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

                                  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, 2002

                                       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 incorporation or             (I.R.S. Employer
                  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, 2002,  there were 16,708,313  shares of the  registrant's
common stock outstanding.



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


<PAGE>

<TABLE>
<CAPTION>
                                      INDEX


                                                                                                PAGE NO.
                                                                                                -------
<S>                                                                                              <C>
PART I.  FINANCIAL INFORMATION

Item 1.        Financial Statements.........................................................       2

                     Condensed Balance Sheets as of September 30, 2002
                       (unaudited) and December 31, 2001....................................       3

                     Condensed Statements of Operations for the three months
                       and nine months ended September 30, 2002 and 2001 (unaudited)........       4

                     Condensed Statements of Cash Flows for the nine months
                       ended September 30, 2002 and 2001 (unaudited)........................       5

                     Notes to Financial Statements (unaudited)..............................       6

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

Item 3.        Quantitative and Qualitative Disclosures about Market Risk...................      16

Item 4.        Controls and Procedures......................................................      16

PART II. OTHER INFORMATION

Item 1.        Legal Proceedings............................................................      16

Item 2.        Changes in Securities and Use of Proceeds....................................      17

Item 5.        Other Information............................................................      17

Item 6.        Exhibits and Reports on Form 8-K.............................................      17

SIGNATURES..................................................................................      18

CERTIFICATIONS..............................................................................      18

</TABLE>

                                       1

<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.


<PAGE>


Item 1.  Financial Statements.


                                       2
<PAGE>

<TABLE>
<CAPTION>
                                           TELAXIS COMMUNICATIONS CORPORATION
                                                CONDENSED BALANCE SHEETS
                                            (in thousands, except share data)


                                                                                                     September 30,     December 31,
                                                                                                         2002              2001
                                                                                                     -------------     -------------
                                                                                                     (unaudited)
<S>                                                                                                  <C>              <C>
Assets
Current assets
   Cash and cash equivalents.......................................................................  $     8,579      $    15,875
   Restricted cash.................................................................................          350               --
   Marketable securities...........................................................................        4,284            5,588
   Trade accounts receivable, less allowance for doubtful accounts ($0 in 2002 and $250 in 2001)...           40              438
   Other accounts receivable.......................................................................           --              154
   Note receivable, less allowance of $210 in 2001.................................................           --            1,000
   Inventories.....................................................................................           32              129
   Assets held for sale............................................................................        1,395            1,659
   Other current assets............................................................................          158              102
                                                                                                     ------------     ------------

      Total current assets.........................................................................       14,838           24,945
                                                                                                     ------------     ------------
   Property, plant and equipment, net..............................................................        2,857            4,668
   Other assets....................................................................................           72               79
                                                                                                     ------------     ------------

      Total assets.................................................................................  $    17,767      $    29,692
                                                                                                     ============     ============

Liabilities and Stockholders' Equity
Current liabilities
   Accounts payable................................................................................  $       161      $       169
   Accrued expenses................................................................................        1,234              803
   Accrued restructuring costs.....................................................................          583            1,298
   Current maturities of long-term debt............................................................          620              562
   Current maturities of capital lease obligations.................................................        1,209            1,912
                                                                                                     ------------     ------------

      Total current liabilities....................................................................        3,807            4,744
                                                                                                     ------------     ------------
   Long-term debt..................................................................................          144              618
   Capital lease obligations.......................................................................          201              956
                                                                                                     ------------     ------------

      Total liabilities............................................................................        4,152            6,318
                                                                                                     ------------     ------------

Commitments and contingencies

Stockholders' Equity
   Preferred stock, $.01 par value; authorized 4,500,000 shares in 2002 and 2001; none issued......           --               --
   Common stock, $.01 par value; authorized 100,000,000 shares in 2002 and 2001; issued 16,820,813
    shares, outstanding 16,708,313 shares in 2002 (16,743,198 issued and 16,630,698 outstanding in
    2001)..........................................................................................          168              167
   Additional paid-in capital......................................................................      124,700          124,623
   Accumulated other comprehensive income..........................................................            1                4
   Notes receivable................................................................................           --               (3)
   Treasury stock, at cost (112,500 shares)........................................................          (37)             (37)
   Accumulated deficit.............................................................................     (111,217)        (101,380)
                                                                                                     ------------     ------------

