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                                  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, 2003

                                       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

                               YDI Wireless, 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.)

                                8000 Lee Highway
                             Falls Church, VA 22042
                    (Address of principal executive offices)

                                 (703) 205-0600
              (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
                              (Title of each class)

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

      Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K 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 an accelerated filer (as
defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes |_| No |X|

      As of June 30, 2003, the aggregate market value of the voting and
non-voting common equity held by non-affiliates of the registrant was
$15,365,470. 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. This determination of affiliate status
is not necessarily a conclusive determination for other purposes. The aggregate
market value has been computed based on a split-adjusted price per share of
$3.68, which is the price at which the common equity was last sold on June 30,
2003.

      As of February 13, 2004, the Company had 14,243,145 shares of common stock
outstanding.

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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 7--Management's Discussion
and Analysis of Financial Condition and Results of Operations--Safe Harbor for
Forward-Looking Statements. We undertake no obligation to update or revise any
forward-looking statement to reflect events, circumstances, or new information
after the date of this Form 10-K or to reflect the occurrence of unanticipated
or any other subsequent events.

Item 1. Business.

Overview

      We provide broadband, or high-speed, wireless access products and access
cards both 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 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. Our goal
is to offer reliable wireless data equipment with improved range, performance
and ease of use.

Recent Developments

      We are the result of a merger consummated on April 1, 2003 between Telaxis
Communications Corporation ("Telaxis") and Young Design, Inc. ("Young Design").
Telaxis was a publicly traded company that focused on developing high capacity
millimeter wave wireless products. Young Design was a privately held company
that developed, produced and sold wireless data products, primarily in microwave
frequencies. Subsequent to the merger, the company effected a 1 for 100 reverse
stock split followed by a 25 for 1 forward stock split, re-incorporated in
Delaware and changed its name to YDI Wireless, Inc.

      Prior to its merger with Telaxis, Young Design had grown through a
combination of organic growth and acquisitions. In March 2003, Young Design
acquired certain assets and licensed technologies to permit it to manufacture
and sell the Link CX product. In May 2002, Young Design acquired certain assets
and licensed technology to permit it to manufacture and sell the Link EX, Link
4X and RAN products. In May 2001, Young Design purchased Zeus Wireless, Inc., a
manufacturer of low speed wireless data equipment.

      On October 30, 2003, we signed a definitive agreement to acquire Phazar
Corp ("Phazar") for 1.2 shares of our stock for each share of Phazar outstanding
and not held by us. At the time of signing the definitive agreement, we held
approximately 21% of Phazar. The transaction with Phazar is subject to the
approval of Phazar's shareholders. It is anticipated that the transaction will
be consummated in the first calendar quarter of 2004. Phazar designs,
manufactures and markets antenna systems, towers and communication accessories
worldwide. The United States government, military and civil agencies, as well as
prime contractors, represent Phazar's principal customers. Phazar's operations
are performed in Mineral Wells, Texas for customers throughout the country.

Industry Background

      We believe that there exists a significant need for bandwidth where
digital phone lines or fiber optic cable are either too expensive to deploy,
unavailable or inadequate to meet demand. This barrier is often referred to as
the "last mile" gap. Carriers typically have to overcome cost, time,
technological, and other barriers when trying to close the last mile gap.

      Given the revenue difficulties faced by telecommunications carriers, they
are limiting their further capital expenditures. In the current economic
climate, it is expected that further 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. We


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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.

      As a result of the capital expenditure reductions by fiber carriers, some
potential subscribers are looking elsewhere to satisfy their connectivity needs.
For example, enterprises are expected to increasingly turn to network
integrators to provide connectivity between their local area networks ("LANs")
and storage area networks ("SANs"), as their business conditions improve.
Cellular network operators are faced with similar connectivity issues when they
try to provide backhaul to connect their cellular telephone towers to the rest
of their networks. We expect this issue to intensify as subscribers demand
increasingly data-intensive mobile services. Overlaying all of these industry
trends is the current desire for increased network redundancy and reduced
vulnerability through duplicate and alternative communications paths, which can
often readily be provided with our products.

      Fixed Wireless Broadband

      Telecommunications carriers that do not have direct connectivity to the
end customer through an existing medium such as copper or cable cannot cost
effectively create a 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 point-to-multipoint systems have been deployed by over 1,000
WISPs and are currently serving tens of thousands of end customers, many of
which had no broadband access prior to the roll outs incorporating our
equipment.

      Rural Broadband

      In many rural areas of the country there is no DSL or cable TV service
available. Residential and business customers there typically only have
slow-speed dial-up access. Some use satellite links for broadband Internet
access, but its relatively slow up load speeds and extremely long latency does
not make it an ideal choice for high-speed wireless Internet. Many Internet
Service Providers 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.

      Public Hot Spots and Hot Zones

      A new form of wireless connectivity, which currently appears to be
experiencing substantial growth, is the proliferation of Hot Spots. Put simply,
a Hot Spot is a geographical area in which end users utilizing a WLAN (Wireless
LAN) card 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. 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 huge number
of Hot Spots to generate any meaningful level of coverage. To date, the
deployment of Hot Spots has been sporadic and is 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


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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. Also, since the deployment of Hot Zones is
more similar to the deployment of cellular telephone systems, we believe that
telecommunications carriers will migrate to Hot Zone deployments rather than
attempting to build out Hot Spots one building at a time. 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.

      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 Link CX product with
its 45 Mbps (Megabits per second) DS-3 capabilities.

      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. In addition, high-data-rate next
generation fixed wireless LAN systems such as IEEE 802.11a/b/g (several
different standards for wireless LAN interoperability) 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 our
FiberLeap(TM) product, with its Gigabit Ethernet (1.25 Gibabits per second) data
rates.

      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
medium 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.

YDI's 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 can be
very rapidly and selectively deployed at a much lower cost than traditional land
line solutions. This permits service providers to rapidly enter new market and
offer new services. Wireless is also well positioned to improve and grow over
time as applications dictate while many landline solutions are inherently
usually limited in bandwidth by the medium that they operate in. Finally, as
demonstrated by the rapid proliferation of cellular phones worldwide, users have
demonstrated a preference for 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 802.11b 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


                                       4
<PAGE>

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

      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 product
enhancements in order for us to remain competitive. In addition, in contrast to
mobile wireless access solutions, our systems 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. 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. 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 systems operating in the license-free frequencies. Our strategy to
accomplish this objective is to:

      Capitalize on our technology expertise to rapidly introduce new products.
Our team of engineers has multi-disciplinary technical capabilities, including
radio frequency technology spanning from microwave to millimeter waves as well
as digital, software and networking 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.


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      Leverage our direct sales model and direct relationship with our end
customers. Due to our direct sales model, we have relationships with many of our
end customers. As a result of this, we believe that we have closer and more
sustainable relationships and generate more product loyalty. In addition, by
maintaining direct contact with the end users we believe that we remain more
attuned to the limitations of existing technology and opportunities for new
product development. We plan to continue to offer synergistic products to our
existing customers and to expand our direct customer base.

      Expand our sales efforts outside of the United States and establish
international channels of distribution. Currently approximately 74% of our
revenues are generated by the sale of products within the United States. We
believe that markets outside of the United States actually offer better market
potential than what exists inside the United States because there is
significantly less deployed communications infrastructure throughout much of the
world. While we have had limited success in our overseas efforts to date, we
believe that our products are competitive in the overseas markets. We believe
that results to date have been limited in some part due to our application of
our direct sales model into overseas markets. We believe that establishing
distribution channels may be a better system for offering our products in
overseas markets and have recently begun developing such distribution channels.
It is still too early for us to ascertain if the use of local distributors will
improve our overseas revenues.

      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 are currently integrating
the millimeter back-haul products acquired as the result of the merger completed
on April 1, 2003 of Young Design, Inc. and Telaxis Communications Corporation.
Our Link EX, 4X and RAN and Link CX product lines are a result of technology
purchases from InterWAVE Communications in May 2002 and March 2003,
respectively.

Products

      We have two primary product lines: high-speed point-to-point products and
point-to-multipoint products. In 2003, point-to-point products accounted for
approximately 20% of our revenues and our point-to-multipoint products accounted
for approximately 80% of our revenues. Our best selling point-to-point products
are our Link CX and Link EX and our best selling point-to-multipoint product is
our EtherAnt II.

High-Speed Point-to-Point Products

      Point-to-point systems are used to bridge networks from one location to
another ("Bridging") or carry data traffic from remote locations to a service
provider's core network ("Backhaul"). Each of our point-to-point systems
consists of identical piece(s) of equipment deployed at each end of the desired
link. Each piece of equipment is first connected to an end-user's network by a
cable and a connector and the radio unit and antennas are positioned to have
clear line of sight to each other, usually on a rooftop or tower. All of our
point-to-point products are designed for the radio unit to be deployed as close
to the antenna as possible to minimize cable cost and loss of the radio signal
and, several units are available with an integrated antenna as an option to
maximize efficiency and ease of installation. The two antennas are then aimed at
one another to create a wireless connection between the two locations. By using
multiple systems, an operator can connect more than two locations to form a more
extensive network. Our products offer a variety of transmission speeds and radio
frequencies. The table below summarizes the features of our current products:

   --------------------------------------------------------------------------
       PRODUCT NAME                  DATA RATE               FREQUENCY
       ------------                  ---------               ---------
   --------------------------------------------------------------------------
   BRIB (Bridge in a Box)     4 Mbps half duplex      2.4 GHz
                                                      11 Channels
   --------------------------------------------------------------------------
   BAIB (Backhaul in a Box)   4 Mbps half duplex      5.8 GHz
                                                      13 channels
   --------------------------------------------------------------------------
   EtherLeap                  4 Mbps half duplex      24 GHz
                                                      13 channels
   --------------------------------------------------------------------------
   Link EX                    8 Mbps full duplex           UNII (5.2/5.7 GHz)
                                   (16 Mbps
                                   aggregate)         8 channels
   --------------------------------------------------------------------------
   Link 4X                         Four (4) E-1            UNII (5.2/5.7 GHz)
                                   circuits                8 channels
   --------------------------------------------------------------------------
   Link CX                         45 Mbps full            5.3 GHz or 5.7 GHz
                                    duplex/DS3             2 channels
   --------------------------------------------------------------------------
   FiberLeap                       OC-3, OC-12 or     60 GHz
                                    1.25 Gbps full
                                    duplex
   --------------------------------------------------------------------------


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      BRIB, BAIB and EtherLeap. These point-to-point products have the same
central radio technology inside them and differ only in the frequency at which
they operate. All units utilize direct sequence spread spectrum (DSSS)
technology for improved interference resistance. These units are designed to be
pole mounted with data and power carried along a single line of weatherized
cable allowing for quick and easy deployment. These products all share the same
feature-rich radio management and monitoring software interface.

      The BRIB has a line of sight range of about 3 miles (longer range versions
are available) and is an excellent low cost solution for low density deployments
or for an enterprise connecting two buildings. The BAIB has a line of site range
of up to 50 miles and is widely used as a backhaul solution by WISPs who are
using 2.4 GHz for their point-to-multipoint last mile distribution and need to
use a different frequency for backhaul. The EtherLeap has a range of about 1 to
3 miles and is used primarily by organizations seeking a higher level of
security or interference resistance or in extremely radio frequency hostile
environment where the other licensee-free frequencies are all occupied.

      Link EX/Link 4X. The Link EX consists of a pole-mounted radio that gets
power and data from a single weatherized cable. The Link EX offers 8 Mbps full
duplex connectivity with a line-of-sight range of up to 10 miles. Full duplex
operation means that data is passed in both directions at the same time. This is
important in latency sensitive applications such as voice or streaming video
applications. The Link 4X incorporates a Link EX with an indoor unit that
channelizes the Link EX's data stream into four (4) E-1 channels for easy
integration into phone systems based upon European telco transmission standards.
The Link EX or 4X is used primarily by carriers with small to mid-size backhaul
needs.

      Link CX. The Link CX is primarily deployed to enable service providers,
businesses and other enterprises to expand or establish private networks by
bridging Internet and network traffic among multiple facilities. In addition,
the Link CX is also used to provide fiber extension and last mile access. The CX
has a line of sight range of up to 25 miles and offers extremely feature rich
management and monitoring capabilities.

      FiberLeap(TM). The FiberLeap(TM) 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 from 600 meters to 1,100 meters with 99.99% availability,
depending upon prevailing rainfall rates in the geographic regions where it will
be used.

      A FiberLeap(TM) product consists of two units, an outdoor access unit
(ODU) and an indoor unit (IDU) that is an interface panel. The outdoor unit
contains the transmitter, receiver, antenna, and other electronics for one end
of a link. The outdoor unit is a self-contained unit connecting to the indoor
unit with a single cable that incorporates fiber optic as well as power cables.

Point-to-multipoint products

      Our point-to-multipoint systems are designed to enable service providers,
businesses and other enterprises to address the last mile bottleneck. Our
systems enable service providers to cost-effectively connect end-users to a
central hub. Businesses, governmental agencies and other enterprises may also
use these systems to cost-effectively connect multiple facilities within their
private networks. Our point-to-multipoint systems permit cumulative connectivity
of up to 4 Mbps from a single base unit and can support hundreds of customers
from a single location. These systems can operate over distances of 10 miles or
more providing for extremely large areas of coverage. Since our
point-to-multipoint systems require line of sight to connect, actual coverage is
dictated by the ability to achieve actual line of sight from the base site to
the end customer's antenna.


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      Our point-to-multipoint system are typically deployed in a hub and spoke
configuration consisting of (1) a single central base station, generally called
a WIPOP (Wireless Point of Presence) and (2) customer premise equipment (CPE)
located at each end-user's location. The WIPOP wirelessly connects to the remote
CPE. The WIPOP offers high-speed two-way data communications to each end-user
using a technique called time division duplexing (TDD). The WIPOP can operate in
2.4 GHz or 5.8 GHz frequencies, in various geographic configurations and can be
divided in discrete sectors to permit supporting hundreds of clients from a
single base station. The WIPOP is able to connect to the central office of a
service provider using land line connectivity or our point-to-point technology.

      Our most popular CPE, our EtherAnt-II product, transmits and receives data
between the end-user and the WIPOP. The EtherAnt-II is extremely easy to install
and uses a single weatherized Category 5 Ethernet cable carrying both data and
power to the pole-mounted antenna with integrated radio. Our proprietary
software allows for remote management and monitoring of an unlimited number of
EtherAnt-IIs from a single location.

Sales and Marketing

      We sell our products domestically and internationally to service
providers, government agencies, businesses and other enterprises directly
through our sales force and indirectly through distributors and value-added
resellers. We focus our marketing efforts on supporting our direct sales force,
distributors, value-added resellers and systems integrators. We also seek to
stimulate market demand by increasing brand awareness and educating potential
customers about the advantages of using our products. We regularly hold wireless
training seminars to introduce our customers and potential customers to the
technologies and theories behind wireless data communications.

      We focus primarily on the domestic market but have recently increased our
efforts to improve sales outside of the United States. In the United States we
primarily sell directly through our internal sales force but also work with
value added resellers (VARs) and system integrators/installers. Overseas, we
currently sell directly but we are increasing our number of international
distributors and VARs and we expect that indirect channels will become an
increasingly large portion of our international sales.

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 a
12-month warranty for our systems and 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.

Customers

      We have a very diversified base of customers and end-users consisting of
service providers, government agencies, businesses and other enterprises.
Although we have several long-term contracts with some of our larger customers,
most off our business is conducted with customers who expect delivery very
quickly after placing their orders with us. Although our business is not
strongly seasonal, we generally see a higher level of activity in the second and
third quarter of each year as warmer weather in the Northern Hemisphere makes
outdoor installations of our equipment easier. We typically see a relative
decline in our business in the fourth quarter of each year, particularly in the
month of December.

      In 2003, approximately 74% of our business was conducted in the United
States and approximately 26% percent was conducted outside of the United States,
including Canada which accounted for approximately 9.6% of our total business.
No customer accounted for more than 10% of our business in 2003. Our two largest
customers Enterasys Networks, Inc. and Verizon Communications accounted for
approximately 9.2% and 8.1%, respectively, of our business in 2003.

      Our firm backlog as of December 31, 2003 was approximately $1,175,000
which compares to $745,000 and $657,000 on December 31, 2002 and 2001,
respectively.


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<PAGE>

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 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 are currently
pursuing the following research and development initiatives:

            o     Developing point-to-multipoint systems in different
                  frequencies and with lower price points;

            o     Adapting our products to additional frequencies and
                  interfaces; and

            o     Developing higher speed products.

      We are currently developing additional point-to-multipoint products,
including products offering data rates up to 54 Mbps and 5.8 GHz
point-to-multipoint systems. In addition, we are currently developing a 24 GHz
version of our Link CX and a fast Ethernet version of our FiberLeap. These
products under development will be additional solutions for last mile access,
cellar backhaul and campus and private networks.

      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 invested
approximately $1.7 million, $0.4 million and $0.4 million in research and
development activities in 2003, 2002, and 2001, respectively.

Manufacturing

      We outsource much of our manufacturing to a variety of contract
manufacturers. We complete the final assembly and testing of our products at our
Falls Church, Virginia facility and to a lesser extent, our Sunnyvale,
California facility. Our in-house manufacturing consists primarily of pilot
production, final product assembly and product testing. We have complete
manufacturing capabilities in our South Deerfield, Massachusetts facility
including automated pick and place equipment which we utilize for quick turn
projects, small production runs and pilot products. Our strategy is to outsource
manufacturing and procurement of component parts to manufacturers with the
expertise and ability to achieve the cost reductions associated with volume
manufacturing and to respond quickly to orders, 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 key components
used in our products. Several of these components have recently been
discontinued by their manufacturers, and as a result, we have been forced to
purchase large quantities of sub-components for these products. We believe that
our current inventory of discontinued subcomponents is adequate for the expected
volume of products to be produced in the future; however if the required volume
of products exceeds expectations, we may be forced to find replacement parts or
redesign the products, which may add significantly to our costs. Conversely, if
the actual volume of products is less than expected, we may end up holding
inventories of sub-components that will not have any value to us. As of December
31, 2003, our inventory and commitments for large quantities of discontinued
parts was less than $75,000, which has been adequately reserved.

      Our WLAN products are currently dependent on Agere System's ("Agere") WLAN
division as our primary sources for proprietary 802.11 chips, modules and cards.
In addition, our Link EX, Link 4X, RAN and Link CX products all incorporate one
or more single source components. If, for any reason, a supplier fails to meet
our quantity or quality requirements, or stops selling components to us or 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 of these components in the past, which delayed related revenue, and we
may experience 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 could experience shortages in supply, which could delay or decrease
revenue because our customers may cancel their orders or choose a competitor for
their future needs.


                                       9
<PAGE>

      We have limited manufacturing capability and limited experience in large
scale or foreign manufacturing. 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. In addition, in order to compete successfully, we will need
to achieve significant 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 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 older products.

      We have been producing our Link CX and FiberLeap products for a relatively
short time. 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 evolving and unpredictable business model;

            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 broadband wireless systems and WLAN 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 and WLAN 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.

      With our broadband products, we could be at a disadvantage to competitors,
particularly Alcatel, Business Networks AB, Alvarion (the result of the merger
of Breezecom and Floware), Ceragon Networks, Cisco Systems, Proxim and Stratex
Networks, 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.

      We have extensive competition in our WLAN business, including without
limitation, Cisco (including LinkSys), D-Link, Enterasys Networks, Harris
Corporation, Intel Corporation, Intersil Corporation, Nokia Corporation, Proxim,
Symbol Technologies and 3Com Corporation. Additionally, numerous companies have
announced their intention to develop competing products in both the commercial
wireless and home networking markets, including several Asia-based companies
offering 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.


                                       10
<PAGE>

      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 broadband wireless or WLAN markets, 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 have only limited
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 comprehensive network
management software and specialized knowledge and technical expertise that have
been developed over time by our employees, particularly in regard to the
manufacturing of large volume millimeter wave components and systems.

      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 our
standard 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.

      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 Link
EX, Link 4X, RAN and Link CX products.

Government Regulation

      Our products are subject to extensive telecommunications-based regulation
by the United States and foreign laws and international treaties.

      In the United States, we are subject to various Federal Communications
Commission, or FCC, rules and regulations. Current FCC regulations permit
license-free operation in certain FCC-certified bands in the radio spectrum. Our
spread spectrum wireless products are certified for unlicensed operation in the
2.4 -- 2.4835 GHz, 5.15 -- 5.35 GHz, 5.725 -- 5.825 GHz, 24.05-24.25 GHz and
57.05-64 GHz frequency bands. 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 secondary status in the frequency. In
the event that there is interference between a primary user and a Part 15 user,
a higher priority user 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 frequency spectrum, changes in the use of allocated
frequency spectrum, or modification to the standards establishing an irrefutable
presumption 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 spread spectrum and
other radio frequency regulations in certain countries that represent potential
markets for our products. We must conform our products to a variety of
regulatory requirements and


                                       11
<PAGE>

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. In
addition, domestic and international authorities continue to regulate the
allocation and auction of the radio frequency spectrum. These regulations have a
direct impact on us, because our licensed products can be marketed only if
permitted by suitable frequency allocations, auctions and regulations. The
implementation of these regulations may delay our end-users in deploying their
systems, which could, in turn, lead to delays in orders of our products by our
customers and end-users. 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.

      While there can be no assurance that we will be able to comply with
regulations in any particular country, we will design our products to minimize
the design modifications required to meet various 2.4 GHz and 5 GHz
international spread spectrum regulations. 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 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 allocation of available frequency 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 allocation and use of available frequency
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     increase 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.

