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

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549



                                    FORM 10-Q



[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2001

                                       OR

[_]  TRANSITION  REPORT  PURSUANT  TO  SECTION  13 OR  15(d)  OF THE  SECURITIES
     EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _____ TO ______

                        Commission File Number 000-29053

                       TELAXIS COMMUNICATIONS CORPORATION
             (Exact name of registrant as specified in its charter)

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

                            20 INDUSTRIAL DRIVE EAST
                            SOUTH DEERFIELD, MA 01373
                    (Address of principal executive offices)

                                 (413) 665-8551
              (Registrant's telephone number, including area code)

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

     As of April 30,  2001,  there were  16,743,198  shares of the  registrant's
common stock outstanding.

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

<PAGE>

                                      INDEX

<TABLE>
<CAPTION>
                                                                                       PAGE NO.
                                                                                       --------

    PART I.  FINANCIAL INFORMATION
<S>          <C>                                                                        <C>
    Item 1.  Index to Financial Statements...................................             2

               Condensed Balance Sheets as of March 31, 2001 and December
                  31, 2000..................................................              3

               Condensed Statements of Operations for the three months
                  ended March 31, 2001 and 2000.............................              4

               Condensed Statement of Changes in Stockholders' Equity for
                  the three months ended March 31, 2001.....................              5

               Condensed Statements of Cash Flows for the three months
                  ended March 31, 2001 and 2000.............................              6

               Notes to Financial Statements...............................               7

    Item 2.  Management's Discussion and Analysis of Financial Condition and
             Results of Operations...........................................             9

    Item 3.  Qualitative and Quantitative Disclosures About Market Risk......            14

    PART II. OTHER INFORMATION

    Item 1.  Legal Proceedings...............................................            14

    Item 2.  Changes in Securities and Use of Proceeds.......................            14

    Item 6.  Exhibits and Reports on Form 8-K................................            15

    SIGNATURES ..............................................................            15
</TABLE>


<PAGE>


                         PART I - FINANCIAL INFORMATION

     This Quarterly Report on Form 10-Q contains  forward-looking  statements as
defined by federal securities laws.  Forward-looking  statements are predictions
that relate to future events or our future  performance and are subject to known
and unknown risks, uncertainties,  assumptions, and other factors that may cause
actual results,  outcomes,  levels of activity,  performance,  developments,  or
achievements  to be  materially  different  from any future  results,  outcomes,
levels  of  activity,  performance,  developments,  or  achievements  expressed,
anticipated  or implied  by these  forward-looking  statements.  Forward-looking
statements  should be read in light of the  cautionary  statements and important
factors  described in this Form 10-Q,  including Part I, Item 2.--  Management's
Discussion and Analysis of Financial  Condition and Results of Operations,  Safe
Harbor for Forward-Looking  Statements.  We undertake no obligation to update or
revise any  forward-looking  statement to reflect events,  circumstances  or new
information  after the date of this Form 10-Q or to reflect  the  occurrence  of
unanticipated events.

Item 1.  Financial Statements and Supplementary Data.


                          INDEX TO FINANCIAL STATEMENTS


                                                                         Page
                                                                        ------
Condensed Balance Sheets.............................................     3
Condensed Statements of Operations...................................     4
Condensed Statement of Changes in Stockholders' Equity...............     5
Condensed Statements of Cash Flows...................................     6
Notes to Financial Statements .......................................     7



<PAGE>


                       TELAXIS COMMUNICATIONS CORPORATION
                            CONDENSED BALANCE SHEETS
                        (in thousands, except share data)

<TABLE>
<CAPTION>
                                                                                          March 31,   December 31,
                                                                                            2001         2000
                                                                                        -----------   ------------
                                                                                        (unaudited)
Assets
Current assets
<S>                                                                                      <C>          <C>
     Cash and cash equivalents .......................................................   $  21,881    $  27,865
     Restricted cash .................................................................       1,000         --
     Marketable securities ...........................................................      11,537       13,158
     Trade accounts receivable, less allowance for doubtful accounts
       ($200 in 2001 and $250 in 2000)................................................       1,557        2,836
     Other accounts receivable .......................................................         106          297
     Inventories .....................................................................       7,856        7,838
     Other current assets ............................................................         489          486
                                                                                         ---------    ---------

         Total current assets ........................................................      44,426       52,480
Property, plant and equipment, net ...................................................      11,800       12,751
Intangible assets, net of accumulated amortization ...................................         187          198
Other assets .........................................................................          90          109
                                                                                         ---------    ---------

         Total assets ................................................................   $  56,503    $  65,538
                                                                                         =========    =========

Liabilities and Stockholders' Equity
Current liabilities
     Accounts payable ................................................................   $   4,261    $   8,156
     Customer prepayments ............................................................         164          218
     Accrued expenses ................................................................       1,670        1,770
     Current maturities of long-term debt ............................................         522          507
     Current maturities of capital lease obligations .................................       2,038        1,563
                                                                                         ---------    ---------

         Total current liabilities ...................................................       8,655       12,214
Long-term debt .......................................................................       1,045        1,180
Capital lease obligations ............................................................       2,359        2,045
                                                                                         ---------    ---------

