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

                                  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 SEPTEMBER 30, 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
incorporation or organization)                          Identification No.)

                            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 October 31, 2001, there were 16,630,698 shares of the registrant's
common stock outstanding.

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


<PAGE>

                                      INDEX

<TABLE>
<CAPTION>
                                                                                     PAGE NO.
                                                                                     --------
PART I.    FINANCIAL INFORMATION
<S>          <C>                                                                       <C>
Item 1.      Financial Statements and Supplementary Data.......................         2

               Condensed Balance Sheets as of September 30, 2001 and
                  December 31, 2000............................................         3

               Condensed Statements of Operations for the three months
                  and nine months ended September 30, 2001 and 2000.............        4

               Condensed Statement of Changes in Stockholders' Equity for
                  the nine months ended September 30, 2001.....................         5

               Condensed Statements of Cash Flows for the nine months
                  ended September 30, 2001 and 2000............................         6

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

Item 2.      Management's Discussion and Analysis of Financial Condition
             and Results of Operations.........................................        10

Item 3.      Quantitative and Qualitative Disclosures About Market Risk........        17

PART II.  OTHER INFORMATION

Item 1.      Legal Proceedings.................................................        17

Item 2.      Changes in Securities and Use of Proceeds.........................        18

Item 6.      Exhibits and Reports on Form 8-K..................................        18

          SIGNATURES                                                                   19
</TABLE>

                                       1

<PAGE>


2

                         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.

                                       2

<PAGE>

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

<TABLE>
<CAPTION>
                                                                                     September 30,           December 31,
                                                                                         2001                    2000
                                                                                -----------------------  ----------------------
                                                                                      (unaudited)
Assets
Current assets
<S>                                                                             <C>                     <C>
        Cash and cash equivalents.............................................. $              18,969    $            27,865
        Restricted cash........................................................                   339                     --
        Marketable securities..................................................                 6,650                 13,158
        Trade accounts receivable, less allowance for doubtful accounts
           ($200 in 2001 and $250 in 2000).....................................                   519                  2,836
        Other accounts receivable..............................................                    45                    297
        Inventories............................................................                   109                  7,838
        Assets held for sale...................................................                 1,716                     --
        Other current assets...................................................                   264                    486
                                                                                -----------------------  ----------------------

               Total current assets............................................                28,611                 52,480
Property, plant and equipment, net.............................................                 5,322                 12,751
Intangible assets, net of accumulated amortization.............................                    --                    198
Other assets...................................................................                    80                    109
                                                                                -----------------------  ----------------------

               Total assets.................................................... $              34,013    $            65,538
                                                                                =======================  ======================

Liabilities and Stockholders' Equity
Current liabilities
        Accounts payable....................................................... $               1,120    $             8,156
        Customer prepayments...................................................                    30                    218
        Accrued expenses.......................................................                   690                  1,770
        Accrued restructuring costs............................................                 1,599                     --
        Current maturities of long-term debt...................................                   547                    507
        Current maturities of capital lease obligations........................                 1,978                  1,563
                                                                                -----------------------  ----------------------

               Total current liabilities.......................................                 5,964                 12,214
Long-term debt.................................................................                   764                  1,180
Capital lease obligations......................................................                 1,375                  2,045
                                                                                -----------------------  ----------------------

               Total liabilities...............................................                 8,103                 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 16,743,198 shares, outstanding 16,630,698 shares in 2001
(16,734,673 shares issued and outstanding in 2000).............................                   167                    167
Additional paid-in capital.....................................................               124,623                124,740
Notes receivable...............................................................                    (3)                  (331)
Accumulated comprehensive income...............................................                     6                     --
Accumulated deficit............................................................               (98,846)               (74,318)
Deferred stock compensation....................................................                    --                   (159)
Treasury stock at cost 112,500 shares..........................................                   (37)                    --
                                                                                -----------------------  ----------------------

               Total stockholders' equity......................................                25,910                 50,099
                                                                                -----------------------  ----------------------

               Total liabilities and stockholders' equity...................... $              34,013    $            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          Nine months ended
                                                                                  September 30,               September 30,
                                                                          ---------------------------- ----------------------------
                                                                              2001           2000          2001          2000
                                                                          -------------- ------------- ------------- --------------
                                                                                  (unaudited)                  (unaudited)
<S>                                                                       <C>            <C>            <C>          <C>
Sales...................................................................  $       431    $    8,095     $    1,921   $   23,142
Cost of sales...........................................................        1,472        10,225          5,695       25,282
Inventory restructuring cost............................................        4,962            --          4,962           --
                                                                          -------------- -------------  ------------ -------------

Gross margin (loss).....................................................       (6,003)       (2,130)        (8,736)      (2,140)

Operating expenses
        Research and development, net...................................        1,110         2,425          4,937        6,907
        Selling, general and administrative.............................        1,357         1,963          5,073        6,846
        Other restructuring costs.......................................        6,687            --          6,687           --
                                                                          -------------- -------------  ------------ -------------