      Total stockholders' equity...................................................................       13,615           23,374
                                                                                                     ------------     ------------

      Total liabilities and stockholders' equity...................................................  $    17,767      $    29,692
                                                                                                     ============     ============
</TABLE>



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


                                       3
<PAGE>

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


                                                                   Three months ended         Nine months ended
                                                                      September 30              September 30
                                                                ------------------------  ------------------------
                                                                   2002         2001         2002         2001
                                                                (unaudited)  (unaudited)  (unaudited)  (unaudited)
<S>                                                              <C>          <C>          <C>          <C>
Sales .......................................................    $     40     $    431     $     53     $  1,921
Cost of sales ...............................................         712        1,472        2,378        5,695
Inventory restructuring cost ................................         210        4,962          210        4,962
                                                                 --------     --------     --------     --------

Gross margin (loss) .........................................        (882)      (6,003)      (2,535)      (8,736)
Operating expenses
      Research and development, net .........................       1,014        1,110        3,214        4,937
      Selling, general and administrative ...................       2,115        1,357        5,234        5,073
      Restructuring costs ...................................        (139)       6,687          322        6,687
                                                                 --------     --------     --------     --------

        Total operating expenses ............................       2,990        9,154        8,770       16,697
                                                                 --------     --------     --------     --------

Operating loss ..............................................      (3,872)     (15,157)     (11,305)     (25,433)
                                                                 --------     --------     --------     --------

Other income (expense)
      Interest and other expense ............................         (73)        (145)        (271)        (465)
      Income from settlement of litigation ..................          --           --        1,223           --
      Interest and other income .............................          88          319          516        1,370
                                                                 --------     --------     --------     --------

        Total other income ..................................          15          174        1,468          905
                                                                 --------     --------     --------     --------


Loss before income taxes ....................................      (3,857)     (14,983)      (9,837)     (24,528)
Income taxes ................................................          --           --           --           --
                                                                 --------     --------     --------     --------

Net loss ....................................................    $ (3,857)    $(14,983)    $ (9,837)    $(24,528)
                                                                 ========     ========     ========     ========

Basic and diluted net loss per share ........................    $  (0.23)    $  (0.90)    $  (0.59)    $  (1.47)
                                                                 ========     ========     ========     ========

Shares used in computing basic and diluted net loss per share      16,708       16,721       16,695       16,735
                                                                 ========     ========     ========     ========
</TABLE>


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


                                       4
<PAGE>

<TABLE>
<CAPTION>

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


                                                                                        Nine months ended
                                                                                           September 30,
                                                                                  ------------------------------
                                                                                        2002         2001
                                                                                      --------     --------
                                                                                     (unaudited)  (unaudited)
<S>                                                                                   <C>          <C>
Cash flows from operating activities
   Net loss ......................................................................    $ (9,837)    $(24,528)
   Adjustments to reconcile net loss to net cash utilized by operating activities:
      Depreciation and amortization ..............................................       1,628        2,829
      Non-cash restructuring costs ...............................................         532        8,818
      Non-cash compensation expense ..............................................          15           34
      Decrease in notes receivable ...............................................           3           --
      Changes in assets and liabilities
        Trade accounts receivable ................................................         398        2,317
        Other accounts receivable ................................................         154          252
        Inventories ..............................................................        (113)         657
        Other current assets .....................................................         (56)         223
        Accounts payable and accrued expenses ....................................         423       (5,459)
        Customer prepayments .....................................................          --          (24)
        Accrued restructuring costs ..............................................        (528)       1,599
                                                                                      --------     --------

        Net cash utilized by operating activities ................................      (7,381)     (13,282)
                                                                                      --------     --------

Cash flows from investing activities
   Purchase of marketable securities .............................................     (12,764)     (19,246)
   Maturities of marketable securities ...........................................      14,065       25,760
   Additions to property and equipment ...........................................        (246)        (418)
   Proceeds from sale of assets ..................................................         200           --
   Repayment of note receivable ..................................................       1,000           --
   Reduction to other assets .....................................................           7           29
                                                                                      --------     --------

        Net cash provided by investing activities ................................       2,262        6,125
                                                                                      --------     --------