Employees

      As of December 31, 2003, we had 98 employees, including 25 in
manufacturing, 31 in research and development, 24 in sales, marketing and
customer service and 18 in finance and administration. Since January 1, 2004 we
have terminated 16 people consisting of 2 in manufacturing, 10 in research and
development, 2 in sales, marketing and customer service, and 2 in finance and
administration. We are not a party to any collective bargaining agreement. We
believe that relations with our employees are good.

Item 2. Properties.

      We lease approximately 70,000 square feet of facilities in five locations.
Our headquarters is an approximately 15,000 square foot facility located in
Falls Church, Virginia. This facility accommodates the following departments:
senior management, administration, finance, marketing, manufacturing, sales and
a small amount of research and development. This property is leased from an
affiliate of YDI on terms that are believed to be at market rates. The term of
the lease for this facility expires on December 31, 2010.


                                       12
<PAGE>

      We lease an approximately 32,000 square foot facility located in South
Deerfield, Massachusetts. This facility accommodates the majority of our
research and development as well as limited run production capabilities. The
term of the lease for this facility expires on October 31, 2005.

      We lease an approximately 15,000 square foot facility located in
Sunnyvale, California. This facility accommodates sales as well as technical
support and final manufacturing, testing and repair of our Link EX, Link 4X, RAN
and Link CX products. The term of the lease for this facility expires in
February 29, 2004. We are currently negotiating an extension of this lease.

      We lease an approximately 8,000 square feet facility located in
Richardson, Texas. This facility accommodates one sales person. The term of the
lease for this facility expires in December 31, 2006. We are currently exploring
opportunities to sublease or otherwise utilize this facility.

Item 3. Legal Proceedings.

      During the period from June 12 to September 13, 2001, four purported
securities class action lawsuits were filed against us 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. However, the litigation process is inherently uncertain,
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 complaints 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. This decision was made by a special
independent committee of our board of directors. We understand that a large
majority of the other issuer defendants have also elected to participate in this
settlement. If ultimately approved by the court, this proposed settlement would
result in a dismissal, with prejudice, of all claims in the litigation against
us and against the other issuer defendants who elect 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. This means there will be no monetary obligation to the plaintiffs if
they recover $1 billion or more from the underwriter defendants. 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.


                                       13
<PAGE>

      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.
Therefore, the potential exposure of each participating issuer defendant should
decrease as the number of participating issuer defendants increases. 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, among other
things, negotiating, executing, and filing with the court final settlement
documents and final approval by the court. 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.

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

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, 2003.


                                       14
<PAGE>

                                     PART II

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

Market Information

      Our common stock is currently quoted on the OTC Bulletin Board under the
symbol "YDIW." 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 National Market until December 18, 2002 and on the Nasdaq SmallCap Market
from December 19, 2002 until March 31, 2003. The table below shows, for the
period from April 1, 2003 through December 31, 2003, the reported high and low
bid quotations for our common stock on the OTC Bulletin Board. These market
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. Our common stock
prices and bids have been adjusted to reflect the net 1 for 4 reverse stock
split implemented on July 9, 2003.

                                          High         Low
                                          ----         ---

          2002
          First Quarter                   $7.08       $2.80
          Second Quarter                  $5.64       $2.20
          Third Quarter                   $3.16       $0.76
          Fourth Quarter                  $1.32       $0.56

          2003
          First Quarter                   $1.12       $0.44
          Second Quarter                  $4.84       $0.60
          Third Quarter                   $4.95       $3.00
          Fourth Quarter                  $5.45       $3.05

      As of February 13, 2004, the number of stockholders of record of our
common stock was approximately 120. 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, 2003. More information about our stock
options is contained in our financial statements, including the notes thereto,
contained in this Form 10-K.

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------
Plan category                    Number of securities          Weighted-average exercise    Number of securities
                                 to be issued upon exercise    price of outstanding         remaining available for
                                 of outstanding options,       options, warrants and        future issuance under
                                 warrants and rights (1)       rights (1)                   equity compensation plans
                                                                                            (excluding securities
                                                                                            reflected in column (a))
                                 (a)                           (b)                          (c)
---------------------------------------------------------------------------------------------------------------------
<S>                                      <C>                            <C>                         <C>
Equity compensation plans
approved by security holders             363,698                        $11.28                      430,012(2)
---------------------------------------------------------------------------------------------------------------------
Equity compensation plans
not approved
by security holders                      146,490                         $2.14                      197,802(3)
---------------------------------------------------------------------------------------------------------------------
Total                                    510,188                         $8.65                      627,814
---------------------------------------------------------------------------------------------------------------------
</TABLE>

----------
(1)   This column does not reflect the options outstanding on December 31, 2003
      to purchase 259,541 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.

(2)   Consists of 4,252 shares available for future issuance under our 1996
      Stock Plan, 150,261 shares available for future issuance under our 1997
      Stock Plan, and 275,499 shares available for future issuance under our
      1999 Stock Plan.

(3)   Consists of shares available for future issuance under our 2001
      Nonqualified Stock Plan.


                                       15
<PAGE>

      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 provides 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 recommends to the board of
directors or decides 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. No more than forty-nine
percent of the awards granted under the 2001 plan may be granted to our
directors and executive officers. Compliance with this requirement will be
measured on the earlier of the date of the expiration of the 2001 plan or July
17, 2004, in which case compliance will also be measured on each anniversary
thereafter, unless otherwise approved by The Nasdaq Stock Market, Inc. In
addition, after July 17, 2004, no more than forty-nine percent of the awards
granted under the 2001 plan during any plan year may be granted to our directors
and executive officers, unless otherwise approved by The Nasdaq Stock Market,
Inc. To the extent that these limitations are not necessary for the 2001 plan to
qualify as a broadly based plan under the rules of The Nasdaq Stock Market,
Inc., the limitations may be relaxed. 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. For more information about our
stock options, see Item 8, Financial Statements and Supplementary Data, Notes to
Financial Statements, Note 12.

Recent Sales of Unregistered Securities

      We issued 2,153 shares of common stock at $2.08 per share in October 2003
to a warrant holder upon the exercise of warrants on a cashless basis (we
withheld 2,335 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.

      We issued 2,453 shares of common stock at $2.08 per share in December 2003
to a warrant holder upon the exercise of warrants on a cashless basis (we
withheld 1,843 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.

      We issued 500,000 shares of common stock at $4.10 per share in December
2003 to one accredited investor in a private placement. In the stock purchase
agreement relating to that issuance, we agreed to file a registration statement
covering the shares issued in this private placement with the Securities and
Exchange Commission no later than the earlier of March 8, 2004 or thirty days
after our common stock begins trading on the Nasdaq SmallCap Market or the
Nasdaq National Market. Ferris, Baker Watts Incorporated presented this
investment opportunity to us and received a one-time fee due to that investment.
After Ferris, Baker's fee, we received $1,906,500 from this stock issuance. This
issuance was completed without registration under the Securities Act in reliance
upon the exemptions contained in Section 4(2) and/or 4(6) of the Securities Act
and/or Rule 506 of Regulation D promulgated under the Securities Act for
transactions not involving a public offering. This reliance was based in part on
representations and warranties made to us by the investor in the stock purchase
agreement.


                                       16
<PAGE>

Item 6. Selected Financial Data.

      The following selected historical consolidated financial data were derived
from YDI's historical financial statements. The financial statements for the
fiscal years ended December 31, 1999 and 2000 were audited by Reznick Fedder &
Silverman, independant accountants. The financial statements for the fiscal
years ended December 31, 2001 and 2002 were audited by Hoffman, Fitzgerald, &
Snyder, P.C., independent accountants. The financial statements for the fiscal
year ended December 31, 2003 were audited by BDO Seidman, L.L.P., independent
accountants. This information should be read in conjunction with YDI's
management discussion and analysis of financial condition and results of
operations and YDI's financial statements, including the related notes,
contained elsewhere in this form 10-K.

<TABLE>
<CAPTION>
                                                              Year Ended December 31,
                                               -----------------------------------------------------
                                                  1999       2000       2001       2002       2003
                                                  ----       ----       ----       ----       ----
                                                       (in thousands, except per share data)
<S>                                            <C>        <C>        <C>         <C>        <C>
Consolidated Statements of Operations
Data:
   Revenue, net ............................   $  2,474   $ 13,046   $ 14,314    $ 20,304   $ 27,241
   Gross profit (loss) .....................      1,251      6,673      5,028       7,928     11,527
   Income (loss) from continuing
   operations ..............................        358      3,539        (30)      1,498        117
   Income (loss) before extraordinary
     item and change in accounting .........        215      2,248        125         947       (144)
   Extraordinary item and change in
     accounting ............................         --         --         --         615      4,747
   Net income applicable to common
     stockholders ..........................        215      2,248        125       1,562      4,603
   Basic and diluted net income (loss)
   per share before extraordinary item .....       0.06       0.59       0.03        0.25      (0.01)
   Basic net income per share ..............       0.06       0.59       0.03        0.42       0.42
   Diluted net income per share ............   $   0.06   $   0.59   $   0.03    $   0.42   $   0.41
   Shares used in computing basic net
     income (loss) per share(1).............      3,750      3,827      3,750       3,750     10,874
   Shares used in computing diluted net
     income (loss) per share(1).............      3,750      3,827      3,750       3,750     11,145

<CAPTION>

----------
(1)  Historical share count and related information in this Form 10-K has been
     revised to reflect the (a) 10,204.08 for 1 stock split implemented on
     September 26, 2002 and (b) net 1 for 4 reverse stock split implemented
     on July 9, 2003.

                                                                    December 31,
                                               -----------------------------------------------------
                                                  1999       2000       2001       2002       2003
                                                  ----       ----       ----       ----       ----
                                                                   (in thousands)
<S>                                            <C>        <C>        <C>        <C>        <C>
Consolidated Balance Sheet Data:
   Cash and cash equivalents and short
     term investments ......................   $    340   $  1,219   $  1,133   $    939   $  9,599
   Working capital .........................        569      2,793      2,111      2,947     11,787
   Total assets ............................        961      4,806      6,898      8,572     20,675
   Long-term obligations, less current
     portion ...............................         16         10      1,568      1,402      1,298
   Total stockholders' equity ..............   $    606   $  2,870   $  2,908   $  4,508   $ 16,141
</TABLE>

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

Overview

      The financial results for the years ended December 31, 2003, 2002 and 2001
are presented in accordance with generally accepted accounting principles. We
are a designer and manufacturer of broadband wireless equipment and systems in
the licensed-free wireless products communications industry. These
point-to-point (PTP) and point-to-multipoint (PTM) systems are primarily used by
wireless operators to connect their base stations to other base stations and to
existing wire line networks. During 2002, we made a strategic decision to expand
our product suite to include high bandwidth PTP backhaul products that would
complement our 802.11(b) product offerings PTM. Therefore rather than design
such a product on our own, we purchased inventory of Link EX, Link 4X, and RAN
products and license rights to manufacture and sell these products. In line with
this decision, during March 2003 another opportunity became available to buy
inventory and license rights to manufacture and sell the Link CX which has even
higher bandwidth capabilities; thus giving us expanded sales growth within this
large product segment. Our PTP products primarily enable service providers,
businesses, and other enterprises to expand


                                       17
<PAGE>

or establish private networks by bridging data traffic among multiple
facilities. In addition, we have developed enhanced PTM systems that enable
service providers, businesses, and other enterprises to connect multiple
facilities within a geographic area to a central hub.

      On April 1, 2003, Telaxis Communications Corporation ("Telaxis") closed a
strategic combination transaction with Young Design, Inc., a privately-held
Virginia corporation ("Young Design"). In that transaction, Telaxis formed a
subsidiary that merged with and into Young Design and each outstanding share of
Young Design common stock was converted into the right to receive 2.5 shares of
Telaxis common stock. Telaxis was the continuing corporation, Telaxis
stockholders continued to hold Telaxis common stock following the transaction,
and Young Design became a wholly owned subsidiary of Telaxis. Telaxis also
started doing business as "YDI Wireless" following that combination.

      For accounting purposes, Young Design is treated as the acquirer since it
was the larger of the two entities and had substantially greater operating
revenue (Telaxis had virtually no revenue). The financial statements presented
are those of Young Design carried at historical cost. The assets and liabilities
of Telaxis were recorded at fair value as of April 1, 2003 under the purchase
method of accounting. The financial statements reflect the results of operations
of Telaxis from April 1, 2003. The cost of the acquisition consisted of
9,792,180 shares of common stock valued at $8.4 million and acquisition costs of
approximately $0.2 million. Accounting for the transaction as a reverse merger
resulted in an excess of net assets over cost of $4.7 million. The valuation of
the stock was based on the average closing price for the five days preceding the
acquisition.

      We continually invest in the development and introduction of wireless
products in the marketplace in an effort to provide customers with the best
price/performance ratio for license-free wireless communications. We believe
that our diverse and expanding customer base as well as our market and industry
experience makes us a strong competitor in the wireless communications market.
In addition, we are a very experienced designer of turnkey long distance
wireless systems for applications such as wireless Internet, wireless video,
wireless local area networks (LANs), wireless wide area networks (WANs), and
wireless virtual private networks (VPNs).

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.

      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.
Accelerating the disposal process or incorrect estimates of future sales
potential may necessitate future adjustments to these provisions.

      Accounts Receivable Valuation

      We maintain an allowance for doubtful accounts for estimated losses
resulting from the inability 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.


                                       18
<PAGE>

Result of Operations

Years Ended December 31, 2003 and 2002

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

                                                      Years Ended
                                                      December 31
                                                  ------------------
                                                   2003        2002
                                                  ------      ------

          Sales ...............................      100%        100%
          Cost of sales .......................       58          61
                                                  ------      ------

          Gross profit ........................       42          39
          Operating expenses
              Selling .........................        8          12
              General and administrative ......       28          18
              Research and development ........        6           2
                                                  ------      ------

                 Total operating expenses .....       42          32
                                                  ------      ------

          Operating income ....................       --           7
          Other income ........................       18           5
                                                  ------      ------

          Income before income taxes ..........       18          12
          Income taxes ........................        1           4
                                                  ------      ------

          Net Income ..........................       17%          8%
                                                  ======      ======

      Sales

      Sales for the year ended December 31, 2003 were $27.2 million as compared
to $20.3 million for the same period in 2002 for an increase of $6.9 million or
34%. The increase in sales is primarily due to the addition of two new large
customers, the introduction of new products and modification of our list prices
both upwards and downwards as market competition dictates. First, sales to
Enterasys resulted in about $2.5 million or 9.2% of revenue and sales to Verizon
resulted in about $2.2 million or 8.1% of revenue. Second, revenue for new
products amounted to just under $2.0 million or 7.4% of revenue. Finally, after
the modification of our list prices, as mentioned above, we realized an overall
increase in our revenue during 2003.

      Sales for 2004 and profitability will be impacted by the introduction of
our new "second generation" high bandwidth 5.8 GHz backhaul radio product with
DS-3 capacity (Link CX) and the addition of several more sales persons. We are
using the new products and additional personnel to improve penetration rates at
existing customers as well as attract new domestic customers and increasing our
focus into the international market. For the years ending December 31, 2003 and
2002, international sales, excluding Canada, were approximately 16% and 10%,
respectively, of total sales. To enhance our international sales presence, we
intend to hire new personnel with international experience and to have our
products certified by in-country regulatory authorities where we are focusing
our efforts, such as those in the Asia Pacific, Latin America, Europe, Middle
East, and Africa.

      The challenges for 2004 will be to continue to expand our customer base to
replace any lost business through normal customer attrition and offset potential
declines in Verizon's and Enterasys' future orders. Finally, YDI's business
combination with Telaxis had no impact on our revenue in 2003 because Telaxis'
had virtually no revenue from its products in 2003 or 2002 due to lack of
customer demand. For 2004, we have not forecasted any significant revenue from
products designed by Telaxis.

      Cost of goods sold and gross profit

      Cost of goods sold and gross profit for the year ended December 31, 2003
were $15.7 million and $11.5 million, respectively. For the same period in 2002,
costs of goods sold and gross profit were $12.4 million and $7.9 million,
respectively. Gross profit, as a percentage of sales, for the years ended
December 31, 2003 and 2002 was 42% and 39%, respectively.


                                       19
<PAGE>

      In order of significance, during 2003, we introduced several new products
to the market and realized higher gross profit margins, the most significant
being our integrated two-channel "Hot Spot" access point product for the telco
market. This product resulted in a 0.6% improvement in our annual gross profit
from 2002. Other new product introductions, especially the Etherant-II, resulted
in an additional 1.0% improvement in our gross profit. Our modification of list
prices helped improve gross profit margin by an estimated 0.9%.

      Next, due to a large glut of excess inventory in the electronic component
industry, we were able to purchase large quantities of excess electronic
component parts in late 2000, 2001 and early 2002 at a significant discount. As
electronic component prices began to rebound in late 2002 and throughout 2003,
we were able to reduce our current year purchases as a result of our previous
purchases of surplus electronic parts, resulting in a 0.5% improvement of our
annual profit margin. The surplus parts previously purchased and discussed above
have been completely used during 2003.

      Even as we introduce new products to our customers in 2004, we believe
that our profit margins will be challenged because of the significant 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 and gain immediate market share. We have seen
more examples of this behavior now than in past years. Maintaining our profit
margins continues to be one of our major goals. One of the best ways to maintain
profit margins is to have regular engineering design reviews of our high volume
products and implement any cost savings ideas or new designs that will help
reduce the cost to build our products. In addition, we are continually looking
for more cost effective contract manufacturers. When properly utilized, contract
manufacturers can 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. Finally, we will seek to
identify contract manufacturers who have "turnkey" manufacturing facilities
off-shore which can dramatically reduce our cost of goods sold and preserve our
gross profit margins. Despite these efforts, we may be unable to maintain our
margins in this highly competitive market.

      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 decreased to $2.2 million for the year ended December 31,
2003 from $2.4 million for the year ended December 31, 2002, which is
approximately a $0.2 million or 8% decline. The relatively small decrease in
overall sales and marketing expenses is a combination of several offsetting
factors: (1) increased headcount of sales personnel to expand customer contacts,
(2) reduction of advertising, dues for professional associations and elimination
of attendance at trade shows which historically produced little in product sales
or company and brand awareness, and (3) establishment of a central travel
administrator position to ensure compliance with our travel and entertainment
guidelines. It is our goal to hire several more seasoned sales and marketing
personnel with both domestic as well as international experience in the wireless
market segment in 2004. Additionally, we are also looking to expand our
distributor channel during the fist half of 2004.

      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 $7.6 million for the year ended December 31, 2003 from $3.6 million
for the year ended December 31, 2002 or 111%. The increase of approximately $4.0
million is made up of several significant expenses mostly attributable to Young
Design's business combination with Telaxis on April 1, 2003. In order of
magnitude are the following expense elements and their individual impact: (1)
salaries and fringes increased approximated $0.9 million, (2) Directors and
Officers insurance as well as property and casualty insurance increased
approximated $0.7 million, (3) additional rents, maintenance and utilities on
new facilities increased approximated $0.7 million, (4) depreciation and
amortization on a much larger fixed asset base of test equipment and other
assets increased approximated $0.7 million, (5) professional, legal, and
accounting fees increased approximated $0.6 million, (6) bad debt increased
approximately $0.3 million, but on significantly higher revenue. For 2003, bad
debt expense was 2.4% of revenue as compared to 1.8% for 2002. Management has
put in place procedures to monitor our expense categories to help reduce general
and administrative expenses for 2004.


                                       20
<PAGE>

      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
$1.7 million for the year ended December 31, 2003 from $0.4 million for the year
ended December 31, 2002, a $1.3 million increase or 325% year over year. The
increase in research and development from 2002 to 2003 was primarily
attributable to the addition of 17 research and development engineers amounting
to approximately $1.1 million, while the remainder was for the purchase of
additional prototype materials and other related support costs.

      Other Income

      The increase in other income was due to the immediate recognition into
income of negative goodwill of a $4.7 million gain related to the Telaxis
combination in accordance with SFAS No. 142.

      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. As of December 31, 2003, we cannot accurately predict when
sufficient taxable income will be generated to justify recognition of deferred
tax assets without a valuation allowance. Provision for income taxes for the
year ended December 31, 2002 in the amount of $0.8 million relates to an
estimated effective tax rate of 42%.

Years Ended December 31, 2002 and 2001

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

                                                        Years Ended
                                                        December 31,
                                                     ------------------
                                                      2002        2001
                                                     ------      ------

         Sales .................................        100%        100%
         Cost of sales .........................         61          65
                                                     ------      ------

         Gross profit ..........................         39          35
         Operating expenses
             Selling ...........................         12          16
             General and administrative ........         18          17
             Research and development ..........          2           2
                                                     ------      ------

                Total operating expenses .......         32          35
                                                     ------      ------

         Operating income ......................          7          --
         Other income ..........................          5           1
                                                     ------      ------

         Income before income taxes ............         12           1
         Income taxes ..........................          4          --
                                                     ------      ------

         Net Income ............................          8%          1%
                                                     ======      ======

      Sales

      Sales for the year ended December 31, 2002 were $20.3 million as compared
to $14.3 million for the same period in 2001 for an increase of $6.0 million or
42%. The increase in sales is attributed to a few significant factors; the
largest impact was from the addition of several new products. The most
significant new products were our first 5.3-5.8 GHz backhaul radio product (Link
EX) with high bandwidth capacity as well as the Link 4X which has four E-1
connectivity. Both of these products help complement our 802.11(b) product line
and fill a product void. These radio products and the peripheral equipment
required by these products helped us improve revenue year-to-year by over $2.0
million across our entire customer base. Also, the introduction of the new
backhaul product line helped us expand our market reach into the rural cellular
and rural local exchange carriers (LEC's). These new markets and related
customers allowed us to expand our revenue by nearly $0.8 million.