           Total operating expenses.....................................        9,154         4,388         16,697       13,753
                                                                          -------------- -------------  ------------ -------------

Operating loss..........................................................      (15,157)       (6,518)       (25,433)     (15,893)
                                                                          -------------- -------------  ------------ -------------

Other income (expense)
        Interest and other expense......................................         (145)         (207)          (465)        (597)
        Interest and other income.......................................          319           829          1,370        2,441
                                                                          -------------- -------------  ------------ -------------

           Total other income...........................................          174           622            905        1,844
                                                                          -------------- -------------  ------------ -------------

Loss from continuing operations before income taxes.....................      (14,983)       (5,896)       (24,528)     (14,049)

Income taxes............................................................           --            --             --           --
                                                                          -------------- -------------  ------------ -------------

Loss from continuing operations.........................................      (14,983)       (5,896)       (24,528)     (14,049)
                                                                          -------------- -------------  ------------ -------------

Discontinued operations:
    Income (loss) on disposition of MMWP
    segment including stock compensation expense of $2,848 for 2000.....           --           534             --       (1,818)
                                                                          -------------- -------------  ------------ -------------

Income (loss) from discontinued operations..............................           --           534             --       (1,818)
                                                                          -------------- -------------  ------------ -------------

Net loss................................................................  $   (14,983)   $   (5,362)    $  (24,528)  $   (15,867)
                                                                          ============== =============  ============ =============

Basic and diluted earnings (loss) per share from:
        Continuing operations...........................................  $     (0.90)   $    (0.36)    $    (1.47)  $     (0.99)
                                                                          ============== =============  ============ =============

        Discontinued operations.........................................  $        --    $      .03     $       --   $     (0.13)
                                                                          ============== =============  ============ =============

        Net loss........................................................  $     (0.90)   $    (0.32)     $   (1.47)  $     (1.12)
                                                                          ============== =============  ============ =============

Shares used in computing basic and diluted earnings (loss) per share....       16,721        16,526         16,735        14,191
                                                                          ============== =============  ============ =============
</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 NINE MONTHS ENDED SEPTEMBER 30, 2001
                        (in thousands, except share data)
                                   (unaudited)


<TABLE>
<CAPTION>
                                            Comprehensive       Accumulated                                      Additional
                                               Income          Comprehensive             Common Stock             Paid-in
                                               (Loss)             Income            Shares            Amount      Capital
                                          ------------------------------------------------------------------------------------
<S>                                       <C>                  <C>                <C>            <C>            <C>
Balances, January 1, 2001.................            --       $         --       16,734,673     $       167    $   124,740
Exercise of common stock options..........            --                 --            8,525              --              8
Amortization of deferred stock
  compensation............................            --                 --               --              --             --
Purchase of treasury stock................            --                 --         (112,500)             --            (99)
Other.....................................            --                 --               --              --            (26)
Net loss..................................$      (24,528)                --               --              --             --
Other comprehensive income from
  unrealized gain on investments..........             6                  6               --              --             --
                                            -----------------
Comprehensive income (loss)...............$      (24,522)                --               --              --             --
                                            =================  ---------------   -------------   ------------   -------------
Balances, September 30, 2001..............                     $          6       16,630,698     $       167    $   124,623
                                                               ===============   =============   ============   =============

<CAPTION>

                                                               Deferred                         Common
                                                 Notes          Stock         Accumulated      Stock in
                                               Receivable    Compensation       Deficit        Treasury          Total
                                             -------------- --------------  --------------  ---------------  --------------
<S>                                          <C>            <C>             <C>               <C>             <C>
Balances, January 1, 2001.................   $      (331)   $      (159)    $    (74,318)     $     --        $    50,099
Exercise of common stock options..........            --             --               --            --                  8
Amortization of deferred stock
  compensation............................            --             23               --            --                 23
Purchase of treasury stock................           282             99               --           (37)               245
Other.....................................            46             37               --            --                 57
Net loss..................................            --             --          (24,528)           --            (24,528)
Other comprehensive income from
  unrealized gain on investments..........            --             --               --            --                  6