Cash flows from financing activities
   Funds held in escrow ..........................................................          --         (339)
   Transfer of restricted cash ...................................................        (350)          --
   Proceeds from capital lease obligations .......................................          --          569
   Repayments of long-term debt and capital lease obligations ....................      (1,890)      (2,023)
   Issuance of common stock upon exercise of options and warrants ................          63            8
   Repayments of notes receivable ................................................          --           46
                                                                                      --------     --------

        Net cash utilized by financing activities ................................      (2,177)      (1,739)
                                                                                      --------     --------

Net decrease in cash and cash equivalents ........................................      (7,296)      (8,896)
Cash and cash equivalents at beginning of period .................................      15,875       27,865
                                                                                      --------     --------

Cash and cash equivalents at end of period .......................................    $  8,579     $ 18,969
                                                                                      ========     ========

Supplemental disclosure of cash flow information
   Non-cash investing and financing activities:
      Equipment acquired under capital lease agreement ...........................    $      0     $    807
      Unrealized loss on investments .............................................           3            6

</TABLE>


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

                                       5
<PAGE>

                       TELAXIS COMMUNICATIONS CORPORATION

                          NOTES TO FINANCIAL STATEMENTS


1. Summary of Significant Accounting Policies

     Basis of Presentation

     The financial information as of September 30, 2002 and for the three months
and nine months ended  September 30, 2002 and 2001 is unaudited.  In the opinion
of management,  such interim  financial  information  includes all  adjustments,
including  restructuring  charges  as  well  as  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,
2001  included  in the  Company's  Annual  Report  on Form 10-K  filed  with the
Securities and Exchange Commission. The December 31, 2001 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, 2002 are not necessarily  indicative of the results to be expected
for any future period.

     Marketable Securities

     The Company has invested the proceeds from its February 2000 initial public
offering in accordance with its corporate cash management policy. Marketable
securities are classified as available for sale and are carried at cost plus
accrued interest, which approximates fair value. The Company's investments
consist of short-term, interest bearing, investment grade securities or direct
or guaranteed obligations of the U.S. government. At September 30, 2002, all of
the Company's securities, valued at $4.3 million, mature within 12 months.

     Comprehensive Loss and Other Changes in Stockholders' Equity

     Comprehensive loss is defined as changes in equity other than from
transactions resulting from investments by owners and distributions to owners.
The Company's comprehensive loss of $9.8 million for the nine months ended
September 30, 2002 and $24.5 million for the nine months ended September 30,
2001 consisted of its reported net losses attributable to common shareholders
and unrealized losses on marketable securities.

The components of comprehensive loss were as follows ( in thousands):

<TABLE>
<CAPTION>
                                             Three months ended          Nine months ended
                                                September 30,              September 30,
                                           ----------------------     --------------------
                                              2002        2001            2002       2001
<S>                                        <C>         <C>             <C>       <C>
Net loss ............................      $ (3,857)   $ (14,983)      $ (9,837) $ (24,528)
Unrealized gain (loss) on investments             6            4             (3)         6
                                           --------    ---------       --------  ---------
Comprehensive loss ..................      $ (3,851)   $ (14,979)      $ (9,840) $ (24,522)
                                           ========    =========       ========  =========
</TABLE>
     Other changes in  stockholders'  equity from December 31, 2001 to September
30, 2002 of an increase of $81,000 include the exercise of common stock options,
common stock grants and a decrease in notes receivable.

2. Restructuring Charges

     In July 2001, the Company's Board of Directors approved the Company's plan
to exit its point-to-multipoint outdoor unit product line. In connection with
this decision, the Company recorded an $11.6 million restructuring charge during
the nine months ended September 30, 2001. Of the $11.6 million in restructuring
costs, $9.4 million relates to non-cash writedowns to net realizable value of
the Company's inventories, fixed assets and other assets and $2.2 million
relates to cash paid or to be paid for workforce reductions, excess facility
costs and contract costs.

     In the nine months ended September 30, 2002, the Company recorded an
additional non-cash restructuring charge of $461,000 due to a decrease in the
estimated net realizable value of assets held for sale, which consisted of
equipment from the discontinued point-to-multipoint outdoor unit product line.

     In the three months ended September 30, 2002, the Company recorded an
additional non-cash inventory restructuring charge of $210,000 due to a decrease
in the estimated net realizable value of the Company's Fiber Leap (TM)
inventory. The Company also reduced its estimate of accrued restructuring costs
by $139,000, resulting from the termination of a lease on a research and
development facility in Texas for less than the remaining obligation.

