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

                                    FORM 10-K

[X]    ANNUAL REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
       EXCHANGE ACT OF 1934 FOR THE FISCAL  YEAR ENDED  DECEMBER  31,  2000

                                       OR

[ ]    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
       EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM________ TO ________

                        Commission File Number 000-29053

                       Telaxis Communications Corporation
              -----------------------------------------------------
             (Exact name of registrant as specified in its charter)

                     Massachusetts                      04-2751645
            --------------------------------         ---------------
           (State or other jurisdiction             (I.R.S. Employer
           of incorporation or organization)        Identification No.)

                             20 Industrial Drive East
                            South Deerfield, MA 01373
                     ---------------------------------------
                    (Address of principal executive offices)

                                 (413) 665-8551
                                 --------------
              (Registrant's telephone number, including area code)

          SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
                                      None

          SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

                                             Name of each exchange
            Title  of  each  class           on  which registered
         Common Stock, $.01 Par Value        Nasdaq National Market

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


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

     As of February  28,  2001,  the  aggregate  market  value of the voting and
non-voting  common equity held by non-affiliates of the Company was $22,034,565.
Shares of voting and non-voting  common equity held by each  executive  officer,
key  employee and  director  identified  in Item 10 below and by each person who
beneficially owns 10% or more of the outstanding common stock have been excluded
in that such  persons  may be deemed to be  affiliates.  This  determination  of
affiliate  status  is not  necessarily  a  conclusive  determination  for  other
purposes.  The  aggregate  market value has been  computed  based on a price per
share of  $1.63,  which is the  average  of the high  and low  sales  prices  on
February 28, 2001.  On such date,  the Company had  16,742,023  shares of common
stock outstanding.

                      DOCUMENTS INCORPORATED BY REFERENCE

     Portions of the  registrant's  definitive  proxy statement to be filed with
the Securities and Exchange  Commission in connection with the registrant's 2001
Annual Meeting of  Stockholders  are  incorporated by reference into Part III of
this Form 10-K.
<PAGE>

                                     PART I

     This Annual  Report on Form 10-K  contains  forward-looking  statements  as
defined by federal securities laws.  Forward-looking  statements are predictions
that relate to future events or our future  performance and are subject to known
and unknown risks, uncertainties,  assumptions, and other factors that may cause
actual results,  outcomes,  levels of activity,  performance,  developments,  or
achievements  to be  materially  different  from any future  results,  outcomes,
levels  of  activity,  performance,  developments,  or  achievements  expressed,
anticipated  or implied  by these  forward-looking  statements.  Forward-looking
statements  should be read in light of the  cautionary  statements and important
factors described in this Form 10-K, including Item  7--Management's  Discussion
and Analysis of Financial  Condition and Results of Operations,  Safe Harbor for
Forward-Looking  Statements.  We undertake no obligation to update or revise any
forward-looking  statement to reflect events,  circumstances  or new information
after the date of this Form 10-K or to reflect the  occurrence of  unanticipated
events.

Item 1.    Business.

Overview

     We  develop  and  supply  broadband  wireless  access  products.  Using our
products,  network  service  providers  can bridge the "last  mile"  between the
telecommunications  backbone and a subscriber's  premises  wirelessly to deliver
high-speed  integrated  voice,  video and data services to their  customers.  To
date,  we have  developed our products for use in  point-to-multipoint  wireless
access  systems.  In this  structure,  a single base  station (or hub)  provides
two-way  connectivity  to the customer  premises  equipment  (or CPE) located at
multiple  subscribers'  premises  out to a range of  approximately  two to three
miles. This structure allows a network service provider to enter markets quickly
and  economically  and then  expand  its  network  efficiently  as the number of
subscribers  grows.  We have  recently  expanded  the scope of our  business  to
include products for use in point-to-point wireless access systems.

     We were formed as a  Massachusetts  corporation  in January  1982 under the
name  "Millitech  Corporation."  In 1995,  we began  focusing  on the  broadband
wireless access market. In August 1999, we decided to focus all of our resources
on  this  market  and to  dispose  of our  historical  millimeter-wave  products
business.  That disposition occurred in February 2000, shortly after the initial
public offering of our stock. See Item  7--Management's  Discussion and Analysis
of Financial Condition and Results of Operations,  Overview and Item 8-Financial
Statements and Supplementary Data, Note 2 to Financial  Statements.  In December
1999, we changed our name to "Telaxis Communications Corporation" to reflect our
new focus on the broadband wireless access market.

Industry Background

The Growing Demand for Broadband  Communications

     The  amount  of data  being  transmitted  over  the  Internet  and  private
communications networks is increasing rapidly due to the growing number of users
accessing these networks and the increasing range of  data-intensive  activities
for which they use these networks.  Businesses  increasingly use the Internet to
enhance  their  reach to  customers  and  suppliers  with  applications  such as
electronic commerce, supply chain management,  web hosting, global marketing and
customer support. Businesses are also using the Internet to create data networks
among corporate sites,  remote offices and  telecommuters in order to facilitate
employee  communications,  e-mail,  file  sharing,  and research  and  analysis.
Consumers  use the  Internet to  communicate,  collect and publish  information,
conduct retail purchases and access online  entertainment.  These  network-based
business and consumer  activities require the transmission of increasingly large
amounts of data quickly and reliably. As a result,  broadband access is becoming
increasingly important.


                                       2
<PAGE>

Deregulation and Competition are Driving Deployment of Broadband Access
Technologies

     Global telecommunications  deregulation is creating significant competition
among providers of advanced  communications  services,  thereby accelerating the
deployment of broadband  access  technologies.  In the United States,  incumbent
telephone companies such as BellSouth,  SBC Communications,  US West (now a part
of Qwest Communications  International),  and Verizon were, until recently,  the
exclusive  providers  of the  copper  wire  connections  between  their  network
backbones  and  subscribers.   The  federal   Telecommunications   Act  of  1996
intensified  the  competitive  environment  in the  United  States by  requiring
telephone  companies to lease  portions of their  networks,  including  the last
mile,  to  competing  carriers.  Additionally,  telephone  companies  and  cable
operators are seeking to expand their service offerings by entering each others'
markets.  Similar  deregulation and competition are occurring in many regions of
the world. To compete in this  environment,  many network service providers seek
to  differentiate  themselves  and maximize  revenue per  subscriber by offering
integrated voice, video and data services, which require broadband access.

Developing Regions are Installing Communications Infrastructure

     In many parts of the world, communication services are either inadequate or
non-existent due to the lack of existing infrastructure.  A number of countries,
such as Argentina and  Colombia,  in developing  regions have  privatized  their
state-owned   telecommunications   monopolies   and  opened  their   markets  to
competitive  network  service  providers.  In  constructing  new networks,  many
network service  providers deploy  broadband  access  technologies to expand the
services they offer and maximize revenue.

Traditional Network Access Solutions Have Limitations

     To meet the growing demand for high-speed data  transmission,  many network
service providers have installed high-speed fiber optic transmission  equipment,
switches and routers in the Internet backbone and in interoffice networks. While
the  network  backbone  is capable of  delivering  data at very high  speeds,  a
bottleneck  exists in the last  mile,  which  was  originally  built to  provide
traditional analog telephone service.

     Along the  fiber  optic  network  backbone,  data  moves at speeds up to 10
billion bits per second, or 10 Gbps, over a single channel of a Dense Wavelength
Division Multiplexed, or DWDM, optical fiber, each of which can accommodate many
such channels.  Subscribers have  traditionally  connected to the backbone using
dial-up analog modems, which transmit data at rates up to 56.6 thousand bits per
second,  or 56.6 Kbps, or using integrated  services  digital network,  or ISDN,
modems,  which  transmit  data at rates up to 128 Kbps.  At these modem  speeds,
several  minutes are often required to access a media-rich web site, and several
hours may be  required to transfer or  download  large  files.  This  bottleneck
frustrates subscribers and limits the capability of network service providers to
satisfy the demand for high-speed  Internet  access,  multimedia  entertainment,
real-time telecommuting and branch office  inter-networking.  Additionally,  the
continued  growth in both the number of analog  modem users and their time spent
connected to the Internet compounds the congestion experienced on many networks.

     Where  subscribers  require  higher-speed   connections,   network  service
providers have  traditionally  deployed  copper-based  T1 services in the United
States and E1 services internationally. A T1 line is a high-capacity,  dedicated
telecommunications  line which can support data transmission  rates of up to 1.5
million  bits per second,  or 1.5 Mbps,  which is 26.5 times the speed of analog
modems. An E1 line can support data transmission  rates of up to 2.0 Mbps, or 35
times the speed of  analog  modems.  Although  T1 and E1  services  have met the
broadband  access  needs of many large  businesses,  these  services  are either
unavailable  to or  prohibitively  expensive for many small  businesses,  remote
offices, telecommuters and consumers.

Alternative Access Solutions are Emerging

Because analog and ISDN modem  technologies do not satisfy the high-speed access
needs  of  many  subscribers,  and  T1 or E1  access  is  often  unavailable  or
prohibitively  expensive,  alternative access solutions have been developed such
as:

                                       3
<PAGE>

     Digital  Subscriber  Line.  Digital  subscriber  line,  or DSL,  technology
improves the data  transmission  rate of a telephone  company's  existing copper
wire network.  However,  most deployments offer either  high-speed  asymmetrical
services or slower symmetrical services.  Asymmetrical data rates provide higher
transmission speeds from the network to the subscriber and lower speeds from the
subscriber to the network.  Symmetrical  data rates  provide equal  transmission
speeds to and from the subscriber.  Digital  subscriber line transmission  rates
are  limited by the length and  quality  of  available  copper  wires and by the
number of wires in a bundle that are used for data  transmission.  As the number
increases, interference among the wires in the bundle also increases.

     Cable.  Two-way cable modems enable data services (typically  asymmetrical)
to be delivered over a network originally designed to provide television service
to residential  subscribers.  Cable  networks  connect to the home using coaxial
cable,  which has greater  transmission  capacity  than the copper wires used by
telephone  companies.  However,  these  networks often are costly to upgrade for
two-way data services and few  businesses  have coaxial cable  connections.  The
data rate available to each subscriber in a service area typically  decreases as
the number of subscribers increases.

     Fiber Optic Cable.  Fiber offers the highest data  transmission rate of any
access solution, but is the most costly to deploy. Corporations and institutions
use fiber connections where critical operations require these data rates.

     Satellite.  Broadband  satellite  solutions  enable  asymmetrical,  two-way
access  services.   These  solutions  use  broadcast  satellite  technology  for
high-speed  transmissions  from the network service  provider to the subscriber,
but  generally  use slower  wire-based  connections  to  transmit  data from the
subscriber  to the network  service  provider.  The data rate  available to each
subscriber in a service area decreases as usage increases.

     Point-to-Point   Wireless.   Point-to-point   wireless  technology  enables
symmetrical  data  services  using a dedicated  link between a subscriber  and a
network.  However, the network service provider must install dedicated equipment
at each end of a link for each new subscriber. Therefore, economies of scale, in
this case the ability to reduce  installation costs as the number of subscribers
increases,  are limited.

     Laser. Like point-to-point  wireless  technology,  laser technology enables
symmetrical  data  services  using a dedicated  link between a subscriber  and a
network. However, laser technology transmits data by means of beams of light. In
addition to the need for dedicated  equipment at each end of a link for each new
subscriber,  lasers typically  operate only over short  distances,  require very
precise aiming of the equipment,  and experience degradation of the transmission
in inclement weather.

     Broadband   Point-to-Multipoint   Wireless.   Point-to-multipoint  wireless
technology  enables a single hub to support  multiple CPEs rather than requiring
dedicated  equipment  at each end of a link for each new  subscriber.  Broadband
point-to-multipoint wireless access technology enables network service providers
to enter a market economically and quickly using a single hub and a small number
of CPEs  without  the need to install  wire,  cable or fiber.  They can then add
subscribers  rapidly and  cost-effectively,  as each  installed  hub can support
multiple CPEs.

Mass Deployment of Broadband Point-to-Multipoint Solutions Presents Challenges

     Broadband  point-to-multipoint  wireless access equipment typically must be
tailored for frequency requirements that vary from country to country and within
each  country.  A  further  complication  is  caused  by the  lack of  universal
standards for equipment  specifications and protocols. As a result, suppliers of
broadband  point-to-multipoint  wireless  access  equipment  face  challenges in
achieving economies of scale and developing cost-effective products suitable for
deployment to many subscribers.

     Conventional  industry  practice  traditionally has been to build broadband
point-to-multipoint  wireless access equipment using multiple modules  connected
by small  metal  pipes and  wires.  This  approach  requires  considerable  hand
assembly  and  tuning  and  is  not  well  suited  to  automated  manufacturing.
Therefore,  assembly is often outsourced to low-cost labor  environments,  which
greatly reduces the ability to deliver tailored products in a timely fashion.


                                       4
<PAGE>

     An  opportunity  exists  to  substantially  reduce  the  cost of  broadband
point-to-multipoint  wireless access equipment by integrating the  functionality
of multiple  conventional modules onto printed circuit boards,  thereby enabling
the  use  of  low-cost   manufacturing   processes.   However,  major  technical
difficulties  have plagued the  development  and  production of printed  circuit
boards that  operate at high  frequencies  and at high data rates  because  they
typically generate distorted or unwanted signals.

Strategy

     Our objective is to be the leading  worldwide  provider of radio frequency,
or  RF,  products  for  broadband  wireless  access  systems.  Our  strategy  to
accomplish this objective is to:

     Expand  our  position  in the  global  market  for  point-to-multipoint  RF
products with our next-generation planar products. Our strategy is to secure new
customer  relationships  by  delivering  next-generation  planar RF  products to
network system integrators to meet their performance requirements while reducing
equipment size and cost. These  next-generation,  planar products take advantage
of our years of  experience  in  developing  and  shipping  thousands  of planar
products to arrive at a more highly integrated, planar architecture than we have
used in the past. This  architecture  enables  automated pick and place assembly
and interconnection of planar circuit elements on a single, die-cast metal plate
with no internal connectors or wires and with a minimum of specialty  electronic
components.  The  architecture  also enables  automated  functional  and thermal
testing of completed products.

     Use our  next-generation,  planar  architecture  to develop RF products for
high-data-rate,  point-to-point  wireless  access  systems.  A  rapidly  growing
segment of the  wireless  access  industry  is for  point-to-point  radios  that
provide high data rates of 155 Mbps or greater and that  operate at  frequencies
up to 40 gigahertz,  or GHz.  These systems are  addressing a need for broadband
access at data rates that are generally  not  available  except with fiber optic
cable or lasers. The RF equipment  historically  incorporated into these systems
uses relatively  expensive,  modular  architectures with high material and labor
costs.  Opportunity exists to reduce the cost of point-to-point  wireless access
equipment  by applying  our  printed  circuit  board  technology  developed  for
point-to-multipoint  wireless access products.  This product  technology and the
associated   manufacturing   equipment   and   processes   can  be   applied  to
point-to-point   products,   which  should  enable  improved   margins  or  more
competitive pricing for suppliers of these systems.

     Exploit  our  recently  announced  Virtual  Fiber  Radio(TM)  to expand our
product  offerings  beyond our  traditional  RF products.  Our new Virtual Fiber
Radio(TM),  or VFR,  will  enable us to address a new  segment  of the  wireless
access market in the  millimeter-wave  spectrum above 40 GHz. By using the large
amounts of  unallocated  spectrum  above 40 GHz,  the VFR is less  complex  than
traditional  millimeter-wave  radios that are  constrained to limited amounts of
spectrum  in licensed  bands  below 40 GHz. As a result,  we expect that the VFR
will be smaller and lower cost than traditional point-to-point,  millimeter-wave
radios.

     Expand strategic relationships with network system integrators.  We believe
successful  deployment of broadband  wireless  access  equipment  requires close
working  relationships  with network  system  integrators.  We have  established
relationships with Alacatel and Marconi for product  development and supply. Our
relationships   with  key  industry   leaders   offer  us  insight  into  market
requirements and deployment  trends,  which shapes  development of our long-term
product  strategy.  We  intend  to build  upon our  existing  relationships  and
establish  new  relationships   with  network  system  integrators  to  increase
distribution of our products and build brand awareness.

     Establish  brand  identity.  We intend to establish  brand  awareness  with
network  service  providers  and to build  upon our  position  in the  broadband
point-to-multipoint wireless access equipment market. Historically, our products
have been  sold  primarily  under  private  label by  prominent  network  system
integrators.  In the future,  we intend to  increasingly  brand or co-brand  our
products to build name  recognition.  In addition,  we plan to invest in a broad
range of marketing programs, including participation in trade shows, advertising
in print  publications,  direct  marketing  to  major  customers  and  web-based
marketing.


                                       5
<PAGE>

Products

     We   presently   develop   and   supply  RF  hub  and  CPE   products   for
point-to-multipoint  wireless access  networks.  Our products operate at various
frequencies  ranging  from 24 GHz to 44 GHz and are  available  with a range  of
interfaces,  including  hybrid  fiber coax,  or HFC,  and  Digital  Audio-Visual
Council,  or DAVIC.  Initially,  we  developed  and  supplied  products  using a
flexible, modular architecture,  consistent with conventional industry practice.
The  advantage  of this  approach  was that it  allowed us to deliver a tailored
solution  very rapidly for network  service  provider  site  demonstrations  and
initial  stages  of  deployment.  However,  this  type  of  product  was  fairly
expensive.  Therefore,  we have  focused our efforts on  developing  RF products
based on a planar,  printed  circuit board  architecture.  The advantage of this
approach is that it results in lower cost products.  However,  developing planar
products is  technically  challenging  and tends to take longer than for modular
products.

     We are also  developing  our  Virtual  Fiber  RadioTM  and  anticipate  the
adaptation of our  point-to-multipoint,  planar technology to the development of
point-to-point  wireless access  products.

Point-to-Multipoint CPE Products

     We have  concentrated  our  development  efforts  on the CPE unit.  Because
multiple  CPEs are  supported by each hub in a  point-to-multipoint  deployment,
cost  reduction of the CPE has the most  significant  impact on the ability of a
network service provider to deploy broadband access services to its customers on
a cost-effective  basis. Our next-generation,  planar CPE is a highly integrated
unit using  single-board,  planar  architecture  that enables highly  automated,
cost-effective manufacturing.

Point-to-Multipoint Hub Products

     Each hub provides  two-way  connectivity to multiple CPEs out to a range of
approximately two to three miles. For some customers, our planar hub consists of
separate  transmitter  and receiver units that are deployed  together to provide
two-way connectivity.  For other customers,  our planar hub consists of a single
unit that performs both  transmit and receive  functions.  Like the planar CPEs,
our  planar  hubs  are  highly  integrated  units  using  single-board,   planar
architecture that enables highly automated,  cost-effective manufacturing.  This
design  approach  enables  network  service  providers  to lower  their costs of
deployment in commercial service buildouts.

Point-to-Point Products

     Our point-to-multipoint  printed circuit board technology can be adapted to
develop RF products for point-to-point wireless access systems. The RF equipment
historically incorporated into these systems uses relatively expensive,  modular
architectures with high material and labor costs. We believe that the technology
and skill base we have acquired  through our developing and supplying  thousands
of planar  point-to-multipoint  products will enable us to develop cutting-edge,
cost-effective   point-to-point   RF   products.   Our  plan  is  to  adapt  our
point-to-multipoint CPE technology for use at each end of a point-to-point radio
link,  thereby  providing a more cost effective RF product than is commonly used
in point-to-point wireless access systems.

