiliates, net of cash acquired.............. (11,509) (8,392) (803) (864) --
Restricted cash............................................. 5,000 -- -- -- --
Proceeds from disposal of property.......................... -- 125 -- -- 653
-------- -------- -------- -------- --------
Net cash used in investing activities....................... (7,498) (9,723) (2,926) (2,195) (373)
-------- -------- -------- -------- --------

CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock.................................... -- 410 480 273 56
Issuance of subsidiary common stock to minority
stockholders.............................................. 47 -- -- -- --
Reacquired common stock..................................... (1,500) (1,100) (453) -- (7)
Return of investment to shareholders........................ -- (50,820) -- -- --
Proceeds from borrowing..................................... -- -- 13 -- --
Payments on borrowing....................................... (15) (14) -- (7) (5)
Issuance of preferred stock................................. 26,968 55,678 -- -- --
Reacquired preferred stock.................................. (2,070) -- -- -- --
Payments on shareholder note receivable..................... -- 35,000 -- -- --
Advance from affiliates..................................... (5,000) -- -- -- --
-------- -------- -------- -------- --------
Net cash provided by financing activities................... 18,430 39,154 40 266 44
-------- -------- -------- -------- --------

Effects of exchange rates on cash........................... -- (11) -- -- --
-------- -------- -------- -------- --------
Net increase (decrease) in cash............................. (1,124) 11,151 (20,040) (19,959) 1,827
Cash and cash equivalents at beginning of period............ 16,460 15,336 26,487 26,487 6,447
-------- -------- -------- -------- --------
Cash and cash equivalents at end of period.................. $ 15,336 $ 26,487 $ 6,447 $ 6,528 $ 8,274
======== ======== ======== ======== ========
</TABLE>

The accompanying notes are an integral part of these financial statements.

S-4
<PAGE>
SCHEDULE I

UTSTARCOM, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS

NOTE 1. BASIS OF PRESENTATION

UTStarcom, Inc., a Delaware corporation, is the parent company of all
UTStarcom, Inc. subsidiaries. The accompanying condensed financial statements
reflect the financial position, results of operations and cash flows of
UTStarcom, Inc. on a separate basis. All subsidiaries of UTStarcom, Inc. are
reflected as investments accounted for at cost. Accordingly, intercompany
transactions have not been eliminated. No cash dividends were paid to UTStarcom,
Inc. by its subsidiaries during the years ended December 31, 1996, 1997, and
1998 and during the nine months ended September 30, 1999. For accounting
policies and other information, see the Notes to Consolidated Financial
Statements included elsewhere herein.

S-5
<PAGE>
EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBITS
- ---------------------
<C> <S>
1.1 * Form of U.S. Purchase Agreement.

1.2 * Form of International Purchase Agreement.

2.1 Distribution Agreement dated July 30, 1999 between
UTStarcom, Inc. and DirecTouch Communications Limited.

2.2 Agreement and Plan of Merger dated December 14, 1999 between
UTStarcom, Inc. and Wacos, Inc.

3.1 Twelfth Amended and Restated Certificate of Incorporation of
UTStarcom, Inc., as currently in effect.

3.2 Form of Thirteenth Amended and Restated Certificate of
Incorporation of UTStarcom, Inc. to be filed following the
closing of the offering pursuant to this registration
statement.

3.3 Bylaws of UTStarcom, Inc. as currently in effect.

3.4 Form of Amended and Restated Bylaws of UTStarcom, Inc. to be
in effect immediately following the closing of the offering
pursuant to this registration statement.