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, 2005

                                       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

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

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

                                2115 O'Nel Drive
                               San Jose, CA 95131
                    (Address of principal executive offices)

                                 (408) 731-2700
              (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: Common Stock, $.01
Par Value

      Indicate by check mark if the registrant is a well-known seasoned issuer,
as defined in Rule 405 of the Securities Act. Yes |_| No |X|

      Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or 15(d) of the Act. Yes |_| No |X|

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

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

      Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, or a non-accelerated filer. See definition of
"accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange
Act. (Check one):

 Large accelerated filer |_|   Accelerated filer |_|   Non-accelerated filer |X|

      Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act). Yes |_| No |X|

      As of June 30, 2005, the aggregate market value of the voting and
non-voting common equity held by non-affiliates of the registrant was
$29,348,592. For purposes of this calculation only, shares of common equity held
by each of the registrant's directors and officers on that date and by each
person who beneficially owned 10% or more of the outstanding common stock on
that date have been excluded in that such persons may be deemed to be
affiliates. The aggregate market value has been computed based on a price per
share of $2.38, which is the price at which the common equity was last sold on
June 30, 2005.

      As of March 17, 2006, the registrant had 21,469,328 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 2006
annual meeting of stockholders are incorporated by reference into Part III of
this Form 10-K.

================================================================================

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                                     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 1A--Risk Factors. 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 or any other subsequent
events.

Item 1. Business.

Overview

      We provide high-speed wireless communications equipment and services in
the United States and internationally. Our systems enable service providers,
enterprises, and governmental organizations to deliver high-speed data
connectivity enabling a broad range of applications. We provide wireless
solutions for the mobile enterprise, security and surveillance, last mile
access, voice and data backhaul, and municipal networks. We believe our fixed
wireless systems address the growing need of our customers and end-users to
rapidly and cost effectively deploy high-speed communication networks.

      We operate in two primary businesses: broadband wireless equipment and
high-speed wireless service and connectivity. The equipment business generates
the substantial majority of our revenue and is conducted through our Proxim
Wireless Corporation subsidiary. Our services business is conducted through our
Ricochet Networks, Inc. subsidiary. Ricochet Networks is one of the five largest
wireless Internet service providers (WISPs) in the United States (in terms of
subscribers). The discussion below focuses on our equipment business as it
generates the substantial majority of our revenue and expenses.

      We offer broadband wireless equipment in several technology segments,
including Wi-Fi(R), Wi-Fi mesh, WiMAX, millimeter wave, and free-space optics.
We offer products in three primary categories: (1) wireless local area network
(WLAN) including Wi-Fi, primarily for use indoors; (2) outdoor broadband
wireless access (BWA), including proprietary point-to-multipoint (PMP),
standards-based WiMAX, and Wi-Fi mesh; and (3) point-to-point (PTP). We serve
our equipment customers primarily indirectly through a global network of
distributors, value-added resellers, product integrators, and original equipment
manufacturers, and to a lesser extent, directly to end customers through our
sales force.

      Terabeam, Inc. is our publicly traded parent company which owns our two
primary operating subsidiaries Proxim Wireless Corporation and Ricochet
Networks, Inc. Terabeam, Inc. was incorporated as a Delaware corporation on May
5, 2003.

      Over the years, our company has grown through a combination of organic
growth and acquisitions. Significant acquisitions are:

            o     Telaxis Communications Corporation - In April 2003, we (then a
                  private company known as Young Design, Inc.) acquired Telaxis,
                  a publicly traded company focused on developing high capacity
                  millimeter wave wireless products and thus became a publicly
                  traded company. Young Design, Inc. had developed, produced,
                  and sold wireless data products, primarily in microwave
                  frequencies.

            o     KarlNet, Inc. - In May 2004, we acquired KarlNet, a pioneer
                  and leader in software development for operating and managing
                  wireless networks.

            o     Terabeam Corporation - In June 2004, we acquired Terabeam
                  Corporation, a developer and provider of wireless fiber
                  solutions using high frequency millimeter wave (60 GHz radio
                  frequency) and free space optics (transferring data through
                  the air with light) technologies which had raised a
                  substantial amount of cash as a private company. In addition
                  to the cash and wireless fiber solutions, the Terabeam
                  Corporation acquisition provided us with the capability to
                  pursue


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<PAGE>

                  non-communication millimeter wave products business (such as
                  radar systems and sub-systems) from military and non-military
                  governmental and other customers.

            o     Ricochet Networks - In June 2004, we acquired Ricochet
                  Networks, Inc. Ricochet was originally formed to acquire
                  certain assets from the bankruptcy estate of Metricom. Prior
                  to its bankruptcy, Metricom had deployed the Ricochet(R)
                  network in many major metropolitan cities including New York,
                  Los Angeles, San Francisco, Seattle, Chicago, Philadelphia,
                  Phoenix, Baltimore, Philadelphia, Atlanta, Dallas/Fort Worth,
                  Minneapolis, and Washington, DC. Currently serving over 7,500
                  subscribers in the greater San Diego, CA and Denver, CO,
                  metropolitan areas, the Ricochet network spans over 520 square
                  miles of active footprint. Ricochet is investigating the
                  feasibility of restoring service in markets where previously
                  deployed. In addition, Ricochet is pursuing opportunities to
                  provide Homeland Defense and public safety systems utilizing
                  the Ricochet solution. Also, Ricochet is offering equipment to
                  service providers, WISPs, and municipalities who wish to offer
                  wireless Internet services and become part of Ricochet's
                  network. Ricochet's services business is operated independent
                  of the rest of our business - the equipment business - except
                  for certain overlapping personnel and functions.

            o     Proxim Corporation - In July 2005, we acquired substantially
                  all of the assets and operations of Proxim Corporation ("Old
                  Proxim") from the bankruptcy estate of Old Proxim. Old Proxim
                  was the result of the merger between Western Multiplex
                  Corporation and Proxim, Inc. in March 2002. Both Western
                  Multiplex and Proxim, Inc. were designers and manufacturers of
                  broadband wireless systems. In August 2002, Old Proxim
                  acquired Agere Systems' 802.11 wireless local area network
                  equipment business, including its ORiNOCO(R) 802.11b product
                  line.

Industry Background

      We believe that there exists a significant need for high bandwidth data
connectivity throughout the world. In addition, we believe that the consumers of
this data connectivity are placing an ever increasing premium on mobility and
the ubiquity of the connectivity. The often referred to "last mile" gap
describes the disconnect between end users' high bandwidth demands and the
carriers' ability to deliver this capacity where it is wanted. Carriers
typically have to overcome cost, time, technological, and other barriers when
trying to close the last mile gap.

      In the current economic climate, it is expected that network development,
especially at the network edge, will focus on deployments where new capital
expenditures will be closely followed by new revenue. Connecting new subscribers
to existing broadband at low incremental cost would fit well in this market
reality. A wireless complement would enable these connections. We believe that
our products are well suited to this market environment as they permit
telecommunications carriers to bring broadband connectivity to the network edge
faster and cheaper than with new landline build-outs.

      The rapidly expanding demand for mobile data applications, such as mobile
e-mail, text messaging, and digital cameras, is creating a dramatic increase in
data demand on networks originally designed and optimized for voice traffic. In
addition, Voice over Internet Protocol (VoIP) is gaining widespread acceptance
as an alternative method for carrying voice traffic. These factors, with others,
have combined to create significant disruption and opportunity for our service
provider customers. Although we have a strong history in supplying carrier class
products, with traditional telco interfaces, to service providers worldwide, we
see a very strong trend towards Internet Protocol (IP) based networks. Carriers
and other service providers are also exploring new business models and
opportunities to address growing trends such as the rapid proliferation of Wi-Fi
Hot Spots, Hot Zones, and Community Access Networks.

      In addition, the accelerating data requirements and VoIP opportunities
have created enormous opportunities for our enterprise, government, education,
public safety, alternative carrier, and municipal customers to build and operate
wireless networks that enhance their operations and capabilities while often
saving them money at the same time.

      Hot Spots, Hot Zones, and Community Access Networks

      The availability of Wi-Fi receivers in virtually all portable computers
sold today has led to the proliferation of Wi-Fi technology as a popular method
of broadband Internet access. The broad global acceptance of Wi-Fi


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<PAGE>

as an access technology in enclosed spaces has led to service providers and
municipalities pursuing the vision of outdoor metropolitan Wi-Fi networks in
order to bridge the digital divide. However, outdoor Wi-Fi networks require
technologies beyond standard Wi-Fi to be truly effective. We are seeing a
progression of Hot Spots to Hot Zones to Community Access Networks.

      A Hot Spot is a geographical area in which end users utilizing a Wi-Fi
device (which comes already installed in virtually all laptop computers sold
today) can access a broadband wireless connection for Internet connectivity. The
Hot Spot is usually offered by a telecommunications carrier for a fee or by the
local venue owner/operator for a fee or as an amenity. An increasing number of
Hot Spots permitting free public access are being deployed by a variety of
organizations including cities and towns. The advantages of Hot Spots are
broadband connectivity, ease of use, mobile operations and roaming capabilities.
The primary disadvantage of Hot Spots is that their effective range of less than
300 feet greatly limits the benefit of a single Hot Spot and would require the
deployment of a large number of Hot Spots to generate any meaningful level of
coverage. To date, the deployment of Hot Spots has been generally limited to
high traffic areas such as airports, convention centers, hotels and coffee
shops. This limited deployment has attracted limited attention from end-users
who require a broader area of coverage to widely adopt the service.

      We have been an industry leader in the concept of Hot Zones. A Hot Zone is
the functional equivalent of a Hot Spot except that it incorporates our
amplifier and high gain antenna technology to illuminate a dramatically larger
area of coverage than is covered by a traditional Hot Spot. For instance, rather
than providing a single coffee shop with wireless coverage by utilizing a Hot
Spot, a carrier could provide wireless coverage to a zone of several coffee
shops and restaurants by utilizing a Hot Zone. We believe that the proliferation
of Hot Zones will create a dramatic improvement in the geographical footprint of
Hot Spot type coverage which is required to increase the acceptance and demand
from end users.

      The natural progress from Hot Spot (Wi-Fi in an enclosed space) to Hot
Zone (Wi-Fi down the street) continues with the Community Access Network (Wi-Fi
covering cities and towns). These types of networks require Wi-Fi in combination
with other technologies including mesh, point-to-multipoint or WiMAX, and
point-to-point. Wi-Fi mesh provides industry standard Wi-Fi connectivity to the
end user but backhauls the data through a mesh of multiple radios to the final
wireline point of connectivity. The advantages of a mesh architecture are
enhanced reliability through redundancy and improved coverage and data rates by
having multiple potential paths to the end users. Also, the mesh network can be
easily deployed and grow as required by increasing the number of mesh nodes in
the network. We see the market from municipalities, carriers, and other service
providers for such networks growing significantly in 2006 and upcoming years.

      Fixed Wireless Broadband

      Telecommunications carriers that do not have direct connectivity to the
end customer through an existing medium such as copper, fiber, or cable cannot
cost effectively create a new land line connection to that customer and are
relegated to reselling the existing connectivity, possibly with enhancements, in
some form or fashion. As a reseller, the telecommunications carrier is subjected
to the quality of service and support provided by the underlying operator of the
network. Extended range license-free fixed wireless broadband systems allow
telecommunications carriers to establish an alternative network that they can
own and control to enable them to offer superior connectivity head to head with
the incumbent service provider. Our products allow a telecommunications carrier
to offer broadband connectivity to markets where no broadband has been
previously deployed because it was not cost effective to offer broadband
connectivity using traditional landline solutions. Equally important, the use of
license-free spectrum permits a new entrant to rapidly and cost effectively
reach a new market of subscribers demanding broadband connectivity.

      Many small to medium sized ISPs (Internet Service Providers) have no other
viable means to offer high-speed Internet service to their customers other than
using the license-free radio bands. ISPs are increasingly offering wireless
broadband connectivity and are known as WISPs (Wireless Internet Service
Providers). Our BWA systems have been deployed by over 2,000 WISPs, many of
which are serving areas that had no broadband access prior to the roll outs
incorporating our equipment.


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<PAGE>

      Rural Broadband

      In many rural areas of the world there is no DSL or cable TV service
available. Residential and business customers there typically only have
slow-speed dial-up Internet access. Some use satellite links for broadband
Internet access, but its relatively slow upload speeds and long latency do not
make it an ideal choice for high-speed wireless Internet access. Many WISPs now
use the license-free radio bands to offer high-speed wireless Internet to their
rural dial-up customers. Our long-range point-to-multipoint systems are well
suited for these rural areas and towns where there is no other viable broadband
option.

      Cellular Backhaul

      We believe that the need for high-speed backhaul, the connections between
cellular telephone towers and the rest of the cellular telephone network, will
remain solid and even increase due to the increased capacity demands of existing
cellular deployments as well as the deployment of additional cellular systems.
The amount of data that needs to be backhauled from cellular systems should
increase significantly as 2.5G, 3G and other high-data-rate cellular systems are
developed and deployed and more data intensive applications are offered. We
believe that the backhaul data rates required for some individual cells will
exceed the capabilities of the land line T-1/E-1 connections that are typically
used today, thereby providing an attractive market for our Lynx, Tsunamai,
Terabridge, and other high-capacity products.

      Private Enterprise Networks

      Business, government and institutional enterprise network deployments are
increasingly deploying high-speed connections between multiple buildings
occupied by the same or affiliated businesses or other enterprises in a campus
or business complex setting. Given that public fiber network carriers have
curtailed their capital spending programs, enterprises are turning to network
integrators to connect their LANs together. These integrators are motivated to
quickly and cost effectively deploy solutions and are very receptive to
considering alternative methods of providing connections - such as our products
- rather than just fiber optic cable. Our MP.11, MP.16, and TeraMax product
lines provide relatively low cost, high speed point-to-multipoint connectivity
to address this market. In addition, high-data-rate next generation wireless LAN
systems such as IEEE 802.11n (a recently ratified standard for wireless LAN
interoperability at significantly higher data rates) are creating additional
needs for LAN-to-LAN connectivity that could be met with our products, depending
upon the data rate required. The higher data rate capabilities within the LAN
are generating demand for higher speed connections between LANs such as enabled
by our Gigalink(R) products, with its Gigabit Ethernet (1.25 Gigabits per
second) data rate capabilities.

      The Desire for Redundancy and Reduced Vulnerability

      In both government and commercial communications systems, there is now a
strong emphasis on redundancy in networks, including the use of alternative
media in achieving redundancy. In addition, there is greater emphasis on
distributed network infrastructures to prevent single node network failures.
These trends could favorably affect all of the market segments that we are
addressing as our products provide a redundant path of wireless connectivity
rather than the exclusive use of land-line-based connectivity.

      Increasing Acceptance and Demand to Carry Voice over Internet Protocol
(VoIP)

      There has been an increasing demand for Voice over Internet Protocol as a
low cost replacement for existing telephone voice connections. VoIP permits a
voice connection whereever an Internet connection exists. VoIP operates best in
a broadband environment due to its connectivity and latency requirements, and we
believe that wireless systems, such as systems built with our products, provide
an excellent infrastructure for VoIP capabilities. A network providing high
speed wireless data communications with our equipment could add VoIP
capabilities with little or no recurring expense but greatly expand the
network's addressable market through the addition of the voice offering. We are
actively working to enhance our products to optimize their ability to support
VoIP and have recently announced enhancements to our MP.11 product including
increasing bandwidth and adding Quality of Service (QOS) to our
point-to-multipoint products to give VoIP communications priority over other
types of data communications on the system.


                                       5
<PAGE>

Our Solution

      We believe that there exists a growing market to provide license-free
high-speed wireless connectivity. The advantage of utilizing license-free
spectrum is that the operator can deploy the necessary equipment without the
expense and time associated with acquiring a license. This allows for rapid
deployment as well as creating a more competitive landscape without the
artificial barriers associated with a license holder having a monopolistic hold
over a geographical area. There are several significant advantages of utilizing
wireless connectivity as opposed to traditional land-line solutions such as
copper, fiber, digital subscriber line (DSL) or cable modems. Wireless systems
can often be very rapidly and selectively deployed at a much lower cost than
traditional land-line solutions. This permits service providers to rapidly enter
new markets and offer new services. Wireless is also well positioned to improve
and grow over time as applications dictate while many landline solutions are
usually inherently limited in bandwidth by the medium that they operate in.
Finally, as demonstrated by the rapid proliferation of cellular phones
worldwide, users have demonstrated an enjoyment of the mobility and freedom of
wireless systems.

      We try to provide the best price/performance ratio for our class of
products by, where possible, combining industry standardized wireless
communication equipment, such as Wi-Fi 802.11a/b/g or WiMAX equipment, with
enhanced range, functionality, and robustness. The goal is to provide higher
quality products that can be utilized under the demanding conditions required by
large-scale service providers while keeping the price of the equipment at a
range that permits a relatively rapid payback of investment by our customers.
Because our proprietary technology enables our systems to transmit over longer
distances than competing product designs, service providers, businesses and
other enterprises require fewer units to cover a specified area. As a result,
they are able to reduce both their initial and incremental capital expenditures
for network deployment.

      We offer a broad range of systems that enable service providers,
businesses and other enterprises to create complete broadband wireless networks
that connect end-users to the fiber backbone. Our point-to-point systems are
primarily used within the backhaul segments of networks and also provide last
mile access to large businesses. Our point-to-multipoint systems are used
primarily to provide last mile access to small to mid-sized businesses and
residential users. Many of our systems use similar radio frequency technology,
digital signal processing and network management software. We believe this
design commonality offers service providers, businesses and other enterprises
higher end-to-end performance, lower equipment costs and lower training and
maintenance costs.

      Markets which are benefiting from the use of our license-free wireless
equipment include:

            o     Service providers such as WISPs who utilize fixed wireless
                  connectivity to offer broadband connectivity to their
                  customers

            o     Telecommunications carriers that can utilize our products to
                  offer enhanced services or to fill in gaps in their existing
                  networks quickly and cost effectively

            o     Service providers or enterprises that need high speed
                  connectivity between two or more points such as linking the
                  LANs of two buildings

            o     Operators of Hot Spots who utilize our equipment to provide
                  high speed mobile connectivity in high density areas such as
                  airports, convention centers and downtown areas

            o     Government, military or emergency service providers who
                  utilize our equipment in order to provide a rapidly deployable
                  high speed data distribution system in the event that existing
                  communication systems are inadequate or unavailable or as a
                  redundant back up to their primary communication systems

            o     Cities and towns wishing to provide Hot Spots, Hot Zones and
                  Community Access Network deployments

            o     State and local government requiring data interconnectivity
                  for education, medical facilities, and general governmental
                  requirements

      Our broadband wireless access systems have various disadvantages and
limitations. For example, the broadband wireless access industry is technology
intensive and requires us to continually develop new products or


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<PAGE>

product enhancements in order for us to remain competitive. In addition, in
contrast to cellular wireless access solutions, our systems often require
line-of-sight installation, which often requires the end-user to obtain roof
rights from third parties. Since we focus primarily on license-free bands, our
systems may also experience problems due to radio signal interference, which may
occur if multiple wireless systems are operating on the same radio frequencies
and in the same geographic areas as our systems. As an increasing number of
unlicensed products are deployed over time, whether our systems or systems from
our competitors, the possibility of interference between systems that operate in
the same frequency increases. Signal fade due to rain is a significant limiting
factor for the operation of our products that operate in the higher 24 GHz and
60 GHz frequencies. Certain aspects of our product line can be substituted with
off the shelf WLAN products which have been subjected to extreme commoditization
and price erosion over the last few years. Such products are extremely low cost
and can either cause downward pressure on the prices that we can receive in the
market place for our products and, in some cases, even replace our products
entirely.

Strategy

      Our objective is to be a leading global provider of broadband wireless
access and wireless networking systems operating in the license-free
frequencies. Our strategy to accomplish this objective is to:

      Capitalize on our technology expertise to introduce new products rapidly.
Our team of engineers has multi-disciplinary technical capabilities, including
radio frequency technology spanning from microwave to millimeter waves as well
as digital signal processing, software, and networking expertise. With the Old
Proxim operation acquisition, we have greatly enhanced our engineering
capabilities. Each of our major product categories have unique engineering
requirements and require unique expertise. We believe integrating these
capabilities is highly complex, and we intend to continue to take advantage of
our technology expertise to introduce product enhancements and new products in a
rapid and cost effective manner. As systems become more complex and
sophisticated and particularly as systems operate at higher data rates and
frequencies, we believe that it will become increasingly difficult for
organizations without our breadth of skills to be competitive in product
development.

      Leverage our channels of distribution. Old Proxim had established a
significant global distribution system. We have leveraged this indirect model by
moving the majority of high volume products from our previous direct sales model
into the established channels we acquired from Old Proxim. We believe that the
leverage afforded by these indirect channels provides us with the opportunity to
present our company and our products to a much broader audience than we could do
on our own. Although we plan to continue to directly support and sell to major
and strategic accounts, we are becoming more actively involved with partners who
offer much greater exposure into opportunities than we could develop alone. We
are working with these partners to leverage our sales people and technical
knowledge to pursue a greater number of opportunities for our solutions.

      Expand our sales efforts and sales outside of the United States. While our
products are currently sold and approved for use in a number of countries around
the world and we derive a significant percentage of our revenue from
international sales, we intend to increase our international presence and
further expand into new international markets where broadband wire line access
is currently too expensive or unavailable. We believe that markets outside of
the United States offer more growth opportunities due to the low level or even
complete lack of communications infrastructure throughout much of the world. We
intend to continue to expand our presence worldwide by expanding our
international channels and marketing efforts, obtaining regulatory approvals for
deploying our systems in new international markets, increasing our total product
offerings in both existing and new international markets and establishing
strategic alliances and partnerships. We have introduced products specifically
intended for international markets, such as our Tsunami MP.16 3500 product.

      Leverage synergies between Proxim Wireless and Ricochet Networks in
pursuit of Community Access Networks. Historically, our equipment vendor and
service provider businesses have targeted different market opportunities.
However, as Community Access Networks (also known as municipal wireless
networks) have become a key focus of both companies, we believe we will have
greater flexibility in approaching these markets by being able to offer either
an equipment solution or a complete operator solution depending on what the
community sees as the best fit for its needs.

      Expand through acquisitions. We intend to pursue acquisitions of
complementary businesses, technologies, products or services to expand our
presence in the broadband wireless access market. We have engaged in numerous
acquisitions over the years. With the increased size, brand identity and
channels of


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<PAGE>

distribution that came with the Proxim acquisition, we believe that we are well
positioned to make additional acquisitions that can help us to increase our
product breadth and depth to better serve our customers.

      Capitalization of Assets. Through our acquisition strategy, we have
accumulated a broad range of assets and technologies. Some of these assets and
technologies may have greater value to other parties than to us due to the
greater size or strategic direction of the other parties. We will investigate
opportunities that can allow us to create value from under-utilized assets of
the company.

Products

      We classify our products into three product lines: WLAN, Outdoor Broadband
Wireless Access (BWA), and Point-to-Point (PTP). The WLAN product line includes
ORiNOCO(R) 802.11 access point and client card products. The BWA product line
includes proprietary point-to-multipoint Tsunami(TM) and Teramax(TM) products,
WiMAX standard-based and WiMAX Forum Certified(TM) Tsunami MP.16 products, and
outdoor Wi-Fi mesh products. The PTP product line includes our Tsunami(R),
Lynx(R), Terabridge(TM), and Gigalink(R) products. When possible, we design our
products and systems generally to use common features, components, and software.

      WLAN Products

      ORiNOCO Access Points. Our family of ORiNOCO access points extends the
range of wired Ethernet networks for enterprises and municipal area networks by
creating indoor and outdoor wireless networks in small, medium, and large
venues. Corporate and other users can then access their wired Ethernet network
wirelessly through the wireless network enabled by our products. Because our
ORiNOCO access points are available with either single or dual radios in the
product, the ORiNOCO access points provide configuration flexibility and
increased network capacity. Our ORiNOCO access points also provide high-level
security including WPA and WPA2. Web enabled and SNMP network management allow
for simple configuration and remote management of each ORiNOCO network.

      ORiNOCO Client Cards. Our ORiNOCO client cards deliver mobile convenience,
easy installation, and a configuration utility that allows wireless users to
connect quickly and simply. ORiNOCO client cards for notebook and desktop
computers work together with all ORiNOCO access points and other infrastructure
products as well as with third party wireless products supporting the relevant
802.11 IEEE standards. ORiNOCO client cards deliver the security levels
enterprises desire with various levels of encryption including up to 152-bit
WEP, WPA and WPA2 security. Client cards can be connected to computers
internally or externally via a number of adapters including USB, ISA, PCI, and
Ethernet and Serial external adapters.

      Broadband Wireless Access Products

      Our BWA point-to-multipoint systems enable service providers, businesses,
and other enterprises to cost-effectively connect end-users to a central hub or
connect multiple facilities within their private networks. Our
point-to-multipoint systems are deployed in a hub and spoke configuration
consisting of a single central hub and equipment located at remote end users'
locations. The central hub wirelessly connects to the remote customer premises
equipment, prioritizing transmissions and allocating slots of time to each
end-user. Central hubs are capable of supporting hundreds of pieces of equipment
at remote locations. The hub unit in a service provider deployment is generally
connected to the central office of a carrier or other service provider by a
wired or wireless backhaul connection (such as our point-to-point products).

      We have both proprietary point-to-multipoint products and WiMAX
standards-based point-to-multipoint products. The primary difference is that we
developed the proprietary products based on our own standards while we developed
our WiMAX point-to-multipoint products to comply with the IEEE WiMAX standards.
Thus, our WiMAX products are designed to interoperate with other IEEE WiMAX
products. Our proprietary PMP products include our Tsunami MP.11 and Teramax
products, and our WiMAX PMP products include our MP.16 3500.

      Proprietary Point-to-Multipoint Products. Two key differentiating features
of our proprietary Tsunami PMP system, which we believe will continue to fuel
sales of these products even as our WiMAX standard-based Tsunami PMP products
(see below) gain traction in the marketplace, are: mobility, which means that a
user can roam seamlessly between multiple base stations while being transported
at speeds up to 120 miles per hour; and a dynamic frequency selection capability
which detects and avoids interference with 67 different radar types, which we
believe to be the highest number of any vendor in the industry.


                                       8
<PAGE>

      WiMAX. We have continued to be a pioneer in wireless networking equipment
by releasing one of the world's first WiMAX Forum Certified(TM) products, a
point-to-multipoint base station based on the IEEE 802.16d-2004 standard. In
essence, WiMAX is a version of point-to-multipoint technology that is based on
publicly available standards rather than the non-public standards that we and
other vendors have developed on a proprietary basis. In fact, we leveraged much
of the expertise, field experience, and manufacturing capabilities of our
existing products to launch our WiMAX product. Our WiMAX solutions are designed
for scalable system deployments, beginning with entry-level single-sector base
stations and growing into multi-sector configurations. This scalability lowers
the barrier to deploy WiMAX systems and enables a wider variety of service
providers to use this technology. We believe our WiMAX solution is currently the
only time division duplexing (TDD) system in the world using Intel chips for
both the base station and subscriber unit, providing optimal data rate
connectivity and interoperability with Intel-based subscriber units. Our WiMAX
base station has received the WiMAX Forum certification of interoperability with
equipment based on chipsets from three different vendors, providing greater
levels of interoperability for service providers.

      In addition to our point-to-multipoint products, we are developing
broadband wireless mesh products, also known as multipoint-to-multipoint (MPMP).
In a mesh network, data traffic has multiple potential paths from the end user
to one or more base stations that are connected to a wired or wireless backhaul
connection. This allows the network to dynamically route around failures in the
network and provide a much higher level of reliability than may be possible in a
typical point-to-point or point-to-multipoint network. As network providers try
to achieve higher levels of reliability while utilizing license-free frequency
bands, wireless mesh solutions are being utilized at an increasing rate.
Depending on the success of these products, we may eventually treat them as a
separate product category unto themselves.

      We will be introducing an outdoor mesh product to enable municipal and
service provider network managers to simplify Wi-Fi deployment for their
citywide broadband networks using mesh technology. The proprietary ORiNOCO Mesh
Creation Protocol (OMCP) allows creation of self-forming and self-healing
non-line of sight (NLOS) mesh networks. These products will include a dual-radio
configuration, which increases system capacity by allowing one radio to focus on
Wi-Fi access and the other radio to perform mesh backhaul duties. The products
will also provide Quality of Service (QoS) enabling voice and video capability
and enterprise-class security features. We will also be introducing an outdoor
mesh product for the 4.9 GHz market to offer municipalities, agencies, and
wireless ISPs simultaneous 4.9 GHz public safety connectivity and 802.11b/g
Wi-Fi edge access with dual radio access points and mesh networking.

      Point-to-Point Products

      Our point-to-point systems enable a dedicated communication link between
two locations. Each link consists of radio equipment connected to the end user's
network at each of the two locations. Each radio is then connected to an
external or integrated antenna, which is usually mounted on a rooftop or tower.
The two antennae are then aimed at one another to create the dedicated wireless
connection between the two locations. By using multiple systems, end users can
connect multiple locations to form a more extensive network.

      Lynx products. Our PTP Lynx products are primarily used by wireless
cellular operators to connect their base stations to other base stations and to
existing wire-line networks. This is commonly known as providing backhaul for
the wireless cellular networks. In addition, these products are also used to
establish campus and private networks and to provide fiber extension and last
mile access. Our Lynx products are offered in different frequency bands with a
variety of data transmission speeds. Our Lynx products can transmit and receive
their maximum data capacity in both directions simultaneously, a feature
commonly known as full duplex. Lynx products can be linked together within a
network and managed with simple network management protocol, or SNMP, software.
SNMP is an industry standard set of rules that governs network management and
monitors network devices and their functions. Our Lynx products also include a
separate control and diagnostic channel, which enables remote monitoring of the
system's status and performance without reducing its carrying capacity.

      Tsunami products. Our PTP Tsunami products primarily enable service
providers, businesses, and other enterprises to expand or establish private
networks by bridging Internet traffic among multiple facilities. In addition,
these products are also used to provide last mile access. Tsunami products also
are currently offered in a variety of license-exempt frequencies with a variety
of data transmission speeds. Like our Lynx products, our point-to-point Tsunami
products offer features including full duplex transmission, fully integrated
design and a separate control and diagnostic channel. In addition, our higher
capacity point-to-point Tsunami systems include one or more additional T1 or E1


                                       9
<PAGE>

connections without reducing the carrying capacity of the system. The additional
T1 or E1 connection is a standard telecommunications interface that is not based
on Internet Protocol and is typically used for voice and/or video.

      GigaLink products. Our GigaLink products primarily enable service
providers, businesses, and other enterprises to wirelessly satisfy very high
bandwidth data transmission needs over relatively short distances. Given the
high data transmission capabilities of these products (up to 1.25 Gigabits per
second), we think of these products as fiber optic extension products. The
connectivity needs may include last mile access or bridging networking or
Internet traffic among multiple facilities in a campus. The Gigalink product is
a compact, easily deployed product operating in the 60 GHz millimeter-wave band
between 57 GHz and 64 GHz. It enables fiberless transmission of data, voice and
video communication at variable fiber optic data rates from OC-3 (155 Mbps) to
OC-12 (622 Mbps) and Ethernet traffic at speeds up to 1.25 Gbps full duplex. It
is engineered to provide link distances of up to 1,000 meters with 99.99%
availability, depending upon prevailing rainfall rates in the geographic regions
where it will be used. We are developing GigaLink products to operate in the
unlicensed 70 GHz - 80 GHz spectrum, which we believe will enable longer
distance links.

      Services Business

      Our acquisition of Ricochet expanded our business into mobile Non-Line of
Sight (NLOS) wireless communication services. We currently operate the
Ricochet(R) network in the greater Denver, Colorado and San Diego, California
areas. We currently have over 7,500 paying subscribers. We are currently
considering numerous other markets in which we may begin to offer Ricochet(R)
service, either as a typical WISP product or perhaps as some other variation of
service or collaboration.

Technology

      We have developed or acquired a number of core technologies that form the
basis of our current product offerings and which we expect to use in our future
product development. Our primary areas of technology expertise are RF
technology, digital signal processing, and system software development.

      While there are unique methods employed for developing our WLAN, BWA, and
PTP product lines, there is an increasing amount of overlap, particularly within
the system software area. We anticipate that, over time and especially with the
maturing of technologies such as WiMAX (802.16), the degree of commonality will
be higher.

      Radio frequency technology. Microwave and millimeter wave technology is
the technology used to wirelessly transmit data, voice and video. Microwave
technology uses radio frequencies ranging from 1 GHz up to 20 GHz. Millimeter
wave uses radio frequencies in excess of 20 GHz. We have the ability to
internally develop microwave and millimeter wave circuit board designs as well
as qualify, direct, and utilize external partners. We believe having both
internal and external design capabilities provides us with higher performance,
lower production costs, shorter development cycles, and the ability to customize
our products so that they can more easily be integrated with our existing
products and with the networks of our various customers and end users.

      Digital signal processing technology. Our products use either proprietary
or third-party, standards-based digital signal processing (DSP) technologies and
designs that we either develop specifically for use in wireless systems or adapt
to those same wireless systems. Specifically, all of our ORiNOCO WLAN products
utilize third-party chipsets that embody the requirements set forth by the
802.11a/b/g standards to ensure that we can achieve Wi-Fi standard
certification. Similarly, our Tsunami WiMAX BWA products use third-party
chipsets that embody the requirements set forth by the 802.16d-2004 standards to
ensure that we can achieve WiMAX standard certification. Currently, all of our
Tsunami and Lynx PTP products are implemented using our internally developed,
proprietary FPGA or ASIC implementation. We believe this combination of
technologies and capabilities has enabled us to introduce a number of high-speed
wireless products that we may not have been able to produce otherwise. We
believe we can develop flexible, innovative products more quickly than those
competitors who do not have similar capabilities.

      System software. Our products are networking products and follow closely
the principles set forth in the Open Systems Interconnection or OSI 7 Layer
Model which is a guideline for the logical partition of functionality within and
between distributed computing machines. Careful consideration is given to when
to implement software to run on a host processor and when to implement it in
firmware running in the DSP/ASIC/FPGA described above. There are industry
practices, trade secrets, and specific industrial knowledge that influence our
thinking and guide us to create the software architectures that meet the
specific system requirements. We strive to leverage common


                                       10
<PAGE>

software elements such as the VxWorks operating system and other third party
components. We have developed certain unique software capabilities that we
believe deliver specific market advantage such as our Wireless Outdoor Routing
Protocol (WORP). Nearly all of our systems use SNMP-based software that enables
remote monitoring and control and facilitate the integration and compatibility
of our products with larger communications networks.

Research and Development

      Our research and development efforts are focused on improving the
functionality and performance of our existing products as well as developing new
products to meet the changing needs of our diverse base of customers and end
users. We are currently pursuing the following research and development
initiatives:

      o     advancing our broadband mesh systems;

      o     advancing our WiMAX products;

      o     advancing our other point-to-multipoint systems;

      o     adapting our products to additional frequencies and interfaces;

      o     developing higher speed products;

      o     increasing the performance of our digital signal processing
            technology; and

      o     designing our products for lower cost, outsourced manufacturing,
            assembly, and testing.

      We devote a substantial portion of our resources to developing new
products, enhancing existing products, expanding and improving our core wireless
technologies, and strengthening our technological expertise. We have
historically made and expect to continue to make significant investments in
research and development. We invested approximately $8.0 million, $3.5 million
($2.9 million of expenses and $0.6 million of capitalized software), and $1.7
million in research and development activities in 2005, 2004, and 2003,
respectively.