Virtual Fiber Radio(TM)

     We are  currently  developing  our Virtual  Fiber  Radio(TM)  to operate at
frequencies  above 40 GHz.  This  patent-pending  product is being  designed  to
enable  direct  fiber  optic  connection  to  wireless   transceiver  units  and
transparently  transmit fiber optic signals over a wireless link without the use
of conventional  modems.  We are currently  developing  prototype  Virtual Fiber
Radios(TM) and expect to have the prototypes available in 2001.

Customers

     We sell our products  primarily to network  system  integrators,  primarily
Alcatel.  The network  system  integrators  in turn develop  complete  broadband
network   solutions  for  their  customers,   the  network  service   providers.
Occasionally, we sell our products directly to network service providers.



                                       6
<PAGE>

     For the year ended December 31, 2000,  sales to Alcatel  represented 93% of
sales.  For the year ended  December 31, 1999,  sales to Alcatel  (then known as
Newbridge   Networks)   represented  88%  of  sales  and  sales  to  Convergence
Communications represented 6% of sales.

     Our relationship  with Alcatel began in 1998. In that year, we entered into
product development and reseller  agreements with Newbridge  Networks.  In those
agreements,  we agreed to  develop,  manufacture,  and sell  broadband  wireless
access  products to  Newbridge  Networks.  Newbridge  Networks  was  acquired by
Alcatel in May 2000. Following the acquisition,  we continued to supply the same
products  to Alcatel  for a period of time.  However,  in the fourth  quarter of
2000, Alcatel changed the approval processes relating to product development and
production from the approval  processes used by Newbridge  Networks prior to its
acquisition  by Alcatel.  In  addition,  Alcatel  stated it would not accept any
additional products from us until the new approval processes had been completed.
These changes  caused us to suspend  production of products for Alcatel.  We are
currently  addressing the open issues with Alcatel.  However,  our  relationship
with Alcatel remains unsettled, and the timing of completion of the new approval
processes and  resumption of production  remains  uncertain.  We cannot  predict
when,  if at all, the open issues will be resolved and when,  if at all, we will
resume shipping products to Alcatel.

     We also have a relationship with Marconi.  Marconi has chosen us to develop
and supply 28 GHz point-to-multipoint hubs and CPEs for the European market, and
we are in the process of developing  those  products.  The  relationship  may be
expanded to address other frequency bands, other markets, and different types of
products (such as point-to-point products).

     We previously  developed and supplied broadband wireless access products to
Motorola.  Motorola  has  informed  us that it has  decided to  discontinue  its
efforts to develop, sell and deploy high-frequency  point-to-multipoint wireless
access  networks.  Therefore,  we agreed with  Motorola to cancel the  remaining
deliveries contemplated under our agreement with Motorola.

     We  also  previously  developed  and  supplied  broadband  wireless  access
products to LG Information & Communications. Our agreement with LG Information &
Communications for commercial deliveries of these products was conditional on LG
Information & Communications  being able to obtain  satisfactory  modems to work
with our products.  Since LG Information & Communications was not able to obtain
satisfactory  modems,  our agreement  with LG Information &  Communications  for
commercial  deliveries has been cancelled.  We are currently negotiating with LG
Information & Communications concerning the payment of the account receivable of
approximately $950,000 arising from our delivery of prototype products to them.

     We have had a joint development  program underway with Adaptive  Broadband.
The goal of that program was to create a product that  combined the strengths of
the two companies - the modem and lower frequency  skills of Adaptive  Broadband
with  our  high  frequency  skills.  Adaptive  Broadband  recently  announced  a
restructuring of its business to concentrate on lower frequencies. Therefore, we
believe that the joint development program will be discontinued.

Manufacturing

     We have developed  extensive expertise in automated assembly and testing of
planar wireless access products that operate at high  frequencies.  In addition,
we have  installed an automated  shop floor control system and an automated data
collection  and analysis  system.  We have  focused  these  capabilities  on the
development  of   manufacturing   strategies  for   high-volume   production  of
cost-effective  broadband  wireless  access  products.  We develop our automated
manufacturing  processes  and automated  test  equipment  concurrently  with the
design and  development of our products.  We use our internal final assembly and
automated test facility to validate our  manufacturing  processes in a carefully
controlled  environment.  For high-volume  production,  we are supplementing our
manufacturing   capacity  by  establishing   relationships   with  manufacturing
partners.  We have  signed  an  agreement  with  C-MAC  Industries  for  them to
manufacture  our  products for us. Given that we have  suspended  production  of
products for our major  customer  Alcatel,  C-MAC  Industries  is not  currently
manufacturing any products for us.


                                       7
<PAGE>

     Electronic  components and raw materials used in our products are generally
obtained from a large number of suppliers.  Some  components  are standard items
and others are manufactured to our specifications.  We obtain certain components
from a single  source or limited  number of sources.  We  typically  do not have
supply agreements of a term longer than one year with these vendors. In 2000, we
experienced  increasing  demand for the components and raw materials used in our
products,  and in some cases we were put on allocation  due to  shortages.  As a
result, we purchased or committed to purchase quantities  sufficient to meet our
expected production  requirements.  However, our actual production  requirements
were lower than we had anticipated.  This caused us to have  substantial  excess
inventory on hand and to negotiate with numerous  suppliers for the cancellation
of open orders.  See Item  7--Management's  Discussion and Analysis of Financial
Condition and Results of Operations, Safe Harbor for Forward-Looking Statements.


Marketing, Sales and Customer Service

     The global  communications  equipment  industry is  dominated  by a limited
number  of  network  system  integrators.  As a result,  we focus our  marketing
efforts on network system  integrators and their customers,  the network service
providers.  Our  marketing  activities  target  technical  experts  and  product
managers who heavily  influence  purchase  decisions.  We build brand  awareness
through several promotional  programs,  including  participation in trade shows,
speaking  at  industry  forums,   Web-based  communication  and  promotion,  and
publication of press releases.

     Our sales  approach is to start by  establishing  a technical  relationship
with a  potential  customer.  We then  assign an account  manager to develop the
relationship. The relationships typically involve product development and supply
and  supporting  our customer in their efforts to sell wireless  access  systems
using  our  products.  A key  element  of our  sales  approach  is to be  highly
responsive to customers'  needs.  We provide  customer  service in the following
areas:


     o   System  engineering.  We provide  engineering  support  for system site
         demonstrations, site surveys, specification development, integration of
         third-party equipment, installation and follow-on test support.

     o   Problem  resolution.  We provide prompt  responses to customer  problem
         reports,  including  telephone  support,  field service,  and repair or
         replacement  of  equipment.

     o   Field support.  Our customer  service  personnel are on call to provide
         global field  support.  We provide  field  support  primarily  for site
         demonstrations and initial deployments.

     o   Repairs.  We maintain a repair center staffed with technicians who work
         directly with our quality assurance team to analyze failures and repair
         equipment.


     Currently,  we  conduct  all  customer  support  activities  from our South
Deerfield,  Massachusetts headquarters.  We may establish support centers closer
to our major customer deployments.  Customer support is ancillary to the sale of
our products and is not currently considered to be a separate revenue-generating
line of business.

     Additional   description   concerning  our  sales   activities,   including
geographical  sales  information,  is  contained  below in Item  7--Management's
Discussion  and Analysis of Financial  Condition and Results of  Operations  and
Item 8--Financial Statements and Supplementary Data, Notes 1 and 16 to Financial
Statements.


                                       8
<PAGE>

Research and Development

     The goal of our  development  activities is to reduce the cost and increase
the  functionality  of our  products,  while  adapting them to the frequency and
interface   specifications   required  for  new  markets.   Our   experience  in
millimeter-wave and microwave  technologies enables us to develop cost-effective
broadband wireless access products.  As a result of our experience over the past
three  years in  developing  over  twenty-five  planar RF  products,  we are now
developing the next generation of products that are more highly  integrated than
our previous  products.  We also are continuing to advance our core competencies
and to extend these core competencies to meet rapidly changing market needs. For
example,  we are  developing  our  Virtual  Fiber  RadioTM  and  anticipate  the
adaptation of our  point-to-multipoint,  planar technology to the development of
point-to-point wireless access products. See Item 1--Business, Products above.

     Our  multidisciplinary  research and development team consists of engineers
and scientists whose specialties include microwave engineering,  millimeter-wave
engineering, electrical engineering, mechanical engineering, chemistry, physics,
computer  science  and  materials  science.   We  also  maintain  close  working
relationships  with  the  University  of  Massachusetts  and  various  technical
organizations.

     We also have  entered  into  relationships  with  other  companies  when we
believe  they have skills that could  benefit us. We  initially  entered  into a
joint design and  manufacturing  agreement with  California  Amplifier.  In this
agreement,  California  Amplifier  agreed to  manufacture  our existing CPEs, to
assist us in designing  improvements to lower the cost of our existing CPEs, and
to manufacture the redesigned  CPEs. In 2000, we replaced that agreement with an
agreement  by which we paid  California  Amplifier  a one-time  license  fee and
obtained rights to use the technology they had developed in any of our products.
We continue to consider similar relationships in appropriate circumstances.

     Additional description concerning our research and development  activities,
including research and development expense for fiscal years 2000, 1999, and 1998
and  customer-sponsored   research  activities,   is  contained  below  in  Item
7--Management's  Discussion  and Analysis of Financial  Condition and Results of
Operations and Item 8--Financial  Statements and  Supplementary  Data, Note 1 to
Financial Statements.

Competition

     The market for broadband  point-to-multipoint  wireless access equipment is
rapidly evolving and highly  competitive.  A number of large  telecommunications
equipment suppliers, such as Alcatel, Ericsson and Nortel Networks, as well as a
number of smaller  companies,  have  developed or are  developing  products that
compete with ours. Many of our competitors are substantially  larger than we are
and  have  significantly  greater  financial,  sales,  marketing,  distribution,
technical,  manufacturing  and  other  resources.  These  competitors  may  make
strategic  acquisitions or establish cooperative  relationships among themselves
or with third parties to increase their ability to gain market share rapidly. We
expect to face  increasing  competitive  pressures  from both current and future
competitors in the markets we serve.

     The rapid technological  developments within the network equipment industry
result  in  frequent  changes  to  our  group  of  competitors.   The  principal
competitive  factors in our market  include price;  ability to  manufacture  and
distribute  products;  product  performance,   features  and  inter-operability;
product  development  speed;  product  availability;  relationships with network
system integrators and network service providers; technical support and customer
service; and brand recognition.

     Broadband  point-to-multipoint wireless access solutions are also competing
with other high-speed  solutions such as digital subscriber lines, cable, fiber,
other   high-speed   wire,   laser,   satellite  and   point-to-point   wireless
technologies.  Many of these  alternative  technologies  can take  advantage  of
existing installed infrastructure and have achieved significantly greater market
acceptance and penetration  than broadband  point-to-multipoint  wireless access
technologies.  We  expect to face  increasing  competitive  pressures  from both
current and future technologies in the broadband access market.


                                       9
<PAGE>

Intellectual Property

     We rely on a combination of patent, copyright,  trademark, and trade secret
laws,  as well as  confidentiality  agreements,  to  establish  and  protect our
proprietary  rights.  Our  success  depends  to a  significant  degree  upon the
preservation  and  protection  of our  product  designs  and  other  proprietary
technology.  Although  we  employ a  variety  of  intellectual  property  in the
development  and  manufacturing  of our  products,  we believe  that none of our
intellectual  property  is  individually  critical  to our  current  operations.
However,  taken as a whole,  we believe  our  intellectual  property  rights are
significant.  See Item  7--Management's  Discussion  and  Analysis of  Financial
Condition and Results of Operations, Safe Harbor for Forward-Looking Statements.

     We have been granted one material  United States  patent,  which relates to
our antenna  and  transceiver  designs and will remain in force until  September
2018. In addition,  we have eleven United States patent applications pending. We
have been granted two counterpart  foreign patents and have counterpart  patents
pending  in ten  international  jurisdictions.  We plan to  continue  to  pursue
intellectual  property protection in foreign countries (primarily in the form of
international  patents) in instances where the technology  covered is considered
important enough to justify the added expense.

     We have eleven United States trademark  applications  pending. In addition,
we have trademark  applications pending in eleven  international  jurisdictions.

Employees

     On February 28, 2001, we had 163 employees,  including 54 in manufacturing,
66 in engineering,  11 in quality assurance,  7 in sales, marketing and customer
service,  and 25 in  finance  and  administration.  We are  not a  party  to any
collective  bargaining  agreement.  We believe that relations with our employees
are good.

Item 2.    Properties.

     We lease  approximately  63,000 square feet of facilities  comprised of two
buildings in South Deerfield,  Massachusetts. One building is used primarily for
engineering and the second  primarily for  manufacturing.  The term of the lease
for the two  buildings  expires in  October  2005.  We also lease  approximately
10,200  square  feet  in  Richardson,   Texas,   which  is  used  primarily  for
engineering. The term of the Texas lease expires in December 2006.

Item 3. Legal Proceedings.

     We are not currently a party to any material legal proceedings.


Item 4.    Submission of Matters to a Vote of Security Holders.

     No matters were submitted to a vote of stockholders during the three months
ended December 31, 2000.


                                       10
<PAGE>

                                    PART II


Item 5.    Market for Company's Common Equity and Related Stockholder Matters.

Market Information

     On February 2, 2000, we completed an initial public offering ("IPO") of our
common stock.  Our common stock is quoted on the Nasdaq Stock Market's  National
Market,  under the symbol "TLXS". For all periods prior to the IPO, there was no
established public trading market for our common stock.

     The  following  table shows the high and low bid prices of our common stock
for each indicated fiscal period as reported by The Nasdaq Stock Market:

Fiscal Year 2000                                High            Low
----------------                                ----            ---
First Quarter (ended 3/31/00)                  $120.25        $43.563
Second Quarter (ended 6/30/00)                 $ 79.438       $17.063
Third Quarter (ended 9/30/00)                  $ 36.125       $ 4.063
Fourth Quarter (ended 12/31/00)                $  7.50        $ 0.688


     As of February 28, 2001, the number of stockholders of record of our Common
Stock was approximately 279.

     We have  never  declared  or paid any cash  dividends  on any  class of our
common  equity.  We currently  intend to retain any future  earnings to fund the
development  and  growth  of  our  business.  In  addition,   under  our  credit
facilities,  we  generally  cannot pay cash  dividends  without  our  creditors'
consent.  Therefore, we currently do not anticipate paying cash dividends in the
foreseeable future.

Recent Sales of Unregistered Securities

     We issued or sold the following unregistered securities in the three months
ended December 31, 2000:

     o   An  aggregate  of 62,500  shares of common  stock at $1.00 per share in
         December 2000 to a warrant holder upon the exercise of warrants.

     The sale  described  above was  completed  without  registration  under the
Securities Act in reliance upon the exemptions  contained in Section 4(2) of the
Securities Act and/or Rule 506 of Regulation D promulgated  under the Securities
Act for transactions not involving a public offering.

     The sale of the  securities  described  above did not involve the use of an
underwriter,  and no  commissions  were paid in connection  with the sale of the
securities described above.

Use of Proceeds from Registered Offerings

     On  February 1, 2000,  the  Securities  and  Exchange  Commission  declared
effective a Form S-1 Registration  Statement (File No. 333-87885) filed by us in
connection  with an initial  public  offering of 4,600,000  shares of our common
stock,  par value $.01 per share.  The  offering of common  stock  commenced  on
February 2, 2000 and closed on February 7, 2000 with all of the 4,600,000 shares
sold at a price of $17.00 per share for an aggregate price of $78.2 million. All
shares were sold by Telaxis;  there were no selling stockholders.  Credit Suisse
First Boston was the lead  managing  underwriter  of the  offering,  and Banc of
America  Securities  LLC and CIBC World Markets Corp.  were  co-managers  of the
offering.

     The gross proceeds of the offering were  approximately  $78.2  million.  We
incurred approximately $7.1 million of expenses in connection with the offering,
of which  approximately  $5.5 million  represented  underwriting  discounts  and
commission,  and $1.6 million represented offering costs,  including legal fees,
accounting fees, underwriters' out-of-pocket expenses and printing expenses.

                                       11
<PAGE>
     We received  approximately $71.1 million of net proceeds from the offering.
Those net proceeds  will be used for general  corporate  purposes.  Pending such
use,  the net  proceeds  have been  invested  in  short-term,  interest-bearing,
investment  grade  securities  or direct or guaranteed  obligations  of the U.S.
government.  From the time of receipt through December 31, 2000, we have applied
our net proceeds from the offering  toward working  capital,  financing  capital
expenditures,  and funding  operating  losses.  Net cash used from the  offering
through December 31, 2000 for operating activities totaled $30.1 million.

Item 6. Selected Financial Data.

     Set forth below is certain historical  selected financial data with respect
to the Company which has been derived from the audited  financial  statements of
the Company for each of the respective years. We have never declared or paid any
cash dividends.

<TABLE>
<CAPTION>
                                                           Year Ended December 31,
                                        -------------------------------------------------------
                                           2000        1999        1998         1997      1996
                                        --------    --------    --------    --------    --------
                                                 (in thousands, except per share data)
<S>                                     <C>         <C>         <C>         <C>         <C>
Statement of Operations Data
Sales ...............................   $ 24,753    $  9,720    $  2,386    $  1,733    $    201
Loss from continuing operations .....    (37,634)     (8,293)    (11,253)     (6,712)     (2,239)
Basic and diluted loss per share from
  continuing operations .............      (2.54)     (13.68)     (22.87)     (14.16)      (4.15)

<CAPTION>
                                                           Year Ended December 31,
                                        -------------------------------------------------------
                                           2000        1999        1998         1997      1996
                                        --------    --------    --------    --------    --------
                                                             (in thousands)
<S>                                     <C>         <C>         <C>         <C>         <C>
Total assets ........................   $ 65,538   $ 25,297    $ 14,955    $ 20,059    $ 10,728
Long-term debt and capital lease
  obligations, net of current portion      3,225      2,385       1,047       1,690       3,257
Total liabilities ...................     15,439     11,925       6,753       9,632       7,823
Redeemable preferred stock ..........       --       47,793      32,793      25,425      12,465
Total stockholders' (deficit) equity      50,099    (34,421)    (24,591)    (14,998)     (9,560)

</TABLE>

Item 7.    Management's Discussion and Analysis of Financial Condition and
           Results of Operations.

Overview

     We develop and supply  broadband  wireless  access products used by network
service  providers  to deliver  integrated  voice,  video and data  services  to
business and residential subscribers.  We sell our products primarily to network
system  integrators,  which include our products in broadband  wireless  systems
sold to  network  service  providers.  Our planar  products,  based on a printed
circuit board design,  can be  mass-produced  using low-cost,  highly  automated
manufacturing  techniques.  These  planar  products  address a  network  service
provider's need for cost-effective deployment to many subscribers.

