**For      Further Information Contact:**

**FOR      IMMEDIATE RELEASE**

**TERABEAM      ANNOUNCES **

**FOURTH      QUARTER AND FULL YEAR 2006 FINANCIAL RESULTS**

**San      Jose, CA, February 28, 2007**

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**About      Terabeam**

**Safe      Harbor Statement**

*Statements      in this press release that are not statements of historical facts are      forward-looking statements that involve risks, uncertainties, and assumptions.      Terabeam’s actual results may differ materially from the results anticipated in      these forward-looking statements. The forward-looking statements involve risks      and uncertainties that could contribute to such differences including those      relating to and arising from the ongoing uncertainty in the telecommunications      industry and larger economy; the intense competition in our industries and      resulting impacts on our pricing, gross margins, and general financial      performance; difficulties or delays in developing and supplying new products      with the contemplated or desired features, performance, compliances,      certifications, cost, price, and other characteristics; the difficulties in      predicting Terabeam’s future financial performance; and the impacts and effects      of any other strategic transactions Terabeam may evaluate or consummate. Further      information on these and other factors that could affect Terabeam’s actual      results is and will be included in filings made by Terabeam from time to time      with the Securities and Exchange Commission and in its other public      statements.*

*-      Financial Tables Follow -*

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| **TERABEAM,                INC.**                                                                                                                                                                                                           |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
| **CONSOLIDATED                BALANCE SHEETS**                                                                                                                                                                                              |   |
| **(in                thousands)**                                                                                                                                                                                                           |   |
|                                                                                                                                                                                                                                        |   | **December                31,** |   | **December                31,** |   |
|                                                                                                                                                                                                                                        |   | **2006** |   | **2005** |   |
| **Assets**                                                                                                                                                                                                                                  |   | **(unaudited)** |   |   |   |
| Current                assets:                                                                                                                                                                                                              |   |   |   |   |   |   |   |
| Cash                and cash equivalents                                                                                                                                                                                                    |   | $ | 10,290 |   | $ | 14,133 |   |
| Investment                securities - available-for-sale                                                                                                                                                                                   |   |   | 168 |   |   | 260 |   |
| Accounts                receivable, net                                                                                                                                                                                                     |   |   | 5,539 |   |   | 8,378 |   |
| Inventory                                                                                                                                                                                                                                   |   |   | 10,142 |   |   | 10,070 |   |
| Prepaid                expenses                                                                                                                                                                                                             |   |   | 1,246 |   |   | 1,045 |   |
| Total                current assets                                                                                                                                                                                                         |   |   | 27,385 |   |   | 33,886 |   |
|                                                                                                                                                                                                                                        |   |   |   |   |   |   |   |
| Property                and equipment, net                                                                                                                                                                                                  |   |   | 2,660 |   |   | 3,924 |   |
| Other                Assets:                                                                                                                                                                                                                |   |   |   |   |   |   |   |
| Restricted                cash                                                                                                                                                                                                              |   |   | 76 |   |   | 5,076 |   |
| Goodwill                                                                                                                                                                                                                                    |   |   | 7,922 |   |   | 7,380 |   |
| Intangible                assets, net                                                                                                                                                                                                       |   |   | 11,545 |   |   | 23,817 |   |
| Deposits                and prepaid expenses                                                                                                                                                                                                |   |   | 287 |   |   | 675 |   |
| Total                other assets                                                                                                                                                                                                           |   |   | 19,830 |   |   | 36,948 |   |
| Total                assets                                                                                                                                                                                                                 |   | $ | 49,875 |   | $ | 74,758 |   |
|                                                                                                                                                                                                                                        |   |   |   |   |   |   |   |
| **Liabilities                and Stockholders’ Equity**                                                                                                                                                                               |   |   |   |   |   |   |   |
| Current                liabilities:                                                                                                                                                                                                         |   |   |   |   |   |   |   |
| Accounts                payable and accrued expenses                                                                                                                                                                                        |   | $ | 13,887 |   | $ | 15,600 |   |
| Deferred                revenue                                                                                                                                                                                                             |   |   | 2,198 |   |   | 2,503 |   |
| License                agreement payable - current maturities                                                                                                                                                                               |   |   | 868 |   |   | 981 |   |
| Current                maturities of notes payable - other current liabilities                                                                                                                                                              |   |   | - |   |   | - |   |
| Total                current liabilities                                                                                                                                                                                                    |   |   | 16,953 |   |   | 19,084 |   |
|                                                                                                                                                                                                                                        |   |   |   |   |   |   |   |
| License                agreement payable, net of current maturities                                                                                                                                                                         |   |   | 2,088 |   |   | 2,956 |   |
| Total                liabilities                                                                                                                                                                                                            |   |   | 19,041 |   |   | 22,040 |   |
| Commitments                and contingencies                                                                                                                                                                                                |   |   |   |   |   |   |   |
|                                                                                                                                                                                                                                        |   |   |   |   |   |   |   |
| **Stockholders’                Equity**                                                                                                                                                                                               |   |   |   |   |   |   |   |
| Preferred                stock, $0.01 par value; authorized 4,500,000, none issued at December                31,                2006 and December 31, 2005                                                                                 |   |   | - |   |   | - |   |
| Common                stock, $0.01 par value, 100,000,000 shares authorized, 21,552,572                issued                and outstanding at December 31, 2006 and 21,446,217 issued and outstanding                at December 31, 2005 |   |   | 216 |   |   | 214 |   |
| Additional                paid-in capital                                                                                                                                                                                                   |   |   | 57,976 |   |   | 56,638 |   |
| Accumulated                deficit                                                                                                                                                                                                          |   |   | (27,285 | ) |   | (4,122 | ) |
| Accumulated                other comprehensive income:                                                                                                                                                                                      |   |   |   |   |   |   |   |
| Net                unrealized loss on available-for-sale securities                                                                                                                                                                         |   |   | (73 | ) |   | (12 | ) |
| Total                stockholders’ equity                                                                                                                                                                                             |   |   | 30,834 |   |   | 52,718 |   |
| Total                liabilities and stockholders’ equity                                                                                                                                                                             |   | $ | 49,875 |   | $ | 74,758 |   |

