##### Table of Contents









UNITED STATES SECURITIES AND EXCHANGE
COMMISSION

Washington, D.C. 20549


Form 10-Q

|   |  |                                                                                              
|-- |  | ---------------------------------------------------------------------------------------------
|þ  |  | QUARTERLY REPORT PURSUANT TO SECTION 13
    OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. 
|  
|   |  | For the quarterly period ended October 1,
    2004                                           
|  
|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 000-30993

Proxim Corporation

(Exact name of registrant as specified in its
charter)


|                         |  |                                         
|------------------------ |  | ----------------------------------------
|Delaware                 |  | 52-2198231                              
|(State of Incorporation) |  | (I.R.S. Employer
    Identification No.)

935 Stewart Drive

Sunnyvale, California 94085


(408) 731-2700


(Address, including zip code, and telephone
number,


including area code, of registrants
principal executive offices)


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

Indicate by check mark whether the registrant is
an accelerated filer (as defined in Rule 12b-2 of the
Exchange
Act).     Yes þ          No o

The number of shares outstanding of the
Companys Class A common stock, par value
$.01 per share, as of November 3, 2004, was
28,753,958. No shares of the Companys Class B common
stock, par value $.01 per share, are outstanding.



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TABLE OF CONTENTS






|                                   |  |                                                                                           |    |                                                                                                                                                           |    |  |   | 
|---------------------------------- |  | ----------------------------------------------------------------------------------------- | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------- | -- |  | - | 
|                                   |  |                                                                                           |    | Page                                                                                                                                                     
|                                   |  |                                                                                           |    |                                                                                                                                                          
|PART I.  FINANCIAL
    INFORMATION
|Item 1.                            |  | Financial Statements                                                                      |    |                                                                                                                                                           | 2  | 
|                                   |  |                                                                                           |    | Condensed Consolidated
    Balance Sheets at October 1, 2004 and December 31,
    2003 (unaudited)                                                        |    |  | 2 | 
|                                   |  |                                                                                           |    | Condensed Consolidated
    Statements of Operations for the three months and nine months
    ended October 1, 2004 and September 26, 2003
    (unaudited) |    |  | 3 | 
|                                   |  |                                                                                           |    | Condensed Consolidated
    Statements of Cash Flows for the nine months ended
    October 1, 2004 and September 26, 2003 (unaudited)                      |    |  | 4 | 
|                                   |  |                                                                                           |    | Notes to Condensed
    Consolidated Financial Statements (unaudited)                                                                                      |    |  | 5 | 
|Item 2.                            |  | Managements Discussion
    and Analysis of Financial Condition and Results of Operations |    |                                                                                                                                                           | 29 | 
|Item 3.                            |  | Quantitative and Qualitative
    Disclosures About Market Risk                            |    |                                                                                                                                                           | 65 | 
|Item 4.                            |  | Controls and Procedures                                                                   |    |                                                                                                                                                           | 66 | 
|PART II.  OTHER
    INFORMATION   
|Item 1.                            |  | Legal Proceedings                                                                         |    |                                                                                                                                                           | 66 | 
|Item 6.                            |  | Exhibits                                                                                  |    |                                                                                                                                                           | 68 | 
|Signatures                         |  |                                                                                           | 69 |                                                                                                                                                          
|Index to Exhibits                  |  |                                                                                           |    |                                                                                                                                                          
|EXHIBIT 10.68                     
|EXHIBIT 10.70                     
|EXHIBIT 10.71                     
|EXHIBIT 10.72                     
|EXHIBIT 10.73                     
|EXHIBIT 10.74                     
|EXHIBIT 10.75                     
|EXHIBIT 10.76                     
|EXHIBIT 10.77                     
|EXHIBIT 31.1                      
|EXHIBIT 31.2                      
|EXHIBIT 32.1                      
|EXHIBIT 32.2                      



1



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##### Table of Contents






PART I.     FINANCIAL
INFORMATION






|        |                     
|------- | --------------------
|Item 1. | Financial Statements

PROXIM CORPORATION



CONDENSED CONSOLIDATED BALANCE
SHEETS


|                                                                                                  |                                                                                                                                                                                                 |                                                                                                     |        |              |          |   |        |          |         |  
|------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------- | ------ | ------------ | -------- | - | ------ | -------- | ------- | -
|                                                                                                  |                                                                                                                                                                                                 | October 1,                                                                                          |        | December 31,
|                                                                                                  |                                                                                                                                                                                                 | 2004                                                                                                |        | 2003        
|                                                                                                  |                                                                                                                                                                                                 |                                                                                                     |        |             
|                                                                                                  |                                                                                                                                                                                                 |                                                                                                    
|                                                                                                  |                                                                                                                                                                                                 | (In thousands, except share                                                                        
|                                                                                                  |                                                                                                                                                                                                 | and per share data)                                                                                
|                                                                                                  |                                                                                                                                                                                                 |                                                                                                    
|                                                                                                  |                                                                                                                                                                                                 | (Unaudited)                                                                                        
|ASSETS                                                                                           
|Current assets:                                                                                   |                                                                                                                                                                                                 |                                                                                                     |        |              |          |   |        |         
|                                                                                                  | Cash and cash equivalents                                                                                                                                                                       |                                                                                                     | $      | 18,313       |          |   | $      | 19,756   |        
|                                                                                                  | Accounts receivable, net                                                                                                                                                                        |                                                                                                     |        | 8,859        |          |   |        | 13,961   |        
|                                                                                                  | Inventory                                                                                                                                                                                       |                                                                                                     |        | 15,804       |          |   |        | 19,939   |        
|                                                                                                  | Other current assets                                                                                                                                                                            |                                                                                                     |        | 4,803        |          |   |        | 5,301    |        
|                                                                                                  |                                                                                                                                                                                                 |                                                                                                     |        |              |          |   |        |         
|                                                                                                  |                                                                                                                                                                                                 | Total current assets                                                                                |        |              | 47,779   |   |        |          | 58,957  |  
|Property and equipment, net                                                                       |                                                                                                                                                                                                 |                                                                                                     | 6,078  |              |          |   | 7,522  |         
|Goodwill                                                                                          |                                                                                                                                                                                                 |                                                                                                     | 9,726  |              |          |   | 9,726  |         
|Intangible assets, net                                                                            |                                                                                                                                                                                                 |                                                                                                     | 25,657 |              |          |   | 40,333 |         
|Restricted cash                                                                                   |                                                                                                                                                                                                 |                                                                                                     | 770    |              |          |   | 1,254  |         
|Other assets                                                                                      |                                                                                                                                                                                                 |                                                                                                     | 430    |              |          |   | 2,316  |         
|                                                                                                  |                                                                                                                                                                                                 |                                                                                                     |        |              |          |   |        |         
|                                                                                                  |                                                                                                                                                                                                 | Total assets                                                                                        |        | $            | 90,440   |   |        | $        | 120,108 |  
|                                                                                                  |                                                                                                                                                                                                 |                                                                                                     |        |              |          |   |        |         
|LIABILITIES, MANDATORILY REDEEMABLE
    CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS
    DEFICIT
|Current liabilities:                                                                              |                                                                                                                                                                                                 |                                                                                                     |        |              |          |   |        |         
|                                                                                                  | Accounts payable                                                                                                                                                                                |                                                                                                     | $      | 7,932        |          |   | $      | 10,500   |        
|                                                                                                  | Capital lease obligations, current                                                                                                                                                              |                                                                                                     |        | 1,144        |          |   |        | 1,176    |        
|                                                                                                  | Accrued royalties and interest                                                                                                                                                                  |                                                                                                     |        | 9,523        |          |   |        | 26,906   |        
|                                                                                                  | Other accrued liabilities                                                                                                                                                                       |                                                                                                     |        | 20,328       |          |   |        | 20,804   |        
|                                                                                                  | Convertible bridge loan                                                                                                                                                                         |                                                                                                     |        | 10,000       |          |   |        |         |        
|                                                                                                  | Convertible promissory notes                                                                                                                                                                    |                                                                                                     |        |             |          |   |        | 34,735   |        
|                                                                                                  |                                                                                                                                                                                                 |                                                                                                     |        |              |          |   |        |         
|                                                                                                  |                                                                                                                                                                                                 | Total current liabilities                                                                           |        |              | 48,927   |   |        |          | 94,121  |  
|Capital lease obligations, long-term                                                              |                                                                                                                                                                                                 |                                                                                                     | 116    |              |          |   | 934    |         
|Accrued royalties, long-term                                                                      |                                                                                                                                                                                                 |                                                                                                     | 8,805  |              |          |   |       |         
|Long-term debt                                                                                    |                                                                                                                                                                                                 |                                                                                                     | 101    |              |          |   | 101    |         
|Restructuring accruals, long-term                                                                 |                                                                                                                                                                                                 |                                                                                                     | 7,823  |              |          |   | 8,660  |         
|Common stock warrants                                                                             |                                                                                                                                                                                                 |                                                                                                     | 5,500  |              |          |   | 21,800 |         
|                                                                                                  |                                                                                                                                                                                                 |                                                                                                     |        |              |          |   |        |         
|                                                                                                  |                                                                                                                                                                                                 | Total liabilities                                                                                   |        |              | 71,272   |   |        |          | 125,616 |  
|                                                                                                  |                                                                                                                                                                                                 |                                                                                                     |        |              |          |   |        |         
|Commitments and contingencies (Notes 15 and
    17)                                               |                                                                                                                                                                                                 |                                                                                                     |        |              |          |   |        |         
|Mandatorily redeemable convertible preferred
    stock:                                           |                                                                                                                                                                                                 |                                                                                                     |        |              |          |   |        |         
|                                                                                                  | Series A: 25,000,000 shares authorized;
    par value $.01; 3,000,000 shares issued and outstanding at
    October 1, 2004 and December 31, 2003, respectively                                  |                                                                                                     |        | 80,749       |          |   |        | 73,580   |        
|                                                                                                  | Series B: 540,000 shares authorized;
    par value $.01; 490,599 shares issued and outstanding at
    October 1, 2004, no shares issued and outstanding at
    December 31, 2003                |                                                                                                     |        | 49,703       |          |   |        |         |        
|                                                                                                  |                                                                                                                                                                                                 |                                                                                                     |        |              |          |   |        |         
|                                                                                                  |                                                                                                                                                                                                 | Total mandatorily redeemable convertible
    preferred stock                                        |        |              | 130,452  |   |        |          | 73,580  |  
|                                                                                                  |                                                                                                                                                                                                 |                                                                                                     |        |              |          |   |        |         
|Stockholders deficit:                                                                            |                                                                                                                                                                                                 |                                                                                                     |        |              |          |   |        |         
|                                                                                                  | Common stock, Class A, par value $.01;
    authorized 39,000,000 shares: 16,572,511 and
    16,503,719 shares issued and outstanding at October 1,
    2004 and December 31, 2003, respectively |                                                                                                     |        | 166          |          |   |        | 165      |        
|                                                                                                  | Common stock, Class B, par value $.01;
    authorized 1,000,000 shares: no shares issued and
    outstanding at October 1, 2004 and December 31, 2003,
    respectively                         |                                                                                                     |        |             |          |   |        |         |        
|                                                                                                  | Additional paid-in capital                                                                                                                                                                      |                                                                                                     |        | 340,589      |          |   |        | 340,796  |        
|                                                                                                  | Treasury stock, at cost; 4,218,553 shares at
    October 1, 2004 and December 31, 2003                                                                                                          |                                                                                                     |        | (21,585      | )        |   |        | (21,585  | )      
|                                                                                                  | Notes receivable from stockholders                                                                                                                                                              |                                                                                                     |        | (711         | )        |   |        | (711     | )      
|                                                                                                  | Accumulated deficit                                                                                                                                                                             |                                                                                                     |        | (429,743     | )        |   |        | (397,753 | )      
|                                                                                                  |                                                                                                                                                                                                 |                                                                                                     |        |              |          |   |        |         
|                                                                                                  |                                                                                                                                                                                                 | Total stockholders deficit                                                                         |        |              | (111,284 | ) |        |          | (79,088 | )
|                                                                                                  |                                                                                                                                                                                                 |                                                                                                     |        |              |          |   |        |         
|                                                                                                  |                                                                                                                                                                                                 | Total liabilities, mandatorily redeemable
    convertible preferred stock and stockholders deficit |        | $            | 90,440   |   |        | $        | 120,108 |  
|                                                                                                  |                                                                                                                                                                                                 |                                                                                                     |        |              |          |   |        |         

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

2



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##### Table of Contents



PROXIM CORPORATION



CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS


|                                                                               |                                      |                                       |        |                   |        |            |         |               |        |   |         |        |        |   |         |        |         |  
|------------------------------------------------------------------------------ | ------------------------------------ | ------------------------------------- | ------ | ----------------- | ------ | ---------- | ------- | ------------- | ------ | - | ------- | ------ | ------ | - | ------- | ------ | ------- | -
|                                                                               |                                      |                                       |        |                  
|                                                                               |                                      | Three Months Ended                    |        | Nine Months Ended
|                                                                               |                                      |                                       |        |                  
|                                                                               |                                      | October 1,                            |        | September 26,     |        | October 1, |         | September 26,
|                                                                               |                                      | 2004                                  |        | 2003              |        | 2004       |         | 2003         
|                                                                               |                                      |                                       |        |                   |        |            |         |              
|                                                                               |                                      |                                      
|                                                                               |                                      | (In thousands, except per share data)
|                                                                               |                                      | (Unaudited)                          
|Product revenue, net                                                           |                                      | $                                     | 31,526 |                   |        | $          | 35,058  |               |        | $ | 89,640  |        |        | $ | 103,892 |       
|License revenue                                                                |                                      |                                       |       |                   |        |            |        |               |        |   |        |        |        |   | 6,000   |       
|                                                                               |                                      |                                       |        |                   |        |            |         |               |        |   |         |        |        |   |         |       
|                                                                               |                                      | Total revenue, net                    |        |                   | 31,526 |            |         |               | 35,058 |   |         |        | 89,640 |   |         |        | 109,892 |  
|Cost of revenue                                                                |                                      |                                       | 19,275 |                   |        |            | 22,041  |               |        |   | 56,792  |        |        |   | 64,670  |       
|Royalty charges (benefit)                                                      |                                      |                                       | (4,796 | )                 |        |            | 22,869  |               |        |   | (3,179  | )      |        |   | 22,869  |       
|Restructuring provision for excess and obsolete
    inventory                  |                                      |                                       |       |                   |        |            |        |               |        |   |        |        |        |   | 22,549  |       
|                                                                               |                                      |                                       |        |                   |        |            |         |               |        |   |         |        |        |   |         |       
|                                                                               |                                      | Gross profit (loss)                   |        |                   | 17,047 |            |         |               | (9,852 | ) |         |        | 36,027 |   |         |        | (196    | )
|Operating expenses:                                                            |                                      |                                       |        |                   |        |            |         |               |        |   |         |        |        |   |         |       
|                                                                               | Research and development             |                                       |        | 4,748             |        |            |         | 4,915         |        |   |         | 14,160 |        |   |         | 19,032 |        
|                                                                               | Selling, general and administrative  |                                       |        | 11,497            |        |            |         | 13,179        |        |   |         | 34,095 |        |   |         | 37,720 |        
|                                                                               | Legal expense for certain litigation |                                       |        | 105               |        |            |         | 1,700         |        |   |         | 1,050  |        |   |         | 5,700  |        
|                                                                               | Amortization of intangible assets    |                                       |        | 3,948             |        |            |         | 5,364         |        |   |         | 14,676 |        |   |         | 16,229 |        
|                                                                               | Bad debt expense                     |                                       |        |                  |        |            |         | 2,305         |        |   |         |       |        |   |         | 2,305  |        
|                                                                               | Restructuring charges (benefit)      |                                       |        |                  |        |            |         | (5,194        | )      |   |         | 2,029  |        |   |         | 7,298  |        
|                                                                               |                                      |                                       |        |                   |        |            |         |               |        |   |         |        |        |   |         |       
|                                                                               |                                      | Total operating expenses              |        |                   | 20,298 |            |         |               | 22,269 |   |         |        | 66,010 |   |         |        | 88,284  |  
|                                                                               |                                      |                                       |        |                   |        |            |         |               |        |   |         |        |        |   |         |       
|Loss from operations                                                           |                                      |                                       | (3,251 | )                 |        |            | (32,121 | )             |        |   | (29,983 | )      |        |   | (88,480 | )     
|Interest income (expense), net                                                 |                                      |                                       | 2,191  |                   |        |            | (4,192  | )             |        |   | (3,244  | )      |        |   | (4,285  | )     
|Other income (expense), net                                                    |                                      |                                       | (242   | )                 |        |            | (242    | )             |        |   | 7,471   |        |        |   | (242    | )     
|                                                                               |                                      |                                       |        |                   |        |            |         |               |        |   |         |        |        |   |         |       
|Loss before income taxes                                                       |                                      |                                       | (1,302 | )                 |        |            | (36,555 | )             |        |   | (25,756 | )      |        |   | (93,007 | )     
|Income tax provision                                                           |                                      |                                       | 203    |                   |        |            |        |               |        |   |        |        |        |   |        |       
|                                                                               |                                      |                                       |        |                   |        |            |         |               |        |   |         |        |        |   |         |       
|Net loss                                                                       |                                      |                                       | (1,505 | )                 |        |            | (36,555 | )             |        |   | (25,756 | )      |        |   | (93,007 | )     
|Accretion of Series A Preferred Stock
    obligations                          |                                      |                                       | (1,725 | )                 |        |            | (1,596  | )             |        |   | (5,070  | )      |        |   | (4,681  | )     
|Accretion of Series B Preferred Stock
    obligations                          |                                      |                                       | (1,164 | )                 |        |            |        |               |        |   | (1,164  | )      |        |   |        |       
|                                                                               |                                      |                                       |        |                   |        |            |         |               |        |   |         |        |        |   |         |       
|Net loss attributable to common
    stockholders  basic and diluted           |                                      | $                                     | (4,394 | )                 |        | $          | (38,151 | )             |        | $ | (31,990 | )      |        | $ | (97,688 | )     
|                                                                               |                                      |                                       |        |                   |        |            |         |               |        |   |         |        |        |   |         |       
|Net loss per share attributable to common
    stockholders  basic and diluted |                                      | $                                     | (0.36  | )                 |        | $          | (3.13   | )             |        | $ | (2.59   | )      |        | $ | (8.05   | )     
|                                                                               |                                      |                                       |        |                   |        |            |         |               |        |   |         |        |        |   |         |       
|Shares used to compute net loss per
    share  basic and diluted              |                                      |                                       | 12,349 |                   |        |            | 12,199  |               |        |   | 12,336  |        |        |   | 12,132  |       
|                                                                               |                                      |                                       |        |                   |        |            |         |               |        |   |         |        |        |   |         |       

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

3



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##### Table of Contents



PROXIM CORPORATION



CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS


|                                                 |                                                                                 |                                                               |                                           |               |        |         |        |         |         |         |  
|------------------------------------------------ | ------------------------------------------------------------------------------- | ------------------------------------------------------------- | ----------------------------------------- | ------------- | ------ | ------- | ------ | ------- | ------- | ------- | -
|                                                 |                                                                                 |                                                              
|                                                 |                                                                                 | Nine Months Ended                                            
|                                                 |                                                                                 |                                                              
|                                                 |                                                                                 | October 1,                                                    |                                           | September 26,
|                                                 |                                                                                 | 2004                                                          |                                           | 2003         
|                                                 |                                                                                 |                                                               |                                           |              
|                                                 |                                                                                 |                                                              
|                                                 |                                                                                 | (In thousands)                                               
|                                                 |                                                                                 | (Unaudited)                                                  
|Cash flows from operating activities:            |                                                                                 |                                                               |                                           |               |        |         |        |        
|                                                 | Net loss                                                                        |                                                               | $                                         | (25,756       | )      |         | $      | (93,007 | )      
|                                                 | Adjustments to reconcile net loss to net cash
    used in operating activities: |                                                               |                                           |               |        |         |        |         |        
|                                                 | Depreciation and amortization                                                   |                                                               |                                           | 16,375        |        |         |        | 18,669  |        
|                                                 | Amortization of warrants issued to customer                                     |                                                               |                                           | 522           |        |         |        |        |        
|                                                 | Provision for excess and obsolete inventory and
    lower of cost or market     |                                                               |                                           | 1,723         |        |         |        |        |        
|                                                 | Restructuring provision for excess and obsolete
    inventory                   |                                                               |                                           |              |        |         |        | 22,549  |        
|                                                 | Bad debt expense                                                                |                                                               |                                           |              |        |         |        | 2,305   |        
|                                                 | Restructuring charges (benefit)                                                 |                                                               |                                           | 2,029         |        |         |        | (2,668  | )      
|                                                 | Loss on disposal of property and equipment                                      |                                                               |                                           | 350           |        |         |        |        |        
|                                                 | Amortization of debt discount on convertible
    notes and issuance costs       |                                                               |                                           | 8,171         |        |         |        |        |        
|                                                 | Revaluation of common stock warrants                                            |                                                               |                                           | (16,300       | )      |         |        |        |        
|                                                 | Changes in assets and liabilities:                                              |                                                               |                                           |               |        |         |        |         |        
|                                                 |                                                                                 | Accounts receivable, net                                      |                                           |               | 5,102  |         |        |         | 10,821  |        
|                                                 |                                                                                 | Inventory                                                     |                                           |               | 2,412  |         |        |         | (10,687 | )      
|                                                 |                                                                                 | Restricted cash and other assets, current and
    non-current |                                           |               | 190    |         |        |         | 1,946   |        
|                                                 |                                                                                 | Accounts payable and other accrued liabilities                |                                           |               | 3,360  |         |        |         | 535     |        
|                                                 |                                                                                 | Accrued royalties and interest                                |                                           |               | (8,578 | )       |        |         | 25,819  |        
|                                                 |                                                                                 |                                                               |                                           |               |        |         |        |        
|                                                 |                                                                                 |                                                               | Net cash used in operating activities     |               |        | (10,400 | )      |         |         | (23,718 | )
|                                                 |                                                                                 |                                                               |                                           |               |        |         |        |        
|Cash flows from investing activities:            |                                                                                 |                                                               |                                           |               |        |         |        |        
|                                                 | Purchase of property and equipment                                              |                                                               |                                           | (679          | )      |         |        | (2,873  | )      
|                                                 | Purchase of an asset held for sale                                              |                                                               |                                           |              |        |         |        | (9,966  | )      
|                                                 | Proceeds from repayment of loan to officer                                      |                                                               |                                           |              |        |         |        | 500     |        
|                                                 |                                                                                 |                                                               |                                           |               |        |         |        |        
|                                                 |                                                                                 |                                                               | Net cash used in investing activities     |               |        | (679    | )      |         |         | (12,339 | )
|                                                 |                                                                                 |                                                               |                                           |               |        |         |        |        
|Cash flows from financing activities:            |                                                                                 |                                                               |                                           |               |        |         |        |        
|                                                 | Borrowings on capital lease obligations                                         |                                                               |                                           |              |        |         |        | 1,605   |        
|                                                 | Principal payments on capital lease obligations                                 |                                                               |                                           | (895          | )      |         |        | (539    | )      
|                                                 | Proceeds from repayments of notes receivable from
    stockholders              |                                                               |                                           |              |        |         |        | 187     |        
|                                                 | Proceeds from issuance of convertible promissory
    loan                       |                                                               |                                           |              |        |         |        | 30,000  |        
|                                                 | Proceeds from issuance of bridge note                                           |                                                               |                                           | 10,000        |        |         |        |        |        
|                                                 | Issuance of common stock, net                                                   |                                                               |                                           | 531           |        |         |        | 781     |        
|                                                 |                                                                                 |                                                               |                                           |               |        |         |        |        
|                                                 |                                                                                 |                                                               | Net cash provided by financing activities |               |        | 9,636   |        |         |         | 32,034  |  
|                                                 |                                                                                 |                                                               |                                           |               |        |         |        |        
|Net decrease in cash and cash equivalents        |                                                                                 |                                                               | (1,443                                    | )             |        |         | (4,023 | )      
|Cash and cash equivalents at beginning of period |                                                                                 |                                                               | 19,756                                    |               |        |         | 16,535 |        
|                                                 |                                                                                 |                                                               |                                           |               |        |         |        |        
|Cash and cash equivalents at end of period       |                                                                                 | $                                                             | 18,313                                    |               |        | $       | 12,512 |        
|                                                 |                                                                                 |                                                               |                                           |               |        |         |        |        
|Supplemental disclosures:                        |                                                                                 |                                                               |                                           |               |        |         |        |        
|                                                 | Cash received (paid) during the period for:                                     |                                                               |                                           |               |        |         |        |         |        
|                                                 |                                                                                 |                                                               | Income taxes                              |               | $      |        |        |         | $       | 1,655   |  
|                                                 |                                                                                 |                                                               |                                           |               |        |         |        |        
|                                                 |                                                                                 |                                                               | Interest on capital lease obligations     |               | $      | (54     | )      |         | $       | (51     | )
|                                                 |                                                                                 |                                                               |                                           |               |        |         |        |        
|Non-cash transactions:                           |                                                                                 |                                                               |                                           |               |        |         |        |        
|                                                 | Inception of capital leases                                                     |                                                               | $                                         | 45            |        |         | $      | 1,069   |        
|                                                 |                                                                                 |                                                               |                                           |               |        |         |        |        
|                                                 | Accretion of Series A Preferred Stock
    redemption obligations                |                                                               | $                                         | 7,169         |        |         | $      | 6,846   |        
|                                                 |                                                                                 |                                                               |                                           |               |        |         |        |        
|                                                 | Accretion of Series B Preferred Stock
    redemption obligations                |                                                               | $                                         | 1,164         |        |         | $      |        |        
|                                                 |                                                                                 |                                                               |                                           |               |        |         |        |        
|                                                 | Conversion of convertible promissory notes into
    Series B Preferred Stock    |                                                               | $                                         | 49,060        |        |         | $      |        |        
|                                                 |                                                                                 |                                                               |                                           |               |        |         |        |        

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

4



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##### Table of Contents



PROXIM CORPORATION



NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS


(Unaudited)


Note 1  The Company

Proxim Corporation (the Company) is
the company created by the merger of Proxim, Inc. and Western
Multiplex Corporation, or Western Multiplex. On March 26,
2002, Western Multiplex merged with Proxim, Inc. located in
Sunnyvale, California which designs, manufactures and markets
high performance wireless local area networking, or WLAN, and
building-to-building network products based on radio frequency,
or RF, technology and changed its name to Proxim Corporation. On
August 5, 2002, the Company completed the acquisition of
the 802.11 WLAN systems business of Agere Systems, Inc., or
Agere, including its ORiNOCO product line. In accordance with
accounting principles generally accepted in the United States of
America, the results of operations for the periods presented
include the results of the merged or acquired businesses
beginning from the respective dates of completion of the
business combinations.



| |                   
| | ------------------
| | Significant Events



| |                                          
| | -----------------------------------------
| | Capital Restructuring and Bridge
    Loan

On July 27, 2004, the Company entered into
an agreement (the Purchase Agreement) with its
strategic investors, Warburg Pincus Private Equity VIII, L.P.,
BCP Capital, L.P. (formerly known as Broadview Capital Partners,
L.P.) and affiliates (collectively, the Investors)
to restructure their equity instruments and debt holdings in the
Company. Pursuant to the terms of the Purchase Agreement, on
July 30, 2004, the Investors exchanged the
$49.0 million in aggregate amount of secured convertible
promissory notes, including accrued but unpaid interest of
$9.0 million, into shares of Series B Preferred Stock,
in accordance with the existing terms and conditions of the
secured convertible promissory notes, as described in
Note 12. The exchange relieved the Company of the
requirement to repay the notes on their maturity date of
September 30, 2004.

On July 30, 2004, the Company received
$10.0 million in cash proceeds from the Investors in
exchange for a new convertible bridge note (the Bridge
Loan) pursuant to the Purchase Agreement. The secured
convertible Bridge Loan bears interest at 15 percent per
annum and is due on June 30, 2005. In accordance with the
terms of the Bridge Loan, all principal and accrued interest
will convert into Class A common stock and/or warrants to
purchase Class A common stock, at the same price and upon the
same terms and conditions offered to other investors, if prior
to June 30, 2005 the Company closes a financing transaction
with gross proceeds of $20.0 million or more through a sale
of its Class A common stock and/or warrants to purchase Class A
common stock. If such a financing transaction does not occur,
the Bridge Loan becomes due and payable by its terms on
June 30, 2005.

Pursuant to the Purchase Agreement, subject to
the approval of the Companys stockholders, the Investors
also agreed to surrender all of their Series A Preferred
Stock, all of their Series B Preferred Stock and all of
their warrants to purchase the Companys Class A common
stock in exchange for an aggregate of 16.4 million shares
of Class A common stock and 400,000 shares of the
Companys newly issued Series C Preferred Stock (the
Exchange).

At a special meeting of stockholders held on
October 21, 2004, the Companys stockholders approved
the above Exchange. On October 22, 2004, the Exchange
closed and the Investors surrendered all of their Series A
Preferred Stock, all of their Series B Preferred Stock and
all of their warrants to purchase the Companys Class A
common stock for Class A common stock and Series C
Preferred Stock as described above.

Subsequent to the issuance of the
16.4 million shares of Class A common stock to the
Investors in the Exchange, Warburg Pincus Private Equity VIII,
L.P. owned 14,213,333 shares of the Companys common
stock representing approximately 49.4 percent of the
Companys outstanding common stock based on
12,353,958 shares outstanding as of October 21, 2004.
BCP Capital, LP. and affiliates owned 2,186,666 shares

5



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##### Table of Contents



PROXIM CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

of Class A common stock representing
approximately 7.6 percent of the Companys outstanding
common stock based on 12,353,958 shares outstanding as of
October 21, 2004. On a fully accreted basis, the
Investors holdings before the Exchange would have been
convertible and exercisable for 19,977,193 shares of the
Companys Class A common stock, representing approximately
61.8% of the Companys common stock based on
12,353,958 shares outstanding as of October 21, 2004.
Accordingly, by virtue of the Exchange, the Investors
holdings were reduced by 3,577,193 shares or 17.9% on a
fully accreted, as-converted and as-exercised basis.

The Series C Preferred Stock issued to the
Investors is a mandatorily redeemable and nonvoting security and
is not convertible into common stock or any other equity
security at any time. This new long-term equity instrument is
not required to be repaid in cash until it is due on
October 22, 2012, except in the event of a change in
control or liquidation or other specified event. Further, the
Series C Preferred Stock has an initial liquidation
preference of $100 per share, or $40 million in
aggregate. The liquidation preference on the Series C
Preferred Stock accretes at 8.75 percent per annum,
compounded quarterly, and is required to be repaid by the
Company at the fully accreted value of approximately
$80 million on October 22, 2012. In addition, the
Series C Preferred Stock shall be automatically redeemed at
its fully accreted value in the event of an earlier change in
control of the Company.

The terms of the agreement also provide that the
Company may redeem the Series C Preferred Stock at any time
within the first three years after the date of issuance at its
then accreted liquidation preference if the market price of the
Companys Class A common stock on the Nasdaq National
Market remains above $22.50 for a period of 45 consecutive
trading days, such prices being subject to certain adjustments.
After the third anniversary of the date of issuance, the Company
may redeem the Series C Preferred Stock at any time at its
then accreted liquidation preference, if the market price of the
Companys Class A common stock on the Nasdaq National
Market has remained above $20.00 for a period of 45 consecutive
trading days, such prices being subject to certain.

The Exchange transaction is being evaluated in
accordance with EITF D-42, The Effect on the
Calculation of Earnings Per Share for Redemption or Induced
Conversion of Preferred Stock. Accordingly, the excess of
the fair value of the Class A common stock issued in the
transaction to the holders of the preferred stock over the fair
value of the securities issuable pursuant to the original
conversion terms will be treated as a charge to increase net
loss to arrive at net loss attributable to common stockholders
in the calculation of net loss per share attributable to common
stockholders. The Company is currently in the process of
completing its computation of the actual charge and expects the
charge to be recorded in the quarter ending December 31,
2004.



| |                             
| | ----------------------------
| | Symbol Litigation Settlement

On September 13, 2004 the Company entered
into a Settlement Agreement and a Patent Cross License Agreement
with Symbol Technologies, Inc. (Symbol) and assigned
certain intellectual property to Symbol resolving all
outstanding litigation.

Under the terms of the Settlement Agreement, the
Company agreed to pay Symbol $22.75 million dollars over
Proxims ensuing ten quarters, commencing with the quarter
ending October 1, 2004. The Settlement Agreement provides
for lump sum payments of $2.5 million per quarter in each
of the first eight quarters, a payment of $1.5 million in
the ninth quarter, and a payment of $1.25 million in the
tenth quarter. If at any point during the term of the Settlement
Agreement, the Company fails to make any of these payments
within 30 days after Symbol has notified the Company of its
failure to pay, Symbol shall have the right to demand immediate
payment in the amount of $25,917,669, minus payments made under
the agreement and plus applicable interest.

6



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##### Table of Contents



PROXIM CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Under the terms of the Patent Cross License
Agreement, Symbol and the Company have agreed to cross license
certain patents, and the Company has agreed to pay to Symbol a
two percent royalty on sales of certain of the Companys
wireless LAN products. If the Company fails to make any of the
lump sum payments due under the Settlement Agreement over the
next ten quarters and fails to cure any such missed payment
within 30 days thereafter, the Patent Cross License
Agreement provides that the royalty rate payable to Symbol on
sales of certain of the Companys wireless LAN products
covered by the agreement shall increase to five percent until
the required payments as set forth in the Settlement Agreement
have been made. Also pursuant to the terms of the Patent Cross
License Agreement, the Company and Symbol have entered into a
covenant not to sue one another for patent infringement with
respect to one anothers products through
September 13, 2009.

