**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


WASHINGTON,
      D.C. 20549




**FORM
      10-KSB**





(Mark
      One)





**xANNUAL
      REPORT PURSUANT
      TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL
      YEAR ENDED DECEMBER 31, 2005**





**OR**




**o     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: 0-25356*





**WAVE
      WIRELESS CORPORATION**





(Exact
      Name of Registrant as Specified in its Charter)








DELAWARE
            
            77-0289371(State
                or Other Jurisdiction of
            
            (IRS
                Employer Identification Number)Incorporation
                or Organization)











**1996
      LUNDY AVENUE, SAN JOSE, CALIFORNIA 95131**


(408)
      943-4200


(Address
      and Telephone Number of Principal Executive Offices)





**Securities
      registered pursuant to Section 12(b)of the Act:**





**Securities
      Registered Pursuant to Section 12(g) of the Act:**


**COMMON
      STOCK, $0.0001 PAR VALUE**


**PREFERRED
      STOCK PURCHASE RIGHTS**





Check
      whether the issuer (1) 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 Wave Wireless was required to file such reports),
      and (2) has been subject to such filing requirements for the past 90 days.
      YES xNO o





Check
      if
      there is no 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-KSB or any amendment
      to
      this Form 10-KSB. YES oNO x





State
      issuer’s revenue with it most recent fiscal year, $11,807,000.





Indicate
      by check mark whether Wave Wireless is an accelerated filer as defined in the
      Exchange Act Rule 12b-2. YES  oNO x





The
      aggregate market value of the voting stock held by non-affiliates of Wave
      Wireless as of March 1, 2006 was approximately $2,695,402 million.





On
      March
      1, 2006, approximately 22,461,684 shares of Wave Wireless’ Common Stock, $0.0001
      par value, were outstanding.








**TABLE
      OF CONTENTS**










PagePART
                I****
            1Item
                1. Description of Business
            1Item
                2. Description of Properties
            6Item
                3. Legal Proceedings
            6Item
                4. Submission of Matters to a Vote of Securities Holders
            7PART
                II****
            7Item
                5. Market for Common Equity and Related Stockholder
                Matters
            7Item
                6. Management’s Discussion and Analysis of Financial Condition and Results
                of Operations
            8Item
                7. Financial Statements
            19Item
                7A. Pro Forma Financial Statements
            19Item
                8. Changes in and Disagreements with Accountants on Accounting and
Financial
                Disclosures
            24Item
                8A. Control and Procedures
            24PART
                III****
            24Item
                9. Directors, Executive Officers, Promoters and Control
                Persons
            24Item
                10. Executive Compensation
            26Item
                11. Security Ownership of Certain Benefitcial Owners and
            28Item
                12. Certain Relationships and Related Transactions
            30Item
                13. Exhibits and Reports on Form 8-K
            30Item
                14. Principal Accountant Fees and Services
            30FINANCIAL
                STATEMENTSReport
                of Aidman, Piser & Company P.A.
            31Consolidated
                Balance Sheet at December 31, 2005
            32Consolidated
                Statements of Operations for the years ended December 31, 2005 and
                2004
            33Consolidated
                Statements of Stockholders' Equity (Deficit) and Comprehensive Loss
                for
                the years
                ended December 31, 2005 and 2004
            34Consolidated
                Statements of Cash Flows for the years ended December 31, 2005 and
                2004
            35Notes
                to Consolidated Financial Statements
            36SIGNATURE
                PAGE
            59INDEX
                TO EXHIBITS
            60




-
          i
          -





**PART
      I**





The
      following information contains forward-looking statements, which involve risks
      and uncertainties. Forward-looking statements are characterized by words such
      as
      "plan," "expect," "believe," "intend," "would", "will" and similar words. Our
      actual results could differ materially from those anticipated in these
      forward-looking statements as a result of certain factors, including those
      set
      forth under, "Management's Discussion and Analysis of Financial Condition and
      Results of Operations -- Certain Risk Factors Affecting Wave Wireless," and
      elsewhere in this Annual Report on Form 10-KSB.





**ITEM
      1.****DESCRIPTION
      OF BUSINESS******




**Summary**




Wave
      Wireless develops, manufactures and distributes next generation wireless mesh
      routers for the telecommunications, security and surveillance and public safety
      markets. Wave Wireless’ mesh, point-to-point and point-to-multipoint broadband
      wireless access systems combine high performance, versatility and AES encryption
      to deliver a broad range of powerful applications and turnkey solutions ideally
      suited for internet service providers, educational institutions, corporate
      enterprises and government agencies. Wave Wireless’ wireless access systems are
      sold globally through its own sales force, as well as through strategic
      partners, distributors, systems integrators, and value added resellers. Wave
      Wireless also is focused on supporting its global customer base in connection
      with its repair and maintenance business (“RMA Business”).





Wave
      Wireless originally acquired the Wave Wireless networking product line
      (“SPEEDLAN”) from SPEEDCOM Wireless Corporation in December 2003 as a means to
      complement its legacy business focused on licensed wireless backhaul products,
      and to gain entry into the rapidly growing market for enterprise-class
      license-exempt wireless solutions. In April 2005, Wave Wireless announced a
      formal restructuring plan designed to dramatically reduce costs, refocus its
      strategic direction, and ultimately achieve profitability (“Restructuring
      Plan”). Key elements of the Restructuring Plan involved both (i) divesting Wave
      Wireless’ legacy product lines for the licensed market that were expected to
      result in continued substantial operating losses, and (ii) refocusing Wave
      Wireless’ product strategy around its SPEEDLAN product line and the market for
      robust license-exempt and licensed public safety band wireless applications.
      Wave Wireless will also continue to provide repair and maintenance support
      services in connection with its RMA Business to its installed base of legacy
      products for the licensed wireless backhaul market.





In
      connection with the Restructuring Plan, Wave Wireless changed its corporate
      name
      from “P-Com, Inc.” to “Wave Wireless Corporation”, and effected a
      re-capitalization whereby all outstanding shares of its Series C Preferred
      Stock
      were automatically converted into shares of its Series G Preferred Stock and
      common stock. Both the name change and the re-capitalization were approved
      at
      Wave Wireless’ 2005 Annual Meeting of Stockholders, which was held on August 12,
      2005.




On
      November 16, 2005, Wave Wireless announced its intent to merge with WaveRider
      Communications Inc. (the “WaveRider Merger”). The WaveRider Merger is a
      strategic fit that brings together complementary business lines, engineering,
      sales and marketing compatibilities and innovative technology. The combination
      of Wave Wireless’ SPEEDLAN family of mesh networking products and WaveRider’s
      Last Mile Solution â non-line-of-sight, fixed and mobile wireless 900 MHz products will provide
      customers with a wide range of line-of-sight fixed and non-line-of-sight
      products and services, and positions the combined company as a worldwide
      provider of robust wireless broadband applications and solutions. A definitive
      Agreement and Plan of Merger was executed on January 3, 2006. The WaveRider
      Merger was approved by WaveRider stockholders, at a special meeting of
      stockholders of WaveRider held on March 20, 2006. Assuming the satisfaction
      of
      other conditions to closing, WaveRider will merge with a wholly owned subsidiary
      of Wave Wireless, with WaveRider surviving the merger, and becoming a wholly
      owned subsidiary of Wave Wireless. Following the WaveRider Merger, former
      security holders of WaveRider will own approximately 50% of the outstanding
      shares of Wave Wireless common stock on a fully diluted basis.




In
      order
      to provide for its immediate working capital needs prior to, and after the
      proposed WaveRider Merger, Wave Wireless will be required to obtain additional
      financing. See *“Management’s
      Discussion and Analysis of Financial Condition and Results of Operations -
      Liquidity and Capital Resources.”*




Wave
      Wireless, a Delaware corporation, was formed in 1991, and its executive offices
      are located at 1996 Lundy Avenue, San Jose, California 95131, and its telephone
      number is (408) 943-4200.




**Products
      & Services**




Wave
      Wireless currently develops, manufactures and markets licensed exempt, next
      generation wireless mesh routers and other licensed and unlicensed
      point-to-point, spread spectrum and point-to-multipoint radio systems to
      carriers, systems integrators and value added resellers. Wave Wireless also
      provides repair, maintenance and other services to its licensed and other
      customers worldwide. Wave Wireless’ systems enable Internet service providers,
      enterprises and governmental organizations to deliver high-speed video, data,
      and voice transmissions across a broad range of applications, including public
      safety and surveillance. Cellular and personal communications service providers
      have employed Wave Wireless’ point-to-point systems to transmit data between
      remote tower sites and switching centers. Network service providers and Internet
      service providers are able, through the deployment of Wave Wireless’ equipment
      and systems, to respond to the demands for high-speed wireless access services,
      such as Internet access associated with business-to-business and e-commerce
      business processes. Systems integrators have utilized Wave Wireless’ products
      for various security and surveillance applications, including fixed and mobile
      video surveillance for public safety organizations, such as the Chicago Police
      Department.







Wired
      networks often fall short of supplying cost effective, reliable “last mile”
connectivity to the end user. To overcome such limitations in a quick and
      efficient manner, wireless solutions are increasingly being adopted and
      integrated with wired solutions. Furthermore, in many parts of the world,
      telecommunications services are inadequate, unreliable or non-existent due
      to
      the lack of existing wired infrastructure. Additionally, many such countries
      have privatized the state-owned telecommunications monopoly and opened their
      markets to competitive network service providers. Competitive service providers
      in such markets often find deployment of wireless broadband the quickest, most
      economical and scalable means of providing reliable, modern telecommunications
      services.





Wave
      Wireless’ current strategy is to be a leading worldwide supplier of
      high-performance license-exempt wireless access equipment in point to point,
      point to multipoint and self-healing mesh topologies. Wave Wireless principal
      focus is on the enterprise and government markets, by offering advanced
      encryption, multi-band, wireless networking solutions, serving both
      license-exempt users, and licensed users accessing the 4.9 GHz public safety
      band.




***License
      Exempt Products*** .
      Wave
      Wireless intends to focus on the large growth opportunity in the license exempt
      and licensed public safety band markets, as it believes its leading edge
      SPEEDLAN family of products is uniquely positioned to capture market share.
      The
      current SPEEDLAN product line enables service providers, enterprises and
      government agencies to deliver high-speed data, voice and video connectivity
      enabling a broad range of applications. The SPEEDLAN product line, which
      currently consists of the SPEEDLAN 9100 and 9200 series, are high performance
      wireless mesh routers that provide wireless connectivity for local area networks
      utilizing mesh, point-to-point and point-to-multipoint topologies. Introduced
      in
      2002, SPEEDLAN 9100 was the very first mesh product to market. The mesh topology
      creates networks that use multi-hop connections to transmit IP packets between
      the initiation and termination points. The ability to use different paths
      between any two points, based on the detected conditions, allows path redundancy
      and, in essence, a self-healing wireless network.





·
            **SPEEDLAN
                9100**.The
                SPEEDLAN 9100 series of broadband wireless routers offers flexibility
                in
                meeting the challenges of designing, building, and managing today’s fixed
                wireless networks. By allowing the user to choose between star, mesh,
                or a
                point-to-point deployment, the SPEEDLAN 9100 provides a platform
                that can
                grow and easily be re-deployed as the customers needs change. The
                SPEEDLAN
                9100 utilizes 802.11 standards to communicate at 11 Mbps per second
                in the
                2.4 GHz band.




·
            **SPEEDLAN
                9200**.The
                SPEEDLAN 9200, released in September 2004, combines high performance,
                a
                broad feature set and multiple operating frequencies to provide a
                flexible, scalable and robust solution. The SPEEDLAN 9200 is designed
                for
                outdoor environments such as outdoor wireless LANs, metropolitan
                wireless
                infrastructures, or security and surveillance solutions. Based on
                a
                self-healing mesh network architecture, the 9200 provides 54 Mbs
                throughput at either 2.4 GHz, 5.8 GHz or 4.9 GHz and supports the
                latest
                802.11a/g-based standards and remote access by laptop and PDA users.
                The
                9200 utilizes OFDM non-line-of-sight technology and provides for
                secure
                network performance through 128-bit AES encryption technology. These
                features make the 9200 ideally suited for the current and emerging
                IP-based applications, and particularly attractive for video
                applications.




·
            **SPEEDLAN
                9300*****(Under
                Development)***.The
                SPEEDLAN 9300, currently under development, is a higher capacity,
                scalable
                unit, featuring several internal radio modules based on state-of-the-art
                802.11x technology. The product can be configured as a node in a
                multiple-radio channel mesh backbone and/or a combination of mesh
                node
                plus standard access points, thus providing the flexibility needed
                to
                address challenging customer network requirements in difficult
                environments. This multiple radio feature, a new improved mesh protocol,
                and the use of a powerful network processor with hardware acceleration
                engines that can perform packet classification, bring the SPEEDLAN
                9300 to
                a new level of performance.





The
      SPEEDLAN 9100, 9200 and 9300 series are all outdoor units designed for the
      most
      severe environmental conditions. Target markets for the SPEEDLAN family of
      products include security, surveillance, wireless ISPs and other private
      networks for a myriad of IP-based applications .





***Repair
      and Maintenance Business*** **.** As a
      result of the Restructuring Plan, a substantial portion of Wave Wireless’
revenue is derived from the sale of refurbished radios in connection with its
      RMA Business. The RMA Business results from the repair and maintenance of a
      single legacy product line, Tel-Link, which was the first product introduced
      by
      Wave Wireless in 1992. The Tel-Link radio was very successful, shipping over
      150,000 radios during the life of the product line. While these radios have
      proved to be very reliable over the years, they often require repair due to
      standard wear and tear and degradation of performance. Because Wave Wireless
      maintains a buffer stock of repaired, fully tested refurbished Tel-Link radios,
      it is uniquely positioned to provide unmatched service to its network customers.





-
          2
          -


Wave
      Wireless’ RMA customers consist of operators of large networks, as well as a
      number of smaller network operators and system integrators geographically
      dispersed throughout the world, Wave Wireless’ top three RMA customers accounted
      for approximately 78% of all revenue attributable to the RMA Business during
      the
      fiscal year ended December 31, 2005, and we lost one of our top three RMA
      customers during 2005 which accounts for 19% of all revenue attributable to
      the
      RMA Business during the year. It is currently anticipated that our RMA Business
      will decline over time as our customers replace existing Tel-Link radios with
      new radios rather then send them back to Wave Wireless for repair and
      maintenance.





Most
      failed radios are shipped to Wave Wireless’ intake facility in Reddich, England,
      which Wave Wireless maintains to satisfy the requirements of many of its
      European customers. All indoor units (“IDUs”) are sent to Wave Wireless’
facility in San Jose, California, while all outdoor units (“ODUs”) are sent to
      Tortona, Italy, where they are refurbished under a Repair Service Agreement
      with
      Nuove Officine Radio Tortona s.r.l. The Repair Service Agreement expires in
      June
      2007. Refurbished ODUs and IDUs are then returned to the Reddich facility for
      shipment back to the customers.





**Sales
      Channels and Wave Wireless’ Customers**




Wave
      Wireless’ sales and marketing efforts are directed from its corporate offices in
      San Jose, California. In the United States, Wave Wireless maintains sales
      support through offices located in Florida, California, Washington D.C. and
      Oregon. Outside the United States, Wave Wireless maintains sales operations
      and
      customer support facilities in the United Kingdom that serves the European
      market, Singapore for the Asian market, and Mexico for the Latin American
      market. Internationally, Wave Wireless uses a variety of sales channels,
      including system integrators, original equipment manufacturers, dealers, and
      local agents with full service local capabilities, ranging from marketing and
      sales, to systems design, installation, and maintenance. Wave Wireless also
      sells directly to select customers, while avoiding conflict with its authorized
      local distribution channels. Wave Wireless has established agent relationships
      in numerous other countries in the Asia/Pacific region, the Middle East, Latin
      America, and Europe, and continues to add to its growing network of resellers
      and agents.




Typically,
      Wave Wireless’ sales process commences with the solicitation of bids by
      prospective customers. If selected to proceed further, Wave Wireless may provide
      systems for incorporation into system trials, or Wave Wireless may proceed
      directly to contract negotiations. Wave Wireless can not record revenue until
      system trials are successfully completed, and Wave Wireless then negotiates
      a
      contract with the customer to set technical and commercial terms of sale. These
      terms of sale govern the purchase orders issued by the customer as the network
      is deployed and/or enhanced.




Due
      to
      the complexity of Wave Wireless’ radio systems, a high level of technical
      sophistication is required on the part of its sales and marketing personnel.
      In
      addition, Wave Wireless believes that post-sale customer service programs are
      fundamental to customer satisfaction and the potential for follow-on business.
      New customers are provided engineering assistance for installation of the
      initial units as well as varying degrees of field training depending upon the
      customer’s technical aptitude. Wave Wireless’ customer service efforts are
      supplemented by its system providers.




For
      the
      years ended December 31, 2005 and 2004, Wave Wireless’ significant customers,
      and their respective percent contribution to its sales are as
      follows:




Customer
            
            2005
            
            2004Orange
                Personal Communications System (OPCS)
            
            
            27
            %
            
            13
            %Vodafone
                (Mannesmann)
            
            
            5
            %
            
            15
            %Aces
            
            
            10
            %
            
            1
            %T-Mobile
            
            
            10
            %
            
            12
            %TelCel
            
            
            12
            %
            
            25
            %Total
            
            
            64
            %
            
            66
            %




During
      2005, sales to OPCS and TelCel accounted for 27% and 12% of Wave Wireless’ total
      sales, respectively. Sales to TelCel have substantially decreased due to
      management’s decision to discontinue sales of its licensed radio systems in
      connection with the Restructuring Plan. Sales to a relatively small number
      of
      customers, particularly in connection with its RMA Business, will continue
      to
      account for a high percentage of its sales in the foreseeable future. Although
      the composition of Wave Wireless’ largest customer group may vary from period to
      period, the loss of a significant customer or a major reduction in orders by
      any
      significant customer, through reductions due to market, economic or competitive
      conditions in the telecommunications industry, may adversely affect Wave
      Wireless’ business, financial condition, and results of operations. Wave
      Wireless’ ability to maintain or increase its sales in the future will depend,
      in part, upon its ability to maintain its RMA Business, to obtain orders from
      new customers, as well as the financial condition and success of its customers,
      and the economy in general.




-
          3
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**Research
      and Development**




As
      part
      of the Restructuring Plan, Wave Wireless divested its interest in P-Com Italia,
      which manufactured certain product components for Wave Wireless, and provided
      it
      with select research and development services. Wave Wireless ceased further
      development of new licensed spectrum products but plans to continue research
      and
      development on its license exempt products from its San Jose, California
      facility. Wave Wireless expects to continue to invest in research and
      development to maintain superior features for the SPEEDLAN family of products.
      Wave Wireless invested approximately $3.0 million and $5.0 million in 2005
      and
      2004, respectively, in total research and development efforts, including
      amortization and depreciation. As a result of the Restructuring Plan announced
      in April 2005, Wave Wireless anticipates investing approximately $600,000 per
      quarter in research and development efforts, focused principally on the SPEEDLAN
      product line.





Wave
      Wireless’ research and development efforts can be classified into two distinct
      efforts: (1) increasing the functionality of its point-to-point,
      point-to-multipoint and mesh radio systems through a) the development of
      additional frequencies and product capacities, and b) the enhancement of its
      network management system software offering, and (2) integrating new
      functionality to extend the reach of its products into customer networks, such
      as access technology which allows the customer to manage telecommunications
      services on-site and integrate voice, data, video and facsimile in one offering.
      Wave Wireless also intends to develop additional SPEEDLAN products with smaller
      size, greater functionality and greater ease of use for new markets, including
      developing a line of next generation fixed wireless broadband products based
      on
      the 802.11a/g and/or 802.16 standards.





**Competition**




The
      worldwide wireless communications market is extremely competitive. Wave
      Wireless’ wireless radio systems compete with other wireless telecommunications
      products and alternative telecommunications transmission media, including copper
      and fiber optic cable. Wave Wireless has experienced competition worldwide
      from
      a number of leading telecommunications companies that offer a variety of
      competitive products and services, including Alvarion, Nortel, Proxim, Tropos
      Networks, Motorola, Trango Systems, Belair Networks, Firetide and Tranzeo
      Wireless Technologies. Many of these companies have substantially greater
      installed bases, financial resources and production, marketing, manufacturing,
      engineering and other capabilities than Wave Wireless.




In
      addition, numerous start-ups continue to enter the marketplace with competing
      products. The principal elements of competition in Wave Wireless’ market, and
      the basis upon which customers typically select the Wave Wireless’ systems,
      include price, performance, software functionality, ability to meet quick
      delivery requirements, and customer service and support capabilities. Wave
      Wireless expects its competitors to continue to improve the performance and
      lower the price of their current products and to introduce new products or
      new
      technologies that provide added functionality and other features. New product
      introductions and enhancements by Wave Wireless’ competitors has caused a
      significant decline in its sales or loss of market acceptance of its systems,
      and in certain cases, has made its systems or technologies obsolete or
      noncompetitive. Wave Wireless has experienced significant price competition
      and
      expects price competition to intensify as a result of new entrants into the
      market. This has adversely affected Wave Wireless’ business, financial condition
      and results of operations. Wave Wireless believes that its ability to continue
      to compete successfully is based on factors both within and outside of its
      control. Timing of new product line introductions, performance characteristics
      of Wave Wireless’ equipment and the ability of its customers to be successful
      all play key roles. In order to remain competitive, Wave Wireless will be
      required to continue to expend significant resources on new product development,
      cost reduction and enhancements.




**Government
      Regulation**




Radio
      telecommunications are subject to extensive regulation by the United States
      and
      foreign governmental agencies and international treaties. Wave Wireless’
products must conform to a variety of domestic and international requirements
      established to, among other things, avoid interference among users of radio
      frequencies and to permit interconnection of equipment. Each country has a
      different regulatory process. Historically, in many developed countries, the
      limited availability of frequency spectra has inhibited growth of wireless
      telecommunications networks.




In
      order
      for Wave Wireless to operate within a specific country’s jurisdiction, it must
      obtain regulatory approval for its systems and comply with different regulations
      in each jurisdiction. Regulatory bodies worldwide continue to adopt new
      standards for wireless telecommunications products. The delays inherent in
      this
      governmental approval process may cause the cancellation, postponement or
      rescheduling of the installation of communications systems, which in turn may
      have prevented or delayed the recognition of the sale of Wave Wireless’
systems.




The
      failure to comply with current or future regulations or changes in the
      interpretation of existing regulations could result in suspension or cessation
      of operations in that particular jurisdiction. These regulations and changes
      could require Wave Wireless to modify its products and incur substantial costs
      and delays to comply with these time-consuming regulations and changes. In
      addition, Wave Wireless is also affected by the regulation, allocation and
      auction of radio frequency spectrum by domestic and international authorities.
      Equipment to support new services can be marketed only if permitted by suitable
      frequency allocations, auctions and regulations, and the process of establishing
      new regulations is complex and lengthy. If personal communications service
      operators and others are delayed in deploying their systems, Wave Wireless
      could
      experience delays in orders for Wave Wireless’ products. Failure by the
      regulatory authorities to allocate suitable frequency spectrum could adversely
      affect its business, financial condition and results of operations.




-
          4
          -


The
      regulatory environment in which Wave Wireless operates is subject to significant
      change. Regulatory changes, which are affected by political, economic and
      technical factors, could significantly impact its operations by restricting
      the
      development efforts of its customers, making current systems obsolete or
      increasing the opportunity for additional competition. Any of these regulatory
      changes, including changes in the allocation of available spectrum, could
      adversely affect Wave Wireless’ business and results of operations. Wave
      Wireless might modify its systems in order to operate in compliance with
      applicable regulations. These modifications could be costly and time consuming
      to implement.




**Intellectual
      Property**




Wave
      Wireless generally owns its intellectual property, except for its existing
      patents, which were sold to a third party in November 2005. In connection with
      this sale, Wave Wireless retained a non-exclusive, perpetual, royalty free
      right
      and license to use the patents in connection with its millimeter wave radio
      licensed products.




Wave
      Wireless relies on its ability to obtain and enforce its intellectual property
      rights, including copyrights on its proprietary software. Wave Wireless
      generally enters into confidentiality and nondisclosure agreements with service
      providers, customers and others, and limits access to and distribution of its
      proprietary technology. Wave Wireless also enters into software license
      agreements with its customers and others. However, these measures may not
      provide adequate protection for Wave Wireless’ trade secrets and other
      proprietary information. Disputes over the ownership of Wave Wireless’
intellectual property rights may still arise and its trade secrets and
      proprietary technology may otherwise become known or be independently developed
      by competitors. Any patent Wave Wireless licenses may be invalidated,
      circumvented or challenged, the rights granted thereunder may not provide
      competitive advantages or any of its future patent applications may not be
      issued with the scope of the claims sought, if at all. Furthermore, others
      may
      develop similar products or software, duplicate Wave Wireless’ products or
      software, or third parties may assert intellectual property infringement claims
      against it. In addition, foreign intellectual property laws may not adequately
      protect Wave Wireless’ intellectual property rights abroad. Failure to protect
      Wave Wireless’ proprietary rights could adversely affect its business, financial
      condition, and results of operations.




Litigation
      may be necessary to enforce Wave Wireless’ intellectual property rights, to
      protect its trade secrets, to determine the validity of and scope of the
      proprietary rights of others or to defend against claims of infringement or
      invalidity. This litigation could result in substantial costs and diversion
      of
      resources and could adversely affect Wave Wireless’ business, financial
      condition and results of operations regardless of the outcome of the litigation.
      Infringement, invalidity, right to use or ownership claims by third parties
      or
      claims for indemnification resulting from infringement claims may be asserted
      in
      the future and these assertions may adversely affect Wave Wireless’ business,
      financial condition, and results of operations. If any claims or actions are
      asserted against Wave Wireless, it may seek to obtain a license under a third
      party’s intellectual property rights. However, a license may not be available
      under reasonable terms or at all. In addition, if Wave Wireless decides to
      litigate these claims, the litigation could be extremely expensive and time
      consuming and could adversely affect Wave Wireless’ business, financial
      condition and results of operations, regardless of the outcome of the
      litigation.




**Employees**




As
      of
      December 31, 2005, Wave Wireless employed a total of 47 employees, including
      18
      in Operations, seven in Research and Development, 15 in Sales and Marketing
      and
      seven in Administration. Of Wave Wireless’ total employees, two were part-time
      employees. Wave Wireless believes that future success will depend in large
      part
      on its ability to attract and retain highly skilled employees. No employees
      are
      represented by a labor union, and Wave Wireless has not experienced any work
      stoppages.




-
          5
          -




**ITEM
      2.**  **DESCRIPTION
      OF PROPERTIES** ****




SquareLocation
                of Leased Facility
            Functions
            Footage
            Date
                Lease ExpiresHeadquarters,
                San Jose, CA
            Administration/CustomerSupport/Sales/Engineering;Manufacturing
            19,219
            June
                30, 2010Redditch,
                England
            Warehouse/Operations
            6,700
            September
                28, 2009Sarasota,
                FL
            Sales/Customer
                Support
            1,200
            July
                31, 2006





Wave
      Wireless does not own any real property.





**ITEM
      3.****LEGAL
      PROCEEDINGS******




On
      June
      20, 2003, Agilent Financial Services, Inc. ("Agilent") filed a complaint against
      Wave Wireless for Breach of Lease, Claim and Delivery and Account Stated, in
      Superior Court of the State of California, County of Santa Clara. The amount
      claimed is approximately $2.5 million, and represents accelerated amounts due
      under the terms of capitalized equipment leases of Wave Wireless. On June 27,
      2003, the parties filed a Stipulation for Entry of Judgment and Proposed Order
      of Dismissal of Action With Prejudice. Under the terms of the Stipulation,
      Wave
      Wireless paid Agilent $50,000 on July 15, 2003 and $100,000 on September 1,
      2003, and paid $50,000 per month though November 2004. On November 30, 2004,
      Agilent entered into an agreement with us to restructure the $1,725,000 due
      Agilent on December 31, 2004. Under the terms of the agreement, we paid Agilent
      an initial payment of $250,000 on December 1, 2004; and paid monthly payments
      of
      $92,187 though March 2005. Also, we issued Agilent a warrant to purchase 178,571
      shares of our common stock. The warrant has an initial exercise price of $0.56
      and a term of five years. On March 31, 2005, Wave Wireless and Agilent entered
      into a further agreement whereby one half of the remaining debt of $1,111,599
      would be paid in equal payments over 18 months beginning April 1, 2005, with
      the
      other half being paid in the form of senior preferred stock convertible at
      any
      time at the option of the holder into common stock at a price of $.50 per share.
      As a result of the Stipulation, judgment under the Complaint will not be entered
      unless and until Wave Wireless defaults under the terms of the Stipulation,
      as
      amended to reflect the agreements described above. In the event Wave Wireless
      satisfies each of its payment obligations under the terms of the Stipulation,
      the Complaint will be dismissed, with prejudice.





In
      June
      2000, two former consultants to P-Com Italia S.p.A. filed a complaint against
      P-Com Italia in the Civil Court of Rome, Italy seeking payment of certain
      consulting fees allegedly due the consultants totaling approximately $615,000.
      The Civil Court of Rome appointed a technical consultant in order to determine
      the merit of certain claims made by the consultants. On April 20, 2005, the
      Civil Court of Rome issued judgment dismissing the case, and ordered the
      consultants to pay P-Com Italia's legal fees. The Court's order has been
      appealed by the consultants to the Court of Appeal of Rome. While no assurances
      can be given, Wave Wireless believes that the Court of Appeal of Rome will
      dismiss the Appeal.