                                       6
<PAGE>


     Approximately $1.5 million was paid for restructuring costs through
September 30, 2002. Accrued restructuring costs at September 30, 2002 consists
of approximately $375,000 for facility consolidations, $58,000 for workforce
reduction charges, and $150,000 for contract terminations.


3. Restricted Cash

     At September 30, 2002, the Company has $350,000 of restricted cash
classified as a current asset. These funds are restricted by the terms of two
standby letters of credit which satisfy certain financial obligations of the
Company.


4. Note Receivable

     In February 2002, the Company negotiated the early repayment of a note
receivable and, accordingly, reduced its valuation allowance as of December 31,
2001 to reflect the amount of the note to be repaid of $1.0 million. The $1.0
million amount was fully paid in the quarter ended March 31, 2002.


5. Inventories

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


                                                  September 30,    December 31,
                                                       2002           2001
                                                --------------  ----------------
                                                 (unaudited)
         Parts and subassemblies............    $          32    $         126
         Work-in process....................               --                3
                                                --------------  ----------------
                                                $          32    $         129
                                                ==============  ================


6. Assets Held for Sale

     In July 2001, certain assets were determined to be impaired as a result of
the Company's decision to exit the point-to-multipoint outdoor unit product
line. These assets were written down to their estimated net realizable value and
are included on the balance sheet as assets held for sale. In the nine months
ended September 30, 2002, the value of these assets was further reduced as the
Company continued to assess their estimated net realizable value.


     The company has continued to assess the utilization and importance of
certain assets in the ongoing operations of the business and the allocation of
values between assets held for sale and property, plant and equipment for
certain test equipment components. As a result of this continuing assessment,
$445,000 of property, plant and equipment was reclassified to assets held for
sale in the three months ended September 30, 2002.

     Substantially all of the assets held for sale were sold at auction in
October 2002 (see Note 11).

7. Property, Plant and Equipment

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


                                       7
<PAGE>

<TABLE>
<CAPTION>
                                                                    September 30,      December 31,
                                                                        2002              2001
                                                                   -------------      ------------
                                                                    (unaudited)
           <S>                                                     <C>                <C>
           Machinery and equipment..............................   $     10,322       $     10,070
           Furniture and fixtures...............................            723                813
           Leasehold improvements...............................          1,199              1,958
           Equipment under capital leases.......................          3,029              4,586
                                                                   -------------      ------------

                                                                         15,273             17,427
           Less accumulated depreciation and amortization.......        (12,416)           (12,759)
                                                                   -------------       -----------

                                                                   $      2,857       $      4,668
                                                                   =============     ==============
</TABLE>


     The net book value of equipment under capital leases was approximately
$726,000 and $1,395,000 at September 30, 2002 and December 31, 2001,
respectively.

     Depreciation expense for the nine months ended September 30, 2002 and 2001
was $1,612,000 and $2,791,000, respectively.


8. Earnings Per Share

     Earnings per share has been computed by dividing the 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,
                                                              -----------------------------------------------------------------
                                                                   2002            2001             2002            2001
                                                              -------------   -------------     -------------   ---------------
                                                                        (unaudited)                      (unaudited)
Historical:  (in thousands, except per share data)
<S>                                                           <C>             <C>              <C>             <C>
   Net loss.................................................. $      (3,857)  $      (14,983)   $      (9,837)  $      (24,528)
                                                              =============   ==============    =============   ================

   Weighted average shares of common stock outstanding.......        16,708           16,721           16,695           16,735
                                                              =============   ==============    =============   ===============

   Basic and diluted net loss per share...................... $       (0.23)  $        (0.90)   $       (0.59)  $        (1.47)
                                                              =============   ==============    =============   ===============
</TABLE>


9.   Accrued Expenses

<TABLE>
<CAPTION>
           Accrued expenses consist of the following (in thousands):

                                                                                            September 30,      December 31,
                                                                                                2002                2001
                                                                                          -----------------   ---------------
                                                                                            (unaudited)
<S>                                                                                       <C>                 <C>
       Accrued payroll, commissions and related expenses................................. $             634   $          556
       Accrued merger costs..............................................................               408               --
       Accrued warranty expense..........................................................                25               25
       Other accrued expenses............................................................               167              222
                                                                                          -----------------   --------------
                                                                                          $           1,234   $          803
                                                                                          =================   ==============
</TABLE>



10. Merger Agreement with P-Com, Inc.

     On September 9, 2002, the Company and P-Com, Inc. entered into a definitive
merger agreement, whereby the Company would become a wholly-owned subsidiary of
P-Com. Each share of the Company's common stock would be converted into the
right to receive 1.117 shares of P-Com common stock. The merger requires
approval by the stockholders of each of the Company and P-Com and the
satisfaction or waiver of numerous other conditions to closing set forth in the
merger agreement.