Since the date of the initial jury award of the
patent infringement suit in September 2003, the Company had
recorded an accrual for estimated past royalties of
$22.9 million and interest of $3.0 million covering
the period from 1995 through September 2003 plus total potential
royalties and interest of $2.8 million covering the period
from October 2003 to July 2, 2004. As a result of the
Settlement Agreement, the Company recorded a non-cash reversal
of royalty charges of $4.8 million and interest expense of
$3.2 million, totaling $8.0 million during the quarter
ended October 1, 2004. This reversal is the difference
between the net present value of the $22.75 million
settlement and the accrued liability related to the litigation
of $28.7 million, which was recorded in the Companys
balance sheet prior to the litigation settlement. The initial
net present value of the settlement payment was
$20.69 million. At October 1, 2004 the net present
value was $18.3 million which is included in the balance
sheet captions Accrued royalties and interest and
Accrued royalties, long-term. The difference between
the balance at October 1, 2004 and the sum of the periodic
payments will be accreted, using the effective interest rate
method, over the payment period as periodic charges to interest
expense.



| |                                                    
| | ---------------------------------------------------
| | Deficiency Notice from Nasdaq Stock Market
    Inc.

On August 30, 2004, the Company received a
letter from The Nasdaq Stock Market, Inc. (Nasdaq)
notifying it that for the 30 consecutive trading days preceding
the date of the letter, the bid price of the Companys
Class A common stock had closed below the $1.00 per share
minimum required for continued inclusion on the Nasdaq National
Market pursuant to Nasdaq Marketplace Rule 4450(b)(4). The
letter further notified the Company that, in accordance with
Nasdaq marketplace Rule 4450(e)(2), the Company would be
provided 180 calendar days, or until February 28, 2005, to
regain compliance with the minimum bid price requirement.
Compliance will be achieved if the bid price per share of the
Companys Class A common stock closes at $1.00 per
share or greater for a minimum of ten (10) consecutive days
prior to February 28, 2005.

In an attempt to increase the market price of the
Companys Class A common stock to over $1.00 per
share, the Companys stockholders approved the one-for-ten
reverse stock split, which became effective on October 25,
2004. On November 8, 2004, the Company received a letter
from Nasdaq indicating that the Company had regained compliance
with Nasdaq Marketplace Rule 4450(b)(4) because the
Companys Class A common stock had closed at a bid
price greater than $1.00 for at least 10 consecutive business
days. In the letter of November 8, 2004, Nasdaq declared
the matter closed.



| |                             
| | ----------------------------
| | Shelf Registration Statement

On October 26, 2004 the Company filed a
Registration Statement on Form S-3 with the Securities and
Exchange Commission (the SEC) using a shelf
registration process. Under this shelf registration, which
became effective on November 8, 2004, the Company may sell
any combination of securities described in the prospectus
accompanying the filing in one or more offerings with a total
value of up to $50 million.

7



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##### Table of Contents



PROXIM CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |                
| | ---------------
| | Credit Facility

The Company amended and restated its secured
financing agreements with Silicon Valley Bank (the
Lender) in June and July 2003 and then further
amended these agreements in October 2003, July 2004 and October
2004. The requirement pursuant to the terms of the credit
facility that the Company maintain cash and cash equivalents of
an amount not less than $8 million was reduced to
$4 million pursuant to the terms of the foregoing
amendments. See Note 16 for further description of the
amended credit facility.



| |          
| | ---------
| | Liquidity

The Companys revenue declined from
$109.9 million for the nine months ended September 26,
2003 to $89.6 million for the nine months ended
October 1, 2004, and the Company has incurred substantial
losses and negative cash flows from operations during the nine
months ended October 1, 2004 and the years ended
December 31, 2003, 2002 and 2001. If the Company were not
able to close a financing transaction by June 30, 2005 with
gross proceeds of $20.0 million or more through a sale of
its Class A common stock and/or warrants to purchase
Class A common stock in accordance with the securities
purchase agreement dated July 27, 2004, the Company would
be required to repay the convertible Bridge Loan.

If the Company were required to repay the
convertible Bridge Loan and if it sustains continued significant
negative cash flows from its operations, it could be required to
obtain alternative sources of financing. If the Company were not
able to obtain such alternative sources of financing, it might
have insufficient cash to pay these obligations, be unable to
meet its ongoing operating obligations as they come due in the
ordinary course of business, and would have to seek protection
under applicable bankruptcy laws. These matters raise
substantial doubt about the Companys ability to continue
as a going concern. These consolidated financial statements do
not include any adjustments that might result from this
uncertainty.



| |                        
| | -----------------------
| | Risks and Uncertainties

The Company depends on single or limited source
suppliers for several key components used in the Companys
products. The Company depends on single sources for proprietary
application specific integrated circuits, or ASICs, and
assembled circuit boards for these products. Any disruptions in
the supply of these components or assemblies could delay or
decrease the Companys revenues. In addition, even for
components with multiple sources, there have been, and may
continue to be, shortages due to capacity constraints caused by
high demand. The Company does not have any long-term
arrangements with any suppliers.

The Company relies on contract and subcontract
manufacturers for turnkey manufacturing and circuit board
assemblies which subjects the Company to additional risks,
including a potential inability to obtain an adequate supply of
finished assemblies and assembled circuit boards and reduced
control over the price, timely delivery and quality of such
finished assemblies and assembled circuit boards. If the
Companys Sunnyvale facility were to become incapable of
operating, even temporarily, or were unable to operate at or
near the Companys current or full capacity for an extended
period, the Companys business and operating results could
be materially adversely affected.



| |                      
| | ---------------------
| | Basis of Presentation

The accompanying unaudited condensed consolidated
financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of
America for interim financial information and with the
instructions to Form 10-Q and Article 10 of
Regulation S-X. The condensed consolidated balance sheet as
of October 1, 2004, the condensed consolidated statements
of operations for the three months and nine months ended
October 1, 2004 and September 26, 2003 and the
condensed consolidated statements of cash flows for the nine
months ended October 1, 2004 and September 26, 2003,
are unaudited, but include all adjustments (consisting of normal
recurring adjustments), which the Company

8



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##### Table of Contents



PROXIM CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

considers necessary for a fair statement of the
financial position, operating results and cash flows for the
periods presented.

The condensed consolidated balance sheet at
December 31, 2003 has been derived from Proxim
Corporations audited consolidated financial statements as
of that date. Certain information and footnote information
normally included in financial statements prepared in accordance
with accounting principles generally accepted in the United
States of America have been condensed or omitted pursuant to the
rules and regulations of the Securities and Exchange Commission.
Results for any interim period are not necessarily indicative of
results for any future interim period or for the entire year.
The accompanying condensed consolidated financial statements
should be read in conjunction with the audited consolidated
financial statements and notes thereto included in the
Companys Annual Report on Form 10-K for the year
ended December 31, 2003.



| |                 
| | ----------------
| | Use of Estimates

The preparation of financial statements in
conformity 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 the disclosure of contingent assets and
liabilities at the date of the financial statements as well as
the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those
estimates and such differences may be material to the financial
statements.



| |                            
| | ---------------------------
| | Principles of Consolidation

The condensed consolidated financial statements
include the financial statements of Proxim Corporation and all
of its subsidiaries. The financial condition and results of
operations for the three months and nine months ended
October 1, 2004 and September 26, 2003 include the
results of acquired subsidiaries from their effective dates. All
significant intercompany transactions and balances are
eliminated in consolidation.



| |                    
| | -------------------
| | Reverse Stock Split

In accordance with the Securities and Exchange
Commissions Staff Accounting Bulletin Topic 4C, Equity
Accounts and Change in Capital Structure, and the Financial
Accounting Standards Boards Statement of Financial
Accounting Standards 128, Earnings Per Share, the Company
restated all the share and per share data in these condensed
consolidated financial statements to reflect the capital
structure subsequent to the one-for-ten reverse stock split,
which became effective on October 25, 2004.



|         |                                 
|-------- | --------------------------------
|Note 2  | Recent Accounting Pronouncements

In April 2004, the Emerging Issues Task Force
issued Statement No. 03-06, Participating Securities and
the Two  Class Method Under FASB Statement
No. 128, Earnings Per Share,
(EITF 03-06). EITF 03-06 addresses a
number of questions regarding the computation of earnings per
share by companies that have issued securities other than common
stock that contractually entitle the holder to participate in
dividends and earnings of the company when, and if, it declares
dividends on its common stock. EITF 03-06 also provides
further guidance in applying the two-class method of calculating
earnings per share, clarifying what constitutes a participating
security and how to apply the two-class method of computing
earnings per share once it is determined that a security is
participating, including how to allocate undistributed earnings
to such a security. EITF 03-06 is effective for fiscal
periods beginning after March 31, 2004. The Company adopted
this EITF during the quarter ended July 2, 2004 and the
adoption had no material impact on its results of operations.

At its November 2003 meeting, the EITF reached a
consensus on disclosure guidance previously discussed under
EITF 03-01, The Meaning of Other-Than-Temporary
Impairment and Its Application to

9



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##### Table of Contents



PROXIM CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Certain Investments.The consensus provided for certain disclosure requirements that
were effective for fiscal years ending after December 15,
2003.

At its March 2004 meeting, the EITF reached a
consensus on recognition and measurement guidance previously
discussed under EITF 03-01. The consensus clarifies the
meaning of other-than-temporary impairment and its application
to investments classified as either available-for-sale or
held-to-maturity under SFAS No. 115, Accounting for
Certain Investments in Debt and Equity Securities, and
investments accounted for under the cost method or the equity
method. The implementation of the recognition and measurement
guidance provisions has been delayed. The disclosure
requirements are effective for annual financial statements for
fiscal years ending after June 30, 2004. The company will
evaluate the effect of adopting EITF 03-01 on its results
of operations once the final guidance is issued.



|         |                  
|-------- | -----------------
|Note 3  | Intangible Assets

Acquired intangible assets, net of accumulated
amortization, consist of the following (in thousands):

|                                 |                              |            |   |              |  |  |   |        | 
|-------------------------------- | ---------------------------- | ---------- | - | ------------ |  |  | - | ------ | 
|                                 |                              | October 1, |   | December 31,
|                                 |                              | 2004       |   | 2003        
|                                 |                              |            |   |             
|Acquired intangible assets, net: |                              |            |   |              |  |  |   |       
|                                 | Proxim, Inc.                 |            | $ | 12,616       |  |  | $ | 18,810 | 
|                                 | 802.11 WLAN systems business |            |   | 13,041       |  |  |   | 21,523 | 
|                                 |                              |            |   |              |  |  |   |       
|                                 | Total intangible assets, net |            | $ | 25,657       |  |  | $ | 40,333 | 
|                                 |                              |            |   |              |  |  |   |       

Acquired intangible assets by categories as of
October 1, 2004 and December 31, 2003 consist of the
following (in thousands):

|                               |                        |          |   |                          |  |              |   |        |  |  |   |        | 
|------------------------------ | ---------------------- | -------- | - | ------------------------ |  | ------------ | - | ------ |  |  | - | ------ | 
|                               |                        |          |   |                         
|                               |                        |          |   | Accumulated Amortization
|                               |                        | Gross    |   |                         
|                               |                        | Carrying |   | October 1,               |  | December 31,
|                               |                        | Amounts  |   | 2004                     |  | 2003        
|                               |                        |          |   |                          |  |             
|Amortized intangible assets:   |                        |          |   |                          |  |              |   |        |  |  |   |       
|                               | Core Technology        |          | $ | 26,531                   |  |              | $ | 12,697 |  |  | $ | 8,718  | 
|                               | Developed Technology   |          |   | 29,036                   |  |              |   | 27,029 |  |  |   | 19,063 | 
|                               | Customer Relationships |          |   | 8,995                    |  |              |   | 6,496  |  |  |   | 4,247  | 
|                               | Patents                |          |   | 3,439                    |  |              |   | 2,031  |  |  |   | 1,549  | 
|                               |                        |          |   |                          |  |              |   |        |  |  |   |       
|                               | Total                  |          | $ | 68,001                   |  |              | $ | 48,253 |  |  | $ | 33,577 | 
|                               |                        |          |   |                          |  |              |   |        |  |  |   |       
|Unamortized intangible assets: |                        |          |   |                          |  |              |   |        |  |  |   |       
|                               | Tradename              |          | $ | 5,909                    |  |              |   |        |  |  |   |        | 
|                               |                        |          |   |                          |  |              |   |        |  |  |   |       

Core technology, developed technology, customer
relationships and patents are being amortized on a straight-line
basis over the following estimated periods of benefit:

|                       |  |          
|---------------------- |  | ---------
|Core technology        |  | 5 years  
|Developed technology   |  | 2-3 years
|Customer relationships |  | 3 years  
|Patents                |  | 5 years  

The Company expects amortization expense of
existing intangible assets to be $3.2 million in the
remaining fiscal 2004, $8.7 million in fiscal 2005,
$5.9 million in fiscal 2006, and $1.9 million in
fiscal 2007, at which time existing intangible assets, other
than tradename, will be fully amortized assuming no future
impairments of those intangible assets or additions as a result
of business combinations.

10



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##### Table of Contents



PROXIM CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|         |                         
|-------- | ------------------------
|Note 4  | Balance Sheet Components

The following is a summary of certain of the
Companys condensed consolidated balance sheets (in
thousands):

|                             |                                                                  |            |        |              |   |   |        |         |  
|---------------------------- | ---------------------------------------------------------------- | ---------- | ------ | ------------ | - | - | ------ | ------- | -
|                             |                                                                  | October 1, |        | December 31,
|                             |                                                                  | 2004       |        | 2003        
|                             |                                                                  |            |        |             
|Accounts receivable, net:    |                                                                  |            |        |              |   |   |        |        
|                             | Accounts receivable                                              |            | $      | 24,164       |   |   | $      | 34,345  |  
|                             | Less: Deferred revenue                                           |            |        | (6,896       | ) |   |        | (10,599 | )
|                             | Allowances for bad debts, sales returns and price
    protection |            |        | (8,409       | ) |   |        | (9,785  | )
|                             |                                                                  |            |        |              |   |   |        |        
|                             |                                                                  | $          | 8,859  |              |   | $ | 13,961 |        
|                             |                                                                  |            |        |              |   |   |        |        
|Inventory:                   |                                                                  |            |        |              |   |   |        |        
|                             | Raw materials                                                    |            | $      | 3,803        |   |   | $      | 4,238   |  
|                             | Work-in-process                                                  |            |        | 1,299        |   |   |        | 1,282   |  
|                             | Finished goods                                                   |            |        | 6,401        |   |   |        | 8,223   |  
|                             | Consignment inventories                                          |            |        | 4,301        |   |   |        | 6,196   |  
|                             |                                                                  |            |        |              |   |   |        |        
|                             |                                                                  | $          | 15,804 |              |   | $ | 19,939 |        
|                             |                                                                  |            |        |              |   |   |        |        
|Property and equipment, net: |                                                                  |            |        |              |   |   |        |        
|                             | Computer and test equipment                                      |            | $      | 11,380       |   |   | $      | 11,427  |  
|                             | Furniture and fixtures                                           |            |        | 194          |   |   |        | 194     |  
|                             | Leased assets                                                    |            |        | 2,987        |   |   |        | 2,942   |  
|                             | Leasehold improvements                                           |            |        | 438          |   |   |        | 438     |  
|                             |                                                                  |            |        |              |   |   |        |        
|                             |                                                                  |            | 14,999 |              |   |   | 15,001 |        
|                             | Less: accumulated depreciation and amortization                  |            |        | (8,921       | ) |   |        | (7,479  | )
|                             |                                                                  |            |        |              |   |   |        |        
|                             |                                                                  | $          | 6,078  |              |   | $ | 7,522  |        
|                             |                                                                  |            |        |              |   |   |        |        
|Intangible assets, net:      |                                                                  |            |        |              |   |   |        |        
|                             | Core technology                                                  |            | $      | 26,531       |   |   | $      | 26,531  |  
|                             | Developed technology                                             |            |        | 29,036       |   |   |        | 29,036  |  
|                             | Customer relationships                                           |            |        | 8,995        |   |   |        | 8,995   |  
|                             | Tradename                                                        |            |        | 5,909        |   |   |        | 5,909   |  
|                             | Patents                                                          |            |        | 3,439        |   |   |        | 3,439   |  
|                             |                                                                  |            |        |              |   |   |        |        
|                             |                                                                  |            | 73,910 |              |   |   | 73,910 |        
|                             | Less: Accumulated amortization                                   |            |        | (48,253      | ) |   |        | (33,577 | )
|                             |                                                                  |            |        |              |   |   |        |        
|                             |                                                                  | $          | 25,657 |              |   | $ | 40,333 |        
|                             |                                                                  |            |        |              |   |   |        |        

11



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##### Table of Contents



PROXIM CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|                                |                                                  |            |        |              |  |   |        |        | 
|------------------------------- | ------------------------------------------------ | ---------- | ------ | ------------ |  | - | ------ | ------ | 
|                                |                                                  | October 1, |        | December 31,
|                                |                                                  | 2004       |        | 2003        
|                                |                                                  |            |        |             
|Other accrued liabilities:      |                                                  |            |        |              |  |   |        |       
|                                | Restructuring accruals, current portion          |            | $      | 3,592        |  |   | $      | 7,144  | 
|                                | Accrued interest on convertible promissory notes |            |        |             |  |   |        | 3,247  | 
|                                | Accrued interest on convertible bridge loan      |            |        | 271          |  |   |        |       | 
|                                | Accrued unconditional project commitments        |            |        | 799          |  |   |        | 1,284  | 
|                                | Accrued compensation                             |            |        | 4,186        |  |   |        | 3,402  | 
|                                | Accrued warranty costs                           |            |        | 1,264        |  |   |        | 1,395  | 
|                                | Deferred revenue                                 |            |        | 4,878        |  |   |        |       | 
|                                | Other accrued liabilities                        |            |        | 5,338        |  |   |        | 4,332  | 
|                                |                                                  |            |        |              |  |   |        |       
|                                |                                                  | $          | 20,328 |              |  | $ | 20,804 |       
|                                |                                                  |            |        |              |  |   |        |       
|Accrued royalties and interest: |                                                  |            |        |              |  |   |        |       
|                                | Accrued royalties, current                       |            | $      | 9,523        |  |   | $      | 26,906 | 
|                                | Accrued royalties, long-term                     |            |        | 8,805        |  |   |        |       | 
|                                |                                                  |            |        |              |  |   |        |       
|                                |                                                  | $          | 18,328 |              |  | $ | 26,906 |       
|                                |                                                  |            |        |              |  |   |        |       

The following is a summary of the movements in
allowance for bad debt, sales returns and price protection and
product warranty costs during the nine months ended
October 1, 2004 and September 26, 2003 (in thousands):

|                                   |  |                     |        |                  |  |      |         |      |  |   |       |   |  |   |       |  
|---------------------------------- |  | ------------------- | ------ | ---------------- |  | ---- | ------- | ---- |  | - | ----- | - |  | - | ----- | -
|                                   |  |                     |        |                  |  |     
|                                   |  | Allowance for Bad   |        |                 
|                                   |  | Debt, Sales Returns |        | Product Warranty
|                                   |  | and Discounts       |        | Costs           
|                                   |  |                     |        |                 
|                                   |  | 2003                |        | 2004             |  | 2003 |         | 2004
|                                   |  |                     |        |                  |  |      |         |     
|Balance at beginning of period     |  | $                   | 7,500  |                  |  | $    | 9,785   |      |  | $ | 2,041 |   |  | $ | 1,395 |  
|Additional provision               |  |                     | 6,031  |                  |  |      | 12,075  |      |  |   | 132   |   |  |   | 639   |  
|Settlements made during the period |  |                     | (2,622 | )                |  |      | (13,451 | )    |  |   | (513  | ) |  |   | (770  | )
|                                   |  |                     |        |                  |  |      |         |      |  |   |       |   |  |   |       |  
|Balance at end of period           |  | $                   | 10,909 |                  |  | $    | 8,409   |      |  | $ | 1,660 |   |  | $ | 1,264 |  
|                                   |  |                     |        |                  |  |      |         |      |  |   |       |   |  |   |       |  

The following is a summary of the changes in the
reserve for excess and obsolete inventory and lower of cost or
market during the nine months ended October 1, 2004 (in
thousands):

|                                                                            |  |   |        |  
|--------------------------------------------------------------------------- |  | - | ------ | -
|Balance as of December 31, 2003                                             |  | $ | 5,072  |  
|Provision for excess and obsolete inventory and
    lower of cost or market |  |   | 1,723  |  
|Inventory scrapped                                                          |  |   | (2,049 | )
|                                                                            |  |   |        |  
|Balance as of October 1, 2004                                               |  | $ | 4,746  |  
|                                                                            |  |   |        |  

During the nine months ended October 1,
2004, the Company recorded a $1.7 million provision for
excess and obsolete inventory and lower of cost or market as
part of its ongoing review of its inventory reserve
requirements. To mitigate the component supply constraints that
have existed in the past, the Company had built inventory levels
for certain components with long lead times and had entered into
longer term commitments for certain components. The inventory
charges were due to a decrease in anticipated demand for certain
of the Companys products, notification from customers that
they would not be ordering as many products as they had
previously indicated they would, and continued increase in
competition for wireless networking products.

12



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##### Table of Contents



PROXIM CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Due to these factors, inventory levels exceeded
the Companys requirements based on its current 12-month
sales forecasts. The additional excess and obsolete and lower of
cost or market inventory charges were calculated based on the
inventory levels in excess of the estimated 12-month sales
forecasts and anticipated reduced selling prices for certain
products. The Company does not anticipate that the excess and
obsolete inventory subject to this reserve will be saleable at a
later date based on its current 12-month sales forecast. The
Company uses a 12-month sales forecast, because the wireless
communications industry is characterized by rapid technological
changes such that if the Company has not sold a product after a
12-month period, it is unlikely that the product will be sold.

Property and equipment includes $3.0 million
of computer equipment under capital leases at October 1,
2004. Accumulated amortization of assets under capital leases
totaled $681,000.



|         |                              
|-------- | -----------------------------
|Note 5  | Impairment of Loan to Officer

The Company had guaranteed up to $5 million
of obligations of an officer of the Company, with respect to a
margin loan with an investment bank that he established prior to
2001. On October 15, 2002, the investment bank called the
Companys guaranty of $5 million. The Company
continues to seek repayment from the former officer under a
Reimbursement and Security Agreement. In this regard, in January
2003, the former officer made a cash payment of
$0.5 million to the Company. The Company assessed the
recoverability of the remaining balance of the loan with respect
to the former officers financial position and recorded an
impairment charge of $4.5 million in the fourth quarter of
2002. This impairment charge does not constitute forgiveness of
the former officers indebtedness to the Company. Future
payments by the former officer under the Reimbursement and
Security Agreement will be recorded as income in the period cash
is received.



|         |                                                          
|-------- | ---------------------------------------------------------
|Note 6  | Revenue Information and Concentration of
    Credit Risks

The Companys products are grouped into two
product lines: WWAN and WLAN product lines. The WWAN product
line includes point-to-point Lynx and Tsunami products and
point-to-multipoint Tsunami products. The WLAN product line
includes ORiNOCO 802.11 access point and client card products.
Total revenue during the nine months ended September 26,
2003 also includes one-time license revenue of $6.0 million
related to the patent infringement legal settlement agreement
with Intersil (see Note 17). Revenue information by product
line is as follows (in thousands):

|                     |               |                    |        |                   |  |            |        |               |  |   |        |        |  |   |        |         | 
|-------------------- | ------------- | ------------------ | ------ | ----------------- |  | ---------- | ------ | ------------- |  | - | ------ | ------ |  | - | ------ | ------- | 
|                     |               |                    |        |                  
|                     |               | Three Months Ended |        | Nine Months Ended
|                     |               |                    |        |                  
|                     |               | October 1,         |        | September 26,     |  | October 1, |        | September 26,
|Product Line         |               | 2004               |        | 2003              |  | 2004       |        | 2003         
|                     |               |                    |        |                   |  |            |        |              
|WWAN                 |               | $                  | 16,772 |                   |  | $          | 17,324 |               |  | $ | 47,031 |        |  | $ | 52,736 |        
|WLAN                 |               |                    | 14,754 |                   |  |            | 17,734 |               |  |   | 42,609 |        |  |   | 51,156 |        
|WLAN license revenue |               |                    |       |                   |  |            |       |               |  |   |       |        |  |   | 6,000  |        
|                     |               |                    |        |                   |  |            |        |               |  |   |        |        |  |   |        |        
|                     | Total revenue |                    | $      | 31,526            |  |            | $      | 35,058        |  |   | $      | 89,640 |  |   | $      | 109,892 | 
|                     |               |                    |        |                   |  |            |        |               |  |   |        |        |  |   |        |        

13



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##### Table of Contents



PROXIM CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The Company sells its products worldwide
primarily through independent distributors and value-added
resellers and, to a lesser extent, through its direct sales
force. It currently operates in two geographic regions: North
America and International. Revenue outside of North America is
primarily export sales denominated in United States dollars.
Disaggregated financial information regarding the Companys
revenue by geographic region is as follows (in thousands):

|                              |               |                    |        |                   |  |            |        |               |  |   |        |        |  |   |        |         | 
|----------------------------- | ------------- | ------------------ | ------ | ----------------- |  | ---------- | ------ | ------------- |  | - | ------ | ------ |  | - | ------ | ------- | 
|                              |               |                    |        |                  
|                              |               | Three Months Ended |        | Nine Months Ended
|                              |               |                    |        |                  
|                              |               | October 1,         |        | September 26,     |  | October 1, |        | September 26,
|Geographic Region             |               | 2004               |        | 2003              |  | 2004       |        | 2003         
|                              |               |                    |        |                   |  |            |        |              
|North America product revenue |               | $                  | 18,516 |                   |  | $          | 21,464 |               |  | $ | 52,616 |        |  | $ | 58,939 |        
|North America license revenue |               |                    |       |                   |  |            |       |               |  |   |       |        |  |   | 6,000  |        
|International product revenue |               |                    | 13,010 |                   |  |            | 13,594 |               |  |   | 37,024 |        |  |   | 44,953 |        
|                              |               |                    |        |                   |  |            |        |               |  |   |        |        |  |   |        |        
|                              | Total revenue |                    | $      | 31,526            |  |            | $      | 35,058        |  |   | $      | 89,640 |  |   | $      | 109,892 | 
|                              |               |                    |        |                   |  |            |        |               |  |   |        |        |  |   |        |        

Two customers accounted for 17.3% and 13.0% of
total revenue for the three months ended October 1, 2004,
and two customers accounted for 16.6% and 13.2% of total revenue
for the three months ended September 26, 2003. Two
customers accounted for 15.9% and 12.7% of total revenue for the
nine months ended October 1, 2004, and one customer
accounted for 13.9% of total revenue for the nine months ended
September 26, 2003.



|         |                                                              
|-------- | -------------------------------------------------------------
|Note 7  | Restructuring Charges for Severance and Excess
    Facilities

During the nine months ended October 1,
2004, the Company recorded restructuring charges of
$2.0 million, consisting of $1.9 million of cash
provisions and $0.1 million of non-cash provisions for
abandoned property and equipment. The $1.9 million of cash
provisions consisted of $1.4 million of operating lease
commitments, less estimated future sublease receipts and exit
costs related to a portion of the Sunnyvale facility, which was
closed in the first quarter of 2004, and $0.5 million of
severance payments for five employees. The estimated future
sublease receipts are based on current comparable rates for
leases in the respective markets. If facility rental rates
continue to decrease in these markets, or if it takes longer
than expected, or if the Company is unable to sublease these
facilities, the actual costs to close these facilities could
exceed the original estimates, and additional restructuring
charges totaling $2.6 million could result.

The following table summarizes the restructuring
activities for the year ended December 31, 2003 and the
nine months ended October 1, 2004 (in thousands):

|                                               |  |           |        |            |  |            |         |       |  |       |        |   |  |   |        |   |  |   |         |  
|---------------------------------------------- |  | --------- | ------ | ---------- |  | ---------- | ------- | ----- |  | ----- | ------ | - |  | - | ------ | - |  | - | ------- | -
|                                               |  |           |        |            |  | Asset Held |         |       |  |      
|                                               |  | Severance |        | Facilities |  | for Sale   |         | Other |  | Total
|                                               |  |           |        |            |  |            |         |       |  |      
|Balance as of December 31, 2002                |  | $         |       |            |  | $          | 30,450  |       |  | $     |       |   |  | $ |       |   |  | $ | 30,450  |  
|Provision charged to operations                |  |           | 9,071  |            |  |            | 12,743  |       |  |       | 6,925  |   |  |   | 3,904  |   |  |   | 32,643  |  
|Reversal of previously recorded provision      |  |           |       |            |  |            | (27,764 | )     |  |       |       |   |  |   |       |   |  |   | (27,764 | )
|Non-cash charges utilized                      |  |           |       |            |  |            |        |       |  |       |       |   |  |   | (3,304 | ) |  |   | (3,304  | )
|Cash payments                                  |  |           | (5,451 | )          |  |            | (3,845  | )     |  |       | (9,966 | ) |  |   |       |   |  |   | (19,262 | )
|Proceeds from sale of asset held for sale, net |  |           |       |            |  |            |        |       |  |       | 3,041  |   |  |   |       |   |  |   | 3,041   |  
|                                               |  |           |        |            |  |            |         |       |  |       |        |   |  |   |        |   |  |   |         |  
|Balance as of December 31, 2003                |  |           | 3,620  |            |  |            | 11,584  |       |  |       |       |   |  |   | 600    |   |  |   | 15,804  |  
|Provision charged to operations                |  |           | 463    |            |  |            | 1,447   |       |  |       |       |   |  |   | 119    |   |  |   | 2,029   |  
|Non-cash charges utilized                      |  |           |       |            |  |            |        |       |  |       |       |   |  |   | (119   | ) |  |   | (119    | )
|Cash payments                                  |  |           | (3,731 | )          |  |            | (2,568  | )     |  |       |       |   |  |   |       |   |  |   | (6,299  | )
|                                               |  |           |        |            |  |            |         |       |  |       |        |   |  |   |        |   |  |   |         |  
|Balance as of October 1, 2004                  |  | $         | 352    |            |  | $          | 10,463  |       |  | $     |       |   |  | $ | 600    |   |  | $ | 11,415  |  
|                                               |  |           |        |            |  |            |         |       |  |       |        |   |  |   |        |   |  |   |         |  

14



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##### Table of Contents



PROXIM CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The restructuring reserves were presented on the
balance sheet as follows (in thousands):

|          |                              |            |       |              |  |   |       |        | 
|--------- | ---------------------------- | ---------- | ----- | ------------ |  | - | ----- | ------ | 
|          |                              | October 1, |       | December 31,
|          |                              | 2004       |       | 2003        
|          |                              |            |       |             
|Current   |                              | $          | 3,592 |              |  | $ | 7,144 |       
|Long-term |                              |            | 7,823 |              |  |   | 8,660 |       
|          |                              |            |       |              |  |   |       |       
|          | Total restructuring accruals |            | $     | 11,415       |  |   | $     | 15,804 | 
|          |                              |            |       |              |  |   |       |       



|         |                                                                   
|-------- | ------------------------------------------------------------------
|Note 8  | Interest Income (Expense), Net and Other
    Income (Expense), Net

The following table summarizes the components of
interest income (expense), net (in thousands):

|                                                   |  |                    |       |                   |  |            |        |               |  |   |        |   |  |   |        |  
|-------------------------------------------------- |  | ------------------ | ----- | ----------------- |  | ---------- | ------ | ------------- |  | - | ------ | - |  | - | ------ | -
|                                                   |  |                    |       |                  
|                                                   |  | Three Months Ended |       | Nine Months Ended
|                                                   |  |                    |       |                  
|                                                   |  | October 1,         |       | September 26,     |  | October 1, |        | September 26,
|                                                   |  | 2004               |       | 2003              |  | 2004       |        | 2003         
|                                                   |  |                    |       |                   |  |            |        |              
|Interest (expense) reversal on royalty
    charges |  | $                  | 3,233 |                   |  | $          | (2,950 | )             |  | $ | 3,018  |   |  | $ | (2,950 | )
|Interest expense on convertible notes              |  |                    | (767  | )                 |  |            | (1,197 | )             |  |   | (5,808 | ) |  |   | (1,197 | )
|Interest expense on convertible bridge loan        |  |                    | (271  | )                 |  |            |       |               |  |   | (271   | ) |  |   |       |  
|Other expense                                      |  |                    | (4    | )                 |  |            | (45    | )             |  |   | (183   | ) |  |   | (138   | )
|                                                   |  |                    |       |                   |  |            |        |               |  |   |        |   |  |   |        |  
|                                                   |  | $                  | 2,191 |                   |  | $          | (4,192 | )             |  | $ | (3,244 | ) |  | $ | (4,285 | )
|                                                   |  |                    |       |                   |  |            |        |               |  |   |        |   |  |   |        |  

The following table summarizes the components of
other income (expense), net (in thousands):

|                                                 |  |                    |        |                   |  |            |      |               |  |   |        |   |  |   |      |  
|------------------------------------------------ |  | ------------------ | ------ | ----------------- |  | ---------- | ---- | ------------- |  | - | ------ | - |  | - | ---- | -
|                                                 |  |                    |        |                  
|                                                 |  | Three Months Ended |        | Nine Months Ended
|                                                 |  |                    |        |                  
|                                                 |  | October 1,         |        | September 26,     |  | October 1, |      | September 26,
|                                                 |  | 2004               |        | 2003              |  | 2004       |      | 2003         
|                                                 |  |                    |        |                   |  |            |      |              
|Amortization of debt discount and issuance costs |  | $                  | (2,434 | )                 |  | $          | (242 | )             |  | $ | (8,171 | ) |  | $ | (242 | )
|Revaluation of common stock warrants             |  |                    | 2,500  |                   |  |            |     |               |  |   | 16,300 |   |  |   |     |  
|Loss on sale of short-term investment            |  |                    | (308   | )                 |  |            |     |               |  |   | (308   | ) |  |   |     |  
|Loss on disposal of property and equipment       |  |                    |       |                   |  |            |     |               |  |   | (350   | ) |  |   |     |  
|                                                 |  |                    |        |                   |  |            |      |               |  |   |        |   |  |   |      |  
|                                                 |  | $                  | (242   | )                 |  | $          | (242 | )             |  | $ | 7,471  |   |  | $ | (242 | )
|                                                 |  |                    |        |                   |  |            |      |               |  |   |        |   |  |   |      |  



|         |             
|-------- | ------------
|Note 9  | Income Taxes

The income tax provision recorded during the
three months ended October 1, 2004 represents net provision
for the valuation allowance of deferred tax assets as a result
of the reversal of the deferred tax liability arising from the
disposal of the short-term investments.