Comprehensive income (loss)...............            --             --               --            --                 --
                                             -------------  -------------   --------------    ----------      ------------
Balances, September 30, 2001..............   $        (3)    $       --     $    (98,846)     $    (37)       $    25,910
                                             =============  =============   ==============    ==========      ============
</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>
                                                                                            Nine months ended September 30,
                                                                                      --------------------------------------------
                                                                                              2001                   2000
                                                                                      ---------------------- ---------------------
                                                                                           (unaudited)            (unaudited)
Cash flows from operating activities
<S>                                                                                   <C>                    <C>
    Net loss........................................................................  $          (24,528)    $           (15,867)
    Adjustments to reconcile net loss to net cash utilized by operating activities:
        Depreciation and amortization...............................................               2,829                   2,518
        Non-cash restructuring costs ...............................................               8,818                      --
        Gain on disposition of MMWP segment.........................................                  --                  (1,020)
        Non-cash compensation expense...............................................                  34                   3,140
        Changes in assets and liabilities
           Trade accounts receivable................................................               2,317                  (3,400)
           Other accounts receivable................................................                 252                    (302)
           Inventories..............................................................                 657                 (12,656)
           Other current assets.....................................................                 223                    (743)
           Accounts payable and accrued expenses....................................              (5,459)                  1,739
           Accrued restructuring costs..............................................               1,599                      --
           Customer prepayments.....................................................                 (24)                    144
                                                                                      ---------------------- ---------------------

           Net cash utilized by operating activities................................             (13,282)                (26,447)
                                                                                      ---------------------- ---------------------

Cash flows from investing activities
    Purchase of marketable securities...............................................             (19,246)                (22,591)
    Sale of marketable securities...................................................              25,760                      --
    Proceeds from sale of discontinued operations...................................                  --                   1,990
    Additions to property and equipment.............................................                (418)                 (5,425)
    Additions to intangibles........................................................                  --                    (208)
    Reductions in deposits..........................................................                  29                      --
                                                                                      ---------------------- ---------------------

           Net cash provided (utilized) by investing activities.....................               6,125                 (26,234)
                                                                                      ---------------------- ---------------------

Cash flows from financing activities
    Repayment of line of credit.....................................................                  --                    (500)
    Funds held in escrow............................................................                (339)                     --
    Proceeds from capital lease obligations.........................................                 569                      --
    Repayments of long-term debt and capital lease obligations......................              (2,023)                 (2,034)
    Issuance of common stock upon exercise of options and warrants..................                   8                     744
    Issuance of common stock........................................................                  --                  78,200
    Stock issuance costs............................................................                  --                  (6,330)
    Repayments of notes receivable..................................................                  46                      --
                                                                                      ---------------------- ---------------------

           Net cash (utilized) provided by financing activities.....................              (1,739)                 70,080
                                                                                      ---------------------- ---------------------

Net (decrease) increase in cash and cash equivalents................................              (8,896)                 17,399
Cash and cash equivalents at beginning of period....................................              27,865                   6,603
                                                                                      ---------------------- ---------------------

Cash and cash equivalents at end of period..........................................  $           18,969     $            24,002
                                                                                      ====================== =====================

Supplemental disclosure of cash flow information
     Non-cash investing and financing activities:
        Equipment acquired under capital lease agreement............................  $               96     $             3,323
        Conversion of redeemable preferred stock....................................                  --                  47,793
        Notes received for issuance of common stock.................................                  --                      67
        Unrealized gain on investments..............................................                   6                      --
</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 September 30, 2001 and for the three months
and nine months ended September 30, 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 accounting principles generally
accepted in the United States of America 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
accounting principles generally accepted in the United States of America. The
results of operations for the three months and nine months ended September 30,
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. At September 30, 2001, all of the Company's securities, valued
at $6.7 million, mature within fifteen 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. In
connection with the Company's restructuring activities, the unamortized balance
of intangible assets was written off in the quarter ended September 30, 2001
(see Note 3).

2.   Restricted Cash

     At September 30, 2001, the Company has approximately $339,000 of restricted
cash classified as a current asset. The cash is held in escrow in resolution of
a supplier claim arising from the ordinary course of business. The resolution
provided for the disbursement of an initial payment of $338,000 and the
remaining $339,000 to be disbursed to the supplier upon completion of certain
actions.

                                       7

<PAGE>

3.   Restructuring Charges

     In July 2001, the Company's Board of Directors approved the Company's plan
to exit its point-to-multipoint product line. In connection with this decision
the Company has recorded an $11.6 million restructuring charge for the three
months ended September 30, 2001.

     Restructuring charges consist of the following (in thousands):

<TABLE>
<CAPTION>
                                                                               Three months ended
                                                                               September 30, 2001
                                                                               ------------------
                                                                                  (unaudited)
<S>                                                                            <C>
Workforce reduction............................................................$            1,248
Excess facility costs..........................................................               700
Contract settlement costs......................................................             1,128
Write-down of leasehold improvements, equipment and intangible assets..........             3,611
                                                                               ------------------
                                                                                            6,687
Inventory restructuring cost...................................................             4,962
                                                                               ------------------
                                                                               $           11,649
                                                                               ==================
</TABLE>


     Restructuring charges include the curtailment of certain research and
development activities through facility consolidations, production and
production support workforce reductions and contract settlement costs. Workforce
reduction charges include the cost of consultants and the cost of severance and
related benefits of approximately 58 employees affected by the restructuring
activities. Contract settlement costs include the Company's estimates to
withdraw from certain contracts. Certain leasehold improvements, equipment and
intangible assets determined to be impaired as a result of the restructuring
activities were written down to their estimated net realizable value and are
included on the balance sheet as assets held for sale.