                                       21
<PAGE>

      In addition, during 2002 our two largest distributors increased their
purchases from us by nearly $2.0 million. There was a one-time purchase from the
Federal Aviation Administration (FAA) in the amount of $0.7 million. The
remainder of our revenue growth, $0.5 million, relates to the addition of other
new products and customers within our core Wireless Internet Service Provider
(WISP) customer base. We increased our international sales, excluding Canada,
from 5% to 10% during 2002 and emphasized letters of credit to minimize our
risks of collection.

      Cost of goods sold and gross profit

      Cost of goods sold and gross profit for the year ended December 31, 2002
were $12.4 million or 61% of revenues and $7.9 million or 39% of revenues,
respectively. For 2001, cost of goods sold and gross profit were $9.3 million or
65% of revenues and $5.0 million or 35% of revenues, respectively.

      During 2002, we enhanced our product margins by introducing new wireless
products, reducing the costs of our existing core products and changing our
manufacturing strategy to use more "turnkey" contract manufactures to build our
high volume products, rather than using "kitting" manufacturers as was the case
in 2001. A kitting manufacturer is a company that manufactures products using
raw materials supplied by us rather than purchasing the raw material for us. The
advantage of using "turnkey" contract manufacturer versus a "kitting" contract
manufacturer is the significant advantage of the turnkey's purchasing power for
component raw materials which accounted for as much as 90% of our total product
cost in 2002. This allowed us to improve our profit margins by 2.5%. Next, with
a large glut of excess inventory in the electronic component industry, we were
able to purchase large quantities of excess electronic component parts in late
2000, 2001 and early 2002 at a significant discount. As a result, we were able
to reduce our 2002 material purchases which were at higher prices, thus
resulting in a gross margin improvement of 0.5% over the prior year. The
remaining 1.0% increase in year-over-year gross margin was attributable to our
ongoing engineering design review process for our existing products for
implementation of cost reductions.

      Sales and Marketing Expenses

      Selling and marketing expenses consist primarily of employees' salaries
and associated costs for selling, marketing, and customer support. Selling and
marketing expenses remained unchanged at $2.4 million for the years ended
December 31, 2002 and 2001. While sales commissions increased by $0.2 million as
a result of increased sales, this was directly offset by a reduction in sales
headcount and related support costs amounting to $0.2 million.

      General and Administrative Expenses

      General and administrative expenses consist primarily of employee
salaries, benefits and associated costs for information systems, finance, legal,
and administration. General and administrative expenses increased to $3.6
million for the year ended December 31, 2002 from $2.4 million for the year
ended December 31, 2001 or 54%. The increase of $1.2 million is largely
attributable to our decision to expand our executive and senior management team
with the hiring of an experienced Chief Financial Officer, Director of
Operations, Director of Materials Control, Purchasing Manager and other critical
positions required to handle our growth. All other general and administrative
expenses were closely monitored, resulting in nearly no increase from 2001 to
2002.

      Research and Development Expenses

      Research and development expenses consist primarily of personnel and
related costs associated with our new product development efforts. These include
costs for development of products and components, test equipment and related
facilities. Research and development expenses remained unchanged for 2002 and
2001 at $0.4 million.

      Other Income

      The increase of $218,000 in other income from December 31, 2002 compared
to December 31, 2001 was primarily due to a $564,000 one-time gain from the
cancellation of a contract with a Japanese company which expired in August 2002.
This gain was offset for the most part by the loss incurred in writing off an
unconsolidated subsidiary that went out of business during 2002 and a reduction
in interest expense from year-to-year.


                                       22
<PAGE>

      Income Taxes

      The effective tax rate in 2002 was 42% compared to an income tax benefit
in 2001. The effective tax rate exceeded the statutory state and federal rates
of 38% due to the impact of certain non-taxable income and expense items. The
income tax benefit in 2001 relates to the recognition of deferred tax assets
based on the expectation of taxable income in 2002 (which did occur).

Liquidity and Capital Resources

      At December 31, 2003, we had cash and cash equivalents of $9.0 million and
marketable securities of $0.6 million. For the year ended December 31, 2003,
cash used by operations was $0.6 million. During the third and fourth quarters
of 2003 we returned to profitability. We currently are meeting all of our
working capital needs through internally generated cash from operations. We do
this through active cash management such as matching our Days Payable
Outstanding (DPO) with our Days Sales Outstanding (DSO). Currently, both DPO and
DSO are between 31 and 33 days. In addition, approximately 25 - 30% of our sales
are paid prior to shipment, by credit card, wire transfer, or letter of credit,
which increases cash flow and decreases credit risk and bad debt expense. We see
no immediate requirement over the next twelve months for external financing to
fund our day-to-day normal operations, which includes sales and marketing,
research and development and general and administrative expenses on our core
business.

      For the year ended December 31, 2003, cash provided by investing
activities was $7.0 million. The increase in cash relates primarily to the $7.4
million of cash from the Telaxis combination. This was offset by net purchases
of securities in the amount of $0.5 million.

      Cash provided by financing activities was $1.6 million for the year ended
December 31, 2003. We issued 500,000 shares of stock for net proceeds of $1.9
million in December 2003. It is anticipated that these funds will be used in
future strategic acquisitions as the wireless industry continues to consolidate.
In addition, current and former employees exercised stock options and accounted
for $0.2 million in proceeds. Net debt repayments accounted for a use of $0.4
million.

      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. One of the biggest obstacles to success is bringing new
products to the market in a timely fashion. The new products or product lines
may be designed and developed internally, but often it is more cost effective to
acquire product offerings from competitors to reduce the time to market factor.
Our current funding levels may have to be supplemented through our existing bank
line of credit ($2 million), new bank debt financing, public debt or equity
offerings, or other means, depending upon our desired rate of future growth.

      In 2000, Telaxis accrued the remaining lease obligation for office space
in Texas which it determined it would not occupy the space. We reduce the
accrued liability as we make monthly lease payments. As December 31, 2003, the
remaining lease liability is $0.2 million.

      Debt, Covenant Compliance and Liquidity

      We have a $2.0 million line of credit with Bank of America. We have not
used this line of credit as of December 31, 2003. This line of credit is
collateralized by a $2.0 million Certificate of Deposit.

      We have the following contractual obligations and commercial commitments
as of December 31, 2003:

<TABLE>
<CAPTION>
                                                           Payments due by period
                                          --------------------------------------------------------
                                                      Less than     1 - 3       4 - 5      After 5
                                            Total       1 year      years       years       years
                                          --------    ---------   --------    --------    --------
<S>                                       <C>         <C>         <C>         <C>         <C>
Line of credit .......................    $     --    $     --    $     --    $     --    $     --
                                          ========    ========    ========    ========    ========
</TABLE>


                                       23
<PAGE>

<TABLE>
<CAPTION>
                                                Payments due by period (numbers in thousands)
                                          --------------------------------------------------------
                                                      Less than     1 - 3       4 - 5      After 5
                                            Total       1 year      years       years       years
                                          --------    ---------   --------    --------    --------
<S>                                       <C>         <C>         <C>         <C>         <C>
Operating leases - buildings .........    $  2,107    $    475    $    858    $    516    $    258
Operating leases - equipment .........         105         105          --          --          --
Employment Contracts .................         689         689          --          --          --
                                          --------    --------    --------    --------    --------
Total contractual cash obligations ...    $  2,901    $  1,269    $    858    $    516    $    258
                                          ========    ========    ========    ========    ========
</TABLE>

      The above table includes the $1.4 million of principal for the Merry
Fields' mortgage. The mortgage is the responsibility of Merry Fields; however,
we guarantee full payment of this mortgage.

      Impact of Recently Issued Accounting Standards

      In November 2002, the FASB issued FIN 45, "Guarantor's Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others". The Interpretation states that a guarantor is required
to recognize, at the inception of a guarantee, a liability for the fair value of
the obligation undertaken in issuing the guarantee. The Company adopted the
Interpretation on December 31, 2002 and included the debt of Merry Fields, LLC
guaranteed by the Company in the consolidated financial statements.

      In January 2003, the FASB issued FIN 46 "Consolidation of Variable
Interest Entities". The Interpretation addresses consolidation by business
enterprises of variable interest entities and provides guidance on the
identification of variable interest entities that are subject to consolidation
requirements by a business enterprise. A variable interest entity subject to
consolidation requirements is an entity that does not have sufficient equity at
risk to finance its operations without additional support from third parties and
the equity investors in the entity lack certain characteristics of a controlling
financial interest as defined in the guidance. The Company does not have any
variable interest entities but does guarantee the debt of Merry Fields, LLC and
due to the significant lease transaction believes it effectively controls Merry
Fields, LLC. Accordingly, the Company consolidates the financial and operating
results of Merry Fields, LLC. Currently the Company does not believe that
adoption of FIN 46 will have an impact on its financial statements.

      In April 2003, the FASB issued Statement No. 149, "Amendment of Statement
133 on Derivative Instruments and Hedging Activities." The Statement amends
Statement 133 for decisions made by the Derivatives Implementation Group, in
particular the meaning of an initial net investment, the meaning of underlying
and the characteristics of a derivative that contains financing components.
Currently, YDI has no derivative financial instruments and, therefore, believes
that adoption of the Statement will have no effect on its financial statements.

      In May 2003, the FASB issued Statement No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity." The
Statement requires that the issuer classify certain instruments as liabilities,
rather than equity, or so-called mezzanine equity. Currently, YDI has no
financial instruments that come under the scope of the Statement and, therefore,
believes that adoption of the new Statement will have no impact on its financial
statements. In November 2002, the FASB issued FIN 45, "Guarantor's Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others". The Interpretation states that a guarantor is required
to recognize, at the inception of a guarantee, a liability for the fair value of
the obligation undertaken in issuing the guarantee. The Company adopted the
Interpretation on December 31, 2002 and includes the debt of Merry Fields, Inc.
guaranteed by the Company in the consolidated financial statements.

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 below
in "Safe Harbor for Forward-Looking Statements."

      As of December 31, 2003, we had cash and cash equivalents of $9.0 million.
All these funds are on deposit in short-term accounts with two national banking
organizations with substantial assets. Therefore, we do not perceive significant
down side exposure should interest rates go even lower. However, if interest
rates were to


                                       24
<PAGE>

increase, we would expect to realize a corresponding benefit. 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,
2003, the uninsured portion totaled approximately $8.8 million. We guarantee the
Merry Fields, LLC debt. The interest rate on the loan is fixed. Therefore
fluctuations in interest rates would not impact the financial statements.

      As of December 31, 2003, we have $2.0 million invested in Phazar common
stock. The carrying value of our investment is subject to fluctuation in the
market price. Market prices are subject to fluctuation and, consequently, the
amount realized in the subsequent sale of an investment may significantly differ
from the reported market value. Fluctuation in the market price of a security
may result from perceived changes in the underlying economic characteristics of
the investee, the relative price of alternative investments and general market
conditions. Furthermore, amounts realized in the sale of a particular security
may be affected by the relative quantity of the security being sold. As stated
in the notes to the financial statements, we have a definitive agreement to
merge with Phazar. The carrying value of the investment may be adversely
affected should the merger not be completed. However, fluctuation in the market
price of Phazar will not impact the operations of the Company.

      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.

Safe Harbor for Forward-Looking Statements

      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.

      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:


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<PAGE>

      Cautionary Statements relating to Contemplated Merger with Phazar

      o     Our contemplated merger with Phazar may not be completed due to the
            conditions to completion set forth in the merger agreement. On
            October 30, 2003, we announced a definitive merger agreement to
            acquire Phazar Corp. There can be no assurance whatsoever that this
            acquisition or any other combination transaction between us and
            Phazar will be consummated. Completion of this merger is subject to
            a number of conditions set forth in the merger agreement, including:

            o     obtaining the approval of Phazar's stockholders,

            o     having the registration statement relating to the shares we
                  would issue in the merger to the Phazar stockholders declared
                  effective by the Securities and Exchange Commission,

            o     obtaining all necessary state "blue sky" law and other
                  approvals, waivers, consents, or exemptions,

            o     having less than 10% of Phazar's stockholders able to exercise
                  dissenters' rights after the Phazar stockholders meeting,

            o     continued accuracy of the representations and warranties
                  contained in the merger agreement, and

            o     there being no material adverse change to the properties,
                  assets, financial condition, or results of operations of us or
                  Phazar.

            There can be no assurance that these conditions to closing will be
            satisfied. If the conditions are not satisfied and/or waived, the
            merger will not occur or will be delayed and we may lose some or all
            of the intended benefits of the merger.

      o     We and Phazar may waive one or more of the conditions to the merger
            without resoliciting stockholder approval for the merger. Each of
            the conditions to our and Phazar's obligations to complete the
            merger may be waived, in whole or in part, to the extent permitted
            by applicable law, by us and Phazar. If the board of directors of
            Phazar determines a waiver is not sufficiently material to warrant
            resolicitation of the Phazar stockholders, they will have the
            discretion to complete the merger without seeking further
            stockholder approval.

      o     Our contemplated merger with Phazar may be terminated due to lack of
            completion within the time period set forth in the merger agreement.
            Our merger agreement with Phazar provides that either we or Phazar
            can terminate that agreement without penalty if the merger is not
            completed by April 1, 2004 (so long as the terminating party has not
            breached the agreement). There can be no assurance that we will be
            able to complete the merger by April 1, 2004. As a result, either
            party may be able to terminate the agreement on and after April 2,
            2004. If the merger agreement is terminated, the merger would not
            occur and we would lose the intended benefits of the merger.

      o     Failure to complete the merger with Phazar could cause our stock
            price to decline. If the merger is not completed for any reason, our
            stock price may decline. For example, our stock price could decline
            because the current market price may reflect a market assumption
            that the merger will be completed and the profitable Phazar
            operations will be added to our current operations. As another
            example, the stock price could decline because the failure of this
            merger to close could cast doubt on our ability to execute on our
            stated strategy of growing our business by selected acquisitions and
            business combinations.

      o     Sales of our products could be inhibited if the pending merger with
            Phazar disrupts customer or partner relationships. The pending
            merger may have the effect of disrupting customer or partner
            relationships. Our customers or potential customers may delay or
            alter their buying patterns during the pendency of, and following,
            the merger. By increasing the breadth of our business, the merger
            may make it more difficult for us to enter into relationships with
            customers and strategic partners, some of whom may view the combined
            company as a more direct competitor than us as a stand-alone
            company. Any significant delay or reduction in orders for our
            products could cause sales of our products to decline.

      o     We may not realize the intended benefits of the merger with Phazar,
            which may have a material adverse effect on our business and
            financial condition. The combined company will need to overcome
            significant challenges in order to realize any benefits or synergies
            from the merger, including integrating the operations of the two
            companies, retaining existing customers of both companies and
            attracting additional customers, retaining strategic partners of
            each company and attracting new strategic partners,


                                       26
<PAGE>

            and creating uniform standards, controls, procedures, policies, and
            information systems. These processes may be difficult,
            unpredictable, and costly.

            For example, our headquarters location in Falls Church, Virginia and
            Phazar's location in Mineral Wells, Texas could make it harder to
            integrate the companies given the geographic distance between the
            facilities and possible cultural differences in the different parts
            of the country. This geographic separation may also make it harder
            to efficiently achieve the desired use of Phazar's facilities for
            manufacturing, servicing, and supporting our current products and
            customers. Further, the two companies currently use different
            internal financial accounting systems which may be difficult to
            integrate. Also, the Phazar sales personnel are used to selling to
            primarily governmental buyers while our sales personnel are used to
            selling to primarily commercial buyers. It may be difficult to
            integrate these different sales styles and approaches and to achieve
            sales synergies from combining the companies. Our products and
            Phazar's products generally address different segments of the
            wireless communications market and may require different skills and
            capabilities for marketing, sales, and customer support. As a
            result, the combined company may not realize significant benefits
            from combining the product lines. There can be no assurance that we
            would be able to sell our current products to Phazar's current
            customers or vice versa. There may also be adverse impacts on the
            existing sales forces' abilities to sell their existing products.

            The combined company may not succeed in addressing these risks or
            any other problems encountered in connection with the merger. If we
            cannot successfully integrate the companies' operations, products,
            and personnel, we may not realize the expected benefits of the
            merger, which could adversely affect the combined company's business
            and financial condition.

      o     Integrating our operations with Phazar's may divert management's
            attention away from the day-to-day operations of the combined
            company. Integration of our operations, products, and personnel may
            place a significant burden on management and the internal resources
            of the combined company. For example, our headquarters are located
            in Falls Church, Virginia while Phazar is located in Mineral Wells,
            Texas. This geographic separation means that our management may have
            to spend more time traveling. Also, our management and other
            personnel will need to spend time reconciling the different employee
            benefits that we and Phazar offer to our employees and possible
            cultural differences. Further, we will need to integrate financial
            reporting systems, inventory systems, quality systems, and ordering
            procedures, among other items, or enable the continued separate
            operation of some or all of these functions. The diversion of
            management's time and attention and any difficulties encountered in
            the transition and integration process could harm the combined
            company's business.

      o     The merger with Phazar may cause us to lose key employees, which
            could diminish the benefits of the transaction to us. To be
            successful and achieve the intended benefits of the merger, we must
            retain, assimilate, and motivate executives and other key employees,
            including those in managerial, technical, sales, and marketing. We
            expect to need the skills of Phazar employees to continue to sell,
            manufacture, and support the Phazar products, which are different
            from our current products. Also, the typical Phazar customers are
            governmental, a type of customer with which we have little
            experience. We would like to benefit from the experience and
            relationships that the Phazar sales personnel have developed in
            working with this type of customer. Some employees may find that the
            total or specific benefits offered to them by the combined company
            are less than they previously enjoyed. Employee retention may also
            be challenging after the merger due to possible cultural conflicts
            between the companies and because employees of us and Phazar will
            likely experience uncertainty about their future role with the
            combined company until strategies with regard to the combined
            company are announced or executed. As a result of these factors,
            employees may not remain with the combined company. If a significant
            number of employees depart, the company's business will suffer.

      o     The merger with Phazar will result in significant costs, whether or
            not it is completed. Our transaction costs for the merger are
            estimated at approximately $120,000. These costs are expected to
            consist primarily of fees for attorneys, accountants, and financial
            printers, as well as filing fees and mailing costs. Most of these
            costs will be incurred whether or not the merger is completed. In
            addition, if the merger agreement is terminated under specified
            circumstances relating to superior acquisition proposals, either
            party may be obligated to pay a $300,000 termination fee.


                                       27
<PAGE>

      o     The market price of our common stock may decline as a result of the
            merger with Phazar. The market price of our common stock after the
            merger with Phazar may decline as a result of the merger for a
            number of reasons, including the combined company being an
            unprofitable combination of two formerly profitable companies, the
            combined company having more stock in its public float than the
            current limited amount in our public float, our inability to address
            the integration challenges described above in a timely and efficient
            manner, and if we do not achieve the intended or perceived benefits
            of the merger, including those that we have discussed publicly such
            as broader product offerings, customer diversification, and broader
            operating capabilities, as rapidly or to the extent anticipated by
            financial analysts, industry analysts, or investors.

      Cautionary Statements relating to Our Business and Operations

      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. Consummation of the proposed settlement is conditioned
            upon, among other things, negotiating, executing, and filing with
            the court final settlement documents and final approval by the
            court. 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 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     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


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<PAGE>

            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 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 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 many 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. Many 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     The WLAN 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 WLAN. 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 Proxim, Alvarion, Cisco,
            Alcatel, Stratex Networks, Ceragon, Nokia, Samsung, and Harris
            Corporation. Additionally, our FiberLeapTM 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
            from start-up and other private companies that are developing and
            marketing new commercial products and services. Most 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 not significant barriers to entry into a number of
            markets we serve. This lack of 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 Vivato, Trapeze, Colubris Networks, and Trango
            Broadband.

      o     We may experience difficulty in distinguishing our products from
            other WLAN products which may reduce our sales and gross margins. We
            believe that some products in the Wi-Fi business in which we


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<PAGE>

            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, 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, 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.

      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 products in our WLAN 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
            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, the majority of products we sell are
            based on the IEEE 802.11b standard. We believe products are being
            developed based on the IEEE 802.11a/b/g and 802.16 standards which
            may have advantages over products based on the IEEE 802.11b
            products, such as greater data transmission capabilities and longer
            range.

      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.


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<PAGE>

      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.

      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 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. However, the combined company's balance
            sheet at the end of the second quarter 2003 was stronger given the
            addition of the Telaxis assets. 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     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, we
            generally have a very short time between receiving an order and
            shipping the order. Very 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.


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      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 a large order that
            was fulfilled in the third quarter of 2003 that contributed
            positively to the financial results of that quarter. We expect that
            at times we will 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. In the third and fourth quarters of 2003, we were
            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 the fourth quarter of 2003 and may
            have a negative impact on our revenue and financial results for the
            first quarter of 2004. 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 continue as a profitable company,
            which could adversely affect our ability to continue as a going
            concern and our stock price. We announced profitable financial
            results for our two most recently completed financial quarters.
            However, we may not be profitable in the future. Our revenue
            declined substantially in the fourth quarter of 2003 from our
            revenue in the third quarter of 2003. We have made no predictions
            concerning our future profitability or lack of profitability. Our
            failure to maintain 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     Our business depends 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.
            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. To date, we generally have not experienced significant
            difficulty in attracting and retaining qualified personnel, but
            there can be no assurance we will not experience difficulty 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
            were to become unable to perform his responsibilities due to
            illness, injury, termination of service, or other reasons. Loss of
            the services of our Chief Executive Officer 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 due to uncertainty and
            responsibility transition issues.