     We commenced  operations in 1982 and have derived the significant  majority
of our sales from our  millimeter-wave  products business segment prior to 1999.
Millimeter waves are  electromagnetic  waves having wavelengths  between one and
ten millimeters. In August 1999, we adopted a plan to focus all of our resources
on our broadband  point-to-multipoint  wireless access  business  segment and to
dispose of the  millimeter-wave  products segment. We decided to dispose of this
segment because it would have required us to reallocate financial and management
resources from the more attractive broadband point-to-multipoint wireless access
business segment. The segment was sold on February 8, 2000. As a result, we have
presented  the  operations  of  the   millimeter-wave   products  segment  as  a
discontinued  operation in our financial statements.  The following management's
discussion  and analysis  focuses on our ongoing  broadband  point-to-multipoint
wireless access business.

                                       12
<PAGE>
We anticipate that network system integrators for point-to-point wireless access
networks will accept the  point-to-point  RF products we intend to develop based
on  our  point-to-multipoint   wireless  access  product  experience.   We  also
anticipate  that our recently  announced  Virtual  Fiber  RadioTM will become an
important part of our business.

     Our first prototype broadband point-to-multipoint wireless access equipment
was  evaluated in a trial in 1995.  Before  receiving our first volume order for
equipment in June 1999, virtually all of our shipments of products were for site
demonstrations and initial commercial deployments.

     For the year ended December 31, 2000,  approximately  93% of our sales were
to a customer located in Canada and 4% of our sales were to customers located in
the United States.  For the year ended December 31, 1999,  approximately  88% of
our sales  were to a customer  located  in Canada,  and 12% of our sales were to
customers  located in the United  States.  For the year ended December 31, 1998,
approximately  48% of our sales were to customers  located in the United States,
30% of our sales were to a customer located in Canada,  12% of our sales were to
a customer located in Ecuador, and 10% of our sales were to customers located in
other countries,  including South Korea,  England and Australia.  We expect that
sales to  customers  located  outside  the United  States  will  continue  to be
significant.

Results of Operations

     The following table provides continuing  operations data as a percentage of
sales for the periods presented. The percentages may not add due to rounding.

<TABLE>
<CAPTION>
                                                                Year Ended December 31,
                                                                -----------------------
                                                              2000       1999      1998
<S>                                                           <C>       <C>       <C>
Sales ...................................................     100.0%    100.0%    100.0%
Cost of Sales ...........................................     119.6      93.0     315.0
Charges relating to excess inventory on hand and on order      71.7        --        --
                                                             ------     -----    ------
Gross margin (loss) .....................................     (91.3)      7.0    (215.0)
Operating expenses
  Research and development, net .........................      34.8      50.1     209.3
  Selling, general and administrative ...................      36.5      37.2     127.7
                                                             ------     -----    ------
    Total operating expenses ............................      71.3      87.3     337.1
Operating loss ..........................................    (162.6)    (80.3)   (552.1)
Other income (expense) ..................................      10.6      (5.0)     31.7
                                                             ------     -----    ------
Loss from continuing operations before income taxes .....    (152.0)    (85.3)   (520.3)
Income tax benefit ......................................        --        --     (48.7)
                                                             ------     -----    ------
Loss from continuing operations .........................    (152.0)%   (85.3)%  (471.6)%
                                                             ======     =====    ======
</TABLE>

Years Ended December 31, 2000, 1999 and 1998

Sales

     Sales  increased  155% to $24.8  million in 2000 from $9.7 million in 1999.
Sales  increased  307% from $2.4  million in 1998 to $9.7  million in 1999.  The
increase in sales in each period primarily  reflects an increase in shipments of
our planar products to approximately  $23.4 million in 2000 from $8.2 million in
1999 and $500,000 in 1998.  Sales in units of our planar products were 13,709 in
2000, 3,755 in 1999 and 207 in 1998.

Cost of Sales

     Cost of sales consists of component and material costs, direct labor costs,
warranty  costs,  overhead  related to  manufacturing  our products and customer
support costs.  Cost of sales  increased  $20.6 million to $29.6 million in 2000
from $9.0 million in 1999.  Cost of sales increased $1.5 million to $9.0 million
in 1999 from $7.5  million in 1998.  The  increase in cost of sales from 1999 to
2000 and from 1998 to 1999 was attributable primarily to

                                       13
<PAGE>

increased shipments of our planar products. Gross margins were a negative 91% in
2000,  a positive 7% in 1999 and a negative  215% in 1998.  The decline in gross
margin  from 1999 to 2000 was  primarily  a result of charges  of $17.7  million
related to excess  inventory on hand and on order.  These charges are the result
of the ongoing  evaluation of the relationship  with a major customer,  Alcatel.
Excluding the effect of the charges  related to excess  inventory on hand and on
order,  gross  margin  for the year  ended  December  31,  2000  would have been
negative 20%. This portion of the negative gross margin was  principally  due to
increases  in  equipment  and  personnel  to  support  the  forecasted  delivery
requirements  of our customers,  the costs  associated  with  qualification  and
initial  production at our contract  manufacturing  location in Canada,  and the
effects of  significant  reductions in  production  volume in the second half of
2000. The  improvement in gross margin from 1998 to 1999 resulted from increased
efficiencies  attributable  to  larger  order  and  production  volumes  as  the
transition  began to occur from trial and  initial  qualification  to full scale
network deployments.

     In the third  quarter  of 2000,  we  incurred  a charge of $1.9  million to
reserve  for  obsolete   inventory   which  resulted  from  changes  in  product
configuration  and shifts in customer demand. In the fourth quarter of 2000, the
$17.7 million charge  related to excess  inventory on hand and on order resulted
from  significant  declines  in  requirements  for  Alcatel.   Procurements  and
commitments  for material  placed earlier in 2000 were reviewed and evaluated in
the  context of the  Alcatel  relationship,  resulting  in a write down to their
expected net realizable value.

     In 1998 we purchased various components and materials for certain equipment
designs in advance of production in order to accelerate  development and testing
for  rapid  product  deployment.  Higher  costs  were  incurred  for low  volume
purchases and  accelerated  deliveries from suppliers to support the accelerated
development schedules.  During a review of the value of the total material costs
for certain products compared to the estimated future selling prices, we reduced
selected inventory amounts to their expected net realizable value.

Research and Development Expenses

     Research and  development  expenses  consist  primarily  of  personnel  and
related costs  associated with our product  development  efforts.  These include
costs for  development  of products and  components,  test equipment and related
facilities.  Gross  research  and  development  expenses  increased  56% to $9.2
million in 2000 from $6.0 million in 1999.  Our gross  research and  development
expenses  were $6.0  million in 1998.  The increase  from 1999 to 2000  reflects
significant  investments  to  further  enhance  our  planar  product  design  to
accommodate  low cost,  high  volume  manufacturing  and expand our  designs for
additional customer requirements.  These activities required us to substantially
increase the size of our research and  development  staff by 50% to 72 personnel
at the end of 2000 from 48 at the end of 1999. Additionally, customer funding of
development  projects decreased 43% to $612,000 in 2000 compared to $1.1 million
in 1999. From 1998 to 1999 we increased our research and development  staff by 6
personnel.  Partially offsetting this increase was a reassignment of 4 personnel
to our customer support group and elimination of a senior  management  position.
Some of our customers have provided funding to offset our development  costs for
specific products. Net of customer reimbursements,  our research and development
expenses  increased  77% to $8.6  million in 2000 from $4.9  million in 1999 and
decreased 2% from $5.0 million in 1998.

Selling, General and Administrative Expenses

     Selling,  general and administrative expenses consist primarily of employee
salaries  and  associated  costs  for  selling,  marketing,   customer  support,
information systems,  finance, legal, and administration.  Selling,  general and
administrative expenses increased 150% to $9.0 million in 2000 from $3.6 million
in 1999.  Selling and marketing  expenses  increased 19% to $3.6 million in 1999
from $3.0 million in 1998. These increases were primarily related to expenses to
support the  Company's  growth and  operation as a public  company.  The Company
increased  personnel in these  functional  areas by 10% to 56 in 2000 from 51 in
1999. The Company increased spending for travel,  trade shows, and consulting in
an effort to expand  its  customer  base.  Additionally,  the  Company  incurred
increased  expenditures  for  recruitment  of  technical  personnel  and  senior
management positions.


                                       14
<PAGE>

Other Income (Expense)

Other income  (expense)  consists of interest and dividends earned on cash, cash
equivalents   and  marketable   securities   offset  by  interest   expense  and
miscellaneous  non-operating expenses. Total other income increased 641% to $2.6
million in income in 2000 from $484,000 in expense in 1999.  Total other expense
increased  164% to $484,000 in expense in 1999 from  $757,000 in income in 1998.
The change in other  expense from 1999 to other income in 2000 was primarily due
to interest and dividends  earned on proceeds from the Company's  initial public
offering.  Other income for 1998 included the  recognition of $997,000 in income
related to the termination of a development  contract with a customer.  Interest
expense  increased in 1999 by $283,000 to $756,000 in 1999 from $473,000 in 1998
primarily  due to the  amortization  of $284,000 for a discount on  subordinated
promissory  notes.

Income Tax Benefit

     No tax benefit has been recorded in 2000 and 1999 due to the uncertainty in
deducting  current losses against  future  taxable  income.  We have recorded an
income tax  benefit in 1998 from  continuing  operations  because  the loss from
continuing operations offsets income from discontinued operations.

Liquidity and Capital Resources

     Since 1997, we have financed our operations  primarily  through the sale of
redeemable  preferred  stock,  from proceeds of our initial  public  offering in
February  2000  and,  to a  much  lesser  extent,  from  cash  generated  by our
discontinued  operations.  We have  also  issued  subordinated  notes  and  used
equipment  lease  financing and bank lines of credit to provide  cash.  Our long
term debt  agreements in effect at December 31, 2000 contain  certain  financial
covenants  of which  the  most  restrictive  are the  maintenance  of a  minimum
debt-to-equity ratio and various profitability requirements.  The 2000 events of
default  disclosed in the  footnotes to the financial  statements  relate to the
failure to meet a minimum sales revenue growth  requirement,  required under our
line of credit  facility in effect  during 2000.  The line of credit  expired on
November 30, 2000 and was not renewed by the Company.  We raised net proceeds of
$12.9 million in 1999 from the issuance of redeemable preferred stock.

     On February 7, 2000 the Company  completed  an initial  public  offering of
4,600,000  shares of its common  stock at $17.00  per share  under the terms and
conditions  contained in an  underwriting  agreement dated February 1, 2000 with
various underwriters.  We received net proceeds from our initial public offering
of $71.1  million,  after  underwriting  discounts and  commission  and offering
costs, to be used primarily for general corporate purposes.

     At December 31, 2000, we had cash and cash equivalents of $27.9 million and
marketable  securities of $13.1  million.  As of December 31, 2000,  our line of
credit facility,  which was  collateralized  by substantially all of our assets,
had expired and was not renewed by the Company.  The  agreement  for the line of
credit  facility  had  required  the Company to comply with  certain  covenants,
including  minimum working  capital,  minimum  revenue growth,  and tangible net
worth.

     At December 31, 2000, we had approximately  $1.7 million in long-term debt,
of which  $250,000 is due through  June 2003 with an interest  rate of 10%,  and
$1,487,000 is due through November 2003 with an interest rate of 12%.

     At December 31, 2000,  we had  approximately  $3.6 million in capital lease
obligations, which are due through 2003.

     Cash used in operating  activities  in 2000 was $30.4  million  compared to
$9.6 million in 1999 and $8.5 million in 1998. Cash used in operating activities
has primarily  represented funding of our net losses and inventory build to meet
expected future production requirements.

     Cash used in investing  activities  in 2000 was $17.8  million  compared to
$2.5 million in 1999 and $3.7 million in 1998. In 2000,  the amount  principally
related to the purchase of marketable  securities and the purchase of equipment.
In 1999 and 1998,  these amounts related  primarily to the purchase of equipment
used in our manufacturing and research and development activities.

                                       15
<PAGE>

     Cash provided by financing activities in 2000 was $69.5 million compared to
$16.1 million in 1999 and $4.5 million in 1998. The financing activities in 2000
consisted  primarily  of the  proceeds  from our initial  public  offering.  The
financing  activities  for 1999  consisted  primarily of the sale of  redeemable
preferred stock and the issuance of term notes  collateralized by equipment.  In
1998,  financing  activities  consisted  primarily of the issuance of redeemable
preferred stock.

     Our  future  cash  requirements  will  depend  upon a  number  of  factors,
including the timing and level of research and development  activities and sales
and marketing  campaigns,  and our ability to  significantly  increase our sales
orders and  manufacturing  volumes and improve our gross margin. We believe that
our cash,  cash  equivalent and marketable  securities  balances at December 31,
2000 will  provide  sufficient  capital to fund our  operations  for at least 12
months. Thereafter, we may require additional capital to fund our operations. In
addition,  from time to time we evaluate  opportunities to acquire complementary
technologies or companies. Should we identify any of these opportunities, we may
need to raise  additional  capital to fund the  acquisitions and our operations.
There can be no assurance that  additional  financing will be available to us on
favorable terms or at all.

Disclosures About Market Risk

     The  following  discusses our exposure to market risk related to changes in
interest  rates,  equity  prices  and  foreign  currency  exchange  rates.  This
discussion  contains  forward-looking  statements  that are exposed to risks and
uncertainties,  many of which are out of our control.  Actual results could vary
materially as a result of a number of factors,  including  those discussed below
in "Safe Harbor for Forward-Looking Statements."

     As of December 31, 2000, we had cash and cash equivalents of $27.9 million.
Substantially all of these amounts  consisted of highly liquid  investments with
remaining  maturities  at the  date of  purchase  of less  than 90  days.  As of
December 31, 2000, we had marketable securities of $13.1 million which consisted
of municipal and government bonds and commercial  paper with maturities  through
June 2001. These investments are exposed to interest rate risk and will decrease
in value if market interest rates increase.  We believe a hypothetical  increase
or decrease in market  interest  rates by 10 percent  from the December 31, 2000
rates  would  not  cause  the  fair  value  of  these   investments  to  decline
significantly,  since the Company's investments mature within one year. Although
an immediate  increase in interest rates would not have a material effect on our
financial  condition or results of  operations,  declines in interest rates over
time will reduce our interest income.

     At December 31, 2000,  the  Company's  portfolio of  marketable  securities
included a $2.5 million  investment in commercial  paper issued by Pacific Gas &
Electric.  Subsequent  to the  balance  sheet  date,  the  fair  value  of  that
investment  has declined.  The  subsequent  decline in fair market value was not
recorded in the  financial  statements  at December 31, 2000 because the Company
believes the decline to be temporary.

     We do  not  own  any  material  equity  investments.  Therefore,  we do not
currently have any direct equity price risk.

     Currently,  all sales to international  customers are denominated in United
States  dollars  and,  accordingly,  we are not  currently  exposed  to  foreign
currency exchange rate risks.

Safe Harbor for Forward-Looking Statements

     This Annual  Report on Form 10-K  contains  forward-looking  statements  as
defined by federal  securities  laws which are made  pursuant to the safe harbor
provisions   of  the  Private   Securities   Litigation   Reform  Act  of  1995.
Forward-looking  statements  include  statements  concerning plans,  objectives,
goals, strategies, expectations,  intentions, projections,  developments, future
events,  performance or products,  underlying  assumptions and other  statements
which are other than  statements of  historical  facts.  In some cases,  you can
identify  forward-looking  statements  by  terminology  such as  "may,"  "will,"
"should,"   "expects,"   "intends,"  "plans,"   "anticipates,"   "contemplates,"
"believes,"  "estimates,"  "predicts," "projects,"  "potential," "continue," and
other similar  terminology or the negative of these terms. From time to time, we
may publish or  otherwise  make  available  forward-looking  statements  of this
nature.  All such  forward-looking  statements,  whether  written  or oral,  and
whether made by us or on our behalf,  are expressly  qualified by the cautionary
statements described in this Form 10-K, including those set forth below, and any
other cautionary statements which may accompany the forward-


                                       16
<PAGE>

looking statements.  In addition, we undertake no obligation to update or revise
any   forward-looking   statement  to  reflect  events,   circumstances  or  new
information  after the date of this Form 10-K or to reflect  the  occurrence  of
unanticipated events, and we disclaim any such obligation.

     We believe that the  forward-looking  statements included in this Form 10-K
have  a  reasonable  basis.   However,   forward-looking   statements  are  only
predictions  that  relate to future  events or our  future  performance  and are
subject  to known  and  unknown  risks,  uncertainties,  assumptions,  and other
factors  that  may  cause  actual   results,   outcomes,   levels  of  activity,
performance,  developments,  or achievements to be materially different from any
future results,  outcomes,  levels of activity,  performance,  developments,  or
achievements   expressed,   anticipated  or  implied  by  these  forward-looking
statements. As a result, we cannot guarantee future results, outcomes, levels of
activity,  performance,  developments,  or  achievements,  and  there  can be no
assurance  that  our  expectations,   intentions,   anticipations,   beliefs  or
projections will result or be achieved or accomplished.