     In connection with the restructuring activities, the Company also
determined that certain components in inventory had been adversely impacted by
the restructuring activities. Accordingly the company recorded an inventory
related restructuring charge of approximately $5 million for certain excess and
obsolete raw material, work-in-process and finished goods. In accordance with
Emerging Issues Task Force 96-9, "Classification of Inventory Markdowns and
Other Costs Associated with a Restructuring," all inventory adjustments are
recorded in inventory restructuring cost as a component of cost of sales for the
three months and nine months ended September 30, 2001 in the accompanying
condensed statement of operations.

     Accrued restructuring costs at September 30, 2001 consists of approximately
$665,000 for facility consolidations, $480,000 for workforce reduction charges
and $454,000 for contract terminations.

     The Company expects to substantially complete the restructuring activities
by December 31, 2001.


4.   Inventories

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

<TABLE>
<CAPTION>
                                                                              September 30,               December 31,
                                                                                   2001                        2000
                                                                        --------------------------  --------------------------
                                                                               (unaudited)
<S>                                                                     <C>                         <C>
Finished goods..........................................................$                     --    $                  1,405
Parts and subassemblies.................................................                     109                       4,960
Work-in process.........................................................                      --                       1,473
                                                                        --------------------------  --------------------------
                                                                        $                    109    $                  7,838
                                                                        ==========================  ==========================
</TABLE>

                                       8

<PAGE>

5.   Property, Plant and Equipment

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

<TABLE>
<CAPTION>
                                                                               September 30,                December 31,
                                                                                   2001                         2000
                                                                        --------------------------  --------------------------
                                                                                (unaudited)
<S>                                                                     <C>                           <C>
Machinery and equipment................................................ $                  10,156     $                15,952
Furniture and fixtures.................................................                       813                         820
Leasehold improvements.................................................                     1,958                       2,117
Equipment under capital leases.........................................                     4,586                       6,624
                                                                        --------------------------  --------------------------
                                                                                           17,513                      25,513
Less accumulated depreciation and amortization.........................                   (12,191)                    (12,762)
                                                                        --------------------------  --------------------------
                                                                        $                   5,322     $                12,751
                                                                        ==========================  ==========================
</TABLE>

     The net book value of equipment under capital leases was approximately
$1,897,000 and $3,728,000 at September 30, 2001 and December 31, 2000,
respectively. The net book value of assets held for sale under capital leases
was approximately $732,000 and $0 at September 30, 2001 and December 31, 2000,
respectively.

     Depreciation expense for the nine months ended September 30, 2001 and 2000
was approximately $2,791,000 and $2,437,000, respectively.


6.   Earnings Per Share

     Earnings per share has been computed by dividing the loss from continuing
operations, income (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        Nine months ended
                                                                                      September 30,            September 30,
                                                                                      (unaudited)               (unaudited)
                                                                                ------------------------   ---------------------
                                                                                    2001         2000         2001        2000
                                                                                 ----------   ----------   ----------   --------
Historical:
<S>                                                                              <C>          <C>          <C>          <C>
     Loss from continuing operations                                             $  (14,983)  $   (5,896)  $  (24,528)  $(14,049)
                                                                                 ==========   ==========   ==========   ========

     Weighted average shares of common stock outstanding                             16,721       16,526       16,735     14,191
                                                                                 ==========   ==========   ==========   ========

     Basic and diluted loss per share from continuing operations                 $    (0.90)  $    (0.36)  $    (1.47)  $  (0.99)
                                                                                 ==========   ==========   ==========   ========

     Income (loss) from discontinued operations                                  $       --   $      534   $       --   $ (1,818)
                                                                                 ==========   ==========   ==========   ========

     Weighted average shares of common stock outstanding                             16,721       16,526       16,735     14,191
                                                                                 ==========   ==========   ==========   ========

     Basic and diluted income (loss) per share from discontinued operations      $       --   $     0.03   $       --   $  (0.13)
                                                                                 ==========   ==========   ==========   ========

     Net loss                                                                    $  (14,983)  $   (5,362)  $  (24,528)  $(15,867)
                                                                                 ==========   ==========   ==========   ========

     Weighted average shares of common stock outstanding                             16,721       16,526       16,735     14,191
                                                                                 ==========   ==========   ==========   ========

     Basic and diluted net loss per share                                        $    (0.90)  $    (0.32)  $    (1.47)  $  (1.12)
                                                                                 ==========   ==========   ==========   ========
</TABLE>

7.   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

                                       9

<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
and comprehensive loss.

     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 interest payments commenced on July 1, 2000. The Company has
fully reserved this subordinated note. For the nine months ended September 30,
2000, the Company recorded stock compensation expense of $2.8 million as a
result of accelerated vesting of incentive stock options for employees who left
the Company and were hired by Millitech LLC, and a gain on disposition of
approximately $438,000 as a result of reassessing the net realizable value of
certain assets and liabilities related to the divestiture.