                                       8
<PAGE>


11. Subsequent Event

     In October 2002, the Company held an auction of the assets held for sale
generating net proceeds of approximately $1.6 million. The gain on sale of these
assets of approximately $200,000 will be recorded in the Company's quarter
ending December 31, 2002.


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

Overview

     We are currently developing and marketing FiberLeap(TM) products, which
transparently transmit fiber optic signals over a wireless link between two
access points. Using our wireless products, fiber optic carriers and enterprises
can obtain connectivity at fiber optic data rates and quality of service, but
where fiber optic cable itself is not available or is not economically viable.
Our current FiberLeap(TM) 2006 product is a compact, easily deployed product
that enables fiberless transmission of data, voice and video communication at
fiber rates that are variable from an OC-3 rate of 155 Mbps to an OC-12 rate of
622 Mbps.

     We commenced operations in 1982 and, prior to 1999, derived the significant
majority of our sales from our millimeter-wave products business segment.
Millimeter waves are electromagnetic waves having wavelengths between one and
ten millimeters and frequencies from 30 GHz to 300 GHz. In August 1999, we
adopted a plan to focus all of our resources on our broadband connectivity
business (then focused on point-to-multipoint outdoor units) 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 outdoor unit business. The
segment was sold on February 8, 2000. The following management's discussion and
analysis addresses our broadband connectivity business.

     Due to changing market conditions, we made the decision to exit the
point-to-multipoint outdoor unit business in July 2001 and to focus all of our
resources on closing the connectivity gap in fiber networks. Since that time, we
restructured our company to address this new opportunity, FiberLeap(TM) trial
and Beta units have been developed and tested, a new marketing program has been
initiated, and limited production has begun.

     We announced in September 2002 that we have demonstrated technical
feasibility of our new EtherLeap(TM) product. EtherLeap(TM) is an 802.11-based
Ethernet Local Area Network, or LAN, radio operating at millimeter-wave
frequencies that can operate in point-to-point, point-to-multipoint, and mesh
architectures. The initial EtherLeap(TM) model developed by us, which is based
specifically on an 802.11(b) system providing wireless connectivity at up to 11
megabits per second (Mbps), operates at 28 GHz. We sold and delivered our first
EtherLeap(TM) product in the third quarter of 2002. From July 2001 until this
announcement relating to EtherLeap(TM), our business was focused on our
FiberLeap(TM) products. While we remain an independent company, we expect to
focus more of our marketing, development, and other efforts on potential
EtherLeap(TM) products.

     The overall economic climate in the United States has declined since we
decided to focus on our FiberLeap(TM) products. In particular, telecommunication
markets have experienced a severe downturn, which has been highlighted by the
bankruptcy filings of several former prominent telecommunications companies.
Telecommunication markets remain depressed, and we cannot predict how long they
will take to recover or the extent of any recovery. This uncertainty in the
telecommunications industry and in the larger economy has made it very difficult
to successfully launch our FiberLeap(TM) and EtherLeap(TM) products and to build
a business based on those products. While we continue to talk with potential
purchasers of our FiberLeap(TM) and EtherLeap(TM) products, we do not have any
significant customers for those products and we cannot predict when (or if) we
will obtain significant customers. Our current


                                       9
<PAGE>


     financial position may be inadequate to enable us to continue to pursue our
efforts to build our FiberLeap(TM) and EtherLeap(TM) business until more
favorable market conditions return.

     In light of these factors, our board decided that the company should
explore a wide variety of strategic opportunities and alternatives. On September
9, 2002 we entered into a definitive merger agreement with P-Com, Inc. We have
retained the investment banking firm Ferris, Baker Watts as our financial
adviser to assist with the consideration of the merger and other various
options. See "Safe Harbor for Forward-Looking Statements" below.