         Total liabilities ...........................................................      12,059       15,439
                                                                                         ---------    ---------

Stockholders' Equity
Preferred stock, $.01 par value; authorized 4,500,000 shares
   in 2001 and 2000; none issued .....................................................          --           --
Common stock, $.01 par value; authorized 100,000,000 shares
   in 2001 and 2000; issued and outstanding 16,742,673 shares in 2001
   (16,734,673 shares in 2000)........................................................         167          167
Additional paid-in capital ...........................................................     124,711      124,740
Notes receivable .....................................................................        (294)        (331)
Accumulated comprehensive loss .......................................................        (608)          --
Accumulated deficit ..................................................................     (79,421)     (74,318)
Deferred stock compensation ..........................................................        (111)        (159)
                                                                                         ---------    ---------
         Total stockholders' equity ..................................................      44,444       50,099
                                                                                         ---------    ---------
         Total liabilities and stockholders' equity ..................................   $  56,503    $  65,538
                                                                                         =========    =========
</TABLE>

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

                                       3

<PAGE>


                       TELAXIS COMMUNICATIONS CORPORATION
                       CONDENSED STATEMENTS OF OPERATIONS
                      (in thousands, except per share data)

<TABLE>
<CAPTION>
                                                                                             Three months ended March 31,
                                                                                       --------------------------------------
                                                                                             2001                   2000
                                                                                       --------------------------------------
                                                                                         (unaudited)             (unaudited)
<S>                                                                                       <C>                     <C>
Sales ..............................................................................      $    522                $  6,316
Cost of sales ......................................................................         2,086                   6,514
                                                                                          ---------               ---------

Gross margin (loss) ................................................................        (1,564)                   (198)
Operating expenses
     Research and development, net .................................................         1,995                   1,683
     Selling, general and administrative ...........................................         1,992                   2,126
                                                                                          ---------               ---------

       Total operating expenses ....................................................         3,987                   3,809
                                                                                          ---------               ---------

Operating loss .....................................................................        (5,551)                 (4,007)
                                                                                          ---------               ---------

Other income (expense)
     Interest and other expense ....................................................          (176)                   (187)
     Interest and other income .....................................................           624                     611
                                                                                          ---------               ---------

       Total other income (expense) ................................................           448                     424
                                                                                          ---------               ---------


Loss from continuing operations before income taxes ................................        (5,103)                 (3,583)
Income taxes .......................................................................          --                      --
                                                                                          ---------               ---------

Loss from continuing operations ....................................................        (5,103)                 (3,583)
                                                                                          ---------               ---------

Discontinued operations:
   Loss on disposition of MMWP segment including
   stock compensation expense of $2.8 million in 2000 ..............................          --                    (2,848)
                                                                                          ---------               ---------

Loss from discontinued operations ..................................................          --                    (2,848)
                                                                                          ---------               ---------

Net loss ...........................................................................      $ (5,103)               $ (6,431)
                                                                                          =========               =========

Basic and diluted loss per share from:
     Continuing operations .........................................................      $  (0.30)               $  (0.37)
                                                                                          =========               =========

     Discontinued operations .......................................................      $   --                  $  (0.29)
                                                                                          =========               =========

     Net loss ......................................................................      $  (0.30)               $  (0.66)
                                                                                          =========               =========

Shares used in computing basic and diluted loss per
   share ...........................................................................        16,740                   9,739
                                                                                          =========               =========
</TABLE>


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

                                       4

<PAGE>


                       TELAXIS COMMUNICATIONS CORPORATION
             CONDENSED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
                    FOR THE THREE MONTHS ENDED MARCH 31, 2001
                        (in thousands, except share data)
                                   (unaudited)


<TABLE>
<CAPTION>

                                    Comprehensive                Common Stock          Additional
                                        Income          ----------------------------     Paid-in          Notes
                                        (Loss)             Shares           Amount       Capital       Receivable
                                 --------------------------------------------------------------------------------
<S>                                  <C>              <C>                <C>           <C>             <C>
Balances, January 1, 2001 .......                        16,734,673      $      167    $   124,740     $   (331)
Exercise of common stock options.                             8,000              --              8           --
Amortization of deferred stock
   compensation .................                                --              --             --           --
Other ...........................                                --              --            (37)          37
   Net loss .....................   $    (5,103)                 --              --             --           --
   Other comprehensive loss
   from unrealized loss on
   investments ..................          (608)                 --              --             --           --
                                    -------------
Comprehensive Income (Loss) .....   $    (5,711)                 --              --             --           --
                                    =============    --------------     -----------    -----------     ----------

Balances, March 31, 2001 ........                        16,742,673     $       167    $   124,711     $   (294)
                                                     ==============     ===========    ===========     ==========

<CAPTION>

                                      Deferred                         Accumulated
                                       Stock         Accumulated      Comprehensive
                                    Compensation       Deficit            Loss               Total
                                    -------------------------------------------------------------------
<S>                                 <C>             <C>               <C>               <C>
Balances, January 1, 2001 .......   $     (159)     $    (74,318)     $         --      $     50,099
Exercise of common stock options.           --                --                --                 8
Amortization of deferred stock
   compensation .................           11                --                --                11
Other ...........................           37                --                --                37
   Net loss .....................           --            (5,103)               --            (5,103)
   Other comprehensive loss
   from unrealized loss on
   investments ..................           --                --              (608)             (608)