     Sales for the MMWP segment were $0 for the three months ended September 30,
2001 and 2000 and $0 and $770,000 for the nine months ended September 30, 2001
and 2000, respectively.

8.   Accrued Expenses

     Accrued expenses consist of the following (in thousands):


<TABLE>
<CAPTION>
                                                                 September 30,            December 31,
                                                           ------------------------ ------------------------
                                                                    2001                     2000
                                                           ------------------------ ------------------------
                                                                 (unaudited)
<S>                                                        <C>                      <C>
Accrued payroll, commissions and related expenses......... $                   598  $                 1,071
Accrued warranty expense..................................                      25                      412
Deferred revenue..........................................                      --                       94
Other accrued expenses....................................                      67                      193
                                                           ------------------------ ------------------------
                                                           $                   690  $                 1,770
                                                           ======================== ========================
</TABLE>

9.   Litigation

     During the second and third quarters of 2001, four purported securities
class action lawsuits were filed against the Company in the U.S. District Court
for the Southern District of New York. The complaints also name one or more of
the Company's underwriters in the Company's initial public offering and certain
officers and directors of the Company. The complaints allege violations of the
federal securities laws regarding statements in the Company's initial public
offering registration statement concerning the underwriters' activities in
connection with the underwriting of the offering of the Company's shares to the
public. The actions seek rescission of the plaintiff's alleged purchases of
Company stock and other damages and costs associated with the litigation. The
Company and its officers and directors deny any liability and intend to
vigorously defend the allegations against them. No provision for any estimated
loss is reflected in the accompanying financial statements. While the Company
cannot predict the outcome of these actions, the Company believes that the final
result of these actions will not have a material effect on its financial
condition, results of operations or cash flows.

     In July 2001, the Company filed a lawsuit against a major customer in the
Superior Court of the Commonwealth of Massachusetts. This suit asserts that this
customer has failed to honor various contractual obligations and commitments
made to the Company and seeks damages arising from those failures. This action
is at an early stage, and accordingly the Company cannot predict the outcome.

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

Overview

     We develop fiber optic connectivity products. This product family is being
developed to enable direct fiber optic connection to wireless transceiver units
and transparently transmit fiber optic signals over a wireless link

                                       10

<PAGE>

without the use of conventional modems. Taking advantage of our high-frequency
millimeter-wave expertise, this product family is being developed to use the
large amounts of unallocated spectrum above 40 gigahertz (GHz) to provide data
rates of OC-3 (155 Megabits per second (Mbps)), OC-12 (622 Mbps), and higher.

     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 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 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 broadband wireless access business.

     Our launch customer for our point-to-multipoint outdoor unit (ODU) product
line was Newbridge Networks, which has since been acquired by Alcatel. In late
1999 and early 2000, the market for these products was growing rapidly. However,
a variety of factors (such as capital market weakness, uncertainty created by
the Alcatel acquisition of Newbridge, and equipment cost) caused the demand for
these products to decrease for us and generally across the industry. This
decrease in demand created difficulties for our point-to-multipoint business
model. The success of this model depended on the ability to produce low-cost
customer premises equipment (CPEs) designed for automated assembly and testing.
In turn, the ability to produce low-cost CPEs is largely a function of high
volumes. Without the commitment to high volumes from customers, it became
difficult to achieve the cost targets we believe are necessary for a
point-to-multipoint ODU business model to succeed. Therefore, we began to
evaluate other potential market segments where we could apply our millimeter
wave technology for broadband wireless access applications. We believe a
significant opportunity exists for high capacity wireless links to extend the
transport of large amounts of network traffic from existing fiber optic networks
to points located in close proximity to those networks.

     To address this potential market, we began developing our new fiber optic
connectivity products. We are developing several versions of this product to
address different market opportunities. The initial prototypes, operating at 60
GHz, have been built and have demonstrated a data rate of 622 Mbps. We are
simplifying our initial prototypes and incorporating our patented antenna
technology. The resulting improved prototypes are expected to be available for
Beta site trials in the fourth quarter of 2001 and for production in 2002.

     As part of the decision to focus on our new fiber optic connectivity
product line, we have decided to exit the point-to-multipoint ODU product line.

     For the three months and nine months ended September 30, 2001,
approximately 98% and 99% of our sales, respectively, were to a customer located
in Canada. For the three months and nine months ended September 30, 2000,
approximately 96% and 94% of our sales, respectively, were to a customer located
in Canada. We expect that sales to customers located outside the United States
may continue to be significant.