On
      September 16, 2005, Wave Wireless was served with a Complaint filed by Lakewood
      Ranch Properties, Inc. (the "Landlord") for failure to pay one month's rent
      due
      under the terms of a Sublease Agreement dated January 3, 2005, by and between
      the Landlord and Wave Wireless (the "Sublease"), in the amount of $26,771.43.
      The Complaint seeks eviction of Wave Wireless from its facility in Sarasota,
      Florida, and damages in the amount of $28,110.00. Landlord also alleges that
      Wave Wireless is liable under the Sublease for accelerated future monthly rent
      through September 30, 2016. The total amount of the Complaint filed was
      $3,533,828.70. On October 17, 2005, both parties entered into a Lease
      Termination Agreement and Lakewood Ranch has agreed to dismiss the Complaint
      filed in the amount of $3,533,828, after payments totaling $310,000 are made.
      As
      of December 31, 2005, the amount remaining to be paid is $240,000. On January
      30, 2006, Wave Wireless and the Landlord entered into an Amendment to Addendum
      of Termination Agreement (“Amendment”). Under the term of the Amendment, Wave
      Wireless paid $30,000 to Landlord on February 1, 2006, and $30,000 to Landlord
      on March 20, 2006, and is required to pay Landlord $180,000 on or before March
      31, 2006. Wave Wireless intends to seek financing to make the required payments.
      No assurances can be given that Wave Wireless will be able to obtain the
      necessary financing to make the remaining required payments.





In
      the
      event we are unable to satisfactorily resolve these and other proceedings that
      might arise, our financial position and results of operations may be materially
      affected.







-
          6
          -


**ITEM
      4.**  **SUBMISSION
      OF MATTERS TO A VOTE OF SECURITY HOLDERS** ****




None





**PART
      II** ****





**ITEM
      5.****MARKET
      FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS******







Our
      common stock trades on the OTC Bulletin Board operated by the National
      Association of Securities Dealers, Inc. Our common stock is subject to the
      Securities Exchange Commission's ("SEC") "penny stock" regulation. For
      transactions covered by this regulation, 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 of broker-dealers
      to sell our common stock and may affect the ability of holders to sell the
      common stock in the secondary market, and the price at which a holder can sell
      the common stock. Effective July 19, 2004, we affected a thirty for one reverse
      stock split. Effective as of July 19, 2004, our common stock trades under the
      symbol PCMC on the OTC Bulletin Board.





The
      following table sets forth the range of high and low sale prices of our common
      stock, as reported on the OTC Bulletin Board for each quarter in 2005 and 2004.
      These quotations reflect inter-dealer prices, without retail mark-up, markdown
      or commission and may not necessarily represent actual transactions. All price
      numbers have been adjusted to reflect the reverse stock split effective July
      19,
      2004.





As
      of
      March 1, 2006, there were 847 stockholders of record of Wave Wireless’ common
      stock.





PRICE
                RANGE OF COMMON STOCKHIGH
            
            LOWYear
                Ended December 31, 2004:First
                Quarter
            
            $
            6.00
            
            $
            1.80Second
                Quarter
            
            
            2.31
            
            
            1.17Third
                Quarter
            
            
            1.26
            
            
            0.63Fourth
                Quarter
            
            
            0.66
            
            
            0.38Year
                Ended December 31, 2005:First
                Quarter
            
            $
            0.54
            
            $
            0.13Second
                Quarter
            
            
            0.24
            
            
            0.12Third
                Quarter
            
            
            0.36
            
            
            0.15Fourth
                Quarter
            
            
            0.24
            
            
            0.13




**RECENT
      SALES OF UNREGISTERED SECURITIES**





From
      October 1, 2005 through December 31, 2005, Wave Wireless issued Convertible
      Notes to certain purchasers in the principal amount of $850,000, payable on
      or
      before March 31, 2006. Proceeds from the issuance of the Convertible Notes
      were
      used for general working capital purposes. Interest accrues on the Convertible
      Note at an annual interest rate of 10%. Under the terms of the Convertible
      Note,
      the holders have the option to convert the outstanding balance due under the
      terms of the Convertible Notes into shares of common stock of Wave Wireless
      at a
      price per share of $0.15 at any time the Convertible Notes remains outstanding.
      In addition, the outstanding principal amounts and all accrued but unpaid
      interest under the terms of the Convertible Notes automatically convert into
      any
      shares issued in an equity or equity-based financing with gross proceeds of
      at
      least $2,500,000 (“Equity Financing”). For purposes of determining the number of
      equity securities to be received by the holders upon such conversion, the
      holders shall be deemed to have tendered 120% of the outstanding balance of
      the
      Convertible Notes as payment of the purchase price in the Equity Financing.
      As
      additional consideration for the loans evidenced by the Convertible Notes,
      the
      holders were issued warrants for the issuance of 1,875,000 shares of common
      stock of Wave Wireless at an exercise price of $.20 per share.





-
          7
          -


On
      November 10, 2005, Wave Wireless and SDS Capital Group SPC, Ltd. ("Purchaser")
      exchanged all issued and outstanding promissory notes previously issued by
      Wave
      Wireless and held by Purchaser ("Old Notes") for and in consideration for the
      issuance to the Purchaser of a new promissory note, in the principal amount
      of
      $4,153,649 (the "New Note"), which amount represented unpaid principal and
      accrued interest due under the terms of the Old Notes as of the date of the
      New
      Note, October 1, 2005. Under the terms of the New Note, interest accrues on
      such
      debt at an annual interest rate of 8%, and this rate increases to 10% on April
      1, 2006 through the maturity date of the loan, December 31, 2007. Payments
      of
      principal and accrued interest under the New Note are amortized and paid by
      Wave
      Wireless over a period of eight quarters in either cash or shares of Wave
      Wireless’ common stock, with the first amortization payment due December 31,
      2005. Amounts due and owing Purchaser under the terms of the New Note are
      secured by all assets of Wave Wireless.




No
      underwriters were involved in the foregoing stock transactions. The securities
      issued in connection with each of the above financings were issued private
      transactions, in reliance on an exemption from registration under Section 4(2)
      of the Securities Act of 1933, and Rule 506 of Regulation D promulgated
      thereunder, because each offering was a non-public offering to accredited
      investors.





**DIVIDENDS**





To
      date,
      we have not paid any cash dividends on shares of our common stock. We do not
      anticipate that funds will be legally available to make the required dividend
      payments in the foreseeable future, and such obligations therefore will accrue
      in arrears until such time as we have legally available funds to make the
      required distributions.




**ITEM
      6.****MANAGEMENT'S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS******





Management's
      discussion and analysis of financial condition and results of operations
      contains forward-looking statements, which involve risks and uncertainties.
      Our
      actual results could differ materially from those anticipated in these
      forward-looking statements as a result of certain factors, including those
      set
      forth in the section entitled "Risk Factors" beginning on Page 14 of this
      Annual Report on Form 10-KSB.





**OVERVIEW**





We
      develop, manufacture and distribute next generation wireless mesh routers for
      the telecommunications, security and surveillance and public safety markets.
      Our
      mesh, point-to-point and point-to-multipoint broadband wireless access systems
      combine high performance, versatility and AES encryption to deliver a broad
      range of powerful applications and turnkey solutions ideally suited for internet
      service providers, educational institutions, corporate enterprises and
      government agencies. Our wireless access systems are sold globally through
      our
      own sales force, as well as through strategic partners, distributors, systems
      integrators, and value added resellers. We are also focused on supporting our
      global customer base in connection with our repair and maintenance business
      (“RMA Business”).





**Summary
      of Operations.**





We
      have
      incurred substantial losses in recent years. During the years ended December
      31,
      2005 and 2004, we recorded net losses from continuing operations of ($12.6)
      million and ($3.3) million, respectively. In April 2005, we announced a formal
      restructuring plan designed to dramatically reduce costs, refocus its strategic
      direction, and ultimately achieve profitability (“Restructuring Plan”). Key
      elements of the Restructuring Plan involved both (i) divesting Wave Wireless’
legacy product lines for the licensed market that were expected to result in
      continued substantial operating losses, and (ii) refocusing Wave Wireless’
product strategy around its SPEEDLAN product line and the market for robust
      license-exempt and licensed public safety band wireless applications. Wave
      Wireless will also continue to provide repair and maintenance (“RMA”) support
      services to its installed base of legacy products for the licensed wireless
      backhaul market.




Our
      revenues decreased from $24.2 million in 2004 to $11.8 million in 2005. The
      decrease was primarily due to our decision to discontinue our license products
      and concentrate on our unlicensed products as part of the Restructuring Plan,
      and a substantial decrease attributable to our RMA Business.




We
      are
      focused on increasing sales of our SPEEDLAN product line and on maintaining
      our
      RMA Business. In addition, on November 16, 2005, Wave Wireless announced its
      intent to merge with WaveRider Communications Inc. (the “WaveRider Merger”). The
      WaveRider Merger is a strategic fit that brings together complementary business
      lines, engineering, sales and marketing compatibilities and innovative
      technology. The combination of Wave Wireless’ SPEEDLAN family of mesh networking
      products and WaveRider’s Last Mile Solution â non-line-of-sight, fixed and mobile wireless 900 MHz products will provide
      customers with a wide range of line-of-sight fixed and non-line-of-sight
      products and services, and positions the combined company as a worldwide
      provider of robust wireless broadband applications and solutions. A definitive
      Agreement and Plan of Merger was executed on January 3, 2006. The WaveRider
      Merger was approved by WaveRider stockholders, at a special meeting of
      stockholders of WaveRider, held on March 20, 2006. It is currently anticipated
      that the WaveRider Merger will close on or before the end of the quarter ending
      March 31, 2006.




-
          8
          -


In
      order
      to provide for its immediate working capital needs prior to, and after the
      proposed WaveRider Merger, Wave Wireless will be required to obtain additional
      financing. See *“Liquidity
      and Capital Resources”* below.




**Summary
      of Liquidity and Capital Resources.**





We
      used
      ($4.9) million and ($9.1) million in cash, respectively, in supporting our
      operating activities during the years ended December 31, 2005 and 2004,
      respectively. Our financing activities generated $2.4 million and $4.7 million
      during the years ended December 31, 2005 and 2004, respectively. Based upon
      current internal projections at current operating levels, and taking account
      of
      current working capital, we will have a significant cash shortfall in our
      operations during the year ended December 31, 2006. In addition, our current
      cash reserves will be exhausted by the first quarter of the year ending December
      31, 2006. There are currently no committed funding arrangements to support
      this
      projected cash shortfall. Our projected sources of working capital that are
      utilized in our operating model includes the following:





We
      have a
      $2.0 million line of credit with Silicon Valley Bank that expires on March
      30,
      2006. This Credit Facility has significant terms and conditions that will limit
      our ability to draw funds. Available borrowing under the Credit Facility is
      based on our accounts receivable. At March 1, 2006, we had $208,000 in
      additional borrowing availability under the Credit Facility.





We
      are
      currently seeking debt or equity financing in order to meet our immediate
      working capital needs, and in order to provide adequate working capital
      following consummation of the proposed WaveRider Merger. Our ability to continue
      as a going concern is dependent upon acquiring additional cash through financing
      arrangements, as well as upon negotiating a settlement with certain of our
      largest creditors. While we are actively seeking additional equity and/or debt
      financing, as well as negotiating settlements with certain of our largest
      creditors, there are currently no commitments. There can be no assurances that
      any additional financing will be available on acceptable terms, if at all,
      or
      that we will be successful in our ability to enter into settlement agreements
      to
      reduce our short-term working capital requirements.





**YEARS
      ENDED 2005 AND 2004**





**Sales**





In
      2005
      and 2004, our sales were approximately $11.8 million and $24.2 million,
      respectively. As discussed below, the 51% decrease in sales from 2004 to 2005
      was primarily due to our decision to exit the licensed business and focus on
      our
      unlicensed business. In addition, sales of refurbished radios in connection
      with
      our RMA Business declined to approximately $6.4 million in 2005 compared to
      $11.2 million in 2004.





Sales
      of
      licensed products in 2005, including refurbished radios, was $9.1 million,
      or
      77% of total sales, while sales of unlicensed products was $2.7 million, or
      23%
      of total sales. Sales of licensed products in 2004, including refurbished
      radios, was $19.1 million, or 79% of total sales, while sales of unlicensed
      products was $5.1 million, or 21% of total sales. Sales of unlicensed products
      declined by approximately $2.4 million from 2004 to 2005, principally as a
      result of the discontinuation of the sale of certain legacy unlicensed product
      lines. While no assurances can be given, we currently expect that revenue
      attributable to unlicensed wireless equipment sales to increase, given Wave
      Wireless’ focus on the SPEEDLAN product line as a result of the Restructuring
      Plan announced in April 2005. As a result of the Restructuring Plan, we
      discontinued our licensed product line because demand for licensed wireless
      equipment had not significantly increased since 2000, when spending on
      telecommunications equipment peaked, and competition had intensified. We
      continue, however, to sell refurbished licensed radio products in connection
      with our repair and maintenance business. See “ *Restructuring
      Activities* ”,
      below.





The
      significant decrease in revenue in 2005 as compared to the comparable period
      last year is attributable to substantially lower revenue in certain licensed
      product lines and lower than anticipated refurbished licensed product revenue
      associated with our RMA Business. The lower revenue attributable to our licensed
      product lines principally reflects the exiting of an unprofitable product line
      contemplated in our Restructuring Plan. Because of the significant decline
      in
      sales attributable to our licensed product lines, a substantial portion of
      our
      product sales continue to come from our RMA Business, which generated
      approximately $6.4 million ,
      or 54%
      of total sales, and 70% of total sales of licensed products for
      2005, but were down from the $11.2 million ,
      or 46%
      of total sales, and 58% of total sales of licensed products for
      2004.





The
      decrease in sales attributable to our RMA Business in 2005 is principally caused
      by lower sales volume attributable to the loss of a single customer in Europe,
      as well as by the decommissioning of certain of our licensed radio products
      from
      another customer's network. Management anticipates that, as our customers'
      networks age, and the cost to replace these networks decrease, our customers
      may
      similarly elect to decommission our licensed radio products installed in their
      networks. In addition, competition from other repair and maintenance service
      providers may negatively affect sales attributable to our RMA Business. Wave
      Wireless entered into an agreement with one of its customers to secure the
      sale
      of refurbished licensed radio products to this customer through March 2006,
      and
      with another customer to provide RMA services through December 31, 2006.
      Nevertheless, it is anticipated that our RMA Business will decline over time.





-
          9
          -


Sales
      to
      Orange Personal Communications Services accounted for 27% and 13% of total
      sales
      in 2005 and 2004, respectively. Sales to T-Mobile (previously known as
      Mercury-One-to-One) accounted for 10% and 12% of 2005 and 2004 sales,
      respectively. Wave Wireless did not derive revenue from sales to T-Mobile during
      the quarter ended December 31, 2005, and it is currently anticipated that sales
      to this customer will not recur. Wave Wireless will continue to be dependent
      on
      a few customers, specifically in connection with its RMA Business, for a
      substantial portion of its sales in 2006.





During
      2005, we generated 9% of our sales in the United States, 38% in the United
      Kingdom, 11% in continental Europe, 7% in Asia, 15% in the Middle East, 16%
      in
      Latin America, and 4% in other geographical regions. During 2004, we generated
      11% of our sales in the United States, 23% in the United Kingdom, 21% in
      continental Europe, 8% in Asia, 6% in the Middle East, 26% in Latin America,
      and
      4% in other geographical regions.





**Gross
      Profit**





Cost
      of
      sales consists primarily of costs related to materials, labor and overhead,
      freight and duty. Cost of sales amounted to $8.5 million and $18.7 million
      during the years ended December 31, 2005 and 2004, respectively. In 2005 and
      2004, gross profit was $3.3 million and $5.5 million, respectively, or 28%
      and
      23% of sales, respectively.





The
      higher gross margin in 2005 was principally
      attributable to non-recurring adjustment items consisting of a favorable accrued
      inventory liability adjustment of $243,000, shipments of inventory on terminated
      purchase orders which reduced our accrued cancellation cost by $116,000 and
      a
      reduction in inventory reserves of $368,000 due to sales of licensed products
      which were previously reserved.





As
      discussed under “ *Summary
      of Operations* ”
above,
      the proposed WaveRider Merger will have the effect of further reducing our
      overall operating costs.





**Research
      and Development**





Research
      and development expenses consist primarily of costs associated with new product
      development. Our research and development activities include the development
      of
      additional radio products, frequencies and upgrading operating features, and
      related software tools. Software development costs incurred prior to the
      establishment of technological feasibility are expensed as incurred. Software
      development costs incurred after the establishment of technological feasibility
      and before general release to customers are capitalized, if material.





In
      2005
      and 2004, research and development expenses were approximately $3.0 million
      and
      $5.0 million, respectively. As a percentage of product sales, research and
      development expenses increased from 20% in 2004 to 25% in 2005, primarily due
      to
      the lower revenues from exiting the licensed products business, though the
      dollar amount has decreased as a resu lt
      of
      headcount reductions and other related expense reductions caused by the
      implementation of the Restructuring Plan, and the resulting focus on unlicensed
      product development .





**Selling
      and Marketing**





Selling
      and marketing expenses consist of salaries, sales commissions, travel expenses,
      customer service and support expenses, and costs related to business development
      and trade shows. In 2005 and 2004, selling and marketing expenses were $3.1
      million and $6.8 million, respectively. As a percentage of sales, selling and
      marketing expenses were consistent at 28% in 2004 to 27% in 2005, though the
      dollar amount has decreased due to the implementation of the Restructuring
      Plan,
      which included substantial cost reductions.





**General
      and Administrative**





General
      and administrative expenses consist primarily of salaries and other expenses
      for
      management, as well as finance, accounting, data processing, public company
      costs, legal, and other professional services. In 2005 and 2004, general and
      administrative expenses, were $3.5 million and $4.6 million, respectively.
      As a
      percentage of sales, general and administrative expenses increased from 19%
      in
      2004 to 30% in 2005, primarily due to lower revenues resulting from exiting
      the
      licensed product business, though the dollar amount has decreased due the realization
      of savings from cost reduction efforts caused by implementation of the
      Restructuring Plan, including reduced consulting and legal expenses, and
      facilities consolidation.





-
          10
          -


**Restructuring
      Activities**





In
      the
      event that certain facts and circumstances indicate that the long-lived assets
      may be impaired, an evaluation of recoverability would be performed. When an
      evaluation occurs, management conducts a probability analysis based on the
      weighted future undiscounted cash flows associated with the asset. The results
      are then compared to the asset's carrying amount to determine if impairment
      is
      necessary. The cash flow analysis for the property and equipment is performed
      over the shorter of the expected useful lives of the assets, or the expected
      life cycles of our product line. An impairment charge is recorded if the net
      cash flows derived from the analysis are less than the asset's carrying value.
      We deem that the property and equipment is fairly stated if the future
      undiscounted cash flows exceed its carrying amount.





In
      April
      2005, we announced the adoption of the Restructuring Plan that significantly
      curtailed current spending, and substantially reduced liabilities and operating
      and other costs. The Restructuring Plan included the divestiture of certain
      unprofitable product lines, workforce reductions, write-down of certain
      inventory, and a loss associated with the divestiture of Wave Wireless’ research
      and development operations in Italy. A restructuring charge of nearly $5.3
      million was taken as of March 31, 2005, to cover the costs associated with
      the
      Restructuring Plan.





At
      September 30, 2005, we recorded $310,000 in restructuring expense resulting
      from
      the termination of the Sublease Agreement, dated January 3, 2005, between Wave
      Wireless and Lakewood Ranch Properties, Inc. (“Sublease”). The Termination
      Agreement, dated October 17, 2005, is intended to result in the dismissal of
      a
      Complaint filed September 16, 2005 by Lakewood Ranch Properties for the failure
      to pay one month's rent due under the terms of the Sublease, in the amount
      of
      $26,771.43. Lakewood Ranch Properties also alleged that we were liable under
      the
      Sublease for accelerated future monthly rent through September 30, 2016.





On
      October 17, 2005, both parties entered into a Lease Termination Agreement and
      Lakewood Ranch has agreed to dismiss the Complaint filed in the amount of
      $3,533,828.70, after payments totaling $310,000 are made. On January 30, 2006,
      Wave Wireless and the Landlord entered into an Amendment to Addendum of
      Termination Agreement (“Amendment”). Under the term of the Amendment, Wave
      Wireless paid $30,000 to Landlord on February 1, 2006, and is required to pay
      $30,000 to Landlord or before February 28, 2006, and $180,000 on or before
      March
      31, 2006. Wave Wireless intends to seek financing to make the required payments.
      No assurances can be given that Wave Wireless will be able to obtain the
      necessary financing to make the remaining required payments. We intend to seek
      financing to make the required payments and no assurances can be given that
      we
      will be able to obtain the necessary financing to make the required payments.
      $240,000 remains outstanding as of December 31, 2005.





**Goodwill
      Amortization and Impairment**





We
      accounted for the SPEEDCOM purchase transaction using the purchase method of
      accounting. Under the purchase method of accounting, the total purchase price,
      plus the fair value of assumed liabilities, is allocated to the net tangible
      and
      identifiable intangible assets acquired, based upon their respective fair
      values. The total purchase price of approximately $7,514,000 consisted of
      2,116,666 shares of our Common Stock, valued using market values for such shares
      around the commitment date ($3.42). The acquisition resulted in goodwill of
      approximately $11.9 million, because the value of the assumed liabilities
      exceeded the value of the tangible assets acquired.





In
      accordance with Statement of Financial Accounting Standards No. 142, Goodwill
      and Other Intangible Assets, goodwill resulting from the purchase, if any,
      will
      not be amortized into operations. Rather, such amounts will be tested for
      impairment at least annually. In the event that we determine that the value
      of
      goodwill has become impaired, an accounting charge for the amount of the
      impairment will be recorded. No impairment of goodwill was recorded in 2005
      because the fair value of the combined business units exceeded the
      goodwill-carrying amount. We based our determination on a valuation completed
      by
      an outside consulting firm using estimates and assumptions provided by
      management, which we believe to be reasonable but that are unpredictable and
      inherently uncertain. Actual results may differ from those
      estimates.





**Interest
      Expense**





In
      2005
      and 2004, interest expense was $1.0 million and $0.7 million, respectively.
      In
      2005, interest expense was primarily
      on short-term bank borrowings and interest on debentures and promissory notes.
      As a result of Wave Wireless’ dependence on the Credit Facility to meet its
      working capital needs, as well as the issuance of the Notes and Convertible
      Notes, interest expense is anticipated to increase in subsequent periods
      relative to the levels incurred in 2005 .
      In
      2004, interest expense primarily related to the borrowings on the Credit
      Facility with the Bank, the issuance of the Convertible Notes, amortization
      of
      discount on promissory notes, and interest on equipment leases.






-
          11
          -


**Other
      Income (Expense), Net**




In
      2005,
      other income, net was $271,000 which primarily is due to a gain of $238,000
      from
      the sales of fixed assets, and $400,000 resulting from the sale of patents
      related to our licensed products netted against losses from transactions
      denominated against foreign currencies. In 2004, other income, net, related
      primarily to a gain on the settlement of a contract, of $7.5 million.





**Provision
      (Benefit) For Income Taxes**





There
      was
      no provision for income tax in 2005 and 2004, because Wave Wireless incurred
      net
      operating losses during the year and the realization of benefits is future
      years
      does not rise to the more likely than not standard.





**LIQUIDITY
      AND CAPITAL RESOURCES**





Since
      our
      inception in August 1991, we have financed our operations and capital
      requirements principally through net proceeds of approximately $97.2 million
      from its initial and two follow-on public offerings of our common stock; $113.1
      million from private placements of our common stock and the exercise of
      warrants; $44.6 million from five preferred stock financings; $97.5 million
      from
      the 4.25% Notes issued in 1997; $5.0 million from the issuance of debentures;
      and borrowings under bank lines of credit and equipment lease arrangements.





**Cash
      Used in Operations**





In
      2005,
      we used approximately $4.9 million of cash in operating activities, primarily
      due to our net loss of $12.6 million. In 2004, we used approximately $9.1
      million of cash in operating activities, primarily due to our net loss of $3.3
      million, a non-recurring gain on vendor settlements of approximately $8.5
      million, and reductions in accounts payable and other accrued liabilities of
      $2.3 million, offset by depreciation expenses and inventory charges of $2.4
      million and lower receivables, and other assets of $2.4 million.





**Cash
      from Investing Activities**





During
      2005, we received $0.5 million from the sale of fixed assets. During 2004,
      we
      received $0.8 million from the sale of property and equipment of $0.9 million,
      offset by new acquisitions of $0.3 million.





**Cash
      from Financing Activities**





In
      2005,
      we received $2.4 million through financing activities primarily from $0.8
      million in advances under the Credit Facility, $1.7 million in Note proceeds
      from the Debenture Financing, and $0.9 million from the issuance of Convertible
      Notes, offset by $0.9 million in repayments related to outstanding Notes and
      debentures. In 2004, we received $4.7 million through financing activities.
      This
      was due primarily to $3.3 million of proceeds from the issuance of Notes from
      the Debenture Financing, and $2.4 million net proceeds from the Special Warrant
      Offering, offset by $1.0 million of capital lease payments.





**Contractual
      Obligations**





The
      following summarizes Wave Wireless’ contractual obligations at December 31,
      2005, and the effect such obligations are expected to have on its liquidity
      and
      cash flow in future periods:





Less
                Than
            
            One
                to
            
            Three
                to
            
            AfterObligations
                (in $000):
            
            One
                Year
            
            Three
                Years
            
            Five
                Years
            
            Five
                Years
            
            TotalNon-cancelable
                operatinglease
                obligations
            
            $
            220
            
            $
            820
            
            $
            158
            
            $
            --
            
            $
            1,198Agilent
                note payable
            
            
            272
            
            
            --
            
            
            --
            
            
            --
            
            
            272Siemens
                note payable
            
            
            350
            
            
            --
            
            
            --
            
            
            --
            
            
            350Able
                note payable
            
            
            305
            
            
            --
            
            
            --
            
            
            --
            
            
            305Landlord
                note payable
            
            
            43
            
            
            30
            
            
            --
            
            
            --
            
            
            73Promissory
                note
            
            
            2,529
            
            
            2,714
            
            
            --
            
            
            --
            
            
            5,243Purchase
                order commitments
            
            
            621
            
            
            --
            
            
            --
            
            
            --
            
            
            621Total
            
            $
            4,340
            
            $
            3,564
            
            $
            158
            
            $
            --
            
            $
            8,062






-
          12
          -


During
      the first and second quarter of 2005, Wave Wireless entered into several payment
      plan agreements with vendors and creditors requiring Wave Wireless to pay off
      balances past due, or amounts agreed to between Wave Wireless and such vendors
      or creditors under settlement agreements. At December 31, 2005, the total amount
      remaining to be paid under those agreements totaled approximately $310,000,
      of
      which, approximately $272,000 is remaining for one creditor which will be paid
      over seven equal monthly installments, and $305,000 to a vendor which was
      obligated to be paid over 9 equal monthly installments. Wave Wireless failed
      to
      make the required payment to this vendor on October 1, 2005, and is negotiating
      a revised payment plan taking into consideration Wave Wireless’ current
      liquidity. These amounts are reflected as other accrued liabilities on Wave
      Wireless’ balance sheet.





Wave
      Wireless also entered into a Settlement Agreement and Release (“Settlement
      Agreement”) on September 15, 2004 with Seimans
      Aktiengesellchaft ("Siemens") with
      respect to certain claims between Siemens and Wave Wireless arising under a
      Joint Development and License Agreement and Original Equipment Manufacturer
      Agreement entered into between the parties. Under the terms of the Settlement
      Agreement, Wave Wireless agreed to pay Siemens $500,000, of which it paid
      $100,000 on October 1, 2004. Wave Wireless was obligated to pay an additional
      $100,000 upon the earlier of the receipt of financing by Wave Wireless equal
      to
      at least $100,000 or December 31, 2004, and $300,000 in twelve monthly
      installments of $25,000 per month beginning January 1, 2005. Wave Wireless
      did
      not make the December 31, 2004 $100,000 payment but did make the first two
      monthly payments of $25,000 each in January and February 2005. Wave Wireless
      has
      made no other payments to Siemens. The
      amount due Siemens as of December 31, 2005, $350,000, is reflected as a
      short-term liability on Wave Wireless' balance sheet. In
      the
      event of a default, all amounts due Siemens are immediately payable and interest
      is accrued at 7%.





We
      do not
      have any material commitments for capital equipment. Additional future capital
      requirements will depend on many factors, including our working capital
      requirements for our operations and our internal free cash flow from operations.





**Current
      Liquidity**





At
      December 31, 2005, we had negative working capital of approximately $7.1
      million, compared to working capital of approximately $1.3 million at December
      31, 2004. Our principal sources of liquidity at December 31, 2005 consisted
      of
      available borrowings under our Credit Facility, approximately $380,000 of cash
      and cash equivalents, compared to approximately $2.3 million in cash and cash
      equivalents at December 31, 2004, and proceeds from the issuance of Convertible
      Notes. The Convertible Notes mature on March 31, 2006.





Considering
      our projected cash requirements, our available cash will be inadequate to
      satisfy Wave Wireless’ cash requirements through the end of the quarter ending
      March 31, 2006. To address our immediate working capital requirements, we will
      continue to access available borrowings under our existing Credit Facility,
      which has limitations, and will continue to seek additional equity and/or debt
      financing through the issuance of additional Convertible Notes. There are
      currently no formal committed financing arrangements to support Wave Wireless’
projected cash shortfall, including commitments to purchase additional
      Convertible Notes. These negative trends and conditions raise substantial doubt
      about our ability to continue as a going concern.





It
      is
      currently anticipated that the Convertible Notes issued to date, as well as
      any
      additional Convertible Notes issued to provide for Wave Wireless’ immediate
      working capital needs, will convert into an equity-based financing that Wave
      Wireless intends to consummate in connection with or promptly following
      consummation with the proposed WaveRider Merger (“Equity Financing”). Wave
      Wireless intends to use the proceeds from the proposed Equity Financing to
      settle certain commitments of Wave Wireless, and to provide for Wave Wireless’
working capital requirements. While we are actively seeking additional equity
      and/or debt financing, and negotiating with certain of our largest creditors,
      there are currently no commitments. In the event Wave Wireless is unable to
      consummate the Equity Financing prior to March 31, 2006, the Convertible Notes
      will become due and payable. There can be no assurances that Wave Wireless
      will
      be successful in closing an Equity Financing prior to March 31, 2006. In the
      event Wave Wireless is unsuccessful in closing an Equity Financing, we intend
      to
      seek waivers of default from the holders of the Convertible Notes. There can
      be
      no assurances that we will be successful in obtaining such waivers. In the
      event
      management is unsuccessful in its plans to issue additional Convertible Notes,
      raise additional capital in the immediate term, or obtain waivers from the
      holders of the Convertible Notes in the event an Equity Financing is not
      consummated by March 31, 2006, Wave Wireless will no longer be able to continue
      as a going concern. The financial statements do not include any adjustments
      relating to the recoverability and classification of recorded asset amounts
      or
      to amounts and classification of liabilities that may be necessary if Wave
      Wireless is unable to continue as a going concern.