Comprehensive Income (Loss) .....           --                --                --              --
                                    -----------     -------------     -------------     ------------

Balances, March 31, 2001 ........   $     (111)     $    (79,421)     $       (608)     $     44,444
                                    ===========     =============     =============     ============
</TABLE>

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

                                       5

<PAGE>

                       TELAXIS COMMUNICATIONS CORPORATION
                       CONDENSED STATEMENTS OF CASH FLOWS
                                 (in thousands)

<TABLE>
<CAPTION>

                                                                             Three months ended
                                                                                  March 31,
                                                                         ---------------------------
                                                                             2001            2000
                                                                         -----------     -----------
                                                                         (unaudited)     (unaudited)

Cash flows from operating activities
<S>                                                                       <C>             <C>
   Net loss ...........................................................   $ (5,103)       $ (6,431)
   Adjustments to reconcile net loss to net cash utilized by operating
   activities:
     Depreciation and amortization ....................................      1,137             647
     Non-cash compensation expense ....................................         11           2,859
     Changes in assets and liabilities
       Trade accounts receivable ......................................      1,279          (3,854)
       Other accounts receivable ......................................        191            --
       Inventories ....................................................        (18)         (6,423)
       Other current assets ...........................................         (3)           (297)
       Accounts payable and accrued expenses ..........................     (3,284)          4,774
       Customer prepayments ...........................................        (54)             25
                                                                          --------        --------

       Net cash utilized by operating activities ......................     (5,844)         (8,700)
                                                                          --------        --------

Cash flows from investing activities
   Purchase of marketable securities ..................................    (12,650)        (13,246)
   Sale of marketable securities ......................................     13,663            --
   Proceeds from sale of discontinued operations ......................       --             1,990
   Additions to property and equipment ................................        (58)         (3,476)
   Reduction to other assets ..........................................         19               8
                                                                          --------        --------

       Net cash provided (utilized) by investing activities ...........        974         (14,724)
                                                                          --------        --------

Cash flows from financing activities
   Repayments of line of credit .......................................       --              (500)
   Transfer of restricted cash ........................................     (1,000)           --
   Proceeds from capital lease obligations ............................        569            --
   Repayments of long-term debt and capital lease obligations .........       (728)           (599)
   Issuance of common stock upon exercise of options and warrants .....          8             274
   Sale of common stock ...............................................       --            78,200
   Stock issuance costs ...............................................       --            (6,075)
   Repayments of notes receivable .....................................         37            --
                                                                          --------        --------

       Net cash provided (utilized) by financing activities ...........     (1,114)         71,300
                                                                          --------        --------

Net increase (decrease)  in cash and cash equivalents .................     (5,984)         47,876
Cash and cash equivalents at beginning of period ......................     27,865           6,603
                                                                          --------        --------

Cash and cash equivalents at end of period ............................   $ 21,881        $ 54,479
                                                                          ========        ========

Supplemental disclosure of cash flow information
   Non-cash investing and financing activities:
     Equipment acquired under capital lease agreement .................   $    823        $   --
     Unrealized loss on investments ...................................       (608)           --
</TABLE>


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


                                       6

<PAGE>


                       TELAXIS COMMUNICATIONS CORPORATION

                          NOTES TO FINANCIAL STATEMENTS


1.   Summary of Significant Accounting Policies

     Basis of Presentation

     The  financial  information  as of March 31, 2001 and for the three  months
ended March 31, 2001 and 2000 is unaudited.  In the opinion of management,  such
interim  financial  information  includes all adjustments,  consisting of normal
recurring adjustments, necessary for a fair presentation of the results for such
interim periods. The financial statements do not include all the information and
footnotes  required by generally  accepted  accounting  principles  for complete
financial  statements.  The statements  should be read in  conjunction  with the
financial  statements  and  footnotes as of and for the year ended  December 31,
2000  included  in the  Company's  Annual  Report  on Form 10-K  filed  with the
Securities and Exchange Commission. The December 31, 2000 balance sheet data was
derived from audited financial statements,  but does not include all disclosures
required by generally accepted accounting principles.  The results of operations
for the three months ended March 31, 2001 are not necessarily  indicative of the
results to be expected for any future period.


     Marketable Securities

     The Company has invested the proceeds from our initial  public  offering in
accordance with our corporate cash management policy.  Marketable securities are
carried  at  cost  plus  accrued  interest,   which   approximates  fair  value.
Investments are placed in instruments  with  institutions  that have "Investment
Grade"  ratings or better.  The Company's  investments  consist of municipal and
government  bonds and commercial  paper. At March 31, 2001, all of the Company's
securities, valued at $11.5 million, mature within twelve months.


     Intangible Assets

     Intangible  assets  are  recorded  at cost  and  are  amortized  using  the
straight-line method over their expected useful life, which is five years.