                                       11

<PAGE>

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                  Nine months ended
                                                                  September 30,                       September 30,
                                                                   (unaudited)                         (unaudited)
                                                        -------------------------------   -----------------------------------
                                                             2001            2000              2001                2000
                                                        ---------------- --------------   ----------------- -----------------
<S>                                                          <C>            <C>                 <C>               <C>
Sales.................................................       100.0%         100.0%              100.0%            100.0%
Cost of sales.........................................       341.5          126.3               296.5             109.2
Inventory restructuring cost..........................     1,151.3            0.0               258.3               0.0
                                                        ---------------- --------------   ----------------- -----------------
Gross margin (loss)...................................    (1,392.8)         (26.3)             (454.8)             (9.2)
Operating expenses
      Research and development, net...................       257.5           30.0               257.0              29.8
      Selling, general and administrative.............       314.9           24.2               264.1              29.6
      Other restructuring costs.......................     1,551.5            0.0               348.1               0.0
                                                        ---------------- --------------   ----------------- -----------------
         Total operating expenses.....................     2,123.9           54.2               869.2              59.4
                                                        ---------------- --------------   ----------------- -----------------
Operating loss........................................    (3,516.7)         (80.5)           (1,323.9)            (68.7)
Other income (expense)................................        40.4            7.7                47.1               8.0
                                                        ---------------- --------------   ----------------- -----------------
Loss from continuing operations before income taxes...    (3,476.3)         (72.8)           (1,276.8)            (60.7)
Income taxes..........................................        (0.0)          (0.0)               (0.0)             (0.0)
                                                        ---------------- --------------   ----------------- -----------------

Loss from continuing operations.......................    (3,476.3)%        (72.8)%          (1,276.8)%           (60.7)%
                                                        ================ ==============   ================= =================
</TABLE>

Three Months and Nine Months Ended September 30, 2001 and 2000

     Sales

     Sales decreased $7.7 million to $431,000 for the three months ended
September 30, 2001 from $8.1 million for the three months ended September 30,
2000. Unit shipments decreased to 180 for the three months ended September 30,
2001 from 4,101 for the three months ended September 30, 2000. Sales decreased
$21.2 million to $1.9 million for the nine months ended September 30, 2001 from
$23.1 million for the nine months ended September 30, 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.

     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 $8.8 million to $1.5 million for the
three months ended September 30, 2001 from $10.2 million for the three months
ended September 30, 2000. Cost of sales decreased $19.6 million to $5.7 million
for the nine months ended September 30, 2001 from $25.3 million for the nine
months ended September 30, 2000. Inventory restructuring cost was $5.0 million
for the three months and nine months ended September 30, 2001. Gross loss was
$6.0 million for the three months ended September 30, 2001 and $2.1 million for
the three months ended September 30, 2000. Gross loss was $8.7 million for the
nine months ended September 30, 2001 and $2.1 million for the nine months ended
September 30, 2000. The decrease in cost of sales and the decline in gross
margin as a percentage of sales for all comparative periods was attributable
primarily to decreased shipments of our products and the impact of overhead
costs incurred on significantly lower production volumes as well as the write
down of inventory to estimated net realizable value resulting from our third
quarter 2001 restructuring activities.

                                       12

<PAGE>

     Research and Development Expenses

     Research and development expenses consist primarily of personnel, material
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 decreased 57.4% to $1.1
million in the three months ended September 30, 2001 from $2.6 million in the
three months ended September 30, 2000. Gross research and development expenses
decreased 30.2% to $5.2 million for the nine months ended September 30, 2001
from $7.5 million for the nine months ended September 30, 2000. Research and
development costs were partially offset by customer funding of $181,000 for the
three months ended September 30, 2000. Customer funding was $266,000 and
$536,000 for the nine months ended September 30, 2001 and 2000, respectively.
Net of customer reimbursements, our research and development expenses decreased
54.3% to $1.1 million in the three months ended September 30, 2001 from $2.4
million for the three months ended September 30, 2000. Net research and
development costs decreased 28.6% to $4.9 million for the nine months ended
September 30, 2001 from $6.9 million for the nine months ended September 30,
2000. The reductions in both comparative periods were attributed to reductions
in personnel and material as we significantly scaled back our development
efforts for a major product line in addition to certain development project
costs incurred as other restructuring costs for the three months ended September
30, 2001.

     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 30.9% to $1.4 million for the three months
ended September 30, 2001 from $2.0 million for the three months ended September
30, 2000. Selling, general and administrative expenses decreased 25.9% to $5.1
million for the nine months ended September 30, 2001 from $6.8 million for the
nine months ended September 30, 2000. These decreases were due primarily to
decreases in costs related to recruiting and hiring additional personnel,
temporary support labor, and payroll and benefits due to reduced staffing.