     In addition to other factors and matters  discussed  elsewhere in this Form
10-K, in our periodic  reports and other filings made from time to time with the
Securities and Exchange Commission, and in our other public statements from time
to  time  (including,  without  limitation,  our  press  releases),  some of the
important  factors  that,  in our view,  could  cause  actual  results to differ
materially  from those  discussed  in the  forward-looking  statements  include,
without limitation, the following:

     o   Relationship with Alcatel. One customer,  Alcatel, accounted for 93% of
         our sales for the year ended December 31, 2000 and 88% of our sales for
         the year ended December 31, 1999. Our  relationship  with Alcatel began
         in 1998 when we agreed to develop  and supply  products  for  Newbridge
         Networks.  Newbridge  Networks  was  acquired  by  Alcatel in May 2000.
         Alcatel does produce  products very similar to ours and could decide to
         stop procuring products from us. In the fourth quarter of 2000, Alcatel
         changed the  approval  processes  relating to product  development  and
         production.  As a result,  we  suspended  production  of  products  for
         Alcatel.  We cannot  predict  when,  if at all, we will  resume  volume
         production of products for Alcatel.  Failure to resume production would
         have a negative  impact on our expected sales and a negative  impact on
         the value of the  inventory  we have  procured to produce  products for
         Alcatel, as well as a negative overall impact on our business.

     o   Limited Number of Customers. Our customers are primarily a small number
         of  network  system  integrators,  and the  loss of one or more of them
         could  limit our  ability to generate  sales and  adversely  affect our
         business.  We have  no  long-term  purchase  commitments  or  exclusive
         purchase  agreements with these or any other  customers.  Because there
         are a relatively  small number of network system  integrators  with the
         resources and technical expertise necessary to offer broadband wireless
         access   systems,   and  because  these  network   system   integrators
         extensively  test and evaluate  products  such as ours before  making a
         purchase  decision,  we may be unable to  replace  our  network  system
         integrators quickly. Since we typically have to develop custom products
         for each  customer,  there is typically a period of months  between the
         time we obtain a new customer and the time we start shipping production
         quantities of products to that  customer.  Moreover,  because we may be
         able to supply only a few network  system  integrators  due to capacity
         constraints,  we  may be  unable  to  reduce  our  dependence  on a few
         customers.

     o   Limited  Capital.  Our  operations  to date have  required  substantial
         amounts  of  capital.   As  of  the  end  of  December   2000,  we  had
         approximately  $41 million in cash,  cash  equivalents,  and marketable
         securities.  While we believe that our cash on hand will be  sufficient
         to meet our working capital and capital  expenditure needs for at least
         the  next  twelve  months,  we may  need or want  to  raise  additional
         capital.  Our capital  requirements  will  depend on numerous  factors,
         including the commercial acceptance of our products, the demand for our
         products,  potential changes in strategic  direction,  and the costs of
         our research and development  efforts.  Additional financing may not be
         available  on  favorable  terms,  if at all.  If we  cannot  raise  the
         additional  capital we may need or want on acceptable terms, we may not
         achieve our business goals. If additional  funds are raised through the
         issuance of equity securities,  the percentage ownership of our current
         stockholders  may be reduced,  the value of their holdings of our


                                       17
<PAGE>

         stock may be  diluted,  and such  equity  securities  may have  rights,
         privileges  or  preferences  senior  to  those  of  our  common  stock.
         Alternatively,  we may need to  incur  substantial  debt or  contingent
         obligations,  which could  adversely  affect our cash flow,  results of
         operations,   financial  condition,  and  business.  Depending  on  the
         investors  in any equity or debt  offering,  we may injure our existing
         business relationships with suppliers and customers.

     o   Inability  to  Predict  Date  of   Profitability.   We  have   incurred
         substantial  losses and may not be profitable in the future.  We cannot
         predict  when  we  will  become  profitable.  Our  failure  to  achieve
         profitability  within  the time  frame  investors  expect may cause the
         market price of our stock to decline.

     o   Fluctuation in Quarterly  Results.  Our sales and operating results are
         likely to  fluctuate  significantly  and may fail to meet or exceed the
         expectations  of securities  analysts or  investors,  causing our stock
         price to fall.  Factors  that  could  cause our  quarterly  results  to
         fluctuate include our relationship with Alcatel, the timing and size of
         orders for our products,  the mix of our product sales (which we expect
         will shift over time  generally  toward  our less  profitable  customer
         premises  equipment),  the  hiring  and loss of  personnel,  timing  of
         expenditures for research and development activities, our lengthy sales
         cycle  which  makes  it  difficult  to  predict  our  future   business
         operations and make plans for the future,  our  manufacturing  capacity
         constraints and our ability to fulfill orders,  our inability to obtain
         components and test and manufacturing equipment at the prices and times
         and in the  quantities  we  need,  the  timing  of our  investments  in
         additional  manufacturing  capacity,  unexpected  poor assembly or test
         yields for our products,  price competition,  new product introductions
         by us or by  our  competitors,  disruptions  in  delivery  of  products
         manufactured by subcontractors or of components or subsystems  provided
         by  third-party  suppliers,  seasonal  factors that may affect  capital
         spending  by  customers,  such  as the  varying  fiscal  year  ends  of
         customers, political instability,  regulatory developments,  conditions
         affecting the telecommunications industry generally or general economic
         conditions, acquisitions and other factors described in this section.

     o   Stock Price  Volatility.  The market price of our common stock has been
         volatile  and is likely  to  remain  volatile.  Potential  reasons  for
         volatility include our financial  performance or the performance of our
         competitors, technological innovations or other trends in our industry,
         successes  or  failures  at  significant  product  evaluations  or site
         demonstrations,   the  introduction  of  new  products  by  us  or  our
         competitors,  the arrival or departure of key personnel,  acquisitions,
         strategic  alliances or joint ventures involving us or our competitors,
         announcements  by our  customers,  announcements  by us concerning  our
         relationship  with our existing or new customers,  changes in estimates
         of our performance or recommendations by securities analysts, decisions
         by major  participants  in the  communications  industry,  decisions by
         investors to de-emphasize  investment categories,  groups or strategies
         that  include our company or  industry,  and market  conditions  in the
         industry, the financial markets and the economy as a whole.

     o   Qualified  Personnel.  Our  success  depends in part on our  ability to
         attract,   hire,  train,  retain  and  motivate  qualified   technical,
         production,  management,  marketing,  sales,  and other  personnel with
         appropriate levels of capabilities. We believe that a significant level
         of   expertise   is  required  to  develop  and  market  our   products
         effectively. Recruiting qualified personnel is an intensely competitive
         and time-consuming process. We compete for such personnel with a number
         of other companies,  many of which have substantially greater resources
         than  us.  There  can be no  assurance  that we will be  successful  in
         attracting and retaining the personnel we require to conduct and expand
         our business and operations successfully on a timely basis. Our ability
         to attract,  hire,  retain and motivate our  personnel may be adversely
         impacted by our current business uncertainty,  the recent reductions in
         the size of our  workforce,  and our lower stock price  (since we grant
         many  of our  personnel  options  to buy our  stock).  The  failure  to
         attract,  hire, train,  retain and motivate qualified  personnel in the
         future would have a material adverse effect on our business,  financial
         condition and results of operations.


                                       18
<PAGE>

     o   Dependence on Key Personnel. Our performance is substantially dependent
         on the  performance of our executive  officers and other key employees.
         We have  key-man  life  insurance  only on John  Youngblood.  We do not
         currently have a succession plan in place.  Loss of the services of any
         of our key  executive  officers  or other key  employees  could  have a
         material  adverse  effect  on our  business,  financial  condition  and
         results of operations.

     o   Reliance on Third-Party  Suppliers.  Our products include single-source
         and other  critical  components,  and our  inability  to  obtain  these
         components at the prices we desire could halt production and could hurt
         our sales and lower our margins. Further, our inability to obtain these
         components in the  quantities and at the times we desire could hurt our
         ability  to  expand  our  business  as  rapidly  as we would  like.  We
         typically do not have any supply  agreements  of a term longer than one
         year with these vendors.  Inability to develop  alternative sources for
         these components or to obtain sufficient quantities of components could
         result in delays or reductions in product shipments.  In the event of a
         reduction  or  interruption  in  the  supply  of  a  key  component,  a
         significant  amount of time could be  required  to qualify  alternative
         suppliers  and  receive an  adequate  flow of  replacement  components.
         Reconfiguration  of our products to adapt to new components may also be
         required and could entail  substantial  time and expense.  In addition,
         because the process of  manufacturing  certain of these  components  is
         extremely  complex,  our reliance on the suppliers of these  components
         exposes us to potential production difficulties and quality variations,
         which  could  negatively  affect  the cost and timely  delivery  of our
         products. Given the reduction in our anticipated production in 2000, we
         had to negotiate with numerous  suppliers  concerning  inventory we had
         ordered  from them.  This  fluctuation  in our  business  may make them
         unwilling or reluctant to supply components to us in the future.

     o   Product Improvements.  The market for  telecommunications  products and
         services is subject to rapid  technological  change,  evolving industry
         standards,  rapid changes in customer requirements and frequent product
         and service  introductions and enhancements.  We expect our competitors
         to continue to improve the performance of their current products and to
         introduce new products or new technologies that may supplant or provide
         lower-cost  alternatives to our products.  To be  competitive,  we must
         continue to invest  significant  resources in research and development,
         sales and marketing and customer  support.  We may be unable to achieve
         the continuing cost reductions and technological  improvements required
         for our  products  to  remain  competitive.  Market  acceptance  of our
         products, and our success, will depend in part on our ability to reduce
         the per-unit  cost of our products.  There can be no assurance  that we
         will be able  to  keep  pace  with  competitive  pricing  pressures  or
         technological developments.

     o   Difficulties  in Developing  New Products.  We may be unable to develop
         new technology and new products  (including,  without  limitation,  our
         contemplated Virtual Fiber RadioTM and point-to-point RF products) with
         the features,  performance, cost and other characteristics as currently
         contemplated  or as desired by our  customers or the market in general.
         Any new  technology and new products we develop may not gain the market
         acceptance  we  anticipated.  Development  of new  technology  and  new
         products may take longer than we expect,  take more  resources  than we
         expect, and distract us from other portions of our business.

     o   Difficulties in New Business Lines. We are  contemplating  the possible
         expansion  of our  business  beyond  just  producing  products  for the
         broadband  wireless  point-to-multipoint  market.  For example,  we are
         developing our Virtual Fiber RadioTM and  contemplating the development
         of RF products for  point-to-point  wireless access systems.  We may be
         unable to realize the anticipated  benefits from expanding the scope of
         our business. We may be unable to successfully expand into new areas of
         business. We may incur unanticipated costs or liabilities in attempting
         to enter those new business areas. We may injure our existing  business
         relationships  with  suppliers  and customers by expanding the scope of
         our business.

                                       19
<PAGE>
     o   Delays in Development or Manufacture of Products. We may not be able to
         develop or manufacture our products as quickly as our customers require
         or would like.  This  manufacturing  constraint  could cause us to lose
         sales,  damage  our  reputation,   incur  financial  liabilities,   and
         jeopardize our long-term prospects.

     o   Difficulty in  Estimating  Costs.  A large  proportion of our sales are
         made  pursuant to  contracts  that  require  delivery of products  over
         several quarters or years.  Typically the prices of products sold under
         these  contracts  are  based  largely  on our  estimate  of our cost to
         develop  and  supply  these  products.  Many  times we need to make our
         estimates  before we obtain  experience in developing or  manufacturing
         the  products.  If we incur higher costs than  estimated in  performing
         under these  contracts,  it could have a material adverse effect on our
         results of operation and financial condition.

     o   Recent Focus on Current Business.  We have only recently focused on the
         broadband  wireless access market and, as a result,  it is difficult to
         predict  our  future  prospects  in this  market  based on our  limited
         history.  Historically,  our operations  focused on a business  segment
         that we  discontinued  in August 1999.  The  commercial  market for our
         broadband wireless access products did not emerge until recently and is
         developing slower than we had initially anticipated.  Therefore,  there
         is limited financial data that can be used to evaluate our prospects in
         this market.

     o   Intellectual  Property  Protection.  Our future  success will depend in
         part  on  our   ability  to  protect   our   proprietary   product  and
         manufacturing  process designs and other  proprietary  technology.  Our
         intellectual  property rights, and our ability to enforce those rights,
         may be  inadequate  to  prevent  others  from using our  technology  or
         substantially  similar technology they may independently  develop.  The
         use of that  technology  by  others  could  eliminate  any  competitive
         advantage  we  have,  cause us to lose  sales  and  otherwise  harm our
         business.  A  significant  portion  of our  proprietary  technology  is
         know-how,  and employees  with know-how may depart before  transferring
         their  know-how  to  other  employees.  Moreover,  the  laws  of  other
         countries  where we market our products may afford even less protection
         for our  intellectual  property.  If we resort to legal  proceedings to
         enforce our  intellectual  property  rights,  the proceedings  could be
         burdensome  and  costly and divert  the  efforts of our  technical  and
         management personnel, even if we were to prevail.

     o   Intellectual  Property  Infringement  Claims.  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.  In  addition,  third  parties  may assert
         intellectual  property right  infringement  claims against us. Any such
         assertions,  with or without merit, could be costly and time-consuming,
         result in litigation  (in which we may or may not prevail),  divert the
         efforts  of our  technical  and  management  personnel,  cause  product
         shipment delays, require us to develop new technology, or require us to
         enter into royalty or licensing agreements,  any of which could have an
         adverse effect on our reputation,  business,  results of operations and
         financial condition.  Royalty or licensing agreements, if required, may
         not be available on terms acceptable to us, if at all. In addition,  we
         typically  agree  to  indemnify  our  customers  for  any  expenses  or
         liabilities resulting from claimed infringements of patents, trademarks
         or copyrights of third parties.  Any  requirement for us to indemnify a
         customer  could  have a  material  adverse  effect  on our  reputation,
         business, results of operations and financial condition.

     o   Warranty and Product  Liability  Claims.  Our  business  and  financial
         condition could be adversely  affected by warranty or product liability
         claims.  Products  as complex  as ours  frequently  contain  undetected
         errors,  defects or failures,  especially when first introduced or when
         new versions are released.  The  occurrence of such errors,  defects or
         failures  could  result  in  product   returns  and  other  losses  and
         liabilities for us or our customers.  Such occurrence could also result
         in the loss of or delay in market  acceptance of our  products.  Due to
         the relatively  recent  introduction  of many of our products,  we have
         limited  experience  with the  problems  that  could  arise  with these
         products.

                                       20
<PAGE>

     o   Failure of Our Customers to Sell Complete Access Solutions. The failure
         of our  network  system  integrators  to  develop  and  sell  broadband
         wireless  access  solutions  that include our  products  would harm our
         sales.  Even if our products meet all of our network system  integrator
         needs, other factors may impede the success of their broadband wireless
         access solutions.

     o   Difficulty in Network Service Providers  Obtaining  Sufficient Funding.
         Ultimately,  there must be a customer who wants and who can pay for our
         products or a system using our products. Many of the potential ultimate
         users of our products are emerging  companies  with  unproven  business
         models.  We believe it has gotten more difficult for these companies to
         obtain the needed  funds to purchase our products or a system using our
         products  for at least two reasons.  First,  it is more  difficult  for
         companies  like  these to raise  funds in the  capital  markets  due to
         general  economic  conditions.  Second,  the large  system  integrators
         appear to be reducing the amount of vendor  financing  they are willing
         to extend.  The inability of these emerging  companies to succeed could
         have a material  adverse impact on our business,  results of operations
         and financial condition.

     o   New Industry.  The broadband  wireless  access industry is new, and its
         future is uncertain. If significant demand for this technology does not
         develop,  we will  not be  able to  generate  significant  sales.  Many
         factors will  influence  the success or failure of  broadband  wireless
         access technology, including its capacity to handle growing demands for
         faster transmission of increasing amounts of video, voice and data, its
         cost-effectiveness and performance compared to other forms of broadband
         access,   whose  prices  and  performance   continue  to  improve,  its
         reliability  and security,  whether the products can be manufactured in
         sufficient   volume,   its  suitability  for  a  sufficient  number  of
         geographic  regions,  the  availability  of sufficient  frequencies for
         network service providers to deploy products at commercially reasonable
         rates,   the  availability  on  reasonable  terms  of  sufficient  site
         locations  for  network  service   providers  to  install  products  at
         commercially  reasonable rates, and safety and  environmental  concerns
         regarding broadband wireless transmissions.

     o   Continued Industry Growth. Our future success is dependent in part upon
         the continued growth of the telecommunications  industry,  particularly
         with   regard  to  the   Internet,   and  of  demand   for   high-speed
         telecommunications products. There can be no assurance that this growth
         will  continue or that the  deregulation,  privatization  and  economic
         globalization  of the  worldwide  telecommunications  market  that  has
         resulted  in  increased  competition  and  escalating  demand  for  new
         technologies  and services will  continue in a manner  favorable to us.
         Regulatory and legislative changes could adversely affect our business.

     o   Competing Access  Technologies.  Many competing  technologies may serve
         our target market, and if the broadband point-to-multipoint  technology
         upon  which our  current  products  are  based  does not  succeed  as a
         solution for broadband  access, we would not be able to sustain or grow
         our business.  Other high-speed  solutions  include digital  subscriber
         lines,  cable,  fiber,  other high-speed wire,  laser,  satellite,  and
         point-to-point wireless technologies.  New products or new technologies
         may be developed that supplant or provide  lower-cost  alternatives  to
         our products.

     o   Competition.  The  broadband  wireless  access  industry  is  intensely
         competitive,  and our  failure  to compete  effectively  could hurt our
         sales and  reduce  our  margins.  A number of large  telecommunications
         equipment suppliers,  such as Alcatel, Ericsson and Nortel Networks, as
         well as a number of smaller companies, have developed or are developing
         products  that  compete  with  ours.   Many  of  our   competitors  are
         substantially  larger  than  we  are  and  have  significantly  greater
         financial, sales, technical, manufacturing and other resources.

     o   Government  Regulation.  Radio communications are subject to regulation
         by the United States and foreign laws and international  treaties.  Our
         products must conform to domestic and foreign requirements  established
         to avoid interference among users of  millimeter-wave  frequencies.  In
         addition,  domestic and foreign authorities  regulate the allocation of
         portions of the radio frequency spectrum. Products can be marketed in a
         specific   jurisdiction   only  if  permitted  by  specific   frequency
         allocation

                                       21
<PAGE>

         and regulations.  As our customers enter new markets, we sometimes have
         to  adapt  our  products   rapidly  to  the  frequency  and  regulatory
         requirements that exist in those markets,  and we may incur significant
         costs making the necessary  modifications.  The governmental regulatory
         process may change or impose  additional  requirements on our products,
         which  could  require  a  revision  to  our  products,   a  costly  and
         time-consuming  process.  Future  regulatory  developments  could  also
         adversely  affect our development and  introduction of new products and
         technology.

     o   Dependence  on  Third-Party   Manufacturers.   We  expect  to  rely  on
         independent  manufacturers to provide full turnkey manufacturing of our
         products. We currently have qualified only one independent manufacturer
         for our  products.  We have  only  limited  experience  qualifying  and
         dealing with this type of highly specialized, third-party manufacturer,
         and our failure to obtain  satisfactory  performance  from  third-party
         manufacturers  could  cause us to lose  sales or expose  us to  product
         quality  issues.  Few  third-party  manufacturers  have  the  technical
         capabilities  to meet  our  quality  standards  and  production  goals.
         Therefore,  it may be difficult and time-consuming to engage additional
         or replacement third-party manufacturer or manufacturers if our current
         manufacturer were to experience financial, operational,  production, or
         quality  assurance  difficulties  or allocate  production  resources to
         others in lieu of us or experience a  catastrophic  event that resulted
         in a reduction or  interruption  of that  company's  ability to provide
         manufacturing services to us.

     o   International  Issues. We expect to derive a substantial portion of our
         sales from international sources, and risks and difficulties associated
         with  international  operations  could  result in lower  sales and less
         favorable  terms  with our  customers.  These  difficulties  and  risks
         include licenses,  tariffs and other trade barriers imposed on products
         such as ours, political and economic instability, currency fluctuation,
         and  compliance  with a wide  variety  of  complex  laws  and  treaties
         relating to telecommunications equipment.

     o   Investment  Risk. As of the end of December 2000, we had  approximately
         $41 million in cash,  cash  equivalents and marketable  securities.  We
         have  engaged  investment  managers to assist us with  investing  these
         funds.  While we  believe  we have a  conservative  investment  policy,
         events  could  occur  that  result  in the  value  of  our  investments
         declining.  In particular,  we believe that the value of our investment
         in commercial paper of Pacific Gas & Electric has declined.

     o   Accounts Receivable. We may, under certain circumstances,  be unable to
         enforce a policy of receiving  payment  within a limited number of days
         of issuing invoices. For example,  customers may be unwilling or unable
         to pay for products on a timely basis if they are dissatisfied with the
         product or if they are  experiencing  financial  difficulty or if their
         customer  cancelled  their order.  Any inability to timely  collect our
         receivables  could  cause us to be  short  of cash to fund  operations,
         could result in our having to negotiate  for only a partial  payment of
         certain  accounts  receivable,   or  could  ultimately  require  us  to
         write-off as  uncollectible  certain accounts  receivable,  which could
         have a material  adverse effect on our business,  results of operations
         and financial condition.  In particular,  we are currently  negotiating
         with LG  Information  &  Communications  concerning  the payment of the
         account receivable of approximately  $950,000 arising from our delivery
         of prototype products to them.

     o   Future  Stock  Sales.  Future  sales of  common  stock by our  existing
         stockholders  could cause our stock price to fall.  In February 2000 we
         completed  the  initial  public   offering  of  our  common  stock.  In
         connection with that initial public offering,  substantially all of our
         pre-initial  public  offering  stockholders  signed an agreement not to
         transfer  their  securities  for a period of 180 days after the initial
         public  offering.  That lock-up period expired in July 2000. We believe
         that a number of our pre-IPO  stockholders have sold their shares,  but
         that a number of pre-IPO stockholders continue to hold their shares. If
         those  stockholders  decided to sell their shares, a substantial amount
         of our  common  stock  would  become  available  for sale in the public
         market.  This could cause the market price of our common stock to fall.
         Similarly the  perception  among  investors that these sales will occur
         could produce the same effect.  Sales of shares  received upon exercise
         of our  outstanding  warrants  will  become  available  for sale in the
         public  market  pursuant  to Rule  144.  We have  filed a  registration
         statement on Form S-8 pursuant


                                       22
<PAGE>

         to which we registered 3,729,724 shares of our common stock that may be
         issued  pursuant to the exercise of our  outstanding  stock options and
         stock  options  that we may grant in the future.  The  exercise of some
         outstanding  warrants and options will result in dilution to holders of
         our common  stock.  The sale of shares issued upon exercise of warrants
         or options  could cause our stock price to fall.  The sale of shares by
         our directors  and officers  could cause the market price of our common
         stock to fall.  Similarly the  perception  among  investors  that these
         sales will occur could produce the same effect.

     o   Anti-Takeover  Defenses.  We have  anti-takeover  defenses  that  could
         discourage, delay or prevent an acquisition of our company, which could
         depress our stock price or lessen any premium over market price that an
         acquirer might otherwise pay.

     o   Acquisition and Investment Risk. As part of our business  strategy,  we
         expect to  continue to review  potential  acquisitions  and  investment
         opportunities  that could  complement  our current  product  offerings,
         augment our market coverage, enhance our technical capabilities or that
         may otherwise offer growth or synergistic  opportunities.  Our business
         and financial condition and the market price of our common stock may be
         adversely affected by our acquisition of, or significant investment in,
         companies,  products or technologies that we believe are complementary.
         There can be no assurance that we would be successful in overcoming the
         risks and other issues typically  encountered in any such transactions,
         including the difficulties  associated with assimilating the personnel,
         technology  and  operations  of  acquired   companies,   the  potential
         disruption of our ongoing business, diversion of management's attention
         from  our  business,   the  potential   injury  to  existing   business
         relationships  with  suppliers and  customers,  unanticipated  costs or
         liabilities  associated  with the  transactions,  and the risks that we
         will otherwise not realize the expected  benefits of the  transactions.
         Furthermore,  future  transactions  could  result  in the  issuance  of
         dilutive  equity  securities,  the  incurrence  of debt  or  contingent
         liabilities,  or  amortization  expenses  related to goodwill and other
         intangible assets.