-
          13
          -


**CERTAIN
      RISK FACTORS AFFECTING WAVE WIRELESS**





An
      investment in our Common Stock is subject to many risks. You should carefully
      consider the risks described below, together with all of the other information
      included in this Annual Report, including the financial statements and the
      related notes, before you decide whether to invest in our Common Stock. Our
      business, operating results and financial condition could be harmed by any
      of
      the following risks. The trading price of our Common Stock could decline due
      to
      any of these risks, and you could lose all or part of your investment.





**RISKS
      RELATED TO WAVE WIRELESS’ FINANCIAL CONDITION AND OPERATIONS**





**WE
      NEED ADDITIONAL FINANCING.**




Our
      core
      business product sales are still significantly below levels necessary to achieve
      positive cash flow. From inception to December 31, 2005, our aggregate net
      loss
      is approximately $384.0 million. Our cash position was approximately $380,000
      at
      December 31, 2005, and is declining. We had negative working capital of $6.9
      million as of December 31, 2005. As of January 31, 2006, we have issued
      $1,325,000 in Convertible Notes due March 31, 2006. To continue as a going
      concern, we need to immediately secure additional debt or equity capital. To
      address our liquidity requirements, we are aggressively reducing expenses in
      connection with the implementation of our Restructuring Plan and also need
      to
      conduct additional debt or equity financings to meet our current and anticipated
      working capital needs. No assurances can be given that we will be successful
      in
      our attempts to issue additional debt or raise additional equity financing.





**OUR
      PROSPECTS FOR OBTAINING ADDITIONAL FINANCING ARE UNCERTAIN AND FAILURE TO OBTAIN
      NEEDED FINANCING WILL RESULT IN OUR INABILITY TO CONTINUE AS A GOING
      CONCERN.**




Our
      independent registered public accountants’ opinion on our 2004 and 2005
      consolidated financial statements include an explanatory paragraph indicating
      substantial doubt about our ability to continue as a going concern. To continue
      as a going concern, we will have to increase sales, and induce our creditors
      to
      forebear or to convert to equity, raise additional equity financing, and/or
      raise new debt financing. We may not accomplish these tasks. In the event we
      are
      unable to raise additional debt or equity financing, or otherwise improve our
      liquidity position, we will not be able to continue as a going concern. Our
      future capital requirements will depend upon many factors, including the success
      of our Restructuring Plan, the continuation of our RMA Business, development
      costs of new products and related software, potential acquisition opportunities,
      maintenance of adequate manufacturing facilities and contract manufacturing
      agreements, progress of research and development efforts, expansion of marketing
      and sales efforts, and status of competitive products. Additional financing
      may
      not be available in the future on acceptable terms or at all. Our history of
      substantial operating losses could also severely limit our ability to raise
      additional financing. If we are unable to obtain additional financing, we may
      need to seek the protection of the bankruptcy courts and your Wave Wireless
      shares may become worthless.





**WE
      MAY NOT BE ABLE TO REPAY OUR EXISTING DEBT AND ANY REPAYMENT OF OUR DEBT WITH
      SHARES OR BY RAISING ADDITIONAL FUNDS MAY RESULT IN SIGNIFICANT DILUTION TO
      OUR
      STOCKHOLDERS.**





At
      December 31, 2005, we owed, including accrued but unpaid interest, an aggregate
      amount of $3.6 million to SDS Capital Group SPC, Ltd (“SDS”). Interest accrues
      on such debt at an annual interest rate of 8%, and this rate increases to 10%
      on
      April 1, 2006 through the maturity date of the loan, December 31, 2007. We
      may
      make the principal and interest payments under our Debenture Facility in either
      shares of our common stock, cash or a combination of both. In addition, given
      the recent price for Wave Wireless’ common stock, if we make the required
      amortization payments using Wave Wireless’ common stock, or raise additional
      funds by issuing equity securities, additional significant dilution to its
      stockholders will result.





In
      addition, as of January 31, 2006, we owed approximately $1,325,000 under the
      terms of certain Convertible Notes, and it is currently anticipated that Wave
      Wireless will issue additional Convertible Notes to satisfy its immediate
      working capital needs. Principal and accrued interest under the terms of the
      Convertible Notes mature on March 31, 2006. In the event Wave Wireless is unable
      to consummate an Equity Financing prior to March 31, 2006, resulting in the
      conversion of amounts due under the Convertible Notes into shares of common
      stock of Wave Wireless, we will not be able to make the required payments to
      the
      holders of the Convertible Notes on such date. In the event we are not able
      to
      close the Equity Financing, and the holders of the Convertible Notes do not
      therefore convert the Convertible Notes into shares of Wave Wireless’ common
      stock, or otherwise provide a waiver to defaults under the Convertible Notes,
      we
      will be unable to repay principal and accrued interest under the Convertible
      Notes upon maturity.





**WE
      MAY NOT BE ABLE TO REPAY THE DEBENTURE FACILITY INSTALLMENT PAYMENTS IN SHARES
      OF OUR COMMON STOCK, AND OUR FAILURE TO DO SO WOULD ADVERSELY AFFECT OUR
      BUSINESS.**





-
          14
          -


Under
      our
      Debenture Facility, we may not issue shares of common stock to make the
      quarterly installment payments if the issuance of such shares would result
      in
      SDS beneficially owning (as determined in accordance with Section 13(d) of
      the
      Exchange Act) more than 9.9% of all of the common stock outstanding at such
      time. Because of this limitation, we issued SDS shares of Series F Preferred
      Stock, in lieu of common stock, to make the required amortization payment due
      June 30, 2005. We also issued SDS warrants for common stock, in lieu of common
      stock, to make the required amortization payment due December 31, 2005. SDS
      may
      waive this ownership blocker, or agree in the future to accept additional shares
      of preferred stock in lieu of common stock, but it is not obligated to do so.
      In
      the event that we are prevented from making an installment payment in shares
      of
      common stock due to the ownership blocker, or SDS is unwilling to accept
      preferred stock in lieu of common stock, and SDS does not waive compliance
      with
      this provision, then we may be required to default on our payment obligations
      under the Debenture Facility. If we are unable to obtain additional financing,
      we may need to seek the protection of the bankruptcy courts and your Wave
      Wireless shares may become worthless.





**AS
      A RESULT OF THE RESTRUCTURING PLAN, OUR REVENUE WILL DECREASE
      SUBSTANTIALLY.**




As
      a
      result of the Restructuring Plan, our revenue has decreased substantially.
      While
      we believe that a consequence of the Restructuring Plan will be to ultimately
      return Wave Wireless to profitability, no assurances can be given that we will
      achieve the objectives of the Restructuring Plan, or that sales of our remaining
      product lines will sufficiently increase to allow us to achieve positive cash
      flow from operations. Until sales levels in our remaining product lines
      sufficiently increase, our business, financial condition and results of
      operations will continue to be adversely affected.




**WE
      RELY ON A LIMITED NUMBER OF CUSTOMERS FOR A MATERIAL PORTION OF OUR SALES.
      THE
      LOSS OF OR REDUCTION IN SALES TO ANY OF OUR CUSTOMERS COULD HARM OUR BUSINESS,
      FINANCIAL CONDITION AND RESULTS OF OPERATION.**





For
      year
      ended December 31, 2005, sales to our top four customers accounted for 59%
      of
      total sales. We expect that a limited number of customers will continue to
      account for a significant portion of our sales for the foreseeable future.
      The
      loss of, or diminution in sales to, any one of these customers would have an
      immediate and material adverse effect on our sales. If we are unsuccessful
      in
      obtaining significant new customers or if one of our top customers or several
      small customers cancel or delay their orders for our products, then our business
      and prospects could be harmed which may cause the price of our common stock
      to
      decline. Our customer concentration also results in concentration of credit
      risk. As of December 31, 2005, three customers accounted for 74% of our total
      accounts receivable balances. If any one of these customers is unable to fulfill
      its payment obligations to us, our revenue could decline significantly.





**AS
      A RESULT OF THE RESTRUCTURING PLAN, WE ARE SUBSTANTIALLY DEPENDENT ON OUR RMA
      BUSINESS, AND REDUCTION IN SALES ATTRIBUTABLE TO OUR RMA BUSINESS WILL
      MATERIALLY HARM OUR RESULTS OF OPERATIONS.**





For
      the
      years ended December 31, 2004 and 2005, sales of refurbished licensed products
      in connection with our RMA Business was $11.2 million and $6.4 million, or
      46%
      and 54% of total sales, respectively. As a percentage of total sales and total
      sales of licensed products, sales of refurbished licensed products will likely
      increase in 2006 relative to 2005 as a result of the substantial decrease in
      sales of new licensed products anticipated in 2006 as a result of the
      Restructuring Plan. Total sales of refurbished licensed products in connection
      with our RMA Business will decline over time as our customers determine to
      replace existing radios with new product, rather than send them to us for
      continued repair and maintenance. In addition, our customers may elect to source
      refurbished licensed products from third parties rather than us, as was the
      case
      in the quarter ended September 30, 2005, when one of our customers elected
      to
      use a third party other than Wave Wireless for its repair and maintenance needs.
      No assurances can be given that we will not lose additional customers in the
      future, or that customers will not elect to purchase new licensed products
      from
      third parties rather than send them to us for repair and maintenance. In the
      event of a further reduction in the sale of refurbished licensed products,
      our
      results of operations will be materially harmed.





**OUR
      OPERATING RESULTS IN THE PAST ARE NOT ANTICIPATED TO REFLECT OUR OPERATING
      RESULTS IN THE FUTURE, WHICH MAKES OUR RESULTS OF OPERATIONS DIFFICULT TO
      PREDICT.**





As
      a
      result of Restructuring Plan and the proposed WaveRider Merger, our future
      operating results will vary significantly from our past operating results.
      Factors that will significantly affect our operating results include the
      following:





o
      the
      divesture of certain licensed product lines, that in the year ended December
      31,
      2004 and 2005, contributed approximately $8.1 million and $9.1 million in
      revenue to Wave Wireless, respectively;





o
      the
      increased reliance on our RMA Business, that in the year ended December 31,
      2004
      and 2005, contributed approximately $11.2 million and $6.4 million in revenue
      to
      Wave Wireless, respectively, and the risk that sales attributable to the RMA
      Business will decline over time; and





-
          15
          -


o
      the
      increased reliance on the sale of unlicensed radio products, that in the year
      ended December 31, 2004 and 2005, contributed approximately $5.1 million and
      $2.7 million in revenue to Wave Wireless, respectively.





**WAVE
      WIRELESS FACES SUBSTANTIAL COMPETITION AND MAY NOT BE ABLE TO COMPETE
      EFFECTIVELY.**





We
      face
      intense competition worldwide from a number of leading telecommunications
      equipment and technology suppliers. These companies offer a variety of
      competitive products and services. These companies include Alvarion, Nortel,
      Proxim, Tropos Networks, Motorola, Trango Systems, Belair Networks, Firetide
      and
      Tranzeo Wireless Technologies. Many of these companies have greater financial
      resources and production, marketing, manufacturing, engineering and other
      capabilities than us. We face actual and potential competition not only from
      these established companies, but also from start-up companies that are
      developing and marketing new commercial products and services.




The
      principal elements of competition in our market and the basis upon which
      customers may select our systems include price, performance, software
      functionality, perceived ability to continue to be able to meet delivery
      requirements, and customer service and support. Recently, certain competitors
      have announced the introduction of new competitive products, including related
      software tools and services, and the acquisition of other competitors and
      competitive technologies. We expect competitors to continue to improve the
      performance and lower the price of their current products and services and
      to
      introduce new products and services or new technologies that provide added
      functionality and other features. New product and service offerings and
      enhancements by our competitors could cause a decline in our sales or loss
      of
      market acceptance of our systems. New offerings could also make our systems,
      services or technologies obsolete or non-competitive. In addition, we are
      experiencing significant price competition and we expect that competition will
      intensify.




**WE
      DO NOT HAVE THE CUSTOMER BASE OR OTHER RESOURCES OF MORE ESTABLISHED COMPANIES,
      WHICH MAKES IT DIFFICULT FOR US TO ADDRESS THE LIQUIDITY AND OTHER CHALLENGES
      THAT WE FACE.**




We
      have
      not developed a large installed base of our wireless mesh routers or the kind
      of
      close relationships with a broad base of customers of a type enjoyed by larger,
      more developed companies, which would provide a base of financial performance
      from which to launch strategic initiatives and withstand business reversals.
      In
      addition, we have not built up the level of capital often enjoyed by more
      established companies, so we face serious challenges in financing our continued
      operations. We may not be able to successfully address these risks.





**WE
      RELY ON THIRD PARTY MANUFACTURERS AND SUPPLIERS AND ANY FAILURE OF OR
      INTERRUPTION IN THE MANUFACTURING, SERVICES OR PRODUCTS PROVIDED BY THESE THIRD
      PARTIES COULD HARM OUR BUSINESS.**





We
      rely
      on third-party manufacturers for the manufacturing, repair and maintenance
      of a
      substantial portion of our products. We have limited internal manufacturing,
      repair and maintenance capacity, which may not be sufficient to fulfill
      customers' requirements. Our contract service providers may not be able to
      react
      to our demands on a timely basis. In addition, certain components and
      subassemblies necessary for the manufacture of our systems are obtained from
      a
      sole supplier or a limited group of suppliers.





Our
      reliance on third-party manufacturers, service providers and suppliers involves
      risks. From time to time, we have experienced an inability to obtain, or to
      receive in a timely manner, an adequate supply of finished products and required
      components and subassemblies. This inability has been due to a variety of
      factors, including, in some cases, our financial condition. As a result of
      our
      reliance on these third parties, we have reduced control over the price, timely
      delivery, reliability and quality of finished products, components and
      subassemblies. Any failure by us, or our contract manufacturers to repair,
      maintain, manufacture, assemble and ship systems and meet customer demands
      on a
      timely and cost-effective basis could damage relationships with customers and
      have a material adverse effect on our business, financial condition and results
      of operations.





**OUR
      BUSINESS DEPENDS ON THE ACCEPTANCE OF OUR PRODUCTS AND SERVICES, AND IT IS
      UNCERTAIN WHETHER THE MARKET WILL ACCEPT AND DEMAND OUR PRODUCTS AND SERVICES
      AT
      LEVELS NECESSARY FOR SUCCESS.**





Our
      future operating results depend upon the continued growth and increased
      availability and acceptance of our products in the U.S. and internationally.
      The
      volume and variety of wireless telecommunications products or the markets for
      and acceptance of our products may not continue to grow as expected. The growth
      of these products may also fail to create anticipated demand for our products.
      Predicting which segments of these markets will develop and at what rate these
      markets will grow is difficult.





-
          16
          -


**DUE
      TO OUR INTERNATIONAL SALES AND OPERATIONS, WE ARE EXPOSED TO BUSINESS,
      POLITICAL, REGULATORY, OPERATIONAL, FINANCIAL AND ECONOMIC RISKS, ANY OF WHICH
      COULD INCREASE OUR COSTS AND HINDER OUR GROWTH.**





As
      a
      result of our current heavy dependence on international markets, especially
      in
      the United Kingdom, the European continent, the Middle East, and Latin America,
      we face business, political, regulatory, operational, financial and economic
      risks that are often more volatile than those commonly experienced in the United
      States. Approximately 89% and 90% of our sales in the year ended December 31,
      2004 and 2005, respectively, were made to customers located outside of the
      United States. Due to political and economic instability in new markets,
      economic, political and foreign currency fluctuations may be even more volatile
      than conditions in developed countries. Countries in the Asia/Pacific, African,
      and Latin American regions have in recent years experienced weaknesses in their
      currency, banking and equity markets. These weaknesses have adversely affected
      and could continue to adversely affect demand for our products.





**WE
      FACE RISKS ASSOCIATED WITH CURRENCY EXCHANGE RATE FLUCTUATIONS.**





Approximately
      89% and 90% of our sales in the year ended December 31, 2004 and 2005 were
      made
      to customers located outside of the United States and a larger portion of our
      revenues is denominated in foreign currencies. Historically, our international
      sales have been denominated in British pounds sterling, Euros or United States
      dollars. Conducting business in currencies other than U.S. dollars subjects
      us
      to fluctuations in currency exchange rates that could have a negative impact
      on
      our reported operating results. Fluctuations in the value of the U.S. dollar
      relative to other currencies impact our revenues, cost of revenues and operating
      margins and result in foreign currency translation gains and losses. For
      example, a decrease in the value of British pounds or Euros relative to United
      States dollars, if not hedged, will result in an exchange loss for us if we
      have
      Euro or British pounds sterling denominated sales. Conversely, an increase
      in
      the value of Euro and British pounds sterling will result in increased margins
      for us on Euro or British pounds sterling denominated sales as our functional
      currency is in United States dollars. For international sales that we would
      require to be United States dollar-denominated, such a decrease in the value
      of
      foreign currencies could make our systems less price-competitive if competitors
      choose to price in other currencies and could adversely affect our financial
      condition. Historically, we have not engaged in exchange rate-hedging
      activities. Although we may implement hedging strategies to mitigate this risk,
      these strategies may not eliminate our exposure to foreign exchange rate
      fluctuations and involve costs and risks of their own, such as ongoing
      management time and expertise, external costs to implement the strategy and
      potential accounting implications.





**WE
      MAY ENTER INTO AGREEMENTS TO MERGE OR CONSOLIDATE WITH OTHER COMPANIES, AND
      WE
      MAY INCUR SIGNIFICANT COSTS IN THE PROCESS, WHETHER OR NOT THESE TRANSACTIONS
      ARE COMPLETED.**





Wave
      Wireless is currently planning to merge with WaveRider Communications Inc.
      Corporate transactions, including mergers and acquisitions, are risky, are
      subject to a lengthy process to close and could divert management's time and
      focus from operating our business. Wave Wireless may not be able to close the
      WaveRider Merger, or any other strategic transaction on the timetable it
      anticipates, if at all. If Wave Wireless is unable to complete the WaveRider
      Merger or any other corporate transaction, Wave Wireless will incur significant
      non-recoverable expenses that will have a material adverse effect on Wave
      Wireless’ financial position. If the WaveRider Merger is completed, it could
      result in unanticipated operating difficulties and expenses, and the anticipated
      benefits of the transaction may not materialize.





**OUR
      BUSINESS AND GROWTH MAY SUFFER IF WE ARE UNABLE TO HIRE AND RETAIN KEY PERSONNEL
      WHO ARE IN HIGH DEMAND.**





We
      depend
      on the continued contributions of our senior management and other key personnel,
      including Daniel W. Rumsey, our Acting Chief Executive Officer, and Don Meiners,
      Wave Wireless’ President. The loss of the services of either of these
      executives, or any of our key personnel could harm our business. We do not
      maintain key person life insurance policies on any of our executive officers.
      Competition for senior management in our industry is intense and we may not
      be
      able to retain our senior management or attract and retain new personnel in
      the
      future. Volatility or lack of performance in our stock price may also affect
      our
      ability to attract and retain our key personnel. Our future success also depends
      on our ability to identify, attract and retain highly skilled technical,
      managerial, finance and marketing personnel. Qualified individuals are in high
      demand, and we may incur significant costs to attract them. If we are unable
      to
      attract or retain the personnel we need to succeed, our business may suffer.





**THIRD
      PARTIES MAY SUE US FOR INTELLECTUAL PROPERTY INFRINGEMENT THAT, IF SUCCESSFUL,
      COULD REQUIRE US TO PAY SIGNIFICANT DAMAGE AWARDS OR LICENSING FEES.**





We
      cannot
      be certain that we do not and will not infringe the intellectual property rights
      of others. We may be subject to legal proceedings and claims in the ordinary
      course of our business and third parties may sue us for intellectual property
      infringement or initiate proceedings to invalidate our intellectual property.
      Any intellectual property claims, whether or not meritorious, could result
      in
      costly litigation and could divert management resources and attention. Moreover,
      should we be found liable for infringement, we may be required to enter into
      licensing agreements (if available on acceptable terms or at all), pay damages
      or limit or curtail our product or service offerings. Moreover, we may need
      to
      redesign some of our products to avoid future infringement liability. Any of
      the
      foregoing could prevent us from competing effectively and harm our business
      and
      results of operations.





-
          17
          -


**IF
      WE FAIL TO KEEP PACE WITH RAPIDLY CHANGING TECHNOLOGIES, WE COULD LOSE CUSTOMERS
      AND OUR SALES MAY DECLINE.**





The
      telecommunications equipment industry is characterized by rapidly changing
      technologies, evolving industry standards, frequent new product and service
      introductions and changing customer demands. The introduction of new products
      and services embodying new technologies, such as WiMAX, and the emergence of
      new
      industry standards and practices can render our existing products and services
      obsolete and unmarketable. Our future success will depend on our ability to
      internally develop, source or license leading technologies to enhance our
      existing products and services, to develop new products and services that
      address the changing demands of our customers, and to respond to technological
      advances and emerging industry standards and practices on a cost-effective
      and
      timely basis. Because of our current financial condition, we may experience
      difficulties that could delay or prevent the successful design, development,
      introduction or marketing of new products and services. Any new products,
      services or enhancement that we develop will need to meet the requirements
      of
      our current and prospective customers and may not achieve significant market
      acceptance.





**RISK
      RELATING TO CAPITAL MARKETS AND WAVE WIRELESS COMMON STOCK**





**OUR
      COMMON STOCK IS DEEMED TO BE "PENNY STOCK," WHICH MAY SEVERELY LIMIT THE ABILITY
      OF STOCKHOLDERS TO SELL OUR COMMON STOCK.**





Effective
      March 10, 2003, our common stock commenced trading electronically on the OTC
      Bulletin Board of the National Association of Securities Dealers, Inc.,
      resulting in a less liquid market to trade shares of our common stock, relative
      to the liquidity provided by the NASDAQ National Market or the NASDAQ Small
      Cap
      Market, where our common stock previously was listed. In addition, our common
      stock is subject to the Securities Exchange Commission's "penny stock"
      regulation. For transactions covered by this regulation, 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 of broker-dealers
      to sell Wave Wireless’ common stock and may affect the ability of holders to
      sell the common stock in the secondary market, and the price at which a holder
      can sell the common stock.





**OUR
      STOCK PRICE HAS BEEN VOLATILE AND HAS EXPERIENCED SIGNIFICANT DECLINE, AND
      MAY
      CONTINUE TO BE VOLATILE AND DECLINE.**





Our
      common stock currently trades sporadically on the OTC Bulletin Board. The market
      for our common stock may continue to be an inactive market, and the market
      price
      of our common stock may experience significant volatility. In recent years,
      the
      stock market in general, and the market for shares of small capitalization
      technology stocks in particular, have experienced extreme price fluctuations.
      These fluctuations have often negatively affected small cap companies such
      as
      ours, and may impact our ability to raise equity capital in periods of liquidity
      crunch. Companies with liquidity problems also often experience downward stock
      price volatility. We believe that factors such as announcements of developments
      related to our business (including any financings or any resolution of
      liabilities), announcements of technological innovations or new products or
      enhancements by us or our competitors, developments in the emerging countries'
      economies, sales by competitors, sales of significant volumes of our common
      stock into the public market, developments in our relationships with customers,
      partners, lenders, distributors and suppliers, shortfalls or changes in
      revenues, gross margins, earnings or losses or other financial results that
      differ from analysts' expectations, regulatory developments, fluctuations in
      results of operations could and have caused the price of our common stock to
      fluctuate widely and decline over the past two years. The market price of our
      common stock may continue to decline, or otherwise continue to experience
      significant fluctuations in the future, including fluctuations that are
      unrelated to our performance, and our stockholders may not be able to resell
      shares of our common stock at or above the price paid for those shares.





**FUTURE
      SALES OF OUR CONVERTIBLE SECURITIES IN THE PUBLIC MARKET COULD LOWER WAVE
      WIRELESS’ STOCK PRICE AND ADVERSELY AFFECT ITS ABILITY TO RAISE ADDITIONAL
      CAPITAL IN SUBSEQUENT FINANCINGS.**





As
      of
      December 31, 2005, we had issued and outstanding warrants, convertible preferred
      stock and employee stock options, convertible into 42,986,648 shares of our
      common stock. In the event of conversion or exercise of any of these convertible
      securities, future sales of Wave Wireless common stock or the perception that
      future sales will occur could have a significant negative effect on the market
      price of Wave Wireless common stock. If the market price of Wave Wireless common
      stock continues to decrease, Wave Wireless may not be able to conduct additional
      financings in the future on acceptable terms or at all, and its ability to
      raise
      additional capital will be significantly limited.





-
          18
          -


**ITEM
      7.****FINANCIAL
      STATEMENTS******




The
      information required hereunder in this Annual Report on Form 10-KSB is set
      forth
      in the Financial Statements and the Notes thereto beginning on Page
      32.





**ITEM
      7A.**  **PRO
      FORMA FINANCIAL STATEMENTS**





The
      information provided hereunder reflects the pro forma financial statements
      assuming the consummation of the merger of Wave Wireless with WaveRider
      Communications, Inc. as of December 31, 2005.