      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 contract manufacturers to
            provide manufacturing of our complete products, components, and
            subassemblies. Our failure to obtain satisfactory performance from
            any contract


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            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     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. For example, in the third and fourth quarters of
            2003, we were unable to obtain sufficient components to manufacture
            certain of our products. 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     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.

      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     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 inventory 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


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            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. For example, approximately $1.1 million of our $2.7
            million in operating expenses in the fourth quarter of 2003
            (approximately 40%) were fixed expenses. We expect this percentage
            to increase in 2004. 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     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 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. Some of our sales to date have been


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            made to customers located outside the United States, and we expect
            that some of our future sales will continue to be 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 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 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 could adversely affect our business and results of
            operations. Radio communications 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 and
            incur substantial costs to bring our products 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 evolve and change frequently. These changes could
            hurt our competitive position. For example, a point we often use in
            marketing our 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 recently proposed regulations that would 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. This could adversely affect
            our competitive position.

      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.


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      o     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, 2003, no one
            customer accounted for more than 10% of our sales. However, we did
            have a number of substantial customers. 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     Our failure or inability to protect our intellectual property could
            adversely affect our business and operations, particularly in our
            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 this 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. 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. 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 generally do not protect
            much of our intellectual property. 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
            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


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            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.

      Risks Relating to Capital Markets and Our Stock

      o     Our common stock is currently traded on the OTC Bulletin Board,
            which may provide lower liquidity and depress or hinder the price
            increase of our stock. Our common stock is currently quoted for
            trading on the OTC Bulletin Board of the National Association of
            Securities Dealers, Inc. This market for our common stock may be a
            less liquid market for existing and potential stockholders to trade
            shares of stock than other markets. Companies, such as us, whose
            stock is traded on this market may be perceived as less attractive
            simply because they are traded on this market. For example, some
            investors, including institutional investors, may have investment
            guidelines that prohibit investing in common stock traded on the OTC
            Bulletin Board. These factors relating to the OTC Bulletin Board
            could have an adverse affect on the trading price of our stock.

      o     Because our common stock is traded on the OTC Bulletin Board, the
            penny stock rules could reduce trading in our stock and depress or
            hinder the price increase of our stock. SEC regulations generally
            define a "penny stock" to be any equity security that has a market
            price or exercise price of less than $5.00 per share. Shares listed
            on the Nasdaq National Market, the Nasdaq SmallCap Market, or a
            national exchange are excluded from this definition. For
            transactions covered by these rules, broker-dealers must make a
            special suitability determination for the purchase of the securities
            and must have received the purchaser's written consent to the
            transaction prior to the purchase. Additionally, for any transaction
            involving a penny stock, the rules generally require the delivery,
            prior to the transaction, of a risk disclosure document mandated by
            the SEC relating to the penny stock market. The broker-dealer is
            also subject to additional sales practice requirements.
            Consequently, the penny stock rules may restrict the ability and
            desire of broker-dealers to sell our common stock and may affect the
            ability of holders to sell our common stock in the secondary market
            and the price at which a holder can sell our common stock.

      o     Our application to have our common stock traded on the Nasdaq
            SmallCap Market may not be approved, which could cause our stock
            price to decline. We have applied to have our common stock listed
            for trading on the Nasdaq SmallCap Market. While we believe we meet
            the criteria for that listing, there can be no assurance that our
            listing application will be approved or that our stock will begin
            trading on the Nasdaq SmallCap Market. The price of our common stock
            could decline if our application is not approved as the current
            price may reflect investors' expectations that our application will
            be approved.

      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 contemplated acquisitions
                  and other strategic growth plans

            o     Announcements by our customers

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

            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 SmallCap 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     General conditions of the financial markets

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


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      o     Over a majority of our common stock is owned by two persons, which
            reduces the influence of our other stockholders and could adversely
            affect our stock price. Two persons, Concorde Equity, LLC and
            Michael F. Young, currently own over 60% of our outstanding common
            stock. Concorde Equity is an investment company controlled by Robert
            E. Fitzgerald, a board member and our Chief Executive Officer. Mr.
            Young is a board member and our President and Chief Technical
            Officer. This majority ownership means that, as a matter of Delaware
            corporate law, Concorde Equity and Mr. Young generally will be able
            to approve or reject actions and proposals on behalf of our
            stockholders regardless of how any other stockholder votes. Concorde
            Equity and Mr. Young could act either by vote at a meeting or by
            written consent delivered to us, subject to compliance with
            applicable securities regulations. For example, this majority
            ownership means that Messrs. Fitzgerald and Young, acting together
            without any other stockholder, could approve or reject most offers
            to acquire us. Another example is that Messrs. Fitzgerald and Young,
            acting together without any other stockholder, could elect or reject
            each member of our board of directors. Therefore, our other
            stockholders will have a limited ability to affect or influence
            decisions made by our stockholders. This majority control and
            actions taken by the two holders of majority control could result in
            a lower stock price than if our common stock was widely held without
            any significant holders.

      o     Registration of the restricted stock held by our two major
            stockholders could cause our stock price to fall. Two stockholders,
            Concorde Equity and Mr. Young, owned 5,165,817 and 4,209,183,
            respectively, shares of our common stock on February 13, 2004, which
            together constituted approximately 66% of our outstanding common
            stock on that date. Concorde Equity and Mr. Young 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 substantial 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 will enable this stock
            to be sold with much less restriction. 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 our two major stockholders
            could cause our stock price to fall. Two stockholders, Concorde
            Equity and Mr. Young, owned approximately 66% of our outstanding
            common stock on February 13, 2004. Actual or potential sales of this
            stock by Concorde Equity and Mr. Young 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
            these two stockholders could be viewed negatively by other investors
            because the two major stockholders are our senior executives or
            controlled by one of our senior executives.

      o     Future actual or potential sales of the stock we privately issued in
            December 2003 could cause our stock price to fall. On December 8,
            2003, we issued 500,000 shares of our common stock in a private
            placement to a single accredited investor. We also agreed to file a
            registration statement covering those shares with the SEC no later
            than the earlier of March 8, 2004 or thirty days after our common
            stock begins trading on the Nasdaq SmallCap Market or the Nasdaq
            National Market. There can be no assurance as to when or if our
            common stock will begin trading on the Nasdaq SmallCap Market or the
            Nasdaq National Market. This registration, or the anticipation of
            this registration, could cause our stock price to fall or prevent it
            from increasing. Also, 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     Future actual or potential sales of the stock we privately issued
            prior to the initial public offering of our common stock in February
            2000 could cause our stock price to fall. We believe that a number
            of our pre-IPO stockholders continue to hold their shares, and those
            stockholders may decide to sell their 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.

      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 February
            13, 2004, we had options outstanding to buy approximately 893,654


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<PAGE>

            shares of our common stock and may grant options or other stock
            grants relating to an additional approximately 442,299 shares of our
            common stock. We have filed registration statements with the SEC
            relating to 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 February
            13, 2004, we had warrants outstanding to purchase approximately
            389,626 shares of our common stock at a purchase price of $2.08 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 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. The last sale price of our common
            stock on the OTC Bulletin Board on December 8, 2003 was $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 Phazar 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.

      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,


                                       39
<PAGE>

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 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
                                                                            ----
Independent Auditors' Reports.............................................   41
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets...............................................   43
Consolidated Statements of Operations.....................................   44
Consolidated Statement of Changes in Stockholders' (Deficit) Equity.......   45
Consolidated Statements of Cash Flows.....................................   46
Notes to Consolidated Financial Statements................................   47
CONSOLIDATED FINANCIAL STATEMENT SCHEDULE
Schedule II - Valuation and Qualifying Accounts...........................   64


                                       40
<PAGE>

INDEPENDENT AUDITORS' REPORT

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

TO THE BOARD OF DIRECTORS
YDI Wireless, Inc. and Subsidiaries
Falls Church, Virginia

We have audited the accompanying consolidated balance sheet of YDI Wireless,
Inc. and subsidiaries, (the "Company") as of December 31, 2003, and the related
consolidated statements of operations, changes in stockholders' equity and cash
flows for the year then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.

We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides 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 YDI Wireless, Inc.
and subsidiaries as of December 31, 2003 and the results of their operations and
cash flows for the year then ended in conformity with accounting principles
generally accepted in the United States of America.

/s/ BDO Seidman, L.L.P.

Bethesda, Maryland
January 23, 2004


                                       41
<PAGE>

INDEPENDENT AUDITORS' REPORT

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

TO THE BOARD OF DIRECTORS
    YDI WIRELESS, INC. AND SUBSIDIARIES (formerly YOUNG DESIGN, INC.
    AND SUBSIDIARIES)
       Falls Church, Virginia

We have audited the accompanying consolidated balance sheets of YDI WIRELESS,
INC. AND SUBSIDIARIES (formerly YOUNG DESIGN, INC. AND SUBSIDIARIES), (the
"Company") as of December 31, 2002 and 2001, and the related consolidated
statements of operations, changes in stockholders' equity and cash flows for the
years then ended. We also have audited the related financial statement Schedule
II for the years ended December 31, 2002 and 2001. 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 auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of YDI WIRELESS, INC.
AND SUBSIDIARIES (formerly YOUNG DESIGN, INC. AND SUBSIDIARIES) as of December
31, 2002 and 2001 and the results of its operations and cash flows for the years
then ended 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, 2002 and 2001, 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.

As described in Note 2 to the financial statements, during 2002 the Company
changed its method of accounting for the excess of acquired net assets over
cost.

/s/ Hoffman, Fitzgerald and Snyder, P.C.

McLean, Virginia
February 10, 2003
(July 9, 2003 as to Note 2)


                                       42
<PAGE>

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

<TABLE>
<CAPTION>
                                                                                         YDI Wireless,   Young Design,
                                                                                              Inc.           Inc.
                                                                                         -----------------------------
                                                                                                 December 31,
                                                                                         -----------------------------
                                                                                              2003           2002
                                                                                         -------------  --------------
<S>                                                                                        <C>            <C>
Assets
Current assets:
   Cash and cash equivalents .........................................................     $    8,990     $      939
   Accounts receivable, net ..........................................................          2,511          1,686
   Refundable income taxes ...........................................................            226             --
   Inventory .........................................................................          3,134          2,386
   Investment securities - trading ...................................................             --              4
   Deferred tax asset ................................................................             --            142
   Deposit ...........................................................................             --              1
   Prepaid expenses ..................................................................            162            451
                                                                                           ----------     ----------

       Total current assets ..........................................................         15,023          5,609

Property and equipment, net ..........................................................          2,493          1,823

Other Assets:
  Investment in unconsolidated subsidiaries ..........................................             --             36
  Investment securities - available-for-sale .........................................          2,627            841
  Intangible assets, net .............................................................            483              9
  Deferred tax asset .................................................................             --            245
  Deposits ...........................................................................             49              9
                                                                                           ----------     ----------

       Total other assets ............................................................          3,159          1,140
                                                                                           ----------     ----------

       Total assets ..................................................................     $   20,675     $    8,572
                                                                                           ==========     ==========

Liabilities and Stockholders' Equity
Current liabilities:
   Accounts payable and accrued expenses .............................................     $    3,023     $    2,158
   Current maturities of notes payable ...............................................            213            495
   Current deposit - non-refundable ..................................................             --              9
                                                                                           ----------     ----------

       Total current liabilities .....................................................          3,236          2,662

Notes payable, net of current maturities .............................................          1,298          1,402
                                                                                           ----------     ----------

       Total liabilities .............................................................          4,534          4,064

Commitments and contingencies ........................................................             --             --

Stockholders' Equity

   Preferred stock, $0.01 par value; authorized 4,500,000, none issued at December
     31, 2003; none authorized, none issued at December 31, 2002 .....................             --             --
   Common stock, $0.01 par value, 100,000,000 shares authorized, 14,179,882 issued
     and outstanding and 30,000,000 shares authorized, 3,750,000 issued and
     outstanding at December 31, 2003 and 2002, respectively .........................            142             37
   Additional paid-in capital ........................................................          6,173            414
   Retained earnings .................................................................          8,629          4,066
   Accumulated other comprehensive income:
     Net unrealized gain/(loss) on available-for-sale securities .....................          1,197             (9)
                                                                                           ----------     ----------

       Total stockholders' equity ....................................................         16,141          4,508
                                                                                           ----------     ----------

       Total liabilities and stockholders' equity ....................................     $   20,675     $    8,572
                                                                                           ==========     ==========
</TABLE>

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


                                       43
<PAGE>

                               YDI WIRELESS, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                               FOR THE YEARS ENDED
                      (In thousands, except per share data)

<TABLE>
<CAPTION>
                                                                          YDI Wireless,         Young         Young Design,
                                                                               Inc.          Design, Inc.         Inc.
                                                                          -------------     -------------     -------------
                                                                                            December 31,
                                                                          -------------------------------------------------
                                                                               2003              2002              2001
                                                                          -------------     -------------     -------------

<S>                                                                       <C>               <C>               <C>
Revenues .............................................................    $      27,241     $      20,304     $      14,314

Cost of goods sold ...................................................           15,714            12,376             9,286
                                                                          -------------     -------------     -------------

    Gross profit .....................................................           11,527             7,928             5,028

Operating expenses:
    Selling costs ....................................................            2,204             2,366             2,322
    General and administrative .......................................            7,598             3,640             2,365
    Research and development .........................................            1,704               424               371
                                                                          -------------     -------------     -------------

       Total operating expenses ......................................           11,506             6,430             5,058
                                                                          -------------     -------------     -------------

Operating income (loss) ..............................................               21             1,498               (30)

Other income (expenses):
    Interest income ..................................................              128                22                56
    Interest expense .................................................             (149)             (131)             (173)
    Equity method loss from unconsolidated subsidiaries ..............               --              (181)              (44)
    Contract cancellation income .....................................               --               564                --
    Other income (expenses) ..........................................              117               (10)              207
                                                                          -------------     -------------     -------------

       Total other income (expenses) .................................               96               264                46
                                                                          -------------     -------------     -------------

Income before income taxes, extraordinary gain, cumulative
    effect of accounting change, and minority interests ..............              117             1,762                16

    Provision (benefit) for income taxes .............................              261               752               (78)
                                                                          -------------     -------------     -------------

Income (loss) before extraordinary gain, cumulative effect of
    accounting change, and minority interests ........................             (144)            1,010                94

Extraordinary gain (net of income taxes of $0) .......................            4,747                89                --

Cumulative effect of accounting change (net of income taxes of $0) ...               --               526                --
                                                                          -------------     -------------     -------------

Income before minority interests .....................................            4,603             1,625                94

    Minority interests in (gains) losses of subsidiaries .............               --               (63)               31
                                                                          -------------     -------------     -------------

Net income ...........................................................    $       4,603     $       1,562     $         125
                                                                          =============     =============     =============

Weighted average shares - basic ......................................       10,874,613         3,750,000         3,750,000
                                                                          =============     =============     =============
    EPS, basic
                                                                          $        0.42     $        0.42     $        0.03
                                                                          =============     =============     =============

Weighted average shares - diluted ....................................       11,144,827         3,750,000         3,750,000
                                                                          =============     =============     =============

    EPS, diluted .....................................................    $        0.41     $        0.42     $        0.03
                                                                          =============     =============     =============

Pro forma amounts assuming the new accounting method is applied
    retroactively:

Income (loss) before income taxes, extraordinary gain,
    cumulative effect of accounting change and minority
    interests ........................................................    $        (144)    $       1,010     $         (57)
                                                                          =============     =============     =============

Net income ...........................................................    $       4,603     $       1,123     $         565
                                                                          =============     =============     =============

Weighted average shares - basic ......................................       10,874,613         3,750,000         3,750,000
                                                                          =============     =============     =============
    EPS, basic
                                                                          $        0.42     $        0.30     $        0.15
                                                                          =============     =============     =============

Weighted average shares - diluted ....................................       11,144,827         3,750,000         3,750,000
                                                                          =============     =============     =============

    EPS, diluted .....................................................    $        0.41     $        0.30     $        0.15
                                                                          =============     =============     =============
</TABLE>

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


                                       44
<PAGE>

                               YDI WIRELESS, INC.
            CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
                        (in thousands, except share data)

<TABLE>
<CAPTION>

                                                                                                        Accumulated
                                                Common Stock            Additional                         Other
                                        ---------------------------       Paid-in        Retained      Comprehensive
                                           Shares          Amount         Capital        Earnings      (Loss) Income       Total
                                        -----------     -----------     -----------     -----------    -------------    -----------

<S>                                      <C>            <C>             <C>             <C>             <C>             <C>
Balance at December 31, 2000 ........     3,826,531     $        38     $       403     $     2,429     $        --     $     2,870
                                        -----------     -----------     -----------     -----------     -----------     -----------
Purchase of Common Stock ............       (76,531)             (1)            (15)             --              --             (16)
Increase in equity from sale of
shares ..............................            --              --              46              --              --              46
Distributions to Merry Fields'
members .............................            --              --              --             (50)             --             (50)
Consolidation of Merry Fields as ....            --
    of January 1, 2001 ..............            --              --             (20)             --              --             (20)
 Comprehensive income:
   Net income .......................            --              --              --             125              --             125
   Unrealized gain on investments ...            --              --              --              --             (47)            (47)
                                        -----------     -----------     -----------     -----------     -----------     -----------
   Total comprehensive income .......            --              --              --             125             (47)             78
                                        -----------     -----------     -----------     -----------     -----------     -----------

Balances, December 31, 2001 .........     3,750,000     $        37     $       414     $     2,504     $       (47)    $     2,908
 Comprehensive income:
   Net income .......................            --              --              --           1,562              --           1,562
   Unrealized gain on investments ...            --              --              --              --              38              38
                                        -----------     -----------     -----------     -----------     -----------     -----------
   Total comprehensive income .......            --              --              --           1,562              38           1,600
                                        -----------     -----------     -----------     -----------     -----------     -----------

Balances, December 31, 2002 .........     3,750,000     $        37     $       414     $     4,066     $        (9)    $     4,508

Merger with Telaxis .................     9,792,180              98           3,665              --              --           3,763
Exercise of stock options and
  warrants ..........................       137,702               2             193              --              --             195
Issuance of common stock, net of
 costs ..............................       500,000               5           1,901              --              --           1,906
 Other ..............................            --              --              --             (40)             --             (40)
 Comprehensive income:
   Net income .......................            --              --              --           4,603              --           4,603
   Unrealized gain on investments ...            --              --              --              --           1,206           1,206
                                        -----------     -----------     -----------     -----------     -----------     -----------

    Total comprehensive income ......            --              --              --           4,603           1,206           5,809
                                        -----------     -----------     -----------     -----------     -----------     -----------

Balances, December 31, 2003 .........    14,179,882     $       142     $     6,173     $     8,629     $     1,197     $    16,141
                                        ===========     ===========     ===========     ===========     ===========     ===========
</TABLE>

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


                                       45
<PAGE>

                               YDI WIRELESS, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                               FOR THE YEARS ENDED
                                 (in thousands)

<TABLE>
<CAPTION>
                                                                              YDI Wireless,      Young        Young Design,
                                                                                  Inc.        Design, Inc.        Inc.
                                                                              -------------   ------------    -------------
                                                                                              December 31,
                                                                              ---------------------------------------------
                                                                                  2003            2002            2001
                                                                              -------------   ------------    -------------
<S>                                                                            <C>             <C>             <C>
Cash flows from operating activities:
   Net income ............................................................     $    4,603      $    1,562      $      125
     Depreciation and amortization .......................................            866             131             104
     Realized (gain) loss on trading and available-for-sale
     securities ..........................................................            (92)              4              (9)
     Equity method loss from unconsolidated subsidiaries .................             --             181              44
     Unrealized gain (loss) on sale of assets or trading securities ......             --              --             (43)
     Amortization of excess of acquired net assets over cost .............             --              --            (150)
     Cumulative effect of accounting change ..............................             --            (526)             --
     Deferred tax assets .................................................            387              --              --
     Deferred income tax .................................................             --             580             (78)
     Extraordinary gain ..................................................         (4,747)            (89)             --
     Changes in assets and liabilities affecting operations:
       Accounts receivable, net ..........................................           (825)           (805)            543
       Inventory .........................................................           (748)           (794)            851
       Deposits ..........................................................            (21)             (3)             (1)
       Prepaid expenses ..................................................            322            (432)             70
       Refundable income taxes ...........................................           (226)             --              --
       Intangible assets, net ............................................           (474)             --             (25)
       Accounts payable and accrued expenses .............................            865             886             413
       Income taxes payable ..............................................             --              --          (1,315)
       Contract deposit - nonrefundable ..................................             --            (551)             (8)
       Customer order deposits ...........................................              9              --            (114)
       Other .............................................................           (543)             --              --
       Minority interests ................................................             --              63             (31)
                                                                               ----------      ----------      ----------

            Net cash provided by (used in) operating activities ..........           (624)            207             376
                                                                               ----------      ----------      ----------

Cash flows from investing activities:
   Purchase of securities ................................................           (749)           (686)           (456)
   Purchase of property and equipment ....................................            (30)            (16)           (348)
   Sale of securities ....................................................            242              11             143
   Sale of property and equipment ........................................            150              --              47
   Cash received with purchase of Telaxis ................................          7,421              --              --
   Cash received with purchase of Zeus ...................................             --              --              38
   Cash received with consolidation of Merry Fields ......................             --              --              31
   Advances to affiliate .................................................             --              --             207
                                                                               ----------      ----------      ----------

       Net cash provided by (used in) investing activities ...............          7,034            (691)           (338)
                                                                               ----------      ----------      ----------

Cash flows from financing activities:
   Distributions to Merry Fields members .................................            (40)             --             (50)
   Exercise of stock options .............................................            195              --              --
   Issuance of common stock ..............................................          1,906              --              --
   Repurchase of common stock ............................................             --              --             (16)
   Repurchase of fractional shares .......................................            (38)             --              --
   Payment of security deposit ...........................................             --              --            (240)
   Issuance of notes payable .............................................            500           2,336             967
   Repayment of notes payable ............................................           (882)         (2,046)           (784)
                                                                               ----------      ----------      ----------

       Net cash provided by (used in) financing activities ...............          1,641             290            (123)
                                                                               ----------      ----------      ----------
Net increase (decrease) in cash ..........................................          8,051            (194)            (85)
Cash, beginning of period ................................................            939           1,133           1,218
                                                                               ----------      ----------      ----------

Cash, end of period ......................................................     $    8,990      $      939      $    1,133
                                                                               ==========      ==========      ==========

Supplemental disclosure of cash flow information:

   Cash paid for interest ................................................     $      149      $      130      $      173
                                                                               ==========      ==========      ==========

   Income taxes paid .....................................................     $       90      $      163      $    1,315
                                                                               ==========      ==========      ==========

   Assets acquired with liabilities in Zeus purchase .....................     $       --      $       --      $    1,643
                                                                               ==========      ==========      ==========

   Stock issued in Telaxis merger ........................................     $    3,763      $       --      $       --
                                                                               ==========      ==========      ==========

   Non-cash assets received with Merry Fields consolidation ..............     $       --      $       --      $    1,597
                                                                               ==========      ==========      ==========
</TABLE>

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


                                       46
<PAGE>

                               YDI WIRELESS, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.    Organization

      Young Design, Inc. ("Young Design") was incorporated under the laws of the
Commonwealth of Virginia on February 28, 1986 to engage in the business of
manufacturing and selling equipment for use in transmission of data access on a
wireless basis. Young Design operates in one business segment. Young Design has
its headquarters in Falls Church, Virginia.