Sales and Marketing

      We sell our products worldwide to service providers, businesses, and
enterprise customers, primarily indirectly through distributors, value-added
resellers, product integrators, and to lesser extent, directly to end-users
through our sales force. We also sell through original equipment manufacturer
(OEM) customers. We sell our OEM customers both design-in products for
integration into their wireless computing platforms and branded products as
private label models. We also seek to stimulate market demand by increasing
brand awareness and educating potential customers about the advantages of using
our products.

      Although our sales are generally made through distributors or value-added
resellers and original equipment manufacturers, our sales force often develops
direct relationships with end users either independently, in which case the
sales representative then brings in the distributor or value-added reseller to
complete the sale, or together with the distributors or value-added resellers.
We have established relationships with large national and international
distributors, local and specialized distributors, and value-added resellers. The
distributors sell our products, and the value-added resellers not only sell our
products, but also assist their customers in network design, installation, and
testing. In some cases, both distributors and value-added resellers also assist
their customers with financing, maintenance, and the purchase of ancillary
equipment necessary for the installation and operation of a wireless network.

      Any significant decline in direct sales to end-users or in sales to our
distributors or value-added resellers, or the loss of any of our major
distributors, value-added resellers or OEM customers, could materially adversely
affect our revenue.

      Our backlog at December 31, 2005, was approximately $10.5 million,
compared with backlog of approximately $1.5 million at December 31, 2004.
Backlog includes orders confirmed with a purchase order. Because of the
generally short cycle between order and shipment and occasional customer changes
in delivery schedules or cancellations of orders, we do not believe that our
backlog as of any particular date is necessarily indicative of the potential
actual net sales for any future period. Accordingly, a significant component of
our revenue expectations will be based almost entirely on internal estimates of
future demand and not on firm customer orders and as a result may have higher
risk of not occurring when forecasted. Planned operating expense levels are
relatively fixed in the short term and are based in large part on these
estimates.

      During the years ended December 31, 2005, 2004, and 2003, no customers
accounted for more than 10% of sales.


                                       11
<PAGE>

      During the years ended December 31, 2005, 2004, and 2003, international
sales accounted for approximately 35%, 18% and 16%, respectively, of our total
sales. We expect that our revenue from shipments to international customers to
vary but remain significant as a percentage of total revenue.

      Currently, substantially all of our sales are denominated in U.S. dollars.
Accordingly, we are not directly exposed to material currency exchange risks
other than the risk that exchange rate fluctuations may make our products more
expensive for customers outside the United States and, as a result, could
decrease international sales. In addition, we face risks inherent in conducting
global business. These risks, which are more fully described herein, include
extended collection time for receivables, reduced ability to enforce
obligations, potential supply constraints resulting in product delivery delays,
and reduced protection for our intellectual property.

      Services Business

      Our service business is currently operated only in the United States in
the greater Denver, Colorado and San Diego, California areas. We are actively
considering the expansion of the Ricochet(R) network, particularly in those
cities where Ricochet infrastructure has previously been deployed. In addition
to our current model of providing high speed mobile wireless Internet services
to primarily individuals, we are considering offering those services to various
municipal departments and personnel for mobile communications, especially
homeland security, fire, safety, health and welfare requirements. Finally, we
are exploring opportunities to offer the Ricochet services on a wholesale level
to parties interested in reselling our services on a private label or co-labeled
basis.

Customer Service

      We are committed to providing our customers with high levels of service
and support. We provide training, technical assistance and customer support on
the installation, management, use, and testing of our products. We also provide
warranties for our products we believe are consistent with industry practices in
our equipment markets, and we offer both in-warranty and out-of-warranty repair
services. Our repair center is staffed with technicians who work directly with
our quality assurance team to identify potential problems and repair equipment.
In addition, we offer premium hardware and software support under our ServPak
program.

Manufacturing

      Our manufacturing strategy is to supply high quality products in a timely
fashion to our customers, while making efforts to maximize our gross margins. We
perform those manufacturing tasks internally that we believe cannot be
effectively outsourced, but we outsource activities which can be performed more
effectively by specialized manufacturing partners. Our ISO 9001-2000 certified
manufacturing operation, based in our San Jose, California facility, consists
primarily of pilot production, final product assembly and testing for our most
complex products, primarily certain of our PTP products. We manufacture and test
our millimeter wave products at our Haverhill, MA facility. Also, we manufacture
our TeraMax and certain amplifiers and ancillary products at our Falls Church,
VA facility . For our higher-volume products, which represent the majority of
our products and product revenue, we outsource manufacturing and procurement of
component parts to domestic and international contract manufacturers with the
expertise and ability to achieve the cost reductions and quick response times to
orders that we require, while maintaining our quality standards. This allows us
to focus our internal resources on developing new products.

      We depend on single or limited source suppliers for several of the key
components used in our products. Any disruptions in the supply of these
components or assemblies could delay or decrease our revenues. In addition, even
for components with multiple sources, we have experienced, and may continue to
experience, shortages due to capacity constraints caused by high industry
demand. We do not have any long-term arrangements with our suppliers. If, for
any reason, a supplier fails to meet our quantity or quality requirements, or
stops selling components to us or to our contract manufacturers at commercially
reasonable prices, we could experience significant production delays and cost
increases, as well as higher warranty expenses and product reputation problems.
Because the key components and assemblies of our products are complex, difficult
to manufacture, and require long lead times, we may have difficulty finding
alternative suppliers to produce our components and assemblies on a timely
basis. We have experienced shortages of some key components in the past, which
delayed related revenue, and we may experience similar shortages in the future.
In addition, because the majority of our products have a short sales cycle of
between 30 and 90 days, we may have difficulty in making accurate and reliable
forecasts of product needs. As a result, we have in the past and could in the
future experience shortages in supply,


                                       12
<PAGE>

which have and in the future could delay or decrease revenue because they drive
customer cancellations and can induce customers to choose our competitors for
their future needs.

      We have, by design, limited internal manufacturing capability. There can
be no assurance that we will be able to develop or contract for additional
manufacturing capacity on acceptable terms on a timely basis if needed. In
addition, in order to compete successfully, we will need to continue to achieve
continual product cost reductions. Although we intend to achieve cost reductions
through engineering improvements, production economies, and manufacturing at
lower cost locations including outside the United States, there can be no
assurance that we will be able to do so. In addition, our ability to achieve
such cost reductions is dependent also on volumes. In order to remain
competitive, we must continue to introduce new products and processes into our
manufacturing environment, and there can be no assurance that any such new
products will not create obsolete inventories related to the older products
being replaced. Our prospects must be considered in light of the risks, expenses
and difficulties frequently encountered by companies in developing industries,
particularly companies in relatively new and rapidly evolving markets. These
risks include:

      o     an unpredictable customer demand environment;

      o     limited backlog;

      o     uncertain acceptance of new products and services;

      o     competition; and

      o     challenges in managing growth.

      We cannot assure you that we will succeed in addressing these risks. If we
fail to do so, our revenue and operating results could be materially harmed.

Competition

      The markets for all three of our product categories are extremely
competitive, and we expect that competition will intensify in the future.
Increased competition could adversely affect our business and operating results
through pricing pressures, the loss of market share, and other factors. The
principal competitive factors affecting wireless local area networking and fixed
wireless markets include the following: data throughput; effective radio
frequency coverage area; interference immunity; network security; network
scalability; price; integration with voice technology; wireless networking
protocol sophistication; ability to support industry standards; roaming
capability; power consumption; product miniaturization; product reliability;
ease of use; product costs; product features and applications; product time to
market; product certifications; changes to government regulations with respect
to each country served and related to the use of radio spectrum; brand
recognition; OEM partnerships; marketing alliances; manufacturing capabilities
and experience; effective distribution channels; and company reputation.

      We have extensive competition in our WLAN business, including without
limitation, Cisco (including LinkSys), D-Link, Netgear, SMC, Buffalo, Intel
Corporation, Symbol Technologies, Aruba and 3Com Corporation. Additionally,
numerous Asia-based companies offer significant portfolios of low-price IEEE
802.11a/b/g products. We could also face future competition from companies that
offer products which replace network adapters or offer alternative
communications solutions, or from large computer companies, PC peripheral
companies, as well as other large networking equipment companies. Furthermore,
we could face competition from certain of our OEM customers, which have, or
could acquire, wireless engineering and product development capabilities, or
might elect to offer competing technologies. We can offer no assurance that we
will be able to compete successfully against these competitors or those
competitive pressures we face will not adversely affect our business or
operating results.

      Our primary competition in our BWA markets include Airspan, Alvarion,
Aperto, Cisco, Motorola (Canopy), Redline, Trango Broadband and Tropos. Although
we believe that our BWA products are well positioned and that our experience in
this area is a competitive advantage in WiMAX development, at this time it is
difficult to ascertain what the actual impact of this technology to this
business segment will be at this time. In the Wi-Fi Mesh market, current
competition comes primarily from nascent companies such as Belair, Firetide,
Skypilot and Tropos. Additionally, Cisco and Motorola have aggressively entered
the market. Although the entrance of major competitors like Cisco and Motorola
represent a serious force to reckon with, we also believe that their entrance
indicates an important validation of the industry. Our intent to compete in the
Wi-Fi Mesh market is to offer the most compelling solution in the market with
attractive price points and a complete solution including our indoor WLAN, WiMAX
or other PMP for distribution, and PTP backhaul solutions. We believe that we
can offer the most complete Wi-Fi Mesh wireless network solution in the market.


                                       13
<PAGE>

      With our PTP products, we face competition from Alcatel, Bridgewave,
Ceragon Networks, Stratex Networks, Erricson, NEC, Redline, Orthogon and Nokia,
many of which have broader distribution channels, brand recognition, extensive
patent portfolios and more diversified product lines.

      In addition, broadband wireless access solutions compete with other
high-speed solutions such as cable modem technologies, satellite technologies,
digital subscriber lines and fiber optic cables. Many of these alternative
technologies can take advantage of existing installed infrastructure and have
achieved significantly greater market acceptance and penetration than broadband
wireless access technologies. Other factors that influence the choice between
wireless and wire line products include reliability and security, speed and
volume capacity, cost effectiveness, availability of sufficient frequencies and
geographic suitability. We expect to face increasing competitive pressures from
both current and future technologies in the broadband access market.

      Many of our present and potential competitors have substantially greater
financial, marketing, technical and other resources with which to pursue
engineering, manufacturing, marketing, and distribution of their products. These
competitors may succeed in establishing technology standards or strategic
alliances in the markets in which we operate, obtain more rapid market
acceptance for their products, or otherwise gain a competitive advantage. We can
offer no assurance that we will succeed in developing products or technologies
that are more effective than those developed by our competitors. Furthermore, we
compete with companies that have high volume manufacturing and extensive
marketing and distribution capabilities, areas in which we may not have as much
experience. We can offer no assurance that we will be able to compete
successfully against existing and new competitors as wireless markets evolve and
the level of competition increases.

Intellectual Property

      Our success depends on the preservation and protection of our product and
manufacturing process designs and other proprietary technology. We use a variety
of intellectual property in the development and manufacturing of our products,
but do not believe that any of our intellectual property is individually
critical to our current operations. Taken as a whole, however, we believe our
intellectual property rights are significant. In addition to our registered
intellectual property, we also use proprietary technology in our business. This
technology includes internally developed proprietary error correction
algorithms, fault tolerant systems, and comprehensive network management
software and specialized knowledge and technical expertise that have been
developed over time by our employees.

      We rely on a combination of patents, trademarks, non-disclosure
agreements, invention assignment agreements and other security measures in order
to establish and protect our proprietary rights. In order to maintain the
confidential nature of this technology, we have chosen to protect it by
generally limiting access to it, treating portions of it as trade secrets and
obtaining confidentiality or non-disclosure agreements from persons who are
given access to it. All of our employees have signed a confidentiality
agreement, which prohibits them from disclosing our confidential information,
technology developments and business practices, as well as any confidential
information entrusted to us by other parties.

      In February 2006, we entered into a patent license agreement with Symbol
Technologies Inc. as part of settling litigation between the companies. In that
agreement, the companies agreed to cross license specified patents, and we have
agreed to pay to Symbol fixed license fees totaling $4.3 million. $600,000 was
paid on or before March 3, 2006; $250,000 is scheduled to be paid quarterly for
the second, third, and fourth quarters of 2006 and each of the four quarters of
2007; $300,000 is scheduled to be paid quarterly for each of the four quarters
of 2008; and $375,000 is scheduled to be paid quarterly for the first two
quarters of 2009. The amounts may be prepaid at any time without penalty. The
parties also released each other from any patent infringement claims arising
prior to February 24, 2006 to the extent such infringement would have been
licensed under the patent license agreement. Also pursuant to the terms of the
patent license agreement, Terabeam and Symbol have agreed not to sue one another
for patent infringement with respect to one another's products for three years.

      In connection with our acquisition of substantially all the assets of Old
Proxim, we were assigned three agreements previously between Old Proxim and
Agere Systems Inc. These agreements were originally entered into between Old
Proxim and Agere on August 5, 2002 in connection with Old Proxim's acquisition
of assets primarily relating to the 802.11 WLAN equipment business of Agere,
including its ORiNOCO product line. The three agreements are:


                                       14
<PAGE>

            o     A three-year supply agreement pursuant to which Agere
                  originally agreed to supply Old Proxim with chipsets, modules
                  and cards at specified prices;

            o     a perpetual license originally enabling Old Proxim to use
                  Agere technology related to the wireless LAN equipment
                  business; and

            o     a 7-1/2 year patent cross-license agreement for Old Proxim's
                  and Agere's respective patent portfolios.

      We also have two intellectual property license agreements with interWAVE
Communications which grant us a non-exclusive royalty-free perpetual license to
use some of its intellectual property, including patents, patent applications,
copyrights, software, technology and proprietary information related to our RAN
and Link EX, Link 4X, and Link CX products.

      We increased our patent portfolio substantially through the acquisitions
of KarlNet, Terabeam, Ricochet, and the operations of Old Proxim. While we do
not believe that any of these patents individually is critical to our current
equipment business, we believe our patent portfolio is valuable. We continue
work to procure additional patents that are beneficial to our business and are
looking at ways to optimize the value of the patents that we have recently
acquired. We currently do not receive any material amounts from licensing any of
our patents.

Government Regulation

      Our products are subject to extensive telecommunications-based regulation
by the United States and foreign laws and international treaties. We must
conform our products to a variety of regulatory requirements and protocols
established to, among other things, avoid interference among users of radio
frequencies and to permit interconnection of equipment. Each country has
different regulations and a different regulatory process. In order for our
products to be used in some jurisdictions, regulatory approval and, in some
cases, specific country compliance testing and re-testing may be required. The
delays inherent in this regulatory approval process may force us to reschedule,
postpone or cancel the installation of our products by our customers, which may
result in significant reductions in our sales.

      In the United States, we are subject to various Federal Communications
Commission, or FCC, rules and regulations. Current FCC regulations permit
license-exempt operation in certain FCC-certified bands in the radio spectrum.
Our wireless products are certified for licensed operation in the 2.5 GHz and
4.9 GHz frequencies and license-exempt operation in the 2.4- 2.4835 GHz,
5.15-5.35 GHz, 5.725-5.825 GHz, and the 57.05-64 GHz frequency bands, and we
expect they will soon be certified for operation in the recently-allocated
5.470-5.725 GHz frequency band. Operation in these frequency bands is governed
by rules set forth in Part 15 of the FCC regulations. The Part 15 rules are
designed to minimize the probability of interference to other users of the
spectrum and, thus, accord Part 15 systems license-exempt status in the
frequency band. In the event that there is harmful interference caused by a Part
15 user, the FCC can require the Part 15 user to curtail transmissions that
create interference. In this regard, if users of our products experience
excessive interference from primary users, market acceptance of our products
could be adversely affected, which could materially and adversely affect our
business and operating results. The FCC, however, has established certain
standards that create an irrefutable presumption of noninterference for Part 15
users and we believe that our products comply with such requirements. There can
be no assurance that the occurrence of regulatory changes, including changes in
the allocation of available license-exempt frequency spectrum, changes in the
use of allocated frequency spectrum, or modification to the standards
establishing an irrefutable presumption of non-interference for unlicensed Part
15 users, would not significantly affect our operations by rendering current
products obsolete, restricting the applications and markets served by our
products or increasing the opportunity for additional competition.

      Our products are also subject to regulatory requirements in international
markets and, therefore, we must monitor the development of radio frequency
regulations in certain countries that represent potential markets for our
products. While there can be no assurance that we will be able to comply with
regulations in any particular country, we believe that we have designed our
products to minimize the necessary design modifications required to meet various
2.4 GHz and 5 GHz international spread spectrum regulations, as well as in other
frequency bands we may design our products to use. In addition, we will seek to
obtain international certifications for our product line in countries where
there are substantial markets for wireless networking systems. Changes in, or
the failure by us to comply with, applicable domestic and international
regulations could materially adversely affect our business and


                                       15
<PAGE>

operating results. In addition, with respect to those countries that do not
follow FCC regulations, we may need to modify our products to meet local rules
and regulations.

      Regulatory changes by the FCC or by regulatory agencies outside the United
States, including changes in the availability of spectrum, could significantly
affect our operations by restricting our development efforts, rendering current
products obsolete or increasing the opportunity for additional competition.
Several changes by the FCC were approved within the last eight years including
changes in the availability of spectrum, as well as the granting of an interim
waiver. These approved changes could create opportunities for other wireless
networking products and services. There can be no assurance that new regulations
will not be promulgated, that could materially and adversely affect our business
and operating results. It is possible that the United States and other
jurisdictions will adopt new laws and regulations affecting the pricing,
characteristics and quality of broadband wireless systems and products.
Increased government regulations could:

      o     decrease the growth of the broadband wireless industry;

      o     hinder our ability to conduct business internationally;

      o     reduce our revenues;

      o     affect the costs and pricing of our products;

      o     increase our operating expenses; and

      o     expose us to significant liabilities.

      Any of these events or circumstances could seriously harm our business and
results of operations.

      We are also subject to U.S. government export controls. We rely on our
customers to inform us when they plan to deliver our products to other
countries, and we regularly inform our customers of the export controls with
which they must comply. However, a violation of U.S. export controls could
seriously harm our business.

Seasonality

      Historically our product revenues have been higher during the last two
quarters of the fiscal year. In addition, our product revenues have historically
been significantly higher in the last month of each quarter. This shift may
primarily be attributed to the budgetary cycles and constraints of the customers
in our industry and weather conditions that make an outdoor installation more
difficult during the winter.

Employees

      As of December 31, 2005, we had 258 employees, including 50 in
manufacturing, 87 in research and development, 72 in sales, marketing and
customer service, and 28 in finance and administration. We are not a party to
any collective bargaining agreement in the United States. We believe that
relations with our employees are good.

Item 1A. Risk Factors.

      General Overview

      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," "could," "expects," "intends," "plans," "anticipates," "contemplates,"
"believes," "estimates," "predicts," "projects," 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-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 or any other subsequent
events, and we disclaim any such obligation.


                                       16
<PAGE>

      You should read forward-looking statements carefully because they may
discuss our future expectations, contain projections of our future results of
operations or of our financial position, or state other forward-looking
information. However, there may be events in the future that we are not able to
accurately predict or control. Forward-looking statements are only predictions
that relate to future events or our future performance and are subject to
substantial 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 summary, you should
not place undue reliance on any forward-looking statements.

      Cautionary Statements

      In addition to other factors and matters discussed elsewhere in this Form
10-K, in our other periodic reports and 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 expressed, anticipated, or implied in the forward-looking
statements include, without limitation, the following:

      o     The continuing uncertainty in the telecommunications industry and
            the global economy is adversely affecting our sales due in part to
            our being a smaller, younger company. In the past few years, the
            overall economic climate in the United States and many other parts
            of the world has declined. Telecommunication equipment markets
            specifically have experienced a severe downturn. This downturn has
            resulted in our customers having less capital available from capital
            markets, and less willingness to spend internal capital, to purchase
            equipments such as ours. As a result, potential customers may be
            less willing to spend their limited budgets on products from us, a
            relatively small, young company that may not survive the economic
            downturn. Because we do not have the financial resources or name
            recognition of larger companies, this downturn may adversely affect
            the growth and stability of our business and our financial condition
            and results of operations.

      o     The broadband wireless equipment industry in which we principally
            operate is intensely competitive which could negatively impact our
            financial results. The telecommunications equipment industry in
            which we operate is intensely competitive. Most of our products are
            in a portion of the telecommunications equipment industry generally
            referred to as wireless local area networks (WLAN), wireless wide
            area networks (WWAN) which we also refer to as point-to-multipoint
            (PMP), and point-to-point (PTP). Competition is intense in this
            industry for a number of reasons. For example, there are relatively
            few barriers to entry in this market. Also, this industry has
            attracted substantial media and other attention in recent months in
            part due to the ability of this equipment to provide broadband
            Internet connectivity simply, quickly, and efficiently. These same
            reasons, among others, have caused a number of companies to develop
            products that compete (or could be viewed as competing) with ours.
            This large number of companies offering products that may be
            perceived to be similar or even interchangeable with our products
            can have the effect of reducing the prices at which we are able to
            sell our products. In turn, this can reduce our gross margins and
            negatively impact our general financial results.

      o     We face substantial competition from a number of larger companies
            with substantially greater resources and longer operating histories,
            and we may not be able to compete effectively. Many of our
            competitors or perceived competitors offer a variety of competitive
            products and services and some may offer broader telecommunications
            product lines. These companies include AirSpan Networks, Alcatel,
            Alvarion, Business Networks AB, Ceragon, Cisco (including LinkSys),
            D-Link, Ericson, Fujitsu, Harris Corporation, Intel Corporation,
            Motorola, NEC, Netgear, Nokia, Nortel, SMC, Stratex Networks, Symbol
            Technologies, and 3Com Corporation. Additionally, our millimeter
            wave radio products must compete with the existing and new fiber
            optic infrastructure and suppliers in the United States and
            elsewhere. Many of these companies have greater customer
            recognition, installed bases, financial resources, and sales,
            production, marketing, manufacturing, engineering, and other
            capabilities than we do.

      o     We also face competition from private and start-up companies given
            the limited barriers to entry in our business. We face actual and
            potential competition not only from established companies, but also


                                       17
<PAGE>

            from start-up and other private companies that are developing and
            marketing new commercial products and services. Many of the products
            we sell are based on standards established by the Institute of
            Electrical and Electronics Engineers (IEEE) that require
            interoperability. Also, there are not substantial technical
            development difficulties, manufacturing difficulties, prohibitive
            intellectual property rights, or high business start-up costs that
            may create greater barriers to entry in other businesses. As a
            result, there are limited barriers to entry into a number of markets
            we serve. This lack of significant barriers and the perceived
            attractiveness of some of these markets, among other reasons, have
            resulted in private companies entering these markets. These private
            companies include Aperto, Aruba, Belaire Networks, Buffalo, Colubris
            Networks, Firetide, Orthagon, Redline, Trango Broadband, and Tropos.

      o     We may experience difficulty in differentiating our products from
            other broadband wireless products which may reduce our sales and
            gross margins. We believe that some products in the broadband
            wireless equipment business in which we primarily operate have
            become commodities in which there is intense price competition, and
            we believe that trend will continue and intensify. We need to
            carefully and clearly distinguish our products from competing
            products and technologies that may be able to provide wireless
            broadband access or connectivity. Points of distinction include
            operating range of our products, scalability of networks using our
            products, remote management and monitoring capabilities, durability
            and robustness of our products, data rate transmission capabilities
            of our products, ease and speed of installation of our products,
            markets served by our products, cost of our products, other features
            of our products, security and interference issues, and value
            proposition of our products for our customers. Failure to
            distinguish our products for our customers, investors, and others
            could hinder market acceptance of our products, delay our obtaining
            customers for our products, force reductions in contemplated sales
            prices of our products, and reduce our overall sales and gross
            margins. This ability to distinguish is becoming more important as
            we try to introduce more feature-rich products at higher prices.

      o     Potential customers may view price as the primary differentiator
            between our products and products of our competitors, which could
            reduce the price at which we can sell our products and negatively
            impact our financial results. Because many products in our broadband
            wireless equipment business have to comply with specific public
            standards, at times potential customers may perceive there to be
            little other than price to differentiate our products from products
            of a competitor. This intense customer focus on pricing can have the
            effect of reducing the prices at which we are able to sell our
            products. In turn, this can reduce our gross margins and negatively
            impact our general financial results.

      o     Alternative broadband connectivity technologies may have advantages
            over our products and make our products less attractive to
            customers. A number of competing technologies may be able to provide
            high-speed, broadband access or connectivity. These competing
            technologies include digital subscriber lines, hybrid fiber coaxial
            cable, fiber optic cable, T-1/E-1 and other high-speed wire, laser
            (also known as free space optics), satellite, and other mesh
            wireless, point-to-multipoint wireless, and point-to-point wireless
            technologies. Some of these technologies may have advantages over
            our products, such as lower cost, greater range, better security,
            and greater current market acceptance.

      o     New broadband connectivity technologies may be developed that
            have advantages over our products and make our products less
            attractive to customers. New products or new technologies may be
            developed that supplant or provide lower-cost or better performing
            alternatives to our products. For example, many of the products we
            sell are based on the IEEE 802.11a/b/g standards. We believe
            products are being developed based on various new IEEE 802.11
            standards, such as 802.11n (MIMO), 802.11r (fast roaming), and
            802.11s (wireless mesh), and IEEE 802.16 (also known as WiMax)
            standards which may have advantages over products based on the IEEE
            802.11a/b/g standards, such as greater data transmission
            capabilities, greater quality of service, non-line of sight
            capabilities, and longer range.

      o     The actual or potential availability of new broadband connectivity
            technologies could cause our customers to delay buying decisions. We
            operate in a business where there is rapid technological change, and
            new standards, products, and technologies are continually introduced
            to the market in actual or conceptual form. These new products or
            technologies may have or appear or be described to have advantages
            over our products or other products then currently available. Even
            though actual products may not be available until some (perhaps
            indefinite) time after initial introduction of the conceptual
            standard, product, or technology, the possibility of obtaining these
            new products could cause potential customers to


                                       18
<PAGE>

            delay their decision to buy products such as ours. This delay could
            adversely impact our business, financial condition, and results of
            operations.

      o     We are selling into a market that has a broad range of desired
            product characteristics and features which may make it difficult for
            us to develop products that will address a broad enough market to be
            commercially viable. We are selling into a market place that is
            experiencing a convergence of competing technologies. The market
            that we currently serve is experiencing a convergence of voice
            driven telecommunications methodology and data centric networking
            based methodology. As a result there exists a divergence of product
            requirements and corporate cultures for our customers and even
            within the same customer. Typically, established telecommunications
            providers desire extremely robust products with the expectation of a
            relatively long effective life. Networking providers on the other
            hand are looking for optimal performance at any given time with the
            assumption that they will be upgrading the equipment again in
            several years and therefore are extremely cost sensitive. In
            addition, established telecommunications providers seek products
            that fit into their existing networks (T-1, E-1, OC-3, OC-12
            interfaces and data rates) while networking based providers prefer
            ethernet interfaces and data rates. If we are unable to satisfy one
            or more of the requirements of our current and prospective
            customers, we may lose, or fail to gain, meaningful market share.

      o     We may not develop products for the portions of the broadband
            connectivity and access markets that grow. Predicting which segments
            of the broadband connectivity and access markets will develop and at
            what rate these markets will grow is difficult. We may needlessly
            spend money and resources developing products for a market that does
            not develop. On the other hand, we may miss market opportunities if
            we fail to act promptly and decisively to develop new products. Our
            business, financial condition, and results of operations will be
            materially adversely affected if we develop the wrong product or
            miss market opportunities.

      o     Our sales may decline if we are unable to keep pace with rapid
            technological changes and industry standards. Our ability to succeed
            in our competitive market will depend upon successful development,
            introduction, and sale of new products and enhancements on a timely
            and cost-effective basis in response to changing customer
            requirements and competitors' product developments. We may not be
            successful in selecting, developing, manufacturing, and marketing
            new products or enhancements which could adversely affect our sales.

      o     We believe that the prices for our products will decline over time
            which could hurt our financial results. We believe that average
            selling prices for our products will tend to decline from the point
            at which a product is initially priced and marketed. Reasons for
            this decline may include the maturation of such products, the effect
            of volume price discounts in existing and future contracts,
            technology changes, and the intensification of competition,
            including from lower-cost foreign suppliers. This price decline
            could hurt our financial results.

      o     The expected price decline of our products will hurt our financial
            results unless we are able to offset those declines with cost
            savings or new product introductions. We will attempt to offset
            expected price declines of our products by reducing our product
            costs and non-product costs and by introducing new products with
            higher gross margins. If we are unable to offset declining selling
            prices by reducing direct materials and manufacturing expenses, our
            gross margins will decline. If we cannot develop new products in a
            timely manner or we fail to achieve increased sales of new products
            at higher gross margins, our revenue and gross margins may decline.

      o     Our plans to continue to introduce new products will require capital
            and other investments that may not be recovered. We devote
            significant resources to the development and marketing of new
            products and technologies and expect to continue to do so. These
            investments include facilities, equipment, inventory, personnel, and
            other items to develop and produce these products and to provide
            marketing, sales, service and support, and administration
            organizations to service and support these products. We anticipate
            many of these commitments and expenditures would be made in advance
            of realization of increased sales, which may not occur. If sales do
            not increase as expected, our gross margins and general financial
            performance would be adversely affected.


                                       19
<PAGE>

      o     Our financial results have fluctuated significantly, and we expect
            the fluctuations will continue for a variety of reasons, many of
            which are out of our control. Our quarterly financial results have
            fluctuated significantly for a number of reasons including our
            acquisitions of the assets of Proxim Corporation in July 2005;
            Terabeam Corporation, Ricochet Networks, Inc., and KarlNet, Inc. in
            the second quarter of 2004; the combination of Telaxis and Young
            Design in April 2003; our limited long-term commitments from
            customers; the receipt of significant customer orders; timing of
            obtaining customers for any new products we may introduce; the mix
            of our product sales; our manufacturing capacity constraints and our
            ability to fulfill orders; our inability to obtain components in the
            quantities we need; new product introductions by us or by our
            competitors; seasonal factors that may affect capital spending by
            customers; and general economic conditions. We expect that many of
            these and other factors will continue to affect our business and
            will cause our financial results to fluctuate in the future.

      o     Our past acquisition activity and contemplated future acquisition
            activity contributes to the difficulty in predicting our future
            financial performance. The combination of Telaxis and Young Design
            in April 2003 resulted in changes in our financial performance. The
            historically unprofitable financial results of Telaxis caused the
            operating results of the combined company to be unprofitable in the
            second quarter of 2003. Although the combined company did briefly
            return to profitability, the acquisitions of the unprofitable
            Terabeam Corporation, KarlNet, Inc., and Ricochet Networks, Inc. in
            the second quarter of 2004 have caused the company to be
            unprofitable in later 2004 and early 2005. However, the company's
            balance sheet has become significantly stronger given the addition
            of the assets from the acquired companies. These additional assets
            enabled us to acquire the operations of Proxim Corporation in July
            2005, which has significantly increased our revenue. We have stated
            our intention to make selected acquisitions from time to time and,
            therefore, expect that our future acquisition activity will
            contribute to fluctuations in our financial results and to
            difficulties in predicting our financial performance.

      o     We may not achieve the contemplated benefits of our acquisition of
            Proxim's operations which could materially and adversely affect our
            business. In July 2005, we acquired substantially all of the
            operations of Proxim Corporation. We may not be able to achieve the
            expected synergies and other benefits of that acquisition at all or
            to the extent and in the time periods expected. We may not be able
            to integrate those operations in a cost-effective, timely manner
            without material liabilities or loss of desired employees,
            suppliers, or customers. Our management may be distracted from our
            core business due to that acquisition. The expected cost savings
            from the transaction may not be fully realized or may take longer to
            realize than expected. The time and costs required to integrate,
            establish, manage, and operate the international operations we
            acquired from Proxim Corporation may be greater than we anticipated.
            Our investors, competitors, customers, suppliers, employees, and
            others may react negatively to the acquisition. We may have little
            experience operating in some of the business areas in which Proxim
            Corporation typically operated so may not fully benefit from the
            acquisition. We may be exposed to lawsuits, risks, liabilities, or
            obligations imposed on or threatened against us arising from the
            acquisition of Proxim Corporation's operations, relationships, and
            products. For example, we believe that Symbol Technologies, Inc.
            commenced its lawsuit against us (resulting in the settlement
            discussed in Item 3-Legal Proceedings below) as a result of our
            acquiring Proxim Corporation's operations. We may faces unexpected
            difficulties, costs, and delays in implementing common internal
            controls, disclosure controls, systems, and procedures, including
            financial accounting systems, particularly in light of the enhanced
            scrutiny given to those items in the current environment. Addition
            of these operations may increase the difficulty for us, financial
            analysts, and others to predict the combined company's future
            business and financial performance. These factors may cause us to
            want or need to raise additional debt or equity capital, which, if
            available at all, may be on terms deemed undesirable by investors,
            customers, suppliers, employees, or others. These factors could
            materially and adversely affect our business, perception in our
            market, and financial results. Should these factors materially and
            adversely affect our business, it could result in a material
            impairment charge to write-down goodwill.

      o     Purchase accounting treatment and the impact of amortization and
            impairment of intangible assets relating to the Proxim Corporation
            asset purchase could cause our operating results to be adversely
            affected. In accordance with generally accepted accounting
            principles, we accounted for the Proxim Corporation asset purchase
            using the purchase method of accounting. We have allocated the cost
            of the individual assets acquired and liability assumed, including
            various identifiable intangible assets (such as acquired technology
            and acquired trademarks and trade names), based on their respective
            fair values at the


                                       20
<PAGE>

            date of the completion of the acquisition. We may be required to
            reduce the carrying value of these assets which could adversely
            impact our financial results.

      o     The fact that we receive few long-term purchase commitments from
            customers contributes to the difficulty in predicting our future
            financial performance. Due to the nature of our products and
            customers, we generally have a very short time between receiving an
            order and shipping the order. Few of our customers provide us with
            long-term purchase commitments. As a result, we generally have a
            relatively low backlog and have limited visibility of sales going
            forward. This lack of visibility contributes to the difficulty in
            predicting our future financial performance by us, financial
            analysts, and investors.

      o     Receipt of significant customer orders have caused our financial
            results to fluctuate and contribute to the difficulty in predicting
            our future financial performance. At times, we have received
            significant orders from customers that have caused our financial
            results to fluctuate. For example, we received large orders from a
            single customer in 2003 that contributed positively to the financial
            results of several quarters in 2003. The non-recurrence of those
            orders in 2004 has made our financial results look worse in
            comparison. We expect that at times we may get similar significant
            orders in the future which could cause significant fluctuations in
            sales, gross margins, and operating results. These fluctuations
            contribute to the difficulty in predicting our future financial
            performance by us, financial analysts, and investors.

      o     Difficulties in obtaining the components we need to manufacture our
            products have caused our financial results to fluctuate and
            contribute to the difficulty in predicting our future financial
            performance. At times we have been unable to obtain sufficient
            components to manufacture certain of our products. We believe this
            shortage had a negative impact on our revenue and financial results
            for those quarters. Given the number of components in our products,
            the age of some of our products, and the limited number of suppliers
            of some of these components, we may experience similar component
            shortages from time to time in the future. These shortages could
            contribute to fluctuations in our financial results and to the
            difficulty in predicting our future financial performance.

      o     We cannot predict whether we will be able to maintain our recent
            profitability, which could adversely affect our ability to continue
            as a going concern and our stock price. We were profitable on an
            operating and GAAP basis in the fourth fiscal quarter of 2005. We
            have made no predictions concerning our future profitability or lack
            of profitability, particularly given our acquisition in 2005 of the
            operations of an unprofitable company. Our failure to maintain
            profitability (especially after recently achieving profitability)
            may affect our ability to continue as a going concern and cause the
            market price of our stock to decline or prevent it from rising.

      o     We expect that changes in stock option accounting rules will
            adversely impact our reported operating results and may adversely
            affect our competitiveness in the employee marketplace. We have
            adopted FASB Statement No. 123R ("SFAS 123R"), Share-Based Payment,
            as our accounting method for stock options for accounting periods
            beginning January 1, 2006 and after. SFAS 123R requires that all
            share-based payments to all employees, including grants of employee
            stock options, are to be included in the financial statements based
            on their fair values. We expect that the adoption of SFAS 123R and
            resulting charges on our financial statements will significantly
            reduce our operating and net income. These charges may result in our
            having operating and net losses rather than operating and net
            profits. As a result of adopting the changes specified in SFAS 123R,
            it could negatively impact our use of employee stock plans to reward
            employees, putting us at a competitive disadvantage in attracting
            and retaining key employees.

      o     Our indirect sales model makes us dependent on third party
            distributors and resellers, which could adversely impact our
            financial results and reputation. Most of our products are sold
            through both domestic and international distributors and resellers.
            These distributors generally focus on selling to a specific market
            or geographic region. These distributors and resellers carry and
            sell products from other suppliers in addition to our own. We expect
            to continue to engage additional distributors and resellers to sell
            our products. Use of distributors and resellers makes us dependent,
            to some extent, on those third parties who will have the
            relationships with the end customers. We may not be successful in
            attracting qualified distributors and resellers. Use of these
            distributors and resellers could cause significant fluctuation in
            and adversely impact our future revenue and operating results due to
            our limited relationships with actual end-users of our products, the
            time and costs associated with maintaining our distributor and


                                       21
<PAGE>

            reseller relationships, the time and costs associated with engaging
            new distributors and resellers, the possibility that they may give
            other suppliers' products priority over our own, the possibility of
            channel and price conflict, the possibility of customer confusion
            and customer dissatisfaction, and potential accounting, operational,
            and financial results problems if they build excess inventory.

      o     We have a limited number of distributors so any decrease in business
            from them could cause a decline in our revenue. The loss of business
            from any of our distributors or the delay of significant orders from
            our distributors could significantly reduce our revenue, even if it
            is only temporary. We do not have long-term contracts with our
            distributors. Our ability to accurately forecast our revenue hinges
            on the timing and size of future purchase orders taken by our
            distributors. Any reduction in revenue could have a materially
            adverse affect on our operating results and financial condition.

      o     We may be unsuccessful in our efforts to obtain larger customers,
            and these efforts could adversely impact our current business. We
            are trying to expand our customer base by obtaining larger
            customers. Our efforts may not be successful. For example, larger
            customers may not want to deploy products like many of ours that
            operate in unlicensed frequencies or they may seek products with
            feature sets that are different from what we offer. Our efforts
            could adversely impact our current business due to diversion of
            efforts and attention, our current customers not being pleased by
            our customer expansion efforts, and other reasons.

      o     Our business depends in part on continued demand for broadband
            connectivity and access. The future success of our business is
            dependent in part upon the continued and increasing demand for
            high-speed, broadband connectivity and access, particularly with
            regard to the Internet, and for high-speed telecommunications
            products. The markets for such services may not grow at all or as
            expected.

      o     We depend on our senior employees who are extensively involved in
            many aspects of our business, and our business would likely be
            harmed if we lose their services and cannot hire additional
            qualified personnel. Particularly because we are a relatively small
            company, our future operating results depend in significant part
            upon the continued contributions of senior management and key sales
            and technical personnel, many of who would be difficult to replace
            if their services become unavailable to us due to death, illness, or
            other reasons. Future operating results also depend upon the ability
            to attract and retain qualified management, sales, and technical
            personnel. Competition for these personnel is intense, and we may
            not be successful in attracting or retaining them. Only a limited
            number of persons with the requisite skills to serve in these
            positions may exist, and it may be difficult for us to hire the
            skilled personnel we need. We have experienced difficulty in
            attracting, hiring, and retaining experienced sales personnel with
            the right blend of skills for our company, and we may experience
            difficulty with other types of personnel in the future.

      o     We have no key-man life insurance on any of our executive officers
            or other employees. 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. The
            lack of key man insurance means that we would receive no insurance
            proceeds to buffer any such adverse effects.

      o     We do not currently have a succession plan in place. We currently do
            not have a succession plan in place if our chief executive officer
            or other senior personnel were to become unable to perform their
            responsibilities due to illness, injury, termination of service, or
            other reasons. Loss of the services of our chief executive officer
            or other senior personnel could have a material adverse effect on
            our business, financial condition, and results of operations. Lack
            of a succession plan could exacerbate our difficulties in overcoming
            the issues created by the loss of services of our chief executive
            officer or other senior personnel due to uncertainty and
            responsibility transition issues.

      o     Our limited internal manufacturing capacity may be insufficient to
            meet customers' desires for our products, which could harm our sales
            and damage our reputation. Our internal manufacturing capacity, by
            design, is limited. At times, we have been unable to deliver certain
            internally-manufactured products as quickly and in the quantities
            that customers desire. These inabilities could damage relationships
            with customers and have a material adverse effect on our reputation,
            business, financial condition, and results of operations.