15



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##### Table of Contents



PROXIM CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|          |                                                       
|--------- | ------------------------------------------------------
|Note 10  | Loss Per Share Attributable to Common
    Stockholders

Basic and diluted net loss per share attributable
to common stockholders is presented in conformity with
SFAS No. 128, Earnings Per Share and
EITF 03-06, Participating Securities and the
Two  Class Method Under FASB Statement
No. 128, Earnings Per Share. The following is a
reconciliation of the numerators and denominators of the basic
and diluted net loss per share computations for the three and
nine months ended October 1, 2004 and September 26,
2003:

|                                                                                              |                                                                                          |                    |        |                   |   |            |         |               |   |   |         |       |   |   |         |       |  
|--------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------- | ------------------ | ------ | ----------------- | - | ---------- | ------- | ------------- | - | - | ------- | ----- | - | - | ------- | ----- | -
|                                                                                              |                                                                                          |                    |        |                  
|                                                                                              |                                                                                          | Three Months Ended |        | Nine Months Ended
|                                                                                              |                                                                                          |                    |        |                  
|                                                                                              |                                                                                          | October 1,         |        | September 26,     |   | October 1, |         | September 26,
|                                                                                              |                                                                                          | 2004               |        | 2003              |   | 2004       |         | 2003         
|                                                                                              |                                                                                          |                    |        |                   |   |            |         |              
|Net loss attributable to common stockholders                                                  |                                                                                          | $                  | (4,394 | )                 |   | $          | (38,151 | )             |   | $ | (31,990 | )     |   | $ | (97,688 | )    
|Weighted average common shares outstanding,
    adjusted for one-for-ten reverse stock split  |                                                                                          |                    | 12,349 |                   |   |            | 12,199  |               |   |   | 12,336  |       |   |   | 12,132  |      
|                                                                                              |                                                                                          |                    |        |                   |   |            |         |               |   |   |         |       |   |   |         |      
|                                                                                              | Net loss per share, adjusted for one-for-ten
    reverse stock split  basic and diluted |                    | $      | (0.36             | ) |            | $       | (3.13         | ) |   | $       | (2.59 | ) |   | $       | (8.05 | )
|                                                                                              |                                                                                          |                    |        |                   |   |            |         |               |   |   |         |       |   |   |         |      
|Potentially dilutive shares not included in the
    calculation because they are antidilutive |                                                                                          |                    | 15,758 |                   |   |            | 8,577   |               |   |   | 15,612  |       |   |   | 7,354   |      
|                                                                                              |                                                                                          |                    |        |                   |   |            |         |               |   |   |         |       |   |   |         |      

For the three and nine months ended
October 1, 2004 and September 26, 2003, basic net loss
per share was computed using the weighted average number of
shares outstanding during the period. Diluted net loss per share
was determined in the same manner as basic earnings per share
except that the number of shares was increased assuming dilutive
stock options and warrants using the treasury stock method. For
the three and nine months ended October 1, 2004 and
September 26, 2003, the incremental shares from the assumed
exercise of stock options and warrants, and the assumed
conversion of Series A and Series B Preferred Stock,
were not included in computing diluted per share amounts as the
effect would be antidilutive.



|          |                   
|--------- | ------------------
|Note 11  | Comprehensive Loss

The total comprehensive loss for the three and
nine months ended October 1, 2004 and September 26,
2003 is as follows (in thousands):

|                                             |                          |                    |        |                   |   |            |         |               |   |   |         |         |   |   |         |         |  
|-------------------------------------------- | ------------------------ | ------------------ | ------ | ----------------- | - | ---------- | ------- | ------------- | - | - | ------- | ------- | - | - | ------- | ------- | -
|                                             |                          |                    |        |                  
|                                             |                          | Three Months Ended |        | Nine Months Ended
|                                             |                          |                    |        |                  
|                                             |                          | October 1,         |        | September 26,     |   | October 1, |         | September 26,
|                                             |                          | 2004               |        | 2003              |   | 2004       |         | 2003         
|                                             |                          |                    |        |                   |   |            |         |              
|Net loss attributable to common stockholders |                          | $                  | (4,394 | )                 |   | $          | (38,151 | )             |   | $ | (31,990 | )       |   | $ | (97,688 | )      
|Unrealized gain (loss) on investments        |                          |                    | (306   | )                 |   |            | 168     |               |   |   |        |         |   |   | 572     |        
|                                             |                          |                    |        |                   |   |            |         |               |   |   |         |         |   |   |         |        
|                                             | Total comprehensive loss |                    | $      | (4,700            | ) |            | $       | (37,983       | ) |   | $       | (31,990 | ) |   | $       | (97,116 | )
|                                             |                          |                    |        |                   |   |            |         |               |   |   |         |         |   |   |         |        



|          |                             
|--------- | ----------------------------
|Note 12  | Convertible Promissory Notes

On July 22, 2003, the Investors agreed to
collectively invest an aggregate of $30.0 million and
potentially up to an aggregate of $40.0 million in the
Company. On July 30, 2003, the Company issued short-term
secured exchangeable promissory notes bearing interest at
25% per annum pursuant to the securities purchase agreement
dated July 22, 2003. On October 21, 2003, the Company
amended and restated its securities purchase agreement (the
Amended Agreement) with the Investors and its
$30.0 million short-term secured promissory notes issued to
these Investors on July 30, 2003. The amended and restated
secured exchangeable promissory notes (the Amended
Notes) continued to bear interest at 25% per annum,
subject to increase on an event of default or other events.

16



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##### Table of Contents



PROXIM CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

At the option of the Investors and subject to the
approval of the Companys stockholders, the Amended Notes
were exchangeable for shares of the Companys Series B
Preferred Stock with an aggregate initial liquidation preference
equal to the principal amount of the exchanged indebtedness,
plus accrued but unpaid interest, at the conversion price of
$100.00 per share. The liquidation preference on the
Amended Notes accreted at 14% per annum, compounded
quarterly, through the seventh anniversary of the date on which
the Company first issued shares of the Series B Preferred
Stock, or the Series B Preferred Stock original issue date.
Upon issuance, the Series B Preferred Stock also was
entitled to per share weighted average conversion price
adjustments for dilutive issuances and subscription rights in
certain equity financings.

Subject to the approval of its stockholders, the
Company agreed to issue to the Investors warrants to
purchase 1.8 million and 0.6 million shares of
Class A common stock at an exercise price of $14.60 and
$15.30 per share, respectively (collectively, the
Series B Warrants). The Investors also agreed
to make available to the Company an additional
$10.0 million, issuable in exchange for senior secured
exchangeable promissory notes (the New Notes, and
together with the Amended Notes, the Notes), at the
Companys election (the Call Right).

At a special meeting of stockholders held on
December 12, 2003, the Companys stockholders approved
the Companys ability to issue to the Investors:
(i) shares of the Companys Series B Preferred
Stock upon exercise of each Investors right to exchange
the Notes, plus accrued but unpaid interest thereon, as well as
upon each Investors exercise of the right to exchange any
New Notes that the Company might issue to the Investors, plus
accrued but unpaid interest thereon; and (ii) the
Series B Warrants. Following the receipt of stockholder
approval, the Company issued the Series B Warrants to the
Investors on December 12, 2003. In accordance with the
terms of the Amended Agreement, the Company exercised its Call
Right and on December 19, 2003, the Company issued the New
Notes to the Investors in exchange for an additional investment
of $10 million.

As described in Note 1, on July 30,
2004, the Investors exchanged the aggregate principal amount of
the Notes plus accrued but unpaid interest thereon of
$49,059,990, for 490,599 shares of Series B Preferred
Stock, in accordance with the existing terms and conditions of
the Notes. The exchange relieved the Company from the
requirement to repay the Notes on their maturity date of
September 30, 2004.



|          |                                                       
|--------- | ------------------------------------------------------
|Note 13  | Mandatorily Redeemable Convertible Preferred
    Stock

As described in Note 1 under Significant
Events, on July 27, 2004, subject to the approval of the
Companys stockholders, the Investors agreed to surrender
all of their Series A Preferred Stock, all of their
Series B Preferred Stock, and all of their warrants to
purchase the Companys Class A common stock in
exchange for an aggregate of 16.4 million shares of
Class A common stock and 400,000 shares of the
Companys newly issued Series C Preferred Stock (the
Exchange). At a special meeting of stockholders held
on October 21, 2004, the Companys stockholders
approved the Exchange and the Investors surrendered all of their
Series A Preferred Stock, all of the Series B
Preferred Stock and all of their Class A common stock
warrants.

17



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##### Table of Contents



PROXIM CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

As of October 1, 2004, Madatorily Redeemable
Convertible Preferred Stock consisted of the following:

|         |  |            |           |             |  |             |           |                 |  |   |             |  |  |  |           | 
|-------- |  | ---------- | --------- | ----------- |  | ----------- | --------- | --------------- |  | - | ----------- |  |  |  | --------- | 
|         |  |            |           |             |  |             |           | Total Number of
|         |  |            |           |             |  |             |           | Shares of      
|         |  |            |           |             |  |             |           | Class A        
|         |  |            |           |             |  |             |           | Common Stock   
|         |  |            |           | Issued and  |  | Liquidation |           | Issuable Upon  
|         |  | Authorized |           | Outstanding |  | Preference  |           | Conversion     
|         |  |            |           |             |  |             |           |                
|Series A |  |            | 3,000,000 |             |  |             | 3,000,000 |                 |  | $ | 87,739,392  |  |  |  | 4,242,717 | 
|         |  |            |           |             |  |             |           |                 |  |   |             |  |  |  |           | 
|Series B |  |            | 540,000   |             |  |             | 490,599   |                 |  |   | 50,223,699  |  |  |  | 4,367,282 | 
|         |  |            |           |             |  |             |           |                 |  |   |             |  |  |  |           | 
|         |  |            |           |             |  |             |           |                 |  | $ | 137,963,091 |  |  |  | 8,609,999 | 
|         |  |            |           |             |  |             |           |                 |  |   |             |  |  |  |           | 

As described in Note 1, on July 30,
2004, the Investors exchanged the Notes for shares of the
Companys Series B Preferred Stock. Because this
exchange took place before the maturity date of the Notes, the
conversion price for the Series A Preferred Stock was
adjusted according to the terms of the Series A Preferred
Stock to approximately $20.70 to reflect the decrease in the
dilutive effect of the issuance of the Series B Preferred
Stock to the holders of the Series A Preferred Stock.
Subsequent to this adjustment, on a fully accreted basis as of
August 5, 2005, the Series A Preferred Stock would
have consisted of the following:

|         |  |             |            |                 |  |  |           | 
|-------- |  | ----------- | ---------- | --------------- |  |  | --------- | 
|         |  |             |            | Total Number of
|         |  |             |            | Shares of      
|         |  |             |            | Class A        
|         |  |             |            | Common Stock   
|         |  | Liquidation |            | Issuable Upon  
|         |  | Preference  |            | Conversion     
|         |  |             |            |                
|Series A |  | $           | 94,899,000 |                 |  |  | 4,588,923 | 
|         |  |             |            |                 |  |  |           | 

In August 2002, in connection with the
acquisition of the 802.11 WLAN systems business of Agere
Systems, Inc., Warburg Pincus Private Equity VIII, L.P., BCP
Capital, L.P. and affiliated entities agreed to collectively
invest $75.0 million in the Company. These investors
received 1,640,000 shares of Series A Preferred Stock
in the amount of approximately $41.0 million, with a
conversion price of approximately $30.60 per share, and
warrants to purchase approximately 0.67 million shares of
our Class A common stock valued at $12.3 million. The
value of the warrants was recorded as a reduction of the
Series A Preferred Stock carrying value and recorded as
additional paid-in capital. A deemed preferred stock dividend
representing the beneficial conversion feature of the
Series A Preferred Stock of $2.7 million was also
recorded to increase the loss attributable to holders of the
Companys Class A common stock.

Upon receipt of approval of the Companys
stockholders at a special meeting held on October 8, 2002,
the notes issued to these investors were converted into
1,360,000 shares of Series A Preferred Stock and the
Company granted to these investors additional warrants to
purchase approximately 0.56 million shares of the
Companys Class A common stock value at $1.7 million.
In total, the investors were granted warrants to acquire
1.2 million shares of Class A common stock for
approximately $30.60 per share value at $14.0 million.
The Series A Preferred Stock issued to the Investors
represented approximately 20.4% of the Companys
outstanding Class A common stock on an as-converted and
as-exercised basis as of October 1, 2004.

18



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##### Table of Contents



PROXIM CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The issuance of Series A Preferred Stock,
convertible notes and related warrants and the subsequent
conversion, accretion and interest accrual were recorded through
October 1, 2004 as follows (in thousands):

|                                                                     |  |             |         |           |  |            |         |             |  |   |        |   |  |   |         |  
|-------------------------------------------------------------------- |  | ----------- | ------- | --------- |  | ---------- | ------- | ----------- |  | - | ------ | - |  | - | ------- | -
|                                                                     |  |             |         | Series A  |  | Additional |         |            
|                                                                     |  | Convertible |         | Preferred |  | Paid-In    |         | Accumulated
|                                                                     |  | Notes       |         | Stock     |  | Capital    |         | Deficit    
|                                                                     |  |             |         |           |  |            |         |            
|Issuance of Series A Preferred Stock                                 |  | $           |        |           |  | $          | 41,000  |             |  | $ |       |   |  | $ |        |  
|Issuance of convertible notes                                        |  |             | 34,000  |           |  |            |        |             |  |   |       |   |  |   |        |  
|Issuance of warrants                                                 |  |             |        |           |  |            | (13,993 | )           |  |   | 13,993 |   |  |   |        |  
|Conversion of convertible notes                                      |  |             | (34,000 | )         |  |            | 34,000  |             |  |   |       |   |  |   |        |  
|Deemed Preferred Stock dividend                                      |  |             |        |           |  |            |        |             |  |   | 2,740  |   |  |   | (2,740  | )
|Accretion of Preferred Stock redemption
    obligations              |  |             |        |           |  |            | 2,936   |             |  |   | (1,046 | ) |  |   | (1,890  | )
|Accrued interest on convertible notes payable in
    Preferred Stock |  |             |        |           |  |            | 469     |             |  |   |       |   |  |   |        |  
|                                                                     |  |             |         |           |  |            |         |             |  |   |        |   |  |   |         |  
|Balance as of December 31, 2002                                      |  |             |        |           |  |            | 64,412  |             |  |   | 15,687 |   |  |   | (4,630  | )
|Accretion of Preferred Stock redemption
    obligations              |  |             |        |           |  |            | 9,168   |             |  |   | (2,865 | ) |  |   | (6,303  | )
|                                                                     |  |             |         |           |  |            |         |             |  |   |        |   |  |   |         |  
|Balance as of December 31, 2003                                      |  | $           |        |           |  | $          | 73,580  |             |  | $ | 12,822 |   |  | $ | (10,933 | )
|Accretion of Preferred Stock redemption
    obligations              |  |             |        |           |  |            | 7,169   |             |  |   | (2,099 | ) |  |   | (5,070  | )
|                                                                     |  |             |         |           |  |            |         |             |  |   |        |   |  |   |         |  
|Balance as of October 1, 2004                                        |  | $           |        |           |  | $          | 80,749  |             |  | $ | 10,723 |   |  | $ | (16,003 | )
|                                                                     |  |             |         |           |  |            |         |             |  |   |        |   |  |   |         |  

As of October 1, 2004, the holders of
Series A Preferred Stock had various rights and preferences
as follows:



| |       
| | ------
| | Voting

For so long as Warburg Pincus owned at least 25%
of its shares of Series A Preferred Stock or the
Class A common stock issuable on conversion of its
Series A Preferred Stock and exercise of its warrants,
Warburg Pincus would have had the right to nominate for election
one member of the Companys board of directors, who would
reside on all major board committees for so long as such
committee membership did not conflict with any applicable law or
regulation or any listing requirements of the Nasdaq National
Market.

The approval of holders of a majority of the
Series A Preferred Stock would have been separately
required to approve changes to the Companys certificate of
incorporation or bylaws that would adversely affect these
holders rights, any offer, sale or issuance of the
Companys equity or equity-linked securities ranking senior
to or equally with the Series A Preferred Stock, and any
repurchase or redemption of the Companys equity securities
(other than from an employee, director or consultant following
termination), or the declaration or payment of any dividend on
the Companys Class A common stock.



| |           
| | ----------
| | Redemption

In August 2007, the Company would have been
required to redeem all outstanding shares of Series A
Preferred Stock, if any, for cash equal to their liquidation
preference, which bore interest at 8% per annum, compounded
semi-annually, for three years, plus accrued and unpaid
dividends.



| |          
| | ---------
| | Dividends

From August 2005 through August 2007, outstanding
shares of Series A Preferred Stock would have been entitled
to cumulative dividends equal to 8% of their liquidation
preference per year, payable, at the Companys election, in
cash or shares of the Companys Class A common stock
valued at the then-market price;

19



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##### Table of Contents



PROXIM CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |            
| | -----------
| | Liquidation

Each share of Series A Preferred Stock had
an initial liquidation preference of $25.00 and the liquidation
preference bore interest at 8% per annum, compounded
semi-annually, for three years. The liquidation preference was
subject to adjustments in the event the Company undertook a
business combination or other extraordinary transaction, or the
Company was liquidated or dissolved.



| |           
| | ----------
| | Conversion

In the event of a change in control of the
Company, the Company would have had the right to convert the
Series A Preferred Stock into Class A common stock if
upon such conversion the holders of Series A Preferred
Stock would have received liquid securities or cash with a fair
market value equal to or greater than 110% of the liquidation
preference then in effect. If the consideration was less than
110% of the liquidation preference, the Company would have had
the option either to repurchase or modify the conversion price
so that the consideration would equal 110% of the liquidation
preference then in effect or exchange the Series A
Preferred Stock for cash at 101% of the liquidation preference
then in effect. In addition, in the event of a change in control
that occurred prior to August 2005, the liquidation preference
would have increased as necessary to provide for three years of
accretion.

Holders of Series A Preferred Stock had
rights to acquire additional shares of the Companys
capital stock or rights to purchase property in the event of
certain grants, issuance or sales.

The conversion price of the Series A
Preferred Stock, which initially was approximately
$30.60 per share, was subject to customary weighted average
anti-dilution adjustments and other customary adjustments, and
as of July 2, 2004 had been reduced to $20.49 per
share. As of October 1, 2004, the conversion price was
adjusted upward to approximately $20.70.

In connection with the acquisition of the 802.11
WLAN systems business of Agere Systems, Inc., the Company also
issued warrants as described in Note 14.

On a fully accreted basis on July 30, 2011,
Series B Preferred Stock would have consisted of the
following:

|         |  |             |             |                 |  |  |            | 
|-------- |  | ----------- | ----------- | --------------- |  |  | ---------- | 
|         |  |             |             | Total Number of
|         |  |             |             | Shares of      
|         |  |             |             | Class A        
|         |  |             |             | Common Stock   
|         |  | Liquidation |             | Issuable Upon  
|         |  | Preference  |             | Conversion     
|         |  |             |             |                
|Series B |  | $           | 128,545,376 |                 |  |  | 11,177,866 | 
|         |  |             |             |                 |  |  |            | 

20



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##### Table of Contents



PROXIM CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The issuance of the Notes and the subsequent
conversion, accretion and interest accrual were recorded through
October 1, 2004 as follows (in thousands):

|                                                                     |  |             |         |           |  |             |        |   |  |   |        |  
|-------------------------------------------------------------------- |  | ----------- | ------- | --------- |  | ----------- | ------ | - |  | - | ------ | -
|                                                                     |  |             |         | Series B  |  |            
|                                                                     |  | Convertible |         | Preferred |  | Accumulated
|                                                                     |  | Notes       |         | Stock     |  | Deficit    
|                                                                     |  |             |         |           |  |            
|Issuance of convertible notes                                        |  |             | 40,000  |           |  |             |       |   |  |   |       |  
|Debt discount                                                        |  |             | (5,565  | )         |  |             |       |   |  |   |       |  
|Amortization of debt discount costs                                  |  |             | 300     |           |  |             |       |   |  |   | (300   | )
|                                                                     |  |             |         |           |  |             |        |   |  |   |        |  
|Balance as of December 31, 2003                                      |  | $           | 34,735  |           |  | $           |       |   |  | $ | (300   | )
|Amortization of debt discount costs                                  |  |             | 5,265   |           |  |             |       |   |  |   | (5,265 | )
|Accrued interest on convertible notes payable in
    Preferred Stock |  |             | 9,060   |           |  |             |       |   |  |   | (9,060 | )
|Conversion of convertible notes                                      |  |             | (49,060 | )         |  |             | 49,060 |   |  |   |       |  
|Accretion of Preferred Stock redemption
    obligations              |  |             |        |           |  |             | 1,164  |   |  |   | (1,164 | )
|Issuance cost                                                        |  |             |        |           |  |             | (521   | ) |  |   |       |  
|                                                                     |  |             |         |           |  |             |        |   |  |   |        |  
|Balance as of October 1, 2004                                        |  | $           |        |           |  | $           | 49,703 |   |  | $ | 15,789 |  
|                                                                     |  |             |         |           |  |             |        |   |  |   |        |  

As of October 1, 2004, the holders of the
Notes and the Series B Preferred Stock had various rights
and preferences as follows:

Voting

In addition to its rights as a holder of
Series A Preferred Stock, for so long as Warburg Pincus
owned at least 25% of its shares of Series B Preferred
Stock or the Class A common stock issuable on conversion of
its Series B Preferred Stock and exercise of its warrants,
Warburg Pincus had the right to nominate for election one member
of the Companys board of directors, who would reside on
all major board committees for so long as such committee
membership does not conflict with any applicable law or
regulation or any listing requirements of the Nasdaq National
Market. The approval of holders of a majority of the
Series B Preferred Stock was separately required to approve
changes to the Companys certificate of incorporation or
bylaws that would have adversely affected these holders
rights, any other sale or issuance of the Companys equity
or equity-linked securities ranking senior to or equally with
the Series B Preferred Stock, and any repurchase or
redemption of the Companys equity securities (other than
from an employee, director or consultant following termination),
or the declaration or payment of any dividend on the
Companys common stock.

Although the conversion of the Series B
Preferred Stock was subject to weighted-average anti-dilution
adjustments in the event of certain issuances of the
Companys common stock, or securities exercisable for or
exchangeable or convertible into our common stock, as described
below, the Series B Certificate of Designations limited the
voting rights of the Series B Preferred Stock, such that
the Series B Preferred Stock could not vote at a higher
rate than if converted to common stock at $11.50, subject to
certain adjustments.



| |           
| | ----------
| | Redemption

In July 2011, the Company would have been
required to redeem all outstanding shares of Series B
Preferred Stock, if any, for cash equal to their liquidation
preference, which bore interest at 14% per annum,
compounded quarterly, for seven years, plus accrued and unpaid
dividends.



| |           
| | ----------
| | Conversion

As of October 1, 2004, at the option of the
note holders, the Series B Preferred Stock was exchangeable
for shares of the Companys Class A common stock at
the conversion price of $11.50 per share, subject to

21



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##### Table of Contents



PROXIM CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

antidilution adjustments. The Company had the
right to require conversion of the Series B Preferred Stock
after five years if the closing price of its Class A common
stock exceed 300% of the conversion price for ninety consecutive
trading days. The Series B Preferred Stock was convertible
at the option of the holders at any time, in whole or in part,
into that number of shares of Class A common stock equal to
the liquidation preference then in effect divided by the then
current conversion price.

In the event of a change in control of the
Company, the holders of the Series B Preferred Stock would
have had the right to convert the Series B Preferred Stock
into Class A common stock if upon such conversion the
holders of Series B Preferred Stock would have received
liquid securities or cash with a fair market value equal to or
greater than 110% of the liquidation preference then in effect.
If the consideration would have been less than 110% of the
liquidation preference, the Company would have had either to
modify the conversion price so that the consideration would
equal 110% of the liquidation preference then in effect or offer
to repurchase the Series B Preferred Stock for cash at 101%
of the liquidation preference then in effect. In addition, in
the event of a change of control that occurred prior to the
seventh anniversary of the issuance of the Series B
Preferred Stock, the liquidation preference would have increased
as necessary to provide for seven years of accretion.



| |              
| | -------------
| | Anti-Dilution

The conversion price was subject to customary
weighted average anti-dilution adjustments and other customary
adjustments upon some transactions that affect the
Companys capital stock.



| |           
| | ----------
| | Put Rights

Had a change in control occurred while the Notes
were outstanding, 150% of the accrued value of the Notes with a
cap of $10.0 million on the accrued interest portion of the
Notes, would have been immediately due and payable.



|          |                      
|--------- | ---------------------
|Note 14  | Stockholders Deficit



| |                                      
| | -------------------------------------
| | Warrants to Purchase Common
    Stock

In connection with the acquisition of the 802.11
WLAN systems business of Agere Systems, Inc., the Company issued
warrants to purchase 1.2 million shares of the
Companys Class A common stock to Warburg Pincus
Private Equity VIII, L.P. and BCP Capital, L.P. and affiliated
entities. Each new warrant was convertible into one share of
Class A common stock of the Company at an exercise price of
approximately $30.60 per share. As a result of subsequent
antidilution adjustments, these warrants represented rights to
purchase 1.8 million shares of our Class A common
stock at an exercise price of approximately $20.68 as of
October 1, 2004. At issuance, the Company estimated the
fair value of the warrants using the Black-Scholes option
valuation model totaling $14.0 million. The warrants would
have expired on August 5, 2007.

In connection with a three-year licensing and
distribution agreement entered into with Motorola, Inc. on
September 8, 2003, the Company issued to Motorola a fully
vested warrant to purchase 108,000 shares of the
Companys Class A common stock at an exercise price of
$23.40 per share. This warrant will expire on
September 8, 2008. The Company has estimated the fair value
of the warrant using the Black-Scholes option valuation model at
$2.1 million. The fair value of the warrant is being
amortized on a straight-line basis over the three-year term of
the commercial arrangement with Motorola with quarterly charges
against revenue of $174,000 effective beginning in the first
quarter of 2004.

In connection with additional investments made by
Warburg Pincus Private Equity VIII, L.P., BCP Capital, L.P. and
affiliated entities during the year ended December 31,
2003, the Company issued to these investors warrants to
purchase 1.8 million and 0.6 million shares of
the Companys Class A common stock at an exercise
price of $14.60 per share and $15.30 per share,
respectively (see Note 12). These warrants were

22



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##### Table of Contents



PROXIM CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

valued by the Company with the assistance of an
independent valuation consulting firm at $22.2 million at
December 12, 2003 and $21.8 million at
December 31, 2003. The fair value of the warrants were
recorded as a long-term liability, as the warrant holders were
entitled to require the Company to purchase the warrants for
cash, as defined in the agreement, upon the occurrence of a
change in control event. The fair value of the warrants was
subject to revaluation adjustments at the end of each reporting
period, until they were surrendered by the Investors in the
Exchange on October 22, 2004. For the life of the warrants,
the resulting gain or loss was recorded as other income or
expense in the corresponding reporting period. These warrants
would have expired by their terms on December 15, 2010.

As of October 1, 2004, the Company had
issued in the aggregate, warrants to
purchase 3,735,134 shares of the Companys
Class A common stock of which warrants to
purchase 3,627,134 were issued to the Investors. As a
result of antidilution adjustments, as of October 1, 2004,
these warrants represented rights to
purchase 4,478,477 shares of Class A common stock
of which warrants to purchase 4,213,346 shares were
held by the Investors.

As described in Note 1 under Significant
Events, on October 22, 2004 pursuant to the approval of the
Companys stockholders, the Investors surrendered all of
their Series A Preferred Stock, all of their Series B
Preferred Stock, and all of their warrants to purchase the
Companys Class A common stock in exchange for an
aggregate of 16.4 million shares of Class A common
stock and 400,000 shares of the Companys newly issued
Series C Preferred Stock.



| |                                                               
| | --------------------------------------------------------------
| | Pro Forma Fair Value Disclosure Under
    SFAS No. 123 and 148

In accordance with SFAS No. 148,
Accounting for Stock-based Compensation, Transition and
Disclosure, the Company is required to disclose the
effects on reported net loss and basic and diluted net loss per
share as if the fair value based method had been applied to all
awards.

The weighted average estimated grant date fair
value, as defined by SFAS No. 123, for stock options
granted under its stock option plans during the nine months
ended October 1, 2004 and September 26, 2003 was
$14.23 and $11.20 per share, respectively. The weighted
average estimated grant date fair value of stock purchase rights
granted pursuant to its employee stock purchase plan during the
nine months ended October 1, 2004 and September 26,
2003 was $7.84 and $7.50 per share, respectively. The
estimated grant date fair value disclosed by the Company is
calculated using the Black-Scholes option pricing model. The
Black-Scholes model, as well as other currently accepted option
valuation models, was developed to estimate the fair value of
freely tradable, fully transferable options without vesting
restrictions, which significantly differ from its stock option
and purchase awards. These models also require highly subjective
assumptions, including future stock price volatility and
expected time until exercise, which greatly affect the
calculated grant date fair value.

Had the Company recorded compensation based on
the estimated grant date fair value, as defined by
SFAS No. 123, for awards granted under its stock
option plans and stock purchase plan, the net loss attributable
to common stockholders and net loss per share attributable to
common stockholders would have been (in thousands, except per
share data):

|                                                                                       |  |                    |        |                   |  |            |         |               |  |   |         |   |  |   |          |  
|-------------------------------------------------------------------------------------- |  | ------------------ | ------ | ----------------- |  | ---------- | ------- | ------------- |  | - | ------- | - |  | - | -------- | -
|                                                                                       |  |                    |        |                  
|                                                                                       |  | Three Months Ended |        | Nine Months Ended
|                                                                                       |  |                    |        |                  
|                                                                                       |  | October 1,         |        | September 26,     |  | October 1, |         | September 26,
|                                                                                       |  | 2004               |        | 2003              |  | 2004       |         | 2003         
|                                                                                       |  |                    |        |                   |  |            |         |              
|Net loss attributable to common stockholders as
    reported                           |  | $                  | (4,394 | )                 |  | $          | (38,151 | )             |  | $ | (31,990 | ) |  | $ | (97,688  | )
|Less: stock-based employee compensation expense
    determined under fair value method |  |                    | (1,477 | )                 |  |            | (1,057  | )             |  |   | (4,565  | ) |  |   | (6,770   | )
|                                                                                       |  |                    |        |                   |  |            |         |               |  |   |         |   |  |   |          |  
|Pro forma net loss attributable to common
    stockholders                             |  | $                  | (5,871 | )                 |  | $          | (39,208 | )             |  | $ | (36,555 | ) |  | $ | (104,458 | )
|                                                                                       |  |                    |        |                   |  |            |         |               |  |   |         |   |  |   |          |  

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PROXIM CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|             |                                                                              |                    |   |                   |   |            |   |               |   |  |   |       |   |  |   |       |  
|------------ | ---------------------------------------------------------------------------- | ------------------ | - | ----------------- | - | ---------- | - | ------------- | - |  | - | ----- | - |  | - | ----- | -
|             |                                                                              |                    |   |                  
|             |                                                                              | Three Months Ended |   | Nine Months Ended
|             |                                                                              |                    |   |                  
|             |                                                                              | October 1,         |   | September 26,     |   | October 1, |   | September 26,
|             |                                                                              | 2004               |   | 2003              |   | 2004       |   | 2003         
|             |                                                                              |                    |   |                   |   |            |   |              
|As reported: |                                                                              |                    |   |                   |   |            |   |               |   |  |   |       |   |  |   |      
|             | Basic and diluted net loss attributable to common
    stockholders per share |                    | $ | (0.36             | ) |            | $ | (3.13         | ) |  | $ | (2.59 | ) |  | $ | (8.05 | )
|             |                                                                              |                    |   |                   |   |            |   |               |   |  |   |       |   |  |   |      
|Pro forma:   |                                                                              |                    |   |                   |   |            |   |               |   |  |   |       |   |  |   |      
|             | Basic and diluted net loss attributable to common
    stockholders per share |                    | $ | (0.48             | ) |            | $ | (3.21         | ) |  | $ | (2.96 | ) |  | $ | (8.61 | )
|             |                                                                              |                    |   |                   |   |            |   |               |   |  |   |       |   |  |   |      

The pro forma effect on net loss and net loss per
share for the three and nine months ended October 1, 2004
and September 26, 2003 is not representative of the pro
forma effect on net loss in future years because it does not
take into consideration pro forma compensation expense related
to grants made prior to 1996.



|          |                              
|--------- | -----------------------------
|Note 15  | Commitments and Contingencies

The Company occupies its facilities under several
non-cancelable operating lease agreements expiring at various
dates through September 2009, and requiring payment of property
taxes, insurance, maintenance and utilities. Future minimum
lease payments under non-cancelable operating were as follows
(in thousands):

|                                      |  |          |        | 
|------------------------------------- |  | -------- | ------ | 
|                                      |  | Minimum 
|                                      |  | Lease   
|                                      |  | Payments
|                                      |  |         
|Three months ending December 31, 2004 |  | $        | 1,981  | 
|Year ending December 31:              |  |          |        | 
|2005                                  |  |          | 7,740  | 
|2006                                  |  |          | 6,708  | 
|2007                                  |  |          | 6,371  | 
|2008                                  |  |          | 6,435  | 
|Thereafter                            |  |          | 4,434  | 
|                                      |  |          |        | 
|Total minimum lease payments          |  | $        | 33,669 | 
|                                      |  |          |        | 

For the nine months ended October 1, 2004
and the years ended December 31, 2003 and 2002, the Company
recorded restructuring charges relating to the committed future
lease payments for closed facilities, net of estimated future
sublease receipts of which $10.5 million are included in
the above disclosures.