     For the three months and nine months ended September 30, 2002, all of our
sales were to customers located in the United States. For the three months and
nine months ended September 30, 2001, approximately 98% and 99% of our sales
were to a customer located in Canada. Sales to customers located outside the
United States may represent a significant portion of our total sales in future
periods.


Critical Accounting Policies

     The preparation of the Company's consolidated financial statements in
accordance with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect: the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements; and the reported
amounts of revenues and expenses during the reporting periods. Note 1 of the
"Notes to Consolidated Financial Statements" in the Company's Annual Report on
Form 10-K for the year ended December 31, 2001 describes the significant
accounting policies used in the preparation of the consolidated financial
statements. The Company's management is required to make judgments and estimates
about the effect of matters that are inherently uncertain. Actual results could
differ from management's estimates. The most significant areas involving
management judgments and estimates are described below.

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

Assets Held for Sale

     The Company has identified certain equipment as being surplus to the
ongoing operations of the business as it has exited certain product lines and
restructured certain of its operations. The Company has continued to assess the
net realizable value of these assets and in the future, additional surplus
assets may be identified and adjustments to their net realizable value made.

Income Taxes

     The Company records a valuation allowance to reduce deferred tax assets to
the amount that is more likely than not to be realized. Deferred tax assets, net
of valuation allowance are $0 at September 30, 2002 and $0 at December 31, 2001.

     In assessing the need for a valuation allowance, the Company estimates
future taxable income, considering the feasibility of ongoing tax planning
strategies and the realizability of tax loss carryforwards. Valuation allowances
related to deferred tax assets can be impacted by changes to tax laws, changes
to statutory tax rates and future taxable income levels. An adjustment to the
deferred tax asset will increase income in the period the adjustment is made in
the event that the Company is able to realize deferred tax assets in the future
in excess of the net recorded amount.

Inventory Valuation

     Inventory is stated at the lower of cost or market, cost being determined
on a first-in, first-out basis. Provisions are made to reduce excess or obsolete
inventory to its estimated net realizable value. The process for evaluating the
value of excess and obsolete inventory often requires the Company to make
subjective judgments and estimates concerning future sales levels, quantities
and prices at which such inventory will be able to be sold in the normal course
of business. Accelerating the disposal process or incorrect estimates of future
sales potential may necessitate future adjustments to these provisions.


Results of Operations

Three Months and Nine Months Ended September 30, 2002 and 2001

     Sales

     Sales  decreased  91% to $40,000 for the three months ended  September  30,
2002  from  $431,000  for the three  months  ended  September  30,  2001.  Sales
decreased 97% to $53,000 for the nine months ended  September 30, 2002 from $1.9
million for the nine months ended September 30, 2001. The decrease in sales from
2001 to 2002 reflects our decision to exit our point-to-multipoint  outdoor unit
product  line.  In 2002,  we have not yet  generated  revenue  from sales of our
FiberLeap(TM)  products, and we have only generated $40,000 from the sale of our
EtherLeap(TM) products.

     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 by $760,000 to $712,000 for the three
months ended September 30, 2002 from $1.5 million for the three months ended
September 30, 2001. Cost of sales decreased by $3.3 million to $2.4 million for
the nine months ended September 30, 2002 from $5.7 million for the nine months
ended September 30, 2001. Inventory restructuring cost decreased by $4.8 million
to $210,000 for the three months and nine months ended September 30, 2002 from
$5.0 million for the three months and nine months ended September 30, 2001.
Gross loss was $882,000 in the three months ended September 30, 2002 and $6.0
million for the three months ended September 30, 2001. Gross loss was $2.5
million in the nine months ended September 30, 2002 and $8.7 million for the
nine months ended September 30, 2001. The change in cost of sales was
attributable primarily to decreased shipments of our point-to-multipoint outdoor
unit products and a significant decrease in our manufacturing personnel and
equipment cost. The decline in gross loss was due to the change in cost of sales
and a $4.8 million decrease in inventory restructuring cost.