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<PAGE>

      o     Our limited internal manufacturing capacity makes us dependent on
            contract manufacturers, which could harm our sales and damage our
            reputation. Our internal manufacturing capacity, by design, is
            limited. We currently expect to rely on domestic and international
            contract manufacturers to provide manufacturing of our complete
            products, components, and subassemblies. Our failure to obtain
            satisfactory performance from any contract manufacturers could cause
            us to fail to meet customer requirements, lose sales, and expose us
            to product quality issues. In turn, this could damage relationships
            with customers and have a material adverse effect on our reputation,
            business, financial condition, and results of operations.

      o     We may be unable to engage contract manufacturers to manufacture our
            products which could force us to increase our internal manufacturing
            capacity. The technical nature of our products, the wide variety of
            our products, and the current uncertainty and historical fluctuation
            in our business may make contract manufacturers unwilling or
            reluctant to manufacture products for us at all or on acceptable
            terms. It may be difficult and time-consuming to engage a
            third-party manufacturer or manufacturers. If we are unable to
            engage a third-party manufacturer or manufacturers, we may have to
            increase our internal manufacturing capability. We may be unable to
            do so at all or without significant expense.

      o     Interruptions in our manufacturing operations could have an adverse
            effect on our revenue. Any interruption in our manufacturing
            operations could cause our product supply to be interrupted or lose
            market opportunities and have an adverse affect on our revenue,
            customer relationships, and operating results. Interruptions cold
            results from introduction of new products or processes; timing,
            language, cultural, and other issues arising from the use of
            contract manufacturers located outside the U.S.; terminations of
            relationship with manufacturers; not producing products at adequate
            capacity; delays in shipments of our products due to changes in
            demand; or insufficient quality or quantity of products.

      o     Because many of our components or products are provided by limited
            or single-source suppliers, we may not be able to obtain sufficient
            quantities to meet our business needs. Many of the components,
            subassemblies, and services necessary for the manufacture of our
            systems are obtained from a sole supplier or a limited group of
            suppliers. We generally do not have any committed long-term supply
            agreements with these vendors. We have from time to time experienced
            an inability to obtain an adequate supply of required components and
            subassemblies. Our inability to obtain these components in the
            quantities and at the times we desire could halt production, reduce
            our ability to meet customer demands, and reduce our sales.

      o     Because many of our components or products are provided by limited
            or single-source suppliers, we may not be able to obtain sufficient
            quantities at prices to make our products profitably. Many of the
            components, subassemblies, and services necessary for the
            manufacture of our systems are obtained from a sole supplier or a
            limited group of suppliers. Our inability to obtain these items at
            the prices we desire could hurt our sales and lower our margins.

      o     Because many of our components or products are provided by limited
            or single-source suppliers, we may have to purchase extra inventory
            that ultimately may not be used. Many of the components,
            subassemblies, and services necessary for the manufacture of our
            systems are obtained from a sole supplier or a limited group of
            suppliers. A supplier may decide to end the manufacture of a product
            and provide us with an opportunity to make a last-time buy of the
            product. In that situation, we have to estimate our future needs for
            that product. If we underestimate, we would have an insufficient
            supply to manufacture our products. If we overestimate, we may end
            up purchasing inventory that is not used or becomes obsolete and
            that ultimately we have to write off. That loss could adversely
            affect our financial results.

      o     Our inability to receive sufficient quantities of limited or single
            source components or products could make us develop alternative
            sources, which could reduce our sales and may be time consuming and
            expensive if it can be done at all. In the event of a reduction or
            interruption in the supply of a key component, we may have to
            develop alternative sources for the component. We may not be able to
            locate an alternative supplier of certain products or components at
            all or at acceptable prices. Our inability to develop alternative
            sources for components could result in delays or reductions in
            product shipments, increase our costs, and reduce or eliminate our
            profit margins. Even if we are successful at developing alternative
            sources, a significant amount of time could be required to receive
            an adequate flow of components from the alternative source.


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      o     Our inability to receive sufficient quantities of limited or single
            source components or products could make us reconfigure our
            products, which could reduce our sales and may be time consuming and
            expensive if it can be done at all. In the event of a reduction or
            interruption in the supply of a key component, we may have to
            reconfigure our products to work with different components.
            Reconfiguration of our products to adapt to new components could
            entail substantial time and expense. We may be unable to reconfigure
            our products to work with new components. Even if we are successful
            at reconfiguring our products, a significant amount of time could be
            required to receive an adequate flow of replacement components.

      o     Our reliance on limited or single-source suppliers makes us
            vulnerable to difficulties at those suppliers. The production of our
            products is vulnerable to production difficulties, quality
            variations, work stoppages, acts of God such as weather and fire,
            and other events beyond our control at our suppliers. All of these
            events could adversely affect the cost and timely delivery of our
            products.

      o     The new RoHS Directive could have an adverse impact on our ability
            to supply products and our financial results. Effective July 1,
            2006, the directive on the restriction on the use of certain
            hazardous substances in electrical and electronic equipment (RoHS
            directive) will limit the use of substances (such as lead and
            mercury) in products sold in the European Union marketplace. Because
            of this directive, we believe many component suppliers are revising
            their product lines so all their products are RoHS compliant. These
            changes may disrupt our supply of components needed to supply our
            products at the times and in the quantities desired by our
            customers. These changes also require that we revise the design of
            some of our products and have some of our products re-qualified with
            our customers. These results could adversely impact our product
            supply capabilities, relationships with customers, and financial
            results.

      o     Failure to maintain adequate levels of inventory could result in a
            reduction or delay in sales and harm our results of operations. In a
            competitive industry such as the wireless telecommunications
            equipment industry, the ability to effect prompt turnaround and
            delivery on customer orders can make the difference in maintaining
            an ongoing relationship with our customers. This competitive market
            condition requires us to keep some inventory of certain products on
            hand to meet such market demands. Given the variability of customer
            requirements and purchasing power, it is difficult to predict the
            amount of inventory needed to satisfy demand. If we over- or
            under-estimate inventory requirements to fulfill customer needs, our
            results of operations could be adversely affected. If market
            conditions change swiftly, it may not be possible to terminate
            purchasing contracts in a timely fashion to prevent excessive
            inventory increases. In particular, increases in inventory could
            materially adversely affect operations if such inventory is
            ultimately not used or becomes obsolete. To date, we do not believe
            that we have materially over-estimated or under-estimated our
            inventory requirements.

      o     Our failure to effectively manage our recent and anticipated future
            growth could strain our management, infrastructure, and other
            resources and adversely affect our results of operations. We expect
            our recent and anticipated future growth to present management,
            infrastructure, systems, and other operating issues and challenges.
            These issues include controlling expenses, the development,
            introduction, marketing, and sales of new products, the development
            and application of consistent internal controls and reporting
            processes, the integration and management of a geographically and
            ethnically diverse group of employees, and the monitoring of
            third-party manufacturers and suppliers. Any failure to address
            these issues at a pace consistent with our business could cause
            inefficiencies, additional operational expenses and inherent risks,
            greater risk of billing delays, inventory write-downs, and financial
            reporting difficulties.

      o     Difficulties in reducing our operating expenses could harm our
            results of operations. A material portion of our operating expenses
            is fixed. If we experience a material reduction or delay in sales,
            we may find it difficult to reduce our operating expenses on a
            timely basis. Difficulties of this nature would adversely affect our
            financial condition and harm our operating results.

      o     War in Iraq and the war on terrorism could adversely affect domestic
            and international demand for our products. The war in Iraq and on
            terrorism has led to economic uncertainty at home and abroad which
            could impact the demand for our products. Customers as a result may
            reduce their spending on our products coupled with the increased
            shipping costs and delays due to heightened security, which could
            have a material adverse affect on our operating results.


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      o     We typically permit flexible purchase order changes that may
            adversely affect our margins and operating results. We have
            typically permitted purchase orders to be modified or canceled with
            limited or no penalties. Any inability or failure to reduce actual
            costs or cancel supplier and contract manufacturing commitments in
            response to a customer modification or cancellation could adversely
            affect our gross margins and operating results.

      o     Our business and financial results could be adversely affected by
            warranty claims. Products as complex as ours frequently contain
            undetected errors or defects, especially when first introduced or
            when new versions are released. This is especially a concern for us
            given our anticipated continuing introduction of new products. The
            occurrence of such errors or defects could result in products being
            returned under warranty for repair or replacement with us having to
            bear the associated expense. Although we maintain what we believe to
            be appropriate overall warranty reserves based on historical repair
            occurrences, an unanticipated high repair occurrence related to a
            specific product or number of products could make the reserves
            inadequate at any specific time and adversely affect our financial
            results.

      o     Our business and financial condition could be adversely affected by
            product liability claims. Products as complex as ours frequently
            contain undetected errors or defects, especially when first
            introduced or when new versions are released. This is especially a
            concern for us given our anticipated continuing introduction of new
            products. The occurrence of such errors or defects could result in
            product liability claims being brought against us. Although we have
            not had any material product liability claims brought against us to
            date, such claims may be brought in the future and could adversely
            affect our financial results.

      o     Our international business activities expose us to a number of risks
            not present in our United States operations, which we have little
            experience addressing. Our international business activities may
            carry additional costs, risks and difficulties, including complying
            with complex foreign laws and treaties applicable to doing business
            and selling our products in other countries; availability of
            suitable export financing; timing and availability of export
            licenses; tariffs and other trade barriers; difficulties in staffing
            and managing foreign operations; difficulties in complying with
            foreign customs and general ways of doing business; and political
            and economic instability which may be more pronounced in
            less-developed areas. We have little experience in facing many of
            these issues and may not be able to address the issues in a manner
            to enable us to expand our international sales and operations.

      o     Because of international sales and operations, we may be exposed to
            currency risk that could adversely affect our financial condition
            and results of operations. Particularly following our acquisition of
            the operations of Proxim Corporation, a significant portion of our
            sales to date have been made to customers located outside the United
            States, and we expect that a significant portion of our future sales
            will continue to be to customers outside the United States. We are
            currently trying to increase our sales to customers outside the
            United States. Historically, our international sales have been
            denominated in United States dollars. For international sales that
            are denominated in United States dollars, a decrease in the relative
            value of foreign currencies could make our products less
            price-competitive and could have an adverse effect on our financial
            condition and results of operations. For any international sales
            denominated in foreign currencies, a decrease in the value of the
            foreign currencies relative to the United States dollars could
            result in decreased margins from those transactions.

      o     The laws and legal systems of foreign governments may limit our
            ability to enforce our rights against our customers. Our customer
            purchase and other agreements may be governed by foreign laws, which
            may differ significantly from United States laws. Also, the court
            systems and procedures in foreign countries may differ significantly
            from United States courts. Therefore, we may be limited in our
            ability to collect our accounts receivable, to enforce our other
            rights under such agreements, and to collect damages, if awarded.

      o     Lack of relationships in foreign countries may limit our ability to
            expand our international operations and sales. In many cases,
            regulatory authorities in foreign countries own or strictly regulate
            local telephone companies. Established relationships between
            government-owned or government-controlled telephone companies and
            their traditional indigenous suppliers of telecommunications
            equipment often limit access to those markets. The successful
            expansion of our international operations in some markets will
            depend in part on our ability to form and maintain strong
            relationships with established companies providing communication
            services and equipment or other local partners in those regions. The


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            failure to establish regional or local relationships could limit our
            ability to successfully market or sell our products in international
            markets and expand our international operations.

      o     Governmental regulation affecting markets in which we compete or
            products we make or services we offer could adversely affect our
            business and results of operations. Radio communications and
            services are extensively regulated by the United States and foreign
            governments as well as by international treaties. To operate in a
            jurisdiction, we must obtain regulatory approval for our products
            and comply with differing and evolving standards and regulations.
            The delays inherent in this approval process may cause the
            cancellation, postponement, or rescheduling of the installation of
            communications systems by us and our customers. The failure to
            comply with regulations in a jurisdiction could result in the
            suspension or cessation of our ability to operate in that
            jurisdiction. New regulations or changes in the interpretation of
            existing regulations could require us to modify our products or
            services and incur substantial costs to bring our products or
            services into compliance.

      o     Our products typically require regulatory approval before they can
            be commercially deployed. Our products must typically receive
            regulatory approvals before they can be commercially deployed. As a
            result, customers may require that we obtain these approvals before
            buying or agreeing to buy our products. Obtaining these approvals
            can be a long, expensive process. Delays in obtaining the necessary
            approvals could hinder market acceptance of our products, delay
            sales of our products, and adversely affect our ability to market
            those products.

      o     Changes in governmental regulation could adversely affect our
            competitive position. Governmental laws and regulations applicable
            to our products and services evolve and change frequently. These
            changes could hurt our competitive position. For example, a point we
            often use in marketing our equipment products is that our products
            have been approved by the United States Federal Communications
            Commission, which sometimes can be a long, expensive process. The
            Federal Communications Commission may relax this approval process
            and potentially allow more products to operate as approved products.
            If enacted, these regulations could make it easier for competitive
            products to qualify as products approved by the Federal
            Communications Commission. Conversely, if the Federal Communications
            Commission made the certification process more difficult, it could
            impede our ability to bring products to market in a timely manner.
            In either case, this could adversely affect our competitive
            position. Similarly, changes in the laws and regulations applicable
            to our service business could adversely affect our competitive
            position in that business.

      o     We are subject to domestic and international authorities'
            allocations of the radio frequency spectrum. Equipment to support
            new systems and services can be marketed only if suitable frequency
            allocations are made available to telecommunications service
            providers. The process of allocating frequencies to service
            providers is typically expensive, complex, and lengthy. If service
            providers and others are delayed in deploying new systems and
            services, we could experience lack of orders or delays in orders.
            Similarly, failure by regulatory authorities to allocate suitable
            frequency spectrum could have a material adverse effect on our
            results.

      o     At time we rely on a limited number of customers for a material
            portion of our sales, which exposes us to risks relating to the loss
            of sales and credit risk. For the year ended December 31, 2005, no
            one customer accounted for more than 10% of our sales. However, we
            did have a number of substantial customers, in particular the third
            party distributors we acquired from the Proxim Corporation
            operations acquisition. We are currently attempting to increase its
            number of substantial customers which could increase our customer
            concentration risks. Our ability to maintain or increase our sales
            in the future will depend in part upon our ability to obtain
            additional orders from these customers. Our customer concentration
            also results in concentration of credit risk. An acquisition of one
            of our significant customers could cause any current orders to be
            delayed or canceled and no new orders being placed with us and could
            further concentrate our customer base. Adverse developments such as
            these with our significant customers could adversely impact our
            sales and financial results.

      o     The continuing uncertainty in the telecommunications industry has
            caused us to maintain tight credit limits, which may be adversely
            affecting our sales. Many of our potential customers have faced or
            are facing financial difficulties due to the industry-wide
            uncertainty and depressed conditions. As a result, we have
            maintained what we believe to be stringent policies concerning the
            extension of credit to potential


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            customers. We believe that these tight credit policies may be
            limiting our sales. As a result, we may loosen our credit policies,
            which may increase our sales but may also increase the likelihood of
            having bad debts from customers who can't or won't pay.

      o     Given the relatively small size of some of our customers, they may
            not be able to pay for the products they purchase from us in the
            time period we expect or at all. We are subject to credit risk in
            the form of trade accounts receivable. We could face difficulties in
            receiving payment in accordance with our typical policies allowing
            payment within 30 days. Some of our customers are new and smaller
            service providers which do not have the financial resources of
            existing, larger service providers. Any delay, inability, or refusal
            to pay for purchases of our products may materially adversely affect
            our business. Difficulties of this nature have occurred in the past,
            and we believe they will likely occur in the future.

      o     Our failure or inability to protect our intellectual property could
            adversely affect our business and operations, particularly in our
            equipment business which has otherwise relatively low barriers to
            entry. Our ability to compete depends in part on our ability to
            protect our intellectual property. The steps we have taken to
            protect our technology may be inadequate to prevent misappropriation
            of our technology and processes. Existing trade secret, trademark,
            and copyright laws offer only limited protection. Our patents could
            be invalidated or circumvented. Inability or failure to protect our
            intellectual property could remove a barrier to a competitor
            entering our broadband wireless equipment business, which in general
            has lower barriers to entry than other businesses.

      o     Laws of foreign countries where we do business may provide less
            intellectual property protection for our products, which could
            adversely affect our ability to compete in our price-sensitive
            business. The laws of certain foreign countries in which our
            products are or may be developed, manufactured, or sold may provide
            less protection for the intellectual property contained in our
            products. We may not seek to obtain patents and other forms of
            intellectual property rights in certain foreign countries to the
            same extent we seek United States patents and other forms of
            intellectual property protection, which could reduce our
            international protection. This may make the possibility of piracy of
            our technology and products more likely. This piracy could result in
            cheaper copies of our products being available on the market, which
            could adversely affect our business and financial results.

      o     Our intellectual property rights do not prevent other companies from
            developing similar technology, which could be superior to ours.
            Other companies could develop products that use similar and perhaps
            superior technology. This technology could be developed in a way to
            not violate or infringe our intellectual property rights. As a
            result, our intellectual property rights provide no assurance that
            competing and perhaps superior products won't be developed, even if
            we are able to protect our intellectual property rights.

      o     We may engage in litigation to protect our intellectual property,
            which could be costly, long, and distracting even if ultimately
            successful. If we believe our intellectual property rights are being
            infringed, we may commence litigation or take other actions to
            enforce our patents, protect our trade secrets and know-how, or
            determine the scope and validity of the patents or intellectual
            property rights of others. There can be no assurance that we would
            be successful in any such litigation. Further, any lawsuits we
            commence would increase the likelihood of counterclaims being
            brought against us by the companies we sue. Any litigation could
            result in substantial cost and divert the attention of our
            management, which could harm our operating results and future
            operations.

      o     Much of our material intellectual property is not protected by
            patents, which may reduce the extent to which we can protect our
            intellectual property. We rely primarily on trade secret laws,
            confidentiality procedures, patents, copyrights, trademarks, and
            licensing arrangements to protect our intellectual property. While
            we do have a number of patents, the patents alone do not provide
            significant protection for much of our intellectual property used in
            our current equipment products. 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. The
            fact that much of our intellectual property is not covered by
            patents could reduce the extent to which we can protect our rights
            in that intellectual property.

      o     Our products and operations could infringe on the intellectual
            property rights of others, which could have an adverse impact on our
            business. We would have to address any such infringements by seeking


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            licenses, altering our products, or no longer selling the products.
            Any licenses we may be required to seek may be expensive or
            otherwise onerous. Similarly, changing our products may be costly,
            time-consuming, and impractical and could detract from the value of
            our products. A party making a claim of infringement could secure a
            judgment against us that requires us to pay substantial damages. A
            judgment could also include an injunction or other court order that
            could prevent us from selling our products. Any claim of
            infringement by a third party also could cause us to incur
            substantial costs defending against the claim, even if the claim is
            invalid, and could distract the attention of our management. Any of
            these events could seriously harm our business.

      o     Our recent settlement of the litigation commenced against us by
            Symbol Technologies may adversely impact our financial results. In
            February 2006, we settled the lawsuit that had been brought against
            us by Symbol Technologies, Inc. alleging that certain of our
            products violated certain of their patents. Symbol had successfully
            sued Proxim Corporation alleging that certain of Proxim
            Corporation's products infringed two of the Symbol patents that
            Symbol asserted against us. As part of the settlement, we agreed to
            pay Symbol fixed royalties totaling $4.3 million through the second
            quarter of 2009. We will have to pay these royalties even if we
            discontinue the sale of products alleged by Symbol to violate their
            patents. Additionally, we may end up paying Symbol more fixed
            royalties than we would have paid if we had negotiated a royalty
            based on product sales or some other contingent basis. As a result,
            the settlement of the Symbol litigation may adversely impact our
            financial results, and the impact may be more adverse than if we had
            attempted to and had been successful in settling the litigation on
            some other basis.

      o     We have limited experience operating our Ricochet(R) network and may
            be unable to operate it effectively, which could adversely impact
            our business. Our business historically has focused on selling
            wireless communications equipment. Our purchase of Ricochet Networks
            in June 2004 was our first major entry into providing wireless
            communication services - actual Internet connectivity instead of
            just providing the equipment to enable the connectivity. The
            services market is a very different market from the equipment market
            with different customer bases, methods of doing business, and other
            issues. We may not be successful at addressing the different issues
            and challenges relating to our services business. The services
            business may divert management's attention and financial and other
            resources from our equipment business. These issues could adversely
            impact our overall business and financial results.

      o     Our entry into the wireless communications services business through
            Ricochet(R) could adversely impact our equipment business because
            those customers may perceive us as now competing with them. In our
            equipment business, we generally sell our products to companies that
            provide wireless communications connectivity and services. Those
            companies may be displeased with our purchase of Ricochet, as they
            may believe this purchase now makes us an actual or potential
            competitor to them. Therefore, these companies may be reluctant to,
            and may not, purchase further wireless communications equipment from
            us or may reduce their purchases. These reductions in purchases
            could adversely impact our overall business and financial results.

      o     We expect to continue to generate losses as we continue to operate
            and possibly expand our Ricochet(R) network and service. Our
            Ricochet business has a history of losses, and we expect to incur
            significant additional operating losses in the future. We cannot
            predict when or if we will be able to achieve or sustain
            profitability for our Ricochet business. Previous owners of Ricochet
            similarly experienced difficulty in achieving or sustaining
            profitability of the business. If we are unable to achieve or
            sustain profitability or positive cash flow from Ricochet's
            operating activities, we may be unable to conduct that business
            effectively or competitively.

      o     We expect that our overall financial results will be negatively
            impacted by the losses from our Ricochet(R) network and service. In
            the fourth quarter of 2005, our combined broadband wireless
            equipment business and wireless communications services business was
            profitable. However, just our broadband wireless equipment business
            was profitable by itself. The unprofitable wireless communications
            services business reduced the combined profitability of our overall
            company. We expect that the operations of the services business will
            continue to be unprofitable and adversely impact our overall
            financial results. Continued unprofitability could result in
            internal and external pressures to take actions to reduce the losses
            associated with that services business, which could include selling
            the business or shutting it down, making operational changes at
            Ricochet, changing the business model, or other actions.


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      o     We may be unable to grow the user base and geographically expand the
            Ricochet(R) network due in part to the turbulent history of
            Ricochet. We are the fourth owner and operator of the Ricochet
            network in less than five years. The initial operator of the network
            commenced voluntary bankruptcy proceedings and, we believe, did not
            perform some of its agreements relating to the network, including
            agreements to expand the network. These ownership changes,
            bankruptcy, and related uncertainty and non-performance of
            agreements have damaged Ricochet's reputation and relationships that
            could be vital to the successful operation and possible expansion of
            the network. This history may cause users to be reluctant to
            subscribe to the Ricochet service and may cause third parties to be
            reluctant to contract with us relating to the operation and possible
            expansion of the network. These issues in general could adversely
            impact our efforts to maintain and grow our user base and
            geographically expand the Ricochet network and our business in
            general.

      o     The data access market in which Ricochet operates is highly
            competitive, which could adversely impact our ability to attract and
            retain users of our Ricochet(R) service. Competition in the market
            for data access and communications services is intense. A number of
            privately and publicly held communications and data access companies
            have developed or are developing new wireless and wired
            communications and data access services and products using
            technologies that may compete with ours. Some wireless data service
            companies have operated for many years and are already broadly
            deployed in major markets and well-recognized. Many of these
            companies have significantly greater resources, more established
            brand names, and larger customer bases than we do. In addition,
            several companies in various other industries, such as the satellite
            communications industry, may enter the market for mobile data access
            in the future. Further, we may face competition from Internet
            service providers that could offer Internet, online or data access
            services at prices lower than those offered by us. This competition
            could limit our ability to increase our user base, cause us to lose
            market share, and force us to reduce prices or incur additional
            selling, marketing and product development expenses, any of which
            could harm our business and our results of operations.

      o     Different data access technologies may have advantages over our
            Ricochet(R) service, which could adversely impact our ability to
            attract and retain users of our service. The market for data access
            and communications services is characterized by rapidly changing
            technology, new product introductions, and evolving industry
            standards. A number of data access technologies, such as broadband
            wireless, digital subscriber lines and cable modems, generally are
            able to provide faster data rates than our network. This may
            negatively affect user perceptions as to the attractiveness of our
            wireless service and result in pressure to reduce our prices.
            Increased data rates also may result in the widespread development
            and acceptance of applications that require a higher data transfer
            rate than our service provides. Our success will depend to a
            substantial degree on our ability to differentiate our service from
            competitive offerings and promote and sell the advantages of our
            service. Our inability to do this could cause us to be unable to
            increase our users and to lose users to competing service providers.

      o     The success of our Ricochet business ultimately will depend on our
            ability to attract and retain sufficient users to our Ricochet(R)
            service. There may only be a limited market today for our Ricochet
            service, and we bear the risk that we will not sell enough
            subscriptions to our service or generate sufficient revenue for us
            to recoup the substantial expenditures we have made and will
            continue to make to operate and possibly expand our network. In
            addition, competition to provide wireless data access services of
            the type Ricochet offers could result in a high turnover rate among
            our users, which could have an adverse effect on our business and
            results of operations.

      o     User demand for our Ricochet(R) service is unpredictable. We cannot
            reliably project potential demand for our Ricochet service,
            including whether there will be sufficient demand at the prices we
            need for that business to be profitable in either the markets in
            which we currently operate or in any markets into which we may
            expand. We cannot reliably predict demand because the market for
            mobile wireless data access services is in the early stages of
            development and it is not clear what combination of features is
            required for a service to gain broad user acceptance. Different
            possible features include cost, security, speed of connectivity,
            reliability, ease of use, and quality of service. How we address
            these issues is likely to affect the demand for our Ricochet
            service.

      o     Our success depends, in part, on our ability to market our
            Ricochet(R) service. We believe that a substantial marketing effort
            is necessary to stimulate demand for our Ricochet service. We expect
            to be


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            marketing and advertising our service to attract users to our
            service. From time to time, we may undertake special marketing plans
            or promotions for our service. We may engage channel partners or
            others to assist us with marketing our service. We cannot predict
            whether these marketing efforts will be successful and attract the
            users that we need to sustain our Ricochet business and operations.
            If we are unable to market our service successfully, or at all, our
            ability to attract users and generate revenues will be adversely
            affected and our business will be adversely impacted.

      o     The success of our Ricochet(R) service depends, in part, on our
            ability to provide adequate customer support. We currently provide
            users of the Ricochet service with customer support. We cannot
            predict whether users of our service will be satisfied with the
            customer support provided. If we are unable to provide adequate
            customer service, our ability to retain users could be adversely
            affected and our reputation and business could be adversely
            impacted.

      o     We may be unable to attract users and compete with other data access
            providers if we do not expand our Ricochet(R) network coverage area.
            We currently are offering our Ricochet service in only two general
            markets. We are actively considering the expansion of the Ricochet
            service into other markets. Competitive factors may require that we
            offer our service in additional markets as well as further develop
            our Ricochet network in the markets where we already are offering
            service. If we do not expand our network, we may be unable to
            attract users and compete with other data access providers, which
            may offer a competing service with a broader coverage area.
            Consequently, our business and financial results could be adversely
            impacted.

      o     There are numerous contingencies involved in the possible expansion
            of our Ricochet(R) network, which if not resolved as expected could
            adversely impact our business. Before we decide to expand our
            Ricochet network to offer service to users in other targeted
            markets, we must consider a number of business, regulatory, and
            implementation issues, risks, and contingencies, many of which are
            not within our control. These issues include predicted costs of
            expansion, long-term financial commitments we may need to make to
            expand, other obligations we may need to incur to expand, making an
            accurate assessment of potential markets, ability to use equipment
            installed by a previous operator of the Ricochet system, resolving
            any issues created by previous operators of the Ricochet system in
            the targeted market, cost and availability of network and circuit
            backhaul connections, any specific regulatory requirements relating
            to expansion into a given market, and delays or refusals by local
            governments or other third parties to enter into the agreements we
            need to deploy our network. We may not be able to address these
            issues and risks in a timely basis or at the cost that we have
            assumed or at all. Unfavorable or untimely resolution of these
            issues could adversely impact our business and financial results.

      o     We may not effectively manage our expansion of the Ricochet(R)
            service into new markets, which could adversely impact our
            reputation and business. If we decide to expand our network, we must
            manage the design, deployment, installation, maintenance, operation,
            and support of a bigger mobile wireless data access network. If we
            are unable to manage this future growth effectively, or if we
            experience difficulties in managing the growth of our network, our
            business, results of operations, reputation and prospects for growth
            could be adversely impacted.

      o     Our inability to obtain and retain attachment rights for our
            Ricochet(R) network equipment could adversely affect our ability to
            operate or expand our network. The operation and possible expansion
            of our network depend to a significant degree on our ability to
            obtain and maintain rights to attach our poletop radios to municipal
            or other facilities from local municipalities, public utilities, or
            other governmental or third-party entities. We may face delays or
            rejections in attempting to obtain the approvals and agreements
            necessary to install, attach, and maintain our network equipment.
            These difficulties may, in some cases, be exacerbated by issues
            created by former operators of the Ricochet network. Our inability
            to obtain these agreements in a timely manner and on terms
            acceptable to us, or at all, could force us to seek alternative
            sites on which to install network radios. In turn, use of these
            alternatives sites could significantly increase the time and cost
            required to operate or expand the network.

      o     Our inability to obtain and retain space on rooftops or towers for
            our Ricochet(R) network equipment could adversely affect our ability
            to operate or expand our network. The operation and possible
            expansion of our network depend to a significant degree on our
            ability to lease space for our wired access points on building
            rooftops or on transmission towers owned by third parties. There is
            substantial


                                       30
<PAGE>

            competition from a variety of communications companies for these
            sites. Given this competition, obtaining the desired space can be a
            time-consuming, expensive process. If we are unable to identify and
            negotiate leases for the desired space in a timely manner and on
            terms favorable or acceptable to us, the operation and expansion of
            our network could be impaired.

      o     Our ability to increase the number of users of the Ricochet(R)
            system and to expand the geographic reach of the Ricochet system
            could be limited by availability of necessary equipment. One of the
            assets we acquired when we purchased Ricochet was its significant
            inventory of modem, poletop radio, and wired access point equipment.
            We believe this inventory will enable continued operation and some
            amount of expansion of the Ricochet network without significant
            inventory costs. However, at some point, our operation and possible
            expansion of the Ricochet network may require us to obtain
            additional inventory. Doing some may be a time-consuming, expensive
            process, if we are able to do so at all. Our inability to obtain
            this additional inventory at the times, in the quantities, and at
            the prices we desire could adversely impact our competitive
            position, our continued operation of the network, our plans to
            expand the network, and our general business.