-
          19
          -


**WAVE
      WIRELESS CORPORATION**


**PRO
      FORMA CONDENSED CONSOLIDATED BALANCE SHEET**


**AS
      AT DECEMBER 31, 2005**


(In
      thousands) (Unaudited)





Wave
            
            
            
            Pro
                forma
            
            Pro
                formaWireless
            
            WaveRider
            
            Adjustments
            
            ConsolidatedASSETSCurrent
                assets:Cash
                and cash equivalents
            
            $
            380
            
            $
            525
            
            $
            -
            
            $
            905Accounts
                receivable, net
            
            
            1,152
            
            
            1,440
            
            
            -
            
            
            2,592Inventory
            
            
            197
            
            
            988
            
            
            -
            
            
            1,185Prepaid
                expenses and other assets
            
            
            447
            
            
            65
            
            
            
            
            
            512Total
                current assets
            
            
            2,176
            
            
            3,018
            
            
            -
            
            
            5,194Property
                and equipment, net
            
            
            622
            
            
            204
            
            
            -
            
            
            826Excesss
                  of purchase price over net assets
                  acquired and goodwill
            
            
            11,990
            
            
            -
            
            
            7,343
            
            
            19,333Other
                assets
            
            
            250
            
            
            -
            
            
            (250
            )
            
            -Total
                assets
            
            $
            15,038
            
            $
            3,222
            
            $
            7,093
            
            $
            25,353LIABILITIES
                AND STOCKHOLDERS' EQUITYCurrent
                liabilities:Accounts
                payable and accrued liabilities
            
            $
            4,204
            
            $
            2,244
            
            $
            650
            
            $
            7,098Deferred
                revenue
            
            
            862
            
            
            457
            
            
            -
            
            
            1,319Notes
                payable current
            
            
            4,036
            
            
            514
            
            
            (2,514
            )
            
            2,036Derivate
                financial instruments
            
            
            -
            
            
            483
            
            
            (483
            )
            
            -Liabilities
                of discontinued operations
            
            
            184
            
            
            -
            
            
            -
            
            
            184Total
                current liabilities
            
            
            9,286
            
            
            3,698
            
            
            (2,347
            )
            
            10,637Notes
                payable, long-term
            
            
            1,544
            
            
            800
            
            
            (800
            )
            
            1,544Total
                liabilities
            
            
            10,830
            
            
            4,498
            
            
            (3,147
            )
            
            12,181Stockholders'
                equity (deficit):Series
                E Preferred Stock
            
            
            332
            
            
            -
            
            
            -
            
            
            332Series
                F Preferred Stock
            
            
            661
            
            
            -
            
            
            -
            
            
            661Series
                G Preferred Stock
            
            
            3,344
            
            
            -
            
            
            -
            
            
            3,344Series
                H Preferred Stock
            
            
            -
            
            
            -
            
            
            4,341
            
            
            4,341Common
                Stock
            
            
            2
            
            
            34
            
            
            (25
            )
            
            11Treasury
                stock, at cost; 30 shares
            
            
            (74
            )
            
            -
            
            
            -
            
            
            (74
            )Additional
                paid-in capital
            
            
            383,778
            
            
            86,706
            
            
            (82,092
            )
            
            388,392Accumulated
                deficit
            
            
            (383,835
            )
            
            (87,718
            )
            
            87,718
            
            
            (383,835
            )Accumulated
                other comprehensive loss
            
            
            -
            
            
            (298
            )
            
            298
            
            
            -Total
                stockholders' equity
            
            
            4,208
            
            
            (1,276
            )
            
            10,240
            
            
            13,172Total
                liabilities and stockholders' equity
            
            $
            15,038
            
            $
            3,222
            
            $
            7,093
            
            $
            25,353




-
          20
          -


**WAVE
      WIRELESS CORPORATION**


**PRO
      FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS**


**YEAR
      ENDED DECEMBER 31, 2005**


(In
      thousands, except per share data, unaudited)





Wave
            
            
            
            Pro
                forma
            
            Pro
                formaWireless
            
            WaveRider
            
            Adjustments
            
            ConsolidatedSales
            
            $
            11,807
            
            $
            11,121
            
            
            -
            
            $
            22,928Cost
                of sales
            
            
            8,485
            
            
            7,115
            
            
            -
            
            
            15,600Gross
                profit
            
            
            3,322
            
            
            4,006
            
            
            -
            
            
            7,328Gross
                margin
            
            
            28
            %
            
            36
            %
            
            -
            
            
            32
            %Operating
                expenses:Research
                and development/engineering
            
            
            2,982
            
            
            596
            
            
            -
            
            
            3,578Selling,
                general and administration
            
            
            6,636
            
            
            4,395
            
            
            -
            
            
            11,031Restructuring
                charges
            
            
            5,597
            
            
            -
            
            
            -
            
            
            5,597Total
                operating expenses
            
            
            15,215
            
            
            4,991
            
            
            -
            
            
            20,206Operating
                loss
            
            
            (11,893
            )
            
            (985
            )
            
            -
            
            
            (12,878
            )Interest
                expense
            
            
            (960
            )
            
            (415
            )
            
            524
            
            
            (851
            )Other
                income (expense), net
            
            
            271
            
            
            108
            
            
            (134
            )
            
            245Net
                income (loss)
            
            
            (12,582
            )
            
            (1,292
            )
            
            390
            
            
            (13,484
            )Preferred
                stock accretions and dividends
            
            
            (3,828
            )
            
            -
            
            
            -
            
            
            (3,828
            )Net
                  loss attributable to common
                  stockholders
            
            $
            (16,410
            )
            $
            (1,292
            )
            
            390
            
            $
            (17,312
            )Basic
                  and diluted income (loss) per
                  common share
            
            $
            (1.04
            )
            
            (0.05
            )
            
            --
            
            $
            (0.26
            )Shares
                  used in basic and diluted per
                  share computation
            
            
            15,814
            
            
            25,446
            
            
            24,875
            
            
            66,135Diluted
                  net income (loss) per share applicable
                  to common stockholders
            
            $
            (1.04
            )
            
            
            
            
            
            
            $
            (0.26
            )Shares
                  used in diluted per share Computation
            
            
            15,814
            
            
            25,446
            
            
            24,875
            
            
            66,135








-
          21
          -


**WAVE
      WIRELESS CORPORATION**


**PRO
      FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS**


**YEAR
      ENDED DECEMBER 31, 2004**


(In
      thousands, except per share data, unaudited)





Wave
            
            
            
            Pro
                forma
            
            Pro
                formaWireless
            
            WaveRider
            
            Adjustments
            
            ConsolidatedSales
            
            $
            24,175
            
            $
            9,542
            
            
            -
            
            $
            33,717Cost
                of sales
            
            
            18,720
            
            
            6,193
            
            
            -
            
            
            24,913Gross
                profit
            
            
            5,455
            
            
            3,349
            
            
            -
            
            
            8,804Gross
                margin
            
            
            23
            %
            
            35
            %
            
            -
            
            
            26
            %Operating
                expenses:Research
                and development/engineering
            
            
            4,976
            
            
            1,667
            
            
            -
            
            
            6,643Selling,
                general and administration
            
            
            11,324
            
            
            5,264
            
            
            -
            
            
            16,588Total
                operating expenses
            
            
            16,300
            
            
            6,931
            
            
            -
            
            
            23,231Operating
                loss
            
            
            (10,845
            )
            
            (3,582
            )
            
            -
            
            
            (14,427
            )Interest
                expense
            
            
            (687
            )
            
            (425
            )
            
            380
            
            
            (732
            )Other
                income (expense), net
            
            
            8,252
            
            
            2,368
            
            
            (2,502
            )
            
            8,118Loss
                before discontinued operations
            
            
            (3,280
            )
            
            (1,639
            )
            
            (2,122
            )
            
            (7,041
            )Loss
                from discontinued operations
            
            
            (40
            )
            
            -
            
            
            -
            
            
            (40
            )Net
                income (loss)
            
            
            (3,320
            )
            
            (1,639
            )
            
            (2,122
            )
            
            (7,081
            )Preferred
                stock accretions
            
            
            (2,392
            )
            
            -
            
            
            -
            
            
            (2,392
            )Preferred
                stock dividends
            
            
            (156
            )
            
            -
            
            
            -
            
            
            (156
            )Net
                  loss attributable tocommonstockholders
            
            $
            (5,868
            )
            $
            (1,639
            )
            
            (2,124
            )
            $
            (9,629
            )Basic
                and diluted loss per common share:Loss
                from continuing operations
            
            $
            (0.56
            )
            
            
            
            
            
            
            $
            (0.12
            )Loss
                from discontinued operations
            
            
            -
            
            
            
            
            
            
            
            
            -Basic
                and diluted loss per common share
            
            $
            (0.56
            )
            
            
            
            
            
            
            $
            (0.12
            )Shares
                used in Basic and Diluted per share computation
            
            
            10,429
            
            
            
            
            
            67,713
            
            
            78,142








-
          22
          -


**NOTES
      TO THE PRO FORMA CONDENSED CONSOLIDATED FINANCIAL
      STATEMENTS**





1.  Acquiring
      Entity for Accounting Purposes.





Wave
      Wireless and WaveRider have performed an analysis based upon Statement of
      Financial Accounting Standards ("SFAS”) No. 141 to determine the acquirer for
      accounting purposes. In performing this analysis, the companies have considered
      the following facts and circumstances:





a)
            Wave
                Wireless will be the issuer of securities in the WaveRider Merger.b)
            After
                adjustment for Wave Wireless’ holding in WaveRider as a result of their
                acquisition of preferred shares upon conversion of the bridge notes,
                Wave
                Wireless’ current shareholders will maintain approximately 59% of the
                voting rights in the merged company while WaveRider shareholders
                will have
                41% of the voting rights.c)
            Upon
                consummation of the WaveRider Merger, Crescent International Ltd.,
                WaveRider’s largest beneficial owner, will have a 4.99% cap on the number
                of beneficial shares it can hold in the merged company. As a result,
                the
                only significant minority shareholders in the merged company will
                be Wave
                Wireless’ existing minority beneficial shareholders.d)
            The
                board of directors of the merged company (the governing body) will
                be
                composed of Mr. Charles Brown, the current CEO of WaveRider, three
                current
                directors of Wave Wireless and three current directors of WaveRider.e)
            The
                officers of the merged company will consist of the Chairman of the
                Board
                who is appointed by the directors from Wave Wireless, the Chief Executive
                Officer and Chief Financial Officer from WaveRider and the President
                of
                Wave Wireless.f)
            As
                of the date of the merger agreement, January 3, 2006, and based on
                the
                calculated exchange ratio, before adjustments, Wave Wireless would
                be
                providing the shareholders of WaveRider a 53.6% premium to the closing
                price of the common stock.g)
            Based
                on number of employees, past revenue, total assets and market valuation,
                Wave Wireless is the larger of the two entities in the merger.




Based
      on
      these facts and circumstances the companies have determined that Wave Wireless
      Corporation is the acquirer for accounting purposes.





2.  The pro
      forma balance sheet has been prepared to reflect the acquisition of WaveRider
      Communications Inc. by Wave Wireless Corporation for aggregate consideration
      of
      $7,209,719, as if the acquisition occurred on December 31, 2005. Pro forma
      adjustments are made to reflect:





a)  the
      elimination of the common shareholders' equity (deficit) in WaveRider
      Communications Inc.





b)
            conversion
                of all of WaveRider Communications Inc.’s convertible debentures and
                $2,000,000 in Wave Wireless Corporation’s current notes payable into
                capital upon closing.





c)  the
      net
      assets of WaveRider Communications Inc. at estimated fair value at the
      acquisition date.





d)  the
      excess of acquisition cost over the fair value of net assets acquired. This
      has
      been presented with goodwill.





e)  the
      expenses incurred on acquisition




f)
            The $250,000 note issued by WaveRider
                to Wave
                Wireless was converted into equity. WaveRider issued an additional
                $200,000 in notes to Wave Wireless during the first quarter of 2006,
                which
                will also be converted to Wave Wireless equity upon completion of
                the
                WaveRider Merger.





3.  The
      pro
      forma statements of loss have been prepared to reflect the acquisition of
      WaveRider Communications Inc. by Wave Wireless Corporation as if the acquisition
      occurred on January 1, 2004.





4.  The
      estimated purchase price and the purchase price allocation for this acquisition
      has been based on available information at the time of preparation of these
      pro
      forma financial statements. To the extent that these amounts prove to be
      excessive or inadequate they will be adjusted up to a year from the date of
      acquisition.







-
          23
          -


**ITEM
      8.**  **CHANGES
      IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
      DISCLOSURES** ****




None




**ITEM
      8A.**  **CONTROLS
      AND PROCEDURES** ****




Under
      the
      supervision and with the participation of Wave Wireless’ management, including
      the Acting Chief Executive Officer and Acting Chief Financial Officer, Wave
      Wireless conducted an evaluation of the effectiveness of the design and
      operation of its disclosure controls and procedures, as defined in Rules
      13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended
      (the "Exchange Act"), as of the end of the period covered by this report (the
      "Evaluation Date"). Based upon the evaluation, the Acting Chief Executive
      Officer and Acting Chief Financial Officer have concluded that, as of the
      Evaluation Date, Wave Wireless’ disclosure controls and procedures were
      effective to ensure that information required to be disclosed by Wave Wireless
      in reports that it files or submits under the Exchange Act is recorded,
      processed, summarized and reported within the time periods specified in
      Securities and Exchange Commission rules and forms.





There
      were no changes in our internal control over financial reporting during 2005.





**PART
      III******





**ITEM
      9.****DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH
      SECTION 16(a) OF THE EXCHANGE ACT******







Wave
      Wireless’ board of directors is authorized to have seven directors. The
      executive officers and directors of Wave Wireless, their ages as of December
      31,
      2005, their positions and their backgrounds are as follows:





Name
            
            Age
            
            PositionGeorge
                P. Roberts
            
            73
            
            Chairman
                of the BoardDaniel
                W. Rumsey
            
            44
            
            Acting
                Chief Executive OfficerDon
                Meiners
            
            44
            
            PresidentCarlos
                Belfiore
            
            61
            
            Vice
                President and Chief Technical OfficerJim
                Bletas
            
            60
            
            Former
                Executive Vice President of SalesRichard
                Reiss
            
            48
            
            DirectorFrederick
                Fromm
            
            56
            
            DirectorR.
                Craig Roos
            
            60
            
            Director





**BACKGROUND**





The
      principal occupations of each executive officer and director of Wave Wireless
      for at least the last five years are as follows:





*George
      P. Roberts.* **** Mr.
      Roberts is a founder of Wave Wireless and has served as Chief Executive Officer
      and a Director from October 1991 to May 2001, and as interim Chief Executive
      Officer since January 2002. Mr. Roberts resigned from his position as interim
      Chief Executive Officer on September 1, 2003. Since September 1993, he has
      also
      served as Chairman of the Board of Directors. Mr. Roberts' term as a director
      of
      Wave Wireless ends upon the 2007 Annual Meeting of Stockholders.





*Daniel
      W. Rumsey* .
      Mr.
      Rumsey was appointed Chief Restructuring Officer on March 10, 2005, and to
      the
      board of directors on May 13, 2005. Prior to his appointment, since March 2003,
      Mr. Rumsey’s title was changed to Acting Chief Executive Officer in July 2005.
      Prior to his appointment as Chief Restructuring Officer, he served as Wave
      Wireless’ Vice President, Acting Chief Financial Officer and General Counsel.
      Prior to joining Wave Wireless, Mr. Rumsey was Vice President and General
      Counsel of Knowledge Kids Network, Inc., a multi-media education company.
      Knowledge Kids Network is part of the Knowledge Universe family of companies.
      Prior to joining Knowledge Kids Network, Mr. Rumsey was the President and
      General Counsel of Aspen Learning Systems and NextSchool, Inc., which he joined
      in February 1997. Mr. Rumsey sold Aspen Learning Systems and NextSchool to
      Knowledge Kids Network in 1999. Mr. Rumsey has an extensive restructuring,
      legal
      and finance background, dating back to 1987 when he served as a staff attorney
      in the U.S. Securities and Exchange Commission's Division of Corporation
      Finance. He has also served as Assistant General Counsel for Terra Industries,
      Inc. and Associate General Counsel and Corporate Secretary of EchoStar
      Communications Corporation. Mr. Rumsey also serves as the Chairman of the Board
      of Directors of Prescient Applied Intelligence, and as a director of Dirt Motor
      Sports, Inc. Mr. Rumsey received his J.D. from the University of Denver College
      of Law in 1985, and his B.S. from the University of Denver in 1983. Mr. Rumsey’s
      employment with Wave Wireless is expected to terminate immediately following
      consummation of the proposed WaveRider Merger.






-
          24
          -


*Don
      Meiners* **.** Mr.
      Meiners was appointed President on March 10, 2005. Prior to his appointment,
      he
      was Vice President - Operations of Wave Wireless, and has held a variety of
      management roles since he joined Wave Wireless in 1992. These include Vice
      President of Operations, Vice President Engineering, Vice President
      Manufacturing and Vice President of Engineering Program Management. Prior to
      Wave Wireless, Mr. Meiners served in design engineering roles and project
      management for Digital Microwave Corporation and Equitorial Inc. Mr. Meiners
      graduated from the Missouri Institute Of Technology in 1983.





*Carlos
      Belfiore* **.** Dr.
      Belfiore is currently Vice President - Engineering, and Chief Technical Officer
      of Wave Wireless. Prior to joining Wave Wireless in November 2003, he was an
      independent engineering consultant. Prior to that, Dr. Belfiore held various
      management and technical leadership positions at Stratex Networks, which he
      joined in 1988, including Senior Director IDU Development, Director of New
      Technology Development, Director of Modem Development, and Senior Scientist.
      Prior to joining Stratex, Dr. Belfiore was with the Microwave Communication
      Division of Harris Corporation, serving as Manager of Advanced Development
      and
      Principal Development Engineer. Dr. Belfiore received a Ph.D. in electrical
      engineering from University of Minnesota in 1976.





*James
      D. Bletas* .
      Mr.
      Bletas served as Executive Vice President - Sales, since March 2005. Prior
      to joining Wave Wireless, Mr. Bletas founded Wireless Networks International,
      Inc., a global distributor of networking and wireless communications products
      and services. Before joining Wireless Networks International, Inc., Mr. Bletas
      was the Vice President of Sales at Wireless Inc., a pioneer in the licensed
      exempt market and an original developer of broadband access and subscriber
      equipment. On March 3,2005, Mr. Bletas resigned from Wave Wireless.





*Richard
      Reiss* .
      Mr.
      Reiss has served as director of Wave Wireless since March 2005. Mr. Reiss is
      currently the Chairman of the Board of Directors of Glowpoint, Inc., where
      he
      has served since May 2000. He served as the Chief Executive Officer of Glowpoint
      from May 2000 to April 2002, and as President from May 2000 to April 2002.
      Mr.
      Reiss served as Chairman of the Board of Directors, President and Chief
      Executive Officer of All Communications Corporation from its formation in 1991
      until the formation of Glowpoint's predecessor pursuant to a merger of All
      Communications Corporation and View Tech, Inc. in May 2000.





*Frederick
      Fromm* .
      Mr.
      Fromm has served as a director of Wave Wireless since June 2001. Mr. Fromm
      is
      currently Chief Executive Officer of nexVortex, Inc., a telecom managed services
      provider. Prior to joining nexVortex, Inc. in January 2006, Mr. Fromm served
      as
      President of FCJC, Inc., a telecom industry consulting company. From May 2003
      to
      February 2004, Mr. Fromm was President and Chief Executive Officer of Gluon
      Networks, Inc. a telecommunications equipment company. From July 2000 to October
      2001, he was President, and from Nov. 2001 to October 2002 he was also Chief
      Executive Officer of Oplink Communications, Inc., an optical components company.
      From October 1998 to July 2000, he was President and Chief Executive Officer
      of
      Siemens Information and Communications, Inc, a telecommunications equipment
      company. From October 1996 to October 1998, he was President and Chief Executive
      Officer of Siemens Telecom Networks, Inc. a telecommunications equipment
      company.





*R.
      Craig Roos.* Mr.
      Roos
      joined Wave Wireless’ Board of Directors in December 2003. Mr. Roos is founder
      and sole owner of Roos Capital Planners, Inc., which he formed in 1979 and
      which
      specializes in advisory services to the communications industry, primarily
      in
      the fixed and mobile wireless area. Mr. Roos has served on the boards of several
      companies in the wireless, communications, software, media, and
      telecommunications industries. He served as chairman of MobileMedia Corporation
      from 1993 until 1995. Mr. Roos also was a co-founder of Locate, a digital local
      access carrier specializing in high-speed T-1 level radio carrier technologies.
      Mr. Roos has testified before the United States Congress on telecommunications
      issues and is a former chairman of the Alternative Local Telecommunications
      Trade Association. Mr. Roos currently serves on the Board of Directors of
      SPEEDCOM Wireless Corporation.





**BOARD
      COMMITTEES AND MEETINGS**





The
      board
      of directors has an Audit Committee and a Compensation Committee.





*Audit
      Committee* .
      The
      Audit Committee currently consists of three directors, Mr Reiss, Mr. Fromm,
      and
      Mr. Roos. The committee is primarily responsible for approving the services
      performed by Wave Wireless’ independent registered public accounting firm and
      reviewing their reports regarding Wave Wireless’ accounting practices and
      systems of internal accounting controls. The Board of Directors has determined
      that Mr. Roos is a financial expert in that Mr. Roos has (i) an understanding
      of
      generally accepted accounting principles and financial statements; (ii) has
      the
      ability to assess the general application of such principles in connection
      with
      the accounting for estimates, accruals and reserves; (iii) has experience
      preparing, auditing, analyzing or evaluating financial statements that present
      a
      breadth and level of complexity of accounting issues that are generally
      comparable to the breadth and complexity of issues that can reasonably be
      expected to be raised by Wave Wireless’ financial statements, or experience
      actively supervising one or more persons engaged in such activities; and (iv)
      an
      understanding of internal control over financial reporting; and an understanding
      of audit committee functions.






-
          25
          -


*Compensation
      Committee* .
      The
      Compensation Committee currently consists of one director, Mr. Fromm. The
      Compensation Committee is primarily responsible for reviewing and approving
      Wave
      Wireless’ general compensation policies and setting compensation levels for its
      executive officers. The Compensation Committee also has the authority to
      administer Wave Wireless’ Employee Stock Purchase Plan and its 2004 Equity
      Incentive Plan and to make option grants thereunder.





**DIRECTOR
      COMPENSATION**





Non-employee
      directors do not receive cash compensation for their services as directors.





**CODE
      OF ETHICS**





Wave
      Wireless has adopted a Code of Ethics that applies to Wave Wireless’ Chief
      Executive Officer, Chief Financial Officer, Controller, Treasurer, and Financial
      Reporting Officer, or persons performing similar functions. A copy of Wave
      Wireless’ Code of Ethics is filed as Exhibit 14.1 hereto. Wave Wireless will
      provide to the public, free of charge, a copy of the code of ethics upon request
      in writing to Wave Wireless’ Chief Restructuring Officer at Wave Wireless at
      1996 Lundy Ave, San Jose, CA 95131.





**SECTION
      16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE** ****





Section
      16(a) of the Exchange Act requires Wave Wireless’ directors and executive
      officers, and persons who beneficially own more than 10% of the Common Stock,
      to
      file with the SEC initial reports of beneficial ownership ("Form 3") and reports
      of changes in beneficial ownership of Common Stock and other equity securities
      of Wave Wireless ("Form 4"). Officers, directors and greater than 10%
      stockholders of Wave Wireless are required by SEC rules to furnish to Wave
      Wireless copies of all Section 16(a) reports that they file. To Wave Wireless’
knowledge, based solely on a review of the copies of such reports furnished
      to
      Wave Wireless and written representations that no other reports were required,
      all Section 16(a) filing requirements applicable to its officers, directors
      and
      greater than 10% beneficial owners were complied with for fiscal
      2005.





**ITEM
      10.****EXECUTIVE
      COMPENSATION******




The
      following table provides certain information summarizing the compensation earned
      for services rendered in all capacities to Wave Wireless and its subsidiaries
      for each of the last three fiscal years by its "named executive officers,"
      who
      consist of Wave Wireless’ Chief Executive Officer and each of Wave Wireless’
four other most highly compensated executive officers, who were executive
      officers on December 31, 2005 and whose salary and bonus for the fiscal year
      ended December 31, 2005 was in excess of $100,000.





**SUMMARY
      COMPENSATION TABLE**




Long
                  Term CompensationAnnual
                  Compensation
              
              AwardsName
                  and Principal Position
              
              Year
              
              Salary
                  ($)(1)
              
              Bonus
                  ($)
              
              Other
                  Annual Compensation ($)
              
              Restricted
                  Stock
                Awards
                  ($)
              
              Securities
                  Underlying Options and Warrants (#)
              
              All
                  Other Compensation ($)Samuel
                  Smookler
                Former
                  Chief Executive Officer and Former Director
              (3)
              
              2005
              
              
              73,327
              
              
              —
              
              
              —
              
              
              
              
              
              —
              
              
              —2004
              
              
              252,100
              
              
              125,000
              
              
              —
              
              
              
              
              
              —
              
              
              —2003
              
              
              139,569
              
              
              —
              
              
              53,083(2)
              
              
              
              
              
              166,667
              
              
              —Daniel
                  W. Rumsey
                Acting
                  Chief Executive Officer and Director
              
              
              2005
              
              
              202,346
              
              
              —
              
              
              —
              
              
              11,250
              
              
              264,000
              
              
              —2004
              
              
              158,269
              
              
              —
              
              
              —
              
              
              
              
              
              —
              
              
              —2003
              
              
              104,369
              
              
              —
              
              
              —
              
              
              
              
              
              73,333
              
              
              8,000(4)Don
                  Meiners
                President
              
              
              2005
              
              
              150,469
              
              
              —
              
              
              —
              
              
              9,750
              
              
              240,000
              
              
              —2004
              
              
              130,046
              
              
              —
              
              
              —
              
              
              
              
              
              —
              
              
              —2003
              
              
              103,699
              
              
              —
              
              
              —
              
              
              
              
              
              73,333
              
              
              —James
                  D. Bletas
                Former
                  Executive Vice President - Sales
              (5)
              
              2005
              
              
              115,385
              
              
              —
              
              
              —
              
              
              9,750
              
              
              240,000
              
              
              —2004
              
              
              —
              
              
              —
              
              
              —
              
              
              
              
              
              —
              
              
              —2003
              
              
              —
              
              
              —
              
              
              —
              
              
              
              
              
              —
              
              
              —Carlos
                  A. Belfiore
                Vice
                  President - Engineering and Chief Technical Officer
              
              
              2005
              
              
              138,000
              
              
              41,400
              
              
              —
              
              
              9,750
              
              
              240,000
              
              
              —2004
              
              
              138,000
              
              
              —
              
              
              —
              
              
              
              
              
              —
              
              
              —2003
              
              
              18,577
              
              
              —
              
              
              —
              
              
              
              
              
              91,667
              
              
              —




-
          26
          -


(1)
      Includes amounts deferred under Wave Wireless’ 401(k) Plan.





(2)
      On
      October 8, 2003, Mr. Smookler acquired 23.33 shares of Series C Preferred Stock
      of Wave Wireless convertible into 13,611 shares of common stock, resulting
      in an
      effective purchase price of $3.00 per share of common stock. The closing price
      per share of common stock as reported on the OTC Bulletin Board on October
      8,
      2003 was $6.90 per share.





(3)
      Mr.
      Smookler’s employment with Wave Wireless was terminated on March 10, 2005.





(4)
      Prior
      to joining Wave Wireless full time in April 2003, Mr. Rumsey was paid $8,000
      as
      a consultant to Wave Wireless.





(5)
      Mr.
      Bletas was hired as Executive Vice President - Sales on March 21, 2005. He
      resigned from Wave Wireless, effective March 3, 2006.





**OPTION
      GRANTS IN LAST FISCAL YEAR**





During
      2005, 550,000 restricted stock options were granted to its named executive
      officers. No stock options were granted to its named executive officers during
      the 2004 fiscal year. No stock appreciation rights were granted to these
      individuals during 2005 and 2004 fiscal year.




**AGGREGATED
      OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION**


**VALUES**





The
      table
      below provides information with respect to Wave Wireless’ named executive
      officers concerning: (i) the options that they exercised in 2005 and (ii) the
      number and value of their unexercised options as of December 31, 2005.








Number
                of Securities Underlying Unexercised Options at Fiscal Year End (#)(3)
            
            Value
                of Unexercised In-The-Money Options at Fiscal Year End ($)(1)Name
            
            Shares
                Acquired On Exercise (#)
            
            Value
              Realized
              ($)(2)
            
            Exercisable
            
            Unexercisable
            
            Exercisable
            
            UnexercisableSam
                Smookler
            
            
            —
            
            
            —
            
            
            79,999
            
            
            —
            
            
            —
            
            
            —Don
                Meiners
            
            
            —
            
            
            —
            
            
            44,513
            
            
            30,555
            
            
            —
            
            
            —Daniel
                W. Rumsey
            
            
            —
            
            
            —
            
            
            42,778
            
            
            30,555
            
            
            —
            
            
            —James
                Bletas
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Carlos
                A. Belfiore
            
            
            —
            
            
            —
            
            
            48,268
            
            
            34,731
            
            
            —
            
            
            —





(1)
      Based
      on the fair market value of the option shares at the 2005 fiscal year-end ($0.13
      per share based on the closing selling price on the OTC Bulletin Board as of
      December 31, 2005) less the exercise price.





(2)
      Based
      on the fair market value of the shares on the exercise date less the exercise
      price paid for those shares.





(3)
      The
      options are immediately exercisable for all the options shares. However, any
      shares purchased under the options are subject to repurchase by Wave Wireless,
      at the original exercise price paid per share, upon the optionee’s cessation of
      service prior to vesting in such shares.





**EMPLOYMENT
      CONTRACTS, TERMINATION OF EMPLOYMENT ARRANGEMENTS AND CHANGE OF CONTROL
      AGREEMENTS**





The
      Compensation Committee of the Board of Directors, as Plan Administrator of
      the
      2004 Equity Incentive Plan, has the authority to provide for accelerated vesting
      of the shares of Common Stock subject to any outstanding options held by the
      Chief Executive Officer and any other executive officer or any unvested share
      issuances actually held by such individual, in connection with certain changes
      in control of Wave Wireless or the subsequent termination of the officer's
      employment following the change in control event.





On
      June
      14, 2005, Wave Wireless entered into a letter agreement with George Roberts,
      Wave Wireless’ Chairman of the Board, terminating his Employment and Continuity
      of Benefits Agreement, dated May 31, 2001, which outlined his continued
      employment with Wave Wireless as Chairman of the Board following his resignation
      as Chief Executive Officer on May 30, 2001 (the “Roberts Agreement”). Under the
      terms of the letter agreement, in lieu of paying Mr. Roberts approximately
      $132,000 due him under the Roberts Agreement, Mr. Roberts received a warrant
      to
      purchase 600,000 shares of common stock of Wave Wireless at an exercise price
      of
      $.30 per share. In addition, Wave Wireless agreed to pay Mr. Roberts’ medical,
      dental and supplemental executive health care coverage for the remainder of
      Mr.
      Roberts’ natural life.




-
          27
          -


On
      January 17, 2006, Wave Wireless and Sam Smookler, Wave Wireless’ former
      President and Chief Executive Officer entered into a Settlement Agreement and
      Release of Claims, pursuant to which Wave Wireless and Mr. Smookler agreed
      to
      settle all claims under the terms of an agreement between the parties, dated
      July 25, 2003, providing for the employment of Mr. Smookler as President and
      Chief Executive Officer for a period of two years (“Settlement Agreement”). Mr.
      Smookler’s employment with Wave Wireless was terminated on March 10, 2005. Under
      the terms of the Settlement Agreement, Wave Wireless will pay Mr. Smookler
      $50,000 upon the earlier to occur of the receipt of at least $1.5 million in
      financing, or March 31, 2006. In addition, Wave Wireless has agreed to pay
      Mr.
      Smookler $3,750 for twenty months, with a balloon payment of $25,000 on
      September 1, 2007. Wave Wireless also issued Mr. Smookler a warrant to purchase
      769,231 shares of its common stock at an exercise price of $.13 per share.





Wave
      Wireless entered into a letter agreement with Daniel Rumsey, its Acting Chief
      Executive Officer, and former Vice President, General Counsel and Acting Chief
      Financial Officer, on March 22, 2006. Under the terms of the agreement, Mr.
      Rumsey’s severance agreement with Wave Wireless, as amended, terminated. The
      letter agreement provides for Mr. Rumsey’s resignation as the Acting Chief
      Executive Officer upon consummation of the WaveRider Merger, and the termination
      of his employment on March 31, 2006. On that date, Mr. Rumsey will be paid
      one-half of his deferred compensation owed him by Wave WIreless, or $25,000,
      and
      the remaining $25,000 will be paid him on April 30, 2006. In addition, upon
      termination, Wave Wireless is obligated to pay Mr. Rumsey (i) one-half of his
      base salary for a period of twelve months; (ii) his COBRA obligations for twelve
      months; and (iii) all stock options and restricted stock to which Mr. Rumsey
      is
      entitled shall vest 100%.





Wave
      Wireless entered into an agreement with Dr. Carlos Belfiore, its Vice President
      of Engineering and Chief Technical Officer, on October 20, 2003. Under the
      terms
      of the agreement, Dr. Belfiore is paid a base salary of $138,000 per year.
      Dr.
      Belfiore was also paid a cash bonus equal to 30% of his base salary on January
      15, 2005. The agreement also provided for the grant of an option to purchase
      91,666 shares of Common Stock of Wave Wireless, which amount was reduced to
      80,000 due to limitations in Wave Wireless’ 1995 Stock Option/Stock Issuance
      Plan. Wave Wireless granted Dr. Belfiore a warrant to purchase 11,666 shares
      of
      Common Stock, thereby making up the difference between the 91,666 shares granted
      by the Board of Directors, and the 80,000 actually issued under the Plan. In
      the
      event Dr. Belfiore's employment is terminated at any time without cause, Wave
      Wireless is obligated to pay Dr. Belfiore his salary for six months following
      such termination, and all options previously granted to Dr. Belfiore continue
      to
      vest in accordance with their terms and conditions for a period of two years
      following the date of such termination. Following a change in control of Wave
      Wireless, Wave Wireless is obligated to pay Dr. Belfiore his base salary for
      a
      period of one year, and his options shall automatically accelerate so that
      each
      option becomes fully vested and immediately exercisable for the total number
      of
      shares subject to the option. A change in control will be deemed to occur under
      the agreements upon: (a) a merger or consolidation in which Wave Wireless is
      not
      the surviving entity; (b) the sale, transfer or other disposition of all or
      substantially all of the assets of Wave Wireless in complete liquidation or
      dissolution of Wave Wireless; (c) a reverse merger in which Wave Wireless is
      the
      surviving entity but in which securities representing fifty percent (50%) or
      more of the total combined voting power of Wave Wireless’ outstanding securities
      are transferred to persons different from the persons holding those securities
      immediately prior to such merger; and the acquisition, directly or indirectly
      by
      any person or related group of persons of beneficial ownership of securities
      possessing more than thirty percent (30%) of Wave Wireless’ outstanding voting
      securities pursuant to a tender or exchange offer made directly to Wave
      Wireless’ stockholders.