Under the terms of the Settlement Agreement, the
Company agreed to pay Symbol $22.75 million dollars over
the Companys ensuing ten quarters, commencing with the
quarter ending October 1, 2004. The Settlement Agreement
provides for lump sum payments of $2.5 million per quarter
in each of the first eight quarters, a payment of
$1.5 million in the ninth quarter, and a payment of
$1.25 million in the tenth quarter. If at any point during
the term of the Settlement Agreement, the Company fails to make
any of these payments within 30 days after Symbol has
notified the Company of its failure to pay, Symbol shall have
the right to demand immediate payment in the amount of
$25,917,669, minus payments made under the agreement and plus
applicable interest.

Under the terms of the Patent Cross License
Agreement, Symbol and the Company have agreed to cross license
certain patents, and the Company has agreed to pay to Symbol a
two percent royalty on sales of certain of the Companys
wireless LAN products. If the Company fails to make any of the
lump sum payments due under the Settlement Agreement over the
next ten quarters and fails to cure any such missed payment
within 30 days thereafter, the Patent Cross License
Agreement provides that the royalty rate payable to Symbol on

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PROXIM CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

sales of certain of the Companys wireless
LAN products covered by the agreement shall increase to five
percent until the required payments as set forth in the
Settlement Agreement have been made.



|          |                  
|--------- | -----------------
|Note 16  | Credit Facilities

In December 2002, the Company entered into a
secured credit facility with Silicon Valley Bank (the
Lender), and then subsequently amended the credit
facility in March 2003. On June 13, 2003, in order to
secure additional working capital, the Company entered into a
letter agreement (the Letter Agreement) and an
accounts receivable financing agreement, which effectively
amended and restated the existing credit facility in its
entirety. The Company subsequently amended the accounts
receivable financing agreement (amended, the Amended A/R
Financing Agreement) on July 25, 2003,
October 31, 2003 and most recently on July 31, 2004.

Under the Amended A/R Financing Agreement, the
Company may borrow up to $20.0 million in total. First, the
Company may borrow up to $10.0 million by financing a
portion of its eligible accounts receivable, primarily limited
to customers in the United States. Under this arrangement, the
Lender may agree to accept for collection through a lockbox
arrangement accounts receivable from the Company, and in return
the Company will receive advances from the Lender at a rate
equal to 80% of accounts receivable from account debtors who are
not distributors, and 50% of accounts receivable from account
debtors who are distributors, subject to borrowing restrictions
on most international accounts and at the discretion of the
Lender. After collection of a receivable, the Lender will refund
to the Company the difference between the amount collected and
the amount initially advanced to the Company, less a finance
charge applied against the average monthly balance of all
transferred but outstanding receivables at a rate per annum
equal to the Lenders prime rate plus 1.50 percentage
points, or 5.75%, whichever is greater. In addition to a
facility fee of $100,000, the Company must pay each month to the
Lender a handling fee equal to 0.25% of the average monthly
balance of transferred but outstanding receivables. The Company
must repay each advance upon the earliest to occur of
(i) the collection of the corresponding financed
receivable, (ii) the date on which the corresponding
financed receivable becomes an ineligible receivable pursuant to
the terms of the Amended A/R Financing Agreement, or
(iii) July 30, 2005. Second, the Company may borrow up
to an additional $10 million, under which the Company is
required to maintain a compensating cash balance equal to such
borrowings.

Under the A/R Financing Agreement, the Company
may receive temporary advances from the Lender in excess of the
availability otherwise applicable under the A/R Financing
Agreement (Temporary Overadvances), in an amount
equal to $4.0 million for advances relating to letters of
credit and in an amount equal to $4.0 million to be used
for working capital purposes. The Company may receive Temporary
Overadvances under this arrangement through November 30,
2004. This Temporary Overadvances arrangement may be renewed
upon agreement by both the Company and the Lender. Borrowings
outstanding under Temporary Overadvances are subject to a
finance charge of 1.5% per week. As of October 1,
2004, no borrowings were outstanding under the Amended A/R
Financing Agreement.

Obligations under the amended A/ R Financing
Agreement are collateralized by a security interest on all of
the assets of the Company, including intellectual property, and
are senior in lien priority and right of payment to the
Companys obligations to the funds affiliated with Warburg
Pincus and BCP Capital, L.P. under the secured promissory notes
issued in July 2003 and amended in October 2003 and which until
the exchange of Notes on July 30, 2004, totaled
$40 million in aggregate principal amount, plus accrued
interest. The amended A/ R Financing Agreement requires the
consent of the Lender in order to incur debt, grant liens and
sell assets. The events of default under the secured credit
facility include the failure to pay amounts when due, failure to
observe or perform covenants, bankruptcy and insolvency events,
defaults under certain of the Companys other obligations
and the occurrence of a material adverse change in the
Companys business.

Under the Amended A/ R Financing Agreement, the
financial covenants require the Company to maintain cash and
cash equivalents with the Lender and its affiliates in an amount
not less than $4.0 million. If

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PROXIM CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

the Company fails to meet this requirement, the
Company may still remain in compliance with the financial
covenants by maintaining a ratio of the total of cash, cash
equivalents and accounts receivable approved by the Lender to
the Companys current liabilities of at least 5.0 to 1. In
addition, the Company is required to maintain restricted cash
balances to the extent that our outstanding letters of credit
exceed $4.0 million. The Company currently maintains
substantially all of its cash, cash equivalents and investments
at Silicon Valley Bank and its affiliates. In the event of
default under the Amended A/ R Financing Agreement, the Lender
has the right to offset such cash, cash equivalents and
investments against the Companys obligations owing to the
Lender. As of October 1, 2004, the Company complied with
all of the financial covenants under this agreement.

In the first quarter of 2003, the Company entered
into an equipment and software lease agreement. Under the
agreement, the Company may either lease or finance certain
equipment, software and related services through a direct
leasing or sales and leaseback arrangement with the lessor for
up to $3.0 million. The lease term covers a period of
30 months, and the annual implicit interest rate on the
lease is approximately 4%. During the second quarter of 2003,
the Company installed and placed into service certain equipment,
software and related services through both a direct leasing and
sales leaseback arrangement and through a direct leasing
arrangement during the third and fourth quarters of 2003 and
during the second quarter of 2004. As the present value of total
future minimum lease payments was greater than 90% of the fair
value of the leased assets, the Company accounted for both the
direct leasing and sales and leaseback transactions as capital
lease transactions. Net book value of the leased assets
capitalized in connection with this agreement as of
October 1, 2004 was $2.3 million. Future minimum lease
payments under non-cancelable capital leases at October 1,
2004 were as follows (in thousands):

|                                               |  |   |       | 
|---------------------------------------------- |  | - | ----- | 
|Three months ending December 31, 2004          |  | $ | 323   | 
|Year ending December 31:                       |  |   |       | 
|2005                                           |  |   | 920   | 
|2006                                           |  |   | 46    | 
|                                               |  |   |       | 
|Total minimum lease payments                   |  |   | 1,289 | 
|Less: amounts representing interest            |  |   | 29    | 
|                                               |  |   |       | 
|Present value of future minimum lease payments |  |   | 1,260 | 
|Less: current portion                          |  |   | 1,144 | 
|                                               |  |   |       | 
|Capital lease obligations, long-term portion   |  | $ | 116   | 
|                                               |  |   |       | 



|          |                  
|--------- | -----------------
|Note 17  | Legal Proceedings

Proxim, Inc.s involvement in patent
litigation has resulted in, and could in the future continue to
result in, substantial costs and diversion of management
resources of the Company.



| |                          
| | -------------------------
| | Symbol Technologies, Inc.

On September 13, 2004 the Company entered
into the Settlement Agreement and a Patent Cross License
Agreement with Symbol and assigned certain intellectual property
to Symbol resolving all outstanding litigation.

Under the terms of the Settlement Agreement, the
Company agreed to pay Symbol $22.75 million dollars over
Proxims next ten quarters, commencing with the quarter
ending October 1, 2004. The Settlement Agreement provides
for lump sum payments of $2.5 million per quarter in each
of the first eight quarters, a payment of $1.5 million in
the ninth quarter, and a payment of $1.25 million in the
tenth quarter. If at any point during the term of the Settlement
Agreement, the Company fails to make any of these payments within

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##### Table of Contents



PROXIM CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

30 days after Symbol has notified the
Company of its failure to pay, Symbol shall have the right to
demand immediate payment in the amount of $25,917,669, minus
payments made under the agreement and plus applicable interest.

Under the terms of the Patent Cross License
Agreement, Symbol and the Company have agreed to cross license
certain patents, and the Company has agreed to pay to Symbol a
two percent royalty on sales of certain of the Companys
wireless LAN products. If the Company fails to make any of the
lump sum payments due under the Settlement Agreement over the
next ten quarters and fails to cure any such missed payment
within 30 days thereafter, the Patent Cross License
Agreement provides that the royalty rate payable to Symbol on
sales of certain of the Companys wireless LAN products
covered by the agreement shall increase to five percent until
the required payments as set forth a in the Settlement Agreement
have been made. Also pursuant to the terms of the Patent Cross
License Agreement, the Company and Symbol have entered into a
covenant not to sue one another for patent infringement with
respect to one anothers products through
September 13, 2009.

Since the date of the initial jury award of the
patent infringement suit in September 2003, the Company had
recorded an accrual for estimated past royalties of
$22.9 million and interest of $3.0 million covering
the period from 1995 through September 2003 plus total potential
royalties and interest of $2.8 million covering the period
from October 2003 to July 2, 2004. As a result of the
Settlement Agreement, Proxim recorded a non-cash reversal of
royalty charges of $4.8 million and interest expense of
$3.2 million totaling $8.0 million during the quarter
ended October 1, 2004. This reversal is the difference
between the net present value of the $22.75 million
settlement and the accrued liability related to the litigation
of $28.7 million, which was recorded in the Companys
balance sheet prior to the litigation settlement. The initial
net present value of the settlement payment was
$20.69 million. At October 1, 2004 the net present
value was $18.3 million, which is included in the balance
sheet captions Accrued royalties and interest and
Accrued royalties, long-term. The difference between
the balance at October 1, 2004 and the sum of the periodic
payments will be accreted, using the effective interest rate
method over the payment period as periodic charges to interest
expense.



| |                     
| | --------------------
| | Intersil Corporation

On March 17, 2003, the Company announced a
settlement with Intersil Corporation to resolve all pending
patent-related litigation between the two companies. Under the
terms of the agreement, Proxim, Inc. and Intersil have agreed to
dismiss all claims against each other, including lawsuits before
the International Trade Commission and Delaware and
Massachusetts Federal Courts. As part of the confidential
settlement agreement, the two companies entered into a patent
cross license agreement for their respective patent portfolios
and Intersil agreed to make a one-time payment of
$6.0 million to the Company. The two companies have also
entered into a product supply agreement defining the terms under
which the Company will be able to purchase 802.11 products
that utilize Intersils chipsets. During the first quarter
of 2003, the Company recorded $6 million as license revenue
and $3 million of legal expense as final settlement of
outstanding legal fees and expenses related to the terminated
patent litigation.



| |                              
| | -----------------------------
| | Top Global Technology Limited

On March 10, 2003, the Company was served
with a complaint filed on January 15, 2003, by Top Global
Technology Limited (Top Global), a distributor for
Agere Systems Singapore. The Companys demurrer to Top
Globals complaint was sustained in May 2003. Top Global
then filed and served an amended complaint on May 30, 2003.
Top Globals lawsuit was filed against Agere Systems, Inc.,
Agere Systems Singapore, and Agere Systems Asia Pacific
(collectively, Agere) and in the Superior Court for
the State of California, County of Santa Clara. Top Global
claims that it is entitled to return for a credit
$1.2 million of products that it purchased from Agere
Systems Singapore in June 2002 as a result of the Companys
decision to discontinue a product line that the Company
purchased from Agere in August 2002. The amended complaint asks
the

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##### Table of Contents



PROXIM CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

court to determine whether Agere or the Company
are responsible for accepting the product return and issuing a
$1.2 million credit and also alleges breach of contract.
The Company answered the amended complaint and asserted several
defenses to Top Globals claims. In January 2004, the
parties mediated this dispute but were unable to reach a
settlement. In March 2004, the Court dismissed the contract
claims against Agere but at the same time granted Top
Globals motion for leave to amend its complaint to allege
a fraud claim against Agere. In March 2004, the court dismissed
the contract claims against Agere but at the same time granted
Top Globals motion for leave to amend its complaint to
allege a fraud claim against Agere. Top Global subsequently
amended its complaint to allege a claim of fraud against Agere.
The parties are currently conducting discovery. Proxims
motion for summary judgment in the matter will be heard
January 7, 2005. A trial date has been set for
February 22, 2005. The Company intends to defend itself
vigorously against this lawsuit.



| |                              
| | -----------------------------
| | Active Technology Corporation

On February 10, 2004, the Company received a
copy of a complaint filed on February 2, 2004 in Tokyo
District Court by Active Technology Corporation, a
Japanese-based distributor of the Companys products. The
complaint alleges, among other things, that the Company sold to
Active certain defective products, which Active in turn
subsequently sold to its customers. Active seeks damages of
559.2 million Japanese yen, which includes the purchase
price of the allegedly defective products and replacement costs
allegedly incurred by Active. Active seeks to offset the claim
of 559.2 million Japanese yen against outstanding accounts
payable by Active of 175.3 million Japanese yen to the
Company, resulting in a net claim against Proxim Corporation of
383.9 million Japanese yen. Translated into
U.S. dollars on November 3, 2004, Actives net
claim is approximately $3.6 million. On October 5,
2004, a hearing was held in the matter, and Proxim filed a
counterclaim for $2.3 million plus interest for outstanding
amounts owed Proxim. The next hearing in the matter will be held
on November 12, 2004. The Company intends to defend itself
vigorously against this lawsuit.



| |        
| | -------
| | General

The Company is a party to disputes, including
legal actions, with several of our suppliers and vendors. These
disputes relate primarily to excess materials and order
cancellation claims that resulted from the declines in demand
for the Companys products during 2001 and 2002 and the
commensurate reductions in manufacturing volumes. The Company
intends to defend itself vigorously against these claims.

The results of any litigation matters are
inherently uncertain. In the event of any adverse decision in
the described legal actions or disputes, or any other related
litigation with third parties that could arise in the future,
the Company could be required to pay damages and other expenses,
and, in the case of litigation related to patents or other
intellectual property rights, to cease the manufacture, use and
sale of infringing products, to expend significant resources to
develop non-infringing technology, or to obtain licenses to the
infringing technology. The Company cannot make any assurance
that these matters will not materially and adversely affect the
Companys business, financial condition, operating results
or cash flows.

28



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##### Table of Contents








|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 2. | Managements Discussion and Analysis
    of Financial Condition and Results of Operations

Except for any historical information
contained herein, the matters discussed in this Quarterly Report
on Form 10-Q contain certain forward-looking
statements within the meaning of the Private Securities
Litigation Reform Act of 1995 with respect to our financial
condition, results of operations, cash flows, revenues,
financing plans, business strategies and market acceptance of
its products. The words anticipate,
believe, estimate, expect,
plan, intend, and similar expressions,
are intended to identify these forward-looking statements. These
forward-looking statements are found at various places
throughout this Quarterly Report. We caution you not to place
undue reliance on these forward-looking statements, which speak
only as of the date they were made. We do not undertake any
obligation to publicly release any revisions to these
forward-looking statements to reflect events or circumstances
after the date of this Quarterly Report or to reflect the
occurrence of unanticipated events. Forward-looking statements
are subject to risks and uncertainties that could cause actual
results to differ materially from those reflected in the
forward-looking statements. Factors that might cause such a
difference include, but are not limited to those discussed below
under Risk Factors and elsewhere in this
Report.

The following discussion should be read
together with our financial statements, notes to those financial
statements included elsewhere in this Quarterly Report on
Form 10-Q, our financial statements, notes to those
financial statements and Managements Discussion and
Analysis of Financial Condition and Results of Operations in our
Annual Report on Form 10-K filed with the Securities and
Exchange Commission.

Overview

Proxim Corporation was formed in March 2002 as a
result of the merger between Western Multiplex Corporation and
Proxim, Inc. In August 2002, we acquired Agere Systems
802.11 wireless local area networking (WLAN) equipment
business, including its market-leading ORiNOCO 802.11b product
line. In accordance with accounting principles generally
accepted in the United States of America, the results of
operations for the periods presented include the results of the
merged or acquired businesses beginning on the respective dates
of completion of the business combinations. Prior to March 2002,
we operated as Western Multiplex Corporation, a designer and
manufacturer of broadband wireless systems.

Proxim Corporation is a leader in wireless
networking equipment for Wi-Fi and broadband wireless networks.
We provide wireless solutions for the mobile enterprise,
security and surveillance, last mile access, voice and data
backhaul, public hot spots, and metropolitan area networks. We
serve these markets by selling our systems to service providers,
businesses and other enterprises, primarily indirectly through
distributors, value-added resellers, products integrators and
original equipment manufacturers and to a lesser extent directly
through our sales force.

We generate revenue primarily from the sale of
our Lynx and Tsunami systems for our WWAN product line, and the
sale of 802.11 standards based products, acquired in the Proxim,
Inc. acquisition, and 802.11 products acquired from Agere, for
our WLAN product line. We also generate a small percentage of
our revenue from the sale of services and parts and rentals of
our systems. We sell worldwide to service providers, businesses
and other enterprises directly through our sales force and
indirectly through distributors, value-added resellers and
system integrators. Shipments to certain distributors are made
under terms allowing certain rights of return, protection
against subsequent price declines on our products held by our
distributors and co-op marketing programs.



| |          
| | ---------
| | Liquidity

We started 2003 with $16.5 million in cash
and cash equivalents. The effects of an ongoing operating loss
and restructuring charges left us with cash and cash equivalents
of $4.5 million at the end of the second quarter of 2003.
To address the lack of sufficient working capital and the
ongoing negative cash flow, we focused on raising additional
financing and restructuring the operations of the business. In a
two-part transaction, we raised an additional $40.0 million
in 2003. Warburg Pincus Private Equity VIII, L.P. and BCP
Capital, L.P. (formerly known as Broadview Capital
Partners, L.P.) and affiliates signed a securities
purchase agreement in July, 2003, later amended in October,
2003, pursuant to which we received $30 million

29



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##### Table of Contents



in exchange for issuing demand notes bearing
interest at 25% per annum and exchangeable for shares of
Series B Preferred Stock. (See Notes 1 and 12 to the
condensed consolidated financial statements for a detailed
description of the Notes and the Series B Preferred Stock).
In December 2003, after stockholder approval of our transactions
with the Investors, we exercised our right to draw an additional
$10 million from the Investors in exchange for additional
notes, senior to but otherwise having the same terms as the
October notes. On July 30, 2004, the Investors exchanged
the aggregate principal amount of the Notes, which includes
accrued but unpaid interest, for shares of Series B
Preferred Stock, in accordance with the existing terms and
conditions of the Notes. The exchange relieved us from the
requirement to repay the Notes on their maturity date of
September 30, 2004. Furthermore, on July 30, 2004, we
received $10.0 million from the Investors in exchange for a
new convertible bridge note (the Bridge Loan)
pursuant to the securities purchase agreement dated
July 27, 2004 (the Purchase Agreement). In
accordance with the agreement, the principal and accrued
interest will convert into Class A common stock and/or
warrants to purchase Class A common stock, at the same
price and upon the same terms and conditions offered to other
investors, if prior to June 30, 2005 we close financing
transaction with gross proceeds of $20.0 million or more
through a sale of our Class A common stock and/or warrants
to purchase Class A common stock. If such a financing
transaction does not occur, the bridge note becomes due and
payable by its terms on June 30, 2005.


Following the approval of our stockholders at the
special meeting held on October 21, 2004, the Investors on
October 22, 2004 surrendered all of their Series A
Preferred Stock, all of their Series B Preferred Stock, and
all of their warrants to purchase our Class A common stock
in exchange for an aggregate of 16.4 million shares of
Class A common stock and 400,000 shares of our newly
issued Series C Preferred Stock, pursuant to the terms of
the Purchase Agreement.

Under the terms of the Settlement Agreement, we
agreed to pay Symbol $22.75 million dollars over our
ensuing ten quarters, commencing with the quarter ending
October 1, 2004. The Settlement Agreement provides for lump
sum payments of $2.5 million per quarter in each of the
first eight quarters, a payment of $1.5 million in the
ninth quarter, and a payment of $1.25 million in the tenth
quarter. If at any point during the term of the Settlement
Agreement, we fail to make any of these payments within
30 days after Symbol has notified us of our failure to pay,
Symbol shall have the right to demand immediate payment in the
amount of $25,917,669, minus payments made under the agreement
and plus applicable interest.

Our revenue declined from $109.9 million for
the nine months ended September 26, 2003 to
$89.6 million for the nine months ended October 1,
2004, and we have incurred substantial losses and negative cash
flows from operations during the nine months ended
October 1, 2004 and the years ended December 31, 2003,
2002 and 2001. If we were not able to close a financing
transaction by June 30, 2005 with gross proceeds of
$20.0 million or more through a sale of our Class A
common stock and/or warrants to purchase Class A common
stock in accordance with the Purchase Agreement dated
July 27, 2004, we would be required to repay the Bridge
Loan.

If we were required to repay the convertible
Bridge Loan and if we sustain continued significant negative
cash flows from our operations, we could be required to obtain
alternative sources of financing. If we were not able to obtain
such alternative sources of financing, we might have
insufficient cash to pay these obligations, be unable to meet
our ongoing operating obligations as they come due in the
ordinary course of business, and would have to seek protection
under applicable bankruptcy laws. These matters raise
substantial doubt about the Companys ability to continue
as a going concern. These consolidated financial statements do
not include any adjustments that might result from this
uncertainty.

On October 25, 2004, we effected a
one-for-ten revenue stock split of our outstanding common stock.
On October 26, 2004, we filed a Registration Statement on
Form S-3 with the SEC using a shelf registration process.
Under the shelf registration, which became effective on
November 8, 2004, we may sell any combination of securities
described in the prospectus accompanying the filing in one or
more offerings with a total value of up to $50 million. We
intend to utilize this shelf registration statement for an
equity offering in the future, subject to market conditions.

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| |                     
| | --------------------
| | Product Developments

Proxim, Inc. and Western Multiplex merged with
the vision of forming a company that has the ability to provide
wireless connectivity in any configuration regardless of whether
the radios were providing access indoors or outdoors, and
regardless of whether or not they were performing a bridging or
routing function. This seamless WWAN/WLAN capability is the
backbone of our convergence strategy today. We subsequently
acquired the ORiNOCO business from Agere Systems to enhance our
position in the enterprise WLAN space.

The resulting company had eight research and
development centers and a multitude of product platforms and
product variants. In order to realize the benefits of this
strategy of converging WWAN/WLAN, in early 2003, we focused on
streamlining the product development and manufacturing
operations. In this respect, we consolidated all product
development activity in two locations; Sunnyvale, California and
Bangalore, India. Manufacturing operations were consolidated in
Sunnyvale, California and the number of contract manufacturers
was substantially reduced.

During the remainder of 2003, we completed the
rationalization of the combined portfolio of Western Multiplex,
ORiNOCO and Proxim. Central to that effort was the elimination
of redundancy between the original ORiNOCO and Proxim product
lines. Former Proxim products such as Harmony, Skyline and
Symphony were discontinued, although much of the underlying
technology and networking principles were carried forward and
embodied in our new advanced technology. In parallel, we
developed new platforms on which to standardize the product
development efforts. These platforms have allowed us to release
enhanced versions of our currently existing product portfolio in
2004 and are providing improved product costs, industry leading
functionality, and, in some cases, pioneering new market
categories that we believe will enable us to expand our market
presence. Our new platforms include the:



| |   |                                                                                                                                                         
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | GX broadband point-to-point platform on which we
    will continue to re-launch all of our Lynx and Tsunami wireless
    bridge products;               
|
| |  | A WiFi platform on which we launched our new
    ORiNOCO enterprise class access point products; and                                                    
|
| |  | Tsunami MP.11 point-to-multipoint platform upon
    which our products for wireless internet service providers and
    campus networking are based upon.

We have also recently announced the development
of the ORiNOCO Wireless Switching Solution. This technology is
the cornerstone of a strategic relationship with Motorola and
Avaya where the three parties are working to create a converged
WiFi/ Cellular solution.

In addition, we have announced a collaboration
with Intel Corporation to develop and deliver WiMAX solutions
for fixed and portable broadband wireless access. The agreement
includes the development of base station and subscriber unit
access points that deliver fast wireless access for data, voice
and video services. WiMAX, known also as 802.16, is an emerging
technology that allows long-range high-speed wireless Internet
access, serving both dense metropolitan areas and rural or
suburban communities.

We intend to continue to further the converged
WWAN/WLAN strategy. Augmenting this basic wireless connectivity
strategy we intend to continue to support standards-based,
interoperable solutions wherever possible and practical. Today,
that means producing WiFi compliant solutions for the indoors
and in the future that will mean developing WiMAX compliant
solutions for the outdoors. We intend to closely watch
developments related to available spectrum, unlicensed or
licensed, and develop products in those bands that are demanded
by our customers and provide us with the most promising returns
on research and development investment.



| |                      
| | ---------------------
| | Financial Performance



| |   |                                                                                                                                                                                                                                                                                                                                         
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Our total revenue, net for the third quarter of
    2004 was $31.5 million, a 10.0% decrease compared to our
    total revenue, net of $35.1 million for the third quarter
    of 2003. The revenue decrease was primarily attributable to the
    decline in our ORiNOCO client card business and the
    discontinuation of the former

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | Proxim, Inc. products resulting in reduced WLAN
    sales and partially attributable to reduced carrier spending
    resulting in decreased WWAN sales.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| |   | Our total revenue, net for the first nine months
    of 2004 was $89.6 million, a 18.4% decrease compared to our
    total revenue, net of $109.9 million for the first nine
    months of 2003. The revenue decrease was primarily attributable
    to the decline in our client card business and discontinuation
    of the former Proxim, Inc. products resulting in reduced WLAN
    sales and partially attributable to reduced carrier spending
    resulting in decreased WWAN sales. In addition, revenue was
    higher in the first nine months of 2003 due to patent license
    revenue of $6.0 million recognized in the first quarter of
    2003, resulting from the patent litigation settlement with
    Intersil, as described in Note 17 to the condensed
    consolidated financial statements.                                                                                                                                                     
|
| |  | In our two geographical regions, North America
    and International, product revenue comprised 58.7% and 41.3%,
    respectively, of total revenue, net in the third quarter of 2004
    and 61.2% and 38.8%, respectively, of total revenue, net in
    third quarter of 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| |   | In the first nine months of 2004, North America
    and International product revenue comprised 58.7% and 41.3%,
    respectively of total revenue, net. In the first nine months of
    2003, North America product revenue, North America license
    revenue, and International revenue comprised of 53.6%, 5.5% and
    40.9% of total revenue, net.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| |  | Net loss attributable to common stockholders in
    the third quarter of 2004 was $4.4 million compared to
    $38.2 million in the third quarter of 2003. The decrease
    was primarily attributable to the increase in gross profit by
    $26.9 million, as described below, a decrease in legal
    expense for certain litigation of $1.6 million, a decrease
    in combined research and development and selling, general and
    administrative expenses of $1.8 million, an increase in
    interest income (expense), net of $6.4 million, offset by
    an income tax provision of $0.2 million recorded in the
    third quarter of 2004 and restructuring benefit of
    5.1 million recorded in the third quarter of 2003.
    $3.2 million of the increase in interest income (expense),
    net related to a reversal of interest expense recorded as a
    result of the litigation settlement with Symbol during the third
    quarter of fiscal 2004.
|
| |   | Net loss attributable to common stockholders in
    the first nine months of 2004 was $32.0 million compared to
    $97.7 million in the first nine months of 2003. The
    decrease was primarily attributable to the increase in gross
    profit of $36.2 million, as described below, a decrease in
    restructuring charges of $5.3 million, a decrease in legal
    expense for certain litigation of $4.7 million, a decrease
    in combined research and development and selling, general and
    administrative expenses of $8.5 million, and a decrease in
    interest expense by $1.0 million and an increase in other
    income of $7.7 million.                                                                                                                                                                                                                                                                                                         
|
| |  | Gross profit (loss) or gross margin increased by
    $26.9 million from loss of $(9.9) million or (28.1)%
    in the third quarter of 2003 to profit of $17.0 million or
    54.1% in the third quarter of 2004. Gross profit for the third
    quarter of 2004 included net royalty benefit of
    $4.8 million, which had a 15.2% positive impact on our
    gross margin, resulting from the gain we recorded subsequent to
    entering into a litigation settlement agreement with Symbol (See
    Note 1 to the condensed consolidated financial statement).
    Gross profit for the third quarter of 2003 included a royalty
    charge of 22.9 million, which had a 65.2% negative impact
    on our gross margin, in connection with the Symbol litigation.
    The increase in gross profit is primarily attributable to this
    royalty charge recorded in the third quarter of 2003 and the
    subsequent benefit recorded in the third quarter of 2004.  
|
| |   | Gross profit (loss) or gross margin increased by
    $36.2 million from loss of $(0.2) million or (0.2)% in
    the first nine months of 2003 to profit of $36.0 million or
    40.2% in the first nine months of 2004. Gross profit for the
    first nine months of 2004 included a provision for excess and
    obsolete and lower of cost or market inventory of
    $1.7 million, which had a 1.9% impact on our gross margin,
    and royalty benefit of $3.2 million, which had a 3.5%
    impact on our gross margin. Gross profit for the first nine
    months of 2003 included a restructuring provision for excess and
    obsolete inventory of $22.5 million and royalty charges of
    $22.9 million, which had a 20.5% and 20.8% impact on our
    gross margin, respectively.                                                                                                                                                                           

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Combined research and development, selling,
    general and administrative expenses, decreased from
    $18.1 million in the third quarter of 2003 to
    $16.2 million in the third quarter of 2004, partially
    attributable to our restructuring activities and cost reduction
    efforts implemented in 2003. Legal expenses for certain
    litigation, which represent legal fees associated with our
    litigation with Symbol Technologies, Inc., decreased from
    $1.7 million during the third quarter of 2003 to $105,000
    during the third quarter of 2004.                                                                              
|
| |   | Combined research and development, selling,
    general and administrative expenses, decreased from
    $56.8 million in the first nine months of 2003 to
    $48.3 million in the first nine months of 2004, partially
    attributable to our restructuring activities and cost reduction
    efforts implemented in 2003. Legal expenses for certain
    litigation decreased from $5.7 million during the first
    nine months of 2003 to $1.1 million during the first nine
    months of 2004, primarily attributable to the $3.0 million
    of litigation fees associated with our patent lawsuit with
    Intersil during the first quarter of 2003.

Critical Accounting Policies, Judgments and
Estimates

Our discussion and analysis of our financial
condition and results of operations are based upon our
consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the
United States of America. The preparation of these financial
statements requires us to make estimates and judgments that
affect the reported amounts of assets, liabilities, revenues and
expenses, and related disclosure of contingent assets and
liabilities. On an on-going basis, we evaluate our estimates,
including those related to customer programs and incentives,
product returns, bad debts, inventories, equity investments,
goodwill, intangible assets, income taxes, financing operations,
warranty obligations, excess component order cancellation costs,
restructuring, long-term service contracts, pensions and other
post-retirement benefits, and contingencies and litigation. We
base our estimates on historical experience and on various other
assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results
may differ from these estimates under different assumptions or
conditions.

We believe the following critical accounting
policies affect our more significant judgments and estimates
used in the preparation of our financial statements.



| |                    
| | -------------------
| | Revenue Recognition

Product revenue is generally recognized upon
shipment when persuasive evidence of an arrangement exists, the
price is fixed or determinable, and collectibility is reasonably
assured. We grant certain distributors limited rights of return
and price protection on unsold products. A provision for
estimated future sales returns and warranty costs is recorded at
the time revenue is recognized. Under circumstances where future
returns cannot be reasonably estimated or where we are obligated
to directly bring about resale of the products, revenue is
deferred until shipment to value-added resellers and end
customers by the distributors. Generally, we have no obligation
to provide any modification or customization upgrades,
enhancements or other post-sale customer support.