      o     Our Ricochet(R) service depends on a network connections provided by
            third parties, which are subject to disruption by events beyond our
            control. Our success will depend upon the adequacy, reliability, and
            security of the networks and circuits used to carry data within our
            Ricochet network and between our Ricochet network and corporate
            networks and the Internet. Because these connections used to carry
            the data are owned or controlled by third parties, we have no
            control over their quality and maintenance. Generally, we have
            limited recourse against the providers of these connections if the
            connection fails. If there is any failure of the Internet backbone,
            the network connecting our system to the Internet backbone, any
            circuit supporting the exchange of data between our wired access
            points or our network interface facilities, or any other link in the
            delivery chain, whether from operational disruption, natural
            disaster, or otherwise, our service could be interrupted and our
            reputation, business, and results of operations could be adversely
            affected.

      o     The failure of our third-party contractors to maintain and repair
            the Ricochet(R) system equipment on a timely, efficient basis could
            adversely affect our reputation with our customers. We generally use
            third-party contractors to install and replace when needed our
            poletop radios and wired access points. The successful operation of
            our network is dependent on timely actions by these parties, which
            can be affected by numerous factors, including the supply of labor,
            materials and equipment, and prevailing weather conditions, all of
            which are beyond our control. Failure to repair the network in a
            timely fashion could adversely impact our relationship with our
            customers, our general reputation, and our business and prospects.

      o     The Ricochet(R) network operates in unlicensed radio frequencies,
            which subject the network to harmful interference issues. Because
            the Ricochet network operates in frequency bands on a license-free
            basis, the Federal Communication Commission requires that we not
            cause harmful interference to licensed users in the band and we must
            accept any interference present in the bands. Excessive harmful
            interference could disrupt our service and discourage users from
            subscribing to or retaining our service. This could harm our
            reputation, affect our competitive position, and impair our business
            and results of operations.

      o     Compliance with new governmental regulations, such as Section 404 of
            the Sarbanes-Oxley Act, could increase our costs and adversely
            impact our financial results. Increasing amounts of time and
            resources are being spent on complying with ever-changing
            governmental regulations and public disclosure requirements.
            Specifically, Section 404 of the Sarbanes-Oxley Act currently
            requires that management and independent public accountants review
            and evaluate annually internal control systems of companies subject
            to that section and attest to their effectiveness. We are not
            currently subject to Section 404 and do not know when or if we will
            be required to comply with the requirements of that section or what
            the requirements will be if and when we become subject to that
            section. However, in anticipation of becoming subject to that
            section, we have begun our compliance efforts and are expending
            related time and costs. The costs and time required to become
            Section 404 compliant could be substantial, even assuming we are
            completely successful. In addition, even before becoming subject to
            Section 404, we are being billed significantly increased independent
            auditor fees, we believe largely due to the Sarbanes-Oxley Act and
            other regulations. Compliance with the Sarbanes-Oxley Act and other
            regulations could cause us to increase our legal, accounting, other
            personnel, and other costs as more time and personnel would be


                                       31
<PAGE>

            needed to help maintain compliance. These costs of compliance could
            adversely impact our financial results.

      o     We are a defendant in pending stockholder litigation that could
            materially and adversely affect our business. We are a party to four
            purported securities class action lawsuits. These lawsuits relate to
            the underwriters' alleged unlawful activities in connection with our
            initial public offering in February 2000. The lawsuits have been
            assigned along with approximately 1,000 other lawsuits making
            substantially similar allegations against hundreds of other publicly
            traded companies and their public offering underwriters to a single
            federal judge for consolidated pre-trial purposes. A tentative
            settlement of these lawsuits has been reached between the plaintiffs
            and affected companies. However, there can be no assurance that this
            or any other settlement will be consummated. These lawsuits are at
            an early stage and involve substantial uncertainty and, accordingly,
            we cannot predict the outcome. Defending lawsuits of this nature can
            be a lengthy and expensive process, and we may not prevail. Even if
            we prevail or the action is settled, the costs associated with these
            lawsuits could be substantial. In addition, these lawsuits could
            have other material adverse impacts on us, such as management
            distraction, adverse publicity, and adverse reaction from the
            financial markets, from our customers, or from actual or potential
            strategic partners. The difficulties and uncertainties relating to
            these lawsuits very likely may be increased and complicated because
            of the large number of pending similar cases and other parties
            involved. The outcome of these lawsuits could materially compromise
            our ability to continue to operate our business.

      o     We have elected to participate in a proposed settlement of this
            pending stockholder litigation, but there can be no assurance that
            this settlement will be consummated. In June 2003, we elected to
            participate in a proposed settlement agreement with the plaintiffs
            in the pending stockholder litigation. The proposed settlement does
            not provide for the resolution of any claims against the underwriter
            defendants. The parties to the proposed settlement submitted formal
            settlement documents to the court in June 2004 and requested
            preliminary approval by the court of the proposed settlement.
            Certain defendant underwriters in the settling cases opposed
            preliminary approval of the proposed settlement. The court issued an
            order preliminarily approving the proposed settlement and has
            scheduled a date for a final hearing on the settlement at which any
            objections to the proposed settlement may be heard. Consummation of
            the proposed settlement remains conditioned on, among other things,
            receipt of final court approval. Given the number of companies and
            attorneys involved in these proceedings, we expect that any
            consummation of this settlement will be a lengthy process. There can
            be no assurance that this settlement will be consummated.

      o     Proceeds under our directors' and officers' insurance policies may
            be unavailable or insufficient to cover our exposure under the
            proposed settlement of the pending stockholder litigation. The
            proposed settlement provides that the insurers of the participating
            issuer defendants will guarantee that the plaintiffs will recover at
            least $1 billion from the underwriter defendants. Any amounts
            necessary to fund that guarantee would come from participating
            issuers' directors' and officers' liability insurance policy
            proceeds as opposed to funds of the participating issuer defendants
            themselves. However, we could be required to contribute to the costs
            of the settlement if our insurance coverage were insufficient to pay
            our allocable share of the settlement costs. We have a total of $15
            million in directors and officers insurance coverage applicable to
            this litigation. We currently believe that this insurance coverage
            would be sufficient to cover our allocable share of the settlement
            costs. However, the insurance proceeds may be unavailable if the
            companies issuing those policies experience financial difficulties
            or are otherwise unable or unwilling to pay under those policies.
            Also, there can be no assurance that proceeds under those policies
            would be sufficient to cover our exposure under the settlement.

      o     Our stock price has been volatile and may continue to be volatile.
            The market price of our common stock has been volatile and is likely
            to remain volatile. Some of the reasons for the volatility are
            within our control, but many are beyond our control and unrelated to
            our operating performance. We believe the following factors, among
            others, have contributed to our stock price volatility:

                  o     Our financial performance and results

                  o     Announcements by us concerning our relationships with
                        our existing or new customers

                  o     Announcements by us concerning our completed and
                        contemplated acquisitions and other strategic growth
                        plans

                  o     Announcements by our customers


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<PAGE>

                  o     Our integration of Telaxis Communications and Young
                        Design following the April 2003 combination of the two
                        companies

                  o     Our integration of Terabeam Corporation, Ricochet
                        Networks, Inc. and KarlNet, Inc. following the second
                        quarter 2004 acquisition of those companies

                  o     Our integration of the assets of Proxim Corporation,
                        acquired in the third quarter of 2005

                  o     Sales of shares of our stock that we issued in
                        connection with our completed acquisitions or the
                        perception that such shares may be sold

                  o     The relatively low number of shares of our stock that
                        trade on an average day

                  o     The announcement of our filing an application to list
                        our common stock on the Nasdaq Capital Market

                  o     The introduction of new products by us

                  o     The financial performance of our competitors

                  o     The introduction of new products by our competitors

                  o     Other announcements by our competitors

                  o     General conditions of the financial markets

            We expect these factors and others to continue to contribute to the
            volatility of our stock price.

      o     Two stockholders own a significant beneficial interest in our common
            stock which could allow them to influence matters requiring
            stockholder approval. As of March 17, 2006, Concorde Equity II, LLC
            (a company controlled by our chief executive officer and board
            member Robert E. Fitzgerald) and funds owned by Mobius Venture
            Capital together owned approximately 27% of our Common Stock. As a
            result of their ownership these stockholders may be able to exert
            influence over actions, which require stockholder approval, for
            example, certain types of changes in control or amendments to our
            certificate of incorporation.

      o     Registration of the restricted stock held by one of our major
            stockholders could cause our stock price to fall. One stockholder,
            Concorde Equity II, owned approximately 12% of our outstanding
            common stock on March 17, 2006. Concorde Equity is a company
            controlled by Robert E. Fitzgerald, a board member and our chief
            executive officer. Concorde Equity received this stock in a private
            placement in connection with the combination of Young Design and
            Telaxis in April 2003. As such, this stock has been and is currently
            subject to restrictions on sale or transfer. In the merger
            agreement, we agreed to register this stock with the SEC in the
            first half of 2004, which, if completed, would enable this stock to
            be sold with less restriction. We have not yet registered this
            stock. This registration and potential sale of large amounts of our
            common stock could cause our stock price to fall or prevent it from
            increasing.

      o     Future actual or potential stock sales by Concorde Equity II could
            cause our stock price to fall or prevent it from increasing. Our
            stock held by Concorde Equity II is currently subject to
            restrictions on sale or transfer due to that company being
            controlled by our chief executive officer and board member Robert E.
            Fitzgerald. However, portions of this stock can be (and have been)
            sold in the open market. Between September 2005 and February 2006,
            Concorde Equity II sold 1,000,000 shares of our common stock. That
            constituted approximately 28% of Concorde Equity II's holdings prior
            to the sales. Certain of our other stockholders and other third
            parties viewed these stock sales negatively because they were being
            made by a company controlled by our chief executive officer.
            Concorde Equity II may make additional sales of our common stock in
            the future. Generally, these sales require public filings. Actual or
            potential sales of our stock by Concorde Equity II could cause our
            stock price to fall or prevent it from increasing for numerous
            reasons. For example, a substantial amount of our common stock
            becoming available (or being perceived to become available) for sale
            in the public market could cause the market price of our common
            stock to fall or prevent it from increasing, particularly given the
            relatively low trading volumes of our stock. Also, actual or
            potential sales by Concorde Equity II could be viewed negatively by
            other investors because Concorde Equity II is controlled by a member
            of our board of directors and chief executive officer.

      o     Future actual or potential stock distributions or sales by Mobius
            Venture Capital could cause our stock price to fall. Funds
            controlled by Mobius Venture Capital owned approximately 15% of our
            outstanding common stock on March 17, 2006. Because Mobius Venture
            Capital owns directly or indirectly more than 10% of our outstanding
            common stock, any sales or distributions by that stockholder will be
            reported publicly shortly after they occur. Actual or potential
            sales of this stock by that stockholder (or their investors) could
            cause our stock price to fall or prevent it from increasing for
            numerous reasons.


                                       33
<PAGE>

            For example, a substantial amount of our common stock becoming
            available (or being perceived to become available) for sale in the
            public market could cause the market price of our common stock to
            fall or prevent it from increasing, particularly given the
            relatively low trading volumes of our stock.

      o     Future actual or potential sales of the stock we issue upon exercise
            of stock options could cause our stock price to fall. As of March
            17, 2006, we had options outstanding to buy approximately 2,005,615
            shares of our common stock and may grant options or other stock
            grants relating to an additional approximately 412,229 shares of our
            common stock. We have filed registration statements with the SEC
            relating to most of the shares of our common stock that may be
            issued pursuant to the exercise of those outstanding stock options
            and stock options or other stock grants that we may grant in the
            future. In many cases, holders of those options could decide to
            exercise the options and immediately sell the shares. A substantial
            amount of this common stock becoming available (or being perceived
            to become available) for sale in the public market could cause the
            market price of our common stock to fall or prevent it from
            increasing, particularly given the relatively low trading volumes of
            our stock. Further, actual or potential sales of this stock could be
            viewed negatively by other investors because some of these stock
            options are held by our directors and senior executives.

      o     Future actual or potential sales of the stock we issue upon exercise
            of stock warrants could cause our stock price to fall. On March 17,
            2006, we had warrants outstanding to purchase approximately 438,470
            shares of our common stock at a weighted average purchase price of
            $1.98 per share. Shares of our common stock received upon exercise
            of those warrants may, depending on the method of exercise, be
            immediately available for public sale. A substantial amount of this
            common stock becoming available (or being perceived to become
            available) for sale in the public market could cause the market
            price of our common stock to fall or prevent it from increasing,
            particularly given the relatively low trading volumes of our stock.

      o     If we acquire other companies or product lines by issuing stock, the
            result may be dilutive to existing stockholders. In the second
            quarter of 2004, we acquired three companies and issued
            approximately 12.6 million shares in connection with those
            acquisitions. We may acquire other companies, businesses, and
            product lines in the future and may issue shares of our stock in
            connection with any such acquisitions. Any such issuances could
            significantly dilute the holdings of our current stockholders.

      o     If we raise additional capital by issuing stock, the result may be
            dilutive to existing stockholders. Our board of directors may decide
            to issue additional equity securities in many situations without the
            need for any stockholder vote. Given the recent prices for our
            common stock, significant dilution to our stockholders could result
            if we raise additional funds by issuing equity securities. Further,
            these issuances may also involve issuing stock at a price per share
            below the current trading prices. For example, on December 8, 2003,
            we issued 500,000 shares of our common stock in a private placement
            at a price of $4.10 per share. That price was an approximately 14%
            discount from the last sale price of our common stock on that date
            of $4.75 per share.

      o     The terms of any equity securities we may issue in the future may be
            better than the terms of our common stock. Our board of directors is
            authorized to create and issue equity securities that have rights,
            privileges, and preferences senior to those of our common stock. In
            many situations, our board could take these actions without the need
            for any stockholder vote.

      o     We have limited capital resources and our prospects for obtaining
            additional financing, if required, are uncertain. Our future capital
            requirements will depend on numerous factors, including expansion of
            marketing and sales efforts, development costs of new products, the
            timing and extent of commercial acceptance for our products, our
            integration with the operations of Proxim Corporation, Terabeam
            Corporation, Ricochet Networks, Inc., and KarlNet, Inc. and any
            other companies we may acquire, and potential changes in strategic
            direction. Additional financing may not be available to us in the
            future on acceptable terms or at all. If funds are not available, we
            may have to delay, scale back, or terminate business or product
            lines or our sales and marketing, research and development,
            acquisition, or manufacturing programs. Our inability to obtain
            capital could seriously damage our business, operating results, and
            financial condition and cause our stock price to decline.


                                       34
<PAGE>

      o     We may raise additional capital on terms that we or our stockholders
            find onerous, which could adversely affect our financial results and
            stock price. In the future, we may be able to raise additional
            capital only on terms that we find onerous. Alternatively, some of
            our stockholders may find the terms of our capital arrangements to
            be onerous. For example, a small number of stockholders expressed
            displeasure at our issuing shares in December 2003 in a private
            placement at a price below the current trading price of our stock.
            We may also obtain funds through arrangements with partners or
            others that may require us to relinquish rights to certain of our
            technologies or potential products or other assets. The terms of our
            capital arrangements or the perceived onerous nature of those
            arrangements could adversely affect our financial results and stock
            price.

      Possible Implications of Cautionary Statements

      The items described above, either individually or in some combination,
could have a material adverse impact on our reputation, business, need for
additional capital, ability to obtain additional debt or equity financing,
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 any
forward-looking statements.

Item 2. Properties.

      We lease multiple facilities for our operations in multiple different
geographic locations.

      Our headquarters is an approximately 115,000 square foot facility located
in San Jose, California. This facility accommodates the following departments:
senior management, administration, finance, marketing, manufacturing, sales and
research and development. The term of the lease for this facility expires on
June 30, 2008.

      We lease an approximately 15,000 square foot facility located in Falls
Church, Virginia. This facility accommodates marketing, sales, manufacturing and
finance. The term of the lease for this facility expires on December 31, 2010.

      We lease an approximately 17,000 square foot facility located in
Haverhill, Massachusetts. This facility accommodates engineering, development,
manufacturing, and associated staff for our Harmonix Division. The term of the
lease for this facility expires on October 31, 2015 subject to our early
termination right after five years.

      We lease four facilities in Europe and Asia to accommodate our
international sales and operations staff.

      We lease approximately 11,000 square feet of warehouse space in Santa
Clara, California. This facility is primarily used for inventory. The term of
the lease for this facility expires on October 31, 2006. We have not yet decided
whether we will seek to extend the lease for this facility. If the facility were
to become unavailable for our continued use, we believe we could locate suitable
new warehouse space without undue difficulty.

      Our Ricochet Networks subsidiary leases an approximately 5,000 square feet
facility located in Denver, Colorado. This facility accommodates engineering,
development, sales, and marketing operations, and associated staff, for our
Ricochet Networks subsidiary. The term of the lease expires on January 31, 2008.
We have guaranteed the obligations of Ricochet Networks under this lease.

      Our Ricochet Networks subsidiary leases approximately 84,000 square feet
located in two facilities in Denver, Colorado and one facility in Tulsa,
Oklahoma. These facilities provide warehouse space for Ricochet's inventory. The
two Denver facilities are leased on a month-to-month basis. The term of the
lease for the Tulsa facility expires on December 31, 2006. If any of these
facilities were to become unavailable for our continued use, we believe we could
locate suitable new warehouse space without undue difficulty.

      Primarily with respect to our Ricochet Networks subsidiary, we or Ricochet
directly will lease and has been leasing space in and around each of the areas
where it provides service as necessary to house switches, other equipment, and
personnel.


                                       35
<PAGE>

      There are a small number of facilities leased by Terabeam Corporation
prior to our acquiring that company that are not presently being used and that
we have no present plans to use. We have been negotiating with the landlords of
the various facilities for the early termination of those leases.

Item 3. Legal Proceedings.

      IPO Litigation
      --------------

      During the period from June 12 to September 13, 2001, four purported
securities class action lawsuits were filed against Telaxis Communications
Corporation, a predecessor company to Terabeam, Inc., in the U.S. District Court
for the Southern District of New York: Katz v. Telaxis Communications
Corporation et al., Kucera v. Telaxis Communications Corporation et al.,
Paquette v. Telaxis Communications Corporation et al., and Inglis v. Telaxis
Communications Corporation et al. The lawsuits also named one or more of the
underwriters in the Telaxis initial public offering and certain of its officers
and directors. On April 19, 2002, the plaintiffs filed a single consolidated
amended complaint which supersedes the individual complaints originally filed.
The amended complaint alleges, among other things, violations of the
registration and antifraud provisions of the federal securities laws due to
alleged statements in and omissions from the Telaxis initial public offering
registration statement concerning the underwriters' alleged activities in
connection with the underwriting of Telaxis' shares to the public. The amended
complaint seeks, among other things, unspecified damages and costs associated
with the litigation. These lawsuits have been assigned along with, we
understand, approximately 1,000 other lawsuits making substantially similar
allegations against approximately 300 other publicly-traded companies and their
public offering underwriters to a single federal judge in the U.S. District
Court for the Southern District of New York for consolidated pre-trial purposes.
We believe the claims against us are without merit and have defended the
litigation vigorously. The litigation process is inherently uncertain, however,
and there can be no assurance that the outcome of these claims will be favorable
for us.

      On July 15, 2002, together with the other issuer defendants, Telaxis filed
a collective motion to dismiss the consolidated amended complaint against the
issuers on various legal grounds common to all or most of the issuer defendants.
The underwriters also filed separate motions to dismiss the claims against them.
In October 2002, the court approved a stipulation dismissing without prejudice
all claims against the Telaxis directors and officers who had been defendants in
the litigation. On February 19, 2003, the court issued its ruling on the
separate motions to dismiss filed by the issuer defendants and the underwriter
defendants. The court granted in part and denied in part the issuer defendants'
motions. The court dismissed, with prejudice, all claims brought against Telaxis
under the anti-fraud provisions of the securities laws. The court denied the
motion to dismiss the claims brought under the registration provisions of the
securities laws (which do not require that intent to defraud be pleaded) as to
Telaxis and as to substantially all of the other issuer defendants. The court
denied the underwriter defendants' motion to dismiss in all respects.

      In June 2003, we elected to participate in a proposed settlement agreement
with the plaintiffs in this litigation. We understand that virtually all of the
other non-bankrupt issuer defendants have also elected to participate in this
proposed settlement. If ultimately approved by the court, this proposed
settlement would result in the dismissal, with prejudice, of all claims in the
litigation against us and against the other issuer defendants who have elected
to participate in the proposed settlement, together with the current or former
officers and directors of participating issuers who were named as individual
defendants. The proposed settlement does not provide for the resolution of any
claims against the underwriter defendants. The proposed settlement provides that
the insurers of the participating issuer defendants will guarantee that the
plaintiffs in the cases brought against the participating issuer defendants will
recover at least $1 billion. If recoveries totaling $1 billion or more are
obtained by the plaintiffs from the underwriter defendants, however, the
monetary obligations to the plaintiffs under the proposed settlement will be
satisfied. In addition, we and the other participating issuer defendants will be
required to assign to the plaintiffs certain claims that the participating
issuer defendants may have against the underwriters of their IPOs.

      The proposed settlement contemplates that any amounts necessary to fund
the guarantee contained in the settlement or settlement-related expenses would
come from participating issuers' directors and officers liability insurance
policy proceeds as opposed to funds of the participating issuer defendants
themselves. A participating issuer defendant could be required to contribute to
the costs of the settlement if that issuer's insurance coverage were
insufficient to pay that issuer's allocable share of the settlement costs. We
currently expect that our insurance proceeds will be sufficient for these
purposes and that we will not otherwise be required to contribute to the
proposed settlement.


                                       36
<PAGE>

      Consummation of the proposed settlement is conditioned upon obtaining
approval by the court. On September 1, 2005, the court preliminarily approved
the proposed settlement, directed that notice of the terms of the proposed
settlement be provided to class members, and scheduled a fairness hearing for
April 24, 2006, at which objections to the proposed settlement will be heard.
The court will determine whether to grant final approval to the proposed
settlement.

      If the proposed settlement described above is not consummated, we intend
to continue to defend the litigation vigorously. Moreover, if the proposed
settlement is not consummated, we believe that the underwriters may have an
obligation to indemnify us for the legal fees and other costs of defending these
suits. While there can be no assurance as to the ultimate outcome of these
proceedings, we currently believe that the final result of these actions will
have no material effect on our consolidated financial condition, results of
operations, or cash flows.

      Symbol Technologies Litigation
      ------------------------------

      On or about October 28, 2005, Symbol Technologies, Inc. filed a lawsuit in
the United States District Court for the District of Delaware against Terabeam,
Inc. (then named YDI Wireless, Inc.), Proxim Wireless Corporation, and Terabeam
Corporation. The suit alleged that certain products of Terabeam, Inc., Proxim
Wireless, and Terabeam Corporation infringe three of Symbol's patents, including
one patent previously transferred to it by Proxim Corporation. Symbol had
successfully sued Proxim Corporation alleging that certain of Proxim
Corporation's products infringed the two Symbol patents that Symbol was
asserting against Terabeam, Inc., Proxim Wireless, and Terabeam Corporation. In
this suit, Symbol was seeking an injunction preventing Terabeam, Inc., Proxim
Wireless, and Terabeam Corporation from infringing its patents and monetary
damages.

      On February 24, 2006, Terabeam, Inc. and its subsidiaries entered into a
settlement agreement with Symbol and its subsidiaries resolving all outstanding
litigation between the companies. In connection with that settlement agreement,
Symbol was required to file a dismissal of its lawsuit previously filed against
Terabeam. The dismissal will initially be without prejudice but will become a
dismissal with prejudice by its terms 90 days after Terabeam completes the
payments contemplated under the patent license agreement (as discussed below).

      Under the terms of the settlement agreement, Terabeam and Symbol entered
into a patent license agreement, dated February 24, 2006, and Terabeam executed
two patent assignments, each dated February 24, 2006, in favor of Symbol.

      Under the terms of the patent license agreement, the companies have agreed
to cross license specified patents, and Terabeam has agreed to pay to Symbol
fixed license fees totaling $4.3 million. $600,000 was paid on or before March
3, 2006; $250,000 is scheduled to be paid quarterly for the second, third, and
fourth quarters of 2006 and each of the four quarters of 2007; $300,000 is
scheduled to be paid quarterly for each of the four quarters of 2008; and
$375,000 is scheduled to be paid quarterly for the first two quarters of 2009.
The amounts may be prepaid at any time without penalty. The parties also
released each other from any patent infringement claims arising prior to
February 24, 2006 to the extent such infringement would have been licensed under
the patent license agreement. Also pursuant to the terms of the patent license
agreement, Terabeam and Symbol have agreed not to sue one another for patent
infringement with respect to one another's products for three years.

      Under the terms of the patent assignments executed by Terabeam, Terabeam
has assigned to Symbol specified patents and patent applications.

      General
      -------

      We are subject to potential liability under contractual and other matters
and various claims and legal actions which are pending or may be asserted
against us or our subsidiaries, including claims arising from excess leased
facilities. These matters may arise in the ordinary course and conduct of our
business. While we cannot predict the outcome of such claims and legal actions
with certainty, we believe that such matters should not result in any liability
which would have a material adverse affect on our business.


                                       37
<PAGE>

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, 2005.


                                       38
<PAGE>

                                     PART II

Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities.

Market Information

      Our common stock is currently quoted on the Nasdaq Capital Market under
the symbol "TRBM." The table below shows, for the calendar year quarters
indicated, the reported high and low sale prices of our common stock, as
reported on the Nasdaq Capital Market from June 30, 2004 to December 31, 2005.
The table below shows, for the period from January 1, 2004 through June 29,
2004, the reported high and low bid quotations for our common stock on the OTC
Bulletin Board. These quotations reflect inter-dealer prices, without retail
mark-up, mark-down, or commission and may not necessarily represent actual
transactions. In each case, this information is based on published financial
sources.

                                          Terabeam Common Stock
                                       ---------------------------
                                            High         Low
                                            ----         ---
            2004
            First Quarter                   $8.00       $3.65
            Second Quarter                  $6.85       $3.60
            Third Quarter                   $5.85       $1.96
            Fourth Quarter                  $7.55       $2.15

            2005
            First Quarter                   $6.00       $2.33
            Second Quarter                  $3.03       $1.93
            Third Quarter                   $3.56       $2.35
            Fourth Quarter                  $3.08       $2.21

      As of March 17, 2006, the number of stockholders of record of our common
stock was approximately 223. 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 and currently do not
anticipate paying cash dividends in the foreseeable future.

Equity Compensation Plan Information

      The following table and narrative provide information about our equity
compensation plans as of December 31, 2005. More information about our stock
options is contained in our financial statements, including the notes thereto,
included in this Annual Report on Form 10-K.


                                       39
<PAGE>

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------
                                  Number of securities                                 Number of securities remaining
                                  to be issued upon         Weighted-average           available for future issuance
                                  exercise of               exercise price of          under equity compensation
                                  outstanding options,      outstanding options,       plans (excluding securities
                                  warrants and rights       warrants and rights (1)    reflected in column (a))
Plan category                     (1)  (a)                  (b)                        (c)
----------------------------------------------------------------------------------------------------------------------
<S>                                    <C>                          <C>                       <C>
Equity compensation plans
approved by security holders           1,949,163                    $3.41                     444,255
----------------------------------------------------------------------------------------------------------------------

Equity compensation plans
not approved
by security holders                       43,739                    $2.11                           0
----------------------------------------------------------------------------------------------------------------------

Total                                  1,992,902                    $3.38                     444,255
----------------------------------------------------------------------------------------------------------------------
</TABLE>

----------
(1) This column does not reflect the options outstanding on December 31, 2005 to
purchase 50,144 shares of our common stock at an exercise price of $1.60 per
share that we assumed in connection with our combination with Young Design, Inc.
on April 1, 2003. Those options had been issued under an equity compensation
plan that was approved by Young Design's stockholders. No future grants of
options may be made under that plan. This column also does not reflect the
warrants outstanding on December 31, 2005 to purchase 116,118 shares of our
common stock at a weighted average exercise price of $1.72 per share that we
assumed in connection with our acquisition of Terabeam Corporation in June 2004.

(2) Consists of shares available for future issuance under our 2004 Stock Plan.

      On July 17, 2001, our board of directors adopted our 2001 Nonqualified
Stock Plan and reserved 375,000 shares of our common stock for issuance pursuant
to that plan. The 2001 plan provided for the grant of non-qualified stock
options, performance share awards, and stock awards (restricted or unrestricted)
to directors, officers, and employees. The compensation committee of the board
of directors generally administers the 2001 plan and recommended to the board of
directors or decided itself the terms of stock rights granted, including the
exercise price, the number of shares that may be purchased under individual
option awards, and the vesting period of options. The board of directors may
amend, modify, or terminate the 2001 stock plan at any time as long as the
amendment, modification, or termination does not impair the rights of plan
participants under outstanding options or other stock rights. Effective
September 9, 2004, the 2001 plan was amended to reduce the number of shares of
our common stock issuable thereunder to 175,764, which was the number of shares
subject to outstanding options as of that date. No further grants or awards will
be made pursuant to the 2001 plan.

Sales of Unregistered Securities in Fourth Quarter 2005

      We issued 2,182 shares of common stock at $2.08 per share in December 2005
to a warrant holder upon the exercise of warrants on a cashless basis (we
withheld 9,272 shares of common stock as payment for the aggregate exercise
price of the warrants). We received no cash proceeds from the issuance of these
shares. The issuance 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. This issuance of common stock by
us did not involve the use of an underwriter, and no commissions were paid in
connection with this issuance.


                                       40
<PAGE>

Item 6. Selected Financial Data.

      The following selected historical consolidated financial data was derived
from our historical financial statements. The financial statements for the
fiscal years ended December 31, 2001 through 2005 were audited by Fitzgerald,
Snyder, & Co., P.C., an independent registered public accounting firm. This
information should be read in conjunction with our management discussion and
analysis of financial condition and results of operations and our financial
statements, including the related notes, contained elsewhere in this annual
report on Form 10-K.

<TABLE>
<CAPTION>
                                                Year Ended December 31,
                                                              -----------------------------------------------------
                                                                2001       2002       2003       2004        2005
                                                              --------   --------   --------   --------    --------
<S>                                                           <C>        <C>        <C>        <C>         <C>
                                                                     (in thousands, except per share data)
Consolidated Statements of Operations Data:

  Revenue, net ............................................   $ 14,314   $ 20,304   $ 27,241   $ 22,897    $ 58,982
  Gross profit ............................................      5,028      7,928     11,527      9,483      24,909
  Income (loss) from continuing operations ................        125        947        300     (1,346)    (11,160)
  Extraordinary item ......................................         --         89      4,347         --          --
  Change in accounting ....................................         --        526         --         --          --
  Net income (loss) applicable to common stockholders .....        125      1,562      4,647     (1,346)    (11,160)
  Basic earnings (loss) per share from continuing
    operations ............................................       0.01       0.10       0.02      (0.07)      (0.51)
  Basic - Extraordinary gain ..............................         --       0.01       0.35         --          --
  Basic - Change in accounting ............................         --       0.06         --         --          --
  Basic earnings (loss) per share .........................       0.01       0.17       0.37      (0.07)      (0.51)
  Diluted earnings (loss) per share from continuing
    operations ............................................       0.01       0.10       0.02      (0.07)      (0.51)
  Diluted - Extraordinary gain ............................         --       0.01       0.34         --          --
  Diluted - Change in accounting ..........................         --       0.06         --         --          --
  Diluted earnings (loss) per share .......................   $   0.01   $   0.17   $   0.36   $  (0.07)   $  (0.51)
  Shares used in computing basic earnings per share .......      9,375      9,375     12,571     19,792      21,801
  Shares used in computing diluted earnings per share .....      9,375      9,375     12,841     19,792      21,801
</TABLE>
<TABLE>
<CAPTION>
                                                                                  December 31,
                                                              -----------------------------------------------------
                                                                2001       2002       2003       2004        2005
                                                              --------   --------   --------   --------    --------
<S>                                                           <C>        <C>        <C>        <C>         <C>
Consolidated Balance Sheet Data:

  Cash and cash equivalents and short term
    investments ...........................................   $  1,133   $    939   $  8,990   $ 40,737    $ 14,393
  Working capital .........................................      2,111      2,946     12,577     41,532      15,079
  Total assets ............................................      6,898      8,572     20,719     77,284      74,758
  Long-term obligations, less current portion .............      1,568      1,402      1,298      1,270       2,956
  Total stockholders' equity ..............................   $  2,908   $  4,508   $ 16,185   $ 65,991    $ 52,718
</TABLE>


                                       41
<PAGE>

Our Quarterly Financial Data

<TABLE>
<CAPTION>
                                                      Quarter
                                       (in thousands, except per share data)
----------------------------------------------------------------------------------------------------------------
2005                                                      First          Second          Third          Fourth
-----------------------------------------------------   ----------     ----------      ----------     ----------
<S>                                                     <C>            <C>             <C>            <C>
Revenue .............................................   $    6,597     $    7,165      $   18,147     $   27,073
Gross profit ........................................        3,278          3,478           5,501         12,652
Net income (loss) ...................................         (970)          (987)        (10,013)           810
Basic and diluted earnings (loss) per share .........   $    (0.04)    $    (0.04)     $    (0.47)    $     0.04
----------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
                                                      Quarter
                                       (in thousands, except per share data)
----------------------------------------------------------------------------------------------------------------
2004                                                      First          Second          Third          Fourth
-----------------------------------------------------   ----------     ----------      ----------     ----------
<S>                                                     <C>            <C>             <C>            <C>
Revenue .............................................   $    6,017     $    4,733      $    6,370     $    5,777
Gross profit ........................................        2,466          1,540           2,688          2,789
Net income (loss) ...................................          303         (1,605)         (2,351)         2,307
Basic and diluted earnings (loss) per share .........   $     0.02     $    (0.10)     $    (0.09)    $     0.10
----------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
                                                      Quarter
                                       (in thousands, except per share data)
----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------
2003                                                      First          Second          Third          Fourth
-----------------------------------------------------   ----------     ----------      ----------     ----------
<S>                                                     <C>            <C>             <C>            <C>
Revenue .............................................   $    6,436     $    7,229      $    8,029     $    5,547
Gross profit ........................................        1,998          2,268           4,288          2,973
Income (loss) before extraordinary item .............          106           (815)          1,053            (44)
Extraordinary item ..................................           --          4,347              --             --
Net income (loss) ...................................          106          3,532           1,053            (44)
Basic earnings (loss) per share before
 extraordinary item .................................         0.01          (0.06)           0.08           0.00
Basic earnings per share - Extraordinary item .......           --           0.32              --             --
Basic earnings per share ............................         0.01           0.26            0.08           0.00
Diluted earnings (loss) per share before
 extraordinary item .................................         0.01          (0.06)           0.07           0.00
Diluted earnings per share - extraordinary item .....           --           0.32              --             --
Diluted earnings per share ..........................   $     0.01     $     0.26      $     0.07     $     0.00
----------------------------------------------------------------------------------------------------------------
</TABLE>

            Earnings (loss) per share calculations for each of the quarters are
based on the weighted average shares outstanding for each period. The sum of the
quarters may not necessarily be equal to the full year earnings per share
amounts.