      Go Wireless Data, Inc ("Go Wireless") was incorporated under the laws of
the State of Delaware as of March 17, 2000 to engage in the business of the sale
of equipment for the use in transmission of data and internet access on a
wireless basis. On February 28, 2001 Go Wireless merged with Young Design and
ceased operations as a separate company.

      Zeus Wireless, Inc. ("Zeus") was formed under the laws of the State of
California. Zeus was a developer and manufacturer of 2.4 GHz transceivers
providing mission critical wireless data connectivity. In May 2001, Young Design
purchased ownership of 83.5% of the outstanding voting stock of Zeus for a
nominal amount of cash. The acquisition has been accounted for under the
purchase method. The assets and liabilities of Zeus on May 4, 2001 were as
follows (in thousands):

         Cash .............................................     $ 31
         Deferred tax assets ..............................      896
         Inventory ........................................      586
         Non-cash assets ..................................      168
         Accounts payable and accrued expenses ............      379
         Nonrefundable contract deposit ...................      568
         Excess of acquired net assets over cost ..........     $677

      The consolidated statement of operations for 2001 includes the operations
of Zeus from May 4, 2001 through December 31, 2001. The excess of acquired net
assets over cost as of December 31, 2001 was $526,000 and was entirely
written-off during 2002.

      In August 2002, a majority of Zeus' shareholders approved a reverse stock
split of 1,500,000 to 1. In September 2002, Young Design paid cash for all
fractional shares plus the remainder of common stock it did not own thus
increasing its ownership to 100% of the outstanding voting stock of Zeus for a
nominal amount of cash. The excess of acquired net assets over cost for the
increase in ownership interest was approximately $89,000, and has been recorded
as an extraordinary gain.

      Merry Fields, LLC ("Merry Fields") was formed by certain shareholders of
Young Design under the laws of the State of Delaware on August 11, 2000. Merry
Fields owns the property and land leased to Young Design for its principal
operations. Young Design believes that because of this significant lease, it
effectively controls Merry Fields. Therefore, in accordance with SFAS No. 94,
Young Design consolidates the financial and operating results of Merry Fields
into its financial statements.

      On April 1, 2003, Young Design completed a strategic combination
transaction (the "combination") with Telaxis Communications Corporation
("Telaxis"), pursuant to a definitive strategic combination agreement. Pursuant
to the terms of that agreement, Telaxis formed a subsidiary, WFWL Acquisition
Subsidiary, that merged with and into Young Design and Telaxis issued new shares
of its common stock to the stockholders of Young Design. As of the date of the
combination, Telaxis was a Massachusetts corporation. On July 9, 2003, Telaxis
reincorporated into Delaware and changed its name to YDI Wireless, Inc. ("YDI
Wireless" or the "Company").


                                       47
<PAGE>

      For financial reporting purposes, Young Design was treated as the
acquiring company and the transaction was accounted for as a reverse merger.
Young Design had substantially more revenue (Telaxis had virtually no operating
revenue). The financial statements contained herein are those of Young Design
carried forward at historical cost.

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 YDI Wireless
and its wholly owned subsidiaries and also Merry Fields, a consolidated
affiliate. The Company consolidates the financial statements of Merry Fields
because the significant lease between the entities gives it effective control.
All significant inter-company balances and transactions have been eliminated in
consolidation.

      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 asset. Fair
market value is determined primarily using the anticipated cash flows discounted
at a rate commensurate with the risk involved. The Company has evaluated all of
its long-term legal obligations under certain leases and determined that it does
not have any significant obligations upon the retirement of these obligations.

      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.

      Investments

      In accordance with Statement of Financial Accounting Standards ("SFAS")
No. 115, "Accounting for Certain Debt and Equity Securities", securities are
classified into three categories: held-to-maturity, available-for-sale, and
trading. Because the Company holds certain securities principally for the
purpose of selling them in the near future, they are classified on the balance
sheet as trading securities. As a result, the securities are carried at fair
value and realized and unrealized gains and losses are included in the
consolidated statements of operations. Securities available-for-sale are
reported at fair value. Any unrealized gain or loss, net of applicable income
taxes, is reported as a separate addition to or reduction from stockholders'
equity as other comprehensive income. Investment income includes realized and
unrealized gains and losses on investments, interest and dividends.

      Investments - Equity Method

      Investments in common stock, generally at privately held companies, are
accounted for under the equity or cost method based on the Company's ownership
interest and degree of control or influence. Generally, the Company uses the
equity method when the Company's ownership interest is 20% or greater, unless
the Company's control is temporary.

      Accounts Receivable

      The Company provides an allowance to account for amounts, if any, of its
accounts receivable, which are considered uncollectible. The Company bases its
assessment of the allowance for doubtful accounts on historical


                                       48
<PAGE>

losses and current economic conditions. Accounts receivable are determined to be
past due based on a contractual term of 30 days. The Company's accounts
receivable are unsecured. The allowance for doubtful accounts was approximately
$205,000 and $185,000 as of December 31, 2003 and 2002, respectively.

      Inventory

      Inventory consists of electronic components and finished goods and is
stated at the lower of cost or market. Cost is determined by the first-in,
first-out method.

      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.

      Intangible Assets

      Intangible assets subject to amortization are substantially all associated
with intellectual property. Amortization is computed using the straight-line
method over three years, which is 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, 2003, 2002, and 2001
totaled approximately $115,000, $11,000, and $5,000 respectively.

      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, start-up costs, property and equipment,
nonrefundable contract deposits, allowance for doubtful accounts, inventory
reserves, and negative goodwill related to acquisitions.

      Merry Fields is a limited liability company and is taxed as a partnership.
Accordingly, for Merry Fields, items of income, deductions, expenses and credits
pass through directly to its members and are reported on their tax returns.

      Revenue Recognition

      The Company recognizes revenue when a formal purchase commitment has been
received, shipment has been made to the customer, collection is probable and, if
contractually required, a customer's acceptance has been received.

      Excess of Acquired Net Assets Over Cost

      The excess of acquired net assets over cost, recognized in income in 2002,
resulted from the acquisition of Zeus in 2001. 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 $526,000 of excess
acquired net assets over cost during 2002 in accordance with SFAS No. 142,
"Goodwill and Other Intangibles."

      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 $4,747,000 of excess
acquired net assets over cost as other income in the second quarter 2003 in
accordance with SFAS No. 142, "Goodwill and Other Intangibles" in conjunction
with completing the acquisition on April 1, 2003.


                                       49
<PAGE>

      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 2003 and 2002: risk-free interest rate of 2.37% and
2.21%, expected life of 5 years, volatility 284% and 101% and dividend rate of
zero percent, respectively. Using these assumptions, the fair value of the stock
options granted in 2003 and 2002 was $0.96 and $1.21, 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:

<TABLE>
<CAPTION>
(in thousands, except per share amounts)                             December 31,
                                                                 -------------------
                                                                   2003       2002
                                                                 --------   --------
<S>                                                              <C>        <C>
Net Income attributable to common stockholders, as ...........   $  4,603   $  1,562
    reported:
Less:  Total stock based employee compensation expense
    determined under the fair value based method for all
    awards ...................................................      1,649        185
                                                                 --------   --------

Pro forma net income attributable to common stockholders .....   $  2,954   $  1,377
                                                                 ========   ========

Basic net income per common share, as reported ...............   $   0.42   $   0.42
                                                                 ========   ========
Basic net income per common share, pro forma .................   $   0.27   $   0.37
                                                                 ========   ========
Diluted net income per common share, as reported .............   $   0.41   $   0.42
                                                                 ========   ========
Diluted net income per common share, pro forma ...............   $   0.27   $   0.37
                                                                 ========   ========
</TABLE>

      Advertising costs

      Advertising costs are expensed when incurred. Advertising expense totaled
approximately $9,000, $23,000 and $30,000 for 2003, 2002 and 2001, respectively.

      Shipping and Handling Costs

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


                                       50
<PAGE>

      Comprehensive Income

      The Company reports comprehensive income in accordance with SFAS No. 130,
"Reporting Comprehensive Income." During the years ended December 31, 2003, 2002
and 2001, the Company had approximately $1,206,000, $38,000 and $(47,000),
respectively, of unrealized gains (losses) on available-for-sale investments,
net of income taxes of $0, $26,000 and $31,000.

      Corporate Structural Changes

      The number of shares and earnings per share has been restated to reflect
the following splits.

      On July 9, 2003, Telaxis effected a reverse 1-for-100 split of its
outstanding common stock, a forward 25-for-1 split of its common stock
outstanding after the reverse stock split, the reincorporation of Telaxis from
Massachusetts to Delaware, and the change of its corporate name to "YDI
Wireless, Inc."

      No fractional shares were issued as a result of the reverse stock split.
Fractional shares held by any stockholder with less than 100 shares in its
account were cashed out at a price of $0.954 for each share outstanding before
the reverse stock split, which is based on the average trading prices of the
Company's common stock on the Over-the-Counter Bulletin Board for the 20 trading
days ended on July 9, 2003. Due to this fractional share treatment, 39,976
pre-split shares were cancelled for approximately $38,000. The effect of the
stock splits has been reflected for all periods presented.

      No fractional shares were issued as a result of the forward stock split.
Any stockholder who was entitled to a fractional share after the forward stock
split had that stockholder's holdings rounded up to the next whole share. The
Company issued 96 shares to these shareholders in the aggregate.

      On December 8, 2003, the Company completed a private placement of 500,000
shares of Common Stock to a single accredited investor at $4.10 per share. The
closing market price on the date of sale was $4.75. The net proceeds to the
Company, after placement agent fees and expenses, were approximately $1,906,000.

      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 are recorded at estimated fair vale based on
quoted market prices where available.

      Recent Accounting Pronouncements

      In November 2002, the FASB issued FIN 45, "Guarantor's Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others". The Interpretation states that a guarantor is required
to recognize, at the inception of a guarantee, a liability for the fair value of
the obligation undertaken in issuing the guarantee. The Company adopted the
Interpretation on December 31, 2002 and included the debt of Merry Fields, LLC
guaranteed by the Company in the consolidated financial statements.

      In January 2003, the FASB issued FIN 46 "Consolidation of Variable
Interest Entities". The Interpretation addresses consolidation by business
enterprises of variable interest entities and provides guidance on the
identification of variable interest entities that are subject to consolidation
requirements by a business enterprise. A variable interest entity subject to
consolidation requirements is an entity that does not have sufficient equity at
risk to finance its operations without additional support from third parties and
the equity investors in the entity lack certain characteristics of a controlling
financial interest as defined in the guidance. The Company does not have any
variable interest entities but does guarantee the debt of Merry Fields, LLC and
due to the significant lease transaction believes it effectively controls Merry
Fields, LLC. Accordingly, the Company consolidates the financial and operating
results of Merry Fields, LLC. Currently the Company does not believe that
adoption of FIN 46 will have an impact on its financial statements.


                                       51
<PAGE>

      In April 2003, the FASB issued Statement No. 149, "Amendment of Statement
133 on Derivative Instruments and Hedging Activities." The Statement amends
Statement 133 for decisions made by the Derivatives Implementation Group, in
particular the meaning of an initial net investment, the meaning of underlying
and characteristics of a derivative that contains financing components.
Currently, the Company has no derivative financial instruments and, therefore,
believes that adoption of the Statement will have no effect on its financial
statements.

      In May 2003, the FASB issued Statement No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity." The
Statement requires that the issuer classify certain instruments as liabilities,
rather than equity, or so-called mezzanine equity. Currently, the Company has no
financial instruments that come under the scope of the Statement and, therefore,
believe that adoption of the new Statement will have no impact on its financial
statements.

      In June 2001, the Financial Accounting Standards Board approved SFAS No.
141, "Business Combinations", and SFAS No. 142, "Goodwill and other Intangible
Assets." SFAS No. 141 addresses financial accounting and reporting for business
combinations. All business combinations in the scope of this statement will be
accounted for using the purchase method of accounting. The provisions of SFAS
No. 141 apply to all business combinations initiated after June 30, 2001, and
business combinations accounted for by the purchase method for which the date of
acquisition is July 1, 2001, or later. SFAS No. 142 addresses financial
accounting and reporting for acquired goodwill and other intangible assets.
Under this statement, goodwill will no longer be amortized but will be tested
for impairment at least annually at the reporting unit level. Goodwill will be
tested for impairment on an interim basis if an event occurs or circumstances
change that would more-likely-than-not reduce the fair value of a reporting unit
below its carrying value. Intangible assets which remain subject to amortization
will be reviewed for impairment in accordance with SFAS No. 142. The provisions
of SFAS No. 142 are required to be applied starting with fiscal years beginning
after December 15, 2001.

      Due to SFAS No. 141, the Company recognized $526,000 as a result of this
change of accounting principal in the 2002 consolidated financial statements for
the unamortized balance of the excess of acquired net assets over cost.

3.    Inventory

          (in thousands)                                       December 31,
                                                           --------------------
                                                             2003        2002
                                                           --------    --------
          Raw Materials ................................   $    574    $    502
          Work in process ..............................         26           9
          Finished goods ...............................      2,734       2,051
                                                           --------    --------
                                                              3,334       2,562
          Allowance for excess and obsolescence ........       (200)       (176)
                                                           --------    --------
          Net Inventory ................................   $  3,134    $  2,386
                                                           ========    ========

4.    Investment Securities - Trading

      The Company holds the following investments classified as trading with a
fair market value as follows as of December 31,:

          (in thousands)                                       2003       2002
                                                             --------   --------
          Equity securities ..............................   $     --   $      4
                                                             ========   ========

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

          (in thousands)                           2003       2002        2001
                                                 --------   --------    --------
          Equity securities ..................   $     --   $     (4)   $      9
                                                 ========   ========    ========


                                       52
<PAGE>

      Proceeds from the sale of trading securities were $0, $11,000, and
$143,000 for the years ended December 31, 2003, 2002, and 2001, respectively.

5.    Investment Securities - Available-For-Sale

      As of December 31, 2003 and 2002, the Company owned 199,618 unregistered
shares and 270,632 and 33,875, respectively, registered shares of Phazar
Corporation. In addition, the Company owned 72,800 registered shares of RF
Industries as of December 31, 2002.

      In September 2000, the Company purchased 2,000,000 shares of common stock
in Spectrum Access, Inc. ("Spectrum"). In exchange for the shares, the Company
granted the use of the Company's broadcasting space in the Falls Church tower,
as well as providing selected equipment and training to Spectrum. As of December
31, 2003 and 2002, the Company's ownership interest of approximately 11 percent
has been valued at $10,500.

                                                     December 31,
                                      ------------------------------------------
        (in thousands)                        2003                  2002
                                      --------------------  --------------------
                                                  Carrying              Carrying
                                      Cost Basis   Value    Cost Basis   Value
                                      ----------  --------  ----------  --------

        Fixed income ...............   $    600   $    609   $     --   $     --
        Spectrum ...................         10         10         10         10
        RF Industries ..............         --         --        145        153
        Phazar .....................        794      2,008        700        678
                                       --------   --------   --------   --------
                                       $  1,404   $  2,627   $    855   $    841
                                       ========   ========   ========   ========

      The net gains (losses) on available-for-sale securities included in
earnings are as follows:

        (in thousands)                              2003       2002       2001
                                                  --------   --------   --------
        Equity securities ....................    $     92   $     --   $     --
                                                  ========   ========   ========

      Proceeds from the sale of available-for-sale securities were $242,000, $0,
and $0 for the years ended December 31, 2003, 2002, and 2001, respectively.

6.    Investment in Unconsolidated Subsidiaries

      During 2002, the Company purchased an ownership interest of approximately
30% of "Excurro" and accounted for the investment under the equity method. This
investment was fully written off during 2003.

        (in thousands)                              December 31,
                                      ------------------------------------------
                                              2003                  2002
                                      -------------------- ---------------------
                                                  Carrying              Carrying
                                      Cost Basis   Value    Cost Basis   Value
                                      ----------  --------  ----------  --------

        Excurro ...................    $     50   $     --   $     50   $     36
                                       ========   ========   ========   ========

7.    Property and Equipment

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

             (in thousands)                                    December 31,
                                                           --------------------
                                                             2003        2002
                                                           --------    --------
        Land ...........................................   $    521    $    521
        Building and improvements ......................      1,377       1,377
        Automobiles ....................................         22          37
        Furniture and equipment ........................         83          96
        Machinery and equipment ........................      2,600         133
                                                           --------    --------
                                                              4,603       2,164
               Less:  accumulated depreciation .........     (2,110)       (341)
                                                           --------    --------
        Property and equipment, net ....................   $  2,493    $  1,823
                                                           ========    ========


                                       53
<PAGE>

      Depreciation expense totaled approximately $752,000, $120,000, and
$99,000, respectively for the periods ended December 31, 2003, 2002, and 2001.

8.    Income Taxes

        (in thousands)                                   December 31,
                                               --------------------------------
                                                 2003        2002        2001
                                               --------    --------    --------

        Current tax expense
            Federal ........................   $   (112)   $    145    $     --
            State ..........................        (14)         27          --
                                               --------    --------    --------
                                                   (126)        172          --
                                               --------    --------    --------
        Deferred tax expense (benefit)
            Federal ........................        344         489         (70)
            State ..........................         43          91          (8)
                                               --------    --------    --------
                                                    387         580         (78)
                                               --------    --------    --------
                                               $    261    $    752    $    (78)
                                               ========    ========    ========

      The components of the net deferred tax assets (liabilities) at December
31, 2002 and 2001 are as follows (in thousands):

                                                                 December 31,
                                                             -------------------
                                                               2003       2002
                                                             --------   --------
        Current net deferred tax assets (liabilities):

            Allowance for doubtful accounts ..............   $    135   $     70
            Inventory valuation allowance ................        132         67
            Unrealized loss on investments ...............         --          5
                                                             --------   --------
                                                                  267        142
        Valuation allowance ..............................       (267)        --
                                                             --------   --------
                                                             $     --   $    142
                                                             ========   ========

        Non-current net deferred tax assets (liabilities):
            Start up costs ...............................   $     --   $    118
            Net operating loss carry forward .............      2,006         --
            Depreciable assets ...........................       (130)       127
                                                             --------   --------
                                                                1,876        245
        Valuation allowance ..............................     (1,876)        --
                                                             --------   --------
                                                             $     --   $    245
                                                             ========   ========


                                       54
<PAGE>

      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, cumulative effect of accounting change and
minority interests. The items causing this difference are as follows:

<TABLE>
<CAPTION>
        (in thousands)                                        2003        2002        2001
                                                            --------    --------    --------
<S>                                                         <C>         <C>         <C>
        Tax expense (benefit) at U.S. statutory rate ....   $     40    $    599    $      5
        State income taxes ..............................         (9)         70           1
        Equity method loss ..............................         --          69          17
        Amortization/recognition of negative goodwill ...         --          --         (57)
        Merry Fields, LLC income ........................        (49)        (28)        (13)
        Change in valuation allowance ...................        387          --          --
        Other permanent differences .....................       (108)         42         (31)
                                                            --------    --------    --------
        Provision (benefit) for income taxes ............   $    261    $    752    $    (78)
                                                            ========    ========    ========
</TABLE>

      The income tax expense for the year ended December 31, 2003 primarily
relates to the increase in the valuation allowance associated with the deferred
tax assets since the Company cannot accurately predict when the Company will
generate taxable income to utilize these assets. The income tax expense for the
year ended December 31, 2002 relates primarily to effective marginal tax rate of
42%. The net operating losses available are from the Telaxis merger. The Company
has approximately $3.0 million in net operating losses available through 2022.