     Other Income (Expense)

     Other income (expense) consists of interest and dividends 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) decreased to $174,000 for the three months ended September 30, 2001
from $622,000 for the three months ended September 30, 2000. Total other income
(expense) decreased to $905,000 for the nine months ended September 30, 2001
from $1.8 million for the nine months ended September 30, 2000. Interest expense
for the three months ended September 30, 2001 was $151,000 compared to $205,000
the three months ended September 30, 2000 and $468,000 for the nine months ended
September 30, 2001 compared to $585,000 for the nine months ended September 30,
2000. The decreases in interest expense were due to repayment of long term debt
and capital lease obligations. Interest, dividend and other income decreased
to $319,000 for the three months ended September 30, 2001 from $828,000 for the
three months ended September 30, 2000. Interest, dividend and other income
decreased to $1.4 million for the nine months ended September 30, 2001 from $2.4
million for the nine months ended September 30, 2000. The decreases in interest
income were a result of the decrease in the average daily cash and marketable
securities balances.

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,

                                       13

<PAGE>

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.

     At September 30, 2001, we had cash and cash equivalents of $19.3 million
(including restricted cash of $339,000-see Note 2 to Financial Statements) and
marketable securities of $6.7 million.

     The decrease in accounts receivable to $519,000 at September 30, 2001 from
$2.8 million at December 31, 2000 reflects the decline in revenue for the three
and nine months ended September 30, 2001. The decrease in accounts payable to
$1.1 million at September 30, 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 September 30, 2001, we had approximately $1.3 million in long-term debt,
of which $175,000 is due through June 2003 with an interest rate of 10% and $1.1
million is due through November 2003 with an interest rate of 12%.

     At September 30, 2001, we had approximately $3.4 million in capital lease
obligations, which are due through January 2005.

     Cash utilized in operating activities in the nine months ended September
30, 2001 was $13.3 million compared to $26.5 million in the nine months ended
September 30, 2000. For the nine months ended September 30, 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 nine
months ended September 30, 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 in the nine months ended September
30, 2001 was $6.1 million compared to cash utilized of $26.2 million in the nine
months ended September 30, 2000. In the nine months ended September 30, 2001,
these amounts related primarily to the purchase and sale of marketable
securities. In the nine months ended September 30, 2000, these amounts related
primarily to the purchase of marketable securities and the purchase of equipment
used in our manufacturing and research and development activities.

     Cash utilized in financing activities in the nine months ended September
30, 2001 was $1.8 million compared to cash provided of $70.1 million in the nine
months ended September 30, 2000. The financing activities in the nine months
ended September 30, 2001 consisted primarily of receipt of proceeds from
equipment lease financing and payments on capital lease obligations and long
term debt. The financing activities in the nine months ended September 30, 2000
consisted primarily of receipt of the proceeds from our initial public offering.

     Our future cash requirements will depend upon a number of factors,
including our ability to develop, manufacture and sell our fiber optic
connectivity product line. We believe that our cash and marketable securities
balances of $26.0 million at September 30, 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. (See "Safe
Harbor for Forward Looking Statements" below.)

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."

                                       14

<PAGE>

     As of September 30, 2001, we had cash and cash equivalents of $19.3
million. Substantially all of these amounts consisted of highly liquid
investments with remaining maturities at the date of purchase of less than 90
days. As of September 30, 2001, we had marketable securities of $6.7 million
which consisted of municipal and government bonds with maturities through
November 2002. 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 September 30, 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

     General Overview

     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.

     Cautionary Statements of General Applicability

     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, the possibility that we will no longer
meet the requirements for our stock to remain listed on The Nasdaq National
Market; the expense of defending and the outcome of pending and future
stockholder litigation; developments in this relatively new industry and in the
larger economy; our recent focus on our current business; difficulties inherent
in entering new markets and business areas and in establishing

                                       15

<PAGE>

new product lines; difficulties or delays in developing new or improved products
and new business or product lines; difficulties or delays in developing,
manufacturing, and supplying products with the contemplated or desired features,
performance, cost, and other characteristics; difficulties in estimating costs
of developing and supplying products; difficulties in developing, manufacturing,
and supplying products in a timely and cost-effective manner; lack of market
acceptance and success of broadband wireless systems and products, including our
current and contemplated products; difficulties in obtaining customers;
dependence on a limited number of customers; our having limited capital; our
limited ability to predict our future financial performance; 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, particularly in light of recent workforce
restructurings; our dependence on key personnel; inability to protect our
proprietary technology; the potential for intellectual property infringement,
warranty, product liability and other claims; failure of our customers to sell
broadband access solutions that include our products; difficulties in our
customers or ultimate end users of our products obtaining sufficient funding;
the impact, availability, pricing, and success of competing technologies and
products; general competition in the broadband wireless access industry and in
other industries we enter; difficulties in complying with existing governmental
regulations and developments or changes in governmental regulation; our
dependence on third-party suppliers and manufacturers; difficulties in obtaining
satisfactory performance from third-party manufacturers and suppliers; 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; the effect of our
anti-takeover defenses (including our stockholder rights plan); and risks
associated with any acquisitions or investments we may make. Many of 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.