Wave
      Wireless entered into a letter agreement with Don Meiners, its current President
      and former Vice President of Operations, on March 22, 2006. Under the terms
      of
      the letter agreement, in the event that Mr. Meiners’ employment is terminated at
      any time, voluntarily or involuntarily, Wave Wireless is obligated to pay his
      base salary for a period of three months, and his COBRA obligations for six
      months. In the event his employment is terminated involuntarily, all stock
      options and restricted stock previously granted to Mr. Meiners shall vest 100%.
      In the event his employment is voluntarily terminated, all his restricted stock
      and stock options will continue to vest for a period of six months following
      the
      date of termination.





**ITEM
      11.****SECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT******




The
      following table presents information concerning the beneficial ownership of
      Wave
      Wireless common stock and Series E Preferred Stock as of January 20, 2006 by
      each of the following:





o
      each
      person known by Wave Wireless to be the beneficial owner of 5% of more of its
      outstanding shares of Common Stock, Series E Preferred Stock;





o
      each of
      Wave Wireless’ named executive officers;





o
      each of
      Wave Wireless’ directors; and





o
      all of
      Wave Wireless’ executive officers and directors as a group.




-
          28
          -


Beneficial
      ownership is determined under the rules of the Securities and Exchange
      Commission and generally includes voting or investment power over securities.
      Except in cases where community property laws apply or as indicated in the
      footnotes to this table, Wave Wireless believes that each stockholder identified
      in the table possesses sole voting and investment power over all shares of
      common stock and Series E Preferred Stock shown as being beneficially owned
      by
      that stockholder. The percentage of beneficial ownership is based on 22,461,684
      shares of common stock and approximately 923.1 shares of Series E Preferred
      Stock outstanding as of January 20, 2006. Shares of common stock subject to
      convertible notes, warrants and options that are currently convertible or
      exercisable within 60 days of January 20, 2006 are considered outstanding and
      beneficially owned by the stockholder who holds those convertible notes,
      warrants or options for the purpose of computing the percentage ownership of
      that stockholder but are not treated as outstanding for the purpose of computing
      the percentage ownership of any other stockholder. Unless otherwise indicated
      below, the address of each stockholder listed below is 1996 Lundy Avenue, San
      Jose, California 95131.





Common
                Stock
            
            Series
                E Convertible
              Preferred
                StockName
                and Address of Beneficial Owner
            
            Shares
                Issuable Pursuant to Convertible Notes, Warrants and Options Exercisable
                Within 60 Days of January 20, 2006
            
            Number
                of Shares Beneficially Owned (Including the Number of Shares Shown
                in the
                First Column)
            
            Percentage
                of Shares Outstanding
            
            Number
                of Shares Beneficially Owned (1)
            
            Percentage
                of Shares OutstandingNorth
                Sound Legacy Institutional Fund LLC
              1209
                Orange Street
              Wilmington,
                DE 19801 (2)
            
            
            
            
            
            888,541
            
            
            
            
            
            2,311,672
            
            
            
            
            
            9.9
            %
            
            
            
            
            —
            
            
            
            
            
            —North
                Sound Legacy International Fund Ltd.
              Bison
                Court, Roadtown
              Tortola,
                BVI (2)
            
            
            
            
            
            888,541
            
            
            
            
            
            2,311,672
            
            
            
            
            
            9.9
            %
            
            
            
            
            —
            
            
            
            
            
            —SDS
                Capital Group SPC, Ltd.
              113
                Church Street
              PO
                Box 134GT
              Grand
                Canyon, Cayman Islands
            
            
            
            
            
            2,196,122
            
            
            
            
            
            2,441,122
            
            
            
            
            
            9.9
            %
            
            
            
            
            —
            
            
            
            
            
            —Bryan
                Family Partnership II Ltd.
              5450
                Thornwood Drive, Ste G
              San
                Jose, CA 95123
            
            
            
            
            
            2,000,000
            
            
            
            
            
            2,185,378
            
            
            
            
            
            8.9
            %
            
            
            
            
            —
            
            
            
            
            
            —Whalehaven
                Capital Fund Ltd.
              PO
                Box HM 2257, 3rd Floor
              Par
                La Ville Place
              14
                Par-La-Ville Road
              Hamilton
                HM JX, Bermuda
            
            
            
            
            
            1,157,331
            
            
            
            
            
            1,157,331
            
            
            
            
            
            4.9
            %
            
            
            
            
            —
            
            
            
            
            
            —Agilent
                Financial Services, Inc.
              1
                CIT Drive, MS4110A
              Livingston,
                NJ 07039
            
            
            
            
            
            178,571
            
            
            
            
            
            178,571
            
            
            
            
            
            *
            
            
            
            
            
            555.8
            
            
            
            
            
            60.2
            %Able
                Electronics Corporation
              31033
                Huntwood Avenue
              Hayward,
                CA 94544
            
            
            
            
            
            —
            
            
            
            
            
            —
            
            
            
            
            
            —
            
            
            
            
            
            367.3
            
            
            
            
            
            39.8
            %Frederick
                R. Fromm
            
            
            
            
            
            18,644
            
            
            
            
            
            113,544
            
            
            
            
            
            *
            
            
            
            
            
            —
            
            
            
            
            
            —R.
                Craig Roos
            
            
            
            
            
            10,888
            
            
            
            
            
            143,216
            
            
            
            
            
            *
            
            
            
            
            
            —
            
            
            
            
            
            —George
                P. Roberts
            
            
            
            
            
            664,141
            
            
            
            
            
            798,463
            
            
            
            
            
            3.55
            %
            
            
            
            
            —
            
            
            
            
            
            —Daniel
                W. Rumsey
            
            
            
            
            
            180,889
            
            
            
            
            
            255,889
            
            
            
            
            
            1.14
            %
            
            
            
            
            —
            
            
            
            
            
            —Richard
                Reiss
            
            
            
            
            
            —
            
            
            
            
            
            70,000
            
            
            
            
            
            *
            
            
            
            
            
            —
            
            
            
            
            
            —Don
                Meiners
            
            
            
            
            
            170,624
            
            
            
            
            
            235,660
            
            
            
            
            
            1.05
            %
            
            
            
            
            —
            
            
            
            
            
            —Sam
                Smookler (3)
            
            
            
            
            
            912,479
            
            
            
            
            
            921,645
            
            
            
            
            
            *
            
            
            
            
            
            —
            
            
            
            
            
            —Carlos
                A. Belfiore
            
            
            
            
            
            182,159
            
            
            
            
            
            247,159
            
            
            
            
            
            1.2
            %
            
            
            
            
            —
            
            
            
            
            
            —James
                D. Bletas (4)
            
            
            
            
            
            120,000
            
            
            
            
            
            185,000
            
            
            
            
            
            *
            
            
            
            
            
            —
            
            
            
            
            
            —All
                current directors and executive officers as a group
              (7
                persons)
            
            
            
            
            
            2,259,824
            
            
            
            
            
            2,970,576
            
            
            
            
            
            13.23
            %
            
            
            
            
            —
            
            
            
            
            
            —


*
      Less
      than 1%.


(1)
      There
      are no outstanding warrants or options to purchase shares of Series E
      Convertible Preferred Stock.





(2)
      Includes shares beneficially owned by North Sound Legacy Fund LLC, North Sound
      Legacy Institutional Fund LLC, and North Sound International Fund Ltd.





(3)
      Mr.
      Smookler’s employment with Wave Wireless was terminated effective March 10,
      2005.




-
          29
          -


(4)
      Mr.
      Bletas’ resigned from Wave Wireless, effective March 3, 2006.





**ITEM
      12.****CERTAIN
      RELATIONSHIPS AND RELATED TRANSACTIONS******




Not
      applicable.





**ITEM
      13.****EXHIBITS
      AND REPORTS ON FORM 8-K**





We
      have
      listed the exhibits filed as part of this Annual Report on From 10-KSB in the
      accompanying exhibit index, which follows the signature page to this Annual
      Report. The exhibits marked with an asterisk (*) are included with and filed
      as
      part of this Annual Report on Form 10-KSB. The exhibits marked with a double
      asterisk (**) are management contracts or compensatory plans or
      arrangements.





**ITEM
      14.**  **PRINCIPAL
      ACCOUNTANT FEES AND SERVICES** ****




**AUDIT
      FEES**





Aidman,
      Piser & Company ("Aidman Piser") has been retained by the Audit Committee as
      the independent registered public accounting firm to audit our financial
      statements for the fiscal year ending December 31, 2005. The aggregate fees
      Aidman Piser billed us in 2005 for audit services, including for review of
      our
      interim financial statements, post-report review procedures and the issuance
      of
      consents in connection with the filing of registration statements, was $146,500.





**AUDIT-RELATED
      FEES**





Wave
      Wireless did not engage Aidman Piser for any non-audit related services in
      2005,
      including tax compliance, tax advisory or any other tax planning or other
      services.





**AUDIT
      COMMITTEE PRE-APPROVAL POLICIES**





The
      Audit
      Committee has adopted an Audit Committee Charter, which sets forth the
      procedures and policies pursuant to which services to be performed by the
      independent auditor are to be pre-approved. Under the Charter, proposed services
      either may be pre-approved by agreeing to a framework with descriptions of
      allowable services with the Audit Committee ("general pre-approval"), or require
      the specific pre-approval of the Audit Committee. Unless a type of service
      has
      received general pre-approval, it requires specific pre-approval by the Audit
      Committee if it is to be provided by the independent registered public
      accounting firm.





The
      Audit
      Committee will annually review and pre-approve the services that may be provided
      by the independent auditor that are subject to general pre-approval. Under
      the
      Charter, the Audit Committee may delegate pre-approval authority one or more
      designated members of the Audit Committee the authority to pre-approve audit
      and
      permissible non-audit services, provided such pre-approval decision is presented
      to the full Audit Committee at its scheduled meetings. The member to whom such
      authority is delegated must report, for informational purposes only, any
      pre-approval decisions to the Audit Committee at its next meeting.




-
          30
          -


**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**







The
      Board
      of Directors


Wave
      Wireless Corporation





We
      have
      audited the accompanying consolidated balance sheet of Wave Wireless Corporation
      and subsidiaries (the “Company”) as of December 31, 2005 and the related
      consolidated statements of operations, stockholders' equity and comprehensive
      loss, and cash flows for each of the years in the two-year period 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 audits.





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





In
      our
      opinion, the financial statements referred to above present fairly, in all
      material respects, the consolidated financial position of Wave Wireless
      Corporation and subsidiaries as of December 31, 2005 and the consolidated
      results of their operations and their cash flows for each of the years in the
      two-year period then ended in conformity with accounting principles generally
      accepted in the United States of America.





The
      Company has incurred recurring net losses, has used significant cash in support
      of its operating activities and, based upon current operating levels, requires
      additional capital or significant reconfiguration of its operations to sustain
      its operations beyond March 31, 2006. These conditions raise substantial doubt
      about the Company’s ability to continue as a going concern. Further information
      and management's plans with regard to this uncertainty, including management's
      specific plans for restructuring and exit activities, are discussed in Note
      1.
      The consolidated financial statements do not include any adjustments that might
      result from the outcome of this uncertainty.




/s/ *Aidman,
              Piser & Company, P.A.**Tampa,
                Florida*
              *February
                17, 2006, except for note 1, for which the date is March 23,
                2006*




-
          31
          -


**WAVE
      WIRELESS CORPORATION AND SUBSIDIARIES**


**CONSOLIDATED
      BALANCE SHEET**




(In
      thousands)





DECEMBER
      31, 2005


ASSETSCurrent
                  assets:Cash
                  and cash equivalents
              
              $
              380Accounts
                    receivable, net of allowances of $756
              
              
              1,152Inventory
              
              
              197Prepaid
                  expenses and notes receivable
              
              
              447Total
                  current assets
              
              
              2,176Property
                  and equipment, net
              
              
              622Goodwill
              
              
              11,990WaveRider
                  note receivable
              
              
              250Total
                  assets
              
              $
              15,038LIABILITIES
                  AND STOCKHOLDERS' EQUITYCurrent
                  liabilities:Accounts
                  payable
              
              $
              1,683Other
                  accrued liabilities
              
              
              2,521Deferred
                  revenue
              
              
              862Liabilities
                  of discontinued operations
              
              
              184Notes
                  payable
              
              
              1,657Current
                  maturities of long-term debt
              
              
              2,379Total
                  current liabilities
              
              
              9,286Long-term
                  debt, less current maturities
              
              
              1,544Total
                  liabilities
              
              
              10,830Commitments
                  and contingencies (Notes 11 and 12)Stockholders'
                  equity:Series
                  E Preferred Stock
              
              
              332Series
                  F Preferred Stock
              
              
              661Series
                  G Preferred Stock
              
              
              3,344Common
                  stock, par value $0.0001 per share250
                    million shares authorized; 22,162 shares issued; 22,132 shares
                    outstanding
              
              
              2Treasury
                  stock, at cost; 30 shares
              
              
              (74
              )Additional
                  paid-in capital
              
              
              383,778Accumulated
                  deficit
              
              
              (383,835
              )Total
                  stockholders' equity
              
              
              4,208Total
                  liabilities and stockholders' equity
              
              $
              15,038


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





-
          32
          -





**WAVE
      WIRELESS CORPORATION AND SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF OPERATIONS**




(In
      thousands, except per share data)




FOR
                  THE YEARS ENDED DECEMBER 31,2005
              
              2004Sales
              
              $
              11,807
              
              $
              24,175Cost
                  of sales
              
              
              8,485
              
              
              18,720Gross
                  profit
              
              
              3,322
              
              
              5,455Operating
                  expense:Research
                  and development
              
              
              2,982
              
              
              4,976Selling
                  and marketing
              
              
              3,139
              
              
              6,772General
                  and administrative
              
              
              3,497
              
              
              4,552Restructuring
                  charges
              
              
              5,597
              
              
              --Total
                  operating expenses
              
              
              15,215
              
              
              16,300Loss
                  from operations
              
              
              (11,893
              )
              
              (10,845
              )Other
                  income (expenses):Interest
                  expense
              
              
              (960
              )
              
              (687
              )Other
                  income, net
              
              
              271
              
              
              8,252Loss
                  from continuing operations
              
              
              (12,582
              )
              
              (3,280
              )Income
                  tax benefit
              
              
              --
              
              
              --Loss
                  before discontinued operations
              
              
              (12,582
              )
              
              (3,280
              )Loss
                  from discontinued operations
              
              
              --
              
              
              (40
              )Net
                  loss
              
              
              (12,582
              )
              
              (3,320
              )Preferred
                  stock accretions
              
              
              (3,287
              )
              
              (2,392
              )Preferred
                  stock dividends
              
              
              (541
              )
              
              (156
              )Net
                  loss attributable to common stockholders
              
              $
              (16,410
              )
              $
              (5,868
              )Basic
                  and diluted loss per common share:Loss
                  from continuing operations
              
              $
              (1.04
              )
              $
              (0.56
              )Loss
                  from discontinued operations
              
              
              --
              
              
              --Basic
                  and diluted loss per common share
              
              $
              (1.04
              )
              $
              (0.56
              )Shares
                  used in basic and diluted per share computation
              
              
              15,814
              
              
              10,429
 The
          accompanying notes are an integral part of these consolidated financial
          statements.


-
          33
          -


**WAVE
      WIRELESS CORPORATION AND SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF STOCKHOLDERS' EQUITY AND**


**COMPREHENSIVE
      LOSS**





**YEARS
      ENDED DECEMBER 31, 2005 AND 2004** ****




(In
      thousands)





Shares
            
            AmountCommon
            
            Preferred
              E
            
            Preferred
              F
            
            Preferred
              G
            
            Common
            
            Preferred
              E
            
            Preferred
              F
            
            Preferred
              G
            
            Additional
              Paid-in
                Capital
            
            Treasury
              Stock
            
            Accumulated
              Deficit
            
            Accumulated
              Other
              Comprehensive
              Income
                (Loss)
            
            TotalBalance
                at December 31, 2003
            
            
            6,738
            
            
            -
            
            
            -
            
            
            -
            
            $
            20
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            373,186
            
            $
            (74
            )
            $
            (363,173
            )
            $
            (206
            )
            $
            9,753Preferred
                series C Conversion
            
            
            2,275
            
            
            
            
            
            
            
            
            
            
            
            6
            
            
            
            
            
            
            
            
            
            
            
            517
            
            
            
            
            
            
            
            
            
            
            
            523Placement
                warrants converted to common stock
            
            
            182
            
            
            
            
            
            
            
            
            
            
            
            1
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            1Warrant
                issuance net of expense of $187
            
            
            2,600
            
            
            
            
            
            
            
            
            
            
            
            8
            
            
            
            
            
            
            
            
            
            
            
            2,420
            
            
            
            
            
            
            
            
            
            
            
            2,428Warrants
                issued in connection with debentures
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            307
            
            
            
            
            
            
            
            
            
            
            
            307Accretion
                of preferred stock:Series
                B
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (208
            )
            
            
            
            
            (208
            )Series
                C
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (2,184
            )
            
            
            
            
            (2,184
            )Foreign
                currency translation adjustments
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            208
            
            
            208Net
                loss
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (3,320
            )
            
            
            
            
            (3,320
            )Balance
                at December 31, 2004
            
            
            11,795
            
            
            -
            
            
            -
            
            
            -
            
            
            35
            
            
            -
            
            
            -
            
            
            -
            
            
            376,430
            
            
            (74
            )
            
            (368,885
            )
            
            2
            
            
            7,508Preferred
                series C converted to common
            
            
            34
            
            
            
            
            
            
            
            
            
            
            
            3
            
            
            
            
            
            
            
            
            
            
            
            5
            
            
            
            
            
            
            
            
            
            
            
            8Warrants
                in connection with notes payable
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            44
            
            
            
            
            
            
            
            
            
            
            
            44Warrants
                for former officer settlement
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            93
            
            
            
            
            
            
            
            
            
            
            
            93Preferred
                Series B converted to common
            
            
            382
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            1,708
            
            
            
            
            
            
            
            
            
            
            
            1,708Preferred
                  Series E issued in exchange for vendor
                  payables
            
            
            
            
            
            0.9
            
            
            
            
            
            
            
            
            
            
            
            332
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            332Preferred
                Series F converted to common
            
            
            1,120
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (189
            )
            
            
            
            
            189
            
            
            
            
            
            
            
            
            
            
            
            -Preferred
                  Series G, common stock and warrants issued
                  to redeem Preferred Series C
            
            
            7,090
            
            
            
            
            
            
            
            
            5.6
            
            
            1
            
            
            
            
            
            
            
            
            2,839
            
            
            2,838
            
            
            
            
            
            (2,008
            )
            
            
            
            
            3,670Preferred
                  Series G and warrants issued to redeem
                  Preferred Series D
            
            
            
            
            
            
            
            
            
            
            
            1.0
            
            
            
            
            
            
            
            
            
            
            
            360
            
            
            180
            
            
            
            
            
            1,460
            
            
            
            
            
            2,000Preferred
                  Series F and common stock issued for
                  debt payments
            
            
            628
            
            
            
            
            
            0.3
            
            
            
            
            
            2
            
            
            
            
            
            850
            
            
            
            
            
            196
            
            
            
            
            
            
            
            
            
            
            
            1,048Warrants
                issue with lease settlement
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            233
            
            
            
            
            
            
            
            
            
            
            
            233Warrants
                  issued in connection with investor bank
                  promissory note, net of expense
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            549
            
            
            
            
            
            
            
            
            
            
            
            549Warrants
                issued in lieu of debt payment
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            552
            
            
            
            
            
            
            
            
            
            
            
            552Warrants
                issued for debt payment penalty
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            165
            
            
            
            
            
            
            
            
            
            
            
            165Issue
                common stock for vendor settlement
            
            
            184
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            20
            
            
            
            
            
            
            
            
            
            
            
            20Issue
                common stock in lieu of debt payment
            
            
            372
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            59
            
            
            
            
            
            
            
            
            
            
            
            59Issue
                restricted stock
            
            
            550
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            82
            
            
            
            
            
            
            
            
            
            
            
            82Adjustment
                for 1:30 reverse stock split
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (39
            )
            
            
            
            
            
            
            
            
            
            
            39
            
            
            
            
            
            
            
            
            
            
            
            -Redeemable
                  Preferred stock accretions through date
                  of redemption
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (1,279
            )
            
            
            
            
            (1,279
            )Exercise
                of stock options
            
            
            7
            
            
            
            
            
            
            
            
            
            
            
            -
            
            
            
            
            
            
            
            
            
            
            
            -
            
            
            
            
            
            
            
            
            
            
            
            -Preferred
                Series C dividends
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            145
            
            
            396
            
            
            
            
            
            (541
            )
            
            
            
            
            -Foreign
                currency translation adjustments
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (2
            )
            
            (2
            )Net
                loss
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (12,582
            )
            
            
            
            
            (12,582
            )22,162
            
            
            0.9
            
            
            0.3
            
            
            6.6
            
            $
            2
            
            $
            332
            
            $
            661
            
            $
            3,344
            
            $
            383,778
            
            $
            (74
            )
            $
            (383,835
            )
            $
            -
            
            $
            4,208


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





-
          34
          -


**WAVE
      WIRELESS CORPORATION AND SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**


(In
      thousands)




Years
                  ended December 31,2005
              
              2004Cash
                  flows from operating activities:Net
                  loss
              
              $
              (12,582
              )
              $
              (3,320
              )Adjustments
                    to reconcile net loss to net cash flows fromoperating
                    activities:Depreciation
                  expense
              
              
              550
              
              
              1,489(Gain)
                  loss on sale of equipment
              
              
              (238
              )
              
              167Gain
                  on sale of patent
              
              
              (400
              )
              
              --Loss
                  on debt extinguishment
              
              
              13
              
              
              --Warrant
                  expense
              
              
              408
              
              
              --Inventory
                  valuation and other charges
              
              
              56
              
              
              916Asset
                  impairment and other restructuring charges
              
              
              5,597
              
              
              --Loss
                  on discontinued operations
              
              
              --
              
              
              40Stock-based
                  compensation
              
              
              93
              
              
              --Gain
                    on vendor settlements, included in other income(expenses),
                    net
              
              
              --
              
              
              (964
              )Gain
                  on settlement of contract
              
              
              --
              
              
              (7,500
              )Amortization
                  of debt discount
              
              
              175
              
              
              138Bad
                  debt expense
              
              
              336
              
              
              --Increase
                  (decrease) in cash resulting from changes in:Accounts
                  receivable
              
              
              1,447
              
              
              2,048Inventory
              
              
              1,482
              
              
              (172
              )Prepaid
                  expenses and other assets
              
              
              1,072
              
              
              349Accounts
                  payable
              
              
              (1,104
              )
              
              (1,011
              )Other
                  accrued liabilities
              
              
              (2,534
              )
              
              (1,327
              )Deferred
                  revenue
              
              
              750
              
              
              --Net
                  cash flows from operating activities
              
              
              (4,879
              )
              
              (9,147
              )Cash
                  flows from investing activities:Acquisition
                  of property and equipment
              
              
              (44
              )
              
              (321
              )Proceeds
                  from sale of patent
              
              
              400
              
              
              --Proceeds
                  from sale of property and equipment
              
              
              482
              
              
              829Proceeds
                  from sales of Speedcom common stock
              
              
              --
              
              
              100Purchase
                  WaveRider Note
              
              
              (250
              )
              
              --Net
                  cash flows from investing activities
              
              
              588
              
              
              608Cash
                  flows from financing activities:Payments
                  of notes payable
              
              
              (716
              )
              
              --Proceeds
                  from (repayment of) loan payable to bank
              
              
              759
              
              
              (1
              )Proceeds
                  from exercise of warrant offers, net of expenses
              
              
              --
              
              
              2,434Proceeds
                  from convertible notes
              
              
              850
              
              
              --Proceeds
                  from debentures
              
              
              1,700
              
              
              3,300Payments
                  on debentures
              
              
              (200
              )
              
              --Payments
                  under capital lease obligations
              
              
              --
              
              
              (1,052
              )Net
                  cash flows from financing activities
              
              
              2,393
              
              
              4,681Effect
                  of exchange rate changes on cash
              
              
              (2
              )
              
              (47
              )Net
                  decrease in cash and cash equivalents
              
              
              (1,900
              )
              
              (3,905
              )Cash
                  and cash equivalents at beginning of the year
              
              
              2,280
              
              
              6,185Cash
                  and cash equivalents at end of the year
              
              $
              380
              
              $
              2,280




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





-
          35
          -





**WAVE
      WIRELESS CORPORATION AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


(AMOUNTS
      IN TABLES ARE IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)





**1.**  **THE
      COMPANY, LIQUIDITY AND MANAGEMENT'S PLANS, AND SUMMARY OF SIGNIFICANT ACCOUNTING
      POLICIES**





Wave
      Wireless Corporation ("Wave Wireless" or the "Company") was incorporated in
      Delaware on August 23, 1991 to engage in the design, manufacture and marketing
      of millimeter network access wave radio systems for use in the worldwide
      wireless telecommunications market. See Note 8 for sales and other information
      by geographic area.





On
      November 16, 2005, Wave Wireless announced its intent to merge with WaveRider
      Communications Inc. (the “WaveRider Merger”). A definitive Agreement and Plan of
      Merger was executed on January 3, 2006. The WaveRider Merger was approved by
      WaveRider stockholders at a special meeting of stockholders of
      WaveRider held on March 20, 2006. Assuming the satisfaction of other
      conditions to closing, WaveRider will merge with a wholly owned subsidiary
      of
      Wave Wireless, with WaveRider surviving the merger, and becoming a wholly owned
      subsidiary of Wave Wireless. Following the WaveRider Merger, former security
      holders of WaveRider will own approximately 50% of the outstanding shares of
      Wave Wireless common stock on a fully diluted basis.




**LIQUIDITY
      AND MANAGEMENT'S PLANS**





Wave
      Wireless has been experiencing challenging operating conditions in recent years
      as a result of the continuing depressed telecommunications equipment market;
      such conditions have persisted since approximately 2000. These conditions,
      coupled with a significant continuing legacy cost structure, which includes,
      among other costs, higher than market occupancy costs, have resulted in
      substantial losses and the use of substantial amounts of cash in operations.
      Notwithstanding significant liability restructuring activities in recent years,
      during the years ended December 31, 2005 and 2004, Wave Wireless recorded losses
      from continuing operations of ($12.6) million and ($3.3) million, respectively,
      and used ($4.9) million and ($9.1) million cash, respectively, in supporting
      its
      operating activities at their current levels.





At
      December 31, 2005, Wave Wireless had a working capital deficit of $7.1 million,
      compared to working capital of approximately $1.3 million at December 31, 2004.
      Our principal sources of liquidity at December 31, 2005 consisted of available
      borrowings under our Credit Facility, and approximately $380,000 of cash and
      cash equivalents, compared to approximately $2.3 million in cash and cash
      equivalents at December 31, 2004, and proceeds from the issuance of certain
      Convertible Notes. Additionally, the Company is in default with required
      payments on $655,000 of its notes payable.





Considering
      our projected cash requirements, our available cash will be inadequate to
      satisfy Wave Wireless’ cash requirements through the end of the quarter ending
      March 31, 2006. To address our immediate working capital requirements, we will
      continue to access available borrowings under our existing Credit Facility,
      which has limitations, and will continue to seek additional equity and/or debt
      financing through the issuance of additional Convertible Notes. There are
      currently no formal committed financing arrangements to support Wave Wireless’
projected cash shortfall, including commitments to purchase additional
      Convertible Notes. These negative trends and conditions raise substantial doubt
      about our ability to continue as a going concern.





It
      is
      currently anticipated that the Convertible Notes issued to date, as well as
      any
      additional Convertible Notes issued to provide for Wave Wireless’ immediate
      working capital needs, will convert into an equity-based financing that Wave
      Wireless intends to consummate in connection with or promptly following
      consummation with the proposed WaveRider Merger (“Equity Financing”). Wave
      Wireless intends to use the proceeds from the proposed Equity Financing to
      settle certain commitments of Wave Wireless, and to provide for Wave Wireless’
working capital requirements. While we are actively seeking additional equity
      and/or debt financing, and negotiating with certain of our largest creditors,
      there are currently no commitments. In the event Wave Wireless is unable to
      consummate the Equity Financing prior to March 31, 2006, the Convertible Notes
      will become due and payable. There can be no assurances that Wave Wireless
      will
      be successful in closing an Equity Financing prior to March 31, 2006. In the
      event Wave Wireless is unsuccessful in closing an Equity Financing, we intend
      to
      seek waivers of default from the holders of the Convertible Notes. There can
      be
      no assurances that we will be successful in obtaining such waivers. In the
      event
      management is unsuccessful in its plans to issue additional Convertible Notes,
      raise additional capital in the immediate term, or obtain waivers from the
      holders of the Convertible Notes in the event an Equity Financing is not
      consummated by March 31, 2006, Wave Wireless will no longer be able to continue
      as a going concern. The financial statements do not include any adjustments
      relating to the recoverability and classification of recorded asset amounts
      or
      to amounts and classification of liabilities that may be necessary if Wave
      Wireless is unable to continue as a going concern.