     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 decreased by $96,000 to $1.0
million for the three months ended  September 30, 2002 from $1.1 million for the
three months ended September 30, 2001.  Gross research and development  expenses
decreased by $2.0  million to $3.2  million for the nine months ended  September
30, 2002 from $5.2 million for the nine months ended  September  30, 2001.  This
decrease  is  attributable  to  reductions  in  the  size  of our  research  and
development  staff,   development  material,   capital  equipment,  and  related
facilities  and support  costs.  Research and  development  costs were partially
offset by customer  funding of $266,000 for the nine 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  increased  by $758,000  to $2.1  million for the three
months  ended  September  30, 2002 from $1.4  million for the three months ended
September 30, 2001.  Selling,  general and administrative  expenses increased by
$161,000 to $5.2 million for the nine months ended  September 30, 2002 from $5.1
million for the nine months  ended  September  30,  2001.  The  increase was due
primarily to  professional  fees  related to the proposed  merger with P-Com and
also severance costs resulting from a reduction in workforce.

                                       11
<PAGE>


     Other Income (Expense)

     Other income  (expense)  consists of interest and dividends  earned on cash
and  marketable  securities  and other  non-operating  income offset by interest
expense on debt and capital lease  obligations and  miscellaneous  non-operating
expenses. Total other income decreased to $15,000 in income for the three months
ended  September  30, 2002 from  $174,000 in income for the three  months  ended
September 30, 2001.  Total other income  increased to $1.5 million in income for
the nine months ended  September  30, 2002 from  $905,000 in income for the nine
months ended September 30, 2001.  Interest expense  decreased to $73,000 for the
three months ended  September  30, 2002 from $145,000 for the three months ended
September 30, 2001.  Interest expense  decreased to $271,000 for the nine months
ended  September 30, 2002 from $465,000 for the nine months ended  September 30,
2001. The decreases in interest  expense were due to repayment of long-term debt
and capital lease  obligations.  Interest and other income  decreased to $88,000
for the three months ended  September 30, 2002 from $319,000 for the same period
in 2001.  Interest  and other  income  decreased to $516,000 for the nine months
ended  September  30, 2002 from $1.4  million  for the same period in 2001.  The
decreases in interest  income were a result of decreases in cash and  marketable
securities  balances and reductions in interest rates. Income from settlement of
litigation of $1.2 million for the nine months ended September 30, 2002 resulted
from the settlement of the litigation against Alcatel.


     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 we  completed an initial  public  offering of 4,600,000
shares of our common stock at $17.00 per share.  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, 2002,  we had cash and cash  equivalents  of $8.9 million
(including restricted cash of $350,000 - see Note 3 to Financial Statements) and
marketable securities of $4.3 million.

     The decrease in accounts  receivable  to $40,000 at September 30, 2002 from
$438,000 at December 31, 2001 reflects the settlement of accounts receivable and
the related  allowance  for  doubtful  accounts  from Alcatel as a result of the
settlement of litigation  against Alcatel.  The decrease in note receivable from
$1.0 million at December 31, 2001 to $0 at September 30, 2002 reflects the early
repayment received.

     At September 30, 2002, we had approximately  $764,000 in long-term debt, of
which  $73,000  is due  through  June  2003  with  an  interest  rate of 10% and
approximately  $691,000 is due through  November  2003 with an interest  rate of
12%.

     At September 30, 2002, we had  approximately  $1.4 million in capital lease
obligations, which are due through January 2005.

     Cash utilized in operating  activities  in the nine months ended  September
30, 2002 was $7.4 million compared to $13.3 million for the same period in 2001.
For both of these  periods,  cash used in  operating  activities  has  primarily
represented funding of our net losses.

     Cash provided by investing  activities for the nine months ended  September
30, 2002 was $2.3 million  compared to cash provided by investing  activities of
$6.1 million for the same period in 2001. In the nine months ended September 30,
2002,  these  amounts  related  primarily to the purchase and sale of marketable
securities  and  repayment  of a note  receivable.  In  the  nine  months  ended
September 30, 2001, these amounts related  primarily to the purchase and sale of
marketable securities.

                                       12
<PAGE>


     Cash utilized by financing  activities  in the nine months ended  September
30, 2002 was $2.2 million  compared to cash utilized by financing  activities of
$1.7  million for the same period in 2001.  The  financing  activities  for both
periods  consisted  primarily of payments on capital lease  obligations and long
term debt and transfers to restricted cash. In addition,  the September 30, 2001
amounts were partially offset by the proceeds from equipment lease financing.