2.   Restricted Cash

     At March  31,  2001,  the  Company  has $1.0  million  of  restricted  cash
classified as a current asset. The cash is held in escrow pending  resolution of
a supplier claim arising from the ordinary course of business.


3.   Inventories

     Inventories  are stated at the lower of cost or market  and  consist of the
following (in thousands):

                                                March 31,        December 31,
                                                   2001             2000
                                             --------------    ---------------
                                               (unaudited)
Finished goods...........................      $    1,283        $   1,405
Parts and subassemblies..................           6,207            4,960
Work-in process..........................             366            1,473
                                             --------------    ---------------
                                               $    7,856        $   7,838
                                             ==============    ===============

                                       7
<PAGE>

4.   Property, Plant and Equipment

     Property, plant and equipment consist of the following (in thousands):

<TABLE>
<CAPTION>
                                                                       March 31,        December 31,
                                                                         2001              2000
                                                                   -----------------  ----------------
                                                                     (unaudited)
<S>                                                                <C>                <C>
Machinery and equipment........................................... $         15,219   $       15,952
Furniture and fixtures............................................              823              820
Leasehold improvements............................................            2,160            2,117
Equipment under capital leases....................................            7,447            6,624
                                                                   -----------------  ----------------
                                                                             25,649           25,513
Less accumulated depreciation and amortization....................          (13,849)         (12,762)
                                                                   -----------------  ----------------
                                                                   $         11,800   $       12,751
                                                                   =================  ================
</TABLE>

     The net book value of  equipment  under  capital  leases was  approximately
$4,034,000 and $3,728,000 at March 31, 2001 and December 31, 2000, respectively.

     Depreciation expense for the three months ended March 31, 2001 and 2000 was
$1,121,000 and $608,000, respectively.

5.   Earnings Per Share

     Earnings per share has been  computed by dividing the loss from  continuing
operations,  loss  from  discontinued  operations  and net loss by the  weighted
average  common  shares  outstanding.  No effect  has been  given to the  future
exercise of common stock options and stock  warrants,  since the effect would be
antidilutive for all reporting periods.

<TABLE>
<CAPTION>
                                                                   Three months ended
                                                                        March 31,
                                                                       (unaudited)
                                                              ------------------------------
                                                                  2001              2000
                                                              --------------   -------------
<S>                                                           <C>              <C>
 Historical: (in thousands, except per share data)
    Loss from continuing operations.......................    $     (5,103)    $     (3,583)
                                                              ==============   =============

    Weighted average shares of common stock outstanding...          16,740            9,739
                                                              ==============   =============

    Basic and diluted loss per share from continuing
    operations............................................    $      (0.30)    $      (0.37)
                                                              ==============   =============

   Loss from discontinued operations.....................     $         --     $     (2,848)
                                                              ==============   =============

   Weighted average shares of common stock outstanding...           16,740            9,739
                                                              ==============   =============

   Basic and diluted loss per share from discontinued
    operations...                                             $         --     $      (0.29)
                                                              ==============   =============

   Net loss..............................................     $     (5,103)    $     (6,431)
                                                              ==============   =============

   Weighted average shares of common stock outstanding...           16,740            9,739
                                                              ==============   =============

   Basic and diluted net loss per share..................     $      (0.30)    $      (0.66)
                                                              ==============   =============
</TABLE>

6.   Discontinued Operations

     In August 1999, the Board of Directors  voted and authorized  management to
dispose of the Company's  millimeter-wave products (MMWP) business segment. This
segment  consisted  of  the  development  and  manufacture  of   millimeter-wave
components  and  assemblies,  including  antennas  and  quasi-optical  products,
multiplexer

                                       8

<PAGE>

products,  and  passive  waveguide  products.  On  February  8, 2000 the Company
completed  the sale of  substantially  all of the assets of the MMWP  segment to
Millitech LLC for approximately $3.6 million.

     The results of the MMWP  operations  have been  segregated  from continuing
operations and reported as a separate line item in the statement of operations.

     As a result of the sale, the Company received cash proceeds of $2.0 million
and a subordinated  note for $1.2 million with interest on the principal at 12%.
The principal is payable in five equal semi-annual payments of $50,000 beginning
on July 1, 2002 through July 1, 2004. On December 31, 2004, the entire remaining
principal  balance of $960,000 plus accrued interest is due. Interest is payable
semi-annually on the first days of January and July of each year during the term
of the note,  and commenced on July 1, 2000. The Company has fully reserved this
subordinated  note.  For the three  months  ended  March 31,  2000,  the Company
recorded  stock  compensation  expense  of  $2.8  million  as a  result  of  the
accelerated  vesting of  incentive  stock  options  for  employees  who left the
Company and were hired by Millitech, LLC.

     Sales for the MMWP  segment were $0 and $770,000 for the three months ended
March 31, 2001 and 2000, respectively.