     The items described  above,  either  individually  or in some  combination,
could have a  material  adverse  impact on our  reputation,  business,  need for
additional capital, current and contemplated products gaining market acceptance,
development  of new products and new areas of  business,  cash flow,  results of
operations,  financial condition,  stock price, viability as an ongoing company,
results,   outcomes,   levels  of  activity,   performance,   developments,   or
achievements.  Given these  uncertainties,  investors are cautioned not to place
undue  reliance  on  forward-looking   statements.

 Item  7A.  Quantitative  and Qualitative Disclosures about Market Risk.

     See Item 7--Management's Discussion and Analysis of Financial Condition and
Results of Operations, Disclosures about Market Risk.

Item 8.    Financial Statements and Supplementary Data.

INDEX TO FINANCIAL STATEMENTS
                                                                            Page
                                                                            ----
Report of Independent Accountants .........................................   24
Balance Sheets ............................................................   25
Statements of Operations and Comprehensive Loss ...........................   26
Statement of Changes in Stockholders' (Deficit) Equity ....................   27
Statements of Cash Flows ..................................................   28
Notes to Financial Statements .............................................   29


                                       23
<PAGE>

                       REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of
Telaxis Communications Corporation

In our  opinion,  the  financial  statements  listed in the  accompanying  index
present  fairly,  in all material  respects,  the financial  position of Telaxis
Communications  Corporation  (formerly  known  as  Millitech  Corporation,   the
"Company") at December 31, 2000, and 1999, and the results of its operations and
its cash flows,  for each of the three years in the period  ended  December  31,
2000, in conformity with accounting  principles generally accepted in the United
States of America. In addition, in our opinion, the financial statement schedule
listed in the index  appearing  under  Item  14(a)(2)  presents  fairly,  in all
material  respects,  the  information set forth therein when read in conjunction
with the related financial statements.  These financial statements and financial
statement  schedule are the  responsibility  of the  Company's  management;  our
responsibility  is to  express  an opinion  on these  financial  statements  and
financial  statement  schedule  based on our audits.  We conducted our audits of
these statements in accordance with auditing standards generally accepted in the
United  States of America,  which  require that we plan and perform the audit to
obtain reasonable  assurance about whether the financial  statements are free of
material  misstatement.  An audit includes examining,  on a test basis, evidence
supporting the amounts and  disclosures in the financial  statements,  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
                                                  ------------------------------



Hartford, Connecticut
February 14, 2001


                                       24
<PAGE>
<TABLE>
<CAPTION>

                                                 TELAXIS COMMUNICATIONS CORPORATION
                                                           BALANCE SHEETS
                                                 (in thousands, except share data)

                                                                                                     Pro Forma
                                                                                                      ---------
                                                                                   December 31,      December 31,      December 31,
                                                                                       2000              1999              1999
                                                                                   ------------      ------------      ------------
                                                                                                     (unaudited
                                                                                                     -see Note 1)
<S>                                                                                <C>               <C>               <C>
Assets
Current assets
 Cash and cash equivalents .....................................................   $     27,865      $      6,603      $      6,603
 Marketable securities .........................................................         13,158              --                --
 Trade accounts receivable, less allowance for doubtful
  accounts ($250 in 2000 and $57 in 1999) ......................................          2,836             2,900             2,900
 Other accounts receivable .....................................................            297              --                --
 Inventories ...................................................................          7,838             7,101             7,101
 Net assets to be disposed of ..................................................           --               1,954             1,954
 Other current assets ..........................................................            486               170               170
                                                                                   ------------      ------------      ------------
  Total current assets .........................................................         52,480            18,728            18,728
 Property, plant and equipment, net ............................................         12,751             6,444             6,444
 Intangible assets, net of accumulated amortization ............................            198              --                --
 Other assets ..................................................................            109               125               125
                                                                                   ------------      ------------      ------------
  Total assets .................................................................   $     65,538      $     25,297      $     25,297
                                                                                   ============      ============      ============
Liabilities, Redeemable Preferred Stock and Stockholders' (Deficit) Equity
Current liabilities
 Line of credit ................................................................   $       --        $        500      $        500
 Accounts payable ..............................................................          8,156             4,305             4,305
 Customer prepayments ..........................................................            218               285               285
 Accrued expenses ..............................................................          1,770             2,319             2,319
 Current maturities of long-term debt ..........................................            507             1,149             1,149
 Current maturities of capital lease obligations ...............................          1,563               982               982
                                                                                   ------------      ------------      ------------
  Total current liabilities ....................................................         12,214             9,540             9,540
Long-term debt .................................................................          1,180             1,578             1,578
Capital lease obligations ......................................................          2,045               807               807
                                                                                   ------------      ------------      ------------
  Total liabilities ............................................................         15,439            11,925            11,925
Commitments and contingencies
Redeemable Preferred Stock
 Redeemable  preferred stock,  Class A, $.01 par value;  $3.25 redemption value;
  authorized  0 shares (3,090,323 in 1999) ; issued and  outstanding  0 shares
  (3,045,696 in 1999)...........................................................             --                --             9,899
 Redeemable  preferred stock,  Class B, $.01 par value;  $3.25 redemption value;
  authorized  0 shares (789,677 in 1999); issued and outstanding 0 shares
  (789,677 in 1999).............................................................             --                --             2,566
 Redeemable  preferred stock,  Class D, $.01 par value;  $1.80 redemption value;
  authorized  0 shares (7,200,000 in 1999); issued and outstanding  0 shares
  (7,200,000 in 1999) ..........................................................             --                --            12,960
 Redeemable  preferred stock,  Class E, $.01 par value;  $2.25 redemption value;
  authorized 0 shares (11,000,000 in 1999);  issued and  outstanding  0 shares
  (9,941,508 in 1999) ..........................................................             --                --            22,368
                                                                                   ------------      ------------      ------------
                                                                                             --                --            47,793
Stockholders' (Deficit) Equity
 Preferred stock, $.01 par value; authorized 4,500,000 shares in 2000 and 1999;
  none issued ..................................................................             --                --                --
 Common stock, $.01 par value; authorized 100,000,000 shares in 2000 and 1999;
  issued and outstanding 16,734,673 shares (843,872 shares in 1999) ............            167               113                 8
 Additional paid-in capital ....................................................        124,740            48,912             1,224
 Notes receivable ..............................................................           (331)             (281)             (281)
 Accumulated deficit ...........................................................        (74,318)          (35,205)          (35,205)
 Deferred stock compensation ...................................................           (159)             (167)             (167)
                                                                                   ------------      ------------      ------------
  Total stockholders' (deficit) equity .........................................         50,099            13,372           (34,421)
                                                                                   ------------      ------------      ------------
Total liabilities, redeemable preferred stock and stockholders' (deficit) equity   $     65,538      $     25,297      $     25,297
                                                                                   ============      ============      ============
</TABLE>

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

                                       25
<PAGE>
<TABLE>
<CAPTION>

                                         TELAXIS COMMUNICATIONS CORPORATION
                                   STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
                                        (in thousands, except per share data)


                                                                                     Year ended December 31,
                                                                         -------------------------------------------
                                                                            2000                1999          1998
                                                                         --------             --------      --------
<S>                                                                      <C>                  <C>          <C>
Sales ..............................................................     $ 24,753             $  9,720     $   2,386
Cost of sales ......................................................       29,610                9,041         7,517
Charges relating to excess inventory on hand and on order ..........       17,744                 --            --
                                                                         --------             --------      --------
Gross margin (loss) ................................................      (22,601)                 679        (5,131)
Operating expenses
 Research and development, net .....................................        8,623                4,870         4,993
 Selling, general and administrative ...............................        9,029                3,618         3,048
                                                                         --------             --------      --------
  Total operating expenses .........................................       17,652                8,488         8,041
                                                                         --------             --------      --------
Operating loss .....................................................      (40,253)              (7,809)      (13,172)
                                                                         --------             --------      --------
Other income (expense)
 Interest and other expense ........................................         (624)                (756)         (473)
 Income from contract cancellation .................................         --                   --             997
 Interest and other income .........................................        3,243                  272           233
                                                                         --------             --------      --------
  Total other income (expense) .....................................        2,619                 (484)          757
                                                                         --------             --------      --------
Loss from continuing operations before income taxes ................      (37,634)              (8,293)      (12,415)
Income tax benefit .................................................         --                   --          (1,162)
                                                                         --------             --------      --------
Loss from continuing operations ....................................      (37,634)              (8,293)      (11,253)
                                                                         --------             --------      --------
Discontinued operations:
 Income from operations of MMWP segment, net of taxes ..............         --                    258         1,724
 Loss on disposition of MMWP segment, including stock
  compensation expense of $2,848 for 2000 ..........................       (1,479)              (1,900)         --
                                                                         --------             --------      --------
Income (loss) from discontinued operations .........................       (1,479)              (1,642)        1,724
                                                                         --------             --------      --------
Net loss and comprehensive loss ....................................     $(39,113)            $ (9,935)     $ (9,529)
                                                                         ========             ========      ========
Basic and diluted earnings (loss) per share from:
 Continuing operations .............................................     $  (2.54)            $ (13.68)     $ (22.87)
                                                                         --------             --------      --------
 Discontinued operations ...........................................     $  (0.10)            $  (2.71)     $  (3.50)
                                                                         --------             --------      --------
 Net loss ..........................................................     $  (2.64)            $ (16.39)     $ (19.37)
                                                                         ========             ========      ========
Shares used in computing basic and diluted earnings (loss) per share       14,816                  606           492
                                                                         ========             ========      ========

</TABLE>
The accompanying notes are an integral part of these financial statements.

                                       27
<PAGE>
<TABLE>
<CAPTION>

                                               TELAXIS COMMUNICATIONS CORPORATION
                                    STATEMENTS OF CHANGES IN STOCKHOLDERS' (DEFICIT) EQUITY
                                               (in thousands, except share data)



                                            Common Stock      Additional
                                      --------------------      Paid-in      Notes      Deferred Stock    Accumulated
                                         Shares     Amount      Capital    Receivable    Compensation      Deficit         Total
                                         ------     ------      -------    ----------    ------------      -------         -----
<S>                                   <C>         <C>       <C>          <C>                <C>          <C>           <C>
Balances, December 31, 1997......        983,394     $  10     $    733     $  --            $   --       $ (15,741)    $ (14,998)
Exercise of common stock
 options.........................          4,526        --            2        --                --              --             2
Other ...........................             --        --          (66)       --                --              --           (66)
Net loss ........................             --        --           --        --                --          (9,529)       (9,529)
                                      ----------     -----     --------    ------            ------       ---------     ---------
Balances, December 31, 1998......        987,920        10          669        --                --         (25,270)      (24,591)
Sale of common stock.............        229,074         2          522      (281)             (225)             --            18
Issuance of preferred stock
 warrants .......................             --        --          140        --                --              --           140
Issuance of common stock
 warrants .......................             --        --          266        --                --              --           266
Exercise of common stock
 options ........................        427,526         4          219        --                --              --           223
Exercise of warrants ............         39,150        --           19        --                --              --            19
Amortization of deferred stock
 compensation ...................             --        --           --        --                58              --            58
Offering costs ..................             --        --         (780)       --                --              --          (780)
Other ...........................             --        --          161        --                --              --           161
Net loss ........................             --        --           --        --                --          (9,935)       (9,935)
Reverse stock split .............       (839,798)       (8)           8        --                --              --            --
                                      ----------     -----    ---------    ------            ------       ---------     ---------
Balances, December 31, 1999......        843,872         8        1,224      (281)             (167)        (35,205)      (34,421)
Sale of common stock  ...........      4,600,000        46       78,154        --                --              --        78,200
Exercise of common stock
 options ........................        507,101        5           721       (67)               --              --           659
Exercise of warrants ............        295,295        3           130        --                --              --           133
Amortization of deferred stock
 compensation ...................             --        --           --        --                56              --            56
Offering costs ..................             --        --       (6,330)       --                --              --        (6,330)
Other ...........................             --        --        3,153        17               (48)             --         3,122
Conversion of preferred
 stock ..........................     10,488,405       105       47,688        --                --              --        47,793
Net loss ........................             --        --           --        --                --         (39,113)      (39,113)
                                      ----------     -----    ---------    ------            ------       ---------     ---------
Balances, December 31, 2000 .....     16,734,673     $ 167    $ 124,740    $ (331)           $ (159)      $ (74,318)    $  50,099
                                      ==========     =====    =========    ======            ======       =========     =========
</TABLE>
The accompanying notes are an integral part of these financial statements.

                                       27
<PAGE>
<TABLE>
<CAPTION>

                                            TELAXIS COMMUNICATIONS CORPORATION
                                                 STATEMENTS OF CASH FLOWS
                                                      (in thousands)


                                                                                           Year Ended December 31,
                                                                                     ------------------------------------
                                                                                        2000         1999          1998
                                                                                     --------      --------      --------
<S>                                                                                 <C>            <C>           <C>
Cash flows from operating activities
 Net loss ......................................................................    $ (39,113)     $ (9,935)     $ (9,529)
 Adjustments to reconcile net loss to net cash utilized by operating activities:
  Depreciation and amortization ................................................        3,644         2,808         2,076
  Loss (gain) on disposition of MMWP segment ...................................       (1,369)        1,900          --
  Non-cash compensation expense ................................................        3,161           290          --
  Loss (gain) on the disposal of property and equipment ........................           (5)           21          --
  Provision for excess inventory on hand and on order ..........................       17,744          --            --
  Changes in assets and liabilities
   Accounts receivable .........................................................           64        (1,198)         (269)
   Other accounts receivable ...................................................         (297)         --            --
   Contracts in progress .......................................................         --              40           (54)
   Inventories .................................................................      (13,486)       (6,557)           69
   Other current assets ........................................................         (361)          (28)           (1)
   Accounts payable and accrued expenses .......................................         (360)        2,721            32
   Customer prepayments ........................................................          (67)          328          (824)
   Income taxes payable ........................................................         --              (2)          (13)
                                                                                     --------      --------      --------
   Net cash utilized by operating activities ...................................      (30,445)       (9,612)       (8,513)
                                                                                     --------      --------      --------
Cash flows from investing activities
 Purchase of marketable securities .............................................      (24,529)         --            --
 Sale of marketable securities .................................................       11,371          --            --
 Proceeds from sale of discontinued operations .................................        1,990          --            --
 Additions to property and equipment ...........................................       (6,342)       (2,409)       (3,706)
 Reduction (addition) to intangible and other assets ...........................         (246)         (104)           20
                                                                                     --------      --------      --------
   Net cash utilized by investing activities ...................................      (17,756)       (2,513)       (3,686)
                                                                                     --------      --------      --------
Cash flows from financing activities
 Proceeds from note payable ....................................................         --           2,000          --
 Net (repayment) borrowing under line of credit ................................         (500)          500        (1,500)
 Proceeds from long-term debt ..................................................         --           2,401          --
 Repayments of long-term debt and capital lease obligations ....................       (2,716)       (1,217)       (1,264)
 Issuance of common stock upon exercise of options and warrants ................          792           242             2
 Issuance of redeemable preferred stock ........................................         --          13,000         7,368
 Issuance of common stock ......................................................       78,200          --            --
 Stock issuance costs ..........................................................       (6,330)         (833)          (66)
 Repayment of notes receivable .................................................           17          --            --
                                                                                     --------      --------      --------
   Net cash provided by financing activities ...................................       69,463        16,093         4,540
                                                                                     --------      --------      --------
Net increase (decrease) in cash and cash equivalents ...........................       21,262         3,968        (7,659)
Cash and cash equivalents at beginning of period ...............................        6,603         2,635        10,294
                                                                                     --------      --------      --------
Cash and cash equivalents at end of period .....................................     $ 27,865      $  6,603      $  2,635
                                                                                     ========      ========      ========
Supplemental disclosure of cash flow information
 Cash paid during period for interest ..........................................     $    555      $    361      $    240
 Non-cash investing and financing activities:
  Equipment acquired under capital leases ......................................        3,474         1,164           689
  Conversion of redeemable preferred stock .....................................       47,793          --            --
  Issuance of preferred stock for subordinated promissory note .................         --           2,000          --
  Notes receivable for issuance of common stock ................................           67           281          --
  Commitments recorded in accounts payable for inventory on order ..............        4,995          --            --

</TABLE>

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

                                       28
<PAGE>

                       TELAXIS COMMUNICATIONS CORPORATION
                         NOTES TO FINANCIAL STATEMENTS

1.         Summary of Significant Accounting Policies

     We develop and supply  broadband  wireless  access products used by network
service  providers  to deliver  integrated  voice,  video and data  services  to
business and residential  customers.  We sell our products  primarily to network
system  integrators that include our products in broadband wireless systems sold
to network service providers.