9.    Notes Payable

      Notes payable consisted of the following at December 31:

<TABLE>
<CAPTION>
      (in thousands)                                                         2003       2002
                                                                           --------   --------
<S>                                                                        <C>        <C>
        In May 2002, Young Design executed a $750,000 note payable
        with a financial institution related to the bulk purchase
        of inventory. The note was non-interest bearing and
        required four (4) calendar quarter payments of $187,500
        through June 30, 2003...........................................   $     --   $    375

        In May 2002, Merry Fields executed a loan consolidation
        and refinance agreement with a financial institution for a
        term loan of $1,565,374 collateralized by the building and
        land with a book value of $1,527,362 in Falls Church,
        Virginia. The loan requires monthly payments of $18,781
        consisting of principal and interest. The loan bears
        interest at 7.34% per annum and matures on May 31, 2012 ........      1,406      1,522

        In December 2003, the Company executed a $2.0 million line
        of credit with a financial  institution. This line of
        credit is collateralized  by a $2.0 million certificate of
        deposit. The line of credit bears interest at the prime
        rate and interest is due monthly ...............................         --         --

        Other ..........................................................        105         --
                                                                           --------   --------
                                                                              1,511      1,897
              Current portion ..........................................        213        495
                                                                           --------   --------
                                                                           $  1,298   $  1,402
                                                                           ========   ========
</TABLE>


                                       55
<PAGE>

                       2004............... $    213
                       2005...............      113
                       2006...............      122
                       2007...............      133
                       2008...............      145
                       Thereafter.........      785
                                           --------
                                           $  1,511
                                           ========

10.   Commitments and Contingencies

      Leases

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

      In August 2000, Merry Fields executed a lease agreement with Young Design
for the lease of the building in Falls Church, Virginia. The lease commenced on
January 1, 2001 and terminates on December 31, 2010. The lease provides for base
monthly rent payments of $20,625 with a 3% fixed annual increase after the base
year. All intercompany rental income and expense under the lease agreement have
been eliminated in consolidation.

      Rent expense, excluding rent paid to Merry Fields, for the years ended
December 31, 2003, 2002, and 2001 was approximately $463,000, $151,000, and
$160,000, respectively.

      Schedule of Commercial Commitments

      Aggregate maturities of the operating leases, exclusive of the Merry
Fields lease, are as follows as of December 31, 2003.

                       2004..............  $    580
                       2005..............       429
                       2006..............       429
                       2007..............       258
                       2008..............       258
                       Thereafter........       258
                                           --------
                                           $  2,212
                                           ========

11.   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, 2003, 2002, or 2001.

12.   Stock Holders Equity

      The warrant and option numbers shown in this footnote reflect the
adjustments to those warrants and options due to the April 1, 2003 combination
of Young Design and Telaxis and the reverse/forward stock splits effected on
July 9, 2003.


                                       56
<PAGE>

Stock Warrants

      All warrants were issued by Telaxis in conjunction with several debt
offerings prior to its initial public offering.

      During September 1996, Telaxis issued $3 million of debt and 429,525
warrants. The underlying debt all converted into Telaxis preferred stock in
November 1997. Of the warrants issued, 367,470 remain outstanding as of December
31, 2003

      During 1999, Telaxis issued $2.4 million of debt and 103,995 warrants. The
underlying debt was repaid or exchanged for shares of Telaxis preferred stock.
Of the warrants issued, 23,949 remain outstanding as of December 31, 2003.

      The Company has issued warrants for its common stock as follows:

                                                     Warrants Outstanding
                                               -------------------------------
                                                   Number          Per Unit
                                                 of Shares      Exercise Right
                                               --------------   --------------

        Outstanding December 31, 2002 .......              --   $          --

             Telaxis warrants ...............         432,318   $ 2.08 - 8.64
             Warrants exercised .............          18,498   $ 2.08
             Warrants expired/canceled ......          22,401   $ 2.08 - 8.64
                                               --------------   -------------

        Outstanding December 31, 2003 .......         391,419   $ 2.08
                                               ==============   =============

                                                   Number of
                          Expiration Date          Warrants
                      -----------------------    -------------
                      September 2006.........       298,033
                      July 2007..............        93,386

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 1,397,543 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, 2003, 627,814 options are available for issuance
under these plans.


                                       57
<PAGE>

         A summary of the option activity is as follows:

                                                   Options Outstanding
                                            ---------------------------------
                                                Number           Per Share
                                              of Shares       Exercise Price
                                            --------------    ---------------

        Outstanding December 31, 2000                   --    $            --
             Options granted .............              --    $            --
             Options exercised ...........              --    $            --
             Options expired/canceled ....              --    $            --
                                            --------------    ---------------

        Outstanding December 31, 2001                   --    $            --
             Options granted .............         446,875    $ 1.60
             Options exercised ...........              --    $            --
             Options expired/canceled ....          (2,187)   $ 1.60
                                            --------------    ---------------


        Outstanding December 31, 2002              444,688    $ 1.60
             Telaxis options .............         699,695    $ 1.32 - 161.00
             Options granted .............          66,250    $ 0.92 - 5.30
             Options exercised ...........        (121,151)   $ 1.52 - 4.00
             Options expired/canceled ....        (319,753)   $ 1.60 - 161.00
                                            --------------    ---------------
        Outstanding December 31, 2003 ....         769,729    $ 0.92 - 161.00
                                            ==============    ===============

      A summary of the stock options outstanding and exercisable as of December
31, 2003 is as follows:

               Options Outstanding                    Options Exercisable
   ------------------------------------------     ---------------------------
                                    Weighted
                                     Average
      Weighted                      Remaining       Weighted
      Average         Number          Life           Average        Number
   Exercise Price   Outstanding      (years)      Exercise Price  Outstanding
   ------------------------------------------     ---------------------------

      $   1.59        268,069          4.4           $   1.59       192,464

      $   3.98        100,527          4.7           $   3.98       100,527

      $  10.00         43,750          5.6           $  10.00        38,750

      $  18.63         13,625          6.0           $  18.63        13,326

      $  50.40          8,043          6.0           $  50.40         8,043

      $ 161.00          2,691          6.3           $ 161.00         2,691

      $  29.43         27,975          6.5           $  29.43        26,531

      $ 123.07          6,743          6.6           $ 123.07         6,743

      $   5.66         58,571          7.1           $   5.66        46,044

      $   2.12        190,485          7.5           $   2.12       183,492

      $   4.28         11,750          7.6           $   4.28        11,750

      $   0.95         37,500          9.3           $   0.95        29,166


                                       58
<PAGE>

13.   Earnings per share:

<TABLE>
<CAPTION>
                                                                                          December 31,
                                                                        ------------------------------------------------
                                                                            2003              2002              2001
                                                                        ------------      ------------      ------------
<S>                                                                     <C>               <C>               <C>
        Numerator (in thousands)
          Income (loss) before extraordinary item and change
          in accounting ..........................................      $       (144)     $        947      $        125
                                                                        ============      ============      ============

          Extraordinary item and change in accounting ............             4,747               615                --
                                                                        ============      ============      ============

          Net income..............................................      $      4,603      $      1,562      $        125
                                                                        ============      ============      ============

        Denominator - weighted average shares:

          Denominator for basic earnings per share ...............        10,874,613         3,750,000         3,750,000

          Dilutive effect of stock options .......................           270,214                --                --
                                                                        ------------      ------------      ------------

          Denominator for diluted earnings per share .............        11,144,827         3,750,000         3,750,000
                                                                        ============      ============      ============

          Basic earnings (loss) per share before extraordinary
          item and change in accounting ..........................      $      (0.01)     $       0.25      $       0.03
                                                                        ============      ============      ============

          Diluted earnings (loss) per share before
          extraordinary item and change in accounting ............      $      (0.01)     $       0.25      $       0.03
                                                                        ============      ============      ============

          Basic - Extraordinary item and change in
          accounting .............................................      $       0.43      $       0.17      $         --
                                                                        ============      ============      ============

          Diluted - Extraordinary item and change in
          accounting .............................................      $       0.42      $       0.17      $         --
                                                                        ============      ============      ============

          Basic earnings per share ...............................      $       0.42      $       0.42      $       0.03
                                                                        ============      ============      ============

          Diluted earnings per share .............................      $       0.41      $       0.42      $       0.03
                                                                        ============      ============      ============
</TABLE>

14.   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, 2003, and 2002,
the uninsured portion totaled approximately $8.8 million and $839,000,
respectively.

      As of December 31, 2002, accounts receivable from two customers totaled
approximately $477,000, which represents 28% of total accounts receivable. As of
December 31, 2003, no customers owed more than 10% of the total accounts
receivable.

      During the years ended December 31, 2003, 2002, and 2001, no customers
accounted for more than 10% of sales.

      For the years ended December 31, 2003, 2002, and 2001 sales to customers
outside of the United States and Canada accounted for approximately 16%, 10%,
and 5%, respectively. The Company has no assets or employees located outside of
the United States.


                                       59
<PAGE>

                                                       % of Company Sales
                                                 -----------------------------
                     Region                        2003      2002       2001
   --------------------------------------------  --------  --------   --------

   North America (US and Canada) ..............     84%       90%       95%

   Latin America (Mexico, Central, South
     America, and Caribbean) ..................      7%        4%        2%

   Asia Pacific (China, Taiwan, Japan, other
     Pacific territories, Australia, New
     Zealand) .................................      2%        1%        0%

   Europe (Western, Eastern, Russia) ..........      3%        2%        1%

   Middle East and Africa (a.k.a. E.M.E.A.) ...      4%        3%        2%

15.   Acquisition

      The following describes the acquisition of Telaxis by Young Design
completed on April 1, 2003.

      On April 1, 2003, Young Design merged with Telaxis. For financial
reporting purposes, Young Design was treated as the acquiring company and the
transaction was accounted for as a reverse merger. Young Design had
substantially more assets and revenue (Telaxis had virtually no operating
revenue). 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. For accounting purposes, Young Design
is treated as the acquirer since it was the larger of the two entities and had
significantly greater operating revenue.

      The cost of the April 1, 2003 acquisition consisted of 9,792,180 shares of
common stock valued at $8.4 million and acquisition costs of approximately $0.2
million. On April 1, 2003, Telaxis had net assets with a fair market value of
$8.4 million and the Telaxis shares outstanding had a market price of $3.7
million. Accounting for the transaction as a reverse merger resulted in an
excess of net assets over cost of $4.7 million. The assets and liabilities of
Telaxis were recorded at fair value under the purchase method of accounting. The
valuation of the stock was based on the average closing price for the five days
preceding the acquisition.

      Unaudited pro forma results of operations for the two years ended December
31, 2003 and 2002 are included below. Such pro forma information assumes that
the above acquisition had occurred as of January 1, 2003 and 2002, respectively.
This summary is not necessarily indicative of what the Company's results of
operations would have been if the Company had been a combined entity during such
periods, nor does it purport to represent results of operations for any future
periods.

      (in thousands)                                   (unaudited)
                                                       December 31,
                                                --------------------------
                                                   2003            2002
                                                ----------      ----------
      Revenue ...............................   $   27,246      $   20,357
      Net loss ..............................   $   (2,464)     $  (10,902)
                                                ==========      ==========
        Net loss per common share - basic
          and diluted .......................   $    (0.22)     $    (1.38)
                                                ==========      ==========

      Telaxis condensed Balance Sheet at fair market value.

               (in thousands)                    April 1, 2003
                                                 -------------
               Cash and cash equivalents ....     $    7,421
               Inventory ....................             36
               Property and equipment .......          1,955
               Other assets .................            426
               Liabilities ..................         (1,166)
                                                  ----------
               Net assets acquired ..........     $    8,672
                                                  ==========


                                       60
<PAGE>

16.   Quarterly Financial Data (unaudited)

<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
Net income .............................         106       3,615         628          254
Basic earnings per share ...............        0.03        0.27        0.05         0.02
Diluted earnings per share .............    $   0.03    $   0.25    $   0.04     $   0.02
                                            --------    --------    --------     --------

<CAPTION>
                                                              Quarter

                                                (in thousands, except per share data)
-----------------------------------------------------------------------------------------
2002                                         First       Second       Third       Fourth
-----------------------------------------   --------    --------    --------     --------
<S>                                         <C>         <C>         <C>          <C>
Revenue ................................    $  5,010    $  4,870    $  5,139     $  5,285
Gross profit ...........................       1,723       1,694       1,920        2,591
Net income (loss) ......................         158         359          (4)       1,049
Basic and diluted earnings per share ...    $   0.04    $   0.10    $   0.00     $   0.28
                                            --------    --------    --------     --------
</TABLE>

      Earnings 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.

17.   Contingencies

      During the period from June 12 to September 13, 2001, four purported
securities class action lawsuits were filed against Telaxis 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.
The Company believes the claims against it 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.

      On July 15, 2002, together with the other issuer defendants, Telaxis filed
a collective motion to dismiss the consolidated, amended complaints 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


                                       61
<PAGE>

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, the Company elected to participate in a proposed settlement
agreement with the plaintiffs in this litigation. This decision was made by a
special independent committee of the Company's board of directors. The Company
understands that a large majority of the other issuer defendants have also
elected to participate in this settlement. If ultimately approved by the court,
this proposed settlement would result in a dismissal, with prejudice, of all
claims in the litigation against the Company and against the other issuer
defendants who elect 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. This means
there will be no monetary obligation to the plaintiffs if they recover $1
billion or more from the underwriter defendants. In addition, the Company 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.
Therefore, the potential exposure of each participating issuer defendant should
decrease as the number of participating issuer defendants increases. The Company
currently expects that its insurance proceeds will be sufficient for these
purposes and that it will not otherwise be required to contribute to the
proposed settlement.

      Consummation of the proposed settlement is conditioned upon, among other
things, negotiating, executing, and filing with the court final settlement
documents and final approval by the court. If the proposed settlement described
above is not consummated, the Company intends to continue to defend the
litigation vigorously. Moreover, if the proposed settlement is not consummated,
the Company believes that the underwriters may have an obligation to indemnify
the Company 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, the
Company currently believes that the final result of these actions will have no
material effect on the Company's consolidated financial condition, results of
operations, or cash flows.

18.   Proposed Merger

      On October 31, 2003 YDI signed a definitive merger agreement to acquire
Phazar Corp (Nasdaq:ANTP). Under the terms of the agreement, Phazar stockholders
will receive 1.2 shares of YDI common stock for each share of Phazar common
stock. This exchange ratio will not be adjusted for changes in the price of
either YDI common stock or Phazar common stock. Based on shares currently
outstanding, YDI stockholders would own approximately 87% of the combined entity
and Phazar stockholders would own approximately 13%. One member of Phazar's
board of directors will join YDI's board of directors. The agreement is subject
to the approval of Phazar shareholders and other conditions set forth in the
merger agreement. YDI expects to complete the acquisition prior to March 31,
2004.


                                       62
<PAGE>

               Report of Independent Certified Public Accountants
                         On Financial Statement Schedule

YDI Wireless, Inc.

The audit referred to in our report to YDI Wireless, Inc. dated January 23, 2004
which is contained in Item 8 of this Form 10-K, includes the audit of the
financial statement schedule listed in the accompanying index for the period
ended December 31, 2003. This financial statement schedule is the responsibility
of the Company's management. Our responsibility is to express an opinion of the
financial statement schedule based on our audit.

In our opinion, such schedule presents fairly, in all material respects, the
information set forth therein.

BDO Seidman, LLP

Bethesda, Maryland
January 23, 2004


                                       63
<PAGE>

                                   Schedule II

                              Valuation Allowances

              For the years ended December 31, 2003, 2002 and 2001

                                 (in thousands)

<TABLE>
<CAPTION>
                                                 Balance at                                Balance at
                                               the beginning                               the end of
                                                 of period    Additions     Deductions     the period
                                               -------------  ----------    ----------     ----------

<S>                                              <C>          <C>           <C>            <C>
December 31, 2001:
  Allowance for uncollectible accounts ....      $       --   $       71    $       --     $       71
  Inventory allowance .....................              89          175            --            264
  Deferred tax allowance ..................              --           --            --             --
                                                 ----------   ----------    ----------     ----------

December 31, 2002:
  Allowance for uncollectible accounts ....      $       71   $      384    $     (270)    $      185
  Inventory allowance .....................             264           11           (99)           176
  Deferred tax allowance ..................              --           --            --             --
                                                 ----------   ----------    ----------     ----------

December 31, 2003:
  Allowance for uncollectible accounts ....      $      185   $      544    $     (524)    $      205
  Inventory allowance .....................             176           24            --            200
  Deferred tax allowance ..................              --        2,143            --          2,143
                                                 ----------   ----------    ----------     ----------
</TABLE>

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

      Our financial statements for the fiscal years ended December 31, 2001 and
2002 were audited by Hoffman, Fitzgerald & Snyder, P.C. ("HFS"). On April 2,
2003, HFS was dismissed as our independent auditor upon the recommendation of
our Audit Committee. The reports of HFS on the financial statements of Young
Design, Inc. for the years ended December 31, 2001 and 2002 contained no adverse
opinion or disclaimer of opinion and were not qualified or modified as to
uncertainty, audit scope, or application of accounting principles. During the
years ended December 31, 2001 and 2002 and through April 2, 2003, there were no
disagreements with HFS on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure, which
disagreements, if not resolved to the satisfaction of HFS, would have caused
them to make reference thereto in their report on the financial statements for
such years, and there were no "reportable events" as described in Item 304 of
Regulation S-K. We have requested that HFS furnish us with a letter addressed to
the Securities and Exchange Commission stating whether or not it agrees with the
above statements. A copy of such letter dated February 19, 2004 is filed as
Exhibit 16.1 to this Form 10-K.

      On May 1, 2003, the Audit Committee of our Board of Directors engaged the
independent certified public accounting firm of BDO Seidman, L.L.P. as our
independent auditors for the fiscal year ending December 31, 2003.

Item 9A. Controls and Procedures.

      Evaluation of disclosure controls and procedures

      Based on their evaluation as of December 31, 2003, 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.


                                       64
<PAGE>

      Changes in internal control over financial reporting

      There was no change in our internal control over financial reporting
during our fourth fiscal quarter ended December 31, 2003 that has materially
affected, or is reasonably likely to materially affect, our internal control
over financial reporting.


                                       65
<PAGE>

                                    PART III

Item 10. Directors and Executive Officers of the Registrant.

      Our directors and executive officers, their ages as of February 13, 2004,
and their positions and backgrounds are as follows:

<TABLE>
<CAPTION>
Name                            Age    Position
----                            ---    --------
<S>                             <C>    <C>
Carol B. Armitage...........    46     Chairperson of the Board of Directors
Robert E. Fitzgerald........    39     Chief Executive Officer and Director
Michael F. Young............    52     President, Chief Technical Officer, and Director
Gordon D. Poole.............    39     Vice President - Sales West and Director
Patrick L. Milton...........    55     Chief Financial Officer and Treasurer
David L. Renauld............    38     Vice President, Legal and Corporate Affairs, and Secretary
Ralph Peluso................    53     Director
Daniel A. Saginario.........    60     Director
Robert A. Wiedemer..........    45     Director
</TABLE>

      The principal occupations of each of our directors and executive officers
for at least the last five years are as follows:

      Carol B. Armitage has been Chairperson of our board of directors since
April 2003 and a director since October 2000. Since January 1998, she has been a
consultant to companies involved in broadband communications. From September
1995 to December 1997, she served in several senior management roles at General
Instrument, where her last position was as Senior Vice President, Technology and
Strategy. From 1979 to September 1995, she held various engineering and
management positions at Bell Laboratories, including Director in the wideband
access division. Ms. Armitage holds a B.S. in electrical engineering from the
University of Delaware and an M.S. in electrical engineering from Princeton
University.

      Robert E. Fitzgerald has been our Chief Executive Officer and a director
since April 2003. He was Chief Executive Officer and a director of Young Design,
Inc. from March 1999 to April 2003. From July 1998 to February 1999, Mr.
Fitzgerald was an attorney with the law firm of Greenberg Traurig. Prior to
that, he was an attorney with the law firm of Ginsburg, Feldman & Bress. He
holds a B.A. in economics from the University of California - Los Angeles and a
J.D. from the University of California - Los Angeles School of Law.

      Michael F. Young has been our President, Chief Technical Officer, and a
director since April 2003. He was President, Chief Technical Officer, and a
director of Young Design from when it was incorporated in February 1986 to April
2003. Before starting Young Design, Mr. Young was an officer in the United
States Army Signal Corps and left the service at the rank of Captain. He holds a
bachelors degree in electrical engineering from the Polytechnic Institute of
Brooklyn and a masters degree in radio and television broadcasting from Brooklyn
College.

      Gordon D. Poole has been our Vice President - Sales West and a director
since April 2003. He was Vice President - Sales West and a director of Young
Design from April 2001 to April 2003. From March 2000 to April 2001, he was
President of Go Wireless Data Inc., a subsidiary of Young Design that was a
wireless distribution company. Prior to that, he was in law school. He holds a
B.A. in political science from San Jose State University and a J.D. from Santa
Clara University.