     Specific Cautionary Statements Concerning Focus on Fiber Optic Connectivity
     Product Line

     We recently announced that we are going to focus on our fiber optic
connectivity product line. Many of the cautionary statements above are
particularly relevant in light of this recent decision. We currently have no
customers for our fiber optic connectivity products. We are still in the process
of developing our fiber optic connectivity product line. We do not expect to
have a product ready for production deliveries to customers until the first
quarter of 2002 at the earliest. There can be no assurance that we will be
successful in developing the fiber optic connectivity product line or obtaining
customers for our fiber optic connectivity products. These issues, together with
many of the cautionary statements above, could have an adverse affect on our
business, financial condition, results of operations, and viability as a going
concern.

     Specific Cautionary Statements Concerning Exit from Point-to-Multipoint ODU
     Product Line

     Contemporaneously with our announcement to focus on our fiber optic
connectivity product line, we announced our decision to exit our
point-to-multipoint outdoor unit product line. Since February 2000, we have
received all of our revenue from that product line. We are currently analyzing
alternatives for this product line. Exiting this product line will involve
addressing current customer relationships and commitments. This process could
have adverse impacts on us such as management distraction, adverse publicity,
adverse reaction from financial markets, financial costs, liability to current
customers, and adverse reaction from our potential customers. These impacts
could have an adverse affect on our business, financial condition and results of
operations.

     Specific Cautionary Statements Concerning Alcatel Lawsuit

     We recently filed a lawsuit against Alcatel. Alcatel has been the largest
purchaser of our point-to-multipoint outdoor unit products and our largest
customer for the past several years. This action is at an early stage, and
accordingly we cannot predict the outcome. Pursuing a lawsuit of this nature can
be a lengthy, expensive process, and there can be no assurance that we will
prevail or ultimately receive any proceeds from the litigation. Alcatel may
assert a variety of defenses and counterclaims in this action, which could have
an adverse impact on us. In addition, this lawsuit could have other adverse
impacts on us such as management distraction, adverse publicity, adverse
reaction from the financial markets, and adverse reaction from our other current
and potential customers. These impacts could have an adverse affect on our
business, financial condition and results of operations.

                                       16

<PAGE>

     Possible Implications of Cautionary Statements

     The items described above, either individually or in some combination,
could have a material adverse impact on our reputation, business, need for
additional capital, ability to obtain additional debt or equity financing,
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.

     As previously reported in the Company's Form 10-Q filed with the Securities
and Exchange Commission on August 10, 2001, during the period from June 12 to
July 11, 2001, three purported securities class action lawsuits were filed
against the Company in the U.S. District Court for the Southern District of New
York, Katz v. Telaxis Communications Corporation et al., Kucera v. Telaxis
Communications Corporation et al., and Paquette v. Telaxis Communications
Corporation et al. On September 13, 2001, a fourth purported securities class
action lawsuit was filed against the Company in the U.S. District Court for the
Southern District of New York, Inglis v. Telaxis Communications Corporation et
al. The complaints also name one or more of the Company's underwriters in the
Company's initial public offering and certain officers and directors of the
Company. The complaints allege violations of the federal securities laws
regarding statements in the Company's initial public offering registration
statement concerning the underwriters' activities in connection with the
underwriting of the Company's shares to the public. The actions seek rescission
of the plaintiff's alleged purchases of Company stock and other damages and
costs associated with the litigation. The complaints have been transferred for
pretrial purposes with approximately 800 other complaints against over 180
publicly-traded companies to a single federal judge in the U.S. District Court
for the Southern District of New York. The Company and its officers and
directors deny any liability and intend to vigorously defend the allegations
against them.

     As previously reported in the Company's Form 10-Q filed with the Securities
and Exchange Commission on August 10, 2001, on July 26, 2001, the Company filed
a lawsuit in the Superior Court of the Commonwealth of Massachusetts currently
captioned Telaxis Communications Corporation v. Alcatel and Alcatel Canada Inc.
This suit asserts that Alcatel has failed to honor various contractual
obligations and commitments made to the Company and seeks damages arising from
those failures. This action is at an early stage, and accordingly the Company
cannot predict the outcome.

     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.


                                       17

<PAGE>

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 September 30, 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.

     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
September 30, 2001, the Company has applied $45.1 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

Exhibit
Number       Description
------       -----------
10.1         Indemnification Agreement by and between the Company and
             Dr. Raphael Amit dated as of September 11, 2001.
10.2         Stock Settlement Agreement by and between the Company and
             Mervyn N. FitzGerald dated as of September 12, 2001.

         (b)  Reports on Form 8-K

              The Company filed no reports on Form 8-K during the quarter ended
              September 30, 2001.

                                       18

<PAGE>

                                   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:  November 14, 2001           By:  /s/ Dennis C. Stempel
                                        ---------------------------------------
                                        Dennis C. Stempel,
                                        Vice President, Chief Financial Officer
                                        and Treasurer (principal financial and
                                        accounting officer)