     We commenced  operations in 1982 and have derived the significant  majority
of our sales from our millimeter-wave products business segment. In August 1999,
we   adopted  a  plan  to  focus  all  of  our   resources   on  our   broadband
point-to-multipoint  wireless  access  business  segment  and to  dispose of the
millimeter-wave  products segment. As a result, we have presented the operations
of the  millimeter-wave  products  segment as a  discontinued  operation  in our
financial statements (see Note 2).

     On  October  13,  1999,  the  stockholders  voted to change the name of the
Company from Millitech Corporation to Telaxis  Communications  Corporation.  The
stockholders  also voted to amend the automatic  conversion  provisions  for the
Class A Preferred Stock,  Class B Preferred Stock and Class D Preferred Stock by
reducing the minimum public  offering  price upon an initial public  offering of
the Company's  stock  required to trigger  automatic  conversion to common stock
from $9.75 per share to $4.50 per share.

Pro Forma Balance Sheet (Unaudited)

     The outstanding shares of the Company's preferred stock Class A, B, D and E
automatically  convert to common stock upon a public offering resulting in gross
proceeds of at least  $15,000,000  and with an offering  price of at least $4.50
per share.  All of our  outstanding  preferred stock converted into common stock
upon the closing of our  initial  public  offering  on  February 7, 2000.  These
conversions  have been  reflected in the unaudited pro forma balance sheet as of
December 31, 1999.

Cash and Cash Equivalents

     The Company  considers  highly liquid  investments with a maturity of three
months or less at the time of purchase to be cash equivalents.

Marketable Securities

     The Company has invested the proceeds from its initial  public  offering in
accordance with its corporate cash management policy.  Marketable securities are
classified as available-for-sale  and are carried at cost plus accrued interest,
which  approximates fair value. The Company's  investments  consist of municipal
and government  bonds,  and commercial  paper.  At December 31, 2000, all of the
Company's securities matured within to twelve months.

     The carrying value of the Company's  investments by major security type, as
of December 31, 2000, consisted of the following (in thousands):

Description                                                                2000
-----------                                                              -------
Auction Rate Preferred ...................................               $ 1,003
Municipal Bonds ..........................................                 2,000
U.S. Government Securities ...............................                10,155
                                                                         -------
                                                                         $13,158
                                                                         =======
                                       29
<PAGE>

Revenue Recognition

     Sales under  short-term  contracts and for stock items are recognized  when
deliveries are made.  Sales under  cost-reimbursement  contracts are recorded as
costs are  incurred and include  estimated  earned fees in the  proportion  that
costs  incurred  to date bear to total  estimated  costs.

     Sales under certain  fixed-price  and fixed-price  incentive  contracts are
recorded  utilizing  the  percentage of  completion  method,  in which costs and
estimated gross margin are recorded as the work is performed.  Income is accrued
based upon the percentage  that costs  incurred to date bear to estimated  total
costs after giving  effect to the most recent  estimates of costs and funding at
completion.

     Fees under certain  contracts  may be increased or decreased  under cost or
performance  incentive  provisions  which  measure  actual  performance  against
established targets or specific criteria.  Incentive fee awards or penalties are
included  in sales or cost of sales at the time the  amounts  can be  reasonably
determined.

     As some  contracts  extend  over one or more years,  revisions  in cost and
profit  estimates  during the course of the work are reflected in the accounting
period in which the facts which require the revision become known. At the time a
loss on a contract  becomes known,  the entire amount of the estimated  ultimate
loss on the contract is accrued.

Concentrations of Credit Risk

     Financial   instruments   that   potentially   subject   the   Company   to
concentrations  of credit risk consist  principally of cash,  cash  equivalents,
marketable securities and trade accounts receivable. The Company places its cash
investments with high-quality financial institutions. The Company extends credit
to its customers  based on an evaluation of the customer's  financial  condition
and  history  and  generally  does  not  require  collateral.  The  Company  has
historically  incurred  minimal  credit  losses.  At December  31, 2000 and 1999
approximately 75% and 92%, respectively, of accounts receivable was due from one
customer.  Investments  are placed in instruments  with  institutions  that have
"Investment Grade" ratings or better.  The Company has established  policies for
investment  of its cash that  attempt  to  maintain  safety and  liquidity.  The
Company  has  not  realized  any  significant  losses  on  cash  equivalents  or
marketable securities.

Use of Estimates

     The  preparation  of financial  statements  in  conformity  with  generally
accepted  accounting  principles  requires  management  to  make  estimates  and
assumptions  that  affect the  reported  amounts of assets and  liabilities  and
disclosure of  contingent  assets and  liabilities  at the date of the financial
statements  and the  reported  amounts  of  revenues  and  expenses  during  the
reporting period. Actual results could differ from those estimates.

Comprehensive Income

     Effective  January 1, 1998, the Company adopted the provisions of Statement
of Financial Accounting Standards No. 130, Reporting  Comprehensive  Income. For
the years ended December 31, 2000, 1999 and 1998  comprehensive loss equaled net
loss.

Research and Development

     The Company incurs  research and  development  costs in the  exploration of
commercially   viable   applications  of  its   millimeter-wave   and  microwave
technology.

     The   Company   also   incurs   research   and   development   costs  under
customer-funded  contracts.  Costs of approximately  $1,788,000,  $1,156,000 and
$1,727,000 are recorded net of the associated  customer funding of approximately
$612,000,  $1,068,000 and $986,000 for the years ended  December 31, 2000,  1999
and  1998,  respectively.  Significant  terms of  customer-funded  research  and
development   arrangements   include  granting  the  customer  a  non-exclusive,
royalty-free right and license to use and distribute the product and its related
sales and  technical  literature  that is  developed  by the  Company  under the
agreement. The Company is not obligated to repay any of the funds received under
these contracts.


                                       30
<PAGE>

Inventories

     Inventories  are  stated  at  the  lower  of  cost  (standard  cost,  which
approximates  actual) or market.  As of December 31, 2000 and 1999,  the Company
had recorded inventory reserves of $1,640,000 and $1,797,000,  respectively,  to
reserve for obsolete  inventory.  During 2000, the Company  recorded a charge of
approximately  $17,744,000  to adjust  inventory to its expected net  realizable
value.

Property, Plant and Equipment

     Property,  plant and equipment are stated at cost. Depreciation is computed
using the  straight-line  method  based upon the  estimated  useful lives of the
assets as follows:

                   Asset                                Life
                   -----                                ----
          Machinery and equipment                   3 to  7 years
          Furniture and fixtures                    7 to 10 years
          Leasehold improvements                    3 to 10 years
          Equipment under capital leases            3 to  7 years

     Leasehold  improvements  and equipment  under capital  leases are amortized
over the lesser of the life of the lease or the useful lives of the improvements
or equipment.

     When  assets  are  sold  or  retired,  the  related  cost  and  accumulated
depreciation are removed from their  respective  accounts and any resulting gain
or loss is included in income.

Intangible Assets

     Intangible  assets  are  recorded  at cost  and  are  amortized  using  the
straight-line  method  over their  expected  useful  life,  which is five years.
Intangible  assets as of  December  31,  2000  consisted  of the  following

(in thousands):

                                                      2000
                                                    -------
          Proprietary technology                    $   216
          Less: accumulated amortization                (18)
                                                    -------
                                                    $   198
                                                    =======


     Under  Financial  Accounting  Standards  Board ("FASB")  Statement No. 121,
Accounting for the Impairment of Long-Lived  Assets and for Long-Lived Assets to
Be Disposed Of, the Company reviews  long-lived assets and certain  identifiable
intangibles  for impairment at each reporting date based on the expected  future
cash flows of the assets  compared to the  carrying  value of the asset.  To the
extent that such carrying value exceeds  expected future cash flows, a writedown
in intangibles is recorded.

Income Taxes

     Deferred tax assets and liabilities  are computed  annually for differences
between the  financial  statement and tax bases of assets and  liabilities  that
will result in taxable or deductible  amounts in the future based on enacted tax
laws and rates  applicable to periods in which the  differences  are expected to
affect taxable income.  Valuation  allowances are established  when necessary to
reduce deferred tax assets to the amount expected to be realized.

     In the accompanying statement of operations for the year ended December 31,
1998,  the  Company  has  recorded  an  income  tax  expense   attributable   to
discontinued  operations  based  upon its  pretax  income.  Since the  Company's
continuing losses exceed its income from discontinued operations,  an income tax
benefit has been recorded  against  continuing  operations only to the extent of
the income tax expense  attributable  to  discontinued  operations in accordance
with SFAS No. 109,  Accounting  for Income Taxes.  Tax expense also includes the
impact of any changes in deferred tax assets and liabilities.

                                       31
<PAGE>

Reverse Stock Split

     On  December  16,  1999,  the  stockholders  voted to  effect a one for two
reverse split of the  Company's  outstanding  common stock  effective as of that
date.  The  terms  of the  then-outstanding  preferred  stock,  preferred  stock
warrants,  common stock options and common stock warrants  provide for a similar
one for two  adjustment  on their  conversion  and exercise  amounts and prices,
respectively.  The December 31, 1999 balance sheet and the  accompanying  shares
outstanding,  the per share earnings (loss) amounts for the years ended December
31, 1998 and 1999 and the footnote  disclosures related to common stock warrants
and options have been adjusted to reflect this reverse stock split.

Earnings Per Share

     Earnings per share has been  computed by dividing the loss from  continuing
operations,  income  (loss)  from  discontinued  operations  and net loss by the
weighted  average  common  shares  outstanding.  No effect has been given to the
exercise  of common  stock  options,  stock  warrants,  convertible  notes,  and
redeemable preferred stock, since the effect would be antidilutive on continuing
operations  for  all  reporting  periods.   The  following  table  presents  the
calculation  of  historical  per share amounts (in  thousands,  except per share
data):

<TABLE>
<CAPTION>
                                                                       Year Ended December 31,
                                                                -------------------------------------
                                                                    2000         1999          1998
<S>                                                             <C>           <C>           <C>
Historical:
Loss from continuing operations ...........................     $ (37,634)    $ (8,293)     $ (11,253)
                                                                =========     ========      =========
Weighted average shares of common stock outstanding .......        14,816          606            492
                                                                =========     ========      =========
Basic and diluted loss per share from continuing operations     $   (2.54)    $ (13.68)     $  (22.87)
                                                                =========     ========      =========
Income (loss) from discontinued operations ................     $  (1,479)    $ (1,642)     $   1,724
                                                                =========     ========      =========
Weighted average shares of common stock outstanding .......        14,816          606            492
                                                                =========     ========      =========
Basic and diluted income (loss) per share from discontinued
 operations ...............................................     $   (0.10)    $  (2.71)     $    3.50
                                                                =========     ========      =========
Net loss ..................................................     $ (39,113)    $ (9,935)     $  (9,529)
                                                                =========     ========      =========
Weighted average shares of common stock outstanding .......        14,816          606            492
                                                                =========     ========      =========
Basic and diluted net loss per share ......................     $   (2.64)    $ (16.39)       (19.37)
                                                                =========     ========      =========
</TABLE>

Derivative Instruments

     In June 1998, the FASB issued Statement No. 133,  Accounting for Derivative
Instruments and Hedging Activities,  which establishes  accounting and reporting
standards  for  derivative  instruments  and hedging  activities.  The statement
requires  recognition  of  all  derivatives  at  fair  value  in  the  financial
statements.  FASB Statement No. 137,  Accounting for Derivative  Instruments and
Hedging Activities--Deferral of the Effective Date of FASB Statement No. 133, an
amendment of FASB Statement No. 133, defers  implementation of Statement No. 133
until fiscal years beginning after June 15, 2000. Implementation of the standard
will not have a significant effect on the Company's financial statements.

Reclassification

     Certain  prior  years  amounts  have been  reclassified  to  conform to the
current year's presentation.

                                       32
<PAGE>

2.         Discontinued Operations

     In August 1999, the Board of Directors  voted and authorized  management to
dispose of the Company's  millimeter-wave products (MMWP) business segment. This
segment  consisted  of  the  development  and  manufacture  of   millimeter-wave
components  and  assemblies,  including  antennas  and  quasi-optical  products,
multiplexer  products,  and passive waveguide products.  On February 8, 2000 the
Company  completed  the  sale of  substantially  all of the  assets  of the MMWP
segment to Millitech, LLC for approximately $3.6 million.

     Accordingly,  the Company has restated its historical  financial statements
to present the MMWP segment's operating results as a discontinued operation. The
results of the MMWP operations  have been segregated from continuing  operations
and  reported  as a  separate  line  item in the  statement  of  operations  and
comprehensive loss.

     As a result of the sale, the Company received  proceeds of $2.0 million and
a subordinated  note for $1.2 million with interest on the principal at 12%. The
principal is payable in five equal semi-annual  payments of $50,000 beginning on
July 1, 2002 through July 1, 2004.  On December 31, 2004,  the entire  remaining
principal  balance of $960,000 plus accrued interest is due. Interest is payable
semi-annually on the first days of January and July of each year during the term
of the note,  beginning  July 1,  2000.  The  Company  has fully  reserved  this
subordinated  note. For the year ended  December 31, 2000, the Company  recorded
stock  compensation  expense  of $2.8  million  as a result  of the  accelerated
vesting of incentive  stock  options for employees who left the Company and were
hired by Millitech,  LLC, and a gain on disposition of approximately  $1,369,000
as a result of  reassessing  the net  realizable  value of  certain  assets  and
liabilities related to the divestiture.

     The assets  and  liabilities  of the MMWP  segment at  December  31,  1999,
consisting primarily of accounts receivable,  inventories,  equipment,  accounts
payable and accrued expenses,  have been segregated as net assets to be disposed
of in the amount of $1,954,000 in the accompanying  balance sheet.

     Sales for the MMWP segment were $770,000,  $8,312,000 and  $12,211,000  for
the years ended December 31, 2000,  1999 and 1998,  respectively.  The provision
for income  taxes was $0, $0 and  $1,162,000  for the years ended  December  31,
2000, 1999 and 1998, respectively.

3.         Inventories

     Inventories consist of the following (in thousands):

                                                              December 31,
                                                       -------------------------
                                                         2000              1999
                                                       ------            ------
Finished goods .............................            $1,405            $   95
Parts and subassemblies ....................             4,960             3,257
Work in process ............................             1,473             3,749
                                                        ------            ------
                                                        $7,838            $7,101
                                                        ======            ======


                                       33
<PAGE>

4.         Property, Plant and Equipment

     Property, plant and equipment consist of the following (in thousands):

                                                              December 31,
                                                        ------------------------
                                                           2000          1999
                                                        --------       --------
Machinery and equipment ..........................      $ 15,952       $  9,803
Furniture and fixtures ...........................           820            679
Leasehold improvements ...........................         2,117          1,970
Equipment under capital leases ...................         6,624          3,469
                                                        --------       --------
                                                          25,513         15,921
Less accumulated depreciation and amortization ...       (12,762)        (9,477)
                                                        --------       --------
                                                        $ 12,751       $  6,444
                                                        ========       ========

     The net book value of all equipment under capital leases was  approximately
$3,728,000 and $1,677,000 at December 31, 2000 and 1999, respectively.

     Depreciation  expense for the years ended December 31, 2000,  1999 and 1998
was approximately $3,515,000, $2,482,000 and $1,903,000, respectively.

5.         Accrued Expenses

     Accrued expenses consist of the following (in thousands):

                                                                 December 31,
                                                             -------------------
                                                               2000        1999
                                                             ------       ------
Accrued payroll, commissions and related expenses ....       $1,071       $  978
Accrued warranty expense .............................          412          530
Accrued contract costs ...............................           --          168
Deferred revenue .....................................           94           --
Accrued liabilities on discontinued operations .......           --          350
Other accrued expenses ...............................          193          293
                                                             ------       ------
                                                             $1,770       $2,319
                                                             ======       ======

6.         Lines of Credit

     In  August  1999,  the  Company  entered  into a  revolving  line of credit
agreement with a bank. The agreement  provided for an initial borrowing of up to
$1,000,000,  which was  increased  by  $500,000  upon the  Company's  raising an
additional  $3,000,000  in  stockholders'  equity and increased by $500,000 upon
receipt of a machinery and equipment appraisal,  for a total amount available of
$2,000,000.  On June 9, 2000, the Company revised the agreement with the bank to
increase the line of credit to $5,000,000  and extend the expiration of the line
from  August  19,  2000 to  November  30,  2000.  Interest  was  payable  on the
outstanding balance of the line at prime plus 1%. Prime was 8.5% at December 31,
1999.  The line was  collateralized  by  substantially  all of the assets of the
Company.  The Company was not in compliance  with certain  covenants of the line
during the year ended December 31, 2000 and obtained  waivers from the bank. The
line of credit expired on November 30, 2000 and was not renewed by the Company.


                                       34
<PAGE>

     In  connection  with  the  revolving  line of  credit  agreement,  the bank
received a warrant to purchase  44,445 shares of the Company's Class E preferred
stock at $2.25 per share (see Note 13). The warrants were recorded at their fair
market value of $71,699 resulting in debt issuance costs of $71,699. These costs
were amortized over the term of the line of credit. The warrant was exercised on
August 11, 2000.

7.         Notes Payable

     In  April  1999,   the  Company   received   $1,000,000  in  proceeds  from
subordinated  promissory  notes  to  certain  preferred   stockholders,   common
stockholders,  officers  and  directors  as bridge  financing.  The  notes  bore
interest  at 9.75% and were to be paid in full at the  earlier of  December  31,
1999 or the sale of the Company's  equity  securities  having an aggregate sales
price of at  least  $5,000,000.  The  note  holders  received  warrants  for the
purchase of 100,000 shares of the Company's common stock at an exercise price of
$1.00 per share (see Note 13). The warrants were recorded at their fair value of
$72,012 resulting in a discount to the notes of $72,012. This discount was fully
amortized as interest  expense when the notes were refinanced in September 1999.
The remaining outstanding warrants expire in July 2007.

     In July 1999,  the Company  received an  additional  $1,000,000 in proceeds
from  subordinated  promissory notes issued to certain  preferred  stockholders,
common stockholders,  officers and directors as bridge financing. The notes bore
interest  at 9.75% and were to be paid in full on the  earlier of  December  31,
1999 or the sale of the Company's  equity  securities  having an aggregate sales
price of at  least  $5,000,000.  The  note  holders  received  warrants  for the
purchase of 100,000 shares of the Company's common stock at an exercise price of
$1.00 per share (see Note 13). The warrants were recorded at their fair value of
$178,712  resulting  in a discount to the notes of $178,712.  This  discount was
fully amortized as interest  expense when the notes were refinanced in September
1999. The remaining outstanding warrants expire in July 2007.

     The  subordinated  promissory  notes  required  repayment on the earlier of
December  31,  1999 or at the  time of sale of at  least  $5,000,000  of  equity
securities. In September 1999, at the noteholders' election,  $2,000,000 of such
notes were repaid through the issuance of $2,000,000 of Class E preferred  stock
(888,889  shares with a value of $2.25 per share),  which  converted  to 444,444
shares of common stock upon the Company's initial public offering on February 7,
2000 (see Note 1).