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

Overview

      Effective November 7, 2005, the Company changed its corporate name from
"YDI Wireless, Inc." to "Terabeam, Inc." This name change was effected by means
of a "short-form" statutory merger of the Company's wholly owned subsidiary
Terabeam, Inc. with and into the Company with the Company being the surviving
corporation in the merger under the new name of Terabeam, Inc. The Company also
changed its ticker symbol to "TRBM" in connection with that change of corporate
name.

      On July 27, 2005, Terabeam Wireless, through its wholly owned subsidiary
Proxim Wireless Corporation ("New Proxim"), completed its purchase of
substantially all of the assets of Proxim Corporation and its subsidiaries
Proxim Wireless Networks, Inc. and Proxim International Holdings, Inc.
(collectively, "Old Proxim") pursuant to an


                                       42
<PAGE>

asset purchase agreement dated as of July 18, 2005. Under the terms of the asset
purchase agreement, Terabeam acquired most of the domestic and foreign
operations of Old Proxim for a purchase price of approximately $25,200,000,
subject to certain adjustments, liability assumptions, and deductions. At the
closing, Terabeam assumed specified obligations of Old Proxim, including
specified employee-related obligations. The purchase price after adjustments was
approximately $24,300,000.

      Old Proxim was a leading provider of wireless networking equipment for
Wi-Fi and broadband wireless networks, and provided enterprise and service
provider customers with wireless solutions for the mobile enterprise, security
and surveillance, last mile access, voice and data backhaul, public hot spots,
and metropolitan area networks. Subsequent to the purchase, the Company moved
its corporate headquarters to the Old Proxim offices in San Jose, CA.

      Effective May 2004, the Company acquired KarlNet, Inc., a wireless
software development company. In June 2004, the Company acquired Terabeam
Corporation, a wireless telecommunications company. Also in June 2004 the
Company acquired Ricochet Networks, Inc., a wireless service provider. The
financial results of these companies and the operations the Company acquired
from Old Proxim from and after the dates of acquisition are included in the
financial results reported for the Company.

      During 2004, Terabeam began operating in two different business segments.
The first segment is the historic operations of Terabeam as a designer,
manufacturer, and seller of wireless telecommunications equipment ("Equipment").
The financial results of the business acquired from Old Proxim are reported as
part of the Equipment business. The second segment is as a wireless Internet
service provider ("Services") in several major metropolitan cities. This
business was acquired with the Ricochet Networks acquisition during the second
quarter of 2004. There are no significant inter-company transactions which
affect the revenue or expenses of either segment.

Critical Accounting Policies

      The preparation of our consolidated financial statements in accordance
with accounting principles generally accepted in the United States of America
requires us 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 periods. We are required to make judgments and
estimates about the effect of matters that are inherently uncertain. Actual
results could differ from our estimates. The most significant areas involving
our judgments and estimates are described below.

      Revenue Recognition

      Product revenue is generally recognized upon shipment when persuasive
evidence of an arrangement exists, the price is fixed or determinable, and
collectibility is reasonably assured. The Company grants certain distributors
limited rights of return and price protection on unsold products. Since certain
conditions of SFAS 48 Revenue Recognition When Right of Return Exists are not
met for sales to these distributors, revenue is deferred until the product is
sold to an end customer. Generally, the Company has no obligation to provide any
modification or customization upgrades, enhancements or other post-sale customer
support. Revenue from services, such as pre-installation diagnostic testing and
product repair services, is recognized over the period for which the services
are performed, which is typically less than one month. Revenue from enhanced
service contracts is recognized over the contract period, which ranges from one
to three years.

      For our services business, we recognize revenue when the customer pays for
and then has access to our network for the current fiscal period. Any funds the
customer pays for future fiscal periods are treated as deferred revenue and
recognized in the future fiscal periods for which the customer has access to our
network.

      Asset Impairment

      The Company periodically evaluates the carrying value of long-lived assets
when events and circumstances warrant such a review. The carrying value of a
long-lived asset is considered impaired when the anticipated undiscounted cash
flow from such asset is separately identifiable and is less than the carrying
value. In that event, a loss is recognized based on the amount by which the
carrying value exceeds the fair market value of the long-lived


                                       43
<PAGE>

asset. Fair market value is determined primarily using the anticipated cash
flows discounted at a rate commensurate with the risk involved.

      Accounts Receivable Valuation

      We maintain an allowance for doubtful accounts for estimated losses
resulting from the inability or unwillingness of our customers to make required
payments. If the financial condition of our customers were to deteriorate
resulting in an impairment of their ability to make payments, additional
allowances may be required.

      Inventory Valuation

      Inventory is stated at the lower of cost or market, cost being determined
on a first-in, first-out basis. Provisions are made to reduce excess or obsolete
inventory to its estimated net realizable value. The process for evaluating the
value of excess and obsolete inventory often requires us to make subjective
judgments and estimates concerning future sales levels, quantities, and prices
at which such inventory will be able to be sold in the normal course of
business, particularly where we have made last-time-buys of components.
Accelerating the disposal process or incorrect estimates of future sales may
necessitate future adjustments to these provisions.

      Goodwill

      Goodwill is the excess of the cost of an acquired entity over the net
amounts assigned to assets acquired and liabilities assumed. Goodwill is not
amortized but is tested for impairment at least annually at the reporting unit
level, and more frequently if an event occurs or circumstances change that would
more likely than not reduce the fair value of a reporting unit below its
carrying amount. As of December 31, 2005, the Company recorded an impairment
loss of $200,000 related to the service reporting unit.

      Intangible Assets

      Intangible assets are accounted for in accordance with SFAS No. 142
"Goodwill and Other Intangible Assets". Intangible assets with finite lives are
amortized over the estimated useful lives using the straight-line method. An
impairment loss on such assets is recognized if the carrying amount of an
intangible asset is not recoverable and its carrying amount exceeds its fair
value. Intangible assets with indefinite useful lives are not amortized but are
tested for impairment at least annually or more frequently if there are
indications that the asset is impaired. The impairment test for these assets
consists of a comparison of the fair value of the asset with its carrying
amount. If the carrying amount of an intangible asset with an indefinite useful
life exceeds its fair value, an impairment loss is recognized in an amount equal
to that excess. For either type of intangible asset, after an impairment loss is
recognized, the adjusted carrying amount of the intangible asset becomes its new
accounting basis. Subsequent reversal of a previously recognized impairment loss
is prohibited.

      Our intangible assets include purchased technology and various assets
acquired in business combination transactions. Assets acquired in business
combination transactions include existing hardware technologies, trade names,
existing software technologies, customer relationships and patents. Some of
these assets have finite useful lives and some have indefinite useful lives
During the year ended December 31, 2005, and subsequent to the acquisition of
Old Proxim, we recognized an impairment write off of $3.6 million related to the
Terabeam trade name.

      Capitalized Software - We capitalize software costs for projects from the
time the project is determined to be technologically feasible until the project
is salable. During the year ended December 31, 2005, and subsequent to the
acquisition of Old Proxim, we wrote off approximately $1.1 million of
capitalized software costs because (due to market timing issues) the Company
abandoned development of the Logan software project after acquiring similar
software in the Old Proxim acquisition and determining that it would take
significantly longer to bring Logan to market than anticipated and that, when
commercially available, Logan would not have the feature set required to be
competitive.


                                       44
<PAGE>

Result of Operations

Years Ended December 31, 2005 and 2004

      The following table provides statement of operations data as a percentage
of sales for the periods presented.

<TABLE>
<CAPTION>
                                                                       Years Ended
                                                                       December 31,
                                                                  ---------------------
                                                                    2005         2004
                                                                  --------     --------
<S>                                                                    <C>          <C>
         Sales ................................................        100%         100%
         Cost of sales ........................................         58           59
                                                                  --------     --------

         Gross profit .........................................         42           41
         Operating expenses
           Selling ............................................         17           11
           Restructuring /impairment ..........................         10            0
           Research and development ...........................         13           13
           General and administrative .........................         22           44
                                                                  --------     --------

             Total operating expenses .........................         62           68
                                                                  --------     --------

         Operating income (loss) ..............................        (20)         (27)
         Other income .........................................          1           21
         Income taxes .........................................         --           --

         Minority interest in net income of Merry Fields                --           --
                                                                  --------     --------

         Net income (loss) ....................................        (19)%         (6)%
                                                                  ========     ========
</TABLE>

      Sales

      Sales for the year ended December 31, 2005 were $59.0 million as compared
to $22.9 million for the same period in 2004, an increase of $36.1 million or
61%. The primary reason for the increase in sales was the acquisition of the Old
Proxim product lines and distribution channels on July 27, 2005. Sales through
the new distribution channels totaled approximately $34.2 million for the year
ended December 31, 2005.

      For the years ending December 31, 2005 and 2004 international sales,
excluding Canada, approximated 35% and 18%, respectively, of total sales. The
reason for the increase in international sales as a percent of sales is because
a significant percentage of the sales from Old Proxim acquired products were
ultimately to international customers.

      Cost of goods sold and gross profit

      Cost of goods sold and gross profit for the year ended December 31, 2005
were $34.1 million and $24.9 million, respectively. Of the $34.1 million cost of
goods sold, $2.1 million was a restructuring provision for excess and obsolete
inventory. The excess inventory charges were due principally to management's
decision to discontinue certain older Terabeam product lines subsequent to the
acquisition of the Old Proxim product lines and distribution channels. For the
same period in 2004, costs of goods sold and gross profit were $13.4 million and
$9.5 million, respectively. Gross profit, as a percentage of sales, for the
years ended December 31, 2005 and 2004 was 42% and 41%, respectively.

      Maintaining or increasing our profit margins continues to be one of our
major goals. The product lines and the agreements with contract manufacturers
that we acquired from Old Proxim bring significant production efficiencies by
reducing labor costs as well as material costs because of the large volumes of
raw material purchases larger contract manufacturers can negotiate. As we
introduce new products to our customers in 2006, we believe that providing very
high quality products and being early to market with new technologies will
reduce the pressure to compete principally on price. However, our profit margins
may be challenged because of the downward pressure brought about by increased
competition from the many new competitors entering the wireless marketplace.
Some competitors may use more favorable pricing structures than us to try to
gain immediate market share, and despite our efforts, we may be unable to
increase or maintain our margins in this highly competitive market.


                                       45
<PAGE>

      Sales and Marketing Expenses

      Selling and marketing expenses consist primarily of employee salaries and
associated costs for selling, marketing, and customer support. Selling and
marketing expenses increased to $9.8 million for the year ended December 31,
2005 from $2.6 million for the year ended December 31, 2004, which is a $7.2
million increase. Sales and Marketing expenses as a percentage of sales
increased to 17% in 2005 as compared to 11% in the previous year. This increase
was due primarily to the following factors: 1) an increase of approximately $6.0
million during the quarter due to the acquisition of Old Proxim sales and
distribution channels, and 2) increased sales and marketing headcount, increased
salaries and increased travel by sales personnel as compared to the prior fiscal
year.

      Restructuring and impairment charges

      During the year ended December 31, 2005, and subsequent to the Old Proxim
acquisition, we recorded restructuring charges for severance and excess
facilities of approximately $944,000. These charges consisted of operating lease
commitments related to facilities which were closed during the year, and
severance payments to Terabeam employees laid off subsequent to the Old Proxim
acquisition.

      During the year ended December, 2005, and subsequent to the Old Proxim
acquisition, the restructuring of the Company and the Company's product lines
affected the carrying value of certain intangible assets, and we recorded a
charge for the impairment of intangible assets in the accompanying financial
statements totaling $4.7 million. These charges consisted of:

            o     A $3.6 million impairment charge related to the Terabeam trade
                  name. Subsequent to the Old Proxim acquisition, the Company
                  chose to sell its wireless equipment products under the go to
                  market name of Proxim Wireless. Since there will be no future
                  revenue stream based on the Terabeam name, an independent
                  third party valuation determined that the fair value of the
                  Terabeam trade name was de minimis.

            o     A $1.1 million charge related to the write off of certain
                  software development costs that had been previously
                  capitalized under Financial Accounting Standards Board
                  Statement of Financial Accounting Standard No. 86, "Accounting
                  for the Costs of Computer Software to Be Sold, Leased, or
                  Otherwise Marketed". The Company abandoned development of its
                  Logan software development project after acquiring similar
                  software in the Proxim acquisition and determining that it
                  would take significantly longer to bring Logan to market than
                  anticipated and that, when commercially available, Logan would
                  not have the feature set required to be competitive.

      Goodwill is tested for impairment at least annually at the reporting unit
level. As of December 31, 2005, the Company recorded a goodwill impairment loss
of $200,000 related to the Ricochet service reporting unit.

      There were no corresponding restructuring or impairment charges during the
year ended December 31, 2004.

      Research and Development Expenses

      Research and development expenses consist primarily of personnel salaries
and fringe benefits and related costs associated with our product development
efforts. These include costs for development of products and components, test
equipment and related facilities. Research and development expenses increased to
$8.0 million for the year ended December 31, 2005 from $2.9 million for the year
ended December 31, 2004, a $5.1 million or 176% increase. This increase was due
primarily to an increase of approximately $5.0 million during the year due to
the acquisition of the Old Proxim engineering and research and development
infrastructure. Synergies between the product lines of Old Proxim and the
Company allowed us to discontinue certain redundant research and development
efforts and reduce the Terabeam workforce in this area during the third quarter
of 2005.

      General and Administrative Expenses

      General and administrative expenses consist primarily of employee
salaries, benefits and associated costs for information systems, finance, legal,
and administration of a public company. General and administrative expenses
increased to $12.9 million for the year ended December 31, 2005 from $10.0
million for the year ended December 31, 2004, a $2.9 million increase or 29%.
There was an increase of approximately $2.9 million during


                                       46
<PAGE>

the year due to the additional expenses incurred as a result of the acquisition
of Old Proxim. General and administrative expenses as a percentage of sales
decreased to 22% from 44% in the prior year. During 2004 there were significant
costs related to the acquisition of Terabeam Corporation, Karlnet, and Ricochet.

      Other income (expenses)

      Other income and expenses totaled approximately $515,000 for the year
ended December 31, 2005, as compared to $4.7 million for the year ended December
31, 2004. The primary reason for the decrease was because the company recognized
a gain on the sale of Phazar stock of $3.9 million in 2004. There was also a
decrease in interest income of because the cash and investments we acquired as a
result of the Terabeam acquisition in 2004 were substantially reduced by the
cash used for the Old Proxim acquisition during the third quarter of 2005.

Years Ended December 31, 2004 and 2003

      The following table provides statement of operations data as a percentage
of sales for the periods presented.

<TABLE>
<CAPTION>
                                                                    Years Ended
                                                                    December 31
                                                               ---------------------
                                                                 2004         2003
                                                               --------     --------
<S>                                                                 <C>          <C>
          Sales ............................................        100%         100%
          Cost of sales ....................................         59           58
                                                               --------     --------

          Gross profit .....................................         41           42
          Operating expenses
            Selling ........................................         11            8
            Research and development .......................         13            6
            General and administrative .....................         44           26
                                                               --------     --------

              Total operating expenses .....................         68           40
                                                               --------     --------

          Operating income (loss) ..........................        (27)           2
          Other income .....................................         21           --
          Income taxes .....................................         --           (1)

          Extraordinary gain and change in accounting                --           16
                                                               --------     --------

          Net income (loss) ................................         (6)%         17%
                                                               ========     ========
</TABLE>

      Sales

      Sales for the year ended December 31, 2004 were $22.9 million as compared
to $27.2 million for the same period in 2003 for a decrease of $4.3 million or
16%. There were two significant factors contributing to our net decline in
sales. First was the receipt of significant orders in 2003 from two large
customers. One was Verizon for their "Hot Spot" trial build-out, and the other
was Enterasys for whom we did some production on a trial basis. Those orders
were not replicated in 2004 resulting in a sales decrease of nearly $3.8
million. Second, a general softness in the demand for 802.11b equipment within
the industry resulted in an additional sales decrease of about $3.0 million.
However, these sales declines were offset by sales from the three companies we
acquired in the second quarter of 2004. Sales by these acquired companies were
nearly $2.5 million from the date of acquisition through year-end. We also
increased the amount of our international sales during 2004. For the years
ending December 31, 2004 and 2003, international sales, excluding Canada, were
approximately 18% and 16%, respectively, of total sales. We enhanced our
international sales presence in the second half of 2004 by hiring two
experienced international sales professionals as well as having several of our
products certified by in-country regulatory authorities.

      Cost of goods sold and gross profit

      Cost of goods sold and gross profit for the year ended December 31, 2004
were $13.4 million and $9.5 million, respectively. For the same period in 2003,
costs of goods sold and gross profit were $15.7 million and $11.5 million,
respectively. Gross profit, as a percentage of sales, for the years ended
December 31, 2004 and 2003 was 41% and 42%, respectively.


                                       47
<PAGE>

      There were a few major reasons for the change in cost of goods sold and
gross profit from 2004 compared to 2003. During 2004, we did not replace the
revenue we received in 2003 from two large customers, Verizon and Enterasys. The
lack of the revenue from Verizon negatively impacted our gross profit by
approximately 2.6% as a percent of total sales. The lack of revenue from
Enterasys positively impacted our gross profit comparison by approximately 1.0%.

      We also realized a partial year positive impact in our gross profit
compared to 2003 due to our acquisition of KarlNet and Terabeam. This resulted
in an increase in our gross profit as a percent of sales for the year of
approximately 0.5% which was offset by a decrease in gross profit for the year
of approximately 0.1% due to the Ricochet acquisition.

      Sales and Marketing Expenses

      Selling and marketing expenses consist primarily of employee salaries and
associated costs for selling, marketing, and customer support. Selling and
marketing expenses increased to $2.6 million for the year ended December 31,
2004 from $2.2 million for the year ended December 31, 2003, which is a $0.4
million or 16% increase. The relatively large increase in overall sales and
marketing expenses is a combination of several factors, some which are
offsetting, including: (1) while overall sales personnel headcount decreased,
the hiring of experienced new sales personnel, with resulting higher salaries,
resulted in an increase in related costs of approximately $0.3 million, and (2)
the hiring of a new Vice President of Marketing, increase in advertising,
increased membership in professional associations, attendance at more trade
shows, and increase in brand and product awareness marketing costs in the
aggregate increased costs approximately $0.1 million.

      Research and Development Expenses

      Research and development expenses consist primarily of personnel salaries
and fringe benefits and related costs associated with our product development
efforts. These include costs for development of products and components, test
equipment and related facilities. Research and development expenses increased to
$2.9 million for the year ended December 31, 2004 from $1.7 million for the year
ended December 31, 2003, a $1.2 million increase or 73% year over year. $0.9
million of the increase in research and development expenses from 2003 to 2004
was attributable to the net addition of 23 research and development personnel as
a result of our three acquisitions, while the remaining $0.3 million increase
was due to the purchase of additional prototype materials and other related
support costs. We believe that the increase in research and development
personnel increased our product development capability, particularly on the
software side.

      General and Administrative Expenses

      General and administrative expenses consist primarily of employee
salaries, benefits and associated costs for information systems, finance, legal,
and administration of a public company. General and administrative expenses
increased to $10.0 million for the year ended December 31, 2004 from $7.1
million for the year ended December 31, 2003, a $2.9 million increase or 41%.
The increase is primarily due to the following factors: (1) salaries and fringe
benefit expenses increased by approximately $1.2 million, (2) professional,
legal, and accounting fees increased by approximately $0.9 million, (3)
depreciation and amortization expense increased by approximately $0.9 million,
(4) additional rents, maintenance and utilities on new facilities was
approximately $0.4 million, and (5) insurance and bad debt expense decreased by
approximately $0.3 million and $0.2 million, respectively. As with all expenses,
we are monitoring our general administrative expenses with the goal of reducing
them in 2005.

      Income Taxes

      Benefit for income taxes for the year ended December 31, 2004 in the
amount of $2,000 relates to net refunds of state income taxes. Provision for
income taxes for the year ended December 31, 2003 in the amount of $0.3 million
relates to (1) an increase in the valuation allowance associated with the
deferred tax assets of $0.4 million offset by (2) the tax benefit from carrying
back existing net operating losses to recover taxes previously paid.


                                       48
<PAGE>

Liquidity and Capital Resources

      At December 31, 2005, we had cash, cash equivalents, and investments
available-for sale of $14.4 million. This excludes restricted cash of $5.1
million. For the year ended December 31, 2005, cash provided by operations was
$3.0 million. We currently are meeting all of our working capital needs through
cash on hand as well as internally generated cash from operations and other
activities. Cash provided by operations includes net loss of $11.2 million
offset by $3.1 in changes in assets and liabilities affecting operations, and by
$11.0 million of non-cash items. The non-cash items include approximately $6.8
million in one time restructuring charges related to the Old Proxim acquisition.

      For the year ended December 31, 2005, cash used in investing activities
was approximately $19.4 million. Approximately $24.3 million was used to
complete the Old Proxim acquisition, offset by the sale of several fixed income
investments maturing during the second quarter of 2005.

      Cash used in financing activities was $4.8 million for the year ended
December 31, 2005. In May 2005 we repurchased 1,000,000 shares of common stock
for an aggregate purchase price of $2.1 million. This stock had originally been
issued in a private placement in May 2004 as part of the consideration paid to
the stockholders of KarlNet, Inc. in connection with Terabeam's acquisition of
KarlNet. During the year ended December 31, 2005, we paid the principal balance
totaling $2.5 million on certain convertible notes payable related to the 2004
acquisition of Terabeam Corporation, and the $0.4 million balance on notes
payable related to the 2004 acquisition of Ricochet.

      Our long-term financing requirements depend upon our growth strategy,
which relates primarily to our desire to increase revenue both domestically as
well as internationally. We expended approximately $24.3 million during the
quarter to purchase substantially all of the operations of Proxim Corporation.
Although this acquisition significantly reduced cash on hand, this acquisition
has dramatically increased both our domestic and international revenue. Due to
recent nature of this acquisition, management is currently determining the scope
of our expected day-to-day normal operations and therefore evaluating whether
there will be a requirement over the next twelve months for external financing
to fund those normal operations. One significant constraint to our equipment
business growth is the rate of new product introduction. New products or product
lines may be designed and developed internally or acquired from existing
suppliers to reduce the time to market and inherent risks of new product
development. We will need to use some of our current capital to fund the
expected future operating losses in our services business given the significant
numbers of new subscribers we would have to add for that business to be
profitable. We may also use some of our current capital or raise additional
capital for our services business if we decide to expand the geographic areas in
which we offer service. Our current funding levels may have to be supplemented
through new bank debt financing, public debt or equity offerings, or other means
due to a number of factors, including our acquisition of Old Proxim's operations
and our desired rate of future growth.

      We have the following contractual obligations and commercial commitments
as of December 31, 2005:

<TABLE>
<CAPTION>
                                                                  Payments due by period (numbers in thousands)
                                                    --------------------------------------------------------------------
                                                                  Less than 1
                                                       Total          year      1 -3 years   4 - 5 years   After 5 years
                                                    ----------    -----------  -----------   -----------   -------------
<S>                                                 <C>           <C>           <C>           <C>           <C>
Operating leases - buildings - in use ..........    $    7,788    $    2,578    $    4,143    $      561    $      506
Operating leases - buildings - not in use ......         2,623         1,143           881           499           100
Notes payable ..................................         4,300         1,350         2,950           411            --
Operating leases - equipment ...................           332           212           120            --            --
Employment Contracts ...........................         1,189         1,189            --            --            --
                                                    ----------    ----------    ----------    ----------    ----------
Total contractual cash obligations .............    $   16,232    $    6,472    $    8,095    $    1,060    $      605
                                                    ==========    ==========    ==========    ==========    ==========
</TABLE>

Recently Issued Accounting Standards

      In November 2004, the Financial Accounting Standards Board (FASB) issued
Financial Accounting Standards Board Statement No. 151, "Inventory Costs" (FAS
151). FAS 151 amends the guidance in Accounting Research


                                       49
<PAGE>

Bulletin No. 43, Chapter 4, "Inventory Pricing," to clarify the accounting for
inventory costs. The provisions of this statement are effective for fiscal years
beginning after June 15, 2005, although early application is permitted. We do
not expect that the impact of this statement will be material to the
consolidated financial statements.

      In December 2004, the FASB issued its final standard on accounting for
share-based payments (SBP), Financial Accounting Standards Board Statement No.
123R (FAS 123R) that requires companies to expense the value of employee stock
options and similar awards. The statement applies to all outstanding and
unvested SBP awards at a company's adoption date. The Securities and Exchange
Commission delayed implementation to fiscal years beginning after June 15, 2005.
Therefore, we implemented FAS 123R effective January 1, 2006 using the modified
prospective method, which requires recognizing expense for options over their
remaining vesting period. The portion of these options' fair value attributable
to vested awards prior to the adoption is never recognized. We expect the impact
of this statement to have a material effect on our results of operations (based
on equity instruments outstanding at December 31, 2005) for the fiscal year
ending December 31, 2006.

      In December 2004, the FASB issued Financial Accounting Standards Board
Statement No. 153, "Exchanges of Nonmonetary Assets, an amendment of APB Opinion
No. 29, Accounting for Nonmonetary Transactions" (FAS 153). The amendments made
by FAS 153 are based on the principle that exchanges of nonmonetary assets
should be measured based on the fair value of the assets exchanged. Further, the
amendments eliminate the narrow exception for nonmonetary exchanges of similar
productive assets and replace it with a broader exception for exchanges of
nonmonetary assets that do not have commercial substance. Previously, Opinion
No. 29 required that the accounting for an exchange of a productive asset for a
similar productive asset or an equivalent interest in the same or similar
productive asset should be based on the recorded amount of the asset
relinquished. The statement is effective for nonmonetary asset exchanges
occurring in fiscal periods beginning after June 15, 2005. Earlier application
is permitted for nonmonetary asset exchanges occurring in fiscal periods
beginning after the date of issuance. The provisions of this statement are being
applied prospectively as of January 2006.

      In March 2005, the FASB issued FASB Interpretation No. 47, "Accounting for
Conditional Asset Retirement Obligations" (FIN 47). FIN 47 is an interpretation
of FASB Statement No. 143, "Accounting for Asset Retirement Obligations" (FAS
143) and serves to clarify that an entity is required to recognize a liability
for the fair value of a conditional asset retirement obligation when incurred if
the liability's fair value can be reasonably estimated. FIN 47 also clarifies
when an entity would have sufficient information to reasonably estimate such a
liability. FIN 47 is effective no later than the end of fiscal years ending
after December 15, 2005. We concluded that FIN 47 did not have a material impact
on the consolidated financial statements as of December 31, 2005.

      In May 2005, the FASB issued Financial Accounting Standards Board
Statement No. 154, "Accounting Changes and Error Corrections" (FAS 154), a
replacement of APB Opinion No. 20, "Accounting Changes" and a replacement of
FASB Statement No. 3, "Reporting Accounting Changes in Interim Financial
Statements". FAS 154 changes the accounting for, and reporting of, a change in
accounting principle. The statement requires retrospective application to prior
periods financial statements of voluntary changes in accounting principles and
changes required by new accounting standards when the standard does not include
specific transition provisions, unless it is impracticable to do so. The
statement is effective for accounting changes and corrections of errors in
fiscal years beginning after December 15, 2005. Earlier application is permitted
for accounting changes and corrections of errors during fiscal years beginning
after June 1, 2005.

      In February 2006, the FASB issued SFAS No. 155, Accounting for Certain
Hybrid Financial Instruments ("SFAS 155"). This statement amends SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities ("SFAS 133"), and
SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities. This Statement: (a) permits fair value
remeasurement for any hybrid financial instrument that contains an embedded
derivative that otherwise would require bifurcation; (b) clarifies which
interest-only strips and principal-only strips are not subject to the
requirements of SFAS 133; (c) establishes a requirement to evaluate beneficial
interests in securitized financial assets to identify interests that are
freestanding derivatives or that are hybrid financial instruments that contain
an embedded derivative requiring bifurcation; (d) clarifies that concentrations
of credit risk in the form of subordination are not embedded derivatives; and,
(e) eliminates restrictions on a qualifying special-purpose entity's ability to
hold passive derivative financial instruments that pertain to beneficial
interests that are or contain a derivative financial instrument. The standard
also requires presentation within the financial statements that identifies those
hybrid financial instruments for which the fair value election has been applied
and information on the income statement impact of the changes in fair value of
those instruments. The Company is required to apply SFAS 155 to all financial
instruments acquired, issued or subject to a remeasurement event beginning
January 1, 2007, although early adoption is permitted as of the


                                       50
<PAGE>

beginning of an entity's fiscal year. The provisions of SFAS 155 are not
expected to have an impact recorded at adoption.

Disclosures About Market Risk

      The following discusses our exposure to market risks 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 in this
Part II, Item 7 - Management's Discussion and Analysis of Financial Condition
and Results of Operations, Safe Harbor for Forward-Looking Statements.

      As of December 31, 2005, we had bank balances of cash and cash equivalents
of $14.1 million and restricted cash of $5.1 million. All these funds are on
deposit in short-term accounts with several national banking organizations.
Therefore, we do not expect that an increase in interest rates would materially
reduce the value of these funds. The primary risk to loss of principal is the
fact that these balances are only insured by the Federal Deposit Insurance
Corporation up to $100,000 per bank. At December 31, 2005, the uninsured portion
totaled approximately $19.0 million.

      In the past three years, all sales to international customers were
denominated in United States dollars and, accordingly, we were not exposed to
foreign currency exchange rate risks. Additionally, we import from other
countries. Our sales and product supply may therefore be subject to volatility
because of changes in political and economic conditions in these countries.

      We presently do not use any derivative financial instruments to hedge our
exposure to adverse fluctuations in interest rates, foreign exchange rates,
fluctuations in commodity prices or other market risks; nor do we invest in
speculative financial instruments.

      Due to the nature of our borrowings and our short-term investments, we
have concluded that there is no material market risk exposure and, therefore, no
quantitative tabular disclosures are required.

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 CONSOLIDATED FINANCIAL STATEMENTS

                                                                            Page
                                                                            ----
Report of Independent Registered Public Accounting Firm..................    52
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets..............................................    53
Consolidated Statements of Operations....................................    54
Consolidated Statement of Changes in Stockholders' Equity................    55
Consolidated Statements of Cash Flows....................................    56
Notes to Consolidated Financial Statements...............................    58
Schedule II - Valuation and Qualifying Accounts..........................    82


                                       51
<PAGE>

Report of Independent Registered Public Accounting Firm

================================================================================

TO THE BOARD OF DIRECTORS
TERABEAM, INC.

      San Jose, California

We have audited the accompanying  consolidated balance sheets of TERABEAM, INC.,
(the  "Company") as of December 31, 2005 and 2004, and the related  consolidated
statements of operations, changes in stockholders' equity and cash flows for the
years ended December 31, 2005,  2004, and 2003. We also have audited the related
financial statement Schedule II for the years ended December 31, 2005, 2004, and
2003. These consolidated  financial  statements and financial statement Schedule
II are the responsibility of the Company's management.  Our responsibility is to
express an opinion on these  consolidated  financial  statements  and  financial
statement Schedule II based on our audits.

We conducted our audits in accordance  with the standards of the Public  Company
Accounting Oversight Board (United States). Those standards require that we plan
and  perform  the  audits to  obtain  reasonable  assurance  about  whether  the
financial  statements  are free of  material  misstatement.  The  Company is not
required  to have,  nor were we engaged  to  perform,  an audit of its  internal
control over financial reporting.  Our audit included  consideration of internal
control over financial  reporting as a basis for designing audit procedures that
are appropriate in the  circumstances,  but not for the purpose of expressing an
opinion on the  effectiveness  of the Company's  internal control over financial
reporting.  Accordingly  we express  no such  opinion.  An audit  also  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,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects, the financial position of TERABEAM, INC. as of
December 31, 2005 and 2004 and the results of its  operations and cash flows for
the years ended December 31, 2005,  2004, and 2003 in conformity with accounting
principles  generally  accepted in the United  States of America.  Also,  in our
opinion,  the  related  financial  statement  Schedule  II for the  years  ended
December  31,  2005,  2004 and 2003,  when  considered  in relation to the basic
consolidated  financial  statements taken as a whole,  presents  fairly,  in all
material respects, the information set forth therein.


/s/ Fitzgerald, Snyder & Co., P.C.

McLean, Virginia
March 17, 2006


                                       52
<PAGE>

                                 TERABEAM, INC.
                           CONSOLIDATED BALANCE SHEETS
                        (In thousands, except share data)

<TABLE>
<CAPTION>
                                                                             December 31,    December 31,
                                                                                 2005            2004
                                                                             ------------    ------------
<S>                                                                               <C>             <C>
Assets
Current assets:
  Cash and cash equivalents                                                       $14,133         $35,368
  Investment securities - available-for-sale                                          260           5,369
  Accounts receivable, net                                                          8,378           2,972
  Refundable income taxes                                                              --             151
  Inventory                                                                        10,070           7,442
  Prepaid expenses                                                                  1,045             253
                                                                             ------------    ------------
    Total current assets                                                           33,886          51,555

Property and equipment, net                                                         3,924           2,511
Other Assets:
Restricted cash                                                                     5,076           5,136
Goodwill                                                                            7,380           6,072
Intangible assets, net                                                             23,817          11,919
Deposits                                                                              675              91
                                                                             ------------    ------------
    Total other assets                                                             36,948          23,218
                                                                             ------------    ------------
    Total assets                                                                  $74,758         $77,284
                                                                             ============    ============
Liabilities and Stockholders' Equity
Current liabilities:
  Accounts payable and accrued expenses                                           $15,600          $6,965
  Deferred revenue                                                                  2,503             159
  License agreement payable - current maturities                                      981              --
  Current maturities of notes payable - other current liabilities                      --           2,899
                                                                             ------------    ------------
    Total current liabilities                                                      19,084          10,023
License agreement payable, net of current maturities                                2,956              --
Notes payable, net of current maturities                                               --           1,270
                                                                             ------------    ------------
    Total liabilities                                                              22,040          11,293
Commitments and contingencies                                                          --              --
Stockholders' Equity
 Preferred stock, $0.01 par value; authorized 4,500,000, none issued at
December 31, 2005 and December 31, 2004                                                --              --
 Common stock, $0.01 par value, 100,000,000 shares authorized, 21,446,217
issued and outstanding at December 31, 2005 and 22,845,847 issued with
22,345,847 outstanding at December 31, 2004                                           214             228
  Additional paid-in capital                                                       56,638          59,637
  Retained earnings  (accumulated deficit)                                         (4,122)          7,277
  Treasury stock                                                                       --          (1,155)
  Accumulated other comprehensive income:
  Net unrealized gain (loss) on available-for-sale securities                         (12)              4
                                                                             ------------    ------------
    Total stockholders' equity                                                     52,718          65,991
                                                                             ------------    ------------
    Total liabilities and stockholders' equity                                    $74,758         $77,284
                                                                             ============    ============
</TABLE>

          See accompanying notes to consolidated financial statements.