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| **TERABEAM,                    INC.**                                        |   |
|------------------------------------------------------------------------------|--------|
| **CONSOLIDATED                    STATEMENTS OF OPERATIONS**                 |   |
| **(in                    thousands, except per share data)**                 |   |
|                                                                         |   |
|                                                                         |   | **For                    the Three Months Ended** |   | **For                    the Year Ended** |   |
|                                                                         |   | **December                    31,** |   | **December                    31,** |   |
|                                                                         |   | **2006** |   | **2005** |   | **2006** |   | **2005** |   |
|                                                                         |   | **(unaudited)** |   | **(unaudited)** |   | **(unaudited)** |   |   |   |
| Revenues                                                                     |   | $ | 18,222 |   | $ | 27,073 |   | $ | 75,384 |   | $ | 58,982 |   |
| Cost                    of goods sold                                        |   |   | 9,983 |   |   | 14,421 |   |   | 42,745 |   |   | 31,930 |   |
| Restructuring                    provision for excess and obsolete inventory |   |   | - |   |   | - |   |   | 1,502 |   |   | 2,143 |   |
| Gross                    profit                                              |   |   | 8,239 |   |   | 12,652 |   |   | 31,137 |   |   | 24,909 |   |
| Operating                    expenses:                                       |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Selling                    costs                                             |   |   | 4,589 |   |   | 3,958 |   |   | 18,008 |   |   | 9,789 |   |
| Restructuring                    charges                                     |   |   | - |   |   | - |   |   | 116 |   |   | 944 |   |
| Restructuring                    charge for impairment of intangible assets  |   |   | - |   |   | - |   |   | 8,874 |   |   | 4,664 |   |
| Impairment                    of service reporting unit goodwill             |   |   | - |   |   | 200 |   |   | - |   |   | 200 |   |
| General                    and administrative                                |   |   | 2,681 |   |   | 4,275 |   |   | 13,493 |   |   | 12,902 |   |
| Research                    and development                                  |   |   | 3,049 |   |   | 3,562 |   |   | 14,520 |   |   | 8,000 |   |
| Total                    operating expenses                                  |   |   | 10,319 |   |   | 11,995 |   |   | 55,011 |   |   | 36,499 |   |
| Operating                    income (loss)                                   |   |   | (2,080 | ) |   | 657 |   |   | (23,874 | ) |   | (11,590 | ) |
| Other                    income (expenses):                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest                    income                                           |   |   | 65 |   |   | 83 |   |   | 368 |   |   | 695 |   |
| Interest                    expense                                          |   |   | (39 | ) |   | (21 | ) |   | (190 | ) |   | (161 | ) |
| Other                    income (expense)                                    |   |   | 49 |   |   | 87 |   |   | 601 |   |   | (19 | ) |
| Total                    other income (expenses)                             |   |   | 75 |   |   | 149 |   |   | 779 |   |   | 515 |   |
| Income                    (loss) before income taxes                         |   |   | (2,005 | ) |   | 806 |   |   | (23,095 | ) |   | (11,075 | ) |
| Benefit                    (provision) for income taxes                      |   |   | (26 | ) |   | 5 |   |   | (68 | ) |   | 16 |   |
| Income                    (loss) before minority interest                    |   |   | (2,031 | ) |   | 811 |   |   | (23,163 | ) |   | (11,059 | ) |
| Minority                    interest in net income of Merry Fields           |   |   | - |   |   | - |   |   |     |   |   | (101 | ) |
| Net                    income (loss)                                         |   |   | ($2,031 | ) | $ | 811 |   |   | ($23,163 | ) |   | ($11,160 | ) |
|                                                                         |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Weighted                    average shares - basic                           |   |   | 21,548 |   |   | 21,414 |   |   | 21,523 |   |   | 21,801 |   |
| Earnings                    (loss) per share - basic                         |   |   | ($0.09 | ) | $ | 0.04 |   |   | ($1.08 | ) |   | ($0.51 | ) |
|                                                                         |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Weighted                    average shares -diluted                          |   |   | 21,548 |   |   | 21,589 |   |   | 21,523 |   |   | 21,801 |   |
| Earnings                    (loss) per share - diluted                       |   |   | ($0.09 | ) | $ | 0.04 |   |   | ($1.08 | ) |   | ($0.51 | ) |