                                       35
<PAGE>

8.         Long-Term Debt

     Long-term debt consists of the following (in thousands):

<TABLE>
<CAPTION>
                                                                             December 31,
                                                                         --------------------
                                                                           2000        1999
                                                                         -------      -------
<S>                                                                      <C>          <C>
Uncollateralized subordinated note, due December 2000, quarterly
 principal payments of $87,500 with interest at 10% ................     $  --        $   612
Uncollateralized subordinated note, due June 2003, monthly principal
 payments of $8,333 with interest at 10% (see Note 14) .............         250          350
Collateralized equipment notes, due April 2003 and November 2003,
 monthly principal and interest payments of $48,612, with
 interest at 12% ...................................................       1,487        1,836
                                                                         -------      -------
                                                                           1,737        2,798
Less unamortized debt discount .....................................         (50)         (71)
Less current portion ...............................................        (507)      (1,149)
                                                                         -------      -------
                                                                         $ 1,180      $ 1,578
                                                                         =======      =======

</TABLE>

     The maturities of long-term debt outstanding are as follows (in thousands):


                                  December 31,
                                      2000
                                    ------
           2001 ................    $  528
           2002 ................       583
           2003 ................       626
                                    ------
                                    $1,737
                                    ======


     In May 1999, the Company entered into a senior loan and security  agreement
which provides for the issuance of up to $2,000,000 in promissory  notes.  As of
December  31,  2000  and  1999,  $1,487,000  and  $1,836,000,  respectively,  in
promissory  notes  were  outstanding  against  this  agreement.  The  notes  are
collateralized  by  machinery,  equipment,  intangible  and other  assets of the
Company.  The notes require an additional interest  compensation  payment at the
end of the term of the notes.  The  payment,  at the option of the  Company,  is
either 12.5% of the original principal of the note, or six months of payments in
the amount of 2.43% of the original  principal of the note. In conjunction  with
these notes,  the Company  issued 44,445 Class E preferred  stock  warrants (see
Note 13). The warrants were recorded at their fair value of $68,787 resulting in
a discount to the notes of $68,787.  This  discount  will be amortized  over the
term of the notes of four years and amounted to $17,196 and $10, 747 during 2000
and 1999, respectively. The warrants were exercised on July 31, 2000.

     In  June  1999,  the  Company  paid  the  balance  of its  uncollateralized
subordinated note due June 1999 and issued a new  uncollateralized  subordinated
note due June 2003 to the same lender totaling  $400,000.  The previous note due
June  1999  required  monthly  payments  of  $5,833  with  interest  at 10%.  In
conjunction  with the new note due June 2003,  the Company  issued 20,000 common
stock  warrants  that expire July 2007 (see Note 13). The warrants were recorded
at their fair value of $14,977  resulting  in a discount to the note of $14,977.
This  discount  will be  amortized  over the term of the note of four  years and
amounted to $3,744 and $2,028  during 2000 and 1999,  respectively.  The Company
also extended the duration of the lender's  outstanding  Class A preferred stock
warrants to June 2003 (see Note 13).

     The   subordinated   notes   contain   various   covenants,   including   a
debt-to-equity ratio. In 1999, the lenders permanently modified certain covenant
requirements. The Company was in compliance with all revised covenants as of and
for the year ended December 31, 2000.


                                       36
<PAGE>
9.         Leases

     The Company  leases its  operating  facility  and certain  equipment  under
operating and capital leases which extend  through 2006.  Certain leases include
renewal options.

     Future  minimum  annual  lease  payments  under these lease  agreements  at
December 31, 2000 are as follows (in thousands):

<TABLE>
<CAPTION>

                                                        Operating      Capital
Year ending                                               Leases        Leases
<S>                                                     <C>             <C>
2001 .........................................          $    586        $ 1,827
2002 .........................................               568          1,682
2003 .........................................               568            493
2004 .........................................               594             --
2005 .........................................               469             --
2006 .........................................                88             --
                                                          ------        -------
Future minimum lease payments ................           $ 2,873        $ 4,002
                                                         ========
Less amount representing interest ............                             (394)
                                                                        -------
Present value of net minimum lease payments ..                            3,608
Less current portion .........................                           (1,563)
                                                                        -------
Long-term portion.............................                          $ 2,045
                                                                        =======
</TABLE>

     The  Company  has a five-year  operating  lease for its  primary  operating
facility  which  extends  through  October 2005 and contains a five year renewal
option.  The building lease  requires the Company to pay  utilities,  insurance,
maintenance  costs  and real  estate  taxes.  The  building  is  leased  from an
affiliate of stockholders of the Company.

     In addition,  the Company leases equipment under various leases for periods
ranging from one to five years. Some of these leases contain options to purchase
the  equipment at the  termination  of the lease at a price equal to fair market
value.

     Total rental  expense  charged to  operations  under  operating  leases was
approximately  $581,000,  $650,000 and $624,000 for the years ended December 31,
2000, 1999 and 1998, respectively.

10.        Incentive Compensation Plan

     The Company  maintains an incentive  compensation  plan. All payouts are at
the Board of Directors' discretion. The Company recorded compensation expense of
approximately  $518,000 for the year ended  December 31, 2000.  No  compensation
expense was recognized under this plan for the years ended December 31, 1999 and
1998.


                                       37
<PAGE>

11.        Income Taxes

     The provision for income taxes consists of the following (in thousands):

<TABLE>
<CAPTION>

                                                                   Year ended December 31,
                                                            ------------------------------------
                                                              2000           1999         1998
                                                            --------      --------      --------
<S>                                                         <C>           <C>           <C>
Continuing operations:
Current tax expense (benefit):
    Federal .............................................   $ (8,212)     $ (3,071)     $ (4,998)
    State ...............................................     (2,095)         (551)       (1,032)
                                                            --------      --------      --------
                                                             (10,307)       (3,622)       (6,030)
                                                            --------      --------      --------
 Deferred tax expense (benefit):
    Federal .............................................      8,212         3,071         4,110
    State ...............................................      2,095           551           758
                                                            --------      --------      --------
                                                              10,307         3,622         4,868
                                                            --------      --------      --------
 Income tax benefit related to continuing operations ....       --            --          (1,162)
Discontinued operations:
Current tax expense:
    Federal .............................................   $   --        $   (508)     $    888
    State ...............................................       --            (148)          274
                                                            --------      --------      --------
                                                                --            (656)        1,162
                                                            --------      --------      --------
 Deferred tax expense:
    Federal .............................................       --             508            --
    State ...............................................       --             148            --
                                                            --------      --------      --------
Income tax expense related to  discontinued  operations .       --             656         1,162
                                                            --------      --------      --------
Total income tax  expense ...............................   $   --        $     --      $     --
                                                            ========      ========      ========
</TABLE>

     The provision for income taxes differs from the amount  computed  utilizing
the federal statutory rate of 34% as follows:


                                                    Year ended December 31,
                                               -------------------------------
                                                2000          1999        1998
                                                ----          ----        ----
Federal Statutory rate .................       (34.0)%      (34.0)%      (34.0)%
State taxes, net of federal effect .....        (6.3)        (6.0)        (7.6)
Other ..................................         0.0          0.3         (2.2)
Change in valuation allowance ..........        40.3         39.7         43.8
                                               -----        -----         ----
                                                 0.0%         0.0%         0.0%
                                               =====        =====         ====


                                       38
<PAGE>

     The tax effects of  temporary  differences  that give rise to deferred  tax
assets  (liabilities)  at  December  31,  2000  and  1999  are  as  follows  (in
thousands):

<TABLE>
<CAPTION>
                                              2000                      1999
                                     ---------------------      ----------------------
                                     Current    Noncurrent      Current     Noncurrent
                                     -------    ----------      -------     ----------
<S>                                <C>           <C>            <C>         <C>
Inventory reserves                 $  8,963      $      --      $ 1,504     $      --
Discontinued operations                  --             --          759            --
Vacation liability                      248             --          200            --
Warranty                                166             --          212            --
Allowance for doubtful accounts         101             --          108            --
Accrued contract costs                   --             --           40            --
Unearned compensation                    21             --           23            --
Deferred revenue                         38             --           --            --
Other                                   148            (85)          85           (85)
Investment                               --           (173)          --          (173)
Depreciation/Amortization                --             58           --           196
Tax credit carryovers                    --          1,272           --           612
Net operating loss carryforwards         --         19,202           --        10,318
                                   --------      ---------      -------     ---------
Gross deferred tax benefit            9,685         20,274        2,931        10,868
Valuation allowance                  (9,685)       (20,274)      (2,931)      (10,868)
                                   --------      ---------      -------     ---------
                                   $     --      $      --      $    --     $      --
                                   ========      =========      =======     =========

</TABLE>

     At  December  31,   2000,   the  Company  has   approximately   $48,725,000
($26,667,000 in 1999) of net operating loss carryforwards and $540,000 ($348,000
in 1999) of investment  and research and  development  tax credit  carryforwards
available for federal income tax purposes.  There are approximately  $44,302,000
of net operating  losses  ($22,224,000  in 1999) and  approximately  $732,000 in
investment and research and  development tax credit  carryforwards  available in
2000 ($266,000 in 1999) for state tax purposes.

     Expiration  of these  carryforwards  commenced  in 1999  and will  continue
through 2015. It is possible that the net operating  loss  carryforward  amounts
that may be used in a single year may be limited.

12.        Preferred Stock

     On February 7, 2000 the Company  completed  an initial  public  offering of
4,600,000 shares of its common stock at $17.00 per share. The offering  resulted
in net proceeds to the Company of $71.1  million  after  deducting  underwriters
commission  and  offering  expenses.  Simultaneously,  with the  closing  of the
initial  public  offering,  all of the Company's  then  outstanding  convertible
preferred  stock was  automatically  converted  into an aggregate of  10,488,405
shares of common stock.

     As of December 31, 1999 the Company had issued and outstanding  Class A, B,
D and E preferred stock (see Note 1). Each of the classes had redemption rights,
a liquidation preference,  conversion rights, and dividend rights as of December
31, 1999:

     o   Each  Class A, B, D and E share may be  converted  at the option of the
         holder  into a share  of  common  stock  at a ratio  of two  shares  of
         preferred to one share of common.  Conversion would occur automatically
         upon a public  offering of common stock  resulting in gross proceeds of
         at least  $15,000,000  and with an offering price of at least $4.50 per
         share.  Each Class D and E share would  automatically be converted into
         common stock upon the conversion of 90% or more of the authorized stock
         of the class.

     o   The Class A, B, D and E shares  have a  liquidation  preference  in the
         amount  of  $3.25,  $3.25,  $1.80  and  $2.25,  respectively,  plus all
         declared  and unpaid  dividends.


                                       39
<PAGE>

     o   The holders of Class A, B, D and E shares are entitled to receive, when
         and as declared by the Board of Directors,  non-cumulative  annual cash
         dividends of $.26,  $.26,  $.144 and $.18 per share,  respectively.  No
         dividends  have been declared by the Board of  Directors.

     o   Certain of the  classes of  preferred  stock have  liquidation  rights,
         voting  rights  and cash  dividend  rights in  preference  to the other
         preferred stock.

     o   The  Company  shall  offer to redeem the Class A and Class B  preferred
         shares at the rate of 20% per year at $3.25 per  share,  plus an amount
         equal to all  declared  and unpaid  dividends.  All Class A and Class B
         redemptions can be waived at the option of two-thirds of the respective
         Class A or Class B preferred stockholders.  As part of the agreement in
         1998 to  issue  Class  E  preferred  stock,  the  Class  A and  Class B
         preferred  stockholders  elected to postpone  their  redemption  rights
         until 2003.

     o   On October 21, 2003 and on the first and second anniversaries  thereof,
         the  Company  shall  offer to  redeem  from  each  Class D and  Class E
         preferred  holder,  a maximum of one-third,  two-thirds and one hundred
         percent,  respectively,  of the total  number  of  shares  held by each
         stockholder  at a price  equal  to the  greater  of  $1.80  and  $2.25,
         respectively,  plus all  declared  and  unpaid  dividends,  or the fair
         market  value as  determined  by the  Board of  Directors.  The Class D
         preferred stockholders agreed to postpone their redemption from 2002 to
         2003 as part of the 1998 Class E preferred stock issuance.


     During 1998, the Company issued 3,274,841 shares of Class E preferred stock
at $2.25 per share for an  aggregate  of  $7,368,000.  In  September  1999,  the
Company  issued  6,666,667  shares of Class E  preferred  stock  with a value of
$15,000,000.  Cash  proceeds were  $13,000,000  and  $2,000,000 of  subordinated
promissory notes were retired through the issuance of $2,000,000 (888,889 shares
at a value of $2.25 per share) of Class E preferred  stock.

     The Company recorded all of its outstanding Class A, B, D, and E redeemable
preferred stock at the maximum  redemption  amount as of each balance sheet date
presented.


                                       40
<PAGE>

13.        Stock Warrants

The Company has issued  stock  warrants  for its  preferred  and common stock as
follows:
<TABLE>
<CAPTION>

                                             Class A                           Class E
                                          Preferred Stock                 Preferred Stock               Common Stock
                                       ----------------------       ------------------------        ----------------------
                                                    Exercise                        Exercise                     Exercise
                                       Number of    Price Per       Number of       Price Per       Number of    Price Per
                                         Shares       Share          Shares           Share          Shares        Share
                                         ------       -----          ------           -----          ------        -----
<S>                                    <C>          <C>                             <C>              <C>         <C>
Exercisable at December 31, 1997        28,000      $   3.25              --        $     --         962,500     $   1.00
Granted ........................            --            --              --              --              --           --
                                       -------      --------         -------        --------       ---------     --------
Exercisable at December 31, 1998        28,000          3.25              --              --         962,500         1.00
Granted ........................            --            --          88,890            2.25         220,000         1.00
Exercised ......................            --            --              --              --         (19,575)        1.00
                                       -------      --------         -------        --------       ---------     --------
Exercisable at December 31, 1999        28,000          3.25          88,890            2.25       1,162,925         1.00
Reverse stock split ............       (14,000)         6.50         (44,445)           4.50              --           --
Exercised ......................            --            --         (44,445)           4.50        (264,404)        1.00
Conversion .....................       (14,000)         6.50              --              --          14,000         6.50
                                       -------      --------         -------        --------       ---------     --------
Exercisable at December 31, 2000            --      $     --              --        $     --         912,521     $   1.08
                                       =======      ========         =======        ========       =========     ========

</TABLE>

     The Company issued 20,000 common stock warrants  during 1999 in conjunction
with a subordinated  note of $400,000 (see Note 8). In addition,  200,000 common
stock  warrants  were  issued  during  the  year  ended  December  31,  1999  in
conjunction with the bridge financing (see Note 7).

     The  outstanding  common stock warrants have an exercise price of $1.00 and
expire as follows:

                                                             Expiration
   Number of Warrants                                            Date
   ------------------                                            ----
          14,000  .............................                 June 2003
         630,464  .............................            September 2006
         268,057  .............................                 July 2007

14.        Stock Options and Common Stock Issued

     The Company has stock option plans that provide for the granting of options
to  employees,  directors  and  consultants.  The plans  permit the  granting of
options to  purchase a maximum of  3,460,359  shares of common  stock at various
prices and  require  that the  options be  exercisable  at the prices and at the
times as determined by the Board of Directors, not to exceed ten years from date
of issuance.

As of December 31, 2000,  687,002 options are available for issuance under these
plans.  Employee stock options  granted prior to September 2000 generally have a
vesting requirement of four years whereby 20% of the options granted vest at the
time of  issuance  and  the  remainder  vest  at a rate  of 20% per  year on the
anniversary  date of the issuance.  Employee stock options  granted in September
2000 and  thereafter  provide for vesting in the amount of 25% of the grant upon
the first  anniversary of the date of grant and quarterly  vesting in the amount
of 6.25% of the grant on the first day of each January,  April, July and October
following the first  anniversary of the date of grant until the option has fully
vested.


                                       41
<PAGE>

     The aggregate stock option activity for these plans is as follows:
<TABLE>
<CAPTION>

                                                                           Weighted
                                                           Number of  average exercise
                                                             Shares          price
                                                           ---------       --------
<S>                                                          <C>               <C>
Balance, December 31, 1997 (372,850 exercisable) ...         652,100       $   1.00
    Granted ........................................         940,387           1.00
    Exercised ......................................          (2,263)          1.00
    Canceled or expired ............................        (352,864)          1.00
                                                           ---------       --------
Balance, December 31, 1998 (677,503 exercisable) ...       1,237,360           1.00
    Granted ........................................         801,735           5.02
    Exercised ......................................        (213,763)          1.04
    Canceled or expired ............................         (78,569)          1.08
                                                           ---------       --------
Balance, December 31, 1999 (834,498 exercisable) ...       1,746,763           2.83
    Granted ........................................       1,556,346           7.92
    Exercised ......................................        (372,101)          1.43
    Canceled or expired ............................        (157,651)          8.55
                                                           ---------       --------
Balance, December 31, 2000 (845,652 exercisable) ...       2,773,357       $   5.55
                                                           =========       ========
</TABLE>
     The following table summarizes  information about stock options outstanding
at December 31, 2000:

<TABLE>
<CAPTION>

                                           Options Outstanding                            Options Exercisable
                              ----------------------------------------------     --------------------------------
                                 Number    Weighted Average
                              Outstanding     Remaining                                Number          Weighted
                                  at       Contractual Life  Weighted Average     Exercisable at        Average
           Exercise Price      12/31/00        (years)        Exercise Price         12/31/00       Exercise Price
           --------------      --------        -------        --------------         --------       --------------
<S>        <C>       <C>       <C>               <C>              <C>                 <C>               <C>
           $  1.00 - $  2.50   1,857,658         8.2              $  1.41             628,787           $  1.29
           $  4.47 - $  6.83     522,403         9.0              $  6.07              68,577           $  4.50
           $  8.00 - $ 12.60     193,468         9.0              $ 11.10              83,072           $ 11.20
           $ 28.50 - $ 31.28      75,356         9.6              $ 30.26              37,944           $ 30.82
           $ 40.25               116,972         9.3              $ 40.25              25,772           $ 40.25
           $ 61.50                 7,500         9.1              $ 61.50               1,500           $ 61.50

</TABLE>

     The weighted average  contractual  life of options  outstanding at December
31, 2000 is 8.5 years.

     During the year ended  December 31, 1999, the Company issued 112,500 shares
of  restricted  common  stock at $2.50 per share to an officer in exchange for a
note receivable. The note bears interest at 6.25% and matures in September 2009.
In the event the  individual is no longer  employed by the Company,  the Company
retains the right to repurchase the shares.  This repurchase  right expires at a
rate of 20%  upon  issuance  and  20%  per  year  each  anniversary  date of the
issuance.  The Company  recognized  $225,000 in  unearned  compensation  for the
difference  between the fair value of the stock and the  purchase  price in this
transaction.  For the years ended December 31, 2000 and 1999  respectively,  the
Company recognized approximately $45,000 and $58,000 in compensation expense.

     The Company recognized $257,000 in non-cash compensation expense during the
year ended December 31, 2000 as a result of accelerated vesting of stock options
on the retirement of an employee.  The Company granted options to  non-employees
during the year ended December 31, 1999 and accordingly  recognized  $212,000 in
non-cash compensation expense.