                                       53
<PAGE>

                                 TERABEAM, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                     (In thousands, except per share data)

<TABLE>
<CAPTION>
                                                                       For the Year Ended December 31,
                                                                  ----------------------------------------
                                                                     2005           2004           2003
                                                                  ----------     ----------     ----------
<S>                                                                  <C>            <C>            <C>
Revenues                                                             $58,982        $22,897        $27,241
Cost of goods sold                                                    31,930         13,414         15,714
Restructuring provision for excess and obsolete inventory              2,143             --             --
                                                                  ----------     ----------     ----------
  Gross profit                                                        24,909          9,483         11,527
Operating expenses:
  Selling costs                                                        9,789          2,557          2,204
  Restructuring charges                                                  944             --             --
  Restructuring charge for impairment of intangible assets             4,664             --             --
  Impairment of service reporting unit goodwill                          200             --             --
  General and administrative                                          12,902          9,976          7,090
  Research and development                                             8,000          2,949          1,704
                                                                  ----------     ----------     ----------
      Total operating expenses                                        36,499         15,482         10,998
                                                                  ----------     ----------     ----------
Operating income (loss)                                              (11,590)        (5,999)           529
Other income (expenses):
  Interest income                                                        695            810            128
  Interest expense                                                      (161)          (209)          (149)
  Gain on sale of Phazar stock                                            --          3,882             --
  Other income (expense)                                                 (19)           168             53
                                                                  ----------     ----------     ----------
      Total other income (expenses)                                      515          4,651             32
                                                                  ----------     ----------     ----------
Income (loss) before income taxes, extraordinary gain and            (11,075)        (1,348)           561
minority interests
  Benefit (provision) for income taxes                                    16              2           (261)
                                                                  ----------     ----------     ----------
Income (loss) before extraordinary gain and minority interests       (11,059)        (1,346)           300
Extraordinary gain (net of income taxes of $0)                            --             --          4,347
                                                                  ----------     ----------     ----------
Income (loss) before minority interests                              (11,059)        (1,346)         4,647
  Minority interest in net income of Merry Fields                       (101)            --             --
                                                                  ----------     ----------     ----------
Net income (loss)                                                   ($11,160)       ($1,346)        $4,647
                                                                  ==========     ==========     ==========

  Weighted average shares - basic                                     21,801         19,792         12,571
                                                                  ----------     ----------     ----------
    Earnings (loss) per share - basic                                 ($0.51)        ($0.07)         $0.37
                                                                  ==========     ==========     ==========

  Weighted average shares - diluted                                   21,801         19,792         12,841
                                                                  ----------     ----------     ----------
    Earnings (loss) per share - diluted                               ($0.51)        ($0.07)         $0.36
                                                                  ==========     ==========     ==========
</TABLE>

          See accompanying notes to consolidated financial statements.


                                       54
<PAGE>

                                 TERABEAM, INC.
            CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
                        (In thousands, except share data)

<TABLE>
<CAPTION>
                                              Common Stock
                                          -------------------
                                                                             Retained                         Accumulated
                                                                Additional   Earnings                            Other
                                                                 Paid-in    Accumulated  Treasury  Minority  Comprehensive
                                            Shares     Amount    Capital     (Deficit)    Stock    Interest  (Loss) Income  Total
                                          -----------------------------------------------------------------------------------------
<S>                                        <C>           <C>      <C>         <C>        <C>        <C>           <C>       <C>
Balances, December 31, 2002                 9,375,000     $94        $357      $4,066    $    --    $  --          ($9)      $4,508

Merger with Telaxis                         4,177,078      42       3,697          --         --       --           --        3,739
Exercise of stock options and warrants        127,804       1         218          --         --       --           --          219
Issuance of common stock, net of costs        500,000       5       1,901          --         --       --           --        1,906
Distribution to Merry Fields members               --      --          --         (40)        --       --           --          (40)
Comprehensive income:
  Net income (loss)                                --      --          --       4,647         --       --           --        4,647
  Unrealized gain (loss) on investments            --      --          --          --         --       --        1,206        1,206
                                          -----------------------------------------------------------------------------------------
Total comprehensive income (loss)                  --      --          --       4,647         --       --        1,206        5,853
                                          -----------------------------------------------------------------------------------------
Balances, December 31, 2003                14,179,882    $142      $6,173      $8,673    $    --    $  --       $1,197      $16,185

Stock issued for acquisitions              12,609,237     126      59,552          --         --       --           --       59,678
Treasury stock purchased                   (4,683,183)    (42)     (6,458)         --     (1,155)      --           --       (7,655)
Distribution to Merry Fields members               --      --          --         (50)        --       --           --          (50)
Exercise of stock options and warrants        239,911       2         370          --         --       --           --          372
Comprehensive income:
  Net income (loss)                                --      --          --      (1,346)        --       --           --       (1,346)
  Unrealized gain (loss) on investments,
net of reclassification adjustments                --      --          --          --         --       --       (1,193)      (1,193)
                                          -----------------------------------------------------------------------------------------
Total comprehensive income (loss)                  --      --          --      (1,346)        --       --       (1,193)      (2,539)
                                          -----------------------------------------------------------------------------------------
Balances, December 31, 2004                22,345,847    $228     $59,637      $7,277    ($1,155)   $  --           $4      $65,991
                                          -----------------------------------------------------------------------------------------

Treasury stock purchased                   (1,033,750)    (15)     (3,207)         --      1,155       --           --       (2,067)
Exercise of stock options and warrants        134,120       1         188          --         --       --           --          189
Merry Fields, loss of control                      --      --          20        (239)        --      219           --           --
Minority interest in net income of Merry
Fields                                             --      --          --          --         --      101           --          101
Deconsolidation of Merry Fields                    --      --          --          --         --     (320)          --         (320)
Comprehensive income:
  Net income (loss)                                --      --          --     (11,160)        --       --           --      (11,160)
  Unrealized gain (loss) on investments,
net of reclassification adjustments                --      --          --          --         --       --          (16)         (16)
                                          -----------------------------------------------------------------------------------------
Total comprehensive income (loss)                  --      --          --     (11,160)        --       --          (16)     (11,176)
                                          -----------------------------------------------------------------------------------------
Balances, December 31, 2005                21,446,217    $214     $56,638     ($4,122)   $    --    $  --         ($12)     $52,718
                                          =========================================================================================
</TABLE>

          See accompanying notes to consolidated financial statements.


                                       55
<PAGE>

                                 TERABEAM, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In thousands)

<TABLE>
<CAPTION>
                                                                           For The Years Ended December 31,
                                                                        --------------------------------------
                                                                           2005          2004          2003
                                                                        ----------    ----------    ----------
<S>                                                                       <C>            <C>            <C>
Cash flows from operating activities:
  Net income (loss)                                                       ($11,160)      ($1,346)       $4,647
    Depreciation and amortization                                            3,449         1,249           183
    (Gain) loss on disposal of property and equipment                           --           (14)           24
    Loss on write-down of investments available-for-sale                       120            --            --
    Realized (gain) loss on trading and available-for-sale securities           --        (3,521)          (92)
    Loss on write-down of investment in unconsolidated subsidiary               --            --            36
    Loss on write down of assets held for sale                                  --            --           200
    Bad debt allowance (recovery)                                              415           488           660
    Restructuring charge for impairment of intangible assets                 4,664            --            --
    Restructuring provision for excess and obsolete inventory                2,143            --            --
     Impairment of service unit goodwill                                       200            --            --
    Deferred income tax                                                         --            --           387
    Extraordinary gain                                                          --            --        (4,347)
    Changes in assets and liabilities affecting operations:
      Restricted cash                                                           60           740            --
      Accounts receivable, net                                              (1,661)          153        (1,485)
      Inventory                                                                206        (1,348)         (748)
      Deposits                                                                (222)            2           (21)
      Prepaid expenses                                                        (897)          143           697
      Refundable income taxes                                                  151            75          (226)
      Accounts payable and accrued expenses                                  3,188        (2,306)          (71)
      Deferred revenue                                                       2,344            96            --
      Customer order deposits                                                   --            --            (9)
                                                                        ----------    ----------    ----------
           Net cash provided by (used in) operating activities               3,000        (5,589)         (165)
                                                                        ----------    ----------    ----------
Cash flows from investing activities:
  Proceeds on disposal of property and equipment                               169           964           425
  Purchase of securities                                                      (241)         (790)         (726)
  Purchase of property and equipment                                          (293)          (37)          (30)
  Purchase of intangible assets                                                 --            --          (585)
  Investment in capitalized software                                          (382)         (601)           --
  Sale of securities                                                         5,214        34,616           242
  Cash used for acquisitions                                               (24,300)       (4,800)           --
  Cash received from acquisitions                                              384        10,254         7,421
                                                                        ----------    ----------    ----------
      Net cash provided by (used in) investing activities                  (19,449)       39,606         6,747
                                                                        ----------    ----------    ----------
Cash flows from financing activities:
  Distributions to Merry Fields members                                         --           (50)          (40)
  Repurchase of common stock                                                (2,069)
  Exercise of stock options                                                    189           372           219
  Issuance of common stock                                                      --            --         1,906
  Purchase of treasury stock                                                    --        (7,655)           --
  Issuance of notes payable                                                     --            --           500
  Repayment of notes payable                                                (2,906)         (200)       (1,116)
  Repayment of capital leases                                                   --          (106)           --
                                                                        ----------    ----------    ----------
      Net cash provided by (used in) financing activities                   (4,786)       (7,639)        1,469
                                                                        ----------    ----------    ----------
Net increase (decrease) in cash and cash equivalents                       (21,235)       26,378         8,051
</TABLE>


                                       56
<PAGE>

<TABLE>
<S>                                                                        <C>           <C>            <C>
Cash and cash equivalents, beginning of period                              35,368         8,990           939
                                                                        ----------    ----------    ----------
Cash and cash equivalents, end of period                                   $14,133       $35,368        $8,990
                                                                        ==========    ==========    ==========
Supplemental disclosure of cash flow information:
  Cash paid for interest                                                      $160          $200          $149
                                                                        ==========    ==========    ==========
  Income taxes paid                                                            $--            $4           $90
                                                                        ==========    ==========    ==========
  Stock issued in acquisitions                                                 $--       $59,678        $3,739
                                                                        ==========    ==========    ==========
  Deconsolidation of subsidiary: Property and equipment removed             $1,465           $--           $--
                                                                        ==========    ==========    ==========
                                 Note payable removed                       $1,194           $--           $--
                                                                        ==========    ==========    ==========
</TABLE>

          See accompanying notes to consolidated financial statements.


                                       57
<PAGE>

                                 TERABEAM, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.    Organization

      We provide high-speed wireless communications equipment and services in
the United States and internationally. Our systems enable service providers,
enterprises, and governmental organizations to deliver high-speed data
connectivity enabling a broad range of applications. We provide wireless
solutions for the mobile enterprise, security and surveillance, last mile
access, voice and data backhaul, and municipal networks. We believe our fixed
wireless systems address the growing need of our customers and end-users to
rapidly and cost effectively deploy high-speed communication networks.

      We operate in two primary businesses: broadband wireless equipment and
high-speed wireless service and connectivity. The equipment business generates
the substantial majority of our revenue and is conducted through our Proxim
Wireless Corporation subsidiary. Our services business is conducted through our
Ricochet Networks, Inc. subsidiary. Ricochet Networks is one of the five largest
wireless Internet service providers (WISPs) in the United States (in terms of
subscribers). The discussion in this Form 10-K focuses on our equipment business
as it generates the substantial majority of our revenue and expenses.

      Effective November 7, 2005, the Company changed its corporate name from
"YDI Wireless, Inc." to "Terabeam, Inc." This name change was effected by means
of a "short-form" statutory merger of the Company's wholly owned subsidiary
Terabeam, Inc. with and into the Company with the Company being the surviving
corporation in the merger under the new name of Terabeam, Inc. The Company also
changed its ticker symbol to "TRBM" in connection with that change of corporate
name.

      On July 27, 2005, Terabeam, through its wholly owned subsidiary Proxim
Wireless Corporation ("New Proxim), completed its purchase of substantially all
of the assets of Proxim Corporation and its subsidiaries Proxim Wireless
Networks, Inc. and Proxim International Holdings, Inc. (collectively, "Old
Proxim") pursuant to an asset purchase agreement dated as of July 18, 2005.
Under the terms of the asset purchase agreement, Terabeam acquired most of the
domestic and foreign operations of Old Proxim for a purchase price of
approximately $25,200,000, subject to certain adjustments, liability
assumptions, and deductions. At the closing, Terabeam assumed specified
obligations of Old Proxim, including specified employee-related obligations. The
purchase price after adjustments was approximately $24,300,000.

      Old Proxim was a leading provider of wireless networking equipment for
Wi-Fi and broadband wireless networks, and provided enterprise and service
provider customers with wireless solutions for the mobile enterprise, security
and surveillance, last mile access, voice and data backhaul, public hot spots,
and metropolitan area networks. Subsequent to the purchase, the Company moved
its corporate headquarters to the Old Proxim offices in San Jose, CA.

      Merry Fields, LLC ("Merry Fields") was formed by shareholders of a Company
predecessor, Young Design, Inc., under the laws of the State of Delaware in
August 2000. Merry Fields owns the property and land leased to Terabeam for its
Falls Church, Virginia operation subject to a loan and mortgage. In accordance
with FIN 46R, through June 30, 2005, Merry Fields was a variable interest entity
and the Company was determined to be the primary beneficiary of Merry Fields.
During the quarter ended September 30, 2005, the Company ceased to guarantee the
Merry Fields note payable and is no longer the primary beneficiary of Merry
Fields. Through June 30, 2005, the financial statements of Merry Fields were
consolidated with the financial statements of the Company. Effective with the
quarter ended September 30, 2005, the financial statements of Merry Fields are
no longer consolidated with the financial statements of Terabeam, Inc. The Merry
Fields net book value of approximately $320,000, as of July 31, 2005 which was
represented by minority interests as of July 31, 2005, was removed with no gain
or loss recorded.

      Effective May 2004, the Company acquired KarlNet, Inc., a wireless
software development company. In June 2004, the Company acquired Terabeam
Corporation, a wireless telecommunications company. Also in June 2004 the
Company acquired Ricochet Networks, Inc., a wireless service provider. The
financial results of these


                                       58
<PAGE>

companies and the operations the Company acquired from Old Proxim from and after
the dates of acquisition are included in the financial results reported for the
Company.

      During 2004, Terabeam began operating in two different business segments.
The first segment is the historic operations of Terabeam as a designer,
manufacturer, and seller of wireless telecommunications equipment ("Equipment").
The financial results of the business acquired from Old Proxim are reported as
part of the Equipment business. The second segment is as a wireless Internet
service provider ("Services") in several major metropolitan cities. This
business was acquired with the Ricochet Networks acquisition during the second
quarter of 2004. There are no significant inter-company transactions which
affect the revenue or expenses of either segment.

      Summarized information as of December 31, 2005 and 2004 and for the years
then ended is as follows:

      ($000's)

      2005:

                                            Equipment    Services       Total
                                           -----------  ----------   -----------
             Assets .....................   $  71,960    $   2,798    $  74,758
             Revenue ....................   $  56,133    $   2,849    $  58,982
             Operating income (loss) ....   $  (9,101)   $  (2,489)   $ (11,590)

      2004:

                                            Equipment    Services       Total
                                           -----------  -----------  -----------
             Assets .....................   $  73,312    $   3,972    $  77,284
             Revenue ....................   $  21,614    $   1,283    $  22,897
             Operating income (loss) ....   $  (4,616)   $  (1,383)   $  (5,999)

2.    Summary of Significant Accounting Policies

      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 amount of revenues and expenses during the reporting
period. Actual results could differ from those estimates.

      Principles of Consolidation

      The consolidated financial statements include the accounts of Terabeam,
Inc. and its wholly owned subsidiaries and also Merry Fields, a consolidated
affiliate. In accordance with FIN 46R, through June 30, 2005, Merry Fields was a
variable interest entity and the Company was determined to be the primary
beneficiary of Merry Fields. During the quarter ended September 30, 2005, the
Company ceased to guarantee the Merry Fields' note payable and is no longer the
primary beneficiary of Merry Fields. Through June 30, 2005, the financial
statements of Merry Fields were consolidated with the financial statements of
Terabeam. Effective with the quarter ended September 30, 2005, the financial
statements of Merry Fields are no longer consolidated with the financial
statements of Terabeam, Inc.

      Asset Impairment

      The Company periodically evaluates the carrying value of long-lived assets
when events and circumstances warrant such a review. The carrying value of a
long-lived asset is considered impaired when the anticipated undiscounted cash
flow from such asset is separately identifiable and is less than the carrying
value. In that event, a


                                       59
<PAGE>

loss is recognized based on the amount by which the carrying value exceeds the
fair market value of the long-lived asset. Fair market value is determined
primarily using the anticipated cash flows discounted at a rate commensurate
with the risk involved.

      Cash and Cash Equivalents

      The Company considers cash on hand, deposits in banks, money market
accounts and investments with an original maturity of three months or less to be
cash or cash equivalents.

      Restricted Cash

      As part of the Terabeam acquisition, the Company acquired $5.9 million in
restricted cash. During 2004, $0.8 million was released as a result of contract
payments. As of December 31, 2005, the restricted cash consists of $0.1 as
collateral for letters of credit relating to lease obligations and $5.0 million
held in an indemnification trust for the benefit of former Terabeam directors
and officers. This trust was established by Terabeam Corporation in January
2002, and the funds are managed by an unrelated trustee. To date, no claims have
been asserted against the trust funds. The trust expires in 2007 and any
remaining funds will be distributed to the Company.

      Investments

      Investments consist of investments in corporate and various government
agency debt securities, most of which mature in approximately one year or less
and investments in marketable equity securities. The Company classifies the
investments as available-for-sale. Such securities are stated at fair value
using published market prices, with any material unrealized holding gains or
losses reported, net of any tax effects, as accumulated other comprehensive
income (loss), which is a separate component of stockholders' equity. Realized
gains and losses and declines in value judged to be other than temporary, if
any, are included in operations.

      As of December 31, 2003, the Company held unregistered common stock in a
public company. These investments were recorded at cost. These investments were
all sold as of December 31, 2004.

      Accounts Receivable

      Accounts receivable are recorded at the invoiced amount and do not bear
interest. The Company maintains an allowance for doubtful accounts, sales
returns and price protection for estimated returns, discounts, price protection
and losses resulting from the inability of its customers to make required
payments. The Company regularly reviews the allowance by considering factors
such as historical experience, credit quality, age of the accounts receivable
balances, and current economic conditions that may affect a customer's ability
to pay. Accounts are considered past due when they are past the terms negotiated
with each contract or purchase order. Account balances are charged off against
the allowance when the Company considers it is probable that receivable will not
be recovered. The Company does not have any off-balance-sheet credit exposure
related to its customers.

      Inventory

      Inventory is stated at the lower of cost or market, cost being determined
on a first-in, first-out basis. Provisions are made to reduce excess or obsolete
inventory to its estimated net realizable value. The process for evaluating the
value of excess and obsolete inventory often requires us to make subjective
judgments and estimates concerning future sales levels, quantities, and prices
at which such inventory will be able to be sold in the normal course of
business, particularly where we have made last-time-buys of components.
Accelerating the disposal process or incorrect estimates of future sales may
necessitate future adjustments to these provisions.

      Warranty Provision.

      The Company provides for the estimated cost of product warranties at the
time revenue is recognized. While the Company engages in extensive product
quality programs and processes, including actively monitoring and evaluating the
quality of its component suppliers, its warranty obligation is affected by
product failure rates and material usage and service delivery costs incurred in
correcting a product failure.


                                       60
<PAGE>

      Property and Equipment

      Property and equipment is recorded at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the respective
assets, which range from two to seven years for personal property and 39 years
for real property.

      Purchase Price Accounting

      The Company has grown considerably through combining with other
businesses. The Company acquired Telaxis in 2003 and KarlNet, Terabeam and
Ricochet Networks in 2004, and Proxim Wireless in 2005. These transactions were
accounted for using the purchase method. Under the purchase method, the
acquiring company includes the fair value of the assets of the acquired entity
on its balance sheet. The determination of fair value necessarily involves many
assumptions. The operations of the acquired entity are included in the Company's
operations following the date of acquisition.

      Goodwill

      Goodwill is the excess of the cost of an acquired entity over the net
amounts assigned to assets acquired and liabilities assumed. Goodwill is not
amortized but is tested for impairment at least annually at the reporting unit
level, and more frequently if an event occurs or circumstances change that would
more likely than not reduce the fair value of a reporting unit below its
carrying amount. During the year ended December 31, 2005, the Company recorded
an impairment loss of $200,000 related to the service reporting unit.

      Intangible Assets

      Intangible assets are accounted for in accordance with SFAS No. 142
"Goodwill and Other Intangible Assets". Intangible assets with finite lives are
amortized over the estimated useful lives using the straight-line method. An
impairment loss on such assets is recognized if the carrying amount of an
intangible asset is not recoverable and its carrying amount exceeds its fair
value. Intangible assets with indefinite useful lives are not amortized but are
tested for impairment at least annually or more frequently if there are
indications that the asset is impaired. The impairment test for these assets
consists of a comparison of the fair value of the asset with its carrying
amount. If the carrying amount of an intangible asset with an indefinite useful
life exceeds its fair value, an impairment loss is recognized in an amount equal
to that excess. For either type of intangible asset, after an impairment loss is
recognized, the adjusted carrying amount of the intangible asset becomes its new
accounting basis. Subsequent reversal of a previously recognized impairment loss
is prohibited.

      Our intangible assets include purchased technology and various assets
acquired in business combination transactions. Assets acquired in business
combination transactions include existing hardware technologies, trade names,
existing software technologies, customer relationships and patents. Some of
these assets have finite useful lives and some have indefinite useful lives.
During the year ended December 31, 2005, and subsequent to the acquisition of
Old Proxim, we recognized an impairment write off of $3.6 million related to the
Terabeam trade name.

      Capitalized Software - We capitalize software costs for projects from the
time the project is determined to be technologically feasible until the project
is salable. During the year ended December 31, 2005, and subsequent to the
acquisition of Old Proxim, we wrote off approximately $1.1 million of
capitalized software costs because the Company abandoned development of the
Logan software project after acquiring similar software in the Old Proxim
acquisition and determining that it would take significantly longer to bring
Logan to market than anticipated and that, when commercially available, Logan
would not have the feature set required to be competitive.

      Income Taxes

      The Company accounts for income taxes under SFAS No. 109, "Accounting for
Income Taxes." Under this method, deferred tax assets and liabilities are
determined based on differences between the financial reporting and tax basis of
assets and liabilities and are measured using the enacted tax rates and laws
that will be in effect when the differences are expected to reverse. The Company
establishes a valuation allowance when necessary to reduce deferred tax assets
to the amount expected to be realized. The principal differences are net
operating loss carry forwards, property and equipment, allowance for doubtful
accounts, inventory reserves, and accruals.


                                       61
<PAGE>

      Revenue Recognition

      Product revenue is generally recognized upon shipment when persuasive
evidence of an arrangement exists, the price is fixed or determinable, and
collectibility is reasonably assured. The Company grants certain distributors
limited rights of return and price protection on unsold products. Since certain
conditions of SFAS 48 Revenue Recognition When Right of Return Exists are not
met for sales to these distributors, revenue is deferred until the product is
sold to an end customer. Generally, the Company has no obligation to provide any
modification or customization upgrades, enhancements or other post-sale customer
support. Revenue from services, such as pre-installation diagnostic testing and
product repair services, is recognized over the period for which the services
are performed, which is typically less than one month. Revenue from enhanced
service contracts is recognized over the contract period, which ranges from one
to three years.

      For our services business, we recognize revenue when the customer pays for
and then has access to our network for the current fiscal period. Any funds the
customer pays for future fiscal periods are treated as deferred revenue and
recognized in the future fiscal periods for which the customer has access to our
network.

      The Company does not have revenue from multiple deliverable arrangements.

      Excess of Acquired Net Assets Over Cost

      The excess of acquired net assets over cost, recognized in 2003, resulted
from the acquisition of Telaxis. The acquisition was accounted for using the
purchase method of accounting and the purchase price was allocated to the assets
purchased and the liabilities assumed based on the estimated fair values at the
date of the acquisition. The Company recognized the entire $4,347,000 of excess
acquired net assets over cost as an extraordinary gain in the second quarter
2003 in accordance with SFAS No. 141, "Business Combinations" in conjunction
with completing the acquisition on April 1, 2003.

      Research and Development

      Research and development costs are expensed as incurred.

      Stock based compensation

      In December 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure." SFAS No. 148 provides for
alternative methods of transition for a voluntary change to the fair value based
method of accounting for stock-based employee compensation. The Company
continues to account for its stock-based employee compensation plans under the
recognition and measurement principles of Accounting Principles Board ("APB")
Opinion No. 25, "Accounting for Stock Issued to Employees," and related
interpretations. APB No. 25 provides that compensation expense relative to a
company's employee stock options is measured based on the intrinsic value of the
stock options at the measurement date. Effective for interim periods beginning
after December 15, 2002, SFAS No. 148 also requires disclosure of pro-forma
results on a quarterly basis as if the Company had applied the fair value
recognition provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation."

      The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock Based
Compensation" ("SFAS 123"), but applied the intrinsic value method set forth in
Accounting Principles Board Opinion No. 25. No compensation expense has been
recognized in connection with options, as all options have been granted with an
exercise price equal the fair value of the Company's common stock on the date of
grant. The fair value of each option grant has been estimated as of the date of
grant using the Black-Scholes options pricing model with the following weighted
average assumptions for 2005, 2004 and 2003: risk-free interest rate of 3.58%,
3.67% and 2.37%, expected life of 5 years, volatility 111%, 205% and 284% and
dividend rate of zero percent, respectively. Using these assumptions, the fair
value of the stock options granted in 2005, 2004 and 2003 was between
$1.93-$2.69, $2.42 - $5.34, and $0.96 - $5.29, respectively, which would be
amortized as compensation expense over the vesting period of the options.

      If the Company had elected to recognize compensation expense based on the
fair value at the grant dates, consistent with the method prescribed by SFAS No.
123, net income per share would have been changed to the pro forma amount
indicated below (in thousands, except per share amounts):


                                       62
<PAGE>

<TABLE>
<CAPTION>
                                                                                         December 31,
                                                                            --------------------------------------
                                                                               2005          2004          2003
                                                                            ----------    ----------    ----------
<S>                                                                         <C>           <C>           <C>
Net income (loss) attributable to common stockholders, as reported: .....   $  (11,160)   $   (1,346)   $    4,647
Less:  Total stock based employee compensation expense
  determined under the fair value based method for all awards ...........       (2,017)         (563)       (1,213)
                                                                            ----------    ----------    ----------
Pro forma net income (loss) attributable to common stockholders .........      (13,177)   $   (1,909)   $    3,434
                                                                            ==========    ==========    ==========
Basic net income (loss) per common share, as reported ...................   $    (0.51)   $    (0.07)   $     0.37
                                                                            ==========    ==========    ==========
Basic net income (loss) per common share, pro forma .....................   $    (0.60)   $    (0.10)   $     0.27
                                                                            ==========    ==========    ==========
Diluted net income (loss) per common share, as reported .................   $    (0.51)   $    (0.07)   $     0.36
                                                                            ==========    ==========    ==========
Diluted net income (loss) per common share, pro forma ...................   $    (0.60)   $    (0.10)   $     0.27
                                                                            ==========    ==========    ==========
</TABLE>

      Advertising costs

      Advertising costs are expensed when incurred, and the amounts were not
material for all periods presented.

      Shipping and Handling Costs

      Shipping and handling are charged to customers and included in both
revenue and costs of goods sold on the Consolidated Statements of Operations.

      Comprehensive Income

      The Company reports comprehensive income in accordance with SFAS No. 130,
"Reporting Comprehensive Income." During the years ended December 31, 2005, 2004
and 2003, the Company had approximately $(16,000), $(1,193,000), and $1,206,000,
respectively, of unrealized gains (losses) on available-for-sale investments,
net of income taxes of $0 for each period. The unrealized losses of $16,000 in
2005 and $1.2 million in 2004 represent reclassification adjustments for gains
realized in net income.

      Corporate Structural Changes

      There were no corporate structural changes during 2005. In July 2003, the
Company effected a net reverse 1-for-4 split of its outstanding common stock.

      Foreign Currency Transactions

      The functional currency of the Company's operations in all countries is
the U.S. dollar. Sales and purchase transactions are generally denominated in
U.S. dollars. Foreign currency transaction gains and losses are included in the
statement of operations and were not material for each period presented.

      Fair Value of Financial Instruments

      The carrying amounts of the Company's cash and cash equivalents, accounts
receivable, accounts payable and accrued expenses, and notes payable approximate
fair value. Investment securities available for sale are recorded at estimated
fair value based on quoted market prices where available.

      Recent Accounting Pronouncements

      In November 2004, the Financial Accounting Standards Board (FASB) issued
Financial Accounting Standards Board Statement No. 151, "Inventory Costs" (FAS
151). FAS 151 amends the guidance in Accounting Research Bulletin No. 43,
Chapter 4, "Inventory Pricing," to clarify the accounting for inventory costs.
The provisions of this statement are effective for fiscal years beginning after
June 15, 2005, although early application is permitted. We do not expect that
the impact of this statement will be material to the consolidated financial
statements.

      In December 2004, the FASB issued its final standard on accounting for
share-based payments (SBP), Financial Accounting Standards Board Statement No.
123R (FAS 123R) that requires companies to expense the value of employee stock
options and similar awards. The statement applies to all outstanding and
unvested SBP awards at a company's adoption date. The Securities and Exchange
Commission delayed implementation to fiscal


                                       63
<PAGE>

years beginning after June 15, 2005. Therefore, we implemented FAS 123R
effective January 1, 2006 using the modified prospective method, which requires
recognizing expense for options over their remaining vesting period. The portion
of these options' fair value attributable to vested awards prior to the adoption
is never recognized. We expect the impact of this statement to have a material
effect on our results of operations (based on equity instruments outstanding at
December 31, 2005) for the fiscal year ending December 31, 2006.

      In December 2004, the FASB issued Financial Accounting Standards Board
Statement No. 153, "Exchanges of Nonmonetary Assets, an amendment of APB Opinion
No. 29, Accounting for Nonmonetary Transactions" (FAS 153). The amendments made
by FAS 153 are based on the principle that exchanges of nonmonetary assets
should be measured based on the fair value of the assets exchanged. Further, the
amendments eliminate the narrow exception for nonmonetary exchanges of similar
productive assets and replace it with a broader exception for exchanges of
nonmonetary assets that do not have commercial substance. Previously, Opinion
No. 29 required that the accounting for an exchange of a productive asset for a
similar productive asset or an equivalent interest in the same or similar
productive asset should be based on the recorded amount of the asset
relinquished. The statement is effective for nonmonetary asset exchanges
occurring in fiscal periods beginning after June 15, 2005. Earlier application
is permitted for nonmonetary asset exchanges occurring in fiscal periods
beginning after the date of issuance. The provisions of this statement are being
applied prospectively as of January 2006.

      In March 2005, the FASB issued FASB Interpretation No. 47, "Accounting for
Conditional Asset Retirement Obligations" (FIN 47). FIN 47 is an interpretation
of FASB Statement No. 143, "Accounting for Asset Retirement Obligations" (FAS
143) and serves to clarify that an entity is required to recognize a liability
for the fair value of a conditional asset retirement obligation when incurred if
the liability's fair value can be reasonably estimated. FIN 47 also clarifies
when an entity would have sufficient information to reasonably estimate such a
liability. FIN 47 is effective no later than the end of fiscal years ending
after December 15, 2005. We concluded that FIN 47 did not have a material impact
on the consolidated financial statements as of December 31, 2005.

      In May 2005, the FASB issued Financial Accounting Standards Board
Statement No. 154, "Accounting Changes and Error Corrections" (FAS 154), a
replacement of APB Opinion No. 20, "Accounting Changes" and a replacement of
FASB Statement No. 3, "Reporting Accounting Changes in Interim Financial
Statements". FAS 154 changes the accounting for, and reporting of, a change in
accounting principle. The statement requires retrospective application to prior
period's financial statements of voluntary changes in accounting principles and
changes required by new accounting standards when the standard does not include
specific transition provisions, unless it is impracticable to do so. The
statement is effective for accounting changes and corrections of errors in
fiscal years beginning after December 15, 2005. Earlier application is permitted
for accounting changes and corrections of errors during fiscal years beginning
after June 1, 2005.

      In February 2006, the FASB issued SFAS No. 155, Accounting for Certain
Hybrid Financial Instruments ("SFAS 155"). This statement amends SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities ("SFAS 133"), and
SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities. This Statement: (a) permits fair value
remeasurement for any hybrid financial instrument that contains an embedded
derivative that otherwise would require bifurcation; (b) clarifies which
interest-only strips and principal-only strips are not subject to the
requirements of SFAS 133; (c) establishes a requirement to evaluate beneficial
interests in securitized financial assets to identify interests that are
freestanding derivatives or that are hybrid financial instruments that contain
an embedded derivative requiring bifurcation; (d) clarifies that concentrations
of credit risk in the form of subordination are not embedded derivatives; and,
(e) eliminates restrictions on a qualifying special-purpose entity's ability to
hold passive derivative financial instruments that pertain to beneficial
interests that are or contain a derivative financial instrument. The standard
also requires presentation within the financial statements that identifies those
hybrid financial instruments for which the fair value election has been applied
and information on the income statement impact of the changes in fair value of
those instruments. The Company is required to apply SFAS 155 to all financial
instruments acquired, issued or subject to a remeasurement event beginning
January 1, 2007, although early adoption is permitted as of the beginning of an
entity's fiscal year. The provisions of SFAS 155 are not expected to have an
impact recorded at adoption.

3.    Proxim Acquisition

      The primary reasons for the acquisition of the operations of Old Proxim
were a) to acquire Old Proxim's distribution system and to have the opportunity
to expand on their strong channel partnerships, b) to expand our product line to
be able to offer best-of-breed telco and enterprise wireless solutions from
Wi-Fi through wireless


                                       64
<PAGE>

Gigabit Ethernet, and c) to bring together two organizations that we believe
will allow us to accelerate product development and improve our position in the
market.

      The financial statements present the effects of the Old Proxim acquisition
under the purchase method of accounting in accordance with FASB Statement 141,
Business Combinations. Under the purchase method of accounting, the purchase
price is allocated to the identifiable tangible and intangible assets acquired
and liabilities assumed based on their estimated fair values with the remainder
allocated to goodwill. We are in the process of reviewing and finalizing certain
contingent liabilities related to the purchase. The adjusted purchase price
allocation as of December 31, 2005 was as follows (000's):

          Cash ...............................   $     384
          Accounts receivable ................       4,193
          Inventory ..........................       4,976
          Other current assets ...............         118
          Property and equipment .............       3,483
          Other long term assets .............         117
          Identifiable intangible assets .....      14,800
          Goodwill ...........................       1,567
          Accounts payable ...................      (1,038)
          Other accrued liabilities ..........      (4,300)
                                                 ---------
          Total adjusted purchase price ......   $  24,300
                                                 =========

      We have reviewed asset and liability allocations subsequent to the
purchase, and we have made certain adjustments between the acquisition date and
December 31, 2005, resulting in a net increase of $1.0 million in Goodwill
related to Old Proxim. The adjustments consisted principally of the recognition
of certain Old Proxim accounts payable and the adjustment of certain accounts
receivable and inventory reserves related to the Old Proxim balance sheet at the
acquisition date.

      The amount allocated to identifiable intangible assets was determined by
an independent appraisal. The identifiable tangible assets acquired on July 27,
2005 and included in the accompanying balance sheet at December 31, 2005 were:

                                                          (000's)    Useful Life
                                                          -------    -----------
      Trademarks and trade names.......................     2,100     Indefinite
      Developed technology.............................     5,600        8 years
      Customer contracts and related relationships.....     7,100        6 years
      Goodwill                                              1,567     Indefinite

      It is expected that the entire goodwill amount will be amortized for
income tax purposes.

Pro forma financial information (unaudited)

      The pro forma financial information has been prepared to give effect to
the completed acquisition of substantially all of the assets and certain
liabilities of Old Proxim. The unaudited pro forma financial information
presents the effects of the Old Proxim acquisition under the purchase method of
accounting in accordance with FASB Statement 141, Business Combinations.