-
          36
          -




**SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES**





**MANAGEMENT'S
      USE OF ESTIMATES AND ASSUMPTIONS**





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





**PRINCIPLES
      OF CONSOLIDATION**





The
      consolidated financial statements include the accounts of Wave Wireless and
      its
      wholly owned subsidiaries. All significant inter-company accounts and
      transactions have been eliminated.





**FOREIGN
      CURRENCY**





The
      value
      of the United States dollar rises and falls day-to-day on foreign currency
      exchanges. Since Wave Wireless does business in foreign countries, these
      fluctuations affect Wave Wireless’ financial position and results of operations.
      Assets and liabilities of our foreign subsidiaries were translated from their
      local currencies into United States dollars at exchange rates in effect at
      the
      respective balance sheet date. Income and expense accounts are translated from
      their local currencies into United States dollars at average exchange rates
      for
      the respective period. At December 31, 2005, Wave Wireless no longer any active
      subsidiaries outside to United States.





Accumulated
      net translation adjustments were recorded as a component of comprehensive income
      (loss) in stockholders' equity (deficit). Foreign exchange transaction gains
      and
      losses are included in the results of operations in the periods incurred, and
      were not material in all periods presented. Wave Wireless does not enter into
      any contracts to hedge the effects of foreign currency exchange fluctuations.





**FAIR
      VALUE OF FINANCIAL INSTRUMENTS**





The
      estimated fair values of cash, accounts receivable and payable, debt and accrued
      liabilities at December 31, 2005 and 2004 approximated their respective
      historical cost due to the short-term maturities.





**CASH
      AND CASH EQUIVALENTS**





Wave
      Wireless considers all highly liquid debt instruments with a maturity when
      acquired of three months or less to be cash equivalents.





**ACCOUNTS
      RECEIVABLE**





Wave
      Wireless records an allowance for doubtful accounts receivable based on our
      general collection history and specifically identified amounts that management
      believes to be uncollectible. Wave Wireless has a limited number of customers
      with individually large amounts due at any given balance sheet date. However,
      any unanticipated change in one of those customer's credit worthiness could
      have
      a material adverse effect on Wave Wireless’ results of operations in the period
      in which such changes or events occur and losses become estimable. After all
      attempts to collect a receivable have failed, the receivable is written off
      against the allowance.





**REVENUE
      RECOGNITION**





Revenue
      from product sales is recognized upon transfer of title and risk of loss, which
      is upon shipment of the product provided no significant obligations remain
      and
      collection is probable. Shipping and handling costs related to our product
      sales
      are included as a component of cost of sales. Wave Wireless has not experienced
      material returns of products. Wave Wireless warrants its products and provides
      parts and labor to repair any manufacturing defects on its equipment for a
      period of one year to three years. Provisions for estimated warranty repairs,
      returns and other allowances are recorded at the time revenue is recognized.
      (See Note 2)





**INVENTORY**





Inventory
      is stated at the lower of cost or market; cost is determined on a first-in,
      first-out basis.





**PROPERTY
      AND EQUIPMENT**





Property
      and equipment are stated at cost. Depreciation is computed using the
      straight-line method based upon the useful lives of the assets ranging from
      three to seven years. Leasehold improvements are amortized using the
      straight-line method based upon the shorter of the estimated useful lives of
      the
      respective improvements or the lease term.





-
          37
          -


**RESEARCH
      AND DEVELOPMENT**





Research
      and development costs are expensed as incurred.





**GOODWILL**





Goodwill
      at December 31, 2005 represents the excess of the purchase price over the fair
      values of net assets acquired in connection with the acquisition of
      substantially all of the operating assets and certain liabilities of SPEEDCOM
      Wireless Corporation, on December 10, 2003. In accordance with Statement of
      Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets
      ("SFAS 142"), goodwill resulting from the purchase will not be amortized into
      operations. Rather, such amounts will be tested for impairment at least
      annually. This impairment test is calculated at the reporting unit level, which,
      for Wave Wireless is at the enterprise level. The annual goodwill impairment
      test has two steps. The first identifies potential impairments by comparing
      the
      fair value of Wave Wireless, as determined using its trading market prices
      and
      other valuation methodologies, with its carrying value, including goodwill.
      If
      the fair value exceeds the carrying amount, goodwill is not impaired and the
      second step is not necessary. If the carrying value exceeds the fair value,
      the
      second step calculates the possible impairment loss by comparing the implied
      fair value of goodwill with the carrying amount. If the implied goodwill is
      less
      than the carrying amount, a write-down will be recorded. In the event that
      Wave
      Wireless’ management determines that the value of goodwill has become impaired
      using this approach, Wave Wireless will record a charge for the amount of the
      impairment. No impairment of goodwill resulted from this measurement approach
      immediately following the SPEEDCOM acquisition. Wave Wireless perform this
      test annually, on the last day of the fourth quarter of each year.





No
      impairment of goodwill was recorded in 2004 or 2005 because the fair value
      of
      the combined business units exceeded the goodwill-carrying amount. Our
      determination in 2005 was based on a valuation completed by an outside
      consulting firm using estimates and assumptions provided by management, which
      we
      believe to be reasonable but that are unpredictable and inherently uncertain.
      Actual results may differ from those estimates.





**IMPAIRMENT
      OF LONG-LIVED ASSETS**





In
      the
      event that facts and circumstances indicate that the long-lived assets, other
      than goodwill, may be impaired, an evaluation of recoverability would be
      performed to determine whether impairments were present by comparing the net
      book value of long-lived assets, other than goodwill, to projected undiscounted
      cash flows at the lowest discernable level for which cash flow information
      can
      be projected. In the event that undiscounted cash flows are insufficient to
      recover the net carrying value over the remaining useful lives, impairment
      charges are calculated and recorded in the period first estimable using
      discounted cash flows or other fair value information, whichever is more
      appropriate.





**COMPREHENSIVE
      INCOME (LOSS)**





Under
      Statements on Financial Accounting Standards No. 130, Reporting Comprehensive
      Income ("SFAS 130"), Wave Wireless is required to display comprehensive income
      and its components as part of our full set of financial statements.
      Comprehensive income comprises net income (loss) and other comprehensive income
      (loss) items. Other comprehensive income (loss) includes certain changes in
      equity of Wave Wireless that are excluded from net income (loss). Specifically,
      SFAS 130 requires adjustments arising from Wave Wireless’ foreign currency
      translation, which were reported separately in stockholders' equity, to be
      included in accumulated other comprehensive income (loss). The following table
      reflects comprehensive loss for the years ended December 31, 2005 and
      2004:





2005
            
            2004Net
                Loss
            $
            (12,582
            )
            $
            (3,320
            )Foreign
                currency translation adjustment
            
            (2
            )
            
            208Comprehensive
                loss
            $
            (12,584
            )
            $
            (3,112
            )





-
          38
          -


**ACCOUNTING
      FOR STOCK-BASED COMPENSATION**





Wave
      Wireless accounts for and reports its stock-based employee compensation
      arrangements using the intrinsic value method as prescribed in Accounting
      Principles Board Opinion No. 25, Accounting for Stock Issued to Employees ("APB
      No. 25"), Financial Accounting Standards Board Interpretation No. 44, Accounting
      for Certain Transactions Involving Stock Compensation ("FIN 44"), and Statement
      of Financial Accounting Standards No. 148, Accounting for Stock-Based
      Compensation - Transition and Disclosure ("SFAS 148"). Accordingly, compensation
      cost for stock options is measured as the excess, if any, of the fair value
      of
      its stock at the date of grant over the stock option exercise price. Wave
      Wireless accounts for stock issued to non-employees in accordance with the
      provisions of Statement of Financial Accounting Standards No. 123, Accounting
      for Stock-Based Compensation ("SFAS 123"). Under SFAS 123, stock awards issued
      to non-employees are accounted for at their fair value on the date issued.





The
      following table reflects supplemental financial information related to
      stock-based employee compensation, as required by SFAS 148 for each year ending
      December 31:




2005
              
              2004Stock-based
                    employee compensation costs used in the determination of net
                    income (loss)
                    attributable tocommonstockholders,asreported
              
              $
              --
              
              $
              --Loss
                  attributable to common stockholders, as reported
              
              
              ($
                  16,410
              )
              
              ($
                  5,868
              )Stock-based
                  employee compensation costs that would have been included in the
                  determination of net loss if the fair value method (SFAS 123) had
                  been
                  applied to all awards
              
              
              ($484
              )
              
              ($
                  1,940
              )Pro
                  forma net loss attributable to common stockholders, if the fair
                  value
                  method had been applied to all awards
              
              
              ($16,894
              )
              
              ($
                  7,808
              )Net
                  loss attributable to common stockholders per common share, as
                  reported
              
              $
              (1.04
              )
              $
              (0.56
              )Pro
                  forma net loss attributable to common Stockholders per common share,
                  if
                  the fair value method had been applied to all awards
              
              $
              (1.07
              )
              $
              (0.75
              )




The
      fair
      value of each option and warrant grant is estimated on the date of the grant
      using the Black-Scholes option-pricing model with the following assumptions
      used
      for grants in 2005: expected volatility of 142%; weighted-average risk-free
      interest rates of 3.8%, weighted-average expected lives of 4.0 years and a
      zero
      dividend yield. The following assumptions were used for grants in 2004: expected
      volatility of 128%; weighted-average risk-free interest rates of 2.8%,
      weighted-average expected lives of 4.0 years and a zero dividend
      yield.





-
          39
          -


**CONCENTRATION
      OF CREDIT RISK AND MAJOR CUSTOMER INFORMATION**





Financial
      instruments that potentially subject Wave Wireless to significant concentrations
      of credit risk consist principally of cash equivalents and trade accounts
      receivable. As of December 31, 2005, Wave Wireless has $376,000 on deposit
      in
      Silicon Valley Bank. The failure of this bank may result in a substantial loss
      of these deposits.





Wave
      Wireless has sold most of its products in international markets. Sales to
      several customers have been denominated in British Pounds Sterling and Euro.
      At
      December 31, 2005 and 2004, accounts receivable from these customers represented
      61% and 40%, respectively, of total accounts receivable. Any gains or losses
      that arise in the translation of foreign denominated financial instruments
      are
      included in operations each period when measurable.





Wave
      Wireless performs credit evaluations of its customers' financial condition
      to
      determine the customer's credit-worthiness. Sales are then generally made either
      on 30 to 90 day payment terms, COD or pursuant to letters of credit. Wave
      Wireless extends payment terms to international customers of up to 90 days,
      which is consistent with prevailing business practices.





During
      the years ended December 31, 2005 and 2004, the company had five customers
      representing in excess of 10% of sales and accounts receivables as
      follows:





2005
            
            2004Customer
                ASales
            
            
            27
            %
            
            13
            %Accounts
                receivables
            
            
            9
            %
            
            5
            %Customer
                BSales
            
            
            12
            %
            
            25
            %Accounts
                receivables
            
            
            4
            %
            
            44
            %Customer
                CSales
            
            
            10
            %
            
            1
            %Accounts
                receivables
            
            
            20
            %
            
            7
            %Customer
                DSales
            
            
            10
            %
            
            12
            %Accounts
                receivables
            
            
            3
            %
            
            13
            %Customer
                ESales
            
            
            5
            %
            
            15
            %Accounts
                receivables
            
            
            --
            
            
            28
            %





**RECENT
      ACCOUNTING PRONOUNCEMENTS**





In
      December 2004, the FASB issued Statement No. 123R, Accounting for Share Based
      Payments. Statement 123R establishes revised accounting standards for
      employee-stock based compensation measurement that requires employee stock-based
      compensation be measured at the fair value of the award, replacing the intrinsic
      approach currently available to companies under Statement 123. Compensation
      cost
      continues to be recognized over the period during which the employee is required
      to provide service. The provisions of the revised statement are effective for
      financial statements issued for the first interim or annual reporting period
      beginning after December 15, 2005. Wave Wireless accounts for options issued
      to
      employees using the intrinsic approach. Implementation of this new standard
      is
      currently expected to result in increases in future compensation expense.
      However, such effect is not currently estimable.





In
      May
      2005, the FASB issued SFAS No. 154, "Accounting Changes and Error Correction
      ("SFAS 154"), which replaces Accounting Principles Board Opinions No. 20
      "Accounting Changes" and SFAS No 3, "Reporting Accounting Changes in Interim
      Financial Statements - An Amendment of APB Opinion No. 28." SFAS 154 provides
      guidance on accounting for and reporting of accounting changes and error
      corrections. It establishes retrospective application, or the latest practicable
      date, as the required method for reporting a change in accounting principle
      and
      the reporting of a correction of an error. SFAS 154 is effective for accounting
      changes and corrections of errors made in fiscal years beginning after December
      15, 2005 and is required to be adopted by Wave Wireless in the first quarter
      of
      fiscal 2006. Wave Wireless is currently evaluating the effect that the adoption
      of SFAS 154 will have on its consolidated results of operations and financial
      condition, but does not expect it to have a material impact.





-
          40
          -


**2.**  **SELECTED
      BALANCE SHEET AND STATEMENT OF OPERATIONS COMPONENTS**





Inventory,
      net of reserves, consists of the following at December 31, 2005 (in thousands):








Raw
                materials
            
            $
            48Work-in-process
            
            
            73Finished
                goods
            
            
            76$
            197





A
      summary
      of inventory reserve activities is as follows for the two years ended December
      31, 2005 (in thousands):








AdditionsBalance
                at
            
            Charged
                to
            
            DeductionsBeginning
            
            Statement
            
            From
            
            Balance
                atof
                Year
            
            of
                Operations
            
            Reserves(1)
            
            End
                of YearYear
                ended December 31, 2004
            
            $
            27,119
            
            $
            916
            
            $
            (3,746
            )
            $
            24,289Year
                ended December 31, 2005
            
            $
            24,289
            
            $
            3,043
            
            $
            (13,385
            )
            $
            13,947





(1)
            Primarily
                scrapped inventory.







Property
      and equipment consists of the following at December 31, 2005 (in thousands):





Useful
                lifeTooling
                and test equipment
            
            
            3
                - 5 years
            
            $
            19,606Computer
                equipment
            
            
            3
                years
            
            
            6,051Furniture
                and fixtures
            
            
            5
                years
            
            
            2,181Land
                and buildings and leasehold improvements
            
            
            5
                to 7, and 33 years
            
            
            620Construction
                in process
            
            
            
            
            
            1528,473Less:
                Accumulated depreciation and amortization
            
            
            
            
            
            (27,851
            )$
            622





Depreciation
      expense for the years ended December 31, 2005 and 2004 amounted to $0.6 million
      and $1.5 million, respectively.





Other
      accrued liabilities consist of the following at December 31, 2005 (in
      thousands):




Purchase
                commitment
            
            $
            621Accrued
                employee benefits
            
            
            690Value
                added tax (“VAT”)payable
            
            
            189Accrued
                warranty (a)
            
            
            341Accrued
                rent
            
            
            12Florida
                lease cancellation
            
            
            210Other
            
            
            458$
            2,521





(1)
      A
      summary of product warranty reserve activity is on the next page:








-
          41
          -






2005Balance
                at January 1,
            
            $
            493Additions
                relating to product sold
            
            
            287Payments
            
            
            (439
            )Balance
                at December 31,
            
            $
            341





Other
      income (expense), net consists of the following for each year ended December
      31
      (in thousands):





2005
            
            2004Gains
                (losses) on settlements of accounts payable and
                liabilities
            
            $
            (82
            )
            $
            8,300Gains
                (losses) on disposals of property and equipment
            
            
            238
            
            
            (30
            )Gain
                on sale of patents for licensed products
            
            
            400
            
            
            --Gains
                (losses) on transactions denominated in foreign currencies
            
            
            (342
            )
            
            (143
            )Other
                income (expenses), net
            
            
            57
            
            
            125Total
                other income, net
            
            $
            271
            
            $
            8,252




**3.**  **NOTES
      PAYABLE**





Notes
      payable consist of the following at December 31, 2005 (in
      thousands):





Note
                payable, bank (Silicon Valley Bank);advances
                under this “Credit Facility” bear interestat
                prime plus 3.5%; matures March 2006. (1)
            
            $
            759Convertible
                subordinated notes payable, net of$607
                unamortized discount; principaland
                accrued interest at 10% due March 2006. (2)
            
            
            243Note
                payable - Siemens; in default (3)
            
            
            350Note
                payable, former vendor; due in monthlyinstallments
                of $35,000 through June 2006; in default.
            
            
            305$
            1,657





(1)
      The
      Credit Facility consists of a Loan and Security Agreement for a $2.5 million
      borrowing line based on domestic receivables, and a Loan and Security Agreement
      under the Export-Import (“EXIM”) program for a $2.5 million borrowing line based
      on export related inventories and receivables. On June 29, 2005, the Credit
      Facility was amended, resulting in reduction in borrowings availability based
      on
      domestic receivables from $1.0 million to $500,000, and a reduction in borrowing
      availability under the EXIM program from $3.0 million to $2.0 million. As
      amended, the Credit Facility provides for cash advances equal to 75% of eligible
      accounts receivable balances for both the EXIM program and domestic lines.
      The
      Credit Facility is secured by all of our receivables, deposit accounts, general
      intangibles, investment properties, inventories, cash, property, plant and
      equipment. As of December 31, 2005, we were in compliance with the loan
      covenants established in the Credit Facility.





(2)
      Under
      the terms of the Convertible Notes, the holders have the option to convert
      the
      outstanding balance due under the terms of the Convertible Notes into shares
      of
      common stock of Wave Wireless at a price per share of $0.15 at any time the
      Convertible Notes remain outstanding. In addition, the outstanding principal
      amounts and all accrued but unpaid interest under the terms of the Convertible
      Notes automatically convert into any shares issued in an equity or equity-based
      financing with gross proceeds of at least $2,500,000 (“Equity Financing”). For
      purposes of determining the number of equity securities to be received by the
      holders upon such conversion, the holders shall be deemed to have tendered
      120%
      of the outstanding balance of the Convertible Notes as payment of the purchase
      price in the Equity Financing. As additional consideration for the loans
      evidenced by the Convertible Notes, the holders were issued warrants for the
      issuance of 1,875,000 shares of common stock of Wave Wireless at an exercise
      price of $.20 per share. The notes have been discounted for the relative fair
      value of the warrants issued and the intrinsic value of beneficial conversion
      features associated with the notes. Such discounts are being amortized over
      the
      life of the notes using the effective interest method.





(3)
      Under
      a joint license and development contract, Wave Wireless determined that an
      Original Equipment Manufacturer agreement with Seimans Aktiengesellchaft
      (“Siemens”) provided for payments of $8.0 million, specifically earmarked for
      marketing our products under a joint license and development contract.
      Accordingly, beginning in 1998, Wave Wireless had recorded a liability of $3.0
      million, and this was increased to $8.0 million in 1999. As of December 31,
      2003, the liability of $8.0 million under this arrangement remained. Wave
      Wireless entered into a settlement agreement with the vendor in July 2004.
      Under
      the terms of the Settlement Agreement, Wave Wireless agreed to pay Siemens
      $500,000, of which it paid $100,000 on October 1, 2004. Wave Wireless was
      obligated to pay an additional $100,000 upon the earlier of the receipt of
      financing by Wave Wireless equal to at least $100,000 or December 31, 2004,
      and
      $300,000 in twelve monthly installments of $25,000 per month beginning January
      1, 2005. As of December 31, 2004, the remaining liability under this arrangement
      was $400,000. Wave Wireless did not make the December 31, 2004 $100,000 payment
      but did make the first two monthly payments of $25,000 each in January and
      February 2005. Wave Wireless has made no other payments to Siemens. The amount
      due Siemens as of December 31, 2005 is $350,000, which bears interest at
      7%.





-
          42
          -


**4.**  **LONG-TERM
      DEBT**





Long-term
      debt consists of the following at December 31, 2005 (in thousands):





Debenture
                notes payable, net of $56,000 unamortized discount;bears
                interest at 8% through April 2006 and 10% thereafterthrough
                maturity in December 2007 (1)
            
            $
            3,578Note
                payable - Agilent (2)
            
            
            272Other
            
            
            733,923Less
                current maturities
            
            
            (2,379
            )$
            1,544





(1)
      On
      November 3, 2004, we entered into a Note and Warrant Purchase Agreement (the
      “Purchase Agreement”) with a purchaser (“Purchaser”) whereby the Purchaser
      agreed to purchase debentures in the aggregate principal amount of up to
      $5,000,000 (the “Notes”) (the “Debenture Financing”). In addition, Wave Wireless
      agreed to issue warrants to purchase in the aggregate up to 800,000 shares
      of
      Wave Wireless’ common stock. The warrants had an initial exercise price of $1.50
      and a term of five years. Interest accrues under the terms of the Notes at
      an
      annual interest rate of 8%, and this rate increases to 10% on April 1, 2006
      through the original maturity date of the Notes, December 31, 2006. The Purchase
      Agreement provided that the Notes and warrants be issued in multiple closings
      prior to December 31, 2004, and that payments of principal and accrued interest
      under the Notes would be amortized and paid by Wave Wireless over a period
      of
      eight quarters in either cash or shares of Wave Wireless’ common stock, with the
      first amortization payment due March 31, 2005. The total number of shares of
      Wave Wireless’ common stock that could be used to make the required amortization
      payments under the terms of all outstanding Notes is 6,000,000. The first
      closing took place on November 26, 2004, and consisted of a $3,300,000 Note
      and
      warrants to purchase 528,000 shares of Wave Wireless’ common stock. The
      remaining closings took place after December 31, 2004, with the second and
      third
      closings on March 21, 2005 and March 31, 2005, which consisted of Notes for
      $250,000 and $600,000, and warrants to purchase 40,000 and 96,000 of Wave
      Wireless’ common stock, respectively. The fourth and fifth closings took place
      on May 2, 2005, and June 30, 2005, and consisted of Notes for $350,000 and
      $500,000, and warrants to purchase 56,000 and 80,000 of Wave Wireless’ common
      stock, respectively.





On
      April
      1, 2005, the first amortization payment date, the total principal and accrued
      interest due the Purchaser under the terms of the Notes on such date was
      $524,396, and was paid $200,000 in cash. The remaining $324,396 was paid in
      627,676 shares of Wave Wireless’ common stock, and 40.799 shares of Wave
      Wireless’ Series F Preferred Stock, convertible into 815,980 shares of Wave
      Wireless’ common stock. Wave Wireless owed $719,473 in principal and accrued
      interest on June 30, 2005, the second amortization date. On that date, Wave
      Wireless issued 209.201 shares of Wave Wireless’ Series F Preferred Stock,
      convertible into 4,184,020 shares of common stock. As a result of this issuance,
      Wave Wireless owed the Purchaser $225,100 in principal and accrued but unpaid
      interest on the second amortization date, which amount the Purchaser agreed
      to
      add to the total amount owed the Purchaser under the terms of the Notes.





On
      November 10, 2005, Wave Wireless and the Purchaser of Notes issued under the
      Debenture Agreement exchanged all issued and outstanding Notes for and in
      consideration for the issuance to the Purchaser of a new promissory note, in
      the
      principal amount of $4,153,649 (the “New Note”), which amount represented unpaid
      principal and accrued interest due under the terms of the old Notes as of the
      date of the New Note, October 1, 2005. Under the terms of the New Note, interest
      accrues on such debt at an annual interest rate of 8%, and this rate increases
      to 10% on April 1, 2006 through the maturity date of the loan, December 31,
      2007. Payments of principal and accrued interest under the New Note is amortized
      and paid by Wave Wireless over a period of eight quarters in either cash or
      shares of Wave Wireless’ common stock, with the first amortization payment due
      December 31, 2005.





-
          43
          -


In
      consideration for allowing borrowings under the Purchase Agreement after
      December 31, 2004, and for waiving, among other things, certain other conditions
      to additional draws under the Purchase Agreement, Wave Wireless lowered the
      exercise price of the warrants from $1.50 to $.0001 per share on November 10,
      2005.





On
      December 31, 2005, we issued 5,517,243 common stock warrants at a weighted
      average exercise price of $0.05 in place of the scheduled cash payment of
      $602,000 in December 2005 for a gain of $51,000.





(2)
      On
      November 30, 2004, Agilent Financial Services (“Agilent”) entered into an
      agreement with us to restructure $1,725,000 due Agilent on December 31, 2004.
      Under the terms of the agreement, we paid Agilent an initial payment of $250,000
      on December 1, 2004; with the balance payable in sixteen monthly payments of
      $92,187 beginning January 1, 2005, up to and including April 1, 2006. In
      addition, we issued Agilent a warrant to purchase 178,571 shares of our common
      stock. The warrant has an initial exercise price of $0.56 and a term of five
      years. On March 31, 2005, Wave Wireless and Agilent entered into an agreement
      whereby one half of the remaining debt of $1,111,599 will be paid in equal
      payments over eighteen months beginning April 1, 2005, with the other half
      paid
      in the form of 555.799 shares of Series E Convertible Preferred Stock,
      convertible at any time at the option of the holder into common stock equal
      to
      the quotient obtained by dividing the liquidation preference amount of the
      shares to be converted by the conversion price. The Series E Preferred Stock
      was
      authorized and issued in the quarter ending June 30, 2005, and Wave Wireless
      recorded a gain on the conversion of $355,712.





Annual
      long-term debt maturities are as follows (in thousands):





Year
                Ending December 31,2006
            
            $
            2,3792007
            
            
            1,5332008
            
            
            11$
            3,923





**5.**  **STOCKHOLDERS'
      EQUITY**





The
      authorized capital stock of Wave Wireless consists of 250 million shares of
      common stock, $0.0001 par value, and 2.0 million shares of preferred stock,
      $0.0001 par value, including 500,000 shares of which have been designated Series
      A Junior Participating Preferred Stock (the "Series A") pursuant to the
      Stockholder Rights Agreement (see discussion below), 2,000 shares of Series
      E
      Preferred Convertible Preferred Stock (the "Series E Preferred Stock"), 250
      shares of Series F Convertible Preferred Stock (the "Series F Preferred Stock"),
      and 10,000 shares of Series G Convertible Preferred Stock (the "Series G
      Preferred Stock"). Effective July 19, 2004, Wave Wireless effected a one for
      thirty reverse stock split. All numbers have been restated to reflect the stock
      split.





During
      the year ended December 31, 2005, Wave Wireless converted all of its outstanding
      Series B Preferred Stock into common stock, all of its Series C Preferred Stock
      into a specified number of Series G Preferred Stock and common stock or Warrants
      for common stock, and all of its Series D Preferred Stock into a specified
      number of Series G Preferred Stock and Warrants for common stock.





**PREFERRED
      STOCK**





The
      Board
      of Directors is authorized to issue shares of preferred stock in one or more
      series and to fix or alter the designations, preferences, rights and any
      qualifications, limitations or restrictions of the shares of each series,
      including the dividend rights, dividend rates, conversion rights, voting rights,
      term of redemption, including sinking fund provisions, redemption price or
      prices, liquidation preferences and the number of shares constituting any series
      or designations of any series, without further action by the holders of common
      stock.





**SERIES
      B REDEEMABLE, CONVERTIBLE PREFERRED STOCK**





On
      August
      4, 2003, as a result of the restructuring of its Convertible Notes, the
      principal amount and accrued interest of $21,138,000 was converted into
      approximately 1,000,000 shares of Series B Convertible Preferred Stock with
      a
      stated value of $21.138 per share. Each share of Series B Convertible Preferred
      Stock converts into a number of shares of Wave Wireless’ common stock equal to
      the stated value divided by $6.00. Certain holders of Series B Convertible
      Preferred Stock agreed to convert the Series B Convertible Preferred Stock
      into
      common stock upon receipt of stockholder approval to increase the number of
      authorized shares of Wave Wireless’ common stock to allow for conversion of the
      Series B Preferred Stock. Wave Wireless received the stockholder approval on
      December 2, 2003 and these holders converted their Series B Convertible
      Preferred Stock into common stock. If declared, the holders of the Series B
      Preferred Stock shall be entitled to receive dividends payable out of funds
      legally available therefore. Holders of Series B Preferred Stock shall share
      pro
      rata in all dividends and other declared distributions. The basis of
      distribution shall be the number of shares of common stock that the holders
      would hold if all of the outstanding shares of Series B Preferred Stock had
      converted into common stock.





-
          44
          -


Any
      time
      after January 31, 2004 and subject to certain limitations, Wave Wireless could
      require the then remaining holders of Series B Preferred Stock to convert all
      outstanding shares of Series B Preferred Stock into shares of common stock,
      in
      accordance with the optional conversion formula, and all of the following
      conditions were met:





o
      Closing
      bid price of the common stock for 10 consecutive trading days prior to delivery
      of the mandatory conversion notice equals or exceeds $12.00;





o
      Company
      shall have filed a registration statement covering all shares of common stock
      issuable upon conversion of the Series B Preferred Stock, declared effective
      by
      the SEC, and continuing effectiveness through and including the date of the
      mandatory conversion;





o
      All
      shares of common stock issuable upon conversion of Series B Preferred Stock
      are
      authorized and reserved for issuance; registered for resale under the 1933
      Act;
      and listed on the Bulletin Board or other national exchange; and





o
      All
      amounts, if any, accrued or payable under the Certificate of Designation, Rights
      and Preferences of the Series B Preferred Stock ("Certificate of Designation")
      shall have been paid.





o
      Upon
      the occurrence of the following events, the holders of Series B Preferred Stock
      may require Wave Wireless to purchase their shares of Series B Preferred Stock
      for cash:





o
      Company
      fails to remove any restrictive legend on any common stock certificate issued
      to
      Series B Preferred stockholders upon conversion as required by the Certificate
      of Designation;





o
      Company
      makes an assignment for creditors or applies for appointment of a receiver
      for a
      substantial part of its business/property or such receiver is appointed;





o
      Bankruptcy, insolvency, reorganization or liquidation proceedings shall be
      instituted by or against Wave Wireless;





o
      Company
      sells substantially all of its assets;





o
      Company
      merges, consolidates or engages in a business combination with another entity
      that is required to be reported pursuant to Item 1 of Form 8-K (unless Wave
      Wireless is the surviving entity and its capital stock is unchanged);





o
      Company
      engages in transaction(s) resulting in the sale of securities whereby such
      person or entity would own greater than 50% of the outstanding shares of common
      stock of Wave Wireless (on a fully-diluted basis);





o
      Company
      fails to pay any indebtedness of more than $250,000 to a third party, or cause
      any other default which would have a material adverse effect on the business
      or
      its operations.