     The Company  applies APB Opinion  No. 25,  Accounting  for Stock  Issued to
Employees,  and  related  interpretations  in  accounting  for  its  stock-based
compensation  plans. Had compensation  cost for the Company's stock option plans
been determined under SFAS No. 123, Accounting for Stock-Based Compensation, the
Company's pro forma net loss and net loss per share would have been as follows:


                                       42
<PAGE>

                                          Year ended December 31,
                               ---------------------------------------
                                   2000           1999          1998
                               ---------      --------      --------
                                 (in thousands, except per share data)
 Net loss:
    As reported ..........     $ (39,113)     $ (9,935)     $ (9,529)
    Pro forma ...........        (40,939)      (10,533)       (9,662)
 Net loss per share
    As reported ..........         (2.64)       (16.39)       (19.37)
    Pro forma ............         (2.76)       (17.38)       (19.64)


     The above pro forma  effects may not be  representative  of the effects for
future years, as option grants  typically vest over several years and additional
options are generally granted each year.

     The fair value of each option grant has been estimated on the date of grant
using the  minimum  value  pricing  model with the  following  weighted  average
assumptions:


                                      2000          1999          1998
                                      ----          ----          ----
     Risk-free interest rate ..       5.54%         6.12%         5.58%
     Expected life ............     6 years       6 years       8 years
     Volatility ...............        100%           28%            0%
     Dividend yield ...........         --            --            --


     The weighted  average fair value of those options granted in 2000, 1999 and
1998 was $3.92, $3.17 and $0.18, respectively.

15.        Common and Preferred Stock Reserved

     As a result of the outstanding stock warrants,  and stock option plans, the
Company has reserved  4,230,131  shares of common stock at December 31, 2000 and
15,708,284 shares of common stock, 28,000 shares of Class A preferred stock, and
88,890  shares of Class E preferred  stock as of December 31,  1999.

     During  the  year  ended  December  31,  1999,  the  stockholders  voted to
authorize  4,500,000  shares of preferred  stock $.01 par value, to increase the
authorized  shares of the Class E preferred  stock to 11,000,000 and to increase
the authorized shares of common stock to 100,000,000.  No additional shares were
authorized during the year ended December 31, 2000.

16.        Segment Information

     During 1998, the Company  adopted the provisions of FASB Statement No. 131,
Disclosures  about  Segments  of an  Enterprise  and Related  Information.  FASB
Statement  No.  131  establishes   standards  for  disclosures  about  operating
segments, products and services,  geographic areas and major customers. Prior to
the  Company's  decision to  discontinue  its  millimeter-wave  products  (MMWP)
business segment (see Note 2), the Company  developed and manufactured  products
in two business segments, the MMWP and broadband wireless access (BWA) segments.
As a result of this decision,  the Company now operates in only the BWA segment.
Products of the BWA segment include hub and customer premises equipment.

     The BWA segment's sales by country are (in thousands):

                                             Year ended December 31,
                                      -----------------------------------
                                        2000           1999         1998
                                      --------       -------      -------
     United States ..............     $  1,020       $ 1,156      $ 1,153
     Canada......................       22,999         8,560          713
     Other countries ............          734             4          520
                                      --------       -------      -------
                                      $ 24,753       $ 9,720      $ 2,386
                                      ========       =======      =======


     The  Company's   research  and  production   facilities  and   accompanying
long-lived assets are located in the United States.

                                       43
<PAGE>

     Sales  to  individual  customers  in  excess  of 10% of total  BWA  segment
revenues are presented in the following table (in thousands):

<TABLE>
<CAPTION>

                                                            Year ended December 31,
                                                       --------------------------------
                                                         2000        1999        1998
                                                       --------    --------    --------
<S>                                                     <C>        <C>         <C>
Individual customers in excess of 10% of revenues:
    Customer A      ...........................         $    --    $     --    $    296
    Customer B      ...........................              --          --         614
    Customer C      ...........................          22,999       8,560         713
                                                       --------    --------    --------
                                                         22,999       8,560       1,623
 Other customers    ...........................           1,754       1,160         763
                                                       --------    --------    --------
 Total sales        ...........................        $ 24,753    $  9,720    $  2,386
                                                       ========    ========    ========

</TABLE>

17.        Employee Savings and Profit-Sharing Plan

     The Company  sponsors an employee savings and  profit-sharing  plan for all
employees.  Full-time employees become eligible for participation after one-half
year of service.  The Company  provides a 60% (50% in 1998) matching of employee
contributions,  up  to a  maximum  of  $2,000.  An  additional  contribution  is
determined at the discretion of the Board of Directors.

     The  Company's   contributions  to  this  plan  for  matching  of  employee
contributions amounted to approximately $235,000,  $236,000 and $191,000 for the
years ended December 31, 2000, 1999 and 1998, respectively.

18.        Related-Party  Transactions

     The  Company  had  sales  to  a  stockholder  of  approximately   $186,000,
$1,355,000 and $953,000  during 2000, 1999 and 1998,  respectively.  Included in
accounts  receivable  at December 31, 1999 are  approximately  $343,000 due from
these  sales.  These  transactions  comprise  subcontracts  associated  with the
stockholder's  contracts  with the U.S.  Government,  and are  contracted  under
federal contracting  guidelines.  The sales and related accounts receivable from
this customer are included in discontinued operations.

     The Company held a promissory  note receivable of $250,000 as the result of
a 1996 license and sales  agreement  with a limited  liability  company  ("LLC")
established and partly owned by a former stockholder/employee.  The Company also
owns a 19.9% interest in the LLC. At December 31, 2000 and 1999, the Company has
reserved  for the entire  amount  due on the note  receivable  of  approximately
$200,000,  and has no value  assigned  to its  19.9%  interest  in the LLC.  The
Company has obtained a judgment  against the LLC in the amount of  approximately
$378,000.  In October 1999, the Company  renegotiated  that transaction with the
LLC and involved  Millivision,  L.L.C.,  a joint venture between the LLC and one
other entity.  The Company released the LLC and the former  stockholder/employee
from  substantially  all claims,  including the $378,000  judgment,  and the LLC
released  any claims to the  intellectual  property  relating  to the  Company's
contraband  detection  systems business.  Millivision  agreed to pay the Company
royalties in the minimum amount of $200,000. The LLC, Millivision and the former
stockholder/employee also agreed not to compete with the Company with respect to
broadband wireless telecommunications equipment.

19.        Contingencies

     The Company is subject to potential  liability under  contractual and other
matters  and  various  claims  and legal  actions  which are  pending  or may be
asserted. These matters arise in the ordinary course and conduct of the business
of the Company. While the outcome of all of the pending and potential claims and
legal actions against the Company cannot be forecast with certainty,  management
believes that such matters should not result in any liabiltiy which would have a
material  adverse  effect  on  the  Company's  financial  position,  results  of
operations, or cash flows.

                                       44
<PAGE>

20. Selected Quarterly Financial Data (unaudited)

     The following tables present unaudited quarterly financial  information for
the eight  quarters  ended  December  31, 2000 (in  thousands,  except per share
data).  The  statement of  operations  data have been derived from our unaudited
financial  statements.  In  management's  opinion,  these  statements  have been
prepared on substantially the same basis as the audited financial statements and
include  all  adjustments,  consisting  only of  normal  recurring  adjustments,
necessary for a fair  presentation  of the financial  information  in accordance
with generally accepting accounting principles.  The results for any quarter are
not necessarily indicative of results for any future period.

<TABLE>
<CAPTION>
                                                                          Quarter Ended
                                                       --------------------------------------------------
                                                        March 31,     June 30,     Sept. 30,     Dec. 31,
                                                          2000         2000          2000          2000
                                                       --------      --------      --------      --------
<S>                                                    <C>           <C>           <C>           <C>
Sales ............................................     $  6,316      $  8,731      $  8,095      $  1,611
Cost of sales ....................................        6,514         8,543        10,225         4,328
Charges relating to excess inventory on hand
  and on order ...................................         --            --            --          17,744
Gross margin (loss) ..............................         (198)          188        (2,130)      (20,461)
Loss from continuing operations ..................       (3,583)       (4,569)       (5,896)      (23,586)
Income (loss) from discontinued operations .......       (2,848)          496           534           339
Net loss .........................................       (6,431)       (4,073)       (5,362)      (23,247)
Basic and diluted loss per share from
 continuing operations ...........................        (0.37)        (0.28)        (0.36)        (1.41)
Basic and diluted income (loss) per share
 from discontinued operations ....................        (0.29)         0.03          0.03          0.02
Basic and diluted net loss per share .............        (0.66)        (0.25)        (0.32)        (1.39)
<CAPTION>
                                                                          Quarter Ended
                                                       --------------------------------------------------
                                                        March 31,     June 30,     Sept. 30,     Dec. 31,
                                                          1999          1999         1999          1999
                                                       --------      --------      --------      --------
<S>                                                    <C>           <C>           <C>           <C>
Sales ............................................     $  1,177      $  1,585      $  2,742      $  4,216
Cost of sales ....................................        1,650         1,162         2,291         3,938
Charges relating to excess inventory on hand
  and on order ...................................         --            --            --            --
Gross margin (loss) ..............................         (473)          423           451           278
Loss from continuing operations ..................       (2,148)       (1,720)       (2,079)       (2,346)
Income (loss) from discontinued operations .......          358        (1,891)         (109)         --
Net loss .........................................       (1,790)       (3,611)       (2,188)       (2,346)
Basic and diluted loss per share from
 continuing operations ...........................        (4.34)        (3.44)        (3.44)        (2.86)
Basic and diluted income (loss) per share
 from discontinued operations ....................         0.72         (3.78)        (0.18)        (0.00)
Basic and diluted net loss per share .............        (3.62)        (7.22)        (3.62)        (2.86)

</TABLE>

21.        Subsequent Event

     At December 31, 2000,  the  Company's  portfolio of  marketable  securities
included a $2.5 million  investment in commercial  paper issued by Pacific Gas &
Electric. Subsequent to the balance sheet date, the fair value of the investment
has declined.  The subsequent decline in fair market value has not been recorded
in the financial  statements  at December 31, 2000 because the Company  believes
the  decline  to be  temporary.

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

     None.


                                       45
<PAGE>

                                    PART III

Item 10.   Directors and Executive Officers of the Company.

     Information  appearing  under the captions  "Board of Directors,  Executive
Officers and Key Employees" and "Section 16(a)  Beneficial  Ownership  Reporting
Compliance"  in our  definitive  proxy  statement for our 2001 Annual Meeting of
Stockholders (the "2001 Proxy  Statement") is hereby  incorporated by reference.

Item 11. Executive Compensation.

     Information  appearing under the caption  "Executive  Compensation"  in our
2001 Proxy  Statement is hereby  incorporated  by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management.

     Information  appearing  under the caption  "Security  Ownership  of Certain
Beneficial  Owners and Our Directors and Management" in our 2001 Proxy Statement
is hereby incorporated by reference.

Item 13.   Certain Relationships and Related Transactions.

     Information appearing under the caption "Material Relationships and Related
Party  Transactions"  in our 2001  Proxy  Statement  is hereby  incorporated  by
reference.

                                       46
<PAGE>

                                    PART IV

Item 14.   Financial Statements, Schedules, Reports on Form 8-K and Exhibits.

     (a) Documents filed as part of this Form 10-K:

           1. Financial Statements

     See Index to Financial  Statements under Item  8--Financial  Statements and
Supplementary Data.

           2. Financial Statement Schedule

     Schedule II--Valuation and Qualifying Accounts

     All other financial  statement schedules have been omitted because they are
not required, not applicable, or the information to be included in the financial
statement  schedules  is  included  in the  financial  statements  or the  notes
thereto.

           3. Exhibits

     See Exhibit Index.

     (b) Reports on Form 8-K

     We did not file any  reports  on Form 8-K  during  the three  months  ended
December 31, 2000.









                                       47
<PAGE>
<TABLE>
<CAPTION>

                               TELAXIS COMMUNICATIONS CORPORATION
                                VALUATION AND QUALIFYING ACCOUNTS
                      For the years ended December 31, 1998, 1999 and 2000
                                         (in thousands)



                                                       Column C
        Column A                   Column B            Additions         Column D     Column E
-------------------------------    ----------  ----------------------   -----------   ----------
                                   Balance at  Charged to  Charged to                 Balance at
                                   Beginning   Costs and      Other                    End of
        Description                Of Period    Expenses    Accounts     Deductions     Period
        -----------                ---------    --------    --------     ----------     ------
<S>                                 <C>         <C>          <C>          <C>          <C>
1998
Inventory reserve .............     $   786     $ 1,492      $  --        $   (45)     $ 2,233
Allowance for doubtful accounts         210         176         --            (18)         368
Warranty reserve ..............         342         284         --           (134)         492
                                    -------     -------      -------      -------      -------
                                    $ 1,338     $ 1,952      $  --        $  (197)     $ 3,093
                                    =======     =======      =======      =======      =======

1999
Inventory reserve .............     $ 2,233     $   420      $  (625)     $  (231)     $ 1,797
Allowance for doubtful accounts         368         104         (415)        --             57
Warranty reserve ..............         492          38         --           --            530
                                    -------     -------      -------      -------      -------
                                    $ 3,093     $   562      $(1,040)     $  (231)     $ 2,384
                                    =======     =======      =======      =======      =======

2000
Inventory reserve .............     $ 1,797     $ 1,895     $ (2,052)     $  --        $ 1,640
Allowance for doubtful accounts          57         193         --           --            250
Warranty reserve ..............         530         180         (298)        --            412
                                    -------     -------      -------      -------      -------
                                    $ 2,384     $ 2,268      $(2,350)     $  --        $ 2,302
                                    =======     =======      =======      =======      =======
</TABLE>


                                       48
<PAGE>

                                 EXHIBIT INDEX
Exhibit
Number                                              Description
--------------------------------------------------------------------------------
2.1        Asset Purchase  Agreement,  dated as of February 8, 2000, between the
           Company and MMW Acquisition, LLC.*
3.1        Restated Articles of Organization of the Company,  as amended.***
3.2        Amended and Restated By-laws of the Company.**
4.1        Form of  certificate  evidencing  ownership  of  Common  Stock of the
           Company.***
10.1       1986 Stock Plan of the Company.
10.2       1987 Stock Plan of the Company.
10.3       1988 Stock Plan of the Company.
10.4       1996 Stock Plan of the Company.
10.5       1997 Stock Plan of the Company.
10.6       1999 Stock Plan of the Company.
10.7       Employment   Agreement  by  and  between  the  Company  and  John  L.
           Youngblood dated as of December 19, 2000.*****
10.8       Employment  Agreement  by and  between  the  Company  and  Ransom  D.
           Reynolds dated as of December 19, 2000.*****
10.9       Employment Agreement by and between the Company and Dennis C. Stempel
           dated as of December 19, 2000.*****
10.10      Employment  Agreement by and between the Company and David L. Renauld
           dated as of December 19, 2000.*****
10.11      Employment  Agreement  by and between the Company and Kenneth R. Wood
           dated as of December 19, 2000.*****
10.12      Reseller  Agreement by and between the Company and Newbridge Networks
           Corporation dated August 7, 1998.+
10.13      Professional  Services  Agreement  by and  between  the  Company  and
           Newbridge Networks Corporation dated August 7, 1998.+
10.14      Supplemental  Agreement  between the  Company  and  Alcatel  Networks
           Corporation dated September 14, 2000.++
10.15      Agreement and License  between the Company and California  Amplifier,
           Inc. dated as of August 25, 2000.****
10.16      Lease by and  between  the  Company  and  O'Leary-Vincunas  LLC dated
           November 1, 2000.*****
10.17      Fourth  Amended and  Restated  Registration  Rights  Agreement  dated
           September 17, 1999.**
10.18      Registration  Rights  Agreement by and between the Company and Boston
           Federal Savings Bank dated August 20, 1999.
10.19      Purchase  Agreement  by and between  the  Company  and  Massachusetts
           Technology Development Corporation dated June 1988.**
10.20      First Amendment to the Purchase  Agreement by and between the Company
           and Massachusetts  Technology Development  Corporation dated December
           28, 1988.***
10.21      Second Amendment to the Purchase Agreement by and between the Company
           and Massachusetts  Technology Development  Corporation dated June 17,
           1999.***
10.22      Employee  Stock  Purchase  Agreement  by and  between the Company and
           Mervyn Fitzgerald dated September 16, 1999.***


                                       49
<PAGE>
Exhibit
Number                                              Description
--------------------------------------------------------------------------------

10.23      Tax Agreement by and between the Company and Mervyn  Fitzgerald dated
           September 16, 1999.***
10.24      Form of Indemnification Agreement, a substantially similar version of
           which was  entered  between  the  Company  and each of Mssrs.  Doyle,
           Fleming,  Paladino,  Norbury,  Youngblood,   Renauld,  Reynolds,  and
           Stempel  on  September  18,  2000 and  between  the  Company  and Ms.
           Armitage on October 31, 2000.****
23.1       Consent of PricewaterhouseCoopers LLP.*****
27.1       Financial Data Schedule.*****
--------
All non-marked Exhibits listed above are incorporated herein by reference to the
exhibits to Form S-1 filed with the  Commission  on September 27, 1999 (File No.
333-87885).

*          Incorporated  herein by  reference  to the exhibits to Form 8-K filed
           with the Commission on February 11, 2000.

**         Incorporated  herein by reference to the exhibits to Amendment  No. 1
           to Form S-1 filed with the  Commission  on October 15, 1999 (File No.
           333-87885).

***        Incorporated  herein by reference to the exhibits to Amendment  No. 2
           to Form S-1 filed with the  Commission on December 21, 1999 (File No.
           333-87885).

****       Incorporated  herein by  reference to the exhibits to Form 10-Q filed
           with the Commission on November 14, 2000.

*****      Filed herewith.

         +  Incorporated  herein by reference to the exhibits to Amendment No. 3
to Form S-1 filed with the Commission on January 11, 2000 (File No.  333-87885).
Certain  portions of this Exhibit  have been  omitted  pursuant to a request for
confidential treatment filed with the Commission.

         ++ Incorporated  herein by reference to the exhibits to Form 10-Q filed
with the Commission on November 14, 2000.  Certain portions of this Exhibit have
been omitted  pursuant to a request for  confidential  treatment  filed with the
Commission.


                                       50
<PAGE>

                                   SIGNATURES

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


                                   Telaxis Communications Corporation


                                   By:     /s/John L. Youngblood
                                           ---------------------
                                           John L. Youngblood,
                                           President and Chief Executive Officer

Date: March 27, 2001

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


           Signature                     Title                         Date
           ---------                     -----                         ----

By: /s/John L. Youngblood    President, Chief Executive Officer   March 27, 2001
    ---------------------    and Director
    John L. Youngblood

By: /s/Dennis C. Stempel     Vice President, Chief Financial      March 27, 2001
    --------------------     Officer, Principal Financial Officer
    Dennis C. Stempel        and Principal Accounting Officer

By: /s/Albert E. Paladino    Director                             March 27, 2001
    ---------------------
    Albert E. Paladino

By: /s/Carol B. Armitage     Director                             March 27, 2001
    --------------------
    Carol B. Armitage

By: /s/ Allan M. Doyle, Jr.  Director                             March 27, 2001
    -----------------------
    Allan M. Doyle, Jr.

By: /s/ Robert C. Fleming    Director                             March 27, 2001
    ---------------------
    Robert C. Fleming

By: /s/ David A. Norbury     Director                             March 27, 2001
    --------------------
    David A. Norbury



                                       51