7.   Accrued Expenses

     Accrued expenses consist of the following (in thousands):

<TABLE>
<CAPTION>
                                                                          March 31,        December 31,
                                                                       ---------------   ---------------
                                                                            2001              2000
                                                                       ---------------   ---------------
                                                                         (unaudited)
<S>                                                                    <C>               <C>
Accrued payroll, commissions and related expenses..................... $          867    $        1,071
Accrued warranty expense..............................................            412               412
Accrued contract costs................................................            147                --
Deferred revenue......................................................             64                94
Other accrued expenses................................................            180               193
                                                                       ---------------   ---------------
                                                                       $        1,670    $        1,770
                                                                       ===============   ===============
</TABLE>

8.   Subsequent Event

     As of March 31, 2001, our cash  equivalents  balance includes an unrealized
loss of $625,000 due to the decline in market value of a $2.5 million investment
in commercial  paper issued by Pacific Gas & Electric,  a public utility company
in California. On April 30, 2001 the Company sold this commercial paper for $2.5
million  resulting in the full  recovery of the  unrealized  losses  included in
accumulated comprehensive loss as of March 31, 2001.

Item 2. Management's  Discussion and Analysis of Financial Condition and Results
        of Operations.

Overview

     We develop and supply  broadband  wireless  access products used by network
service  providers  to deliver  integrated  voice,  video and data  services  to
business and residential subscribers.  We sell our products primarily to network
system  integrators,  which include our products in broadband  wireless  systems
sold to  network  service  providers.  Our planar  products,  based on a printed
circuit board design,  can be  mass-produced  using low-cost,  highly  automated
manufacturing  techniques.  These  planar  products  address a  network  service
provider's need for cost-effective deployment to many subscribers.

     We commenced operations in 1982 and had derived the significant majority of
our sales from our  millimeter-wave  products  business  segment  prior to 1999.
Millimeter waves are  electromagnetic  waves having wavelengths  between one and
ten millimeters. In August 1999, we adopted a plan to focus all of our resources
on

                                       9

<PAGE>

our  broadband  point-to-multipoint  wireless  access  business  segment  and to
dispose of the  millimeter-wave  products segment. We decided to dispose of this
segment because it would have required us to reallocate financial and management
resources from the more attractive broadband point-to-multipoint wireless access
business segment. The segment was sold on February 8, 2000. As a result, we have
presented  the  operations  of  the   millimeter-wave   products  segment  as  a
discontinued  operation in our financial statements.  The following management's
discussion  and  analysis  focuses  on our  ongoing  broadband  wireless  access
business.  We anticipate  that network  system  integrators  for  point-to-point
wireless access networks will accept the point-to point RF products we intend to
develop based on our point-to-multipoint  wireless access product experience. We
also anticipate that our recently  announced Virtual Fiber Radio/TM/ will become
an important part of our business.

     Our first prototype broadband point-to-multipoint wireless access equipment
was  evaluated in a trial in 1995.  Before  receiving our first volume order for
equipment in June 1999, virtually all of our shipments of products were for site
demonstrations and initial commercial deployments.

     For the three months ended March 31, 2001, approximately 99.6% of our sales
were to a customer located in Canada. For the three months ended March 31, 2000,
approximately  93.4% our sales were to a customer located in Canada, 4.4% of our
sales were to customers located in the United States, and 2.2% of our sales were
to a  customer  located in Korea.  We expect  that  sales to  customers  located
outside the United States will continue to be significant.

Result of Operations

     The following table provides continuing  operations data as a percentage of
sales for the periods presented. The percentages may not add due to rounding.

<TABLE>
<CAPTION>
                                                            Three Months Ended
                                                                 March 31,
                                                                (unaudited)
                                                        -------------------------------
                                                             2001            2000
                                                        ---------------  -------------
<S>                                                         <C>           <C>
Sales..................................................     100.0%          100.0%
Cost of sales..........................................     399.6           103.1
                                                        ---------------  -------------

Gross margin (loss)....................................    (299.6)           (3.1)
Operating expenses
    Research and development, net......................     382.2            26.6
    Selling, general and administrative................     381.6            33.7
                                                        ---------------  -------------
      Total operating expenses.........................     763.8            60.3
                                                        ---------------  -------------

Operating loss.........................................  (1,063.4)          (63.4)
Other income (expense).................................      85.8             6.7
                                                        ---------------  -------------

Loss from continuing operations before income taxes....    (977.6)          (56.7)
Income taxes...........................................      (0.0)           (0.0)
                                                        ---------------  -------------

Loss from continuing operations........................    (977.6)%         (56.7)%
                                                        ===============  =============
</TABLE>

Three Months Ended March 31, 2001 and 2000

     Sales

     Sales  decreased  92% to $522,000 for the three months ended March 31, 2001
from $6.3  million for the three months  ended March 31,  2000.  Unit  shipments
decreased  to 52 for the three  months  ended  March 31, 2001 from 3,998 for the
same period in 2000.  The decrease in unit  shipments and revenue is a result of
the weakness in the overall broadband wireless telecommunications market and the
decrease in shipments to a major  customer  while we continue to work to resolve
changes  to  their  approval  processes  relating  to  product  development  and
production.