      Patrick L. Milton has been our Chief Financial Officer and Treasurer since
April 2003. He was Chief Financial Officer and Treasurer of Young Design from
April 2002 to April 2003. From March 1999 to April 2002, he was Chief Financial
Officer of ioWave, Inc., a manufacturer of point-to-point wireless equipment.
From January 1998 to March 1999, he was Chief Financial Officer and Senior Vice
President of Operations for Net-Tel Corp., a competitive local exchange carrier
and long distance telephone service provider. Mr. Milton holds a B.B.A. in
Accounting and an M.B.A. from the University of Wisconsin-Whitewater.

      David L. Renauld has been our Vice President, Legal and Corporate Affairs
and Secretary since November 1999. He was our Clerk from May 1999 until July
2003. From January 1997 to November 1999, he was an attorney with Mirick,
O'Connell, DeMallie & Lougee, LLP, a law firm in Worcester, Massachusetts. From
September 1991


                                       66
<PAGE>

to December 1996, he was an attorney with Richards, Layton & Finger, a law firm
in Wilmington, Delaware. Mr. Renauld holds a B.A. in mathematics/arts from Siena
College and a J.D. from Cornell University.

      Ralph Peluso has been a director since January 2004. Since November 2003,
he has been a partner at D Partners, LLC, a management consulting firm. From
January 2002 to November 2003, he was an independent consultant. From June 2000
to December 2001, he held senior management positions at stox.com, a developer
of online tools for the financial services market, where his last positions were
Chairman and Chief Executive Officer. From November 1999 to June 2000, Mr.
Peluso served as an independent director of stox.com. From May 1997 to June
2000, Mr. Peluso served as Chief Financial Officer of LightSpeed International,
a venture-backed telecommunications and inter-networking software firm, and was
instrumental in the sale of that company to Cisco Systems. From 1993 to 1997,
Mr. Peluso served as Vice President of Finance and Business Development for
Winstar Wireless, the primary operating subsidiary of Winstar Communications,
where he played a significant role in structuring major financing arrangements
for Winstar. Mr. Peluso also spent over fifteen years at MCI Communications in
various positions including as a Vice President. Mr. Peluso received both an
M.B.A. in Finance and a B.S. in Accounting from the City University of New York.

      Daniel A. Saginario has been a director since April 2003. From January
2000 until February 2003, he was Chief Executive Officer, President, and a
director of ioWave, Inc. From January 1998 to January 2000, he was President of
the Global Network Solutions division of L-3 Communications, a multi-billion
dollar public company specializing in the supply of military technology. Mr.
Saginario also spent over thirty years in various positions at NYNEX (now
Verizon), where his positions included President of NYNEX Interactive
Information Services Company, a holding company managing certain of NYNEX's
investments, and Corporate Director - Strategic Planning & Corporate
Development. Mr. Saginario holds a B.B.A. from Baruch College and an M.B.A from
Pace University.

      Robert A. Wiedemer has been a director since December 2003. Since February
2002, he has been Managing Partner of Business Valuation Center, a company he
co-founded that is focused on the valuation of private, middle-market companies
throughout the United States. From June 2000 until January 2002, he held various
positions at Pricesaroundtheworld.com, an Internet-based price research services
firm, where he was promoted from Chief Financial Officer to Chief Executive
Officer. From October 1998 until May 2000, he was Managing Partner of The
Netfire Group, a financial and marketing consulting firm. From October 1993
until September 1998, he co-founded and served as Chief Executive Officer of a
NASDAQ-listed electronic publishing company, Imark Technologies. Mr. Wiedemer
holds a Masters Degree in Marketing from the University of Wisconsin - Madison.

      Each member of our board of directors is elected each year at the annual
meeting of stockholders for a one-year term of office. Our executive officers
named above are elected annually by the directors and serve at the discretion of
the directors. There are no family relationships among our directors and
executive officers.

Committees of the Board of Directors

      We have a standing Audit Committee, Compensation Committee, and Nominating
Committee, each of which was established by the board of directors.

      The members of our Audit Committee are Mr. Peluso (Chair), Ms. Armitage,
Mr. Saginario, and Mr. Wiedemer. The Audit Committee selects and engages our
independent auditors, reviews and evaluates our audit and control functions,
reviews the results and scope of the audit and other services provided by our
independent auditors, and performs such other duties as may from time to time be
determined by the board of directors. The Board of Directors has determined that
each of Mr. Peluso, Mr. Saginario, and Mr. Wiedemer is an "audit committee
financial expert" as defined in Item 401(h) of Regulation S-K. Each of Mr.
Peluso, Mr. Wiedemer, Ms. Armitage, and Mr. Saginario is an "independent
director" as defined in Rule 4200 of the Marketplace Rules of the National
Association of Securities Dealers, Inc.

      The members of our Compensation Committee are Mr. Saginario (Chair), Ms.
Armitage, and Mr. Peluso. The Compensation Committee reviews the compensation
and benefits of our executive officers, recommends and approves stock option
grants under our stock option plans (a shared power with the full board of
directors), makes


                                       67
<PAGE>

recommendations to the board of directors regarding compensation matters, and
performs such other duties as may from time to time be determined by the board
of directors.

      The members of our Nominating Committee are Ms. Armitage (Chair), Mr.
Wiedemer, and Mr. Saginario. The Nominating Committee recommends candidates for
membership on the board of directors based on committee-established guidelines,
consults with the Chairperson of the Board on committee assignments, considers
candidates for the board of directors proposed by stockholders, and performs
such other duties as may from time to time be determined by the board of
directors.

Section 16(a) Beneficial Ownership Reporting Compliance

      Section 16(a) of the Exchange Act requires our directors and executive
officers and persons who own more than ten percent of our common stock
(collectively, "Reporting Persons") to file with the SEC initial reports of
ownership and reports of changes in ownership of our common stock. Each
Reporting Person is required by SEC regulation to furnish us with copies of
these Section 16(a) reports. Based on our records and other information, we
believe that all of these filing requirements were met with respect to our last
fiscal year (which ended on December 31, 2003) except that Ms. Armitage was late
in reporting a grant of options to her in June 2003 and Mr. Wiedemer was late in
filing his initial statement of beneficial ownership of our securities which was
due in December 2003.

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 and code is being filed as an
exhibit to this Form 10-K. We expect to post this statement and code on our
website (http://www.ydi.com) in the near future.

Item 11. Executive Compensation.

      Summary Compensation. The following table summarizes the compensation
earned for services rendered to us in all capacities during 2003 by our current
Chief Executive Officer and our other current executive officers as well as
another individual who served as our Chief Executive Officer for a portion of
2003. We refer to these executives as our "named executive officers" elsewhere
in this Form 10-K.


                                       68
<PAGE>

                           Summary Compensation Table
                            For 2001, 2002, and 2003

<TABLE>
<CAPTION>
                                                                                         Long-Term
                                                                                        Compensation
                                                           Annual Compensation             Awards
                                                   ----------------------------------  --------------
                                                                         Other Annual    Securities      All Other
            Name and                               Salary      Bonus     Compensation    Underlying     Compensation
       Principal Position                 Year       ($)        ($)           ($)      Options (#)(a)        ($)
--------------------------------------    ----     -------    -------    ------------  --------------   ------------
<S>                                       <C>      <C>        <C>              <C>         <C>           <C>
Robert E. Fitzgerald(b) ..............    2003     250,000    100,000          --              --          6,810(c)
  Chief Executive Officer                 2002     250,000    100,000          --          41,250          6,810(c)
                                          2001     183,333     50,000          --              --          6,810(c)

Michael F. Young(d) ..................    2003     150,000     60,000          --              --          2,550(e)
   President and Chief Technical          2002     150,000    100,000          --          33,750          2,350(e)
   Officer                                2001     125,000     50,000          --              --          2,100(e)

Gordon D. Poole(f) ...................    2003     156,672         --          --              --             --
   Vice President - Sales West            2002     126,582         --          --          31,250             --
                                          2001      77,832        538          --              --             --

Patrick L. Milton(g) .................    2003     128,077     10,000          --              --             --
   Chief Financial Officer and            2002      80,769         --          --          15,625             --
   Treasurer

David L. Renauld .....................    2003     153,774         --          --          25,000            109(h)
   Vice President, Legal and              2002     153,774         --          --           2,500          3,499(i)
   Corporate Affairs and Secretary        2001     153,774         --          --          25,000          3,571(j)

John L. Youngblood(k) ................    2003      72,500         --          --              --        211,000(l)
   Former President and Chief             2002     255,216         --          --              --          3,730(m)
   Executive Officer                      2001     255,216         --          --          25,000          3,738(n)
</TABLE>

----------
(a)   For Messrs. Fitzgerald, Young, Poole, and Milton, the options shown in
      this column were initially options to purchase shares of Young Design
      common stock that were converted into options to purchase shares of our
      common stock in connection with the combination of Young Design and
      Telaxis in April 2003.

(b)   Mr. Fitzgerald became our Chief Executive Officer in April 2003. Amounts
      shown for periods before that date are amounts Mr. Fitzgerald earned in
      his similar position with Young Design.

(c)   Represents health insurance premiums paid by YDI.

(d)   Mr. Young became our President and Chief Technical Officer in April 2003.
      Amounts shown for periods before that date are amounts Mr. Young earned in
      his similar positions with Young Design.

(e)   Represents health insurance reimbursements paid by YDI.

(f)   Mr. Poole became our Vice President - Sales West in April 2003. Amounts
      shown for periods before that date are amounts Mr. Poole earned in his
      similar position with Young Design.

(g)   Mr. Milton became our Chief Financial Officer and Treasurer in April 2003.
      Amounts shown for periods before that date are amounts Mr. Milton earned
      in his similar position with Young Design.

(h)   Represents premiums on term life insurance paid by YDI.

(i)   Represents matching amounts of $2,500 contributed by YDI to a defined
      contribution plan for Mr. Renauld, premiums on term life insurance of $225
      paid by YDI, and reimbursement of tax return preparation expenses of $774.

(j)   Represents matching amounts of $2,500 contributed by YDI to a defined
      contribution plan for Mr. Renauld, premiums on term life insurance of $224
      paid by YDI, and reimbursement of tax return preparation expenses of $847.

(k)   Mr. Youngblood was our President and Chief Executive Officer until April
      2003.

(l)   Represents amounts paid to Mr. Youngblood in connection with his
      termination of employment following the combination of Young Design and
      Telaxis in April 2003.

(m)   Represents matching amounts of $2,500 contributed by YDI to a defined
      contribution plan for Mr. Youngblood, premiums on term life insurance of
      $445 paid by YDI, and reimbursement of tax return preparation expenses of
      $785.

(n)   Represents matching amounts of $2,500 contributed by YDI to a defined
      contribution plan for Mr. Youngblood, premiums on term life insurance of
      $443 paid by YDI, and reimbursement of tax return preparation expenses of
      $795.

      Option Grants in 2003. The following table provides information regarding
all options granted to our named executive officers in 2003. Amounts reported in
the last two columns of the table represent hypothetical values that the holder
could realize by exercising the options immediately before their expiration,
assuming the value of our common stock appreciates at the specified compounded
annual rates over the terms of the options.


                                       69
<PAGE>

These numbers are calculated based on the SEC's rules and do not represent our
estimate of future stock price growth. Actual gains, if any, on stock option
exercises and common stock holdings will depend on the timing of exercise and
the future performance of our common stock. We may not achieve the rates of
appreciation assumed in this table, and our named executive officers may not
receive the calculated amounts. This table does not take into account any
appreciation or depreciation in the price of our common stock from the date of
grant to the current date. The values shown are net of the option exercise
price, but do not include deductions for taxes or other expenses associated with
the exercise.

                              Option Grants in 2003

<TABLE>
<CAPTION>
                                                Individual Grants
                              -----------------------------------------------------           Potential
                                                                                         Realizable Value at
                                                                                             Assumed Annual
                              Number of       Percent of                                 Rates of Stock Price
                              Securities    Total Options                                  Appreciation for
                              Underlying      Granted to     Exercise                         Option Term
                               Options       Employees in     Price      Expiration    ------------------------
          Name                Granted (#)   Fiscal Year (%)  ($/Share)      Date         5% ($)        10% ($)
-------------------------     -----------   ---------------  ---------   ----------    ----------    ----------
<S>                              <C>            <C>            <C>         <C>           <C>           <C>
Robert E. Fitzgerald ....            --            --            --            --            --            --
Michael F. Young ........            --            --            --            --            --            --
Gordon D. Poole .........            --            --            --            --            --            --
Patrick L. Milton .......            --            --            --            --            --            --
David L. Renauld ........        25,000         66.67          0.96        4/2/13        15,093        38,250
John L. Youngblood ......            --            --            --            --            --            --
</TABLE>

      All options were granted at fair market value on the date of grant as
determined by our board of directors. The board of directors determined the fair
market value of our common stock based on the trading value of our stock on the
date of grant.

      These options were fully vested on the date of grant and terminate on the
earlier of:

      o     two years after the date of the executive's death or disability or
            the date of termination of the executive's employment, or

      o     10 years from the date of grant.

      In addition, if the executive voluntarily terminates his employment with
us on or before April 1, 2004 and receives severance payments as contemplated by
his employment agreement in effect at that time, these options will terminate
immediately upon his termination of employment and the executive must surrender
to us any shares of our common stock received upon exercise of these options
upon payment by us of the original exercise price paid for those shares.

      Fiscal Year-End Option Values. The following table provides information
regarding stock options exercised in 2003 and the value of all unexercised
options held by our named executive officers at the end of 2003. The value
realized upon the exercise of options is based on the last sale prices of the
common stock on the respective dates of exercise, as reported by the OTC
Bulletin Board, less the applicable option exercise prices. The value of
unexercised in-the-money options represents the difference between the fair
market value of our common stock on December 31, 2003 ($5.45 per share) and the
option exercise price, multiplied by the number of shares underlying the option.


                                       70
<PAGE>

                        2003 Aggregated Option Exercises
                        and Fiscal Year-End Option Values

<TABLE>
<CAPTION>
                                                          Number of Shares of Common
                                                         Stock Underlying Unexercised     Value of Unexercised
                                                                 Options at              In-the-Money Options at
                                                             Fiscal Year-End (#)           Fiscal Year-End ($)
                              Shares                     ----------------------------  ---------------------------
                            Acquired on       Value
         Name               Exercise (#)   Realized ($)   Exercisable  Unexercisable   Exercisable   Unexercisable
-------------------------   ------------   ------------   -----------  -------------   -----------   -------------
<S>                            <C>            <C>           <C>             <C>          <C>             <C>
Robert E. Fitzgerald ....         --             --         30,937         10,313        119,107         39,705
Michael F. Young ........         --             --         25,312          8,438         97,451         32,486
Gordon D. Poole .........         --             --         23,437          7,813         90,232         30,080
Patrick L. Milton .......         --             --         11,718          3,907         45,114         15,042
David L. Renauld ........      3,500          9,305         69,536          1,003        189,673             --
John L. Youngblood ......         --             --         95,900             --        142,156             --
</TABLE>

Employment Agreements and Change-of-Control Provisions

      We have substantially similar employment agreements with each of Messrs.
Fitzgerald and Young. The agreements were entered into in March 1999. The
employment agreements had an original term of one year and renew automatically
on an annual basis, provided that neither party has provided notice of
non-renewal to the other at least 30 days before the scheduled expiration date.
The annual base salary for both Messrs. Fitzgerald and Young was initially set
at $90,000 subject to adjustment by our Board of Directors. In 2003, the annual
base salaries were $250,000 and $150,000, respectively. In addition, Messrs.
Fitzgerald and Young are entitled to receive bonuses as determined by our Board
of Directors and to receive a car allowance of $300 per month. At times, Messrs.
Fitzgerald and Young have used a company car in lieu of receiving this
allowance.

      Messrs. Fitzgerald and Young may be entitled to receive severance benefits
after termination of employment depending on the circumstances under which
employment terminates. If we terminate either of their employment for cause or
the employee terminates the employment agreement for no reason, the employee
will not be entitled to severance benefits. The employee will be entitled to
severance benefits if we terminate the agreement for reasons other than cause or
if the employee terminates the agreement due to our uncured breach. In those
situations, the employee is entitled to a severance payment equal to the average
level of annual compensation paid to the employee in the last five years,
including base salary and bonus. In addition, we must maintain the employee's
benefits (or provide substantially similar alternative benefits) until the
earlier of the expiration of the remaining term of the employment agreement or
provision of substantially equivalent benefits by another employer. There is no
requirement on the employee to mitigate these benefits by seeking other
employment.

      Each of Mr. Fitzgerald and Mr. Young agreed, for a period of two years
after termination of employment, to not engage in any activities competitive to
us, to not solicit the rendering of services to any of our customers, and to not
hire any of our employees. To facilitate enforcement of these provisions, the
employee must provide us with notice of any proposed new employment and we have
the right to direct the employee not to accept that employment so long as we
have reasonable grounds for that direction.

      Messrs. Fitzgerald and Young also agreed to treat all of our non-public
information confidentially and to return all of our business information and
other property to us in the event of their termination.

      We have an employment agreement with Mr. Renauld. The employment agreement
had an original term of 24 months and renews automatically on a quarterly basis,
provided that the agreement has not terminated before the renewal date. The
annual compensation for Mr. Renauld was initially set at an annual base salary
in the amount of $153,774. Under his original agreement, Mr. Renauld was
entitled to an annual car allowance of $7,800.

      Mr. Renauld is entitled to receive severance payments for either eleven
months or twenty-four months after termination of his employment depending on
the circumstances under which his employment terminates. If we terminate his
employment for cause, he will not be entitled to severance payments. He will be
entitled to eleven months of severance if his employment is involuntarily
terminated for reasons other than cause or if he terminates


                                       71
<PAGE>

his employment for good reason, as defined in the employment agreement, after a
change of control of YDI. The maximum 24-month severance period will apply only
if we terminate his employment without cause after YDI undergoes a "change of
control" that was not approved by a majority of our board of directors. A
"change of control" is defined in the employment agreement to include the
completion of a merger or consolidation of YDI with any other entity (other than
a merger or consolidation in which YDI is the surviving entity and is owned at
least 50% collectively by persons who were stockholders of YDI before the
transaction), the sale of substantially all of YDI's assets to another entity,
any transaction that results in a person or group holding 50% or more of the
combined voting power of YDI's outstanding securities, or changes to YDI's board
of directors that result in the persons who were either directors on the date of
the employment agreement or their nominated successors no longer comprising a
majority of the board. The full amount of the severance payment would be paid on
the last day of employment. There is no provision reducing severance payments by
amounts earned by him at subsequent employment or for us to continue to provide
benefits (or cash in lieu thereof) to him for any period following termination
of employment. Mr. Renauld also agreed to provide consultation and advice to us
for a period of up to three months following termination of his employment.

      The employment agreement also contains additional provisions stating that
Mr. Renauld's last day of employment will be established either by us upon
thirty days notice to him or by Mr. Renauld upon thirty days notice to us.
However the date is set, the termination will be treated as an involuntary
termination by us without cause entitling Mr. Renauld to the separation benefits
specified in his employment agreement, as amended; provided, however, to be
entitled to the separation benefits, Mr. Renauld could only establish a last day
of employment of May 31, 2003 or later.

      Following the completion of our business combination with Young Design in
April 2003, our board of directors approved the terms of an amended employment
agreement with Mr. Renauld. Under the terms approved by the board, Mr. Renauld
would continue in his current role with his current salary (which may be
adjusted in the future). He would no longer receive his annual car allowance.
Mr. Renauld would be entitled to receive severance under similar circumstances
as contemplated under his current agreement, but the amount of severance would
be eleven months of base salary. In addition, for a period of one year after the
closing of our business combination with Young Design, Mr. Renauld would be
entitled to receive a declining amount of severance if he terminates his
employment voluntarily without good reason. The severance payment would
initially equal nine months' base salary and would be reduced by one month's
base salary for each two months that Mr. Renauld remains with us after the
completion of the business combination, such that he would receive a severance
payment of only four months' base salary if he voluntarily terminates his
employment without good reason in the last two months of the one-year period. On
April 2, 2003, our board granted Mr. Renauld a stock option to purchase 25,000
shares of our common stock at an exercise price of $0.96 per share, the fair
market value of our common stock on that date. This option will terminate if Mr.
Renauld voluntarily terminates his employment without good cause in the one-year
period described above and receives the severance payment described above. We
have not yet executed an amended employment agreement with Mr. Renauld
reflecting the foregoing terms.

      Under his stock option agreements, a large portion of the unvested options
held by Mr. Renauld vested and became immediately exercisable upon the
completion of the transaction with Young Design in April 2003.

      In December 2000, we entered into a new employment agreement with Dr. John
L. Youngblood having substantially similar terms as the agreement with Mr.
Renauld prior to April 2003 (other than position and salary). Dr. Youngblood's
annual base salary was $255,216. This employment agreement was terminated in
connection with Dr. Youngblood leaving our employment in April 2003. See Item 13
- Material Relationships and Related Transactions below.