The
      Series B Preferred Stock ranked senior to the common stock, the Series A
      Preferred Stock and any class or series of capital stock of Wave Wireless
      created thereafter. The consent of the majority holders of the Series B
      Preferred Stock was required to create any securities that rank senior or pari
      passu to the Series B Preferred Stock. Upon a liquidation event, any securities
      senior to the Series B Preferred Stock shall receive a distribution prior to
      the
      Series B Preferred Stock and pursuant to the rights, preferences and privileges
      thereof, and the Series B Preferred Stock shall receive the liquidation
      preference with respect to each share. If the assets and funds for distribution
      were insufficient to permit the holders of Series B Preferred Stock and any
      pari
      passu securities to receive their preferential amounts, then the assets shall
      be
      distributed ratably among such holders in proportion to the ratio that the
      liquidation preference payable on each share bears to the aggregate liquidation
      preference payable on all such shares. If the outstanding shares of common
      stock
      are increased/decreased by any stock splits, stock dividends, combination,
      reclassification, reverse stock split, etc., the conversion price shall be
      adjusted accordingly. Upon certain reclassifications, the holders of Series
      B
      Preferred Stock shall be entitled to receive such shares that they would have
      received with respect to the number of shares of common stock into which the
      Series B Preferred Stock would have converted. If Wave Wireless issued any
      securities convertible for common stock or options, warrants or other rights
      to
      purchase common stock or convertible securities pro rata to the holders of
      any
      class of common stock, the holders of Series B Preferred Stock had the right
      to
      acquire those shares to which they would have been entitled upon the conversion
      of their shares of Series B Preferred Stock into common stock. The Series B
      Preferred Stock did not have voting rights.





-
          45
          -





A
      summary
      of Series B Preferred Stock activity is as follows (in thousands):


Shares
            
            AmountBalances
                as of January 1, 2004
            
            
            108
            
            $
            1,361Preferred
                  stock accretions to accretethefairvaluetothestatedvalue
            
            
            --
            
            
            208Balances
                as of December 31, 2004
            
            
            108
            
            $
            1,569Preferred
                  Stock accretions to accretethe fairvaluetothestatedvalue
            
            
            
            
            
            139September
                2005 Conversion into Common Stock
            
            
            (108
            )
            
            (1,708
            )Balances
                as of December 31, 2005
            
            
            --
            
            $
            --





(a)
      Wave
      Wireless, after consideration of several valuation models, determined the fair
      value of the preferred stock was an amount equal to the fair value of the number
      of common shares into which the Series B Preferred Stock was convertible into
      using the trading market price on the date the Series B Preferred Stock was
      issued.





(b)
      Wave
      Wireless accreted its Series B Preferred Stock to redemption value through
      periodic charges to retained earnings.





(c)
      The
      Series B Preferred Stock was classified as a mezzanine security, outside of
      stockholders’
      equity in the accompanying consolidated balance sheets due to the cash
      redemption provisions noted above. Under Statements of Financial Accounting
      Standards No. 150, this security would have been classified as equity in a
      non-public filing context.





During
      the quarter ended September 30, 2005, all outstanding Series B Preferred Stock
      was converted into 381,914 shares of common stock.





**SERIES
      C REDEEMABLE, CONVERTIBLE PREFERRED STOCK AND WARRANTS**





In
      October and December 2003, Wave Wireless issued approximately 10,000 shares
      of
      Series C Convertible Preferred Stock with a stated value of $1,750 per share,
      together with warrants to purchase approximately 4.6 million shares of common
      stock. Each share of Series C Convertible Preferred Stock converts into a number
      of shares of Wave Wireless’ common stock equal to the stated value divided by
      $3.00. Holders of Series C Convertible Preferred Stock were entitled to receive,
      out of legally available funds, dividends at the rate of 6% per annum beginning
      on the first anniversary of their date of issuance and 8% per annum beginning
      on
      the second anniversary of their date of issuance. Dividends were payable
      semi-annually, either in cash or shares of Wave Wireless common stock.





Each
      share of Series C Convertible Preferred Stock was convertible into a number
      of
      shares of common stock equal to the stated value, plus any accrued and unpaid
      dividends, divided by an initial conversion price of $3.00. This conversion
      price was subject to adjustment for any stock splits, stock dividends or similar
      transactions. The conversion price was also subject to adjustment in the event
      that Wave Wireless made a dilutive issuance of common stock or other securities
      that were convertible into or exercisable for common stock at an effective
      per
      share purchase price that is less than the conversion price of the Series C
      Preferred Stock in effect at the time of the dilutive issuance. The holders
      of
      Series C Preferred Stock could convert their shares into shares of common stock
      at any time. However, no holder of Series C Preferred Stock could convert its
      shares into shares of common stock if the conversion would result in the holder
      or any of its affiliates, individually or in the aggregate, beneficially owning
      more than 9.999% of Wave Wireless outstanding common stock. In the event a
      holder is prohibited from converting into common stock under this provision
      due
      to the 9.999% ownership limitation discussed above, the excess portion of the
      Series C shall remain outstanding, but shall cease to accrue a dividend.





Subject
      to limitations above, the Series C Convertible Preferred Stock was also
      mandatorily convertible at the option of Wave Wireless 180 days after the
      effective date of a registration statement covering the shares of common stock
      issuable upon the conversion of the Series C Convertible Preferred Stock, and
      upon the satisfaction of the following conditions: (i) for ten consecutive
      days,
      the Common stock closes at a bid price equal to or greater than $6.00; (ii)
      the
      continued effectiveness of the registration statement; (iii) all shares of
      common stock issuable upon conversion of the Series C Convertible Preferred
      Stock and Series C-1 and Series C-2 Warrants are authorized and reserved for
      issuance, are registered under the Securities Act for resale by the holders,
      and
      are listed or traded on the OTC Bulletin Board or other national exchange;
      (iv)
      there are no uncured redemption events; and (v) all amounts accrued or payable
      under the Series C Convertible Preferred Stock Certificate of Designation or
      registration rights agreement have been paid.





-
          46
          -


The
      investors of Series C were issued 233 Series C-1 Warrants and 233 Series C-2
      Warrants for every share of Series C purchased. The C-1 Warrant has a term
      of
      five years and an initial exercise price of $4.50 per warrant, increasing to
      $5.40 per warrant beginning February 6, 2005. The Series C-2 Warrant has a
      term
      of five years and an initial exercise price of $5.40 per warrant, increasing
      to
      $6.60 per warrant beginning August 6, 2005. Subject to an effective registration
      statement, beginning twenty-four (24) months after the Effective Date, Wave
      Wireless may redeem the Series C-1 Warrants for $0.03 per Warrant if the Closing
      Bid Price of Wave Wireless’ common stock is equal to or greater than $10.80 for
      ten (10) consecutive trading days. Beginning February 6, 2007, Wave Wireless
      may
      redeem the Series C-2 Warrants for $0.03 per Warrant if the Closing Bid Price
      of
      Wave Wireless’ common stock is equal to or greater than $13.20 for ten (10)
      consecutive trading days. The Conversion Price of the Series C and the Exercise
      Price of the C-1 and C-2 Warrants shall be subject to adjustment for issuances
      of common stock at a purchase price less than the then-effective Conversion
      Price or Exercise Price, based on weighted average anti-dilution protection,
      subject to customary carve-outs (See Common Stock Warrants, below).





If
      Wave
      Wireless completes a private equity or equity-linked financing (the "New
      Financing"), the Series C holders may exchange any outstanding Series C at
      100%
      of face value for the securities issued in the New Financing. Such right shall
      be voided in the event Wave Wireless raises $5.0 million of additional equity
      capital at a price of not less than $3.60 per share.





For
      any
      equity or equity-linked private financing consummated within 12 months after
      the
      closing of the Series C Financing, the investors in the Series C shall have
      a
      right to co-invest in any private financing up to fifty percent (50%) of the
      dollar amount invested in the Series C Financing. The investors shall have
      five
      (5) trading days to respond. This co-investment provision shall not apply to
      the
      issuance of stock in situations involving bona-fide strategic partnerships,
      acquisition candidates and public offerings.





Upon
      the
      occurrence of the following events, (each a "Redemptive Event"), the holders
      of
      Series C Preferred Stock could have required Wave Wireless to purchase their
      shares of Series C Preferred Stock for cash:





o
      Wave
      Wireless fails to remove any restrictive legend on any common stock certificate
      issued to Series C Preferred Stock holders upon conversion as required by the
      Certificate of Designation and such failure continues uncured for five business
      days after receipt of written notice;





o
      Wave
      Wireless makes an assignment for the benefit of creditors or applies for
      appointment of a receiver for a substantial part of its business/property or
      such receiver is appointed;





o
      bankruptcy, insolvency, reorganization or liquidation proceedings shall be
      instituted by or against Wave Wireless and shall not be dismissed within 60
      days
      of their initiation;





o
      Wave
      Wireless sells substantially all of its assets;





o
      Wave
      Wireless merges, consolidates or engages in a business combination with another
      entity that is required to be reported pursuant to Item 1 of Form 8-K (unless
      Wave Wireless is the surviving entity and its capital stock is unchanged);





o
      Wave
      Wireless engages in transaction(s) resulting in the sale of securities to a
      person or entity whereby such person or entity would own greater than fifty
      percent (50%) of the outstanding shares of common stock of Wave Wireless
      (calculated on a fully diluted basis);





o
      Wave
      Wireless fails to pay any indebtedness of more than $250,000 to a third party,
      or cause any other default which would have a material adverse effect on the
      business or its operations.





The
      Series C Preferred Stock ranked senior to the common stock, the Series A
      Preferred Stock, the Series B Preferred Stock and ranked pari passu with the
      Series D Preferred Stock. The consent of the majority holders of the Series
      C
      Preferred Stock was required to create any securities that rank senior or pari
      passu to the Series C Preferred Stock. If Wave Wireless liquidates, dissolves
      or
      winds up, the holders of Series C Preferred Stock and Series D Preferred Stock
      were entitled to receive the stated value of their shares plus all accrued
      and
      unpaid dividends prior to any amounts being paid to the holders of Series B
      Preferred Stock and Wave Wireless common stock. In addition, the holders of
      Series C Preferred Stock were entitled to share ratably together with the
      holders of the Series D Preferred Stock, the Series B Convertible Preferred
      Stock and Wave Wireless common stock in all remaining assets after the
      satisfaction of all other liquidation preferences. If the assets and funds
      for
      distribution are insufficient to permit the holders of Series C.




-
          47
          -


The
      holders of Series C Preferred Stock are entitled to vote together with the
      holders of the Series D Preferred Stock and common stock, as a single class,
      on
      all matters submitted to a vote of Wave Wireless stockholders. The holders
      of
      the Series C Preferred Stock are entitled to a number of votes equal to the
      number of shares of Wave Wireless common stock that would be issued upon
      conversion of their shares of Series C Preferred Stock.





A
      summary
      of Series C Preferred Stock activities is as follows (in thousands):





Shares
              
              AmountBalances
                  as of December 31, 2003
              
              
              10.0
              
              $
              870Preferred
                  stock accretions to accrete the fair value to the stated
                  value
              
              
              --
              
              
              2,184Conversion
                  of Series C Preferred Stock for 2,275 shares of common
                  stock
              
              
              (4.0
              )
              
              (517
              )Balance
                  as of December 31, 2004
              
              
              6.0
              
              $
              2,537Preferred
                  Stock accretions to accrete the fair value to the stated
                  value
              
              
              --
              
              
              1,319Redemption
                  of Series C Preferred Stock for 6.4 million shares of common stock,
                  warrants to acquire 4.1 million shares of common stock and 5,258
                  shares of
                  Series G preferred stock
              
              
              (6.0
              )
              
              (3,856
              )Balances
                  as of December 31, 2005
              
              
              --
              
              $
              --





(a)
      Wave
      Wireless, after consideration of several valuation models, determined the fair
      value of the preferred stock as an amount equal to the fair value of the number
      of common shares into which the Series C Preferred Stock is convertible into
      using the trading market price on the date the Series C Preferred Stock was
      issued.





(b)
      Wave
      Wireless allocated proceeds between the Series C Preferred Stock and the
      Warrants based upon their relative fair values.





(c)
      The
      beneficial conversion feature was calculated using the adjusted conversion
      rate,
      following the allocation of proceeds to warrants discussed in item (b) above.





(d)
      Wave
      Wireless accretes its Series C Preferred Stock to redemption value through
      periodic charges to retained earnings.





(e)
      The
      Series C Preferred Stock was classified as a mezzanine security, outside of
      stockholders’ equity in the Company’s balance sheet due to the cash redemption
      provisions noted above. Under Statements of Financial Accounting Standards
      No.
      150, this security would have been classified as equity in a non-public filing
      context.





During
      the quarter ended September 30, 2005, all outstanding Series C Preferred Stock
      was redeemed for approximately 6.4 million shares of common stock (exclusive
      of
      approximately 0.7 million shares of common stock issued for unpaid dividends),
      and 5,258 shares of Series G Preferred Stock (exclusive of 268 shares of Series
      G Preferred Stock for unpaid dividends) (“Series C Exchange”). In addition, due
      to certain limitations set forth in the Certificate of Designations for the
      Series C Preferred Stock, certain shareholders received warrants to purchase
      approximately 4.1 million shares of common stock at an exercise price of $0.001
      per share (exclusive of warrants to purchase approximately 0.4 million shares
      of
      common stock at an exercise price of $.0001 per share for unpaid dividends),
      in
      lieu of shares of common stock otherwise required to be issued to such
      shareholders in connection with the Series C Exchange.





The
      excess of the fair value of the common stock, Series G Preferred stock and
      common stock warrants issued over the carrying value of the Series C Preferred
      stock redeemed was accounted for as an increase in net loss attributable to
      common stockholders through a charge to retained earnings.





-
          48
          -


**SERIES
      D REDEEMABLE, CONVERTIBLE PREFERRED STOCK** ****





Wave
      Wireless has designated 2,000 shares of its preferred stock as Series D
      Convertible Preferred Stock. In December 2003, Wave Wireless issued the 2,000
      shares of Series D Convertible Preferred Stock to redeem $2.0 million of notes
      payable assumed from the SPEEDCOM asset acquisition. The Series D Preferred
      Stock has a stated value of $1,000 per share. Each share of Series D Preferred
      Stock was convertible into a number of shares of common stock equal to the
      stated value divided by an initial conversion price of $4.50. This conversion
      price was subject to adjustment for any stock splits, stock dividends or similar
      transactions. The holders of Series D Preferred Stock could convert their shares
      into shares of common stock at any time. However, no holder of Series D
      Preferred Stock could convert its shares into shares of common stock if the
      conversion would result in the holder or any of its affiliates, individually
      or
      in the aggregate, beneficially owning more than 9.999% of Wave Wireless
      outstanding common stock.





Holders
      of Series D Preferred Stock were entitled to share pro-rata, on an as-converted
      basis, in any dividends or other distributions that may be declared by the
      board
      of directors of Wave Wireless with respect to the common stock. If Wave Wireless
      liquidates, dissolves or winds up, the holders of Series D Preferred Stock
      and
      the holders of Series C Preferred Stock were entitled to receive the stated
      value of their respective shares plus all accrued and unpaid dividends, pari
      passu, and prior to any amounts being paid to the holders of Series B Preferred
      Stock and Wave Wireless common stock. In addition, the holders of Series D
      Preferred Stock were entitled to share ratably together with the holders of
      Series C Preferred Stock, Series B Preferred Stock and Wave Wireless common
      stock in all remaining assets after the satisfaction of all other liquidation
      preferences.





Upon
      the
      occurrence of the following events, (each a "Redemptive Event"), the holders
      of
      Series D Preferred Stock could have required Wave Wireless to purchase their
      shares of Series D Preferred Stock for cash:





o
      Wave
      Wireless fails to remove any restrictive legend from certificates representing
      shares of Wave Wireless common stock that are issued to holders who convert
      their shares of Series D Preferred Stock;





o
      Wave
      Wireless makes an assignment for the benefit of creditors, or applies for or
      consents to the appointment of a receiver or trustee;





o
      Any
      bankruptcy, insolvency, reorganization or other proceeding for the relief of
      debtors is instituted by or against Wave Wireless and is not dismissed within
      60
      days;





o
      Wave
      Wireless sells substantially all of its assets, merges or consolidates with
      any
      other entity or engages in a transaction that results in any person or entity
      acquiring more than 50% of Wave Wireless outstanding common stock on a fully
      diluted basis;





o
      Wave
      Wireless fails to pay when due any payment with respect to any of its
      indebtedness in excess of $250,000;





o
      Wave
      Wireless breaches any agreement for monies owed or owing in an amount in excess
      of $250,000 and the breach permits the other party to declare a default or
      otherwise accelerate the amounts due under that agreement; and





o
      Wave
      Wireless permits a default under any agreement to remain uncured and the default
      would or is likely to have a material adverse effect on the business,
      operations, properties or financial condition of Wave Wireless.





Wave
      Wireless, after consideration of several valuation models, determined the fair
      value of the preferred stock as an amount equal to the fair value of the number
      of common shares into which the Series D Preferred Stock is convertible into
      using the trading market price on the date the Series D Preferred Stock was
      issued.





The
      Series D Preferred Stock is classified as a mezzanine security, outside of
      stockholders’ equity in the Company’s balance sheet due to the cash redemption
      provisions noted above. Under Statements of Financial Accounting Standards
      No.
      150, this security would have been classified as equity in a non-public filing
      context.





On
      May
      31, 2005, all Series D Preferred Stock was redeemed for 1,000 shares of Series
      G
      Convertible Preferred Stock, plus warrants to purchase 1,000,000 shares of
      common stock at an exercise price of $0.001 per share. The excess of the
      carrying value of the Series D Preferred Stock redeemed over the fair value
      of
      the Series G Preferred Stock and common stock warrants issued was accounted
      for
      a s a reduction in net loss attributable to common stockholders through a credit
      to retained earnings.





**SERIES
      E CONVERTIBLE PREFERRED STOCK**





Wave
      Wireless has designated 2,000 shares of its Preferred Stock as Series E
      Convertible Preferred Stock. In June 2005, Wave Wireless issued 923 shares
      of
      Series E Convertible Preferred Stock to redeem $555,000 in promissory notes
      and
      settle certain vendor payables totaling $367,000. These transactions were in
      connection with Wave Wireless’ Restructuring Plan, and resulted in a net gain of
      $267,000 in the quarter ended June 30, 2005.





-
          49
          -


The
      holders of Series E Preferred Stock are entitled to certain rights and
      preferences with respect to the holders of our common stock, including the
      following:





o
      Voting.
      The holders of Series E Preferred Stock are entitled to vote together with
      the
      holders of our common stock, as a single class, on all matters submitted to
      a
      vote of our stockholders. The holders of Series E Preferred Stock are entitled
      to a number of votes equal to the number of shares of common stock that would
      be
      issued upon conversion of their shares of Series E Preferred Stock.





o
      Conversion. The Series E Preferred Stock has a liquidation preference amount
      equal to $1,000 per share. Each share of Series E Preferred Stock is convertible
      into a number of shares of common stock equal to the liquidation preference
      amount divided by the conversion price of $0.50. This conversion price is
      subject to adjustment for any stock splits, stock dividends or similar
      transactions. The holders of Series E Convertible Stock may convert their shares
      into shares of common stock at any time.





o
      Dividends. Holders of Series E Preferred Stock are entitled to receive, out
      of
      legally available funds, dividends at the rate of 6% per annum beginning on
      the
      second anniversary of the date of issuance. Dividends are payable annually,
      either in cash or shares of our common stock.





o
      Liquidation. If we liquidate, dissolve or wind up, the holders of Series E
      Preferred Stock are entitled to receive the liquidation preference amount
      ($1,000 per share) of their shares prior to any amounts being paid to the
      holders of our Series B Preferred Stock, Series C Preferred Stock, Series F
      Preferred Stock, Series G Preferred Stock and common stock.





Wave
      Wireless, after consideration of several valuation models, determined the fair
      value of the preferred stock as an amount equal to the fair value of the number
      of common shares into which the Series E Preferred Stock is convertible into
      using the trading market price on the date the Series E Preferred Stock was
      issued.





As
      of
      December 31, 2005, outstanding Series E Preferred Stock are convertible into
      approximately 1,846,262 shares of common stock.





**SERIES
      F CONVERTIBLE PREFERRED STOCK**





Wave
      Wireless has designated 250 shares of its preferred stock as Series F
      Convertible Preferred Stock.





The
      holders of Series F Preferred Stock are entitled to certain rights and
      preferences with respect to the holders of our common stock, including the
      following:





o
      Voting.
      Except for the purpose of approving certain specified corporate actions and
      as
      otherwise required by the Delaware General Corporation Law, the holders of
      Series F Preferred Stock do not have any voting rights.





o
      Conversion. The Series F Preferred Stock has a face amount equal to $10,000
      per
      share. Each share of Series F Preferred Stock is convertible into a number
      of
      shares of common stock equal to the face amount divided by the conversion price
      of $0.50. This conversion price is subject to adjustment for any stock splits,
      stock dividends or similar transactions. We have the right to convert all
      outstanding shares of our Series F Preferred Stock into shares of our common
      stock, but only if the conversion would not cause the holder to beneficially
      own
      more than 9.99% of our outstanding common stock.





o
      Dividends. Holders of Series F Preferred Stock are entitled to participate
      in
      all dividends declared on our common stock, based on the number of shares of
      common stock issuable upon conversion of their Series F Preferred Stock.





o
      Liquidation. If we liquidate, dissolve or wind up, the holders of Series F
      Preferred Stock are not entitled to receive any preferential amounts prior
      to
      any amounts being paid to the holders of the other classes and series of our
      capital stock.





Wave
      Wireless, after consideration of several valuation models, determined the fair
      value of the preferred stock as an amount equal to the fair value of the number
      of common shares into which the Series F Preferred Stock is convertible into
      using the trading market price on the date the Series F Preferred Stock was
      issued.





In
      the
      three months ended June 30, 2005, Wave Wireless issued 250 shares of Series
      F
      Convertible Preferred Stock to make certain debenture amortization payments
      due
      March 31, 2005, and June 30, 2005. Wave Wireless recorded a loss of $228,000
      in
      connection with these equity transactions in lieu of cash payment transactions.
      During the third quarter of 2005, 41 shares of Series F Preferred Stock was
      converted into 815,980 shares of common stock. During the fourth quarter of
      2005, 15.2 shares of Series F Preferred Stock was converted into 304,020 shares
      of common stock. As of December 31, 2005, 193.8 shares of Series F Preferred
      Stock remain outstanding and are convertible into approximately 3.9 million
      shares of common stock.





-
          50
          -


**SERIES
      G CONVERTIBLE PREFERRED STOCK**





Wave
      Wireless has designated 10,000 shares of its Preferred Stock as Series G
      Convertible Preferred Stock, of which 6,526 shares were issued and outstanding
      as of December 31, 2005.





The
      holders of Series G Preferred Stock are entitled to certain rights and
      preferences with respect to the holders of our common stock, including the
      following:





o
      Voting.
      Except for the purpose of approving certain specified corporate actions and
      as
      otherwise required by the Delaware General Corporation Law, the holders of
      Series G Preferred Stock do not have any voting rights.





o
      Conversion. The Series G Preferred Stock has a liquidation preference amount
      equal to $1,000 per share. Each share of Series G Preferred Stock is convertible
      into a number of shares of common stock equal to the liquidation preference
      amount divided by the conversion price of $0.50. This conversion price is
      subject to adjustment for any stock splits, stock dividends or similar
      transactions. The holders of Series G Convertible Stock may convert their shares
      into shares of common stock at any time. However, no holder of Series G
      Preferred Stock may convert its shares into shares of common stock if the
      conversion would cause the holder to beneficially own more than 9.99% of our
      outstanding common stock.





o
      Dividends. Holders of Series G Preferred Stock are entitled to participate
      in
      all dividends declared on our common stock, based on the number of shares of
      common stock issuable upon conversion of their Series G Preferred Stock.





o
      Liquidation. If we liquidate, dissolve or wind up, the holders of Series G
      Preferred Stock are entitled to receive the liquidation preference amount
      ($1,000 per share) of their shares prior to any amounts being paid to the
      holders of our Series F Preferred Stock and common stock.





Wave
      Wireless, after consideration of several valuation models, determined the fair
      value of the preferred stock as an amount equal to the fair value of the number
      of common shares into which the Series G Preferred Stock is convertible using
      the trading market price of the common stock.





As
      of
      December 31, 2005, all outstanding shares of Series G Preferred Stock are
      convertible into approximately 13.1 million shares of common stock.





**COMMON
      STOCK WARRANTS**





The
      following table summarizes our Common Stock warrant activity for each year
      ended
      December 31, (in thousands, except per share amounts):








2005
            
            2004Shares
            
            Price
                Range
            
            Shares
            
            Price
                RangeOutstanding
                at beginning of year
            
            
            2,703
            
            
            $0.56-$1,275.00
            
            
            5,900
            
            
            $9.00-$1,275.00Issued
            
            
            18,008
            
            
            $0.0001-$0.30
            
            
            707
            
            
            $0.56-$1.50Adjustments
                (a)
            
            
            --
            
            
            
            
            
            (525
            )
            
            --
                --Exercised
            
            
            --
            
            
            
            
            
            (3,255
            )
            
            $0.00-$0.05Cancelled
            
            
            (25
            )
            
            $3.00-$9.00
            
            
            (124
            )
            
            $0.24-$0.24Outstanding
                at end of year
            
            
            20,686
            
            
            
            
            
            2,703Warrants
                exercisable at end of year
            
            
            20,686
            
            
            
            
            
            2,703Weighted-average
                  exercise price ofwarrantsissuedduringtheyear
            
            $
            0.56
            
            
            
            
            $
            1.26




(a)
      Adjustments to Common Stock warrants arise from anti-dilution terms. The
      issuance of the Agilent Warrant and the SDS Warrant triggered the antidilution
      provisions of the Series C-1 Warrants, the Series C-2 Warrants and the Series
      C
      Convertible Preferred Stock.





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          51
          -


**2005
      WARRANT ACTIVITIES**





During
      2005, Wave Wireless issued warrants to purchase 272,000 shares of Wave Wireless’
common stock, in connection with the issuance of the $1.7 million promissory
      notes to SDS Capital SPC Ltd. (the "SDS Warrant"). The SDS Warrant has an
      initial exercise price of $1.50 and a term of five years. Wave Wireless
      allocated the proceeds between the carrying value of the promissory note and
      the
      warrants based on the fair value of the transaction, resulting in an effective
      interest rate for the promissory note of 13.4%. In consideration for allowing
      borrowings under the Purchase Agreement after December 31, 2004, and for waiving
      certain other conditions to additional draws under the Purchase Agreement,
      Wave
      Wireless lowered the exercise price of the SDS Warrant from $1.50 to $.0001.
      Also, on December 31, 2005, Wave Wireless issued 5,517,243 warrants to SDS
      at a
      weighted average exercise price of $0.05 in lieu of the scheduled cash payment
      of $602,000 due on December 31, 2005, owed in connection with the SDS Note
      for a
      gain of $51,000.





We
      issued
      two million common stock warrants at an exercise price of $0.20 to the Bryan
      Family Partnership as partial consideration for the termination of our
      facilities lease in Campbell, California.





We
      issued
      one million common stock warrants at an exercise price of $0.001 to North Sound
      inconnectionwith the conversion of Series D Preferred Stock to Series G
      Preferred Stock.





We
      issued
      2,125,000 common stock warrants at an exercise price of $0.20 in connection
      with
      the issuance of certain bridge notes to various holders during the quarter
      ended
      December 31, 2006, totalling approximately $850,000.





We
      issued
      5,009,324 common stock warrants at an exercise price of $0.001 in lieu of common
      stock to a holder of our Series C Preferred Stock because they were
      contractually prevented from owning more than 9.99% of our outstanding common
      stock.





We
      also
      issued 600,000 common stock warrants at an exercise price of $0.30 as partial
      consideration for the termination of George Roberts’ Employment and Continuity
      of Benefits Agreement.





In
      addition, we also issued 984,000 common stock warrants at an exercise price
      of
      $0.0001 to certain executive officers of Wave Wireless, in lieu of stock options
      under Wave Wireless’ 2004 Stock Incentive Plan.





**STOCKHOLDER
      RIGHTS AGREEMENT**





On
      September 26, 1997, the Board of Directors of Wave Wireless adopted a
      Stockholder Rights Agreement (the "Rights Agreement"). Pursuant to the Rights
      Agreement, Rights (the "Rights") were distributed as a dividend on each
      outstanding share of its Common Stock held by stockholders of record as of
      the
      close of business on November 3, 1997. Each Right will entitle stockholders
      to
      buy Series A Preferred at an exercise price of $125.00 upon certain events.
      The
      Rights will expire ten years from the date of the Rights Agreement.





In
      general, the Rights will be exercisable only if a person or group acquires
      15%
      or more of Wave Wireless’ Common Stock or announces a tender offer, the
      consummation of which would result in ownership by a person or group of 15%
      or
      more of Wave Wireless’ Common Stock. In the case of the State of Wisconsin
      Investment Board, Firsthand Capital Management, Alpha Capital and StoneStreet
      Limited Partnership the threshold figure is 20% rather than 15%. If, after
      the
      Rights become exercisable, Wave Wireless is acquired in a merger or other
      business combination transaction, or sells 50% or more of its assets or earning
      power, each unexercised Right will entitle its holder to purchase, at the
      Right's then-current exercise price, a number of the acquiring company's common
      shares having a market value at the time of twice the Right's exercise price.
      At
      any time within ten days after the public announcement that a person or group
      has acquired beneficial ownership of 15% or more of Wave Wireless’ Common Stock,
      the Board of Directors, in its sole discretion, may redeem the Rights for
      $0.0001 per Right.