      The following unaudited pro forma results of operations for the year ended
December 31, 2005 assume the acquisition of Old Proxim to have occurred as of
January 1, 2005. The unaudited pro forma results of operations for the year
ended December 31, 2004 assume the acquisition of Old Proxim to have occurred as
of January 1, 2004.

      The unaudited pro forma condensed combined results of operations are
provided for illustrative purposes only and are not necessarily indicative of
the operating results that actually would have occurred if the acquisition had
been consummated as of the date indicated, nor are they necessarily indicative
of future operating results or financial position. These unaudited pro forma
condensed combined results of operations should be read in conjunction with the
historical consolidated financial statements and related notes of Terabeam and
Old Proxim included in this filing or otherwise available.


                                       65
<PAGE>
<TABLE>
<CAPTION>

Pro Forma Results of Operations for the Years ended December 31, 2005 and 2004 (in thousands, except per share data)

                                       Jan - Jul
                            Terabeam   Old Proxim    Pro forma   Pro forma     Terabeam   Old Proxim    Pro forma   Pro forma
                              2005        2005      Adjustments    2005          2004        2004      Adjustments    2004
                              ----        ----      -----------    ----          ----        ----      -----------    ----
<S>                         <C>          <C>           <C>        <C>           <C>         <C>           <C>        <C>
Revenue                      58,982       42,162                  101,144       22,897      113,724                  136,621

Loss before
extraordinary items
and cumulative effect
of accounting changes       (11,160)     (35,641)      12,001     (34,799)      (1,346)     (99,733)      55,347     (45,732)

Net loss                    (11,160)     (35,641)      12,001     (34,799)      (1,346)     (99,733)      55,347     (45,732)

Weighted average shares                                            21,801                                             19,792

Earnings per share                                                  (1.60)                                             (2.31)
</TABLE>

Pro forma Adjustments for the year ended December 31, 2005:

The pro forma adjustments reflect Old Proxim expenses related to assets,
liabilities and agreements not acquired by Terabeam in the Asset Purchase
Agreement. The net expense eliminated was $12.0 million and includes charges for
impairment and amortization of intangible assets, royalty charges, and loss on a
debt/equity exchange, offset by depreciation and amortization expense for assets
acquired.

Pro forma Adjustments for the year ended December 31, 2004:

The pro forma adjustments reflect Old Proxim expenses related to assets,
liabilities and agreements not acquired by Terabeam in the Asset Purchase
Agreement. The net expense eliminated was $55.3 million and includes royalty
charges, amortization of intangible assets, restructuring charges, certain
interest and litigation expenses, and accretion of preferred stock obligations,
offset by depreciation and amortization expense for assets acquired.

4.    Restructuring Provision for Excess and Obsolete Inventory

      During the quarter ended September 30, 2005, the Company recorded a $2.1
million restructuring provision for excess and obsolete inventory as part of the
Company's restructuring activities. The excess inventory charges were due
principally to management's decision to discontinue certain older Terabeam
product lines subsequent to the acquisition of the Old Proxim product lines and
distribution channels.

5.    Restructuring Charges for Severance and Excess Facilities

      The Company accounts for restructuring charges under the provisions of
Statement of Financial Accounting Standards No. 146 ("FAS 146"), "Accounting for
Costs Associated with Exit or Disposal Activities".

      During the year ended December 31, 2005, and subsequent to the Old Proxim
acquisition, the Company recorded restructuring charges of approximately
$944,000. These charges consisted of operating lease commitments related to
facilities which were closed during the quarter, and severance payments to
Terabeam employees laid off subsequent to the Old Proxim acquisition.


                                       66
<PAGE>

6.    Restructuring Provision for Impairment of Intangibles

      During the year ended December 31, 2005, and subsequent to the Old Proxim
acquisition, the restructuring of the Company and the Company's product lines
affected the carrying value of certain intangible assets, and the Company
recorded a charge for the impairment of intangible assets in the accompanying
financial statements totaling $4.7 million. These charges consisted of:

            o     A $3.6 million impairment charge related to the Terabeam trade
                  name in accordance with the guidance contained in the
                  Financial Accounting Standards Board Statement of Financial
                  Accounting Standard No. 142, "Goodwill and Other Intangible
                  Assets". Subsequent to the Old Proxim acquisition, the Company
                  chose to sell its wireless equipment products under the go to
                  market name of Proxim Wireless. Since there will be no future
                  revenue stream based on the Terabeam name, an independent
                  third party valuation determined that the fair value of the
                  Terabeam trade name was de minimis.

            o     A $1.1 million charge related to the write off of certain
                  software development costs that had been previously
                  capitalized under Financial Accounting Standards Board
                  Statement of Financial Accounting Standard No. 86, "Accounting
                  for the Costs of Computer Software to Be Sold, Leased, or
                  Otherwise Marketed". The Company abandoned development of its
                  Logan software development project after acquiring similar
                  software in the Proxim acquisition and determining that it
                  would take significantly longer to bring Logan to market than
                  anticipated and that, when commercially available, Logan would
                  not have the feature set required to be competitive.

7.    Investment Securities

      Cost basis of investments are determined for securities purchased through
a securities broker at cost of the security plus acquisition costs. Cost basis
of securities acquired with the purchase of a company, such as with Terabeam,
are based on quoted market prices on the date of acquisition. Gain or loss on
securities is computed using cost basis of First-in, First-out (FIFO) basis.

      Investment securities are summarized as follows (in thousands):

<TABLE>
<CAPTION>
                                                             December 31,
                                        ------------------------------------------------------
                                                   2005                        2004
                                        --------------------------  --------------------------
                                        Cost Basis  Carrying Value  Cost Basis  Carrying Value
                                        ----------  --------------  ----------  --------------
<S>                                     <C>           <C>           <C>           <C>
          Available-for-sale:
          Fixed income .............    $       --    $       --    $    5,221    $    5,225
          Equity investments .......           273           260           144           144
                                        ----------    ----------    ----------    ----------
          Total ....................    $      273    $      260    $    5,365    $    5,369
                                        ==========    ==========    ==========    ==========
</TABLE>

      The net gains (losses) on investment securities included in earnings are
as follows (in thousands):

                                            2005           2004          2003
                                         ----------     ----------    ----------
          Equity securities .........    $     (120)    $    3,521    $       92
                                         ==========     ==========    ==========

      The loss of $120,000 for 2005 is net of a recorded loss of $113,000 due to
a decline in value deemed to be other than temporary on investment securities -
available-for-sale. Proceeds from the sale of investment securities were $5.2
million, $34.6 million, and $242,000 for the years ended December 31, 2005,
2004, and 2003, respectively.

8.    Inventory

      Inventory consisted of the following (in thousands):


                                       67
<PAGE>

                                                             December 31,
                                                       ------------------------
                                                          2005          2004
                                                       ----------    ----------
          Raw Materials ............................   $    4,737    $    1,968
          Work in process ..........................          437           124
          Finished goods ...........................       13,863         5,950
                                                       ----------    ----------
                                                           19,037         8,042
          Allowance for excess and obsolescence ....       (8,967)         (600)
                                                       ----------    ----------
          Net Inventory ............................   $   10,070    $    7,442
                                                       ==========    ==========

      The allowance for excess and obsolescence increased by approximately $7.0
million, as adjusted, due to the acquisition of Old Proxim.

9.    Property and Equipment

      Property and equipment consisted of the following (in thousands):

                                                             December 31,
                                                       ------------------------
                                                          2005          2004
                                                       ----------    ----------
          Land .....................................   $       --    $      522
          Building and improvements ................          684         1,377
          Equipment ................................        4,438         1,056
                                                       ----------    ----------
                                                            5,122         2,955
                  Less: accumulated depreciation ...       (1,198)         (444)
                                                       ----------    ----------
          Property and equipment, net ..............   $    3,924    $    2,511
                                                       ==========    ==========

      Depreciation expense totaled approximately $888,000, $240,000, and
$72,000, respectively, for the periods ended December 31, 2005, 2004, and 2003.

10.   Allowance for Bad Debt and Product Warranty Costs

      The following is a summary of the movements in allowance for bad debt,
sales returns and discounts during the year ended December 31, 2005 and 2004 (in
thousands):

<TABLE>
<CAPTION>
                                                           Allowance for Bad Debt, Sales
                                                               Returns and Discounts
                                                           -----------------------------
                                                                2005           2004
                                                             ----------     ----------
<S>                                                          <C>            <C>
          Balance as of January 1 ......................     $      591     $      206
          Additional provision .........................            280          1,545
          Allowance on acquired Proxim receivables .....          8,964             --
          Charge offs made during the period ...........           (707)        (1,160)
                                                             ----------     ----------
          Balance as of December 31 ....................     $    9,128     $      591
                                                             ==========     ==========
</TABLE>

      For the years ended December 31, 2005, 2004, and 2003 bad debt expense
totaled $416,400, $485,900, and $660,300, respectively.

      The following is a summary of the movements in product warranty costs
during the year ended December 31, 2005 and 2004 (in thousands):

<TABLE>
<CAPTION>
                                                                 Product Warranty Costs
                                                                ------------------------
                                                                   2005          2004
                                                                ----------    ----------
<S>                                                             <C>           <C>
          Balance as of January 1 ...........................   $      220    $      281
          Additional provision ..............................          560            48
          Provision from acquired Proxim warranty costs .....        1,053            --
          Settlements made during the period ................         (467)         (109)
                                                                ----------    ----------
          Balance as of December 31 .........................   $    1,366    $      220
                                                                ==========    ==========
</TABLE>


                                       68
<PAGE>

11.   Goodwill

      As of December 31, 2005, goodwill consisted of the following (in
thousands):

          Acquisition                          2005        2004
          -------------------------------   ---------------------
          KarlNet .......................   $   2,491   $   2,490
          Terabeam ......................       3,322       3,382
          Ricochet ......................          --         200
                                            ---------------------
          Old Proxim ....................       1,567          --
                                            ---------------------
          Goodwill ......................   $   7,380   $   6,072
                                            =====================

      Terabeam goodwill was reduced by approximately $60,000 during 2005 due to
changes in the purchase price allocation during the year. The purchase price
allocation was finalized for Terabeam as of June 30, 2005.

      Goodwill is tested for impairment at least annually at the reporting unit
level, and more frequently if an event occurs or circumstances change that would
more likely than not reduce the fair value of a reporting unit below its
carrying amount.

      The Company has two reporting units with goodwill, and at December 31,
2005 goodwill was tested for impairment at the reporting unit level. The
Company's measurement of fair value of goodwill was based on evaluations
utilizing both a discounted cash flow, as well as a market approach. These
evaluations utilized the best information available in the circumstances,
including reasonable assumptions and projections. Certain key assumptions
utilized, including changes in revenue, operating expenses, working capital
requirements and capital expenditures including prepublication costs, are based
on estimates related to the Company's strategic initiatives and current market
conditions. The analysis indicated no impairment of goodwill for the equipment
reporting unit. The analysis indicated impairment in the value of goodwill at
the Ricochet services reporting unit as a result of the current trends and
competitive environment in which the services businesses operate. Accordingly,
impairment charges of $200,000 were recorded for service unit goodwill at
December 31, 2005.

12.   Intangibles

      Schedule of Non-Amortizable Assets

<TABLE>
<CAPTION>
                                                                                      December 31,
                                                                               ------------------------
                                                                                  2005          2004
                                                                               ----------    ----------
                                                                                   (in thousands)
<S>                                                                            <C>           <C>
          Capitalized software - not placed in service .....................   $       --    $      681
          Trade names - indefinite useful life .............................        2,250         3,750
                                                                               ----------    ----------
                                                                               $    2,250    $    4,431
                                                                               ==========    ==========
</TABLE>

      Schedule of Amortizable Assets

<TABLE>
<CAPTION>
                                                                                     December, 31
                                                                               ------------------------
                                                                                  2005          2004
                                                                               ----------    ----------
                                                                                   (in thousands)
<S>                                                                            <C>           <C>
          Capitalized software - placed in service .........................   $    1,225    $    1,225
          Patents, customer relationships and other technologies with
             identifiable useful lives .....................................       24,031         7,394
                                                                               ----------    ----------
                                                                                   25,256         8,619
          Less: accumulated amortization ...................................       (3,689)       (1,131)
                                                                               ----------    ----------
          Amortizable intangible assets, net ...............................   $   21,567    $    7,488
                                                                               ==========    ==========
</TABLE>

      During the year ended December 31, 2005, and subsequent to the Old Proxim
acquisition, the restructuring of the Company and the Company's product lines
affected the carrying value of certain intangible assets, and the Company
recorded a $3.6 million impairment charge related to the Terabeam trade name in
accordance with the guidance contained in the Financial Accounting Standards
Board Statement of Financial Accounting Standard No.


                                       69
<PAGE>

142, "Goodwill and Other Intangible Assets". Subsequent to the Old Proxim
acquisition, the Company chose to sell its wireless equipment products under the
go to market name of Proxim Wireless. Since there will be no future revenue
stream based on the Terabeam name, an independent third party valuation
determined that the fair value of the Terabeam trade name was de minimis. During
2005 we also recorded a $1.1 million charge related to the write off of certain
software development costs that had been previously capitalized under Financial
Accounting Standards Board Statement of Financial Accounting Standard No. 86,
"Accounting for the Costs of Computer Software to Be Sold, Leased, or Otherwise
Marketed". The Company abandoned development of its Logan software development
project after acquiring similar software in the Proxim acquisition and
determining that it would take significantly longer to bring Logan to market
than anticipated and that, when commercially available, Logan would not have the
feature set required to be competitive.

      Amortization is computed using the straight-line method over the estimated
useful life, based on the Company's assessment of technological obsolescence, of
the respective assets. Amortization expense for the years ended December 31,
2005, 2004, and 2003 totaled approximately $2.6 million, $1.0 million, and
$111,000, respectively. The weighted average estimated useful life is 6.2 years.
There is no estimated residual value.

13.   Patent License Agreement - License Agreement Payable

      On February 24, 2006, Terabeam, Inc. and its subsidiaries entered into a
settlement agreement with Symbol Technologies, Inc. and its subsidiaries
("Symbol") resolving all outstanding litigation between the companies.

      Under the terms of the settlement agreement, Terabeam and Symbol entered
into a patent license agreement, dated February 24, 2006, and Terabeam executed
two patent assignments, each dated February 24, 2006, in favor of Symbol. Under
the terms of the patent license agreement, the companies have agreed to cross
license specified patents, and Terabeam has agreed to pay to Symbol fixed
license fees totaling $4.3 million. $600,000 was paid in March 2006; $250,000 is
scheduled to be paid quarterly for the second, third, and fourth quarters of
2006 and each of the four quarters of 2007; $300,000 is scheduled to be paid
quarterly for each of the four quarters of 2008; and $375,000 is scheduled to be
paid quarterly for the first two quarters of 2009. The amounts may be prepaid at
any time without penalty. The parties also released each other from any patent
infringement claims arising prior to February 24, 2006 to the extent such
infringement would have been licensed under the patent license agreement. Also
pursuant to the terms of the patent license agreement, Terabeam and Symbol have
agreed not to sue one another for patent infringement with respect to one
another's products for three years. Under the terms of the patent assignments
executed by Terabeam, Terabeam has assigned to Symbol specified patents and
patent applications.

      The Company recorded a $3.9 million intangible asset related to the
license at December 31, 2005 based on the present value of the scheduled
payments, and will amortize the intangible asset over the useful life of the
patents through 2014. The amortization expense recorded for the year ended
December 31, 2005 totaled approximately $174,000. The Company also recorded a
license payable equal to the present value of the scheduled payments. License
agreements payable consisted of the following at December 31 (in thousands):

                                                              2005       2004
                                                            --------   --------
      License Agreement Payable .........................      3,937         --
          Current portion ...............................        981         --
                                                            --------   --------
          Long term portion .............................   $  2,956   $     --
                                                            ========   ========

14.   Notes Payable

      Notes payable consisted of the following at December 31 (in thousands):

<TABLE>
<CAPTION>
                                                                                                            2005       2004
                                                                                                          --------   --------
<S>                                                                                                       <C>        <C>
      Note payable of a formerly consolidated entity.  In May 2002, Merry Fields executed a loan
      consolidation and refinance agreement with a financial institution for a term loan
      collateralized by the building and land used by the Company in Falls Church, Virginia ...........   $     --   $  1,241

      The Company assumed convertible notes as part of the Terabeam acquisition. The
      convertible notes' aggregate principal amount totaled $2.5 million. The notes
      matured and the principal was paid in full during the year ended December 31, 2005 ..............         --      2,542

      In June 2003, the Company issued a $300,000 note as part of the consideration
      for the acquisition of Ricochet Networks. The note was paid in full during the
      year ended December 31, 2005 ....................................................................         --        255

      Other ...........................................................................................         --        131
                                                                                                          --------   --------
                                                                                                                --      4,169
            Current portion ...........................................................................         --     (2,899)
                                                                                                          --------   --------
                                                                                                          $     --   $  1,270
                                                                                                          ========   ========

</TABLE>


                                       70
<PAGE>

      The Company entered into a Promissory Note as part of the acquisition of
Ricochet Networks in June 2004. In November 2005, the Company entered into an
agreement that satisfied in full any and all obligations between the parties.
The Company paid $136,500, and recognized a gain on extinguishment of debt
totaling $79,400 on the accompanying financial statements at December 31, 2005.

15.   Income Taxes

      The provision (benefit) for income taxes is summarized as follows (in
thousands):

                                                         December 31,
                                               --------------------------------
                                                 2005        2004        2003
                                               --------    --------    --------
      Current tax expense (benefit)
           Federal .........................   $     --    $     --    $   (112)
           State ...........................        (16)         (2)        (14)
                                               --------    --------    --------
                                                    (16)         (2)       (126)
                                               --------    --------    --------
      Deferred tax expense (benefit)
           Federal .........................         --          --         344
           State ...........................         --          --          43
                                               --------    --------    --------
                                                                 --         387
                                               --------    --------    --------
                                               $    (16)   $     (2)   $    261
                                               ========    ========    ========

      The components of the net deferred tax assets (liabilities) at December
31, 2005 and 2004 are as follows (in thousands):

<TABLE>
<CAPTION>
                                                                       December 31,
                                                                  ----------------------
                                                                     2005         2004
                                                                  ---------    ---------
<S>                                                               <C>          <C>
      Current net deferred tax assets (liabilities):
      Allowance for doubtful accounts .........................   $      87    $     230
      Inventory valuation allowance ...........................         749          234
      Accruals ................................................          94          407
      Net operating loss carryforwards ........................       5,501          712
                                                                  ---------    ---------
                                                                      6,431        1,583
      Valuation allowance .....................................      (6,431)      (1,583)
                                                                  ---------    ---------
                                                                  $      --    $      --
      Non-current net deferred tax assets (liabilities):
      Intangible and depreciable assets .......................   $     513    $     (69)
      Accruals ................................................          --           --
                                                                  ---------    ---------
                                                                        513          (69)
      Valuation allowance .....................................        (513)          69
                                                                  ---------    ---------
                                                                  $      --    $      --
                                                                  =========    =========
</TABLE>

      The provision for income taxes is different from that which would be
obtained by applying the statutory Federal income tax rate to income before
income taxes, extraordinary gain, and cumulative effect of accounting change and
minority interests. The items causing this difference are as follows (in
thousands):


                                       71
<PAGE>

<TABLE>
<CAPTION>
                                                                         December 31,
                                                            --------------------------------------
                                                               2005          2004          2003
                                                            ----------    ----------    ----------
<S>                                                         <C>           <C>           <C>
      Tax expense (benefit) at U.S. statutory rate ......   $   (3,906)   $     (472)   $      191
      State income taxes ................................         (446)          (54)           22
      Merry Fields, LLC income ..........................           --           (55)          (49)
      Change in valuation allowance .....................        5,430         1,387           127
      Permanent tax differences .........................       (1,073)         (780)           --
      Other differences .................................          (21)          (28)          (30)
                                                            ----------    ----------    ----------
      Provision (benefit) for income taxes ..............   $      (16)   $       (2)   $      261
                                                            ==========    ==========    ==========
</TABLE>

      The income tax benefit for the year relates to minimum state tax payments.
The Company is in a tax loss position and cannot accurately predict when it will
generate taxable income to utilize these tax assets. The Company has
approximately $110 million in net operating losses available through 2024. Of
the $110 million, approximately $96 million relates to losses incurred by
acquired companies prior to their acquisition by the Company. The ability to
benefit from these losses is significantly limited by Section 382 of the
Internal Revenue Code.

16.   Commitments

      Leases

      The Company has various operating leases for equipment, office and
production space. These leases generally provide for renewal or extension at
market prices.

      Rent expense for the years ended December 31, 2005, 2004, and 2003 was
approximately $1,917,000, $753,000, and $463,000, respectively.

      Schedule of Commercial Commitments

      Aggregate maturities of the operating leases are as follows as of December
31, 2005 (in thousands):

                   2006..................    $  2,790
                   2007..................       2,324
                   2008..................       1,503
                   2009..................         436
                   2010..................         440
                   Thereafter............         626
                                             --------
                                             $  8,119
                                             ========

      In addition, the Company has accrued liabilities of $1.9 million relating
to real estate leases for currently unutilized space. This amount relates to
five remaining real estate leases acquired in connection with the acquisition of
Terabeam and four buildings we vacated as part of the reorganization subsequent
to the Proxim acquisition. The Company has been negotiating the termination of
the unutilized leases, and has settled eight leases during 2004 and fourteen
during 2005 for one-time payments.

17.   401(k) - Retirement Plan

      The Company has a 401(k) retirement plan covering all employees who meet
certain minimum eligibility requirements. Each year employees can elect to defer
the lesser of 15% of earned compensation or the maximum amount permitted by the
Internal Revenue Code. The Company makes contributions to the plan at its
discretion. The Company made no contribution to the plan for the periods ended
December 31, 2005, 2004, or 2003.


                                       72
<PAGE>

18.   Stockholders' Equity

      Stock Warrants

      There were no new stock warrants issued by the Company in 2005.

      In summary, the Company has issued warrants for its common stock as
follows:

<TABLE>
<CAPTION>
                                                                     Warrants Outstanding
                                                              ----------------------------------
                                                                                    Per Share
                                                              Number of Shares    Exercise Price
                                                              ----------------    --------------
<S>                                                                   <C>         <C>
                                                                            --    $ --
           Outstanding warrants December 31, 2002..........
                Telaxis warrants ..........................            432,338    $ 2.08 - 8.64
                Warrants exercised ........................            (18,498)   $ 2.08
                Warrants expired/canceled .................            (22,421)   $ 2.08 - 8.64

           Outstanding December 31, 2003 ..................            391,419    $ 2.08
                Warrants issued............................            624,706    $ 0.40 - 17.05
                Warrants exercised ........................            (57,713)   $ 0.40 - 2.27
                Warrants expired/canceled .................           (116,947)   $ 0.40 - 5.68

           Outstanding December 31, 2004 ..................            841,465    $ 0.40 - 17.05
                Warrants issued............................                 --    $ --
                Warrants exercised.........................            (31,948)   $ 2.08 - 2.08
                Warrants expired/canceled..................           (371,047)   $ 0.40 - 17.05
                                                              ----------------    --------------
           Outstanding December 31, 2005...................            438,470    $ 0.40 - 5.68
                                                              ================    ==============
</TABLE>

      Expiration dates of warrants are as follows:

                                                    Number of
                Expiration Date                     Warrants
                ---------------------------      --------------
                2006.......................             252,458
                2007.......................             131,012
                2008.......................              55,000

      Stock Options 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 2,150,000 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, 2005, 444,255 options are available for issuance
under these plans.


                                       73
<PAGE>

      A summary of the option activity is as follows:

<TABLE>
<CAPTION>
                                                                                           Options Outstanding
                                                                                     -------------------------------
                                                                                       Number of       Per Share
                                                                                        Shares       Exercise Price
                                                                                     -------------  ----------------
<S>                                                                                    <C>           <C>
           Outstanding December 31, 2002.....................................            444,688     $ 1.60
              Options granted and assumed in conjunction with merger.........            766,432     $ 1.60 - 161.00
              Options exercised..............................................           (119,204)    $ 0.92 - 5.30
              Options expired/canceled.......................................           (322,187)    $ 1.52 - 4.00
                                                                                     -----------    ----------------
           Outstanding December 31, 2003.....................................            769,729     $ 0.92 - 161.00
              Options granted................................................            815,350     $ 2.47 - 6.99
              Options exercised..............................................           (182,198)    $ 0.96 - 5.76
              Options expired/canceled.......................................           (231,247)    $ 1.32- 161.00
                                                                                     -----------    ----------------
           Outstanding December 31, 2004.....................................          1,171,634     $ 0.92 - 161.00
              Options granted................................................          1,488,000     $ 2.35 - 3.34
              Options exercised..............................................           (102,172)    $ 1.60 - 2.47
              Options expired/canceled.......................................           (514,416)    $ 1.60 - 161.00
                                                                                     -----------    ----------------
           Outstanding December 31, 2005.....................................          2,043,046     $ 0.92 - 161.00
                                                                                     ===========    ================
</TABLE>

      A summary of the stock options outstanding and exercisable as of December
31, 2005 is as follows:

<TABLE>
<CAPTION>
                          Options Outstanding                                Options Exercisable
      ---------------------------------------------------------------     -------------------------
                                        Weighted
         Weighted                        Average         Weighted-                         Weighted-
         Average          Number      Remaining Life      Average           Number          Average
      Exercise Price    Outstanding      (years)       Exercise Price     Exercisable    Exercise Price
      --------------    -----------   --------------   --------------     -----------    --------------
<S>   <C>      <C>       <C>               <C>           <C>                <C>            <C>
      $ 0.00 - 2.00         83,229         3.36          $     1.34          83,299        $     1.34
      $ 2.01 - 4.00      1,774,921         4.35          $     2.85         533,833        $     2.86
      $ 4.01 - 6.00         65,999         4.68          $     5.03          65,999        $     5.03
      $ over 6.00          118,897         3.61          $    11.11          85,630        $    12.84
      --------------    -----------    -------------   --------------     -----------    --------------
</TABLE>

19.   Earnings (Loss) per Share

<TABLE>
<CAPTION>
                                                                                           December 31,
                                                                              --------------------------------------
                                                                                 2005          2004          2003
                                                                              ----------    ----------    ----------
                                                                               (in thousands, except per share data)
<S>                                                                           <C>           <C>           <C>
      Numerator
        Income (loss) from continuing operations ..........................   $  (11,160)   $   (1,346)   $      300
        Extraordinary item ................................................           --            --         4,347
                                                                              ----------    ----------    ----------
        Net income (loss) .................................................   $  (11,160)   $   (1,346)   $    4,647
                                                                              ==========    ==========    ==========

      Denominator - weighted average shares:
        Denominator for basic earnings (loss) per share ...................       21,801        19,792        12,571
        Dilutive effect of stock options ..................................           --            --           270
                                                                              ----------    ----------    ----------
        Denominator for diluted earnings (loss) per share .................       21,801        19,792        12,841
                                                                              ==========    ==========    ==========

        Basic earnings (loss) per share from continuing operations ........   $    (0.51)   $    (0.07)   $     0.02
        Basic earnings per share - Extraordinary item .....................           --            --          0.35
                                                                              ----------    ----------    ----------
        Basic earnings (loss) per share ...................................   $    (0.51)   $    (0.07)   $     0.37
                                                                              ==========    ==========    ==========

        Diluted earnings (loss) per share before extraordinary item .......   $    (0.51)   $    (0.07)   $     0.02
        Diluted earnings per share- Extraordinary item ....................           --            --          0.34
                                                                              ----------    ----------    ----------
        Diluted earnings (loss) per share .................................   $    (0.51)   $    (0.07)   $     0.36
                                                                              ==========    ==========    ==========
</TABLE>


                                       74
<PAGE>

20.   Concentrations

      The Company maintains its cash, cash equivalent, and restricted cash
balances in several banks. The balances are insured by the Federal Deposit
Insurance Corporation up to $100,000 per bank. At December 31, 2005, and 2004,
the uninsured portion totaled approximately $19.0 million and $41.4 million,
respectively.

      As of December 31, 2005, no customer totaled more than 10% of total
accounts receivable. As of December 31, 2004, accounts receivable from one
customer totaled approximately $590,000, which represented 16% of the total
accounts receivable.

      During the years ended December 31, 2005, 2004, and 2003, no customers
accounted for more than 10% of sales.

      For the years ended December 31, 2005, 2004, and 20032 sales to customers
outside of the United States and Canada accounted for approximately 35%, 18%,
and 16%, respectively, of revenues. As of December 31, 2005, the Company had 21
employees in three leased facilities, with minor assets located outside of the
United States.

<TABLE>
<CAPTION>
                                                                             % of Company Sales
                                                                    ------------------------------------
                              Region                                   2005         2004         2003
      ----------------------------------------------------------    ----------   ----------   ----------
<S>                                                                      <C>         <C>          <C>
      North America (US and Canada).............................         65%         82%          84%
      Latin America (Mexico, Central, South America, and
        Caribbean)..............................................          8%          4%           7%
      Asia Pacific (China, Taiwan, Japan, other Pacific
        territories, Australia, New Zealand)....................         11%          4%           2%
      Europe, Middle East and Africa (a.k.a. E.M.E.A.) .........         16%         10%           7%
</TABLE>

21.   Related Party Transactions

      Merry Fields, LLC ("Merry Fields") was formed by shareholders of a Company
predecessor, Young Design, Inc., under the laws of the State of Delaware in
August 2000. Merry Fields is indirectly majority owned by the Company's CEO,
Robert Fitzgerald. Merry Fields owns the property and land leased to Terabeam
for its Falls Church, Virginia operation subject to a loan and mortgage. In
accordance with FIN 46R, through June 30, 2005, Merry Fields was a variable
interest entity and the Company was determined to be the primary beneficiary of
Merry Fields. During the year ended December 31, 2005, the Company ceased to
guarantee the Merry Fields note payable and is no longer the primary beneficiary
of Merry Fields. Through June 30, 2005, the financial statements of Merry Fields
were consolidated with the financial statements of YDI Wireless, Inc. Effective
with the quarter ended September 30, 2005, the financial statements of Merry
Fields are no longer consolidated with the financial statements of YDI Wireless,
Inc.

      The property lease for the approximately 15,000 square foot facility
commenced on January 1, 2001 and terminates on December 31, 2010. The lease was
negotiated on terms that management believes are at market rates. The lease
provides for base monthly rent payments of $20,625 with a 3% fixed annual
increase after the base year. There were no amounts due at year end, and
payments under the lease totaled approximately $278,600 during the year ended
December 31, 2005.

22.   Prior Year Acquisitions

      Telaxis

      On April 1, 2003, Young Design merged with Telaxis. For accounting and
financial reporting purposes, Young Design was treated as the acquiring company
and the transaction was accounted for as a reverse merger. Young Design had
voting control and majority representation on the Board of Directors after the
merger with Telaxis. Young Design merged with Telaxis for various strategic
reasons including the fact that Telaxis was a publicly traded vehicle providing
a potential source of capital and liquidity.

      The cost of the April 1, 2003 acquisition consisted of 4,177,078 shares of
common stock and 695,976 options valued at $3.7 million and acquisition costs of
approximately $0.1 million. On April 1, 2003, Telaxis had net assets with a fair
market value of $8.1 million. Accounting for the transaction as a reverse merger
resulted in an excess of net assets over book value of $4.3 million. The assets
and liabilities of Telaxis were recorded at fair value


                                       75
<PAGE>

under the purchase method of accounting. As the fair value of the assets
acquired exceeded the purchase price, the long-lived assets were reduced to zero
and negative goodwill was recorded. The valuation of the stock was based on the
average closing price for the five days preceding the announcement of the
acquisition.

      Telaxis' condensed balance sheet at fair value was as follows (in
thousands):

                                                         April 1, 2003
                                                         -------------
          Cash and cash equivalents ...................    $   7,421
          Property and equipment (held for sale) ......        1,405
          Other assets ................................          426
          Liabilities .................................       (1,166)
                                                           ---------
          Net assets acquired .........................    $   8,086
                                                           =========

      KarlNet

      In 2004, the Company acquired 100% ownership of KarlNet, Inc., a wireless
software development company. The purchase price consisted of $1.8 million in
cash and 1,000,000 shares of YDI stock. The shares were valued at $4.27 each,
which was the average share price from May 12 - 14, 2004. The definitive
acquisition agreement was signed and the acquisition was completed on May 13,
2004. Prior to the acquisition, KarlNet was an important supplier to YDI. YDI
decided to purchase KarlNet to secure access to KarlNet's software source code
used in YDI's current products as well as help us reduce our future costs of
goods sold. The operations of KarlNet are included in the consolidated statement
of operations after the acquisition date.

      The cost of the acquisition was as follows (in thousands):

          Cash ........................................    $   1,800
          YDI stock ...................................        4,270
                                                           ---------
          Total consideration .........................    $   6,070
                                                           =========

      In addition, the definitive agreement for the acquisition of KarlNet
provided for various contingent consideration. YDI may pay up to an additional
$2.5 million over the two years following closing based on achievement of
certain milestones and compliance with other conditions. Although the Company
has received a letter from sellers demanding payment of the first $1.0 million
contingent payment, it is the Company's position that, as of December 31, 2005,
no events have occurred that have triggered the obligation to pay any of the
contingent consideration. Pursuant to the provisions of Statement of Financial
Accounting Standards No. 141, "Business Combinations" (SFAS 141), the Company
believes the payment of any contingent consideration will be treated as
additional cost of the acquisition as the contingencies are resolved.

      The final purchase price allocation was based on the fair value of
KarlNet's balance sheet as of May 13, 2004 and is summarized as follows (in
thousands):

          Cash ........................................    $      99
          Accounts receivable, net ....................          750
          Inventory ...................................          650
          Property and equipment ......................           99
          Other assets ................................           50
          Identifiable intangible assets ..............        2,305
          Goodwill ....................................        2,490
          Liabilities .................................         (373)
                                                           ---------
          Total consideration .........................    $   6,070
                                                           =========

      The amount allocated to identifiable intangible assets was based on the
present value of estimated future cash flows of the specific identifiable
intangible assets.

      Intangible assets, with finite lives, are being amortized over their
useful life, after they are placed in service:


                                       76
<PAGE>

<TABLE>
<S>                                      <C>
        (in thousands)
        Goodwill......................   $  2,490 Not amortizable for financial or tax purposes
        Software in development.......         80 Amortizable after placed in service
        Customer relationships........      1,000 4 years
        Developed software............      1,225 4 years
</TABLE>

      The table includes the final value of intangibles other than goodwill. The
goodwill from the KarlNet acquisition has been associated with the equipment
business.

      Terabeam

      The Company acquired 100% ownership of Terabeam Corporation, a wireless
telecommunications equipment company in 2004. The purchase price consists of
11,567,132 shares of YDI stock and the assumption of 574,706 warrants. The YDI
shares were valued at $4.76 per share, which was the average share price from
April 5 - 20, 2004. The definitive agreement was signed on April 14, 2004. The
warrants were valued using the Black-Scholes method using actual remaining lives
of each warrant and exercise price of each warrant, volatility of 205%,
risk-free rate of interest of 3.67%, 0% dividend yield, and current stock price
of $4.25. YDI acquired Terabeam for its strong balance sheet, its complementary
product lines relating to YDI's own millimeter wave product offerings, and its
component chipsets. The operations of Terabeam are included in the consolidated
statement of operations following the acquisition on June 22, 2004.