Revenue from services, such as pre-installation
diagnostic testing and product repair services, is recognized
over the period for which the services are performed, which is
typically less than one month. Revenue from enhanced service
contracts is recognized over the contract period, which ranges
from one to three years.



| |                                                           
| | ----------------------------------------------------------
| | Allowance for Doubtful Accounts, Returns
    and Discounts

We record estimated reductions to revenue for
sales returns, customer programs and incentive offerings
including special pricing agreements, price protection and
promotions. If market conditions were to decline, we may take
actions to increase customer incentive offerings, possibly
resulting in an incremental reduction of revenue at the time the
incentive is offered.

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



| |                   
| | ------------------
| | Warranty Provision

We provide for the estimated cost of product
warranties at the time revenue is recognized. While we engage in
extensive product quality programs and processes, including
actively monitoring and evaluating the quality of our component
suppliers, our warranty obligation is affected by product
failure rates and material usage and service delivery costs
incurred in correcting a product failure. Should actual product
failure rates, material usage or service delivery costs differ
from our estimates, revisions to the estimated warranty
liability would be required.



| |                         
| | ------------------------
| | Valuation of Inventories

We write down our inventory for estimated excess
and obsolete or unmarketable inventory equal to the difference
between the cost of inventory and the estimated market value
based upon assumptions about future demand and market
conditions. If actual market conditions are less favorable than
those projected by management, additional inventory write-downs,
including adverse purchase order commitments to our vendors, may
be required.



| |                                     
| | ------------------------------------
| | Valuation of Deferred Tax
    Assets

We record a valuation allowance to reduce our
deferred tax assets to the amount that is more likely than not
to be realized. While we have considered future taxable income
and ongoing prudent and feasible tax planning strategies in
assessing the need for the valuation allowance, in the event we
were to determine that we would be able to realize our deferred
tax assets in the future in excess of our recorded amount, an
adjustment to the deferred tax asset would increase income in
the period such determination was made. Likewise, should we
determine that we would not be able to realize all or part of
our net deferred tax asset in the future, an adjustment to the
deferred tax asset would be charged to income in the period such
determination was made.



| |                                                                         
| | ------------------------------------------------------------------------
| | Restructuring Costs and Impairment of
    Goodwill and Intangible Assets

In response to changes in industry and market
conditions, we may be required to strategically realign our
resources and consider restructuring, disposing of, or
otherwise, exiting businesses. Any decision to limit investment
in or to dispose of or otherwise exit businesses may result in
the recording of special charges, such as inventory and
technology related write-offs and workforce reduction costs,
charges relating to consolidation of excess facilities, or
claims from third parties who were resellers or users of
discontinued products. Estimates relating to the liabilities for
excess facilities are affected by changes in real estate market
conditions. Estimates with respect to the useful life or
ultimate recoverability of our carrying basis of assets,
including purchased intangible assets, could change as a result
of such assessments and decisions. Additionally, we are required
to perform goodwill impairment tests on an annual basis and
between annual tests in certain circumstances. We cannot assure
you that future goodwill impairment tests will not result in a
charge to earnings.



| |                                             
| | --------------------------------------------
| | Patent Litigation and Infringement
    Costs

We have been involved in litigation in the normal
course of business. The results of any litigation matter are
inherently uncertain. In the event of any adverse decision in
litigation with third parties that was pending as of
October 1, 2004 and those that could arise in the future
with respect to patents, other intellectual property rights
relevant to our products and defective products, we could be
required to pay damages and other expenses, to cease the
manufacture, use and sale of infringing products, to expand
significant resources to develop non-infringing technology, or
to obtain licenses to the infringing technology. These charges
may occur in any particular quarter resulting in variability in
our operating results.

34



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##### Table of Contents



Results of Operations

The following table provides results of
operations data as a percentage of revenue for the periods
presented:

|                                                              |                                      |                          |       |                   |      |            |        |               |       |   |       |      |      |  |       |      |      |  
|------------------------------------------------------------- | ------------------------------------ | ------------------------ | ----- | ----------------- | ---- | ---------- | ------ | ------------- | ----- | - | ----- | ---- | ---- |  | ----- | ---- | ---- | -
|                                                              |                                      |                          |       |                  
|                                                              |                                      | Three Months Ended       |       | Nine Months Ended
|                                                              |                                      |                          |       |                  
|                                                              |                                      | October 1,               |       | September 26,     |      | October 1, |        | September 26,
|                                                              |                                      | 2004                     |       | 2003              |      | 2004       |        | 2003         
|                                                              |                                      |                          |       |                   |      |            |        |              
|Total revenue, net                                            |                                      |                          | 100.0 | %                 |      |            | 100.0  | %             |       |   | 100.0 | %    |      |  | 100.0 | %   
|Cost of revenue                                               |                                      |                          | 61.1  |                   |      |            | 62.9   |               |       |   | 63.4  |      |      |  | 58.8  |     
|Royalty charges (benefit)                                     |                                      |                          | (15.2 | )                 |      |            | 65.2   |               |       |   | (3.5  | )    |      |  | 20.9  |     
|Restructuring provision for excess and obsolete
    inventory |                                      |                          |      |                   |      |            |       |               |       |   |      |      |      |  | 20.5  |     
|                                                              |                                      |                          |       |                   |      |            |        |               |       |   |       |      |      |  |       |     
|                                                              |                                      | Gross profit (loss)      |       |                   | 54.1 |            |        |               | (28.1 | ) |       |      | 40.1 |  |       |      | (0.2 | )
|Operating expenses:                                           |                                      |                          |       |                   |      |            |        |               |       |   |       |      |      |  |       |     
|                                                              | Research and development             |                          |       | 15.1              |      |            |        | 14.0          |       |   |       | 15.8 |      |  |       | 17.3 |     
|                                                              | Selling, general and administrative  |                          |       | 36.5              |      |            |        | 37.6          |       |   |       | 38.0 |      |  |       | 34.3 |     
|                                                              | Legal expense for certain litigation |                          |       | 0.3               |      |            |        | 4.8           |       |   |       | 1.2  |      |  |       | 5.2  |     
|                                                              | Amortization of intangible assets    |                          |       | 12.5              |      |            |        | 15.3          |       |   |       | 16.4 |      |  |       | 14.8 |     
|                                                              | Bad debt arising from restructuring  |                          |       |                  |      |            |        | 6.6           |       |   |       |     |      |  |       | 2.1  |     
|                                                              | Restructuring charges (benefit)      |                          |       |                  |      |            |        | (14.8         | )     |   |       | 2.3  |      |  |       | 6.6  |     
|                                                              |                                      |                          |       |                   |      |            |        |               |       |   |       |      |      |  |       |     
|                                                              |                                      | Total operating expenses |       |                   | 64.4 |            |        |               | 63.5  |   |       |      | 73.7 |  |       |      | 80.3 |  
|                                                              |                                      |                          |       |                   |      |            |        |               |       |   |       |      |      |  |       |     
|Loss from operations                                          |                                      |                          | (10.3 | )                 |      |            | (91.6  | )             |       |   | (33.6 | )    |      |  | (80.5 | )   
|Interest income (expense), net                                |                                      |                          | 6.9   |                   |      |            | (12.0  | )             |       |   | (3.6  | )    |      |  | (3.9  | )   
|Other income (expense), net                                   |                                      |                          | (0.8  | )                 |      |            | (0.6   | )             |       |   | 8.3   |      |      |  | (0.2  | )   
|                                                              |                                      |                          |       |                   |      |            |        |               |       |   |       |      |      |  |       |     
|Loss before income taxes                                      |                                      |                          | (4.2  | )                 |      |            | (104.2 | )             |       |   | (28.7 | )    |      |  | (84.6 | )   
|Income tax provision                                          |                                      |                          | 0.6   |                   |      |            |       |               |       |   |      |      |      |  |      |     
|                                                              |                                      |                          |       |                   |      |            |        |               |       |   |       |      |      |  |       |     
|Net loss                                                      |                                      |                          | (4.8  | )                 |      |            | (104.2 | )             |       |   | (28.7 | )    |      |  | (84.6 | )   
|Accretion of Series A and B Preferred Stock
    obligations   |                                      |                          | (9.2  | )                 |      |            | (4.6   | )             |       |   | (7.0  | )    |      |  | (4.3  | )   
|                                                              |                                      |                          |       |                   |      |            |        |               |       |   |       |      |      |  |       |     
|Net loss attributable to common stockholders                  |                                      |                          | (14.0 | )%                |      |            | (108.8 | )%            |       |   | (35.7 | )%   |      |  | (88.9 | )%  
|                                                              |                                      |                          |       |                   |      |            |        |               |       |   |       |      |      |  |       |     

Comparison of the Three and Nine Months Ended
October 1, 2004 and September 26, 2003



| |                   
| | ------------------
| | Total Revenue, Net

Revenue consists of product revenues, reduced by
estimated sales returns and allowances for price protection.
Provisions for estimated sales returns and allowances, which are
based on historical trends, contractual terms and other
available information, are recorded at the time revenue is
recognized.

35



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We classify our products into two product lines:
Wireless Wide Area Network, or WWAN, product line, and Wireless
Local Area Network, or WLAN, product line. The WWAN product line
includes point-to-point Lynx and Tsunami products and
point-to-multipoint Tsunami products. The WLAN product line
includes ORiNOCO 802.11 access point and client card products.
Total revenue, net during the nine months ended
September 26, 2003 also includes license revenue of
$6 million related to the settlement agreement with
Intersil during the first quarter of 2003 (see Note 17 of
the condensed consolidated financial statements). Prior to the
March 26, 2002 merger with Proxim, Inc., we did not have a
WLAN product line. Historical WLAN revenue prior to
March 26, 2002 of the former Proxim, Inc. and prior to
August 5, 2002 for the ORiNOCO products acquired from Agere
are not reported in the table below.

Revenue information by product line is as follows
(in thousands):

|                     |               |                    |        |                   |  |            |        |               |  |   |        |        |  |   |        |         | 
|-------------------- | ------------- | ------------------ | ------ | ----------------- |  | ---------- | ------ | ------------- |  | - | ------ | ------ |  | - | ------ | ------- | 
|                     |               |                    |        |                  
|                     |               | Three Months Ended |        | Nine Months Ended
|                     |               |                    |        |                  
|                     |               | October 1,         |        | September 26,     |  | October 1, |        | September 26,
|Product Line         |               | 2004               |        | 2003              |  | 2004       |        | 2003         
|                     |               |                    |        |                   |  |            |        |              
|WWAN                 |               | $                  | 16,772 |                   |  | $          | 17,324 |               |  | $ | 47,031 |        |  | $ | 52,736 |        
|WLAN                 |               |                    | 14,754 |                   |  |            | 17,734 |               |  |   | 42,609 |        |  |   | 51,156 |        
|WLAN license revenue |               |                    |       |                   |  |            |       |               |  |   |       |        |  |   | 6,000  |        
|                     |               |                    |        |                   |  |            |        |               |  |   |        |        |  |   |        |        
|                     | Total revenue |                    | $      | 31,526            |  |            | $      | 35,058        |  |   | $      | 89,640 |  |   | $      | 109,892 | 
|                     |               |                    |        |                   |  |            |        |               |  |   |        |        |  |   |        |        

We sell our products worldwide primarily through
independent distributors and value-added resellers as well as
through a direct sales force. We currently operate in two
geographic regions: North America and International. Revenue
outside of North America are primarily export sales denominated
in United States dollars. Disaggregated financial information
regarding our revenue by geographic region is as follows (in
thousands):

|                              |               |                    |        |                   |  |            |        |               |  |   |        |        |  |   |        |         | 
|----------------------------- | ------------- | ------------------ | ------ | ----------------- |  | ---------- | ------ | ------------- |  | - | ------ | ------ |  | - | ------ | ------- | 
|                              |               |                    |        |                  
|                              |               | Three Months Ended |        | Nine Months Ended
|                              |               |                    |        |                  
|                              |               | October 1,         |        | September 26,     |  | October 1, |        | September 26,
|Geographic Region             |               | 2004               |        | 2003              |  | 2004       |        | 2003         
|                              |               |                    |        |                   |  |            |        |              
|North America product revenue |               | $                  | 18,516 |                   |  | $          | 21,464 |               |  | $ | 52,616 |        |  | $ | 58,939 |        
|North America license revenue |               |                    |       |                   |  |            |       |               |  |   |       |        |  |   | 6,000  |        
|International product revenue |               |                    | 13,010 |                   |  |            | 13,594 |               |  |   | 37,024 |        |  |   | 44,953 |        
|                              |               |                    |        |                   |  |            |        |               |  |   |        |        |  |   |        |        
|                              | Total revenue |                    | $      | 31,526            |  |            | $      | 35,058        |  |   | $      | 89,640 |  |   | $      | 109,892 | 
|                              |               |                    |        |                   |  |            |        |               |  |   |        |        |  |   |        |        

Two distributors accounted for 17.3%, and 13.0%
of total revenue during the third quarter of 2004, and two
distributors accounted for 16.6% and 13.2% of total revenue
during the third quarter of 2003. Two distributors accounted for
15.9% and 12.7% of total revenue during the first nine months of
2004, and one distributors accounted for 13.9% of total revenue
during the first nine months of 2003.

Total revenue, net decreased 10.1% from
$35.1 million in the third quarter of 2003 to
$31.5 million in the third quarter of 2004. The revenue
decrease is primarily attributable to the decline in our ORiNOCO
client card business and the discontinuation of the former
Proxim, Inc. products resulting in reduced WLAN sales and
partially attributable to reduced carrier spending resulting in
decreased WWAN sales.

Total revenue, net decreased 18.4% from
$109.9 million in the first nine months of 2003 to
$89.6 million in the first nine months of 2004. The revenue
decrease is primarily attributable to the decline in our ORiNOCO
client card business and the discontinuation of the former
Proxim, Inc. products resulting in reduced WLAN sales and
partially attributable to reduced carrier spending resulting in
decreased WWAN sales. In addition, revenue in the first
nine months of 2003 included license revenue of
$6.0 million resulting from the patent litigation
settlement with Intersil, as described in Note 17 to the
condensed consolidated financial statements.

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| |                
| | ---------------
| | Cost of Revenue

Cost of revenue decreased 12.5% from
$22.0 million in the third quarter of 2003 to
$19.3 million in the third quarter of 2004. As a percentage
of total revenue, net, cost of revenue decreased from 62.9% in
the third quarter of 2003 to 61.1% in the third quarter of 2004.
The decrease in cost of revenue as a percentage of total
revenue, net was primarily attributable to improved margin
performance arising from the sales increase in our next
generation, higher margin products.

Cost of revenue decreased 12.2% from
$64.7 million in the first nine months of 2003 to
$56.8 million in the first nine months of 2004. As a
percentage of total revenue, net, cost of revenue increased from
58.8% in the first nine months of 2003 to 63.4% in the first
nine months of 2004. Included in total revenue, net in the first
quarter of 2003 was $6.0 million license revenue in
connection with the patent litigation settlement with Intersil.
Excluding the $6.0 million license revenue, cost of revenue
as a percentage of product revenue increased from 62.2% in the
first nine months of 2003 to 63.4% in the first nine months of
2004. This increase as a percentage of product revenue was
primarily attributable to a $1.7 million provision for
excess and obsolete inventory and lower of cost or market
recorded in the first nine months of 2004, partially offset by
improved margin performance arising from the sales increase in
our next generation, higher margin products.

During the first nine months of 2004, we recorded
a $1.7 million provision for excess and obsolete inventory
as part of our ongoing review of our inventory reserve
requirements. To mitigate the component supply constraints that
have existed in the past, we had built inventory levels for
certain components with long lead times and had entered into
longer term commitments for certain components. The inventory
charges were due to a sudden and significant decrease in
anticipated demand for certain of our products, notification
from customers that they would not be ordering as many products
as they had previously indicated they would, and continued
increase in competition in the networking products market.

Due to these factors, inventory levels exceeded
our requirements based on our current 12-month sales forecasts.
The additional excess and obsolete and lower of cost or market
inventory charges were calculated based on the inventory levels
in excess of the estimated 12-month sales forecasts and
anticipated reduced selling prices for certain products. We do
not anticipate that the excess and obsolete inventory subject to
this reserve will be saleable at a later date based on our
current 12-month demand forecast. We use a 12-month sales
forecast, because the wireless communications industry is
characterized by rapid technological changes such that if we
have not sold a product after a 12-month period, it is unlikely
that the product will be sold.

The following is a summary of the changes in the
reserve for excess and obsolete inventory during the first nine
months of 2004 (in thousands):

|                                            |  |   |        |  
|------------------------------------------- |  | - | ------ | -
|Balance as of December 31, 2003             |  | $ | 5,072  |  
|Provision for excess and obsolete inventory |  |   | 1,723  |  
|Inventory scrapped                          |  |   | (2,049 | )
|                                            |  |   |        |  
|Balance as of July 2, 2004                  |  | $ | 4,746  |  
|                                            |  |   |        |  



| |                          
| | -------------------------
| | Royalty Charges (Benefit)

On September 15, 2003, we announced that a
jury had rendered a verdict in the first phase of our patent
infringement suit with Symbol. On Symbols claims of patent
infringement, the jury found that certain of our products
infringe two of Symbols patents and assessed a 6% royalty
on the revenue of relevant products. On November 24, 2003,
the District Court conducted a one-day bench trial on our
equitable defenses not addressed by the jury. On July 29,
2004, we announced that the court has denied our equitable
defenses and has determined that the jurys award of a 6%
royalty on our sales of these products from 1995 through
September 2003, plus prejudgment interest, results in an award
of damages to Symbol of $25.9 million. As of July 2,
2004, we had recorded an accrual for estimated past royalties of
$22.9 million and interest of $3.0 million covering
the period from 1995 through September 2003 plus a total of
$2.8 million for estimated potential royalties and interest
covering the period from October 2003 to July 2, 2004. On
September 13, 2004

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we entered into a Settlement Agreement and a
Patent Cross License Agreement with Symbol and executed two
Patent Assignments in favor of Symbol resolving all outstanding
litigation.


Under the terms of the Settlement Agreement, we
agreed to pay Symbol $22.75 million over the ensuing ten
quarters, commencing with the quarter ending October 1,
2004. Additionally, under the Patent License Agreement, we
agreed to cross license certain patents and pay to Symbol a two
percent royalty on sales of certain of our WLAN products.
Accordingly, reversal was made for royalty charges of
$4.8 million and interest expense of $3.2 million in
the quarter ended October 1, 2004.

During the third quarter of 2004, we recorded a
non-cash royalty benefit of $4.8 million, which is the
difference of the accrual recorded for estimated past royalty
charges of 25.5 million and the net present value of the
settlement amount of $22.75 million. During the first nine
months of 2004, the royalty charges amounted to a benefit of
$3.2 million versus an expense of $22.9 million during
the first nine months of 2003. See Note 17 of the condensed
consolidated financial statements for a further description of
the Symbol litigation.



| |                                                              
| | -------------------------------------------------------------
| | Restructuring Provision for Excess and
    Obsolete Inventory

During the second quarter and first nine months
of 2003, we recorded a $22.5 million provision for excess
and obsolete inventory as part of our restructuring activities.
To mitigate the component supply constraints that have existed
in the past, we had built inventory levels for certain
components with long lead times and had entered into longer term
commitments for certain components. The excess inventory charges
were due to the following factors:



| |   |                                                                                                                                                           
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | A sudden and significant decrease in demand for
    certain WWAN Lynx and Tsunami license-exempt point-to-point and
    WLAN 802.11a and Harmony products;
|
| |  | Notification from customers that they would not
    be ordering as many products as they had previously indicated
    they would;                         
|
| |  | Continued decline in the demand for fixed
    wireless solutions due to the worldwide slowdown in the telecom
    industry;                               
|
| |  | Continued increase in competition for wireless
    networking products, particularly related to home networking and
    enterprise LANs;                  
|
| |  | Managements strategy to discontinue
    products, and in certain cases replace these products with new
    or redesigned products.                       

Due to these factors, inventory levels exceeded
our requirements based on current 12-month sales forecasts. The
additional excess and obsolete inventory charge was calculated
based on the inventory levels in excess of the estimated
12-month demand for each specific product family.



| |                                     
| | ------------------------------------
| | Research and Development
    Expense

Research and development expense decreased 3.4%
from $4.9 million, or 14.0% of total revenue, net, in the
third quarter of 2003 to $4.7 million, or 15.1% of total
revenue, net in the third quarter of 2004. The decrease in
research and development expense was primarily attributable to
the reduction in workforce implemented in 2003, resulting in
decreased personnel expenses. Severance pay associated with the
workforce reduction was included in the restructuring charges
recorded in 2003.

Research and development expense decreased 25.6%
from $19.0 million, or 17.3% of total revenue, net, in the
first nine months of 2003 to $14.2 million or 15.8% of
total revenue, net in the first nine months of 2004. The
decrease in research and development expense was primarily
attributable to the reduction in workforce implemented in 2003,
resulting in decreased personnel expenses. Severance pay
associated with the workforce reduction was included in the
restructuring charges recorded in 2003.

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| |                                                
| | -----------------------------------------------
| | Selling, General and Administrative
    Expense

Selling, general and administrative expense
decreased 12.8% from $13.2 million or 37.6% of total
revenue, net in the third quarter of 2003 to $11.5 million
or 36.5% of total revenue, net in the third quarter of 2004. The
decrease in selling, general and administrative expenses from
the third quarter of 2003 to the third quarter of 2004 was
primarily attributable to the workforce reduction implemented in
2003, resulting in reduced personnel expenses.

Selling, general and administrative expenses
decreased 9.6% from $37.7 million, or 34.3% of total
revenue, net, in the first nine months of 2003 to
$34.1 million, or 38.0% of total revenue, net, in the first
nine months of 2004. The decrease in selling, general and
administrative expenses on an absolute basis from the first nine
months of 2003 to the first nine months of 2004 was primarily
attributable to the workforce reduction implemented in 2003,
resulting in reduced personnel expenses. The increase as a
percentage of revenue in the first nine months of 2004 was
attributable to the decrease in revenue.



| |                                         
| | ----------------------------------------
| | Legal Expense for Certain
    Litigation

Legal expense for certain litigation decreased
$1.6 million from $1.7 million in the third quarter of
2003 to $105,000 in the third quarter of 2004. The decrease was
primarily attributable to the decrease in legal services
incurred during the respective periods in connection with our
litigation with Symbol. Please refer to Part II,
Item 1, Legal Proceedings for a description of our
litigation.

Legal expense for certain litigation decreased
$4.6 million from $5.7 million in the first nine
months of 2003 to $1.1 million in the first nine months of
2004. The decrease was primarily attributable to the
$3.0 million of litigation fees incurred in the first half
of 2003 associated with our patent lawsuit with Intersil. As
described in Part II, Item 1, Legal Proceedings, we
settled our lawsuit with Intersil and recorded license revenue
of $6.0 million in the first quarter of 2003.



| |                                      
| | -------------------------------------
| | Amortization of Intangible
    Assets

Amortization of intangible assets was
$3.9 million in the third quarter of 2004 compared to
$5.4 million in the third quarter of 2003. Amortization of
intangible assets was $14.7 million in the first nine
months of 2004 compared to $16.2 million in the first nine
months of 2003. The decrease is primarily attributable to
certain intangible assets recorded in connection with our
purchase of the 802.11 business of Agere Systems in 2002
becoming fully amortized during the third quarter of 2004.



| |                                                              
| | -------------------------------------------------------------
| | Restructuring Charges for Severance and
    Excess Facilities

During the first nine months of 2004, we recorded
restructuring charges of $2.0 million, consisting of
$1.9 million of cash provisions and $0.1 million of
non-cash provisions for abandoned property and equipment. The
$1.9 million of cash provisions consisted of
$1.4 million of operating lease commitments, less estimated
future sublease receipts and exit costs related to a portion of
the Sunnyvale facility, which was closed in the first quarter of
2004, and $0.5 million of severance payments for five
employees. The estimated future sublease receipts are based on
current comparable rates for leases in the respective markets.
If facility rental rates continue to decrease in these markets
or if it takes longer than expected or if we are unable to
sublease these facilities, the actual costs for closures of
facilities could exceed the original estimates and additional
restructuring charges totaling $2.6 million could result.

39



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##### Table of Contents



The following table summarizes the restructuring
activities for the year ended December 31, 2003 and the
nine months ended October 1, 2004 (in thousands):

|                                               |  |           |        |            |  |            |         |       |  |       |        |   |  |   |        |   |  |   |         |  
|---------------------------------------------- |  | --------- | ------ | ---------- |  | ---------- | ------- | ----- |  | ----- | ------ | - |  | - | ------ | - |  | - | ------- | -
|                                               |  |           |        |            |  | Asset Held |         |       |  |      
|                                               |  | Severance |        | Facilities |  | for Sale   |         | Other |  | Total
|                                               |  |           |        |            |  |            |         |       |  |      
|Balance as of December 31, 2002                |  | $         |       |            |  | $          | 30,450  |       |  | $     |       |   |  | $ |       |   |  | $ | 30,450  |  
|Provision charged to operations                |  |           | 9,071  |            |  |            | 12,743  |       |  |       | 6,925  |   |  |   | 3,904  |   |  |   | 32,643  |  
|Reversal of previously recorded provision      |  |           |       |            |  |            | (27,764 | )     |  |       |       |   |  |   |       |   |  |   | (27,764 | )
|Non-cash charges utilized                      |  |           |       |            |  |            |        |       |  |       |       |   |  |   | (3,304 | ) |  |   | (3,304  | )
|Cash payments                                  |  |           | (5,451 | )          |  |            | (3,845  | )     |  |       | (9,966 | ) |  |   |       |   |  |   | (19,262 | )
|Proceeds from sale of asset held for sale, net |  |           |       |            |  |            |        |       |  |       | 3,041  |   |  |   |       |   |  |   | 3,041   |  
|                                               |  |           |        |            |  |            |         |       |  |       |        |   |  |   |        |   |  |   |         |  
|Balance as of December 31, 2003                |  |           | 3,620  |            |  |            | 11,584  |       |  |       |       |   |  |   | 600    |   |  |   | 15,804  |  
|Provision charged to operations                |  |           | 463    |            |  |            | 1,447   |       |  |       |       |   |  |   | 119    |   |  |   | 2,029   |  
|Non-cash charges utilized                      |  |           |       |            |  |            |        |       |  |       |       |   |  |   | (119   | ) |  |   | (119    | )
|Cash payments                                  |  |           | (3,731 | )          |  |            | (2,568  | )     |  |       |       |   |  |   |       |   |  |   | (6,299  | )
|                                               |  |           |        |            |  |            |         |       |  |       |        |   |  |   |        |   |  |   |         |  
|Balance as of October 1, 2004                  |  | $         | 352    |            |  | $          | 10,463  |       |  | $     |       |   |  | $ | 600    |   |  | $ | 11,415  |  
|                                               |  |           |        |            |  |            |         |       |  |       |        |   |  |   |        |   |  |   |         |  



| |                                   
| | ----------------------------------
| | Interest Income (Expense),
    Net

We recorded interest expense of $4.2 million
during the third quarter of 2003 compared to interest income of
$2.2 million during the third quarter of 2004. Interest
expense decreased from $4.3 million to $3.2 million
from the first nine months of 2003 to the first nine months of
2004. The decrease in interest expense for the third quarter and
first nine months of 2004 was primarily attributable to a
reversal of interest expense recorded in connection with the
Symbol patent litigation. The following table summarizes
interest income (expense) (in thousands):

|                                             |  |                    |       |                   |  |            |        |               |  |   |        |   |  |   |        |  
|-------------------------------------------- |  | ------------------ | ----- | ----------------- |  | ---------- | ------ | ------------- |  | - | ------ | - |  | - | ------ | -
|                                             |  |                    |       |                  
|                                             |  | Three Months Ended |       | Nine Months Ended
|                                             |  |                    |       |                  
|                                             |  | October 1,         |       | September 26,     |  | October 1, |        | September 26,
|                                             |  | 2004               |       | 2003              |  | 2004       |        | 2003         
|                                             |  |                    |       |                   |  |            |        |              
|Interest income (expense) on royalty charges |  | $                  | 3,233 |                   |  | $          | (2,950 | )             |  | $ | 3,018  |   |  | $ | (2,950 | )
|Interest expense on convertible notes        |  |                    | (767  | )                 |  |            | (1,197 | )             |  |   | (5,808 | ) |  |   | (1,197 | )
|Interest expense on convertible bridge loan  |  |                    | (271  | )                 |  |            |       |               |  |   | (271   | ) |  |   |       |  
|Other                                        |  |                    | (4    | )                 |  |            | (45    | )             |  |   | (183   | ) |  |   | (138   | )
|                                             |  |                    |       |                   |  |            |        |               |  |   |        |   |  |   |        |  
|                                             |  | $                  | 2,191 |                   |  | $          | (4,192 | )             |  | $ | (3,244 | ) |  | $ | (4,285 | )
|                                             |  |                    |       |                   |  |            |        |               |  |   |        |   |  |   |        |  



| |                            
| | ---------------------------
| | Other Income (Expense), Net

Other income (expense), net was $(242,000) and
$7.4 million during the three and nine months ended
October 1, 2004. The following table summarizes other
income (expense), net (in thousands):

|                                                 |  |                    |        |                   |  |            |      |               |  |   |        |   |  |   |      |  
|------------------------------------------------ |  | ------------------ | ------ | ----------------- |  | ---------- | ---- | ------------- |  | - | ------ | - |  | - | ---- | -
|                                                 |  |                    |        |                  
|                                                 |  | Three Months Ended |        | Nine Months Ended
|                                                 |  |                    |        |                  
|                                                 |  | October 1,         |        | September 26,     |  | October 1, |      | September 26,
|                                                 |  | 2004               |        | 2003              |  | 2004       |      | 2003         
|                                                 |  |                    |        |                   |  |            |      |              
|Amortization of debt discount and issuance costs |  | $                  | (2,434 | )                 |  | $          | (242 | )             |  | $ | (8,171 | ) |  | $ | (242 | )
|Revaluation of common stock warrants             |  |                    | 2,500  |                   |  |            |     |               |  |   | 16,300 |   |  |   |     |  
|Loss on sale of short-term investment            |  |                    | (308   | )                 |  |            |     |               |  |   | (308   | ) |  |   |     |  
|Loss on disposal of property and equipment       |  |                    |       |                   |  |            |     |               |  |   | (350   | ) |  |   |     |  
|                                                 |  |                    |        |                   |  |            |      |               |  |   |        |   |  |   |      |  
|                                                 |  | $                  | (242   | )                 |  | $          | (242 | )             |  | $ | 7,471  |   |  | $ | (242 | )
|                                                 |  |                    |        |                   |  |            |      |               |  |   |        |   |  |   |      |  

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| |                     
| | --------------------
| | Income Tax Provision

The income tax provision recorded during the
three months ended October 1, 2004 represents net provision
for the valuation allowance of deferred tax assets as a result
of the reversal of the deferred tax liability arising from the
disposal of the short-term investments.



| |                                                                                  
| | ---------------------------------------------------------------------------------
| | Accretion of Series A and
    Series B Preferred Stock Redemption
    Obligations

The accretion of Series A and Series B
Preferred Stock represents the quarterly adjustments to the
carrying value of the Series A Preferred Stock and
Series B Preferred Stock, on an effective-interest basis,
so that the carrying value will equal the redemption amount at
the earliest redemption date. The accretion was recorded to
increase the net loss attributable to common stockholders.

Liquidity and Capital Resources



| |                        
| | -----------------------
| | Sources and Use of Cash

Cash and cash equivalents decreased by
$1.5 million from $19.8 million at December 31,
2003 to $18.3 million at October 1, 2004.

Net cash used in operating activities for the
nine months ended October 1, 2004 was $10.4 million
and was attributable to the net loss after the effect of
non-cash charges, partially offset by a decrease in accounts
receivable, net, and inventory, net and an increase in accounts
payable and other accrued liabilities. Net cash used in
operating activities for the nine months ended
September 26, 2003 was $23.7 million and was
attributable to the net loss after the effect of non-cash
charges, an increase in inventory excluding the restructuring
provision for excess and obsolete inventory partially offset by
an decrease in accounts receivable, net and restricted cash and
other assets and an increase in accrued royalties and interest.

Net cash used in investing activities for the
nine months ended October 1, 2004 was $679,000 and
represented capital spending. Net cash used in investing
activities for the nine months ended September 26, 2003 was
$12.3 million and was attributable to capital spending of
$2.9 million, purchase of an asset held for sale of
$10.0 million, offset by a $500,000 repayment of a portion
of a loan to a former officer. As discussed in Note 5 to
the condensed consolidated financial statements, we intend to
continue to seek repayment on the outstanding loan balance from
this former officer.

Net cash provided by financing activities for the
nine months ended October 1, 2004 was $9.6 million and
was attributable to issuance of $10 million bridge loan and
the issuance of common stock, net of $531,000, offset by
principal payments on capital lease obligations of $895,000. Net
cash provided by financing activities for the nine months ended
September 26, 2003 was $32.0 million due to
$1.6 million borrowings on capital lease obligations,
proceeds from repayments of notes receivable from stockholders
of $187,000, $30 million proceeds from issuance of
convertible promissory notes, and the issuance of common stock,
net of $781,000, offset by principal payments on capital lease
obligations of $539,000.