                                       10

<PAGE>

     Cost of Sales

     Cost of sales consists of component and material costs, direct labor costs,
warranty  costs,  overhead  related to  manufacturing  our products and customer
support  costs.  Cost of sales  decreased  $4.4  million to $2.1 million for the
three  months  ended March 31, 2001 from $6.5 million for the three months ended
March 31, 2000.  Gross  margins were  negative  299.6% in the three months ended
March 31, 2001 and negative 3.1% for the three months ended March 31, 2000.  The
decrease in cost of sales and the  decline in gross  margin as a  percentage  of
sales were attributable primarily to decreased shipments of our products and the
impact of overhead costs incurred on lower production  volume.  The decrease was
partially offset by a reduction in overhead costs of approximately $417,000.

     Research and Development Expenses

     Research and  development  expenses  consist  primarily  of  personnel  and
related costs  associated with our product  development  efforts.  These include
costs for  development  of products and  components,  test equipment and related
facilities.  Gross research and  development  expenses were $2.0 million for the
three months ended March 31, 2001 and 2000.  Research and development costs were
partially  offset by  customer  funding of $36,000  and  $357,000  for the three
months   ended  March  31,  2001  and  2000,   respectively.   Net  of  customer
reimbursements,  our research and development  expenses  increased 18.5% to $2.0
million in the three months ended March 31, 2001 from $1.7 million for the three
months ended March 31, 2000, as we continued to allocate  significant  resources
for the development of new products.

     Selling, General and Administrative Expenses

     Selling,  general and administrative expenses consist primarily of employee
salaries  and  associated  costs  for  selling,  marketing,   customer  support,
information systems,  finance, legal, and administration.  Selling,  general and
administrative  expenses  decreased  6.3% to $2.0  million for the three  months
ended March 31,  2001 from $2.1  million  for the three  months  ended March 31,
2000.  The decrease was due primarily to a decrease of $135,000 in costs related
to recruiting and hiring additional personnel.

     Other Income (Expense)

     Other income  (expense)  consists of interest earned on cash and marketable
securities  offset by interest expense on debt and capital lease obligations and
miscellaneous  non-operating expenses. Total other income (expense) increased to
$448,000 in income for the three  months  ended March 31, 2001 from  $424,000 in
income for the three months ended March 31, 2000.  Interest expense decreased to
$176,000 for the three  months ended March 31, 2001 from  $187,000 for the three
months ended March 31, 2000. Interest and other income increased to $624,000 for
the three months ended March 31, 2001 from  $611,000 for the same period in 2000
primarily due to an increase in the average daily cash balance subsequent to our
initial public offering in February 2000.

Liquidity and Capital Resources

     Since 1997, we have financed our operations  primarily  through the sale of
redeemable  preferred  stock,  from proceeds of our initial  public  offering in
February  2000  and,  to a  much  lesser  extent,  from  cash  generated  by our
discontinued  operations.  We have  also  issued  subordinated  notes  and  used
equipment lease financing and bank lines of credit to provide cash.

     On February 7, 2000 the Company  completed  an initial  public  offering of
4,600,000  shares of its common  stock at $17.00  per share  under the terms and
conditions  contained in an  underwriting  agreement dated February 1, 2000 with
various underwriters.  We received net proceeds from our initial public offering
of $71.1  million,  after  underwriting  discounts and  commission  and offering
costs, to be used primarily for general corporate purposes.

                                       11

<PAGE>

     At March  31,  2001,  we had cash and  cash  equivalents  of $22.9  million
(including restricted cash of $1.0 million - see Note 2 to Financial Statements)
and  marketable  securities  of $11.5  million.  Cash  equivalents  included  an
unrealized  loss of $625,000 due to the decline in market value of an investment
in  commercial  paper issued by Pacific Gas & Electric  (see Note 8 to Financial
Statements).

     The decrease in accounts  receivable to $1.6 million at March 31, 2001 from
$2.8 million at December 31, 2000  reflects the decline in revenue for the three
months ended March 31, 2001. The decrease in accounts payable to $4.3 million at
March 31, 2001 from $8.2 million at December 31, 2000  reflects the reduction of
inventory  procurement  due to the  decrease  in  production  and  sales  of our
point-to-multipoint broadband wireless access equipment.

     At March 31, 2001, we had approximately  $1.6 million in long-term debt, of
which  $225,000  is due  through  June  2003  with an  interest  rate of 10% and
$1,385,000 is due through November 2003 with an interest rate of 12%.

     At March 31,  2001,  we had  approximately  $4.4  million in capital  lease
obligations, which are due through January 2005.

     Cash  utilized in operating  activities in the three months ended March 31,
2001 was $5.8 million  compared to $8.7 million for the same period in 2000. For
the three  months ended March 31, 2001,  cash used in operating  activities  has
primarily  represented  funding of our net losses and  payments  of  outstanding
accounts  payable and vendor  commitments.  For the three months ended March 31,
2000, cash used in operating activities primarily represented funding of our net
losses and inventory build to meet expected production requirements.

     Cash provided by investing  activities for the three months ended March 31,
2001 was $974,000 compared to cash utilized of $14.7 million for the same period
in 2000.  In the  three  months  ended  March 31,  2001  these  amounts  related
primarily to the purchase and sale of marketable securities. In the three months
ended  March 31,  2000,  these  amounts  related  primarily  to the  purchase of
equipment used in our manufacturing and research and development  activities and
the purchase of marketable securities.