      The cost of the acquisition was as follows (in thousands):

                  YDI stock ....................   $  55,059
                  Warrants .....................         132
                                                   ---------
                  Total consideration ..........   $  55,191
                                                   =========

      The purchase price allocation as of December 31, 2005 was based on the
fair value of Terabeam's assets and liabilities are as follows (in thousands):

          Cash .............................................   $  10,085
          Cash, restricted .................................       5,876
          Marketable securities available-for-sale .........      34,229
          Accounts receivable, net .........................         300
          Inventory ........................................       1,310
          Property and equipment ...........................         101
          Other assets .....................................         870
          Identifiable intangible assets ...................       7,700
          Goodwill .........................................       3,382
          Liabilities ......................................      (8,662)
                                                               ---------
          Total consideration ..............................   $  55,191
                                                               =========

      The amount allocated to identifiable intangible assets was based on the
present value of estimated future cash flows of the specific identifiable
intangible asset.

      Intangible assets, with finite lives, are being amortized over their
useful life, after they are placed in service.

<TABLE>
<S>                                     <C>
        (in thousands)
        Goodwill...................     $  3,382  Not amortizable for financial or tax purposes
        Trade name.................        3,600  Indefinite life - not amortizable
        Technology product.........          900  6 years
        Technology product.........        3,200  9 years
</TABLE>

      During the year ended December 31, 2005, and subsequent to the Old Proxim
acquisition, the restructuring of the Company and the Company's product lines
affected the carrying value of certain intangible assets, and the Company
recorded a $3.6 million impairment charge related to the Terabeam trade name in
accordance with the guidance contained in the Financial Accounting Standards
Board Statement of Financial Accounting Standard No. 142, "Goodwill and Other
Intangible Assets". Subsequent to the Old Proxim acquisition, the Company chose
to sell


                                       77
<PAGE>

its wireless equipment products under the go to market name of Proxim Wireless.
Since there will be no future revenue stream based on the Terabeam name, an
independent third party valuation determined that the fair value of the Terabeam
trade name was de minimis.

      Terabeam goodwill was reduced by approximately $60,000 during 2005 due to
changes in the purchase price allocation during the year. The purchase price
allocation was finalized for Terabeam as of June 30, 2005.

      Ricochet Networks

      On June 25, 2004, YDI Wireless acquired 100% of Ricochet Networks, Inc., a
private wireless internet service provider. The purchase price consisted of
approximately 42,000 shares of YDI stock, $3.0 million in cash, and a $300,000
note to the seller. The YDI shares were valued at $5.15 per share, which was the
closing share price on June 25, 2004 - the date the definitive agreement was
signed. YDI acquired Ricochet to enter the wireless services business with an
established subscriber base. In addition, Ricochet has considerable patents and
other intellectual properties related to wireless mesh network equipment both
from a manufacturing and network operations standpoint. The operations of
Ricochet are included in the consolidated statement of operations after June 25,
2004.

      The cost of the acquisition was as follows (in thousands):

             Cash ..................................    $  3,000
             YDI stock .............................         217
             Note payable ..........................         300
                                                        --------
             Total consideration ...................    $  3,517
                                                        ========

      The final purchase price allocation is based on the fair market value of
Ricochets assets and liabilities as of June 25, 2004:

                                                      June 25, 2004
                                                      -------------
                                                      (in thousands)
             Cash and cash equivalents .............    $      70
             Inventory .............................        1,000
             Identifiable intangible assets ........        1,850
             Property and equipment ................          785
             Goodwill ..............................          200
             Other assets ..........................           87
             Liabilities ...........................         (475)
                                                        ---------
             Net assets acquired ...................    $   3,517
                                                        =========

      The amount allocated to identifiable intangible assets was based on the
present value of estimated future cash flows of the specific identifiable
intangible asset.

      Intangible assets, with finite lives, are being amortized over their
useful life, after they are placed in service.

<TABLE>
<S>                                     <C>
        (in thousands)
        Goodwill....................    $    200  Not amortizable for financial or tax purposes
        Trade name..................         150  Indefinite life - not amortizable
        Patented technology.........       1,700  5 years
</TABLE>

      The table includes the final value of intangibles other than goodwill. The
goodwill from the Ricochet acquisition has been associated with the service
business. Goodwill is tested for impairment at least annually at the reporting
unit level, and more frequently if an event occurs or circumstances change that
would more likely than not reduce the fair value of a reporting unit below its
carrying amount. As of December 31, 2005, after testing, the Company recorded an
impairment loss of $200,000 related to the service reporting unit.


                                       78
<PAGE>

23.   Quarterly Financial Data - Unaudited

<TABLE>
<CAPTION>
      -----------------------------------------------------------------------------------------------------
                                                      Quarter
                                                    (unaudited)
                                       (in thousands, except per share data)
      -----------------------------------------------------------------------------------------------------
      2005                                                   First       Second        Third       Fourth
      --------------------------------------------------   ---------    ---------    ---------    ---------
<S>                                                        <C>          <C>          <C>          <C>
      Revenue ..........................................   $   6,597    $   7,165    $  18,147    $  27,073
      Gross profit .....................................       3,278        3,478        5,501       12,652
      Net income (loss) ................................        (970)        (987)     (10,013)         810
      Basic and diluted earnings (loss) per share ......   $   (0.04)   $   (0.04)   $   (0.47)   $    0.04
      -----------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
      -----------------------------------------------------------------------------------------------------
                                                      Quarter
                                                    (unaudited)
                                       (in thousands, except per share data)
      -----------------------------------------------------------------------------------------------------
      2004                                                   First       Second        Third       Fourth
      --------------------------------------------------   ---------    ---------    ---------    ---------
<S>                                                        <C>          <C>          <C>          <C>
      Revenue ..........................................   $   6,017    $   4,733    $   6,370    $   5,777
      Gross profit .....................................       2,466        1,540        2,688        2,789
      Net income (loss) ................................         303       (1,605)      (2,351)       2,307
      Basic and diluted earnings (loss) per share ......   $    0.02    $   (0.10)   $   (0.09)   $    0.10
      -----------------------------------------------------------------------------------------------------
</TABLE>

      Earnings (loss) per share calculations for each of the quarters are based
      on the weighted average shares outstanding for each period. The sum of the
      quarters may not necessarily be equal to the full year earnings per share
      amounts.

24.   Contingencies

      IPO Litigation
      --------------

      During the period from June 12 to September 13, 2001, four purported
securities class action lawsuits were filed against Telaxis Communications
Corporation, a predecessor company to Terabeam, Inc., in the U.S. District Court
for the Southern District of New York: Katz v. Telaxis Communications
Corporation et al., Kucera v. Telaxis Communications Corporation et al.,
Paquette v. Telaxis Communications Corporation et al., and Inglis v. Telaxis
Communications Corporation et al. The lawsuits also named one or more of the
underwriters in the Telaxis initial public offering and certain of its officers
and directors. On April 19, 2002, the plaintiffs filed a single consolidated
amended complaint which supersedes the individual complaints originally filed.
The amended complaint alleges, among other things, violations of the
registration and antifraud provisions of the federal securities laws due to
alleged statements in and omissions from the Telaxis initial public offering
registration statement concerning the underwriters' alleged activities in
connection with the underwriting of Telaxis' shares to the public. The amended
complaint seeks, among other things, unspecified damages and costs associated
with the litigation. These lawsuits have been assigned along with, we
understand, approximately 1,000 other lawsuits making substantially similar
allegations against approximately 300 other publicly-traded companies and their
public offering underwriters to a single federal judge in the U.S. District
Court for the Southern District of New York for consolidated pre-trial purposes.
We believe the claims against us are without merit and have defended the
litigation vigorously. The litigation process is inherently uncertain, however,
and there can be no assurance that the outcome of these claims will be favorable
for us.

      On July 15, 2002, together with the other issuer defendants, Telaxis filed
a collective motion to dismiss the consolidated amended complaint against the
issuers on various legal grounds common to all or most of the issuer defendants.
The underwriters also filed separate motions to dismiss the claims against them.
In October 2002, the court approved a stipulation dismissing without prejudice
all claims against the Telaxis directors and officers who had been defendants in
the litigation. On February 19, 2003, the court issued its ruling on the
separate motions to dismiss filed by the issuer defendants and the underwriter
defendants. The court granted in part and denied in part the issuer defendants'
motions. The court dismissed, with prejudice, all claims brought against Telaxis
under the


                                       79
<PAGE>

anti-fraud provisions of the securities laws. The court denied the motion to
dismiss the claims brought under the registration provisions of the securities
laws (which do not require that intent to defraud be pleaded) as to Telaxis and
as to substantially all of the other issuer defendants. The court denied the
underwriter defendants' motion to dismiss in all respects.

      In June 2003, we elected to participate in a proposed settlement agreement
with the plaintiffs in this litigation. We understand that virtually all of the
other non-bankrupt issuer defendants have also elected to participate in this
proposed settlement. If ultimately approved by the court, this proposed
settlement would result in the dismissal, with prejudice, of all claims in the
litigation against us and against the other issuer defendants who have elected
to participate in the proposed settlement, together with the current or former
officers and directors of participating issuers who were named as individual
defendants. The proposed settlement does not provide for the resolution of any
claims against the underwriter defendants. The proposed settlement provides that
the insurers of the participating issuer defendants will guarantee that the
plaintiffs in the cases brought against the participating issuer defendants will
recover at least $1 billion. If recoveries totaling $1 billion or more are
obtained by the plaintiffs from the underwriter defendants, however, the
monetary obligations to the plaintiffs under the proposed settlement will be
satisfied. In addition, we and the other participating issuer defendants will be
required to assign to the plaintiffs certain claims that the participating
issuer defendants may have against the underwriters of their IPOs.

      The proposed settlement contemplates that any amounts necessary to fund
the guarantee contained in the settlement or settlement-related expenses would
come from participating issuers' directors and officers liability insurance
policy proceeds as opposed to funds of the participating issuer defendants
themselves. A participating issuer defendant could be required to contribute to
the costs of the settlement if that issuer's insurance coverage were
insufficient to pay that issuer's allocable share of the settlement costs. We
currently expect that our insurance proceeds will be sufficient for these
purposes and that we will not otherwise be required to contribute to the
proposed settlement.

      Consummation of the proposed settlement is conditioned upon obtaining
approval by the court. On September 1, 2005, the court preliminarily approved
the proposed settlement, directed that notice of the terms of the proposed
settlement be provided to class members, and scheduled a fairness hearing for
April 24, 2006, at which objections to the proposed settlement will be heard.
The court will determine whether to grant final approval to the proposed
settlement.

      If the proposed settlement described above is not consummated, we intend
to continue to defend the litigation vigorously. Moreover, if the proposed
settlement is not consummated, we believe that the underwriters may have an
obligation to indemnify us for the legal fees and other costs of defending these
suits. While there can be no assurance as to the ultimate outcome of these
proceedings, we currently believe that the final result of these actions will
have no material effect on our consolidated financial condition, results of
operations, or cash flows.

      Symbol Technologies Litigation
      ------------------------------

      On or about October 28, 2005, Symbol Technologies, Inc. filed a lawsuit in
the United States District Court for the District of Delaware against Terabeam,
Inc. (then named YDI Wireless, Inc.), Proxim Wireless Corporation, and Terabeam
Corporation. The suit alleged that certain products of Terabeam, Inc., Proxim
Wireless, and Terabeam Corporation infringe three of Symbol's patents, including
one patent previously transferred to it by Proxim Corporation. Symbol had
successfully sued Proxim Corporation alleging that certain of Proxim
Corporation's products infringed the two Symbol patents that Symbol was
asserting against Terabeam, Inc., Proxim Wireless, and Terabeam Corporation. In
this suit, Symbol was seeking an injunction preventing Terabeam, Inc., Proxim
Wireless, and Terabeam Corporation from infringing its patents and monetary
damages.

      On February 24, 2006, Terabeam, Inc. and its subsidiaries entered into a
settlement agreement with Symbol and its subsidiaries resolving all outstanding
litigation between the companies. In connection with that settlement agreement,
Symbol was required to file a dismissal of its lawsuit previously filed against
Terabeam. The dismissal will initially be without prejudice but will become a
dismissal with prejudice by its terms 90 days after Terabeam completes the
payments contemplated under the patent license agreement (as discussed below).


                                       80
<PAGE>

      Under the terms of the settlement agreement, Terabeam and Symbol entered
into a patent license agreement, dated February 24, 2006, and Terabeam executed
two patent assignments, each dated February 24, 2006, in favor of Symbol.

      Under the terms of the patent license agreement, the companies have agreed
to cross license specified patents, and Terabeam has agreed to pay to Symbol
fixed license fees totaling $4.3 million. $600,000 was paid on or before March
3, 2006; $250,000 is scheduled to be paid quarterly for the second, third, and
fourth quarters of 2006 and each of the four quarters of 2007; $300,000 is
scheduled to be paid quarterly for each of the four quarters of 2008; and
$375,000 is scheduled to be paid quarterly for the first two quarters of 2009.
The amounts may be prepaid at any time without penalty. The parties also
released each other from any patent infringement claims arising prior to
February 24, 2006 to the extent such infringement would have been licensed under
the patent license agreement. Also pursuant to the terms of the patent license
agreement, Terabeam and Symbol have agreed not to sue one another for patent
infringement with respect to one another's products for three years.

      Under the terms of the patent assignments executed by Terabeam, Terabeam
has assigned to Symbol specified patents and patent applications.

      General
      -------

      We are subject to potential liability under contractual and other matters
and various claims and legal actions which are pending or may be asserted
against us or our subsidiaries, including claims arising from excess leased
facilities. These matters may arise in the ordinary course and conduct of our
business. While we cannot predict the outcome of such claims and legal actions
with certainty, we believe that such matters should not result in any liability
which would have a material adverse affect on our business.



                                       81
<PAGE>

                                   Schedule II

                        Valuation and Qualifying Accounts
              For the years ended December 31, 2005, 2004 and 2003
                                 (in thousands)

<TABLE>
<CAPTION>
                                                   Balance at the                          Balance at the
                                                    beginning of                             end of the
                                                       period      Additions   Deductions      period
                                                   -------------- ----------- ------------ --------------
<S>                                                  <C>          <C>          <C>           <C>
      December 31, 2003:
        Allowance for uncollectible accounts .....   $      185   $      769   $     (749)   $      205
        Inventory allowance ......................          176           24           --           200
        Deferred tax allowance ...................           --          127           --           127
                                                     ----------   ----------   ----------    ----------

      December 31, 2004:
        Allowance for uncollectible accounts .....   $      205   $    1,544   $   (1,159)   $      590
        Inventory allowance ......................          200          400           --           600
        Deferred tax allowance ...................          127        1,387           --         1,514
                                                     ----------   ----------   ----------    ----------

        December 31, 2005:
        Allowance for uncollectible accounts .....   $      591   $    9,244   $     (707)   $    9,128
        Inventory allowance ......................          600       10,701       (2,334)        8,967
        Deferred tax allowance ...................        1,514        5,430           --         6,944
                                                     ----------   ----------   ----------    ----------
</TABLE>

At December 31, 2005, the additions to the allowance for uncollectible accounts
include $9.0 million related to Old Proxim reserves as adjusted, and the
additions to the inventory allowance account include $7.0 million related to the
Old Proxim allowance as adjusted.

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

      Not applicable.

Item 9A. Controls and Procedures.

      Disclosure controls and procedures

      Based on their evaluation as of December 31, 2005, our Chief Executive
Officer and Chief Financial Officer concluded that our disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934, as amended) were effective as of that date to ensure that
information required to be disclosed by us in reports that we file or submit
under the Exchange Act is recorded, processed, summarized and reported within
the time periods specified in SEC's rules and forms. In coming to this
conclusion, our Chief Executive Officer and Chief Financial Officer considered
the matters described under the next heading.

      Internal control over financial reporting

      Under current SEC regulations, we are not currently required to evaluate
or provide a report on our internal control over financial reporting. However,
we continue our analysis and action plans on that subject to better prepare us
for the time when we may be required to evaluate and provide a report on our
internal control over financial reporting. As reported in our annual report on
Form 10-K for the year ended December 31, 2004, in connection with its annual
audit and review procedures, our independent auditor considered and provided
input to us relating to our internal control over financial reporting. Our
auditor expressed concern that certain of our internal control procedures
regarding the reliability of financial reporting and the preparation of our
financial statements had two material weaknesses: weaknesses in our
period-ending financial reporting processes and weaknesses in the review and
approval of the accounting function. Upon discovery of these concerns, our
auditors performed additional audit procedures relating to our financial
statements for the years ended December 31, 2004 and 2003 before rendering their
unqualified audit opinion. During the year ended December 31, 2005, we have made


                                       82
<PAGE>

numerous changes in response to the auditor's comments, and we believe that we
have made significant progress in improving our internal control over financial
reporting. In connection with its 2005 annual audit and review procedures, our
independent auditors again considered and provided input to us relating to our
internal control over financial reporting. This year, our independent auditors
reported no material weaknesses in our internal control over financial
reporting.

      We acquired the Old Proxim business, including the related accounting and
financial systems, during the quarter ended September 30, 2005. We have moved
our corporate headquarters to the Old Proxim offices in San Jose, CA, and we are
in the process of integrating the accounting and financial systems of the two
companies. The process of maintaining and integrating the two systems has
necessitated certain changes and additions to our accounting and internal
control systems. As we integrate Terabeam's accounting and reporting systems
into Old Proxim's Oracle systems several areas have already been impacted. We
have integrated certain Terabeam finished good products into Oracle for better
inventory and billing control purposes, moved the processing of all
non-inventory transactions to headquarters for enhanced control with the review
and approval process afforded by Oracle, and plans are in place to integrate
order processing and payroll processing to the corporate headquarters. Other
accounting and financial reporting integration issues are being reviewed with a
goal to complete the integration process between now and the end of 2006. The
acquisition of Proxim has caused us to review our internal control processes. We
are in the process of completing this review, and we will determine and
implement any necessary revisions to our internal controls resulting from the
integration of the two company's accounting and financial systems.

      Changes in internal control over financial reporting

      There was no change in our internal control over financial reporting
during our fourth quarter ended December 31, 2005 that has materially affected,
or is reasonably likely to materially affect, our internal control over our
financial reporting other than the changes described above under the preceding
heading "Internal Control over Financial Reporting." We expect we will continue
to make revisions and improvements to our internal control over financial
reporting, particularly as we continue to integrate the accounting and financial
systems of Old Proxim and Terabeam.

Item 9B. Other Information.

      Not applicable.


                                       83
<PAGE>

                                    PART III

Item 10. Directors and Executive Officers of the Registrant.

      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 2006 annual meeting of
stockholders (the "2006 Proxy Statement") responsive to this Item is hereby
incorporated by reference.

Code of Ethics

      We have adopted a statement of business conduct and code of ethics that
applies to all of our directors, officers, and employees, including our
principal executive officer, principal financial officer, and principal
accounting officer and controller. This statement has been posted on our website
(http://www.terabeam.com/index3_code_ethics.php) and was filed as an exhibit to
our Annual Report on Form 10-K for the year ended December 31, 2003.

Item 11. Executive Compensation.

      Information appearing under the caption "Executive Compensation" in our
2006 Proxy Statement responsive to this Item 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" responsive to this Item in
our 2006 Proxy Statement is hereby incorporated by reference.

      Information relating to our equity compensation plans as of December 31,
2005 appears above under Item 5. Market for Registrant's Common Equity, Related
Stockholder Matters and Issuer Purchases of Equity Securities in this Annual
Report on Form 10-K.

Item 13. Certain Relationships and Related Transactions

      Information appearing under the caption "Material Relationships and
Related Party Transactions" in our 2006 Proxy Statement responsive to this Item
is hereby incorporated by reference.

Item 14. Principal Accountant Fees and Services

      Information appearing under the caption "Independent Public Accountants"
in our 2006 Proxy Statement responsive to this Item is hereby incorporated by
reference.


                                       84
<PAGE>

                                     PART IV

Item 15. Exhibits and Financial Statement Schedules.

      (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


                                       85
<PAGE>

                                   SIGNATURES

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

                                       TERABEAM, INC.

Date: March 30, 2006                   By:        /s/ Robert E. Fitzgerald
                                             -----------------------------------
                                                  Robert E. Fitzgerald,
                                                 Chief Executive Officer

      Each person whose signature appears below hereby constitutes and appoints
Robert E. Fitzgerald and Patrick L. Milton his true and lawful attorney-in-fact
and agent, with full power of substitution and resubstitution, for him and in
his own name, place and stead, in any and all capacities, to sign any and all
amendments to this Annual Report on Form 10-K and to file the same, with all
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing as
he could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent or his substitute may lawfully do or cause to be done
by virtue hereof.

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

<TABLE>
<CAPTION>
           Signature                                 Title                             Date
           ---------                                 -----                             ----
<S>                                     <C>                                       <C>

   /s/ Robert E. Fitzgerald             Chief Executive Officer and Director      March 30, 2006
----------------------------------      (principal executive officer)
   Robert E. Fitzgerald


   /s/ Patrick L. Milton                Chief Financial Officer and Treasurer     March 30, 2006
----------------------------------      (principal financial and accounting
   Patrick L. Milton                    officer)


   /s/ Daniel A. Saginario              Chairman of the Board of Directors        March 30, 2006
----------------------------------
   Daniel A. Saginario


   /s/ John W. Gerdelman                Director                                  March 30, 2006
----------------------------------
   John W. Gerdelman


   /s/ Robert A. Wiedemer               Director                                  March 30, 2006
----------------------------------
   Robert A. Wiedemer
</TABLE>


                                       86
<PAGE>

                                  EXHIBIT INDEX

Exhibit
Number                             Description of Document
------

 2.1        Asset Purchase Agreement by and between the Registrant and Proxim
            Corporation, Proxim Wireless Networks, Inc., and Proxim
            International Holdings, Inc. dated as of July 18, 2005 (1)

 2.2        Agreement and Plan of Merger by and among the Registrant, T-Rex
            Acquisition Corporation, and Terabeam Corporation dated as of April
            14, 2004 (2)

 2.3        Agreement and Plan of Merger by and among the Registrant, KFire
            Merger Corporation, KarlNet, Inc., Douglas J. Karl, and Elise L.
            Karl dated as of May 13, 2004 (3)

 2.4        Agreement and Plan of Merger by and between Telaxis Communications
            Corporation and Young Design, Inc. dated as of March 17, 2003 (4)

 2.5        Agreement and Plan of Merger and Reincorporation by and between
            Telaxis Communications Corporation and YDI Wireless, Inc. dated as
            of June 23, 2003 (5)

 3.1        Certificate of Incorporation of the Registrant as filed with the
            Delaware Secretary of State on May 5, 2003 (6)

 3.2        Certificate of Merger of Telaxis Communications Corporation with and
            into YDI Wireless, Inc. as filed with the Delaware Secretary of
            State on July 7, 2003 (6)

 3.3        Certificate of Ownership and Merger as filed with the Delaware
            Secretary of State on November 3, 2005 (7)

 3.4        By-laws of the Registrant (6)

 4.1        Form of certificate evidencing ownership of common stock of the
            Registrant

 4.2        Rights Agreement by and between the Registrant and Registrar and
            Transfer Company, as Rights Agent dated as of May 18, 2001 (8)

 4.3        Amendment No. 1 to Rights Agreement by and between the Registrant
            and Registrar and Transfer Company, as Rights Agent dated as of
            September 9, 2002 (9)

 4.4        Amendment No. 2 to Rights Agreement by and between the Registrant
            and Registrar and Transfer Company, as Rights Agent dated as of
            March 17, 2003 (4)

 4.5        Amendment No. 3 to Rights Agreement by and between the Registrant
            and Registrar and Transfer Company, as Rights Agent dated as of May
            15, 2003 (6)

10.1*       Incentive Stock Option Plan of 1986 of the Registrant (10)

10.2*       1987 Stock Plan of the Registrant (10)

10.3*       1996 Stock Plan of the Registrant (10)

10.4*       Amendment No. 1 to 1996 Stock Plan of the Registrant (11)

10.5*       1997 Stock Plan of the Registrant (10)

10.6*       Amendment No. 1 to 1997 Stock Plan of the Registrant (11)

10.7*       1999 Stock Plan of the Registrant (10)

10.8*       Amendment No. 1 to 1999 Stock Plan of the Registrant (11)

10.9*       2001 Nonqualified Stock Plan of the Registrant (12)

10.10*      Amendment No. 1 to 2001 Nonqualified Stock Plan of the Registrant
            (11)

10.11*      Young Design, Inc. 2002 Stock Incentive Plan (13)

10.12*      2004 Stock Plan of the Registrant (11)

10.13*      Amendment No. 1 to 2004 Stock Plan of the Registrant (14)


                                       87
<PAGE>

Exhibit
Number                             Description of Document
------

10.14*      Form of Non-Qualified Stock Option Agreement to be issued to
            Directors of the Registrant upon Initial Election or Appointment to
            Board of Directors (15)

10.15*      Form of Non-Qualified Stock Option Agreement to be issued to
            Incumbent Directors of the Registrant on an Annual Basis (15)

10.16*      Form of Incentive Stock Option Agreement for Executive Officers (15)

10.17*      Form of Indemnification Agreement, a substantially similar version
            of which was entered between the Registrant and each of Messrs.
            Fitzgerald, Saginario, Wiedemer, Milton, and Renauld (16)

10.18*      Policy Statement Concerning the Compensation of Directors of the
            Registrant who are not Insiders, dated February 9, 2005 (15)

10.19*      Employment Agreement between the Registrant and Robert E. Fitzgerald
            dated as of February 9, 2005 (15)

10.20*      Non-Qualified Stock Option Agreement between the Registrant and
            Robert E. Fitzgerald dated as of February 9, 2005 (15)

10.21*      Employment Agreement by and between the Registrant and David L.
            Renauld dated as of December 19, 2000 (17)

10.22*      Amendment 1 to Employment Agreement by and between the Registrant
            and David L. Renauld dated as of August 29, 2002 (18)

10.23*      Amendment 2 to Employment Agreement by and between the Registrant
            and David L. Renauld dated as of January 24, 2003 (19)

10.24*      Employment Agreement by and between the Registrant and Len Gee dated
            May 23, 2005 (14)

10.25*      Incentive Stock Option Agreement by and between the Registrant and
            Len Gee dated June 20, 2005 (20)

10.26*      Employment Agreement by and between the Registrant and David F.
            Olson dated July 27, 2005 (21)

10.27*      Amended and Restated Employment Agreement by and between Proxim
            Wireless Corporation and David F. Olson and consented to by the
            Registrant, dated December 8, 2005 (22)

10.28*      Employment Agreement by and between Proxim Wireless Corporation and
            Geoff Smith dated December 8, 2005 (22)

10.29*      Employment Agreement between the Registrant and Thomas Bennett dated
            as of December 13, 2004 (23)

10.30*      Letter Agreement by and between the Registrant and Thomas C. Bennett
            dated August 5, 2005 (24)

10.31*      Employment Agreement by and between the Registrant and Kevin J.
            Duffy dated July 27, 2005 (21)

10.32*      Letter Agreement by and between the Registrant and Kevin J. Duffy
            dated September 30, 2005 (25)

10.33       Secured Promissory Note from KarlNet, Inc. in favor of the
            Registrant dated May 13, 2004 (3)

10.34       Security Agreement between KarlNet, Inc. and the Registrant dated as
            of May 13, 2004 (3)

10.35       Form of Convertible Promissory Note of Terabeam Corporation, a
            substantially similar version of which has been offered to various
            former stakeholders of Harmonix Corporation, reflecting indebtedness
            in the aggregate principal amount of $2,500,000 (26)

10.36       Lease Agreement by and between Young Design, Inc. and Merry Fields,
            LLC dated as of August 24, 2000 (6)

10.37       Lease by and between the Registrant and O'Leary-Vincunas LLC dated
            November 1, 2000 (17)

10.38       First Amendment to Lease by and between the Registrant and
            O'Leary-Vincunas LLC dated January 20, 2003 (19)

10.39       Lease by and between the Registrant and The Irvine Company dated as
            of March 1, 2004 (27)


                                       88
<PAGE>

Exhibit
Number                             Description of Document
------

10.40       Office Lease by and between Ricochet Networks, Inc. and 1400 Glenarm
            Place Venture dated as of February 1, 2005, with related Guaranty by
            the Registrant in favor of 1400 Glenarm Place Venture (26)

10.41       Metro I Standard Office Lease by and between KarlNet, Inc. and CB
            Partners Limited Partnership dated as of January 30, 2001 (26)

10.42       First Amendment and Extension of Lease Agreement by and between
            KarlNet, Inc. and CB Partners Limited Partnership dated November 14,
            2002 (26)

10.43       Second Amendment and Extension of Lease Agreement by and between
            KarlNet, Inc. and CB Partners Limited Partnership dated September
            22, 2003 (26)

10.44       Third Amendment and Extension of Lease Agreement by and between
            KarlNet, Inc. and CB Partners Limited Partnership dated January 28,
            2004 (26)

10.45       Intellectual Property Agreement by and between Agere Systems, Inc.
            and Proxim Corporation dated August 5, 2002 (21)

10.46       Patent License Agreement by and between Agere Systems Guardian
            Corporation, Agere Systems, Inc. and Proxim Corporation dated August
            5, 2002 (21)

10.47       Supply Agreement by and between Agere Systems, Inc. and Proxim
            Corporation dated August 5, 2002 (21)

10.48       Lease, dated as of May 10, 2005, by and between CarrAmerica Realty
            Operating Partnership, L.P. and Proxim Corporation (28)

10.49       First Amendment to Lease by and between the Registrant and
            CarrAmerica Realty Operating Partnership, L.P. dated as of October
            31, 2005

10.50       Lease Agreement by and between the Registrant and Adom Realty Trust
            dated October 7, 2005 (25)

 21.1       Subsidiaries of the Registrant

 23.1       Consent of Fitzgerald, Snyder & Co., P.C.

 31.1       Certification of Chief Executive Officer Pursuant to Rule 13a-14(a)

 31.2       Certification of Chief Financial Officer Pursuant to Rule 13a-14(a)

 32.1       Certification Pursuant to Rule 13a-14(b) and Section 906 of the
            Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350
            of Chapter 63 of Title 18 of the United States Code)

 99.1       Stockholder Agreement by and among the Registrant and Mobius
            Technology Ventures VI, L.P., Mobius Technology Ventures Advisors
            Fund VI, L.P., Mobius Technology Ventures Side Fund VI, L.P.,
            Softbank US Ventures VI, L.P., Softbank Technology Ventures Advisors
            Fund V, L.P., Softbank Technology Ventures Entrepreneurs Fund V,
            L.P., and Softbank Technology Ventures V, L.P. dated as of April 14,
            2004 (2)

 99.2       Stockholder Agreement by and among the Registrant and SOFTBANK
            Capital Partners, L.P., SOFTBANK Capital LP, and SOFTBANK Capital
            Advisors Fund LP. dated as of April 14, 2004 (2)

 99.3       Lock-up Agreement by and among the Registrant and Mobius Technology
            Ventures VI, L.P., Mobius Technology Ventures Advisors Fund VI,
            L.P., Mobius Technology Ventures Side Fund VI, L.P., Softbank US
            Ventures VI, L.P., Softbank Technology Ventures Advisors Fund V,
            L.P., Softbank Technology Ventures Entrepreneurs Fund V, L.P., and
            Softbank Technology Ventures V, L.P. dated as of April 14, 2004 (2)

 99.4       Lock-up Agreement by and among the Registrant and SOFTBANK Capital
            Partners, L.P., SOFTBANK Capital LP, and SOFTBANK Capital Advisors
            Fund LP. dated as of April 14, 2004 (2)

 99.5       Form of Noncompetition Agreement, a substantially similar version of
            which was entered between the Registrant and each of Douglas J. Karl
            and Elise L. Karl dated as of May 13, 2004 (3)

 99.6       Stock Purchase Agreement by and between the Registrant and Ricochet
            Investments, LLC dated as of June 25, 2004 (29)


                                       89
<PAGE>

Exhibit
Number                             Description of Document
------

 99.7       Promissory Note in the amount of $300,000 from the Registrant and
            its subsidiaries in favor of Ricochet Investments, LLC dated June
            25, 2004 (29)

 99.8       Non-Competition and Confidentiality Agreement by and among Victor
            Mitchell, Ricochet Networks, Inc., and the Registrant dated as of
            June 25, 2004 (29)

99.10       Guarantee from Victor Mitchell in favor of the Registrant dated as
            of June 25, 2004 (29)

----------
All non-marked exhibits are filed herewith.

* Management contract or compensatory plan.

(1)         Incorporated herein by reference to the exhibits to Form 8-K filed
            with the SEC on July 22, 2005.

(2)         Incorporated herein by reference to the exhibits to Form 8-K filed
            with the SEC on April 16, 2004.

(3)         Incorporated herein by reference to the exhibits to Form 8-K filed
            with the SEC on May 20, 2004.

(4)         Incorporated herein by reference to the exhibits to Form 8-K filed
            with the SEC on March 20, 2003.

(5)         Incorporated herein by reference to the exhibits to Form 8-K filed
            with the SEC on July 16, 2003.

(6)         Incorporated herein by reference to the exhibits to Form 10-Q filed
            with the SEC on August 14, 2003.

(7)         Incorporated herein by reference to the exhibits to Form 8-K filed
            with the SEC on November 4, 2005.

(8)         Incorporated herein by reference to the exhibits to Form 8-K filed
            with the SEC on May 21, 2001.

(9)         Incorporated herein by reference to the exhibits to Form 8-K filed
            with the SEC on September 12, 2002.

(10)        Incorporated herein by reference to the exhibits to Form S-1 filed
            with the SEC on September 27, 1999 (File No. 333-87885).

(11)        Incorporated herein by reference to the exhibits to Form 8-K filed
            with the SEC on September 15, 2004.

(12)        Incorporated herein by reference to the exhibits to Form 10-Q filed
            with the SEC on August 10, 2001.

(13)        Incorporated herein by reference to the exhibits to Form S-8 filed
            with the SEC on April 11, 2003 (File No. 333-104481).

(14)        Incorporated herein by reference to the exhibits to Form 8-K filed
            with the SEC on May 27, 2005.

(15)        Incorporated herein by reference to the exhibits to Form 8-K filed
            with the SEC on February 15, 2005.

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

(17)        Incorporated herein by reference to the exhibits to Form 10-K filed
            with the SEC on March 28, 2001.

(18)        Incorporated herein by reference to the exhibits to Form 10-Q filed
            with the SEC on November 14, 2002.

(19)        Incorporated herein by reference to the exhibits to Form 10-K filed
            with the SEC on March 31, 2003.

(20)        Incorporated herein by reference to the exhibits to Form 8-K filed
            with the SEC on June 24, 2005.

(21)        Incorporated herein by reference to the exhibits to Form 8-K filed
            with the SEC on August 2, 2005.

(22)        Incorporated herein by reference to the exhibits to Form 8-K filed
            with the SEC on December 12, 2005.

(23)        Incorporated herein by reference to the exhibits to Form 8-K filed
            with the SEC on December 27, 2004.

(24)        Incorporated herein by reference to the exhibits on Form 8-K filed
            with the SEC on August 10, 2005.

(25)        Incorporated herein by reference to the exhibits to Form 8-K filed
            with the SEC on October 26, 2005.

(26)        Incorporated herein by reference to the exhibits to Form 10-K filed
            with the SEC on March 31, 2005.

(27)        Incorporated herein by reference to the exhibits to Form S-2 filed
            with the SEC on April 5, 2004 (File No. 333-114208).

(28)        Incorporated herein by reference to the exhibits to Form 10-Q filed
            with the SEC on August 15, 2005.

(29)        Incorporated herein by reference to the exhibits to Form 8-K filed
            with the SEC on July 8, 2004.


                                       90