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| |                        
| | -----------------------
| | Contractual Commitments

We occupy our facilities under several
non-cancelable operating lease agreements expiring at various
dates through September 2009, and require payment of property
taxes, insurance, maintenance and utilities. Future payments
under contractual obligations as of October 1, 2004 were as
follows (in thousands):

|                                       |  |                        |         |                          |  |      |       |      |  |      |        |      |  |            |        |  |  |   |         |  |  |   |       |  |  |   |         | 
|-------------------------------------- |  | ---------------------- | ------- | ------------------------ |  | ---- | ----- | ---- |  | ---- | ------ | ---- |  | ---------- | ------ |  |  | - | ------- |  |  | - | ----- |  |  | - | ------- | 
|                                       |  |                       
|                                       |  | Payments Due By Period
|                                       |  |                       
|                                       |  |                        |         |                          |  |     
|                                       |  | Total                  |         | Year Ending December 31, |  |     
|                                       |  | Amounts                |         |                          |  |     
|                                       |  | Committed              |         | 2004                     |  | 2005 |       | 2006 |  | 2007 |        | 2008 |  | Thereafter
|                                       |  |                        |         |                          |  |      |       |      |  |      |        |      |  |           
|Severance pay                          |  | $                      | 352     |                          |  | $    | 352   |      |  | $    |       |      |  | $          |       |  |  | $ |        |  |  | $ |      |  |  | $ |        | 
|Royalty payments                       |  |                        | 20,250  |                          |  |      | 2,500 |      |  |      | 10,000 |      |  |            | 7,750  |  |  |   |        |  |  |   |      |  |  |   |        | 
|Repayment of convertible bridge loan   |  |                        | 10,750  |                          |  |      |      |      |  |      | 10,750 |      |  |            |       |  |  |   |        |  |  |   |      |  |  |   |        | 
|Operating leases                       |  |                        | 33,669  |                          |  |      | 1,981 |      |  |      | 7,740  |      |  |            | 6,708  |  |  |   | 6,371   |  |  |   | 6,435 |  |  |   | 4,434   | 
|Capital leases                         |  |                        | 1,289   |                          |  |      | 323   |      |  |      | 920    |      |  |            | 46     |  |  |   |        |  |  |   |      |  |  |   |        | 
|Project commitments                    |  |                        | 799     |                          |  |      | 799   |      |  |      |       |      |  |            |       |  |  |   |        |  |  |   |      |  |  |   |        | 
|Redemption of Series B Preferred Stock |  |                        | 128,545 |                          |  |      |      |      |  |      |       |      |  |            |       |  |  |   |        |  |  |   |      |  |  |   | 128,545 | 
|Redemption of Series A Preferred Stock |  |                        | 106,899 |                          |  |      |      |      |  |      |       |      |  |            |       |  |  |   | 106,899 |  |  |   |      |  |  |   |        | 
|                                       |  |                        |         |                          |  |      |       |      |  |      |        |      |  |            |        |  |  |   |         |  |  |   |       |  |  |   |         | 
|                                       |  | $                      | 302,553 |                          |  | $    | 5,955 |      |  | $    | 29,410 |      |  | $          | 14,504 |  |  | $ | 113,270 |  |  | $ | 6,435 |  |  | $ | 132,979 | 
|                                       |  |                        |         |                          |  |      |       |      |  |      |        |      |  |            |        |  |  |   |         |  |  |   |       |  |  |   |         | 

As of October 1, 2004, we were required to
redeem all outstanding shares of Series A and Series B
Preferred Stock for cash in August 2007 and July 2011,
respectively, if they were not previously converted into common
stock. Pursuant to the stockholder approval on October 21,
2004, all of the outstanding shares of Series A and
Series B Preferred Stock were converted into our
Class A common stock.

For the nine months ended October 1, 2004
and the years ended December 31, 2003 and 2002, we recorded
restructuring charges of $19.5 million related to the
committed future lease payments for closed facilities, net of
estimated future sublease receipts and reversal of previously
recorded provision, which are included in the operating leases
caption above. As of October 1, 2004, we had unconditional
purchase order commitments of $799,000, which are included as
accrued liabilities.

As described in Note 1 under Significant
Events in the Notes to the Condensed Consolidated Financial
Statements, on July 30, 2004, the Investors exchanged the
aggregate principal amount of the Notes, which includes accrued
but unpaid interest, into shares of Series B Preferred
Stock, in accordance with the existing terms and conditions of
the Notes. The exchange relieved us from the requirement to
repay the Notes on their maturity date of September 30,
2004. Following the approval of our stockholders, the Investors
also surrendered all of their Series A Preferred Stock, all
of their Series B Preferred Stock, and their warrants to
purchase shares of our Class A common stock in exchange for
an aggregate of 16.4 million shares of Class A common
stock and 400,000 shares of our newly issued Series C
Preferred Stock. On July 30, 2004, we received
$10.0 million in cash proceeds from the Investors in
exchange for a new convertible bridge note pursuant to the
securities purchase agreement dated July 27, 2004.



| |                  
| | -----------------
| | Credit Facilities

In December 2002, we entered into a secured
credit facility with Silicon Valley Bank (the
Lender), and then subsequently amended the credit
facility in March 2003. On June 13, 2003, in order to
secure additional working capital, we entered into a letter
agreement (the Letter Agreement) and an accounts
receivable financing agreement, which effectively amended and
restated the existing credit facility in its entirety. We
subsequently amended the accounts receivable financing agreement
(as amended, the Amended A/ R Financing Agreement)
on July 25, 2003, October 31, 2003, and most recently
on July 31, 2004.

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Under the Amended A/ R Financing Agreement, we
may borrow up to $20 million in total. First, we may borrow
up to $10.0 million by financing a portion of our eligible
accounts receivable, primarily to our customers in the United
States. Under this arrangement, we may accept for collection
through a lockbox arrangement accounts receivable from us, and
in return we will receive advances from the Lender at a rate
equal to 80% of accounts receivable from account debtors who are
not distributors, and 50% of accounts receivable from account
debtors who are distributors, subject to borrowing restrictions
on most international accounts and at the discretion of the
Lender. After collection of a receivable, the Lender will refund
to us the difference between the amount collected and the amount
initially advanced to us, less a finance charge applied against
the average monthly balance of all transferred but outstanding
receivables at a rate per annum equal to the Lenders prime
rate plus 1.50 percentage points, or 5.75%, whichever is
greater. In addition to a facility fee of $100,000, we must pay
each month to the Lender a handling fee equal to 0.25% of the
average monthly balance of transferred but outstanding
receivables. We must repay each advance upon the earliest to
occur of (i) the collection of the corresponding financed
receivable, (ii) the date on which the corresponding
financed receivable becomes an ineligible receivable pursuant to
the terms of the Amended A/ R Financing Agreement, or
(iii) July 30, 2005. Second, we may borrow up to an
additional $10.0 million, under which we are required to
maintain a compensating cash balance equal to such borrowings.

Under the Amended A/ R Financing Agreement, we
receive temporary advances from the Lender in excess of the
availability otherwise applicable under the Amended A/ R
Financing Agreement (Temporary Overadvances), in an
amount equal to $4.0 million for advances relating to
letters of credit and in an amount equal to $4.0 million to
be used for working capital purposes. We may receive Temporary
Overadvances under this arrangement through November 30,
2004. This Temporary Overadvances arrangement may be renewed
upon agreement by both the Company and the Lender. Borrowings
outstanding under Temporary Overadvances are subject to a
finance charge of 1.5% per week.

As of October 1, 2004, no borrowings were
outstanding under the Amended A/ R Financing Agreement.

Obligations under the Amended A/ R Financing
Agreement are secured by a security interest on all of our
assets, including intellectual property, and are senior in lien
priority and right of payment to our obligations to the funds
affiliated with Warburg Pincus and BCP Capital, L.P. under the
secured promissory notes issued in July 2003 and amended in
October 2003 and which, until the exchange of Notes on
July 30, 2004, totaled $40 million in aggregate
principal amount, plus accrued interest. The amended A/ R
Financing Agreement requires the consent of the Lender in order
to incur debt, grant liens and sell assets. The events of
default under the secured credit facility include the failure to
pay amounts when due, failure to observe or perform covenants,
bankruptcy and insolvency events, defaults under certain of our
other obligations and the occurrence of a material adverse
change in our business.

Under the Amended A/R Financing Agreement, the
financial covenants require us to maintain cash and cash
equivalents with the Lender and its affiliates in an amount not
less than $4.0 million. If we fail to meet this
requirement, we may still remain in compliance with the
financial covenants by maintaining a ratio of the total of cash,
cash equivalents and accounts receivable approved by the Lender
to our current liabilities of at least 5.0 to 1. In addition, we
are required to maintain restricted cash balances to the extent
that our outstanding letters of credit exceed $4.0 million.
We currently maintain substantially all of our cash, cash
equivalents and investments at Silicon Valley Bank and its
affiliates. In the event of default under the Amended A/ R
Financing Agreement, the Lender has the right to offset such
cash, cash equivalents and investments against our obligations
owing to the Lender. As of October 1, 2004, we complied
with all of the financial covenants under this agreement.



| |                                   
| | ----------------------------------
| | Other Restructuring
    Activities

We have taken steps to reduce our expenses from
operations in order to begin generating cash flow from
operations. Restructuring charges related primarily to severance
payments.

Restructuring charges for the nine months ended
October 1, 2004 were $2.0 million, consisting of
$1.9 million of cash provisions and $0.1 million of
non-cash provisions for abandoned property and equipment. The
$1.9 million of cash provisions consisted of
$1.4 million of operating lease commitments, less estimated

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future sublease receipts and exit costs related
to a portion of the Sunnyvale facility, which was closed in the
first quarter of 2004, and $0.5 million of severance
payments for five employees.




| |               
| | --------------
| | Debt Financing

In April 2003, our management and board of
directors recognized our need to secure additional funding to
support our growth objectives and strengthen our balance sheet
position. During 2003, Warburg Pincus Private Equity VIII, L.P.
and BCP Capital, L.P. and affiliates invested an aggregate of
$40 million in us in exchange for secured promissory notes,
exchangeable for shares of our Series B Preferred Stock,
and warrants to purchase an aggregate of 2.4 million shares
of our Class A common stock. On July 30, 2004, the
Investors exchanged the aggregate principal amount of the Notes,
which includes accrued but unpaid interest, into shares of
Series B Preferred Stock, in accordance with the existing
terms and conditions of the Notes. The exchange relieves us from
the requirement to repay the Notes on their maturity date of
September 30, 2004. Subject to the approval of our
stockholders, the Investors also agreed to surrender all of
their Series A Preferred Stock, all of their Series B
Preferred Stock, all of their warrants to purchase our
Class A common stock in exchange for an aggregate of
16.4 million shares of Class A common stock and
400,000 shares of our newly issued Series C Preferred
Stock.

On July 30, 2004, we received
$10.0 million from the Investors in exchange for a new
convertible bridge note pursuant to the securities purchase
agreement dated July 27, 2004. In accordance with the
agreement, the principal and accrued interest will convert into
common stock and/or warrants to purchase common stock, at the
same price and upon the same terms and conditions offered to
other investors, if prior to June 30, 2005 we close a
financing transaction with gross proceeds of $20.0 million
or more through a sale of our Class A common stock and/or
warrants to purchase Class A common stock. If such
financing transaction does not occur, the bridge note becomes
due and payable by its terms on June 30, 2005. Please refer
to Note 1 to the condensed consolidated financial
statements for a detailed description of our recent transactions
with these Investors.



| |                                        
| | ---------------------------------------
| | Litigation with Symbol
    Technologies

On September 13, 2004 we entered into a
Settlement Agreement and a Patent Cross License Agreement with
Symbol and assigned certain intellectual property to Symbol
resolving all outstanding litigation.

Under the terms of the Settlement Agreement, we
agreed to pay Symbol $22.75 million dollars over our
ensuing ten quarters, commencing with the quarter ending
October 1, 2004. The Settlement Agreement provides for lump
sum payments of $2.5 million per quarter in each of the
first eight quarters, a payment of $1.5 million in the
ninth quarter, and a payment of $1.25 million in the tenth
quarter. If at any point during the term of the Settlement
Agreement, we fail to make any of these payments within
30 days after Symbol has notified us of our failure to pay,
Symbol shall have the right to demand immediate payment in the
amount of $25,917,669, minus payments made under the agreement
and plus applicable interest.

Under the terms of the Patent Cross License
Agreement, the companies have agreed to cross license certain
patents, and we have agreed to pay to Symbol a two percent
royalty on sales of certain of our WLAN products. If we fail to
make any of the lump sum payments due under the Settlement
Agreement over the next ten quarters and fail to cure any such
missed payment within 30 days thereafter, the Patent Cross
License Agreement provides that the royalty rate payable to
Symbol on sales of certain of our WLAN products covered by the
agreement shall increase to five percent until the required
payments as set forth in the Settlement Agreement have been
made. Also pursuant to the terms of the Patent Cross License
Agreement, we and Symbol have entered into a covenant not to sue
one another for patent infringement with respect to one
anothers products through September 13, 2009.

Since the date of the initial jury award of the
patent infringement suit in September 2003, we had recorded an
accrual for estimated past royalties of 22.9 million and
interest of $3.0 million covering the period from 1995
through September 2003 plus total of 2.8 million for
potential royalties and interest covering the period from
October 2003 to July 2, 2004. As a result of the Settlement
Agreement, we recorded a non-cash reversal of royalty charges of
$4.8 million and interest expense of $3.2 million,
totaling $8.0 million during the

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quarter ended October 1, 2004. This gain is
the difference between the net present value of the
$22.75 million settlement and the accrued liability related
to the litigation of $28.7 million, which was recorded in
our balance sheet prior to the litigation settlement.




| |                                    
| | -----------------------------------
| | Additional Sources of
    Financing

Our total revenue, net declined from
$109.9 million to $89.6 million from the nine months
ended September 26, 2003 to the nine months ended
October 1, 2004, and we have incurred substantial losses
and negative cash flows from operations during the nine months
ended October 1, 2004 and the years ended December 31,
2003, 2002 and 2001. If we were not able to close a financing
transaction by June 30, 2005 with gross proceeds of
$20.0 million or more through a sale of our Class A
common stock and/or warrants to purchase Class A common
stock in accordance with the securities purchase agreement dated
July 27, 2004, we will be required to repay the convertible
Bridge Loan in cash.

If we were required to repay the convertible
bridge loan and if we sustain continued significant negative
cash flows from our operations, we would be required to obtain
alternative sources of financing in excess of the additional
financing required to provide sufficient working capital for the
business. If we were not able to obtain such alternative sources
of financing, we might have insufficient cash to pay these
obligations, be unable to meet our ongoing operating obligations
as they come due in the ordinary course of business, and would
have to seek protection under applicable bankruptcy laws. These
matters raise substantial doubt about our ability to continue as
a going concern. These consolidated financial statements do not
include any adjustments that might result from this uncertainty.

On October 26, 2004, we filed a Registration
Statement on Form S-3 with the SEC using a shelf
registration process. Under the shelf registration, we may sell
any combination of securities described in the prospectus
accompanying the filing in one or more offerings with a total
value of up to $50 million. The shelf registration became
effective November 8, 2004 and will allow us to issue
Class A common stock and Class A common stock warrants
from time to time, subject to market conditions and our capital
needs.



| |                                     
| | ------------------------------------
| | Recent Accounting
    Pronouncements

In April 2004, the Emerging Issues Task Force
issued Statement No. 03-06, Participating Securities
and the Two  Class Method Under FASB Statement
No. 128, Earnings Per Share,
(EITF 03-06). EITF 03-06 addresses a
number of questions regarding the computation of earnings per
share by companies that have issued securities other than common
stock that contractually entitle the holder to participate in
dividends and earnings of the company when, and if, it declares
dividends on our common stock. The issue also provides further
guidance in applying the two-class method of calculating
earnings per share, clarifying what constitutes a participating
security and how to apply the two-class method of computing
earnings per share once it is determined that a security is
participating, including how to allocate undistributed earnings
to such a security. EITF 03-06 is effective for fiscal
periods beginning after March 31, 2004. We adopted this
EITF during the quarter ended July 2, 2004 and the adoption
had no material impact on our results of operations.

At its November 2003 meeting, the EITF reached a
consensus on disclosure guidance previously discussed under
EITF 03-01, The Meaning of Other-Than-Temporary
Impairment and Its Application to Certain Investments. The
consensus provided for certain disclosure requirements that were
effective for fiscal years ending after December 15, 2003.

At its March 2004 meeting, the EITF reached a
consensus on recognition and measurement guidance previously
discussed under EITF 03-01. The consensus clarifies the
meaning of other-than-temporary impairment and its application
to investments classified as either available-for-sale or
held-to-maturity under SFAS No. 115, Accounting
for Certain Investments in Debt and Equity Securities, and
investments accounted for under the cost method or the equity
method. The implementation of the recognition and measurement
guidance provisions has been delayed. The disclosure
requirements are effective for annual financial statements for
fiscal years ending after June 30, 2004. We will evaluate
the effects of adopting EITF 03-01 on our results of
operations once the final guidance is issued.

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RISK FACTORS

You should carefully consider the risks
described below before making an investment decision. The risks
and uncertainties described below are not the only ones facing
our company. Additional risks and uncertainties not presently
known to us or that we currently deem immaterial may also impair
our business operations.

If any of the following risks actually occur,
our business, financial condition or results of operations could
be materially adversely affected. In such case, the trading
price of our Class A common stock could decline and you
could lose all or part of your investment. Our actual results
could differ materially from those anticipated in
forward-looking statements as a result of certain factors,
including the risks faced by us described below and
elsewhere.



| |                                                                                                                                                                                              
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We will need to obtain a significant amount
    of additional capital in the near future and may not be able to
    secure adequate funds on a timely basis or on terms acceptable
    to us.

We have a significant ongoing need to raise cash
to fund our operational activities, including working capital
and capital expenditures, our obligations to Symbol and our
$10 million convertible bridge notes. As of October 1,
2004, our cash and cash equivalents totaled $18.3 million.
We have incurred substantial losses and negative cash flows from
operations during the nine months ended October 1, 2004 and
the years ended December 31, 2003, 2002 and 2001. We expect
to continue to incur losses and/or negative cash flow for the
foreseeable future. In addition, our settlement agreement with
Symbol requires us to pay Symbol $20.25 million over the next
nine quarters. If we are unable to raise additional capital on a
timely basis and in an amount sufficient to fund any future
deficit in cash flow from operations, our obligations to Symbol
and our $10 million convertible bridge notes, we will have to
seek protection under applicable bankruptcy laws. These matters
raise substantial doubt about our ability to continue as a going
concern.

Under the terms of our settlement agreement with
Symbol, we agreed, among other things, to pay Symbol
$22.75 million over ten quarters. We have made one payment
of $2.5 million to Symbol and we will have payment
obligations of $2.5 million in each of the next seven quarters,
including the current quarter, a payment obligation of
$1.5 million in the eighth quarter and a payment obligation
of $1.25 million in the ninth quarter. Our current cash on
hand is insufficient to make all of the required payments to
Symbol. If at any point during the term of the settlement
agreement, we fail to timely make any of these payments within
30 days after Symbol has notified us of our failure to pay,
Symbol will have the right to demand immediate payment of the
sum of $25,917,669 minus payments previously made under the
agreement and plus applicable interest. In this event, we would
likely have insufficient funds to fund our operational
activities, to make this lump sum payment to Symbol and to meet
our obligations under our $10 million convertible bridge
notes.

We issued $10 million in convertible bridge
notes to Warburg Pincus Private Equity VIII, L.P. and BCP
Capital, L.P (the Investors) on July 27, 2004
and these notes mature on June 30, 2005. If we are not able
to close a financing transaction by June 30, 2005 with
gross proceeds of $20.0 million or more through a sale of
our common stock and/or warrants to purchase common stock, we
will be required to repay the entire principal and interest
under the convertible bridge notes in cash. If we are required
to repay the convertible bridge notes in cash, either on their
maturity date or earlier upon an event of default, we would
likely have insufficient funds to fund our operational
activities and to meet our continuing obligations to Symbol.

We rely on our secured credit facility with
Silicon Valley Bank as a source of liquidity. The credit
facility allows us to borrow up to $20 million subject to
certain requirements. $10 million of the facility requires
that we maintain a compensating balance equal to any borrowings,
which could restrict our borrowing ability for this portion. Of
the remaining $10 million, up to $4 million may be
required as collateral for certain letters of credit. The
temporary overadvance portion of the facility expires on
November 30, 2004, and may be renewed upon agreement by
both us and Silicon Valley Bank. If this facility becomes
unavailable to us either because of our default under the
facility or due to nonrenewal of the facility, and we are unable
to secure a replacement facility, our liquidity will be
significantly impaired.

Our ability to raise funds may be adversely
affected by factors beyond our control, including market
uncertainty and conditions in the capital markets. We cannot
assure you that any financing will be available on terms
acceptable to us or on a timely basis, if at all, and any need
to raise additional capital through the

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issuance of equity or convertible debt securities
may result in additional, and perhaps significant, dilution.
Furthermore, even if we are able to raise funds in a financing
transaction or otherwise, the amount of the funds raised may be
insufficient to resolve doubt about our ability to continue as a
going concern.




| |                                                                                                                                                       
| | ------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our independent registered public
    accounting firm has opined that there is substantial doubt about
    our ability to continue as a going concern.

The audit report we received on March 11,
2004 from PricewaterhouseCoopers LLP, our independent auditors,
relating to our fiscal year 2003 financial statements contains
PricewaterhouseCoopers LLPs opinion that there is
substantial doubt about our ability to continue as a going
concern. Through the first nine months of 2004, we have
continued to incur substantial losses and negative cash flows
from operations and our accumulated deficit increased to
$429.7 million as of October 1, 2004. Even if we were
to raise additional capital sufficient to convert the existing
$10 million convertible bridge notes, we cannot assure you
that PricewaterhouseCoopers LLPs report relating to our
fiscal year 2004 financial statements will not contain a going
concern qualification. If PricewaterhouseCoopers LLPs
report on the 2004 financial statements does contain a going
concern qualification, our stock price could decline and we
likely would experience greater difficulty in raising capital.



| |                                                                   
| | ------------------------------------------------------------------
| | We are not profitable and may not be
    profitable in the future.

For the nine months ended October 1, 2004
and the years ended December 31, 2001, 2002 and 2003 we had
a net loss attributable to holders of our Class A common
stock of $32.0 million, $25.6 million,
$244.5 million and $133.7 million, respectively. We
will continue to have net losses in the future. In order for us
to achieve profitability, our revenue will need to increase from
its current level. We cannot assure you that our revenue will
increase or continue at current levels or that we will achieve
profitability or generate cash from operations in future periods.

We expect that we will continue to incur
significant sales, marketing, product development and
administrative expenses. We have payment obligations to Symbol
of $2.5 million in each of the next seven quarters,
including the current quarter, a payment obligation of
$1.5 million in the eighth quarter and a payment obligation
of $1.25 million in the ninth quarter. We have also agreed
to pay Symbol a two percent royalty on sales of certain of our
local area networking products. As a result, we expect that we
will continue to incur losses in the future. We are unable to
predict the extent of any future losses or whether or when we
will become profitable. As a result, if we fail to significantly
increase our revenue or control costs we will not become
profitable and may not continue as a going concern.



| |                                                
| | -----------------------------------------------
| | Our gross profit may decline in the
    future.

Our gross profit is affected by both the average
selling prices of our systems and our cost of revenue.
Historically, decreases in our average selling prices have
generally been offset by reductions in our per unit product
cost. We participate in a highly volatile industry that is
characterized by vigorous competition for market share and rapid
technological development. Furthermore, our customers and
potential customers are increasingly concentrating on
limitations and reductions on their capital expenditures as well
as return on investment in connection with their purchasing
decisions. These factors have resulted in aggressive pricing
practices and growing competition both from start-up companies
and from well-capitalized wireless networking equipment
providers. Manufacturers of wireless networking equipment are
experiencing price pressure, which has resulted in downward
pricing pressure on our products. Our ability to achieve
profitability in the future is dependent upon our ability to
improve manufacturing efficiencies, effectively and efficiently
outsource manufacturing, reduce costs of materials used in our
products, and to continue to introduce new products and product
enhancements. We cannot assure you, however, that we will
achieve any reductions in per unit product cost in the future or
that any reductions will offset the effects of downward pricing
pressures on our products. Any inability by us to effectively
respond to these downward pricing pressures may cause our gross
profit to decline in the future.

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| |                                                                                                                                                                   
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The price of our Class A common stock
    may be subject to wide fluctuation, and you may lose all or part
    of your investment in our Class A common
    stock.

The trading prices of our Class A common
stock has been subject to wide fluctuations, and such trend is
likely to continue with respect to the trading price of our
Class A common stock. The trading price of our Class A
common stock may fluctuate in response to a number of events and
factors, including:



| |   |                                                                                                                                  
| | - | ---------------------------------------------------------------------------------------------------------------------------------
| |  | quarterly variations in revenues and operating
    results;                                                                      
|
| |  | announcements of innovations and new products;                                                                                   
|
| |  | strategic developments or business combinations
    by us or our competitors;                                                    
|
| |  | changes in our expected operating expense levels;                                                                                
|
| |  | changes in financial estimates including our
    ability to meet its future revenue and operating profit or loss
    projections;
|
| |  | recommendations of financial and industry
    analysts;                                                                          
|
| |  | the operating and securities price performance of
    comparable companies; and                                                  
|
| |  | news reports relating to trends in the wireless
    communications industry.                                                     

We have not met our revenue and/or earnings
(loss) per share projections from time to time in the past, most
recently in the quarters ended April 2, 2004 and
July 2, 2004. If we are unable to achieve our projected
financial results for the fourth quarter of 2004, our operating
losses will be greater than expected and our need for additional
capital may be increased.

In addition, the stock market in general, and the
market prices for wireless-related companies in particular, have
experienced extreme volatility that often has been unrelated to
the operating performance of these companies. These broad market
and industry fluctuations may influence the trading price of our
Class A common stock. These trading price fluctuations may
make it more difficult to use our Class A common stock as
currency to make acquisitions that might otherwise be
advantageous, or to use stock options as a means to attract and
retain employees. Accordingly, you may lose all or part of your
investment in our Class A common stock.



| |                                                                                                                                                                                                                                                    
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Should the outcome of our ongoing
    litigation be unfavorable, we may be required to pay damages and
    other expenses, which could materially and adversely affect our
    business, financial condition, operating results and cash
    flows.

On or about March 10, 2003, we were served
with a complaint filed on January 15, 2003, by Top Global
Technology Limited (Top Global), a distributor for
Agere Systems Singapore. Our demurrer to Top Globals
complaint was sustained in May 2003. Top Global then filed and
served an amended complaint on May 30, 2003. Top
Globals lawsuit was filed against Agere Systems, Inc.,
Agere Systems Singapore, and Agere Systems Asia Pacific
(collectively, Agere) and us in the Superior Court
for the State of California, County of Santa Clara. Top
Global claims that it is entitled to return for a credit
$1.2 million of products that it purchased from Agere
Systems Singapore in June 2002 as a result of our decision to
discontinue a product line that we purchased from Agere in
August 2002. The amended complaint asks the court to determine
whether Agere or we are responsible for accepting the product
return and issuing a $1.2 million credit and also alleges
breach of contract. We answered the amended complaint and
asserted several defenses to Top Globals claims. In
January 2004, the parties mediated this dispute but were unable
to reach a settlement. In March 2004, the Court dismissed the
contract claims against Agere but at the same time granted Top
Globals motion for leave to amend its complaint to allege
a fraud claim against Agere. Top Global subsequently amended its
complaint to allege a claim of fraud against Agere. The parties
are currently conducting discovery. Our motion for summary
judgment in the matter will be heard January 7, 2005. A
trial date has been set for February 22, 2005.

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On February 10, 2004, we received a copy of
a complaint filed on February 2, 2004 in Tokyo District
Court by Active Technology Corporation, a Japanese-based
distributor of our products. The complaint alleges, among other
things, that we sold to Active certain defective products, which
Active in turn subsequently sold to our customers. Active seeks
damages of ¥559.2 million, which includes the purchase
price of the allegedly defective products and replacement costs
allegedly incurred by Active. Active seeks to offset the claim
of ¥559.2 million against outstanding accounts payable
by Active of ¥175.3 million to us, resulting in a net
claim against Proxim Corporation of ¥383.9 million.
Translated into U.S. dollars as of November 3, 2004,
Actives net claim is approximately $3.6 million. On
October 5, 2004, a hearing was held in the matter, and we
filed a counterclaim for $2.3 million plus interest for
outstanding amounts owed us. The next hearing in the matter will
be held November 12, 2004.

We are party to disputes, including legal
actions, with several of our suppliers and vendors. These
disputes relate primarily to excess materials and order
cancellation claims that resulted from the declines in demand
for our products during 2001 and 2002 and the commensurate
reductions in manufacturing volumes. We have recorded reserves
related to these disputes to the extent that management believes
are appropriate. We intend to vigorously defend ourselves in
these matters.

Our involvement in patent litigation resulted in
substantial costs and diversion of management resources. We
entered into a settlement agreement with Symbol on
September 13, 2004, resolving all of the litigation
outstanding between us and Symbol. Under the terms of the
settlement agreement, we agreed to pay Symbol
$22.75 million over ten quarters, to cross-license certain
patents with Symbol and to assign certain patents and patent
applications to Symbol.

Any ruling or judgment against us or any of our
subsidiaries in any amount in excess of $4,000,000 that is not
discharged, stayed or bonded pending appeal within 30 days
from the entry thereof will constitute an event of default
pursuant to the terms of the Bridge Loan. Upon such an
occurrence, the Investors would have the ability to require us
to repay the Bridge Loan. Likewise, any such occurrence would
result in an event of default under the secured credit facility
with Silicon Valley Bank. Upon such occurrence, Silicon Valley
Bank would have the right to require us to repay any amounts
outstanding under the credit facility and to prohibit us from
borrowing any additional amounts. Any event of default under the
secured credit facility with Silicon Valley Bank, whether or not
related to litigation, also would constitute an event of default
pursuant to the terms of the Bridge Loan if amounts outstanding
under the credit facility exceeded $1,000,000. As of
October 1, 2004, no borrowings were outstanding under the
credit facility.

The results of any litigation matters are
inherently uncertain. In the event of any adverse decision in
the described legal actions or disputes, or any other litigation
with third parties that could arise in the future, we could be
required to pay damages and other expenses, and, in the case of
litigation related to patents or other intellectual property
rights, to cease the manufacture, use and sale of infringing
products, to expend significant resources to develop
non-infringing technology, or to obtain licenses to the
infringing technology. We cannot make any assurance that these
matters will not materially and adversely affect our business,
financial condition, operating results or cash flows.



| |                                                                                                                               
| | ------------------------------------------------------------------------------------------------------------------------------
| | Our Class A common stockholders will
    experience immediate dilution upon the conversion of our
    outstanding Bridge Loan.

On July 30, 2004, we received
$10.0 million from the Investors in exchange for a new
convertible bridge note. If we close a financing transaction
involving the sale of Class A common stock or warrants to
purchase Class A common stock that results in gross
proceeds to us of at least $20.0 million, the principal and
accrued interest on the convertible bridge note will convert
into Class A common stock and/or warrants to purchase
Class A common stock, at the same price and upon the same
terms and conditions offered in the financing transaction. The
ownership of the holders of our Class A common stock
outstanding at the time of the conversion will experience
immediate dilution as a result of such issuance to the Investors
and the Class A common stock outstanding might decline in
value as a result.

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Several of our stockholders beneficially own a
significant percentage of our Class A common stock, which
will allow them to significantly influence matters requiring
stockholder approval and could discourage potential acquisitions
of our company.

On July 27, 2004, we entered into an
agreement with the Investors providing that, upon receipt of
stockholder approval, the Investors would surrender all of their
Series A Preferred Stock, all of their Series B
Preferred Stock and all of their Class A common stock
warrants for 16.4 million shares of our Class A common
stock and 400,000 shares of newly designated Series C
Preferred Stock. Our stockholders approved this exchange (the
Exchange) on October 21, 2004 and the
Series A Preferred Stock, Series B Preferred Stock and
the Class A common stock warrants held by the Investors
were exchanged for 16.4 million shares of our Class A
common stock and 400,000 shares of our Series C
Preferred Stock on October 22, 2004. The Series C
Preferred Stock is a non-voting security and is not convertible
into Class A common stock. Following the Exchange, the
Investors together own approximately 57.0% of our outstanding
capital stock, based on shares outstanding as of
November 3, 2004.

As a result of their ownership as outlined above,
the Investors are able to exert significant influence over
actions requiring the approval of our stockholders, including
many types of change of control transactions and any amendments
to our certificate of incorporation. The interests of the
Investors may be different than those of other stockholders of
our company.



| |                                                                                                                                         
| | ----------------------------------------------------------------------------------------------------------------------------------------
| | Holders of our Series C Preferred
    Stock have certain rights that are senior to those of the
    holders of our Class A common stock.