     Cash  utilized by financing  activities in the three months ended March 31,
2001 was $1.1 million  compared to cash  provided of $71.3  million for the same
period in 2000.  The financing  activities  for the three months ended March 31,
2001  consisted  primarily of the proceeds from equipment  lease  financing less
payments  on  capital  lease  obligations  and long  term  debt.  The  financing
activities for the three months ended March 31, 2000 consisted  primarily of the
proceeds from our initial public offering.

     Our  future  cash  requirements  will  depend  upon a  number  of  factors,
including the timing and level of research and development  activities and sales
and marketing  campaigns,  and our ability to  significantly  increase our sales
orders and  manufacturing  volumes and improve our gross margin. We believe that
our cash and  marketable  securities  balances  at March 31,  2001 will  provide
sufficient capital to fund our operations for at least 12 months. Thereafter, we
may require additional capital to fund our operations. In addition, from time to
time  we  evaluate  opportunities  to  acquire  complementary   technologies  or
companies.  Should we identify any of these opportunities,  we may need to raise
additional capital to fund the acquisitions and our operations.  There can be no
assurance that financing will be available to us on favorable terms or at all.

Disclosures About Market Risk

     The  following  discusses our exposure to market risk related to changes in
interest  rates,  equity  prices  and  foreign  currency  exchange  rates.  This
discussion  contains  forward-looking  statements  that are exposed to risks and
uncertainties,  many of which are out of our control.  Actual results could vary
materially as a result of a number of factors,  including  those discussed above
under  "Part I -  Financial  Information"  and  below  under  "Safe  Harbor  for
Forward-Looking Statements."

     As of March 31, 2001, we had cash and cash  equivalents  of $22.9  million.
Substantially all of these amounts  consisted of highly liquid  investments with
remaining maturities at the date of purchase of less than 90 days

                                       12

<PAGE>

(see Note 8 to Financial  Statements).  As of March 31, 2001, we had  marketable
securities of $11.5 million which  consisted of municipal and  government  bonds
with  maturities  through  September  2001.  These  investments  are  exposed to
interest rate risk and will decrease in value if market interest rates increase.
A hypothetical  increase or decrease in market interest rates by 10 percent from
the  March  31,  2001  rates  would  cause  the fair  value of these  short-term
investments to decline by an insignificant  amount. Due to the short duration of
these  investments,  an  immediate  increase in interest  rates would not have a
material effect on our financial condition or results of operations. Declines in
interest rates over time will, however, reduce our interest income.

     We do not own any  significant  equity  investments.  Therefore,  we do not
currently have any direct equity price risk.

     Currently,  all sales to international  customers are denominated in United
States  dollars  and,  accordingly,  we are not  currently  exposed  to  foreign
currency exchange rate risks.

Safe Harbor for Forward-Looking Statements

     This Quarterly Report on Form 10-Q contains  forward-looking  statements as
defined by federal  securities  laws which are made  pursuant to the safe harbor
provisions   of  the  Private   Securities   Litigation   Reform  Act  of  1995.
Forward-looking  statements  include  statements  concerning plans,  objectives,
goals, strategies, expectations,  intentions, projections,  developments, future
events,  performance or products,  underlying  assumptions and other  statements
which are other than  statements of  historical  facts.  In some cases,  you can
identify  forward-looking  statements  by  terminology  such as  "may,"  "will,"
"should,"   "expects,"   "intends,"  "plans,"   "anticipates,"   "contemplates,"
"believes,"  "estimates,"  "predicts," "projects,"  "potential," "continue," and
other similar  terminology or the negative of these terms. From time to time, we
may publish or  otherwise  make  available  forward-looking  statements  of this
nature.  All such  forward-looking  statements,  whether  written  or oral,  and
whether made by us or on our behalf,  are expressly  qualified by the cautionary
statements described in this Form 10-Q, including those set forth below, and any
other cautionary statements which may accompany the forward-looking  statements.
In addition,  we undertake no obligation to update or revise any forward-looking
statement to reflect events,  circumstances or new information after the date of
this Form 10-Q or to reflect the  occurrence  of  unanticipated  events,  and we
disclaim any such obligation.

     We believe that the  forward-looking  statements included in this Form 10-Q
have  a  reasonable  basis.   However,   forward-looking   statements  are  only
predictions  that  relate to future  events or our  future  performance  and are
subject  to known  and  unknown  risks,  uncertainties,  assumptions,  and other
factors  that  may  cause  actual   results,   outcomes,   levels  of  activity,
performance,  developments,  or achievements to be materially different from any
future results,  outcomes,  levels of activity,  performance,  developments,  or
achievements   expressed,   anticipated  or  implied  by  these  forward-looking
statements. As a result, we cannot guarantee future results, outcomes, levels of
activity,  performance,  developments,  or  achievements,  and  there  can be no
assurance  that  our  expectations,   intentions,   anticipations,   beliefs  or
projections will result or be achieved or accomplished.