**6.**  **EMPLOYEE
      BENEFIT PLANS**





On
      October 8, 2004, Wave Wireless’ stockholders approved the adoption of the 2004
      Equity Incentive Plan (the "2004 Plan") as a successor to Wave Wireless’ 1995
      Stock Option/Stock Issuance Plan (the "1995 Plan").





The
      2004
      Plan authorizes the issuance of up to 3,000,000 shares of Common Stock as of
      December 31, 2005.





The
      2004
      Plan provides four different types of equity incentive awards: (i) stock
      options, (ii) stock appreciation rights, (iii) restricted stock, and (iv) stock
      units.





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          52
          -


**STOCK
      OPTION PLANS**





The
      exercise price per share for incentive stock options granted under the 2004
      Plan
      may not be less than 100% of the fair market value per share of common stock
      on
      the option grant date. The exercise price for non-statutory stock options
      granted under the 2004 Plan may not be less that 85% of the fair market value
      per share of common stock on the option grant date. No option will have a term
      in excess of 10 years.





The
      following table summarizes stock option activity under Wave Wireless’ 2004 Plan
      (in thousands, except per share amounts):








2005
            
            2004Weighted
            
            
            
            WeightedAverage
            
            
            
            AverageShares
            
            Price
            
            Shares
            
            PriceOutstanding
                at beginning of year
            
            
            1,166
            
            $
            23.30
            
            
            1,104
            
            $
            26.40Granted
            
            
            2,385
            
            
            0.15
            
            
            335
            
            $
            2.41Exercised
            
            
            (7
            )
            
            0.15
            
            
            (1
            )
            
            4.17Canceled
            
            
            (511
            )
            
            13.17
            
            
            (272
            )
            
            10.42Outstanding
                at end of year
            
            
            3,033
            
            
            6.85
            
            
            1,166
            
            
            23.30Options
                exercisable at year-end
            
            
            1,345
            
            
            14.62
            
            
            451
            
            
            54.83Weighted-average
                  fair value ofoptionsgrantedduringtheyear
            
            $
            0.15
            
            
            
            
            $
            23.30





The
      average remaining life of outstanding options at December 31, 2005 was 9.04
      years.





**STOCK
      APPRECIATION RIGHTS**





The
      Plan
      Administrator has complete discretion under the 2004 Plan to determine which
      eligible individuals are to receive stock appreciation rights, the time or
      times
      when such grants are to be made, the number of shares subject to each stock
      appreciation right, the vesting schedule (if any) to be in effect for the stock
      appreciation right and the maximum term for which any stock appreciation right
      is to remain outstanding. Under the 2004 Plan, an individual may not receive
      stock appreciation rights that pertain to more than 833,333 shares of common
      stock in any given year.





**RESTRICTED
      STOCK**





The
      Plan
      Administrator has complete discretion under the 2004 Plan to determine which
      eligible individuals are to receive shares of restricted stock, the time or
      times when such grants are to be made, the number of shares granted and the
      vesting schedule (if any) to be in effect for the restricted stock. In any
      given
      year, the number of shares of restricted stock that are subject to
      performance-based vesting conditions granted to a participant in the 2004 Plan
      may not exceed 833,333 shares. During 2005, 550,000 restricted stock options
      were granted to the named executive officers.





**STOCK
      UNITS**





The
      Plan
      Administrator has complete discretion under the 2004 Plan to determine which
      eligible individuals are to receive stock units, the time or times when such
      grants are to be made, the number of stock units granted and the vesting
      schedule (if any) to be in effect for the stock units. In any given year, the
      number of stock units that are subject to performance-based vesting conditions
      granted to a participant in the 2004 Plan may not exceed 833,333 shares.




**401(K)
      PLAN**





Wave
      Wireless sponsors a 401(k) Plan (the "401(k) Plan") which provides tax-deferred
      salary deductions for eligible employees. Employees may contribute up to 60%
      of
      their annual compensation to the 401(k) Plan, limited to a maximum annual amount
      as set periodically by the Internal Revenue Service. The 401(k) Plan permits,
      but does not require, Wave Wireless to make matching contributions. To date,
      no
      matching contributions have been made.





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          53
          -


**7.**  **RESTRUCTURING
      AND OTHER CHARGES**





In
      April
      2005, Wave Wireless announced a formal restructuring plan that will
      significantly reduce current spending and substantially reduce liabilities
      and
      operating and other costs (the "Restructuring Plan"). The Restructuring Plan
      was
      necessitated in order to curtail the substantial operating losses incurred
      by
      Wave Wireless and management's assessment that substantial operating losses
      would continue absent a plan to restructure the business, and substantially
      reduce its cost structure. In addition, absent such a plan, Wave Wireless would
      likely be unable to attract financing on reasonable terms, if at all.





The
      Restructuring Plan includes the divestiture of certain unprofitable product
      lines, which includes certain of our licensed point-to-point microwave products.
      Wave Wireless will, however, continue the sale of its unlicensed radio products,
      and certain of its licensed radio products, including refurbished licensed
      products in connection with our repair and maintenance business. As part of
      the
      Restructuring Plan, we reduced our work force from approximately 130 full and
      part-time employees to approximately 60 employees. The anticipated cost of
      the
      Restructuring Plan is approximately $5.6 million and includes severance and
      related liabilities, costs associated with the cancellation of purchase order
      commitments, the write-down of certain inventory, and the loss anticipated
      from
      the divestiture of the Wave Wireless engineering operation in Italy. As of
      the
      end of the third quarter of 2005, the Restructuring Plan was substantially
      completed.





A
      summary
      of restructuring costs is as follows (in thousands):





Severance
            
            $
            524Purchase
                commitment charge
            
            
            905Impairment
                charge on P-Com Italia
            
            
            826Licensed
                product inventory charge
            
            
            2,987Florida
                building lease cancellation
            
            
            310Other
            
            
            45Balance
                at December 31, 2005
            
            $
            5,597




**8.****SALES
      AND PROPERTY AND EQUIPMENT BY GEOGRAPHIC REGION**





The
      allocation of sales by geographic customer destination and property, plant
      and
      equipment, net are as follows (in thousands):








Sales
            
            %
                of total for2005
            
            2005
            
            2004North
                America
            
            
            9
            %
            $
            1,124
            
            $
            2,579United
                Kingdom
            
            
            38
            %
            
            4,447
            
            
            5,583Continental
                Europe
            
            
            11
            %
            
            1,264
            
            
            5,178Asia
            
            
            7
            %
            
            807
            
            
            2,025Middle
                East
            
            
            15
            %
            
            1,786
            
            
            1,567Latin
                America
            
            
            16
            %
            
            1,895
            
            
            6,177Other
                Geographic Regions
            
            
            4
            %
            
            484
            
            
            1,066100
            %
            $
            11,807
            
            $
            24,175





2005Property
                and equipment, netUnited
                States
            
            $
            596United
                Kingdom
            
            
            26Total
            
            $
            622








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          54
          -


**9.**  **NET
      LOSS PER SHARE**





The
      numerator for calculation of net loss per common share is Wave Wireless’ net
      loss for the period, less preferred stock dividends and accretions. The
      denominator, weighted average common shares outstanding, does not include stock
      options with an exercise price that exceeds the average fair market value of
      the
      underlying Common Stock or other dilutive securities because the effect would
      be
      anti-dilutive.





**10.****INCOME
      TAXES**





Loss
      before discontinued operations, income taxes, and Preferred Stock accretions
      consists of the following (in thousands):





Year
                EndedDecember
                31,2005
            
            
            2004Domestic
            
            $
            (12,449
            )
            $
            (2,574
            )Foreign
            
            
            (133
            )
            
            (706
            )$
            (12,582
            )
            $
            (3,280
            )





Deferred
      tax assets consist of the following (in thousands):





December
                31,2005
            
            2004Net
                operating loss carry-forwards
            
            $
            110,587
            
            $
            98,594Credit
                carry-forwards
            
            
            3,957
            
            
            4,143Intangible
                assets
            
            
            16,567
            
            
            16,126Reserves
                and other
            
            
            7,448
            
            
            11,417Total
                deferred tax assets
            
            $
            138,559
            
            $
            130,280Valuation
                allowance
            
            
            (138,559
            )
            
            (130,280
            )Net
                deferred tax asset
            
            $
            --
            
            $
            --





For
      federal and state tax purposes, a portion of Wave Wireless’ net operating loss
      carry-forwards may be subject to certain limitations on utilization in the
      event
      of change in ownership as defined by federal and state tax law.





Deferred
      income taxes reflect the tax consequences on future years of differences between
      the tax bases of assets and liabilities and their bases for financial reporting
      purposes. In addition, future tax benefits, such as net operating loss
      carry-forwards, are recognized to the extent that realization of such benefits
      is more likely than not. Wave Wireless has assessed its ability to realize
      future tax benefits, and concluded that as a result of the history of losses,
      it
      was more likely than not, that such benefits would not be realized. Accordingly,
      Wave Wireless has recorded a full valuation allowance against future tax
      benefits.





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          55
          -


As
      of
      December 31, 2005, Wave Wireless had a federal net operating loss carry-forward
      of approximately $295.0 million. If not utilized, the losses will begin to
      expire in 2017.





Reconciliation
      of the statutory federal income tax rate to its effective tax rate is as
      follows:





2005
            
            2004Income
                tax benefit at federal statutory rate
            
            
            -35.0
            %
            
            -35.0
            %State
                income taxes net of federal benefit
            
            
            -5.8
            %
            
            -5.8
            %Foreign
                income taxes at different rate
            
            
            0.0
            %
            
            0.0
            %Change
                in valuation allowance
            
            
            40.8
            %
            
            40.8
            %Total
            
            
            0.0
            %
            
            0.0
            %




**11.**  **COMMITMENTS**





**OBLIGATIONS
      UNDER OPERATING LEASES**





Wave
      Wireless leases its facilities under non-cancelable operating leases, which
      expire at various times through 2010. The leases require Wave Wireless to pay
      taxes, maintenance and repair costs. Future minimum lease payments under its
      non-cancelable operating leases at December 31, 2005 are as follows (in
      thousands):







Year
              Ending December 31,2006
            
            
            2202007
            
            
            2502008
            
            
            2732009
            
            
            2982010
            
            
            158$
            1,198








During
      2005 and 2004, rent expense incurred by Wave Wireless under non-cancelable
      operating leases was $0.9 million and $1.7 million, respectively.





**12.**  **CONTINGENCIES**





In
      June
      2000, two former consultants to P-Com Italia S.p.A. filed a complaint against
      P-Com Italia in the Civil Court of Rome, Italy seeking payment of certain
      consulting fees allegedly due the consultants totaling approximately $615,000.
      The Civil Court of Rome appointed a technical consultant in order to determine
      the merit of certain claims made by the consultants. On April 20, 2005, the
      Civil Court of Rome issued judgment dismissing the case, and ordered the
      consultants to pay P-Com Italia's legal fees. The Court's order has been
      appealed by the consultants to the Court of Appeal of Rome. While no assurances
      can be given, Wave Wireless believes that the Court of Appeal of Rome will
      dismiss the Appeal.





**13.**  **SUPPLEMENTAL
      CASH FLOW INFORMATION**





The
      following provides additional information concerning supplemental disclosure
      of
      cash flow activities (in thousands).





**YEAR
      ENDED DECEMBER 31,**





2005
            
            2004Cash
                paid for income taxes
            
            $
            --
            
            $
            --Cash
                paid for interest
            
            $
            876
            
            $
            682








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          56
          -





**NON-CASH
      TRANSACTIONS**





During
      2005, Wave Wireless converted all outstanding Series B Preferred Stock into
      381,914 shares of common stock.





During
      2005, Wave Wireless converted all outstanding Series C Preferred Stock into
      approximately 6.4 million shares of common stock (exclusive of approximately
      0.7
      million shares of common stock issued for unpaid dividends), and 5,258 shares
      of
      Series G Preferred Stock (exclusive of 268 shares of Series G Preferred Stock
      for unpaid dividends) (“Series C Exchange”). In addition, due to certain
      limitations set forth in the Certificate of Designations for the Series C
      Preferred Stock, certain shareholders received warrants to purchase
      approximately 4.1 million shares of common stock at an exercise price of $0.001
      per share (exclusive of warrants to purchase approximately 0.4 million shares
      of
      common stock at an exercise price of $.0001 per share for unpaid dividends),
      in
      lieu of shares of common stock otherwise required to be issued to such
      shareholders in connection with the Series C Exchange.





During
      2005, Wave Wireless converted all outstanding Series D Preferred Stock into
      1,000 shares of Series G Convertible Preferred Stock, plus warrants to purchase
      1,000,000 shares of common stock at an exercise price of $0.001 per
      share.





During
      2005, Wave Wireless issued 923 shares of Series E Convertible Preferred Stock
      to
      redeem $555,000 in promissory notes and settle certain vendor payables totaling
      $367,000.





During
      2005, Wave Wireless issued 250 shares of Series F Convertible Preferred Stock
      to
      make certain debenture amortization payments due in March and June of 2005.





During
      the third quarter of 2005, 41 shares of Series F Preferred Stock were converted
      into 815,980 shares of common stock.





During
      the fourth quarter of 2005, 15.2 shares of Series F Preferred Stock were
      converted into 304,020 shares of common stock.





**14.****SELECTED
      QUARTERLY FINANCIAL DATA (UNAUDITED)**





The
      following table sets forth Wave Wireless’ condensed consolidated financial
      information for the quarterly periods during the years ended December 31, 2005
      and 2004. The amounts are in thousands, except income (loss) per common share.
      Income (loss) per common share for periods prior to July 19, 2004 has been
      restated to give effect to a one-for-thirty reverse stock split.





First
            
            Second
            
            Third
            
            FourthQuarter
            
            Quarter
            
            Quarter
            
            QuarterYEAR
                ENDED DECEMBER 31, 2005Net
                sales
            
            $
            2,497
            
            $
            4,261
            
            $
            2,933
            
            $
            2,116Gross
                Profit
            
            
            (48
            )
            
            1,325
            
            
            1,387
            
            
            658Income
                  (loss) from continuing operations
            
            
            (8,798
            )
            
            (1,492
            )
            
            (1,272
            )
            
            (1,020
            )Preferred
                stock accretions and dividends
            
            
            (580
            )
            
            (578
            )
            
            (2,670
            )
            
            --Net
                  income (loss) applicable to common shareholders
            
            
            (9,378
            )
            
            (2,070
            )
            
            (3,942
            )
            
            (1,020
            )Income
                (loss) per common share
            
            
            (0.79
            )
            
            (0.17
            )
            
            (0.22
            )
            
            (0.06
            )




First
            
            Second
            
            Third
            
            FourthQuarter
            
            Quarter
            
            Quarter
            
            QuarterYEAR
                ENDED DECEMBER 31, 2004Net
                sales
            
            $
            6,837
            
            $
            6,917
            
            $
            6,143
            
            $
            4,278Gross
                Profit
            
            
            1,738
            
            
            1,992
            
            
            1,157
            
            
            568Income
                  (loss) from continuing operations
            
            
            (2,341
            )
            
            6,253
            
            
            (3,438
            )
            
            (3,754
            )Discontinued
                operations
            
            
            (40
            )
            
            --
            
            
            --
            
            
            --Preferred
                stock accretions
            
            
            (776
            )
            
            (673
            )
            
            (683
            )
            
            (260
            )Net
                  income (loss) applicable to common shareholders
            
            
            (3,157
            )
            
            5,580
            
            
            (4,121
            )
            
            (4,170
            )Income
                (loss) per common share
            
            
            (0.39
            )
            
            0.45
            
            
            (0.27
            )
            
            (0.35
            )




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**15.**  **SUBSEQUENT
      EVENTS**





Since
      December 31, 2005, Wave Wireless has issued $475,000 in Convertible Notes,
      payable on or before March 31, 2006. Interest accrues on the Convertible Notes
      at an annual interest rate of 10%. Under the terms of the Convertible Notes,
      the
      holders have the option to convert the outstanding balance due under the terms
      of the Convertible Notes into shares of common stock of Wave Wireless at a
      price
      per share of $0.15 at any time the Convertible Notes remain outstanding. In
      addition, the outstanding principal amounts and all accrued but unpaid interest
      under the terms of the Convertible Notes automatically convert into any shares
      issued in an equity or equity-based financing with gross proceeds of at least
      $2,500,000 (“Equity Financing”). For purposes of determining the number of
      equity securities to be received by the holders upon such conversion, the
      holders shall be deemed to have tendered 120% of the outstanding balance of
      the
      Convertible Notes as payment of the purchase price in the Equity Financing.
      As
      additional consideration for the loans evidenced by the Convertible Notes,
      the
      holders were issued warrants for the issuance of 1,187,500 shares of common
      stock of Wave Wireless at an exercise price of $.20 per share.





In
      anticipation of the proposed WaveRider Merger, Wave Wireless advanced WaveRider
      a total of $450,000 from the proceeds received from the issuance of the
      Convertible Notes, $200,000 of which was advanced subsequent to December 31,
      2005, under a series of 10% convertible promissory notes issued by WaveRider
      (the “WaveRider Notes”). The WaveRider Notes are due and payable March 31, 2006.
      Wave Wireless converted the principal and accrued interest due under the terms
      of the WaveRider Notes into 450 shares of WaveRider’s Series D Convertible
      Preferred Stock on February 8, 2006.





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          58
          -


**SIGNATURES**





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




*Date:
              March
              24, 2006*
            By:
            /s/ *Daniel
              W. Rumsey**Daniel
              W. Rumsey**Acting
                Chief Executive Officer*




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








*Signature*
            
            *Title*
            
            *Date**/s/
                Daniel W. Rumsey*
            
            *Acting
                Chief Executive Officer**Daniel
                W. Rumsey*
            
            *(Principal
                Executive Officer)*
            
            *March
                24, 2006**/s/
                Daniel W. Rumsey***
            
            *(Principal
                Financial Officer and**Daniel
                W. Rumsey*
            
            *Principal
                Accounting Officer)*
            
            *March
                24, 2006**/s/
                George P. Roberts***
            
            *Chairman
                of the Board of Directors*
            
            *March
                24, 2006**George
                P. Roberts**/s/
                Richard Reiss*
            
            *Director
                of the Company*
            
            *March
                24, 2006**Richard
                Reiss**/s/
                Frederick R. Fromm*
            
            *Director
                of the Company*
            
            *March
                24, 2006**Frederick
                R. Fromm**/s/
                R. Craig Roos*
            
            *Director
                of the Company*
            
            *March
                24, 2006**R.
                Craig Roos**/s/
                Daniel W. Rumsey*
            
            *Director
                of the Company*
            
            *March
                24, 2006**Daniel
                W. Rumsey*




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          59
          -





**INDEX
      OF EXHIBITS**




2.1(1)
            Agreement
                and Plan of Merger, dated January 3, 2006, between Wave Wireless
                Corporation, Wave Acquisition Corporation and WaveRider Communications
                Inc.2.2(1)
            Amendment
                to Agreement and Plan of Merger, dated January 26, 2006, between
                Wave
                Wireless Corporation, Wave Acquisition Corporation and WaveRider
                Communications Inc.3.1
            Certificate
                of Incorporation, as amended and restated through August 22,
                20053.2
            Bylaws,
                as amended and restated through December 3, 20034.1(2)
            Amended
                and Restated Certificate of Designation of the Series A Junior
                Participating Preferred Stock4.2(3)
            Certificate
                of Designation of the Relative Rights and Preferences of the Series
                E
                Convertible Preferred Stock4.3(3)
            Certificate
                of Designation of the Relative Rights and Preferences of the Series
                F
                Convertible Preferred Stock4.4(3)
            Certificate
                of Designation of the Relative Rights and Preferences of the Series
                G
                Convertible Preferred Stock4.5(4)
            Form
                of Common Stock Certificate4.6(5)
            Amended
                and Restated Rights Agreement, dated January 24, 2001, between P-Com,
                Inc.
                and BankBoston, N.A10.1*(6)
            1995
                Stock Option/Stock Issuance Plan (as amended and restated through
                July 17,
                2002)10.2*
            Amendment
                to 1995 Stock Option/Stock Issuance Plan, effective as of December
                3, 200310.3*(7)
            Employee
                Stock Purchase Plan, as amended10.4*(8)
            2004
                Equity Incentive Plan10.65(9)
            Warrant
                to Purchase Stock, dated January 14, 2000, issued to Silicon Valley
                Bank.10.66(9)
            Registration
                Rights Agreements, dated January 14, 2000, by and between P-Com,
                Inc. and
                Silicon Valley Bank.10.67(9)
            Antidilution
                Agreement, dated January 14, 2000, by and between P-Com, Inc. and
                Silicon
                Valley Bank.10.90*(10)
            Employment
                and Continuity of Benefits Agreement by and between George Roberts
                and
                P-Com, Inc., dated May 31, 2001.10.100(11)
            Accounts
                Receivable Purchase Agreement by and between P-Com, Inc. and Silicon
                Valley Bank dated June 26, 2002.10.107(12)
            Loan
                and Security Agreement between P-Com, Inc. and Silicon Valley Bank
                dated
                September 20, 200210.108(12)
            Loan
                and Security Agreement (Exim Program) between P-Com, Inc. and Silicon
                Valley Bank dated September 20, 2002.10.109(12)
            Secured
                Promissory Notes issued to Silicon Valley Bank dated September 20,
                2002.10.110(12)
            Warrant
                to Purchase Stock Agreement between P-Com, Inc. and Silicon Valley
                Bank
                dated September 20, 2002.10.118(13)
            Promissory
                Note, dated March 21, 2005, between P-Com, Inc. and SDS Capital Group
                SPC,
                Ltd.10.119(13)
            Promissory
                Note, dated March 31, 2005, between P-Com, Inc. and SDS Capital Group
                SPC,
                Ltd.10.120(13)
            Promissory
                Note, dated May 3, 2005, between P-Com, Inc. and SDS Capital Group
                SPC,
                Ltd.10.121(13)
            Warrant
                Agreement, dated March 21, 2005, between P-Com, Inc. and SDS Capital
                Group
                SPC, Ltd.




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          -


10.122(13)
            Warrant
                Agreement, dated March 31, 2005, between P-Com, Inc. and SDS Capital
                Group
                SPC, Ltd.10.123(13)
            Warrant
                Agreement, dated May 3, 2005, between P-Com, Inc. and SDS Capital
                Group
                SPC, Ltd.10.124(14)
            Exchange
                Agreement, dated May 31, 2005, between P-Com, Inc. and the Holders
                named
                therein.10.125(14)
            Form
                of Warrant to Purchase Shares of Common Stock of P-Com, Inc., dated
                May
                31, 2005.10.126(15)
            Promissory
                Note, dated June 30, 2005, issued to SDS Capital Group SPC,
                Ltd.10.127(15)
            Warrant
                to Purchase Shares of Common Stock, dated June 30, 2005, issued to
                SDS
                Capital Group SPC, Ltd.10.128(15)
            Warrant
                to Purchase Shares of Common Stock, dated June 30, 2005, issued to
                SDS
                Capital Group SPC, Ltd.10.129*(16)
            Amendment
                to Severance Agreement, dated July 13, 2005, between P-Com, Inc.
                and
                Daniel W. Rumsey.10.130*(17)
            Termination
                of Employment and Continuity of Benefits Agreement, dated June 9,
                2005,
                between P-Com, Inc. and George P. Roberts.10.131(18)
            Amendment
                to Loan Documents, dated September 17, 2005, between Wave Wireless
                Corporation, P-Com Network Services, Inc. and Silicon Valley
                Bank.10.132(19)
            Warrant
                to Purchase Shares of Common Stock, dated September 20, 2005, issued
                to
                North Sound Legacy Institutional Fund LLC.10.133(19)
            Warrant
                to Purchase Shares of Common Stock, dated September 20, 2005, issued
                to
                North Sound Legacy Institutional Fund LLC.10.134(20)
            Termination
                Agreement between Wave Wireless Corporation and Lakewood Ranch Properties,
                LLC.10.135(20)
            Addendum
                to Termination Agreement between Wave Wireless Corporation and Lakewood
                Ranch Properties, LLC.10.136(21)
            Promissory
                Note, dated October 1, 2005, issued to SDS Capital Group SPC,
                Ltd.10.137(22)
            Convertible
                Promissory Note Agreement, dated December 7, 2005, between Wave Wireless
                Corporation and WaveRider Communications, Inc.10.138(22)
            Senior
                Convertible Promissory Bridge Note, dated December 7, 2005, issued
                to
                North Sound Legacy Institutional Fund LLC.10.139(22)
            Senior
                Convertible Promissory Bridge Note, dated December 7, 2005, issued
                to
                North Sound Legacy International Ltd.10.140(22)
            Warrant
                to Purchase Shares of Common Stock, dated December 7, 2005, issued
                to
                North Sound Legacy Institutional Fund LLC.10.141(22)
            Warrant
                to Purchase Shares of Common Stock, dated December 7, 2005, issued
                to
                North Sound Legacy International Ltd.10.142(22)
            Security
                Agreement, dated December 7, 2005, between Wave Wireless Corporation
                and
                North Sound Legacy Institutional Fund LLC.10.143*
            Letter
              Agreement dated March 22, 2006, between Don Meiners and Wave Wireless
              Corporation.10.144*
            Letter
              Agreement dated March 22, 2006, between Daniel W. Rumsey  and Wave
              Wireless Corporation.





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          61
          -




21.1(23)
            Subsidiaries23.1
            Consent
                of Aidman, Piser & Company, P.A.31.1
            Rule
                13a-14(a)/15d-14(a) Certification31.2
            Rule
                13a-14(a)/15d-14(a) Certification32.1
            Section
                1350 Certification32.2
            Section
                1350 Certification








*
            Compensatory
                benefit arrangement.





(1)
            Incorporated
                by reference to the exhibits filed as part of Wave Wireless’ Registration
                Statement on Form S-4 (File No. 333-13157), declared effective with
                the
                Securities and Exchange Commission on February 13,
                2006.(2)
            Incorporated
                by reference to Exhibit 3.2C of Wave Wireless’ Form 8-A/A filed with the
                Securities and Exchange Commission on December 22,
                1998.(3)
            Incorporated
                by reference to Exhibits 4.1 through 4.3 to Wave Wireless’ Current Report
                on Form 8-K filed with the Securities and Exchange Commission on
                June 7,
                2005.(4)
            Incorporated
                by reference to the exhibits filed as part of Wave Wireless’ Registration
                Statement on Form S-1 (File No. 33-88492), declared effective with
                the
                Securities and Exchange Commission on March 2, 1995.(5)
            Incorporated
                by reference to Exhibit 4.10 to Wave Wireless’ Form 8-A/A, filed with the
                Securities and Exchange Commission on May 7, 2001.(6)
            Incorporated
                by reference to Exhibit 99.1 to Wave Wireless’ Registration Statement on
                Form S-8 (File No. 333-55604), filed with the Securities and Exchange
                Commission on February 14, 2001.(7)
            Incorporated
                by reference to Exhibit 99.1 to Wave Wireless’ Registration Statement on
                Form S-8 (File No. 333-63762), filed with the Securities and Exchange
                Commission on June 25, 2001.(8)
            Incorporated
                by reference to Appendix A attached to Wave Wireless’ Schedule 14A filed
                with the Securities and Exchange Commission on September 13,
                2004.(9)
            Incorporated
                by reference to the exhibits filed as part of Wave Wireless’ Current
                Report on Form 8-K, filed with the Securities and Exchange Commission
                on
                January 25, 2000.(10)
            Incorporated
                by reference to Exhibit 10.92 to Wave Wireless’ Current Report on Form
                8-K, filed with the Securities and Exchange Commission on June 26,
                2002.(11)
            Incorporated
                by reference to the exhibits filed as part of Wave Wireless’ Annual Report
                on Form 10-K for the fiscal year ended December 31,
                2003.(12)
            Incorporated
                by reference to Exhibit 99.1 to Wave Wireless’ Registration Statement on
                Form S-8 (File No. 333-120455) filed with the Securities and Exchange
                Commission on November 12, 2004.(13)
            Incorporated
                by reference to Exhibits 10.1 through 10.6 to Wave Wireless’ Current
                Report on Form 8-K filed with the Securities and Exchange Commission
                on
                May 6, 2005.(14)
            Incorporated
                by reference to Exhibits 10.1 and 10.2 to Wave Wireless’ Current Report on
                Form 8-K filed with the Securities and Exchange Commission on June
                7,
                2005.(15)
            Incorporated
                by reference to Exhibits 4.1, 10.1 and 10.2 to Wave Wireless’ Current
                Report on Form 8-K filed with the Securities and Exchange Commission
                on
                July 5, 2005.(16)
            Incorporated
                by reference to Exhibit 99.1 to Wave Wireless’ Current Report on Form 8-K
                filed with the Securities and Exchange Commission on July 14,
                2005.(17)
            Incorporated
                by reference to Exhibit 10.3 to Wave Wireless’ Quarterly Report on Form
                10-Q filed with the Securities and Exchange Commission on August
                10,
                2005.(18)
            Incorporated
                by reference to Exhibit 10.1 to Wave Wireless’ Current Report on Form 8-K
                filed with the Securities and Exchange Commission on September 21,
                2005.(19)
            Incorporated
                by reference to Exhibits 10.1 and 10.2 to Wave Wireless’ Current Report on
                Form 8-K filed with the Securities and Exchange Commission on September
                22, 2005.(20)
            Incorporated
                by reference to Exhibits 10.1 and 10.2 to Wave Wireless’ Current Report on
                Form 8-K filed with the Securities and Exchange Commission on October
                21,
                2005.(21)
            Incorporated
                by reference to Exhibit 10.1 to Wave Wireless’ Current Report on Form 8-K
                filed with the Securities and Exchange Commission on November 10,
                2005.(22)
            Incorporated
                by reference to Exhibits 10.1 through 10.7 to Wave Wireless’ Current
                Report on Form 8-K filed with the Securities and Exchange Commission
                on
                December 12, 2005.(23)
            Incorporated
                by reference to Exhibit 21.1 to Wave Wireless’ Annual Report on Form
                10-K/A filed with the Securities and Exchange Commission on May 13,
                2005







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