Holders of our Series C Preferred Stock are
entitled to receive certain benefits not available to holders of
our Class A common stock. In particular:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | each share of Series C Preferred Stock has
    an initial liquidation preference of $100.00 and the liquidation
    preference bears interest at an annual rate of 8.75%, compounded
    quarterly, for eight years from the date of issuance. The
    liquidation preference is subject to adjustments in the event we
    undertake a business combination or certain other transactions,
    or we are liquidated or dissolved;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|
| |  | on October 22, 2012, we will be required to
    redeem all outstanding shares of Series C Preferred Stock,
    if any, for cash equal to their liquidation preference plus
    accrued and unpaid dividends. The redemption right of our
    Series C Preferred Stock is senior to any claim of our
    common stock on the Companys assets and is senior to all
    of our current debt obligations except for the credit facility
    we maintain with Silicon Valley Bank;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| |  | in the event of a change in control of our
    company, we are required to redeem in cash or readily marketable
    securities all of the Series C Preferred Stock at a price
    per share in cash equal to the liquidation preference of the
    Series C Preferred Stock as if it had fully accreted
    through the eighth anniversary of the issuance of the
    Series C Preferred Stock plus following the eighth
    anniversary of the issuance of the Series C Preferred
    Stock, an amount equal to the unrecognized accretion, if any, up
    to but not including the redemption date;                                                                                                                                                                                                                                                                                                                                                                                            
|
| |  | in the event that we participate in any sale of
    our assets (i) that does not constitute a business
    combination and (ii) as a result of which sale our revenues
    for the prior twelve-month period would have declined by 40% or
    more on a pro forma basis giving effect to such asset sale (a
    Material Asset Sale), each holder of shares of
    Series C Preferred Stock has the right to require us to
    repurchase such holders shares of Series C Preferred
    Stock, in whole or in part, at such holders option, at a
    price per share in cash equal to the liquidation preference as
    if the Series C Preferred Stock had fully accreted through
    the eighth anniversary of the issuance of the Series C
    Preferred Stock plus following the eighth anniversary of the
    issuance of the Series C Preferred Stock, an amount equal
    to the unrecognized accretion, if any, up to but not including
    the date of the Material Asset Sale; and
|
| |  | the approval of holders of a majority of the
    Series C Preferred Stock is separately required to approve
    changes to our certificate of incorporation or bylaws that
    adversely affect these holders rights, any offer, sale or
    issuance of our equity or equity-linked securities ranking
    senior to or equally with the                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

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| |  |                                                                                                                                                                                                                                                        
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Series C Preferred Stock, any repurchase or
    redemption of our equity securities (other than from an
    employee, director or consultant following termination), or the
    declaration or payment of any dividend on our Class A
    common stock.

In connection with the Exchange by the Investors
of their Series A Preferred Stock, Series B Preferred
Stock and Class A common stock warrants for shares of our
Class A common stock and our Series C Preferred Stock,
Warburg Pincus agreed that it will limit its voting rights until
July 22, 2008 to no more than 49% of our issued and
outstanding voting stock. In addition, for so long as each of
the Investors owns at least 25% of the aggregate principal
amount of the Class A common stock issued to it in the
Exchange, the Investors each will have the right to appoint a
member of our Board of Directors. For so long as Warburg Pincus
owns 50% of the Class A common stock issued to it in the
Exchange, it shall have the right to appoint a second member of
our Board of Directors. Independent of its holdings, Warburg
Pincus shall have the right to have one observer attend meetings
of the Board of Directors.



| |                                                                                                                                                                                                                                                                          
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We may experience fluctuations in operating
    results and may not be able to adjust spending in time to
    compensate for any unexpected revenue shortfall, which may cause
    operating results to fall below expectations of securities
    analysts and investors.

Our operating results may fluctuate significantly
in the future as a result of a variety of factors, many of which
will be outside our control. We may be unable to adjust spending
in a timely manner to compensate for any unexpected revenue
shortfall. Accordingly, any significant shortfall in revenues in
relation to planned expenditures could materially harm our
operating results and financial condition, and may cause our
operating results to fall below the expectations of securities
analysts and investors. If this happens, the trading price of
our Class A common stock could decline significantly.

Factors that may harm operating results include:



| |   |                                                                                                                                                                                                                               
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the effectiveness of our distribution channels
    and the success in maintaining our current distribution channels;                                                                                                          
|
| |  | the effectiveness of developing new distribution
    channels;                                                                                                                                                                
|
| |  | our ability to effectively manage the development
    of new business segments and markets;                                                                                                                                   
|
| |  | seasonal factors that may affect capital spending
    by customers;                                                                                                                                                           
|
| |  | market adoption of radio frequency, or RF,
    standards-based products (such as those compliant with the IEEE
    802.11b, IEEE 802.11a, IEEE 802.11g, IEEE 802.16 (WiMAX) or IEEE
    802.20 specifications);               
|
| |  | our ability to develop, introduce, ship and
    support new products and product enhancements;                                                                                                                                
|
| |  | the availability of liquid capital resources to
    fund our operations;                                                                                                                                                      
|
| |  | our credit worthiness in the opinion of our
    suppliers, contract manufacturers, distributors, customers and
    others;                                                                                                    
|
| |  | the sell-through rate of our WLAN and WWAN
    products through commercial distribution channels;                                                                                                                             
|
| |  | market demand for our point-to-point Lynx and
    Tsunami systems;                                                                                                                                                            
|
| |  | market demand for our point-to-multipoint Tsunami
    systems;                                                                                                                                                                
|
| |  | our ability to effectively manage product
    transitions from one generation of product platforms to newer
    product platform designs, including inventories on hand, product
    certifications, and customer transitions;
|
| |  | the mix of products sold because our products
    generate different gross margins;                                                                                                                                           
|
| |  | a decrease in the average selling prices of our
    products;                                                                                                                                                                 
|
| |  | our ability to upgrade and develop our systems
    and infrastructure;                                                                                                                                                        

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| |   |                                                                                                          
| | - | ---------------------------------------------------------------------------------------------------------
| |  | difficulties in expanding and conducting
    international operations; and                               
|
| |  | general economic conditions and economic
    conditions specific to the wireless communications industry.



| |                                                                                                                                                                                                                     
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Shares eligible for future sale, including
    shares owned by our principal stockholders, may cause the market
    price of our Class A common stock to drop significantly,
    even if our business is doing well.

The potential for sales of substantial amounts of
our Class A common stock into the public market may
adversely affect the market price of our Class A common
stock. Following the Exchange, the Investors together own
16.4 million shares, or approximately 57.0% of our
outstanding capital stock, based on shares outstanding as of
November 3, 2004. If and when the Investors convert the
Bridge Loan into shares of the Companys Class A
common stock in a Qualified Transaction, their share ownership
will increase.

Upon the request of a majority-in-interest of the
Investors, we have agreed to use reasonable best efforts to
prepare and file with the SEC within 180 days after the
closing of a financing transaction or series of financing
transactions in which we would issue and sell our Class A
common stock or warrants to purchase our Class A common
stock or both in exchange for aggregate gross proceeds to us of
at least $20 million (a Qualified Transaction),
or such other time as shall be mutually agreed upon by us and
the Investors, a registration statement on Form S-3
covering the resale of the securities held by each Investor in
compliance with the Securities Act. Upon the effectiveness of
such registration statement, the Investors will have the right
to resell any shares of Class A common stock issued to them
upon the Exchange and the conversion of the Bridge Loan notes.

In addition to these securities, as of
November 3, 2004, options and warrants to acquire
approximately 252,536 and 26,513 shares, respectively, of
our Class A common stock was outstanding. Also, as of
November 3, 2004, approximately an additional
1,613,736 shares of our Class A common stock were
reserved for issuance to our employees under existing stock
option plans and will be freely tradeable upon issuance, subject
to our insider trading policies.

As of November 3, 2004, all of the
Companys outstanding stock options had exercise prices
above the closing price of our Class A common stock on the
NASDAQ. In order to more closely align the interest of the
Company and its employees and in order to provide adequate
equity incentives for employee recruiting and retention, our
management and our Board of Directors are considering a variety
of methods to restructure the Companys stock option plans,
including stock option exchange offers and repricings of
outstanding options, grants of new options that are reserved for
future issuance under existing option plans and the adoption of
a new option plan and grants of options from such a plan. The
Company anticipates that, following such initiatives, the
aggregate number of outstanding options with an exercise price
at the then current fair market value would not exceed the
number of options outstanding prior to such initiatives.
However, the Class A common stock issuable upon the
exercise of modified options that have exercise prices at,
rather than above, the then current fair market value may cause
dilution of the then-outstanding Class A common stock and
may result in then holders experiencing a decline in the value
of their Class A common stock.



| |                                                                                                                                                                                                                                                                    
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We are exposed to increased costs and risks
    associated with complying with increasing and new regulation of
    corporate governance and disclosure standards, including the
    risk of an unfavorable report under Section 404 of the
    Sarbanes-Oxley Act.

We are spending an increased amount of management
time and external resources to comply with changing laws,
regulations and standards relating to corporate governance and
public disclosure, including the Sarbanes-Oxley Act of 2002, new
SEC regulations and NASDAQ Stock Market rules. In particular,
Section 404 of the Sarbanes-Oxley Act of 2002 requires
managements annual review and evaluation of our internal
control systems, and attestations of the effectiveness of these
systems by our management and our independent registered public
accounting firm. We are currently documenting and testing our
internal control systems and procedures and implementing
improvements that we consider will be necessary in order for us
to comply with the requirements of Section 404 by the end
of 2004. This process has required us to hire additional
personnel and outside advisory services and has resulted in
significant additional accounting and

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legal expenses. In addition, the evaluation and
attestation processes required by Section 404 are new and
neither companies nor auditing firms have significant experience
in testing or complying with these requirements. Accordingly, to
date, we have encountered some delays in completing the review
and evaluation, and the implementation of improvements in our
internal control systems and procedures. If we were not able to
complete our documentation, testing and improvements in a timely
manner, if there were insufficient time to demonstrate the
effectiveness of our improvements, or if for any other reason a
material weakness were to exist at year-end, we may not receive
a positive attestation by our independent registered public
accounting firm. In the event that our controls over financial
reporting are not deemed effective as defined under
Section 404, investor perceptions of our company may be
adversely affected and could cause a decline in the market price
of our stock.




| |                                                                                                                                                                                             
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Possible third-party claims of infringement
    of proprietary rights against us could have a material adverse
    effect on our business, results of operation and financial
    condition.

The communications industry and products based on
the 802.11 standards in particular are characterized by a
relatively high level of litigation based on allegations of
infringement of proprietary rights. We have in the past, and may
in the future, be subject to such litigation. For example, we
recently settled a lawsuit brought against us by Symbol alleging
that certain of our products infringed on four Symbol patents
related to systems for packet data transmission. As part of the
settlement, we agreed to pay to Symbol $22.75 million over
ten quarters and a 2% royalty on sales of certain of our WLAN
products. We cannot assure you that other third parties will not
assert infringement claims against us, that any such assertion
of infringement will not result in litigation or that we would
prevail in such litigation. Furthermore, any such claims, with
or without merit, could result in substantial cost to our
business and diversion of our personnel, require us to develop
new technology or enter into royalty or licensing arrangements.
Such royalty or licensing agreements, if required, may not be
available on terms acceptable to us, or at all. In the event of
a successful claim of infringement or misappropriation against
us, and our failure or inability to develop non-infringing
technology or to license the infringed, misappropriated or
similar technology at a reasonable cost, our business, results
of operations and financial condition would be materially
adversely affected. In addition, we may be obligated to
indemnify our customers against claimed infringement of patents,
trademarks, copyrights and other proprietary rights of third
parties. Any requirement to indemnify our customers could have a
material adverse effect on our business, results of operations
or financial condition.



| |                                                                                                                                                                                                                                                                       
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our intellectual property rights may not
    provide meaningful commercial protection for our products, which
    could enable third parties to use our technology or methods, or
    very similar technology or methods, and could reduce our ability
    to compete.

Our success depends significantly on our ability
to protect our proprietary rights to the technologies used in
our products. We rely on patent protection, as well as a
combination of copyright, trade secret and trademark laws and
nondisclosure, confidentiality and other contractual
restrictions to protect our proprietary technology. However,
these legal means afford only limited protection and may not
adequately protect our rights or permit us to gain or keep any
competitive advantage. Our patent applications may not issue as
patents in a form that will be advantageous to us. Our issued
patents and those that may issue in the future may be
challenged, invalidated or circumvented, which could limit our
ability to stop competitors from marketing related products.
Although we have taken steps to protect our intellectual
property and proprietary technology, there is no assurance that
third parties will not be able to design around our patents. In
addition, we have cross-licensed to Symbol certain patents
related to our WLAN technology, and those patents could enable
Symbol to compete with us for sales of such products.
Furthermore, although we have entered into confidentiality
agreements and intellectual property assignment agreements with
our employees, consultants and advisors, such agreements may not
be enforceable or may not provide meaningful protection for our
trade secrets or other proprietary information in the event of
unauthorized use or disclosure or other breaches of the
agreements.

Furthermore, the laws of foreign countries may
not protect our intellectual property rights to the same extent
as the laws of the United States. If our intellectual property
does not provide significant protection

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against competition, our competitors could
compete more directly with us, which could result in a decrease
in our market share. All of these factors may harm our
competitive position.




| |                                                                                                                                                                                                                     
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Competition within the wireless networking
    industry is intense and is expected to increase significantly.
    Our failure to compete successfully could materially harm our
    prospects and financial results.

The market for broadband wireless systems and
wireless local area networking and building-to-building markets
are extremely competitive and we expect that competition will
intensify in the future. Increased competition could adversely
affect our business and operating results through pricing
pressures, the loss of market share and other factors. The
principal competitive factors affecting wireless local area
networking and fixed wireless markets include the following:
data throughput; effective RF coverage area; interference
immunity; network security; network scalability; price;
integration with voice technology; wireless networking protocol
sophistication; ability to support industry standards; roaming
capability; power consumption; product miniaturization; product
reliability; ease of use; product costs; product features and
applications; product time to market; product certifications;
changes to government regulations with respect to each country
served and related to the use of radio spectrum; brand
recognition; OEM partnerships; marketing alliances;
manufacturing capabilities and experience; effective
distribution channels; and company reputation. We could be at a
disadvantage when compared to our competitors, particularly
Symbol, Cisco Systems, NetGear and D-Link, that have broader
distribution channels, greater brand recognition, more extensive
patent portfolios and, in particular, more diversified product
lines. In the broadband wireless access market, we have several
competitors, including without limitation, Alvarion, Ceragon
Networks, Stratex Networks, and Harris Corporation.

We face competition from numerous companies that
have developed competing products in both the commercial
wireless and home networking markets, including several
Asia-based companies offering low-price IEEE 802.11a/b/g
products. We are also facing future competition from companies
that offer products, which replace network adapters or offer
alternative communications solutions (such as the integrated
wireless functionality on the Intel Centrino computer chip), or
from large computer companies, PC peripheral companies, as well
as other large networking equipment companies that integrate
network adapters into their products. Furthermore, we could face
competition from certain of our OEM customers, which have, or
could acquire, wireless engineering and product development
capabilities, or might elect to offer competing technologies. We
can offer no assurance that we will be able to compete
successfully against these competitors or those competitive
pressures we face will not adversely affect our business or
operating results.

Additionally, as a result of our settlement
agreement with Symbol, including the impact of the assignment
and cross-licensing of certain of our patents and patent
applications to Symbol, Symbol could compete more effectively
across our product lines. Many of our present and potential
competitors have substantially greater financial, marketing,
technical and other resources with which to pursue engineering,
manufacturing, marketing, and distribution of their products.
These competitors may succeed in establishing technology
standards or strategic alliances in the WLAN and
building-to-building markets, obtain more rapid market
acceptance for their products, or otherwise gain a competitive
advantage. We can offer no assurance that we will succeed in
developing products or technologies that are more effective than
those developed by our competitors. Furthermore, we compete with
companies that have high volume manufacturing and extensive
marketing and distribution capabilities, areas in which we have
only limited experience. We can offer no assurance that we will
be able to compete successfully against existing and new
competitors as wireless markets evolve and the level of
competition increases.



| |                                                                                                                                                                                   
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Wireless networking markets are subject to
    rapid technological change and to compete, we must continually
    introduce new products that achieve broad market
    acceptance.

As the market for our wireless networking
products is evolving, we believe our ability to compete
successfully in this market is dependent upon the continued
compatibility and interoperability of our products with products
and architectures offered by other vendors. To remain
competitive, we need to introduce products in a timely manner
that incorporate or are compatible with these new technologies
as they emerge. If we are unable to enter a particular market in
a timely manner with internally developed products, we may
license technology from other businesses or acquire other
businesses as an alternative to internal research and

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development. Our expenses for research and
development in the first nine months of 2004 decreased compared
to the first nine months of 2003, primarily due to reduced
personnel expenses as a result of the workforce reduction
implemented in 2003. To the extent our revenues do not increase
or we do not obtain additional financing for working capital
purposes, we may be required to further reduce our expenses for
research and development, which could limit our ability to
introduce new products.


We have expended substantial resources in
developing products that are designed to conform to the IEEE
802.11 standards. We cannot assure you, however, that the IEEE
802.11 compliant products will have an ongoing meaningful
commercial impact. Already, even within the 802.11 standard,
there have been significant technological changes. The IEEE
approved the 2.4 GHz WLAN standard designated 802.11b. In
2000, the IEEE approved the 5 GHz WLAN standard designated
802.11a. In 2003, the IEEE approved a new 2.4 GHz WLAN
standard designated 802.11g. IEEE is in the process of
establishing additional 802.11 standards, including 802.11e
related to quality of service for voice and video transmission,
802.11i related to enhanced security, and 802.11h related to
dynamic frequency selection and transmission power control.
Furthermore, IEEE has recently committed to developing new
wireless WAN standards under two separate initiatives, 802.16d
(WiMAX) and 802.16e. 802.16d is a WWAN protocol to address the
existing Fixed Wireless Access (FWA) market as well
as extend that market to include certain mobility applications
(at vehicular levels), while 802.16e is a WWAN protocol to
address the FWA market as well as lower power portable devices.

While we have products based on the 802.11a,
802.11b and 802.11g standards, future standards developments may
make these technologies obsolete and require significant
additional investment by the company. As an example, in August
2000, the FCC adopted a rule change to Part 15. Based on
the rule change, we made significant investments in developing
higher-speed frequency hopping technology that allowed for wider
band hopping channels and increased the data rate from
1.6 Mbps to up to 10 Mbps based on the HomeRF 2.0
standard. However, widespread adoption of products based on the
IEEE 802.11 standard has led us to discontinue these products.
We cannot assure you that a similar future change in industry
standards and market acceptance will not require us to abandon
our current product lines and invest significantly in research
and development of future standards based products.

Given the emerging nature of the WLAN market, we
cannot assure you that the products and technology, or our other
products or technology, will not be rendered obsolete by
alternative or competing technologies, including cellular.
Currently, cellular companies are deploying 3rd generation
technologies designed to transmit data at up to 2 mbps. In
particular, Verizon has already announced an initiative based on
this technology known as EV-DO. Cellular technology today has an
inherent advantage of being more ubiquitous than WLAN hotspot
technology. We cannot assure you that our current product
offerings will be competitive with cellular or other WLAN
technologies in the future.

In addition, when we announce new products or
product enhancements that have the potential to replace or
shorten the life cycle of our existing products, customers may
defer purchasing our existing products. These actions could
materially adversely affect our operating results by
unexpectedly decreasing sales, increasing our inventory levels
of older products and exposing us to greater risk of product
obsolescence.



| |                                                                                                                                                                                                                             
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our revenue may decline and our ability to
    achieve profitability may be threatened if the demand for
    wireless services in general and broadband wireless access
    systems in particular does not continue to grow.

Our success is dependent on the continued trend
toward wireless telecommunications and data communications
services. If the rate of growth slows and service providers
reduce their capital investments in wireless infrastructure or
fail to expand into new geographic markets, our revenue may
decline. Unlike some competitors such as Cisco Systems
(including Cisco Systems Linksys product lines), NetGear
and 3Com, our principal product offerings rely on wireless
technologies. Accordingly, we would experience a greater impact
from a decline in the demand for wireless services than some of
our most important competitors. In addition, wireless access
solutions are unproven in the marketplace and some of the
wireless technologies, such as our Tsunami point-to-multipoint
technology and 802.11 technologies in which we have invested
substantial capital, were only commercially introduced in the
last few years. In addition, we are also investing in the
development of products that comply with the emerging 802.16
wireless access standard. If wireless access

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technology turns out to be unsuitable for
widespread commercial deployment, it is unlikely we could
generate enough sales to achieve and sustain profitability. We
have listed below the factors that we believe are key to the
success or failure of broadband wireless access technology:




| |   |                                                                                                                                              
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------
| |  | its reliability and security and the perception
    by end users of its reliability and security;                                            
|
| |  | its capacity to handle growing demands for faster
    transmission of increasing amounts of data, voice and video;                           
|
| |  | the availability of sufficient frequencies for
    network service providers to deploy products at commercially
    reasonable rates;        
|
| |  | its cost-effectiveness and performance compared
    to other forms of broadband access, whose prices and performance
    continue to improve;
|
| |  | unforeseen changes in regulatory environment;                                                                                                
|
| |  | its suitability for a sufficient number of
    geographic regions; and                                                                       
|
| |  | the availability of sufficient site locations for
    network service providers to install products at commercially
    reasonable rates.    

We have experienced the effects of many of the
factors listed above in interactions with customers selecting
wireless versus wire line technology. For example, because of
the frequency with which individuals using cellular phones
experience fading or a loss of signal, customers often hold the
perception that all broadband wireless technologies will have
the same reliability constraints even though the wireless
technology we use does not have the same problems as cellular
phones. In some geographic areas, because of adverse weather
conditions that affect wireless transmissions, but not wire line
technologies, we are not able to sell products as successfully
as competitors with wire line technology. In addition, future
legislation, legal decisions and regulation relating to the
wireless telecommunications industry may slow or delay the
deployment of wireless networks.

We may also lose customers to different types of
wireless technologies. Many of our products operate in the
unlicensed frequency bands, in compliance with various
governmental regulations. In addition, many of the emerging
wireless standards utilize these unlicensed frequency bands. The
proliferation and market acceptance of unlicensed wireless
products increases the probability of interference among
unlicensed devices. Increasing interference can adversely affect
the operation of our unlicensed products, resulting in customers
selecting alternative products that do not operate in these
unlicensed frequency bands. For example, we have only a limited
offering of products that operate in licensed radio spectrums.
Some customers, however, may want to operate in licensed radio
spectrums because they sometimes offer less interference than
license exempt radio spectrums or have other advantages.



| |                                                                                                                                                                                    
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We depend on international sales and our
    ability to sustain or expand international sales is subject to
    many risks, which could adversely affect our operating
    results.

During the nine months ended October 1, 2004
and years ended December 31, 2003 and 2002, international
sales accounted for approximately 41%, 41% and 38% of our total
sales, respectively. We expect that our revenue from shipments
to international customers will vary as a percentage of total
revenue. There are certain risks inherent in doing business in
international markets, including the following:



| |   |                                                                                                                 
| | - | ----------------------------------------------------------------------------------------------------------------
| |  | uncertainty of product acceptance by customers in
    foreign countries;                                        
|
| |  | uncertainty of obtaining homologation in certain
    key international countries;                               
|
| |  | difficulty in assessing the ability to collect on
    orders to be shipped in an uncertain economic environment;
|
| |  | difficulty in collecting accounts receivable;                                                                   
|
| |  | export license and documentation requirements;                                                                  

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| |   |                                                                                   
| | - | ----------------------------------------------------------------------------------
| |  | unforeseen changes in regulatory requirements;                                    
|
| |  | difficulties in staffing and managing
    multinational operations;               
|
| |  | governmental restrictions on the repatriation of
    funds into the United States;
|
| |  | foreign currency fluctuations;                                                    
|
| |  | longer payment cycles for international
    distributors;                         
|
| |  | tariffs, duties, taxes and other trade barriers;                                  
|
| |  | difficulties in finding foreign licensees or
    joint venture partners;          
|
| |  | difficulties in enforcing intellectual property
    rights; and                   
|
| |  | potential political and economic instability.                                     

There is a risk that such factors will harm our
ability to continue to successfully operate internationally and
our efforts to expand international operations. In this regard,
our revenue levels have been affected, in part, by reduced
ability to ship our products to international customers in cases
where collectibility, based on a number of factors, could not be
reasonably assured.

While we may extend limited credit terms,
fluctuations in currency exchange rates could cause our products
to become relatively more expensive to customers in a particular
country, leading to a reduction in sales or profitability in
that country. We cannot assure you that foreign markets will
continue to develop or that we will receive additional orders to
supply our products to foreign customers. Our business and
operating results could be materially adversely affected if
foreign markets do not continue to develop or if we do not
receive additional orders to supply our products for use by
foreign customers. To successfully expand international sales,
we will need to recruit additional international sales and
support personnel and expand our relationships with
international distributors and value-added resellers. This
expansion will require significant management attention and
financial resources. We may incur these additional costs and add
these management burdens without successfully expanding sales.
This failure would harm our operating results.



| |                                                                                         
| | ----------------------------------------------------------------------------------------
| | Our business depends on rapidly evolving
    telecommunications and Internet industries.

Our future success is dependent upon the
continued growth of the data communications and wireless
industries, particularly with regard to Internet usage. The
global data communications and Internet industries are evolving
rapidly and it is difficult to predict potential growth rates or
future trends in technology development. We cannot assure you
that the deregulation, privatization and economic globalization
of the worldwide telecommunications market that has resulted in
increased competition and escalating demand for new technologies
and services will continue in a manner favorable to us or our
business strategies. In addition, there can be no assurance that
the growth in demand for wireless and Internet services, and the
resulting need for high speed or enhanced data communications
products and wireless systems, will continue at its current rate
or at all.



| |                                                                                                                           
| | --------------------------------------------------------------------------------------------------------------------------
| | We may be dependent on and receive a
    significant percentage of our revenue from a limited number of
    OEM customers.

A limited number of OEM customers may contribute
a significant percentage of our revenue. Sales of many of our
wireless networking products depend upon decisions of
prospective OEM customers to develop and market wireless
solutions, which incorporate our wireless technology. OEM
customers orders are affected by a variety of factors,
including the following:



| |   |                                             
| | - | --------------------------------------------
| |  | new product introductions;                  
|
| |  | end user demand for OEM customers products;
|
| |  | joint development efforts;                  
|
| |  | OEM customers product life cycles;         

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| |   |                                                                  
| | - | -----------------------------------------------------------------
| |  | inventory levels;                                                
|
| |  | market and OEM customers adoption of new
    wireless standards;
|
| |  | manufacturing strategies;                                        
|
| |  | lengthy design-in cycles;                                        
|
| |  | pricing;                                                         
|
| |  | regulatory changes;                                              
|
| |  | contract awards; and                                             
|
| |  | competitive situations.                                          

The loss of one or more of, or a significant
reduction in orders from, our major OEM customers could
materially and adversely affect our operating results or stock
price. In addition, there can be no assurance that we will
become a qualified supplier for new OEM customers or that we
will remain a qualified supplier for existing OEM customers.



| |                                                                                                                                                                                                                                                                   
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our business derives a substantial portion
    of its revenue from a limited number of distributors. Therefore,
    a decrease or loss in business from any of them may cause a
    significant delay or decline in our revenue and could harm our
    reputation.

Our business has historically generated a
significant amount of revenue from a limited number of
distributors. The loss of business from any of these
distributors or the delay of significant orders from any of
them, even if only temporary, could significantly reduce our
revenue, delay recognition of revenue, harm our reputation or
reduce our ability to accurately predict cash flow. Two
distributors accounted for approximately 15.9% and 12.7%,
respectively, of our total revenue for the nine months ended
October 1, 2004, and one distributor accounted for
approximately 14% and 23% of our total revenue for the years
ended December 31, 2003 and 2002, respectively. We do not
have long-term contracts with any of these distributors. While
we expect to have a more diversified and expansive end customer
base, the future success of our business will depend
significantly on the timing and size of future purchase orders,
if any, from a limited number of distributors. Additionally, our
reliance on distributors limits our visibility to our end user
customers, which impacts our ability to accurately forecast our
revenues. Most of our expenses are fixed in the short term and
any shortfall in revenues in relation to planned expenditures
could materially harm our operating results and financial
condition.



| |                                                                                                                                                                                                                                                                                  
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We depend on limited suppliers for key
    components that are difficult to manufacture, and because we may
    not have long-term arrangements with these suppliers, we could
    experience disruptions in supply that could decrease or delay
    the recognition of revenues.

We depend on single or limited source suppliers
for several key components used in our products. Any disruptions
in the supply of these components or assemblies could delay or
decrease our revenues. In addition, even for components with
multiple sources, there have been, and may continue to be,
shortages due to capacity constraints caused by high demand. We
do not have any long-term arrangements with our suppliers and
could be at a disadvantage compared to other companies,
particularly larger companies that have contractual rights or
preferred purchasing arrangements. In addition, during periods
of capacity constraint, we are disadvantaged compared to better
capitalized companies, as suppliers have in the past and may in
the future choose not to do business with us, or may require
letters of credit guaranteeing our obligations, as a result of
our financial condition. If, for any reason, a supplier fails to
meet our quantity or quality requirements, or stops selling
components to us or our contract manufacturers at commercially
reasonable prices, we could experience significant production
delays and cost increases, as well as higher warranty expenses
and product reputation problems. Because the key components and
assemblies of our products are complex, difficult to manufacture
and require long lead times, we may have difficulty finding
alternative suppliers to produce our components and assemblies
on a timely basis. In the Wi-Fi market, the growth in demand has
created unexpected shortages and sudden increases in lead times.
We have experienced shortages of some of these

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components in the past, which delayed related
revenue, and we may experience shortages in the future. In
addition, because the majority of our products have a short
sales cycle of between 30 and 90 days, we may have
difficulty in making accurate and reliable forecasts of product
needs. As a result, we could experience shortages in supply,
which could delay or decrease revenue because our customers may
cancel their orders or choose a competitor for their future
needs.




| |                                                                                                                                                         
| | --------------------------------------------------------------------------------------------------------------------------------------------------------
| | We have limited manufacturing capabilities
    and we will need to increasingly depend on contract
    manufacturers for our manufacturing requirements.

We have limited manufacturing capability in large
scale or foreign manufacturing. We cannot assure you that we
will be able to develop or contract for additional manufacturing
capacity on acceptable terms on a timely basis. In addition, in
order to compete successfully, we will need to achieve
significant product cost reductions. Although we intend to
achieve cost reductions through engineering improvements,
production economies, and manufacturing at lower cost locations
including outside the United States, we cannot assure you that
we will be able to do so. In order to remain competitive, we
must continue to introduce new products and processes into our
manufacturing environment, and we cannot assure you that any
such new products will not create obsolete inventories related
to older products.

We rely on contract and subcontract manufacturers
for turnkey manufacturing and circuit board assemblies which
subjects us to additional risks, including a potential inability
to obtain an adequate supply of finished assemblies and
assembled circuit boards and reduced control over the price,
timely delivery and quality of such finished assemblies and
assembled circuit boards. If our Sunnyvale facility were to
become incapable of operating, even temporarily, or were unable
to operate at or near our current or full capacity for an
extended period, our business and operating results could be
materially adversely affected.

Changes in our manufacturing operations to
incorporate new products and processes, or to manufacture at
lower cost locations outside the United States, could cause
disruptions, which, in turn, could adversely affect customer
relationships, cause a loss of market opportunities and
negatively affect our business and operating results. In
addition, our reliance on a limited number of manufacturers
involves a number of risks, including the risk that these
manufacturers may terminate their relationship with us, may
choose not to devote adequate capacity to produce our products
or may delay production of our products. If any of these risks
are realized, we could experience an interruption in supply,
which could have an adverse impact on the timing and amount of
our revenues. There can be no assurance that we will be able to
effectively transition these products, which, in turn, could
adversely affect customer relationships, cause a loss of market
opportunities and negatively affect our business and operating
results.

Our reliance on contract manufacturers could
subject us to additional costs or delays in product shipments as
demand for our products increases or decreases. As demand for
wireless products increases, our contract manufacturers are
experiencing increasing lead times for many components
increasing the possibility that they will be unable to satisfy
our product requirements in a timely fashion. There can be no
assurance that we will effectively manage our contract
manufacturers or that these manufacturers will meet our future
requirements for timely delivery of products of sufficient
quality and quantity. The inability of our contract
manufacturers to provide us with adequate supplies or the loss
of a contract manufacturer would result in costs to acquire
additional manufacturing capacity and delays in shipments of our
products, materially adversely affecting our business and
operating results. In addition, cancellations in orders as a
result of decreases in demand for products may subject us to
claims for damages. In this regard, we are party to disputes,
including legal actions, with several of our suppliers and
vendors. These disputes relate primarily to excess materials and
order cancellation claims that resulted from declines in demand
for our products during 2001 and 2002 and the commensurate
reductions in manufacturing volumes.



| |                                                                                                                    
| | -------------------------------------------------------------------------------------------------------------------
| | We must be able to manage expenses and
    inventory risks associated with meeting the demand of our
    customers.

To ensure that we are able to meet customer
demand for our products, we place orders with our subcontractors
and suppliers based on our estimates of future sales. If actual
sales differ materially from these estimates, our inventory
levels and expenses may be adversely affected and our business
and results of

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operations could suffer. For example, in 2003 and
in first half of 2004, the fulfillment of our product and supply
orders resulted in our receiving more products and components
than we were able to sell and caused an increase in our
inventories. This oversupply was caused by customer demand not
meeting the sales forecasts that were made when the orders were
originally placed and our strategy to discontinue certain
products in order to concentrate on selling next generation
products. As part of our ongoing review of our inventory reserve
requirements, we increased our reserve for excess and obsolete
inventory and lower of cost or market by $1.7 million in
the nine months ended October 1, 2004, primarily related to
legacy WWAN products. As part of our restructuring charge in the
second quarter of 2003, we increased our reserve for excess and
obsolete inventory by $22.5 million, also primarily related
to legacy WWAN products. As a part of our restructuring charge
in the first quarter of 2002, we increased our reserve for
obsolete and excess inventory, including purchase commitments,
totaling $12.7 million, of which $7.7 million related
to excess inventory and $5.0 million related to purchase
commitments, primarily related to legacy WLAN products. These
provisions related to a decrease in demand for certain products
as well as our strategy to discontinue certain products in order
to concentrate on selling next generation products.




| |                                                                                                                                                                                   
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Failure to decrease the cost of our
    products or to effectively develop new systems would cause our
    gross profit and our revenue to decline or to increase more
    slowly.