     In addition to other factors and matters  discussed  elsewhere in this Form
10-Q, in our other periodic  reports and filings made from time to time with the
Securities and Exchange Commission, and in our other public statements from time
to  time  (including,  without  limitation,  our  press  releases),  some of the
important  factors  that,  in our view,  could  cause  actual  results to differ
materially from those expressed,  anticipated or implied in the  forward-looking
statements  include,  without  limitation,  our unsettled  relationship with our
largest  customer  Alcatel;  dependence on a limited  number of  customers;  our
having limited capital;  our inability to predict the date of our profitability;
the expected  fluctuation in our quarterly results;  the expected  volatility in
our stock price;  difficulties in attracting and retaining qualified  personnel;
our  dependence  on  key  personnel;  our  reliance  on  third-party  suppliers;
difficulties in achieving product  improvements;  difficulties in developing new
products (such as our  contemplated  Virtual Fiber Radio/TM/ and  point-to-point
radio frequency  products);  difficulties in entering new business lines; delays
in development or manufacture of products;  difficulties in estimating  costs of
products;  our recent  focus on our current  business;  inability to protect our
proprietary technology;  intellectual property infringement claims; warranty and
product  liability claims;  failure of our customers to sell broadband  wireless
access  solutions  that include our products;  difficulties  in network  service
providers obtaining sufficient funding; developments and

                                       13

<PAGE>

changes  in this new  industry  and its  growth;  availability  and  success  of
competing access  technologies;  general  competition in the broadband  wireless
access   industry;   difficulties   in  complying  with  existing   governmental
regulations and developments or changes in governmental  regulation;  dependence
on  third-party  manufacturers;  risks  associated  with  foreign  sales such as
currency and political risk;  investment risk resulting in the decrease in value
of our investments;  difficulties in collecting our accounts receivable;  future
stock sales by our current stockholders, including our directors and management;
effect of our anti-takeover defenses; and risks associated with any acquisitions
or  investments  we may  make.  These  and other  risks  and  uncertainties  are
described  in more  detail in our annual  report on Form 10-K for the year ended
December 31, 2000 filed with the Securities and Exchange Commission.

     The items described  above,  either  individually  or in some  combination,
could have a  material  adverse  impact on our  reputation,  business,  need for
additional capital, current and contemplated products gaining market acceptance,
development  of new products and new areas of  business,  cash flow,  results of
operations,  financial condition,  stock price, viability as an ongoing company,
results,   outcomes,   levels  of  activity,   performance,   developments,   or
achievements.  Given these  uncertainties,  investors are cautioned not to place
undue reliance on forward-looking statements.

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

     See Item 2 - Management's  Discussion  and Analysis of Financial  Condition
and Results of Operations, Disclosures about Market Risk.


                           PART II - OTHER INFORMATION


Item 1. Legal Proceedings.

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

Item 2. Changes in Securities and Use of Proceeds.

Recent Sales of Unregistered Securities

     The Company has not issued or sold any unregistered securities in the three
months ended March 31, 2001.

Use of Proceeds from Registered Offerings

     On  February 1, 2000,  the  Securities  and  Exchange  Commission  declared
effective a Form S-1  Registration  Statement (File No.  333-87885) filed by the
Company in connection with an initial public offering of 4,600,000 shares of its
Common Stock,  par value $.01 per share.  The offering of Common Stock commenced
on February  2, 2000 and closed on  February  7, 2000 with all of the  4,600,000
shares  sold at a price of  $17.00  per share  for an  aggregate  price of $78.2
million.   All  shares  were  sold  by  the  Company;   there  were  no  selling
stockholders.  Credit Suisse First Boston was the lead managing  underwriter  of
the offering and Banc of America  Securities  LLC and CIBC World  Markets  Corp.
were co-managers of the offering.

     The gross proceeds of the offering were  approximately  $78.2 million.  The
Company incurred  approximately  $7.1 million of expenses in connection with the
offering, of which approximately $5.5 million represented underwriting discounts
and commission,  and $1.6 million  represented  offering costs,  including legal
fees,  accounting  fees,  underwriters'   out-of-pocket  expenses  and  printing
expenses.

                                       14

<PAGE>


     The Company received  approximately  $71.1 million of net proceeds from the
offering.  Those net proceeds  will be used for working  capital and for general
corporate  purposes.  Pending such uses,  the net proceeds have been invested in
short-term,   interest-bearing,   investment   grade  securities  or  direct  or
guaranteed obligations of the U.S. government.  From the time of receipt through
March 31, 2001,  the Company has applied  $36.7 million of the net proceeds from
the offering toward working capital, financing capital expenditures, and funding
operating losses.

Item 6. Exhibits and Reports on Form 8-K.

          (a)  Exhibits

               None

          (b)  Reports on Form 8-K

     The Company filed no reports on Form 8-K during the quarter ended March 31,
2001.

                                   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.



                            Telaxis Communications Corporation



Date:  May 14, 2001         By:             /s/ Dennis C. Stempel
                                 ----------------------------------------------
                                              Dennis C. Stempel,
                                 Chief Financial Officer, Principal Financial
                                 Officer, Principal Accounting Officer and Duly
                                 Authorized Officer


                                       15