Director Compensation

      Our compensation policy for directors contemplates the following
compensation:

      o     an $11,000 annual retainer for serving on the board

      o     a $6,500 annual retainer for serving as chairperson of the board

      o     a $5,000 annual retainer for serving as chairperson of the audit
            committee of the board

      o     a $2,500 annual retainer for serving as a member of the audit
            committee of the board


                                       72
<PAGE>

      o     a $1,500 annual retainer for serving as chairperson of the
            compensation committee of the board

      o     a $500 annual retainer for serving as chairperson of the nominating
            committee of the board

      o     at a minimum, the following rights to acquire shares of our common
            stock:

            o     for each new non-employee director elected or appointed to the
                  board, a non-qualified stock option to purchase 12,500 shares
                  of our common stock that vests in three equal annual
                  installments beginning on the date of grant

            o     for each incumbent non-employee director, a fully vested,
                  non-qualified stock option to purchase 3,750 shares of our
                  common stock granted immediately following each annual meeting
                  of stockholders, as long as the director has served at least
                  one complete year before the date of the annual meeting and
                  continues to serve as a director after the meeting

      In April 2003, we granted an option to purchase 12,500 shares of our
common stock at $0.92 per share to Mr. Saginario. In June 2003, we granted an
option to purchase 3,750 shares of our common stock at $4.00 per share to Ms.
Armitage. In December 2003, we granted an option to purchase 12,500 shares of
our common stock at $5.30 per share to Mr. Wiedemer. In January 2004, we granted
an option to purchase 12,500 shares of our common stock at $5.45 per share to
Mr. Peluso. All of these grants were in accordance with this standard policy.

      YDI will also reimburse its non-employee directors for reasonable expenses
incurred in attending meetings of the board of directors and its committees.

Compensation Committee Interlocks and Insider Participation

      From January 2003 until April 2003, our board of directors had a
compensation committee consisting of four directors - Drs. Albert E. Paladino
and John L. Youngblood and Mr. Allan M. Doyle, Jr. and Ms. Armitage. Dr.
Youngblood, who was then our President and Chief Executive Officer, served as a
member of our compensation committee during that period. Dr. Youngblood
participated in discussions regarding the compensation of our executive officers
that occurred during that period. As described under Item 13 - Certain
Relationships and Related Transactions below, Dr. Youngblood ceased being our
President and Chief Executive Officer in April 2003 and signed a settlement
agreement with us in connection with that cessation.

      From April 2003 until December 2003, our board of directors had a
compensation committee consisting of two directors - Mr. Saginario and Ms.
Armitage.

      None of our executive officers served as a member of the board of
directors or compensation committee of any other entity that has one or more
executive officers serving as a member of YDI's board of directors or
compensation committee.

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

      The following table provides information regarding the beneficial
ownership of our outstanding common stock by:

      o     each person or group that we know owns more than 5% of our common
            stock,

      o     each of our directors,

      o     each of our named executive officers, and

      o     all of our current directors and named executive officers as a
            group.

      All amounts in this table are as of February 13, 2004 unless otherwise
noted.

      Beneficial ownership is determined under rules of the SEC and includes
shares over which the beneficial owner exercises voting or investment power. The
percentage beneficially owned by each person is based upon 14,243,145 shares of
our common stock outstanding on February 13, 2004. Shares of common stock that
we may issue upon the exercise of options currently exercisable or exercisable
within 60 days of February 13, 2004 are deemed outstanding for purposes of
computing the percentage ownership of the person holding the options but are not
deemed outstanding for purposes of computing the percentage ownership of any
other person. Except as otherwise indicated, we believe the beneficial owners of
our common stock listed below, based on information


                                       73
<PAGE>

furnished by them, have sole voting and investment power over the number of
shares listed opposite their names. The address for each 5% stockholder is 8000
Lee Highway, Falls Church, VA 22042.

<TABLE>
<CAPTION>
                                              Shares Issuable      Number of Shares
                                            pursuant to Options   Beneficially Owned
                                             Exercisable within  (Including the Number      Percentage
                                                60 days of        of Shares shown in         of Shares
Name of Beneficial Owner                     February 13, 2004     the first column)        Outstanding
----------------------------------------     ------------------- ---------------------    ---------------
<S>                                               <C>                  <C>                       <C>
Concorde Equity, LLC(1) ................               --              5,165,817                 36.3%
Robert E. Fitzgerald(1) ................           30,937              5,196,754                 36.4
Michael F. Young .......................           25,312              4,234,495                 29.7
Carol B. Armitage(2) ...................            9,563                 13,501                    *
Gordon D. Poole ........................           23,437                 23,887                    *
Patrick L. Milton ......................           11,718                 13,718                    *
David L. Renauld(3) ....................           70,083                 73,708                    *
Ralph Peluso ...........................            4,166                  4,166                    *
Daniel A. Saginario ....................            4,166                  6,666                    *
Robert A. Wiedemer .....................            4,166                  4,241                    *
John L. Youngblood(4) ..................           95,900                121,730                    *
All current executive officers and
   directors as a group (9 persons)  ...          183,548              9,571,136                 66.3
</TABLE>

----------
*     Less than 1%.

(1)   Mr. Fitzgerald is President and Managing Member of Concorde Equity. Mr.
      Fitzgerald has the sole power to vote or direct the vote, and the sole
      power to dispose or direct the disposition of, the shares beneficially
      owned by Concorde Equity. Mr. Fitzgerald disclaims beneficial ownership of
      the shares beneficially held by Concorde Equity, except to the extent of
      his pecuniary interest in those shares.

(2)   Ms. Armitage has joint ownership and shared voting and investment power
      with her husband of 2,000 shares of our common stock.

(3)   Mr. Renauld has joint ownership and shared voting and investment power
      with his wife of 1,250 shares of our common stock.

(4)   Based on information available to us at the time of Mr. Youngblood's
      departure.

      For information about our equity compensation plans, see Item 5 - Market
for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchase
of Equity Securities above.

Item 13. Certain Relationships and Related Transactions

      Stephen L. Ward's last day of employment with us was in January 2003. Mr.
Ward had been our Executive Vice President Marketing and Sales. In January 2003,
we entered into a letter agreement with Mr. Ward that terminated his employment
agreement that had been signed in July 2001 and that specified the terms for Mr.
Ward's separation from service. Mr. Ward received a separation payment of
$131,252 (an amount equal to seven months of his base salary) which was paid
shortly after his last day of employment. His employment agreement had provided
for separation payments in an amount equal to twelve months of his base salary
payable over twelve months. We also agreed to make the payments to continue Mr.
Ward's health and dental benefits under COBRA through August 31, 2003. Mr.
Ward's rights under his stock option agreements remained unchanged. Mr. Ward
provided a general release to us and agreed to comply with confidentiality,
insider trading, non-solicitation, and non-competition provisions.

      In January 2003, we amended the employment agreement of Mr. Renauld. The
January 2003 amendments specify that Mr. Renauld's last day of employment will
be established either by us upon thirty days notice to him or by Mr. Renauld
upon thirty days notice to us. However the date is set, the termination will be
treated as an involuntary termination by us without cause entitling Mr. Renauld
to the separation benefits specified in his employment agreement, as amended;
provided, however, to be entitled to the separation benefits, Mr. Renauld could
only establish a last day of employment of May 31, 2003 or later. A summary of
Mr. Renauld's employment terms is set forth in Item 11 - Executive Compensation,
Employment Agreements and Change-of-Control Provisions.

      Also in January 2003, we amended the employment agreement of Dennis C.
Stempel, who was our Senior Vice President, Finance and Operations, Chief
Financial Officer, and Treasurer at the time. The terms of the amendment were
substantively similar to the terms of the amendment to Mr. Renauld's agreement
described in the first paragraph of this section but Mr. Stempel could only
establish a last day of employment of March 31, 2003 or


                                       74
<PAGE>

later. Mr. Stempel's last day of employment with us was in April 2003. In
September 2003, we entered into a separation agreement with Mr. Stempel that
specified the terms for Mr. Stempel's separation from service. Mr. Stempel
received a separation payment of $115,000. Mr. Stempel provided us with a broad
release of claims, and we provided him with a release from any claim based on
his separation and separation benefits. Mr. Stempel's rights under his stock
option agreements remained unchanged.

      In 2003, Mr. Stempel exercised stock options to receive an aggregate of
39,000 shares of our common stock and received an aggregate value of $63,175
upon the exercise of these stock options. This amount of value realized upon the
exercise of options is based on the last sale prices of our common stock on the
respective dates of exercise, as reported by the OTC Bulletin Board, less the
applicable option exercise prices. This calculated value received may be
different from the actual value received by Mr. Stempel.

      In January 2003, we amended certain stock option agreements of John L.
Youngblood, our President and Chief Executive Officer at the time, and Kenneth
R. Wood, our Vice President Engineering at the time. These amendments increased
the post-termination exercise period for certain options from three months to
two years. These amendments also increased the number of unvested options that
would be accelerated upon a change of control of our company. All of the
affected stock options had exercise prices higher than the market price of our
common stock on the dates of the amendments. The following table summarizes the
changes made by the amendments based on options vested as of April 1, 2003.

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
  Name of Employee         Number of Additional Stock Options      Number of Stock Options with
                              That Would Accelerate upon a       Post-Termination Exercise Period
                                   Change in Control                   Extended to Two Years
-------------------------------------------------------------------------------------------------
<S>                                       <C>                                 <C>
John L. Youngblood                        4,688                               76,508
-------------------------------------------------------------------------------------------------
Kenneth R. Wood                           5,518                               29,168
-------------------------------------------------------------------------------------------------
</TABLE>

      Dr. Youngblood's last day of employment with us was in April 2003. In
October 2003, we entered into a separation agreement with Dr. Youngblood that
specified the terms for Dr. Youngblood's separation from service. Dr. Youngblood
received a separation payment of $150,000. Dr. Youngblood provided us with a
broad release of claims, and we provided him with a release from any claim based
on his separation and separation benefits. Dr. Youngblood's rights under his
stock option agreements remained unchanged.

      We completed a strategic combination transaction with Young Design on
April 1, 2003. Effective April 2003, YDI entered into indemnification agreements
with Messrs. Fitzgerald, Poole, Milton, Saginario, and Young. The terms of these
agreements are substantially the same as the indemnification agreements we
previously entered into with our other directors and officers. These agreements
contain provisions that are, in some respects, broader than the specific
indemnification provisions contained in the applicable corporate law and in our
by-laws. In general, the indemnification agreements may require us:

      o     to indemnify our directors and officers against liabilities that may
            arise due to their status or service as officers or directors, other
            than liabilities that may arise with respect to any matter as to
            which the person seeking indemnification is adjudicated not to have
            acted in good faith in the reasonable belief that their action was
            in the best interest of YDI; and

      o     to advance their expenses incurred as a result of any proceeding
            against them as to which they may be entitled to indemnification.

      In addition, we currently maintain a policy for directors' and officers'
insurance.

      As a result of our transaction with Young Design, we acquired the lease
for Young Design's headquarters facilities in Falls Church, Virginia, which is
leased from Merry Fields, LLC, a Delaware limited liability company. Merry
Fields is wholly-owned by Concorde Equity and Michael F. Young. Concorde Equity
is an investment company controlled by Robert E. Fitzgerald, a board member and
our Chief Executive Officer. The annual lease amount is approximately $263,000,
subject to a three percent annual increase. The lease expires on December 31,
2010. Merry Fields acquired the facility in 2000 using proceeds from a bank
loan. Young Design guaranteed that bank loan, which as of December 31, 2003 had
an outstanding principal amount of approximately $1,406,000 and an interest rate
of 7.34%. As part of the transaction between Young Design and us, Concorde
Equity and Mr. Young agreed to indemnify Young Design and us if Young Design has
to pay any money under that guarantee.


                                       75
<PAGE>

Item 14. Principal Accountant Fees and Services

      The following is a summary of the fees billed to us by BDO Seidman LLP for
professional services rendered for the fiscal year ended December 31, 2003 and
by Hoffman, Fitzgerald & Snyder, P.C. for professional services rendered for the
fiscal year ended December 31, 2002:

             Fee Category          Fiscal 2003 Fees   Fiscal 2002 Fees
      -------------------------    ----------------   ----------------

      Audit Fees ..............       $   91,000         $   30,000
      Audit-Related Fees ......               --                 --
      Tax Fees ................               --             10,000
      All Other Fees ..........               --                 --
                                      ----------         ----------
      Total Fees ..............       $   91,000         $   40,000

      Audit Fees. Consists of fees billed for professional services rendered for
the audit of our consolidated financial statements and review of the interim
consolidated financial statements included in quarterly reports and services
that are normally provided by BDO Seidman LLP and Hoffman, Fitzgerald & Snyder,
P.C. in connection with statutory and regulatory filings or engagements.

      Audit-Related Fees. Consists of fees billed for assurance and related
services that are reasonably related to the performance of the audit or review
of our consolidated financial statements and are not reported under "Audit
Fees." In both fiscal 2003 and fiscal 2002, there were none of these fees.

      Tax Fees. Consists of fees billed for professional services for tax
compliance, tax advice and tax planning. These services include preparation of
federal and state income tax returns.

      All Other Fees. Consists of fees for products and services other than the
services reported above. In both fiscal 2003 and fiscal 2002, there were none of
these fees.

      Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit
Services of Independent Auditors

      The Audit Committee's policy is to pre-approve all audit and permissible
non-audit services provided by the independent auditors. These services may
include audit services, audit-related services, tax services, and other
services. Pre-approval is generally provided for up to one year, and any
pre-approval is detailed as to the particular service or category of services
and is generally subject to a specific budget. The independent auditors and
management are required to periodically report to the Audit Committee regarding
the extent of services provided by the independent auditors in accordance with
this pre-approval and the fees for the services performed to date. The Audit
Committee may also pre-approve particular services on a case-by-case basis.

      No audit-related fees, tax fees, and all other fees were approved by our
Audit Committee pursuant to Rule 2-01(c)(7)(i)(C) of Regulation S-X.


                                       76
<PAGE>

                                     PART IV

Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.

      (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 Index of Exhibits.

      (b) Reports on Form 8-K

      On October 21, 2003, we filed a report on Form 8-K to report a press
release relating to the earnings announcement for the third quarter ending
September 30, 2003.

      On November 5, 2003, we filed a report on Form 8-K to report that we had
signed an agreement to merge with Phazar Corp.

      On December 10, 2003, we filed a report on Form 8-K to report that we had
issued 500,000 shares of our common stock in a private placement to a single
accredited investor.


                                       77
<PAGE>

                                   SIGNATURES

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

                                        YDI WIRELESS, INC.

                                        By:       /s/ Robert E. Fitzgerald
                                            ------------------------------------
                                                    Robert E. Fitzgerald,
                                                   Chief Executive Officer

Date: February 20, 2004

      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 YDI Wireless
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
-------------------------------      (principal executive officer)              February 20, 2004
  Robert E. Fitzgerald


  /s/ Patrick L. Milton              Chief Financial Officer and Treasurer
-------------------------------      (principal financial and accounting
  Patrick L. Milton                  officer)                                   February 20, 2004


  /s/ Carol B. Armitage              Chairperson of the Board of Directors      February 20, 2004
-------------------------------
  Carol B. Armitage


  /s/ Ralph Peluso                   Director                                   February 20, 20044
-------------------------------
  Ralph Peluso


  /s/ Gordon D. Poole                Director                                   February 20, 2004
-------------------------------
  Gordon D. Poole


  /s/ Daniel A. Saginario            Director                                   February 20, 2004
-------------------------------
  Daniel A. Saginario


  /s/ Robert A. Wiedemer             Director                                   February 20, 2004
-------------------------------
  Robert A. Wiedemer


  /s/ Michael F. Young               Director                                   February 20, 2004
-------------------------------
  Michael F. Young
</TABLE>


                                       78
<PAGE>

                                INDEX OF EXHIBITS

    Exhibit
     Number                        Description of Document

      2.1         Agreement and Plan of Merger by and among the Registrant, Stun
                  Acquisition Corporation, and Phazar Corp dated as of October
                  30, 2003 (1)

      3.1         Certificate of Incorporation of the Registrant as filed with
                  the Delaware Secretary of State on May 5, 2003 (2)

      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 (2)

      3.3         By-laws of the Registrant (2)

      4.1         Form of certificate evidencing ownership of common stock of
                  the Registrant (2)

      4.2         Rights Agreement by and between the Registrant and Registrar
                  and Transfer Company, as Rights Agent dated as of May 18, 2001
                  (3)

      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 (4)

      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 (5)

      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 (7)

      10.2*       1987 Stock Plan of the Registrant (7)

      10.3*       1988 Stock Plan of the Registrant (7)

      10.4*       1996 Stock Plan of the Registrant (7)

      10.5*       1997 Stock Plan of the Registrant (7)

      10.6*       1999 Stock Plan of the Registrant (7)

      10.7*       2001 Nonqualified Stock Plan of the Registrant (8)

      10.8*       Young Design, Inc. 2002 Stock Incentive Plan (9)

      10.9*       Form of Indemnification Agreement, a substantially similar
                  version of which was entered between the Registrant and each
                  of its officers and directors (10)

      10.10       Agreement and Plan of Merger by and between Telaxis
                  Communications Corporation and Young Design, Inc. dated as of
                  March 17, 2003 (5)

      10.11       Agreement and Plan of Merger and Reincorporation by and
                  between Telaxis Communications Corporation and YDI Wireless,
                  Inc. dated as of June 23, 2003 (11)

      10.12*      Employment Agreement by and between Young Design, Inc. and
                  Robert E. Fitzgerald dated as of March 1, 1999 (6)

      10.13*      Employment Agreement by and between Young Design, Inc. and
                  Michael F. Young dated as of March 1, 1999 (6)

      10.14*      Employment Agreement by and between the Registrant and John L.
                  Youngblood dated as of December 19, 2000 (12)

      10.15*      Amendment 1 to Employment Agreement by and between the
                  Registrant and John L. Youngblood dated as of January 24, 2003
                  (13)

      10.16*      Separation Agreement and General Release by and between the
                  Registrant and John L. Youngblood dated October 1, 2003 (14)


                                       79
<PAGE>

     Exhibit
      Number                       Description of Document

      10.17*      Employment Agreement by and between the Registrant and Dennis
                  C. Stempel dated as of December 19, 2000 (12)

      10.18*      Amendment 1 to Employment Agreement by and between the
                  Registrant and Dennis C. Stempel dated as of August 29, 2002
                  (15)

      10.19*      Amendment 2 to Employment Agreement by and between the
                  Registrant and Dennis C. Stempel dated as of January 24, 2003
                  (13)

      10.20*      Separation Agreement and General Release by and between the
                  Registrant and Dennis C. Stempel dated September 15, 2003 (14)

      10.21*      Employment Agreement by and between the Registrant and David
                  L. Renauld dated as of December 19, 2000 (12)

      10.22*      Amendment 1 to Employment Agreement by and between the
                  Registrant and David L. Renauld dated as of August 29, 2002
                  (15)

      10.23*      Amendment 2 to Employment Agreement by and between the
                  Registrant and David L. Renauld dated as of January 24, 2003
                  (13)

      10.24*      Employment Agreement by and between the Registrant and Kenneth
                  R. Wood dated as of December 19, 2000 (12)

      10.25*      Amendment 1 to Employment Agreement by and between the
                  Registrant and Kenneth R. Wood dated as of January 24, 2003
                  (13)

      10.26*      Employment Agreement by and between the Registrant and Stephen
                  L. Ward dated as of July 17, 2001 (8)

      10.27*      Letter agreement by and between the Registrant and Stephen L.
                  Ward dated January 9, 2003 (13)

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

      10.29       Lease by and between the Registrant and O'Leary-Vincunas LLC
                  dated November 1, 2000 (12)

      10.30       First Amendment to Lease by and between the Registrant and
                  O'Leary-Vincunas LLC dated January 20, 2003 (13)

      10.31       Indemnification Agreement by and among the Registrant, Merry
                  Fields, LLC, Concorde Equity, LLC, and Michael F. Young dated
                  as of March 17, 2003 (5)

      10.32       Fourth Amended and Restated Registration Rights Agreement
                  dated September 17, 1999 (16)

      10.33       Registration Rights Agreement by and between the Registrant
                  and Boston Federal Savings Bank dated August 20, 1999 (7)

      10.34       Purchase Agreement by and between the Registrant and
                  Massachusetts Technology Development Corporation dated June
                  1988 (16)

      10.35       First Amendment to the Purchase Agreement by and between the
                  Registrant and Massachusetts Technology Development
                  Corporation dated December 28, 1988 (17)

      10.36       Second Amendment to the Purchase Agreement by and between the
                  Registrant and Massachusetts Technology Development
                  Corporation dated June 17, 1999 (17)

      10.37       Stock Purchase Agreement by and between the Registrant and MTB
                  Investment Advisors, Inc. dated as of December 5, 2003 (18)

      14.1        Statement of Business Conduct and Code of Ethics of the
                  Registrant

      16.1        Letter from Hoffman, Fitzgerald & Snyder, P.C. to the
                  Securities and Exchange Commission, dated February 19, 2004

      21.1        Subsidiaries of the Registrant

      23.1        Consent of BDO Seidman, L.L.P., Independent Accountants


                                       80
<PAGE>

     Exhibit
     Number                        Description of Document

      23.2        Consent of Hoffman, Fitzgerald & Snyder, P.C., Independent
                  Accountants

      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        Investor Agreement by and between the Registrant and Concorde
                  Equity, LLC dated as of March 17, 2003 (5)

      99.2        Investor Agreement by and between the Registrant and Michael
                  F. Young dated as of March 17, 2003 (5)

----------
All non-marked exhibits listed above 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 November 5, 2003.

(2)   Incorporated herein by reference to the same-numbered exhibit to Form 10-Q
      filed with the SEC on August 14, 2003.

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

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

(5)   Incorporated herein by reference to the exhibits to Form 8-K filed with
      the SEC on March 20, 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 S-1 filed with
      the SEC on September 27, 1999 (File No. 333-87885).

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

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

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

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

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

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

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

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

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

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

(18)  Incorporated herein by reference to the exhibits to Form 8-K filed with
      the SEC on December 10, 2003.


                                       81