We participate in a highly volatile industry
characterized by vigorous competition for market share and rapid
technological development. Furthermore, business consumers of
wireless products increasingly are concentrating on reducing
capital expenditures and on maximizing return on investment
(ROI) in connection with their purchases of networking
products. These factors have resulted in aggressive pricing
practices in our industry and have resulted in downward pricing
pressure on our products. We expect these market conditions to
persist and expect that falling prices for competing broadband
solutions will force us to reduce prices over time. In addition
to the effects of industry-wide pricing pressures, we expect
that the average selling prices of our products will continue to
decrease because one of our strategies is to increase the
percentage of domestic and international sales being made
through distributors and value-added resellers, and to OEM
customers, which involve lower prices than our direct sales.
Given this combination of factors, we may be forced under some
circumstances to reduce the selling prices of our products even
if it causes us to decrease gross profit or to take a loss on
our products. We may also be unable to reduce sufficiently the
cost of our products to enable us to compete with other
broadband access technologies with lower product costs.

In order to remain competitive, we will need to
design our products so that they can be manufactured with
low-cost, automated manufacturing, assembly and testing
techniques. We cannot assure you that we will be successful in
designing our products to allow contract manufacturers to use
lower-cost, automated techniques. In addition, any redesign may
fail to result in sufficient cost reductions to allow us to
significantly reduce the price of our products or prevent our
gross profit from declining as prices decline.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Because many of our current and planned
    products are or will be highly complex, they may contain defects
    or errors that are detectable only after deployment in complex
    networks and which, if detected, could harm our reputation,
    result in costs to us in excess of our estimates, adversely
    affect our operating results, result in a decrease in revenue or
    result in difficulty collecting accounts
    receivable.

Many of our complex products can only be fully
tested when deployed in commercial networks. As a result, end
users may discover defects or errors or experience breakdowns in
their networks after the products have been deployed. The
occurrence of any defects or errors in these products, including
defects or errors in components supplied by our contract
manufacturers, could result in:



| |   |                                                                   
| | - | ------------------------------------------------------------------
| |  | failure to achieve market acceptance and loss of
    market share;
|
| |  | cancellation of orders;                                           
|
| |  | difficulty in collecting accounts receivable;                     
|
| |  | increased service and warranty costs;                             

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| |   |                                                                                
| | - | -------------------------------------------------------------------------------
| |  | diversion of resources, legal actions by
    customers and end users; and      
|
| |  | increased insurance costs and other losses to our
    business or to end-users.

If we experience warranty failure that indicates
either manufacturing or design deficiencies, we may be required
to recall units in the field and or stop producing and shipping
such products until the deficiency is identified and corrected.
In the event of such warranty failures, our business could be
adversely affected resulting in reduced revenue, increased costs
and decreased customer satisfaction. Because customers often
delay deployment of a full system until they have tested the
products and any defects have been corrected, we expect these
revisions to cause delays in orders by our customers for our
systems. Because our strategy is to introduce more complex
products in the future, this risk will intensify over time. End
users have discovered errors in our products. If the costs of
remediating problems experienced by our customers exceed our
warranty reserves, these costs may adversely affect our
operating results.



| |                                                                                                                                                                                     
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | To compete effectively, we will need to
    establish and expand new distribution channels for our
    point-to-point and point-to-multipoint products and 802.11 WLAN
    products.

We sell our products through domestic and
international distributors. In general, distributors,
value-added resellers and retailers offer products of several
different companies, including products that may compete with
our products. Accordingly, they may give higher priority to
products of other suppliers, thus reducing our efforts to sell
our products. In addition they often focus on specific markets
and we will need to add new distributors and value-added
resellers as we expand our sales to new markets. Agreements with
distributors and retailers are generally terminable at their
option. Any reduction in sales efforts or termination of a
relationship may materially and adversely affect our business
and operating results. Use of distributors and retailers also
entails the risk that they will build up inventories in
anticipation of substantial growth in sales. If such growth does
not occur as anticipated, they may substantially decrease the
amount of products ordered in subsequent quarters. Such
fluctuations could contribute to significant variations in our
future operating results.



| |                                                                                                                                                                                                                              
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Broadband wireless access solutions have
    some disadvantages and limitations as compared to other
    alternative broadband access solutions that may prevent
    widespread adoption, which could hurt our
    prospects.

Broadband wireless access solutions, including
point-to-point and point-to-multipoint systems, compete with
other high-speed access solutions such as digital subscriber
lines, cable modem technology, fiber optic cable and other
high-speed wire line and satellite technologies. If the market
for our Lynx and Tsunami point-to-point and Tsunami
point-to-multipoint solutions fails to develop or develops more
slowly than we expect due to this competition, our sales
opportunities will be harmed. Many of these alternative
technologies can take advantage of existing installed
infrastructure and are generally perceived to be reliable and
secure. As a result, they have already achieved significantly
greater market acceptance and penetration than point-to-point
and point-to-multipoint broadband wireless access technologies.
Moreover, current point-to-point and point-to-multipoint
broadband wireless access technologies have inherent technical
limitations that may inhibit their widespread adoption in many
areas, including the need for line-of-sight installation and, in
the case of operating frequencies above 11 GHz, reduced
communication distance in bad weather. We expect point-to-point
and point-to-multipoint broadband wireless access technologies
to face increasing competitive pressures from both current and
future alternative technologies. In light of these factors, many
service providers may be reluctant to invest heavily in
broadband wireless access solutions.



| |                                                                                                                                                                                                               
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Broadband wireless access products
    frequently require a direct line-of-sight, which may limit the
    ability of service providers to deploy them in a cost-effective
    manner and could harm our sales.

Because of line-of-sight limitations, service
providers often install broadband wireless access equipment on
the rooftops of buildings and on other tall structures. Before
undertaking these installations, service providers must
generally secure roof rights from the owners of each building or
other structure on which the equipment is to be installed. The
inability to easily and cost-effectively obtain roof rights may
deter customers from choosing to install broadband wireless
access equipment, which could have an adverse effect on our
sales.

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| |                                                                                       
| | --------------------------------------------------------------------------------------
| | Inability to attract and retain key
    personnel could hinder our ability to operate.

Our success depends to a large extent on the
continued services of Mr. Frank Plastina, our Chairman and
Chief Executive Officer, Mr. Kevin Duffy, our President and
Chief Operating Officer, Mr. Michael D. Angel, our
Executive Vice President and Chief Financial Officer, and other
members of our senior management team. We recently announced
that our board of directors has approved a plan for
Mr. Duffy to assume the role of Chief Executive Officer in
January 2005, with Mr. Plastina to serve as full time
Executive Chairman. The loss of the services of any of these
management members could harm our business because of the
crucial role each of them is expected to play in our operations
and strategic development. In order to be successful, we must
also retain and motivate key employees, including those in
managerial, technical, marketing and sales positions. In
particular, our product generation efforts depend on hiring and
retaining qualified engineers. Experienced management and
technical, sales, marketing and support personnel in the
wireless networking industry are in high demand and competition
for their talents is intense. This is particularly the case in
Silicon Valley, where our headquarters and a majority of our
operations are located.



| |                                                                                                                                                                                                                                                                                                                                                      
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Uncertainties and heightened security
    associated with the aftermath of war in Iraq and the ongoing war
    on terrorism may continue to adversely affect domestic and
    international demand for our products, result in a further
    deterioration of global economic conditions, and increase
    shipment times and costs for our products.

The economic uncertainty resulting from
hostilities in Iraq may continue to negatively impact consumer
and business confidence. In recent periods, general economic
conditions in the U.S. caused and may continue to cause
U.S. businesses to slow spending on products and to delay
sales cycles. Similarly, global economic conditions could cause
foreign businesses to slow or halt spending on our products. We
manufacture a substantial portion of our products outside the
U.S., and we may experience delays in the delivery of our
products or increased shipping costs as a result of increased
security measures. This economic uncertainty may make it more
difficult to continue to implement our business strategy and
could adversely impact future operating results.



| |                                                        
| | -------------------------------------------------------
| | Wireless products may pose health and
    safety risks.

There has been recent publicity alleging
potentially negative direct and indirect health and safety
effects of electromagnetic radiation from cellular telephones
and other wireless equipment sources, including allegations that
such emissions may cause cancer. Our wireless communications
products emit electromagnetic radiation. Health and safety
issues related to our products may arise that could lead to
litigation or other action against us or to additional
regulation of our products. We may be required to modify our
technology and may not be able to do so. We may also be required
to pay damages that may reduce our profitability and adversely
affect our financial condition. Even if concerns about the
safety of electromagnetic radiation prove to be without merit,
negative publicity could affect our ability to market our
products and could, in turn, harm our business and our results
of operations.



| |                                                                                                                               
| | ------------------------------------------------------------------------------------------------------------------------------
| | Compliance with governmental regulations in
    multiple jurisdictions where we sell our products is difficult
    and costly.

In the United States, we are subject to various
Federal Communications Commission, or FCC, rules and
regulations. Current FCC regulations permit license exempt
operation in certain FCC-certified bands in the radio spectrum.
Our wireless products are certified for unlicensed operation in
the 902-928 MHz, 2.4-2.4835 GHz, 5.15-5.35 GHz
and 5.725-5.825 GHz frequency bands, and we expect soon to
have certified products in the newly opened 5.470-5.725 GHz
band. Operation in these frequency bands is governed by rules
set forth in Part 15 of the FCC regulations. The
Part 15 rules are designed to minimize the probability of
interference to other users of the spectrum and, thus, accord
Part 15 systems unlicensed status in the frequency band. In
the event that there is interference caused by a Part 15
user, the FCC can require the Part 15 user to curtail
transmissions that create interference. In this regard, if users
of our products experience excessive interference from primary
users, market acceptance of our products could be adversely
affected, which could materially and adversely affect our
business and operating results. The FCC, however, has

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established certain standards that create an
irrefutable presumption of noninterference for Part 15
users and we believe that our products comply with such
requirements. There can be no assurance that the occurrence of
regulatory changes, including changes in the availability of
spectrum, changes in the allowed use spectrum, or modification
to the standards establishing an irrefutable presumption for
unlicensed Part 15 users, would not significantly affect
our operations by rendering current products obsolete,
restricting the applications and markets served by our products
or increasing the opportunity for additional competition.


Our products are also subject to regulatory
requirements in international markets and, therefore, we must
monitor the development of frequency regulations in certain
countries that represent potential markets for our products.
While we cannot assure you that we will be able to comply with
regulations in any particular country, we will design our
products to minimize the design modifications required to meet
various 2.4 GHz and 5 GHz international spread
spectrum regulations. In addition, we will seek to obtain
international certifications for our product line in countries
where there are substantial markets for wireless networking
systems. Changes in, or the failure by us to comply with,
applicable domestic and international regulations could
materially adversely affect our business and operating results.
In addition, with respect to those countries that do not follow
FCC regulations, we may need to modify our products to meet
local rules and regulations.

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



| |   |                                                                                  
| | - | ---------------------------------------------------------------------------------
| |  | decrease the growth of the broadband wireless
    industry;                      
|
| |  | hinder our ability to conduct business both
    domestically and internationally;
|
| |  | reduce our revenues;                                                             
|
| |  | increase the costs and pricing of our products;                                  
|
| |  | increase our operating expenses; and                                             
|
| |  | expose us to significant liabilities.                                            

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



| |                                                                                                                                                                                                                                                                     
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We may not be able to continue to meet the
    listing criteria for the NASDAQ National Market, which would
    adversely affect the ability of investors to trade our
    Class A common stock and could adversely affect our
    business and financial condition.

Our Class A common stock is quoted on the
NASDAQ National Market under the symbol PROX. On
August 31, 2004, we received a letter from The NASDAQ Stock
Market, Inc. (NASDAQ) notifying the Company that for
the prior 30 consecutive trading days, the bid price of our
Class A common stock had closed below the $1.00 per
share minimum required for continued inclusion on the NASDAQ
National Market pursuant to NASDAQs Marketplace Rules. In
accordance with the Marketplace Rules, we were provided 180
calendar days, or until February 28, 2005, to regain
compliance with this requirement. Compliance will be achieved if
the bid price per share of our Class A common stock closes
at $1.00 per share or greater for a minimum of ten
(10) consecutive trading days prior to February 28,
2005.

In order to address this situation, the Board of
Directors approved a proposal for a one-for-ten reverse stock
split, partly as a means of increasing the share price of our
Class A common stock above $1.00 per share and to
prevent future delisting actions by NASDAQ. Our stockholders
approved the reverse stock split

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proposal on October 21, 2004 and the reverse
stock split became effective on October 25, 2004. From
October 25, 2004 until November 22, 2004, our
Class A common stock will be quoted on the NASDAQ National
Market under symbol PROXD to provide notice to the
investment community of the Companys one-for-ten reverse
stock split.


On November 8, 2004, the Company received a
letter from NASDAQ indicating that the Company had regained
compliance with NASDAQ Marketplace Rule 4450(b)(4) because
the Companys Class A common stock had closed at a bid
price of greater than $1.00 for at least 10 consecutive
business days. In the letter of November 8, 2004, NASDAQ
declared the matter closed.

We cannot assure you that we will be able to
maintain the listing of our Class A common stock on the
NASDAQ National Market in the future, or that we will be able to
meet the listing criteria for the NASDAQ SmallCap Market.



| |                                                                                                                                                                                                                                                                                 
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our operating results have been, and could
    further be, adversely affected as a result of purchase
    accounting treatment and the impact of amortization and
    impairment of intangible assets relating to our merger with
    Proxim, Inc. and the Agere asset purchase.

In accordance with generally accepted accounting
principles, we accounted for our merger with Proxim, Inc. using
the purchase method of accounting. Under the purchase method of
accounting, we have recorded the market value of our
Class A common stock issued in connection with the merger,
the fair value of the options to purchase Proxim, Inc.
Class A common stock that became options to purchase Proxim
Corporation Class A common stock and the amount of direct
transaction costs as the cost of combining with Proxim, Inc. We
have allocated the cost of the individual assets acquired and
liabilities assumed, including various identifiable intangible
assets (such as acquired technology and acquired trademarks and
trade names) and in-process research and development, based on
their respective fair values at the date of the completion of
the merger. Intangible assets are required to be amortized
prospectively over their estimated useful lives. The purchase
price was allocated to deferred compensation, based on the
portion of the intrinsic value of the unvested Proxim, Inc.
options we have assumed to the extent that service is required
after completion of the merger in order to vest. Any excess of
the purchase price over those fair market values will be
accounted for as goodwill. We are not required to amortize
goodwill against income but goodwill and other non-amortizable
intangible assets will be subject to periodic reviews for
impairment.

In this regard, due to the decline in forecasted
revenue in future periods, we took a charge of
$129.1 million related to the impairment of goodwill in
accordance with SFAS No. 142 in the fourth quarter of
2002. The impairment charged was measured as the amount that the
carrying amount exceeded our estimated fair value. If we are
required to recognize additional impairment charges, the charge
will negatively impact reported earnings in the period of the
charge.



| |                                                                                                                                                                                                                                                        
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Changes in stock option accounting rules
    may adversely impact our reported operating results prepared in
    accordance with generally accepted accounting principles, our
    stock price and our competitiveness in the employee
    marketplace.

Technology companies like ours have a history of
using broad based employee stock option programs to hire,
provide incentives for and retain our workforce in a competitive
marketplace. Statement of Financial Accounting Standards
No. 123, Accounting for Stock-Based
Compensation (SFAS 123) allows companies
the choice of either using a fair value method of accounting for
options, which would result in expense recognition for all
options granted, or using an intrinsic value method, as
prescribed by Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees
(APB 25), with a pro forma disclosure of the impact on net
income (loss) of using the fair value option expense recognition
method. We have elected to apply APB 25 and accordingly we
generally do not recognize any expense with respect to employee
stock options as long as such options are granted at exercise
prices equal to the fair value of our Class A common stock
on the date of grant.

During March 2004 the FASB issued a proposed
Statement, Share-Based Payment, an amendment of FASB
Statements No. 123 and 95. The proposed statement
eliminates the treatment for share-based

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transactions using APB 25 and generally
would require share-based payments to employees be accounted for
using a fair-value-based method and recognized as expenses in
our statements of operations. The proposed standard would
require the modified prospective method be used, which would
require that the fair value of new awards granted from the
beginning of the year of adoption plus unvested awards at the
date of adoption be expensed over the vesting term. In addition,
the proposed statement encourages companies to use the
binomial approach to value stock options, as opposed
to the Black-Scholes option pricing model that we currently use
for the fair value of our options under SFAS 123 disclosure
provisions.


In October 2004 the FASB announced that the
proposed Statement would be effective for interim or annual
periods beginning after June 15, 2005. Should this proposed
Statement be finalized, it will have a significant impact on our
consolidated statement of operations as we will be required to
expense the fair value of our stock options rather than
disclosing the impact on our consolidated result of operations
within our footnotes in accordance with the disclosure
provisions of SFAS 123. This will result in lower reported
earnings per share, which could negatively impact our future
stock price. In addition, should the proposal be finalized, this
could impact our ability to utilize broad based employee stock
plans to reward employees and could result in a competitive
disadvantage to us in the employee marketplace.



| |                                                                                                               
| | --------------------------------------------------------------------------------------------------------------
| | Provisions of our certificate of
    incorporation, bylaws and Delaware law could deter takeover
    attempts.

Some provisions in our certificate of
incorporation and bylaws could delay, prevent or make more
difficult a merger, tender offer, proxy contest or change of
control of our company despite the possibility that such
transactions may be viewed to be in the best interest of our
stockholders since such transactions could result in a higher
stock price than the then-market price of our Class A
common stock. Among other things, our certificate of
incorporation and bylaws:



| |   |                                                                                                                                                                                                                                                                                                                                                                                
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | authorize our board of directors to issue
    preferred stock with the terms of each series to be fixed by the
    board of directors;                                                                                                                                                                                                                                         
|
| |  | authorize our board of directors to issue shares
    of common stock, which in some circumstances may be sufficient
    in number to dilute the stock ownership of any person or persons
    seeking to effect a change in the composition of the
    Companys board of directors or contemplating a tender
    offer for the combination of the Company with another company;
|
| |  | divide our board of directors into three classes
    so that only approximately one-third of the total number of
    directors is elected each year;                                                                                                                                                                                                                           
|
| |  | permit directors to be removed only for
    cause; and                                                                                                                                                                                                                                                                                                                         
|
| |  | specify advance notice requirements for
    stockholder proposals and director nominations.                                                                                                                                                                                                                                                                                    

In addition, with some exceptions, the Delaware
General Corporation Law will restrict or delay mergers and other
business combinations between us and any stockholder that
acquires 15% or more of our voting stock.






|        |                                                               
|------- | --------------------------------------------------------------
|Item 3. | Quantitative and Qualitative Disclosures
    About Market Risk

The following discussion about our market risk
disclosures involves forward-looking statements. Actual results
could differ materially from those projected in the
forward-looking statements.

Interest Rate Sensitivity

We currently do not maintain investments that are
subject to interest rate risk.

Exchange Rate Risk

We currently have operations in the United States
and several countries in South America, Europe and Asia. The
functional currency of all our operations is the
U.S. dollar. Though some expenses are incurred in

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local currencies by our overseas operations,
substantially all of our transactions are made in
U.S. dollars; hence, we have minimal exposure to foreign
currency rate fluctuations relating to our transactions.


While we expect our international revenues to
continue to be denominated predominately in U.S. dollars,
an increasing portion of our international revenues may be
denominated in foreign currencies in the future. As a result,
our operating results may become subject to significant
fluctuations based upon changes in exchange rates of certain
currencies in relation to the U.S. dollar. We will analyze
our exposure to currency fluctuations and may engage in
financial hedging techniques in the future to attempt to
minimize the effect of these potential fluctuations; however,
exchange rate fluctuations may adversely affect our financial
results in the future.






|        |                        
|------- | -----------------------
|Item 4. | Controls and Procedures

Evaluation of disclosure controls and
procedures.Our Chief Executive
Officer and our Chief Financial Officer, after evaluating the
effectiveness of our disclosure controls and
procedures (as defined in the Securities Exchange Act of
1934, as amended (the Exchange Act)
Rules 13a-15(e) or 15d-15(e)) as of the end of the period
covered by this quarterly report, have concluded that our
disclosure controls and procedures are effective based on their
evaluation of these controls and procedures required by
paragraph (b) of Exchange Act Rules 13a-15 or
15d-15.

Changes in internal control over financial
reporting.There were no changes in
our internal control over financial reporting identified in
connection with the evaluation required by
paragraph (d) of Exchange Act Rules 13a-15 or
15d-15 that occurred during our last fiscal quarter that have
materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.




PART II. OTHER INFORMATION






|        |                  
|------- | -----------------
|Item 1. | Legal Proceedings

Proxim, Inc.s involvement in patent
litigation has resulted in, and could in the future continue to
result in, substantial costs and diversion of management
resources of the Company. In addition, this litigation, if
determined adversely to us, could result in the payment of
substantial damages and/or royalties or prohibitions against
utilization of essential technologies, and could materially and
adversely affect our business, financial condition, operating
results or cash flows.

Symbol Technologies, Inc.

On September 13, 2004 we entered into the
Settlement Agreement and a Patent Cross License Agreement with
Symbol and assigned certain intellectual property to Symbol
resolving all outstanding litigation.

Under the terms of the Settlement Agreement, we
agreed to pay Symbol $22.75 million dollars over our
ensuing ten quarters, commencing with the quarter ending
October 1, 2004. The Settlement Agreement provides for lump
sum payments of $2.5 million per quarter in each of the
first eight quarters, a payment of $1.5 million in the
ninth quarter, and a payment of $1.25 million in the tenth
quarter. If at any point during the term of the Settlement
Agreement, we fail to make any of these payments within
30 days after Symbol has notified us of the failure to pay,
Symbol shall have the right to demand immediate payment in the
amount of $25,917,669, minus payments made under the agreement
and plus applicable interest.

Under the terms of the Patent Cross License
Agreement, Symbol and we have agreed to cross license certain
patents, and we have agreed to pay to Symbol a two percent
royalty on sales of certain of our wireless LAN products. If we
fail to make any of the lump sum payments due under the
Settlement Agreement over the next ten quarters and fail to cure
any such missed payment within 30 days thereafter, the
Patent Cross License Agreement provides that the royalty rate
payable to Symbol on sales of certain of our wireless LAN
products covered by the agreement shall increase to five percent
until the required payments as set forth a in the Settlement
Agreement have been made. Also pursuant to the terms of the
Patent Cross License

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Agreement, we and Symbol have entered into a
covenant not to sue one another for patent infringement with
respect to one anothers products through
September 13, 2009.


Since the date of the initial jury award of the
patent infringement suit in September 2003, we had recorded an
accrual for estimated past royalties of $22.9 million and
interest of $3.0 million covering the period from 1995
through September 2003 plus total potential royalties and
interest of $2.8 million covering the period from October
2003 to July 2, 2004. As a result of the Settlement
Agreement, we recorded a non-cash reversal of royalty charges of
$4.8 million and interest expense of $3.2 million
totaling $8.0 million during the quarter ended
October 1, 2004. This reversal is the difference between
the net present value of the $22.75 million settlement and
the accrued liability related to the litigation of
$28.7 million, which was recorded in our balance sheet
prior to the litigation settlement. The discounted balance due
Symbol is $18.3 million at October 1, 2004 and is
included in the balance sheet captions Accrued royalties
and interest and Accrued royalties, long-term.
The difference between the balance at October 1, 2004 and
the sum of the periodic payments will be accreted, using the
effective interest rate method over the payment period as
periodic charges to interest expense.

Top Global Technology Limited

On or about March 10, 2003, we were served
with a complaint filed on January 15, 2003, by Top Global
Technology Limited (Top Global), a distributor for
Agere Systems Singapore. Our demurrer to Top Globals
complaint was sustained in May 2003. Top Global then filed and
served an amended complaint on May 30, 2003. Top
Globals lawsuit was filed against Agere Systems, Inc.,
Agere Systems Singapore, and Agere Systems Asia Pacific
(collectively, Agere) and us in the Superior Court
for the State of California, County of Santa Clara. Top
Global claims that it is entitled to return for a credit
$1.2 million of products that it purchased from Agere
Systems Singapore in June 2002 as a result of our decision to
discontinue a product line that we purchased from Agere in
August 2002. The amended complaint asks the court to determine
whether Agere or we are responsible for accepting the product
return and issuing a $1.2 million credit and also alleges
breach of contract. We answered the amended complaint and
asserted several defenses to Top Globals claims. In
January 2004, the parties mediated this dispute but were unable
to reach a settlement. In March 2004, the Court dismissed the
contract claims against Agere but at the same time granted Top
Globals motion for leave to amend our complaint to allege
a fraud claim against Agere. Top Global subsequently amended its
complaint to allege a claim of fraud against Agere. The parties
are currently conducting discovery. Our motion for summary
judgment in the matter will be heard January 7, 2005. A
trial date has been set for February 22, 2005.

Active Technology Corporation

On February 10, 2004, we received a copy of
a complaint filed on February 2, 2004 in Tokyo District
Court by Active Technology Corporation, a Japanese-based
distributor of our products. The complaint alleges, among other
things, that we sold to Active certain defective products, which
Active in turn subsequently sold to our customers. Active seeks
damages of 559.2 million Japanese yen, which includes the
purchase price of the allegedly defective products and
replacement costs allegedly incurred by Active. Active seeks to
offset the claim of 559.2 million Japanese yen against
outstanding accounts payable by Active of 175.3 million
Japanese yen to us, resulting in a net claim against Proxim
Corporation of 383.9 million Japanese yen. Translated into
U.S. dollars on November 3, 2004, Actives net
claim is approximately $3.6 million. On October 5,
2004, a hearing was held in the matter and we filed a
counterclaim for $2.3 million plus interest for outstanding
amounts owed us. The next hearing in the matter will be held
November 12, 2004.

General

We are party to disputes, including legal
actions, with several of our suppliers and vendors. These
disputes relate primarily to excess materials and order
cancellation claims that resulted from the declines in demand
for our products during 2001 and 2002 and the commensurate
reductions in manufacturing volumes. We have recorded reserves
related to these disputes to the extent that management believes
are appropriate. We intend to vigorously defend ourselves in
these matters.

67



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The results of any litigation matters are
inherently uncertain. In the event of any adverse decision in
the described legal actions or disputes, or any other related
litigation with third parties that could arise in the future, we
could be required to pay damages and other expenses, and, in the
case of litigation related to patents or other intellectual
property rights, to cease the manufacture, use and sale of
infringing products, to expend significant resources to develop
non-infringing technology, or to obtain licenses to the
infringing technology. We cannot make any assurance that these
matters will not materially and adversely affect our business,
financial condition, operating results or cash flows.






|        |         
|------- | --------
|Item 6. | Exhibits

|        |         |             |  |                                                                                                                                                                                                                               
|------- | ------- | ----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |         |            
|Number  |         | Description
|        |         |            
|        | 2.1*    |             |  | Securities Purchase Agreement, dated as of
    July 27, 2004, by and among Proxim Corporation, Warburg
    Pincus Private Equity VIII, L.P., BCP Capital, L.P., BCP Capital
    QPF, L.P. and BCP Capital Affiliates Fund LLC.
|       
|        | 10.68   |             |  | Amendment to Loan Documents, dated as of
    July 31, 2004, between the Registrant and Silicon Valley
    Bank.                                                                                                               
|       
|        | 10.69** |             |  | Settlement Agreement, dated September 13,
    2004, between Proxim Corporation and Symbol Technologies, Inc.                                                                                                                  
|       
|        | 10.70   |             |  | Amendment to Overadvance LC Rider, dated as of
    October 31, 2004, between the Registrant and Silicon Valley
    Bank.                                                                                                      
|       
|        | 10.71   |             |  | Employment Agreement, dated as of
    December 5, 2002, between Proxim Corporation and Kevin J.
    Duffy                                                                                                                     
|       
|        | 10.72   |             |  | Amendment to Employment Agreement, dated as of
    May 25, 2004, between Proxim Corporation and Kevin J. Duffy                                                                                                                
|       
|        | 10.73   |             |  | Employment Agreement, dated as of April 7,
    2003, between Proxim Corporation and David E. Olson                                                                                                                            
|       
|        | 10.74   |             |  | Amendment to Employment Agreement, dated as of
    July 1, 2004, between Proxim Corporation and David E. Olson                                                                                                                
|       
|        | 10.75   |             |  | Employment Agreement, dated as of
    October 27, 2003, between Proxim Corporation and Richard J.
    Tallman                                                                                                                 
|       
|        | 10.76   |             |  | Amendment to Employment Agreement, dated as of
    June 15, 2004, between Proxim Corporation and Richard J.
    Tallman                                                                                                       
|       
|        | 10.77   |             |  | Employment Agreement, dated as of April 12,
    2004, between Proxim Corporation and Michael D. Angel                                                                                                                         
|       
|        | 31.1    |             |  | Section 302 Certification of Principal
    Executive Officer                                                                                                                                                                  
|       
|        | 31.2    |             |  | Section 302 Certification of Principal
    Financial Officer                                                                                                                                                                  
|       
|        | 32.1    |             |  | Section 906 Certification of Principal
    Executive Officer                                                                                                                                                                  
|       
|        | 32.2    |             |  | Section 906 Certification of Principal
    Financial Officer                                                                                                                                                                  



---



| |   |                                                                                                                                            
| | - | -------------------------------------------------------------------------------------------------------------------------------------------
| | * | Incorporated by reference to Exhibit 2.1 to
    the Registrants Current Report on Form 8-K filed with
    the Commission on July 30, 2004.



|   |                                                                                                                                                   
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------
|** | Incorporated by reference to Exhibit 10.69
    to the Registrants Current Report on Form 8-K filed
    with the Commission on September 16, 2004.

68



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##### Table of Contents






SIGNATURES

Pursuant to the requirements of the Securities
Exchange Act of 1934, the Company has duly caused this report to
be signed on its behalf by the undersigned thereunto duly
authorized.



| |                   
| | ------------------
| | PROXIM CORPORATION



| |     |                     
| | --- | --------------------
| | By: | /s/ MICHAEL D. ANGEL

| |                                                 
| | ------------------------------------------------
| |                                                 
| | Michael D. Angel                                
| | Executive Vice President and                    
| | Chief Financial Officer                         
| | (Principal Financial and Accounting
    Officer)

Date: November 10, 2004

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INDEX TO EXHIBITS

|        |         |             |  |                                                                                                                                                                                                                               
|------- | ------- | ----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |         |            
|Number  |         | Description
|        |         |            
|        | 2.1*    |             |  | Securities Purchase Agreement, dated as of
    July 27, 2004, by and among Proxim Corporation, Warburg
    Pincus Private Equity VIII, L.P., BCP Capital, L.P., BCP Capital
    QPF, L.P. and BCP Capital Affiliates Fund LLC.
|       
|        | 10.68   |             |  | Amendment to Loan Documents, dated as of
    July 31, 2004, between the Registrant and Silicon Valley
    Bank.                                                                                                               
|       
|        | 10.69** |             |  | Settlement Agreement, dated September 13,
    2004, between Proxim Corporation and Symbol Technologies, Inc.                                                                                                                  
|       
|        | 10.70   |             |  | Amendment to Overadvance LC Rider, dated as of
    October 31, 2004, between the Registrant and Silicon Valley
    Bank.                                                                                                      
|       
|        | 10.71   |             |  | Employment Agreement, dated as of
    December 5, 2002, between Proxim Corporation and Kevin J.
    Duffy                                                                                                                     
|       
|        | 10.72   |             |  | Amendment to Employment Agreement, dated as of
    May 25, 2004, between Proxim Corporation and Kevin J. Duffy                                                                                                                
|       
|        | 10.73   |             |  | Employment Agreement, dated as of April 7,
    2003, between Proxim Corporation and David E. Olson                                                                                                                            
|       
|        | 10.74   |             |  | Amendment to Employment Agreement, dated as of
    July 1, 2004, between Proxim Corporation and David E. Olson                                                                                                                
|       
|        | 10.75   |             |  | Employment Agreement, dated as of
    October 27, 2003, between Proxim Corporation and Richard J.
    Tallman                                                                                                                 
|       
|        | 10.76   |             |  | Amendment to Employment Agreement, dated as of
    June 15, 2004, between Proxim Corporation and Richard J.
    Tallman                                                                                                       
|       
|        | 10.77   |             |  | Employment Agreement, dated as of April 12,
    2004, between Proxim Corporation and Michael D. Angel                                                                                                                         
|        | 31.1    |             |  | Section 302 Certification of Principal
    Executive Officer                                                                                                                                                                  
|       
|        | 31.2    |             |  | Section 302 Certification of Principal
    Financial Officer                                                                                                                                                                  
|       
|        | 32.1    |             |  | Section 906 Certification of Principal
    Executive Officer                                                                                                                                                                  
|       
|        | 32.2    |             |  | Section 906 Certification of Principal
    Financial Officer                                                                                                                                                                  



---



| |   |                                                                                                                                            
| | - | -------------------------------------------------------------------------------------------------------------------------------------------
| | * | Incorporated by reference to Exhibit 2.1 to
    the Registrants Current Report on Form 8-K filed with
    the Commission on July 30, 2004.



|   |                                                                                                                                                   
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------
|** | Incorporated by reference to Exhibit 10.69
    to the Registrants Current Report on Form 8-K filed
    with the Commission on September 16, 2004.