     Our 2002 and future cash requirements will depend upon a number of factors,
including the timing and extent of growth in our FiberLeap(TM) and EtherLeap(TM)
product lines,  and the timing and level of research and development  activities
and sales and  marketing  campaigns,  and our ability to generate  sales  orders
while controlling  manufacturing  and overhead costs.  While we believe that our
cash and  marketable  securities  balances at  September  30, 2002 will  provide
sufficient  capital  to fund  our  operations  as  currently  conducted  through
September 30, 2003,  our capital  needs may be higher or lower  depending on the
outcome  of  the  proposed  merger  with  P-Com  and  other  possible  strategic
alternatives and other factors. If additional capital is required or desired, it
may not 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 September 30, 2002, we had cash and cash equivalents of $8.9 million.
Substantially all of these amounts  consisted of highly liquid  investments with
remaining  maturities  at the  date of  purchase  of less  than 90  days.  As of
September  30,  2002,  we had  marketable  securities  of  $4.3  million,  which
consisted of short-term, interest-bearing, investment grade securities or direct
or guaranteed  obligations of the U.S. government with maturities through August
2003.  These  investments are exposed to interest rate risk and will decrease in
value if market interest rates increase.  We believe a hypothetical  increase in
market  interest rates by 10 percent from the September 30, 2002 rates would not
cause the fair value of these  investments to decline  significantly,  since the
investments  mature  within  twelve  months.  Although 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 reduce our
interest income.

     We do  not  own  any  material  equity  investments.  Therefore,  we do not
currently have any direct equity price risk. In the past three years,  all sales
to  international  customers  were  denominated  in United  States  dollars and,
accordingly, we were not exposed to foreign currency exchange rate risks.

     In April 2002,  Statement of Financial  Accounting  Standards  ("SFAS") No.
145,  "Rescission  of FASB  Statements  No.  4, 44,  and 64,  amendment  of FASB
Statement  No.  13,  and  Technical   Corrections,"  was  issued.  The  standard
eliminates an inconsistency  between the required  accounting for sale-leaseback
transactions and the required  accounting for certain lease  modifications  that
have  economic  effects  that are similar to  sale-leaseback  transactions.  The
adoption of this  statement  is not  expected  to have a material  impact on the
Company's financial position, results of operations or cash flow.


     In June 2002, SFAS No. 146,  "Accounting for Costs  Associated with Exit or
Disposal  Activities,"  was  issued.  This  statement  provides  guidance on the
recognition  and  measurement  of liabilities  associated  with exit or disposal
activities and requires that such liabilities be recognized when incurred.  This
statement is effective for exit or disposal  activities that are initiated after
December  31,  2002 and does not impact  the  Company's  existing  restructuring
accruals.  Adoption of this  standard  may impact the timing of  recognition  of
costs associated with future exit and disposal activities.

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



                                       13
<PAGE>

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,  difficulties  or delays in obtaining
customers;  dependence  on a limited  number of  customers;  lack of or delay in
market  acceptance  and demand for our current and  contemplated  products;  our
having limited capital;  the expense of defending and the outcome of pending and
future stockholder  litigation;  developments in our relatively new industry and
in  the  larger   economy;   the  downturn  and  ongoing   uncertainty   in  the
telecommunications  industry and larger economy; our recent focus on our current
business;  difficulties  or delays inherent in entering new markets and business
areas;  difficulties  or delays in  developing  and  establishing  new products,
product  lines,  and  business  lines;  difficulties  or delays  in  developing,
manufacturing, and supplying products with the contemplated or desired features,
performance, price, 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;
difficulties or delays in developing  improved products when expected or desired
and with the additional features contemplated or desired; 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 our business uncertainty, previous
workforce  restructurings,   and  lower  stock  price;  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  connectivity 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  connectivity industry and in other industries we enter;  difficulties
in  distinguishing  our  products  from  competing  technologies  and  products;
difficulties   in  complying   with  existing   governmental   regulations   and
developments  or changes in governmental  regulation;  difficulties or delays in
obtaining  any  necessary  governmental  or  regulatory  permits,   waivers,  or
approvals,  including  any  necessary  for us to offer and sell a  type-approved
product  with  the  contemplated  performance  and  other  characteristics;  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 in which we may be involved.
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, 2001 filed with
the Securities and Exchange Commission.

     Specific Cautionary  Statements relating to Contemplated Merger with P-Com,
Inc.

     On  September  10, 2002,  we announced  that we have signed an agreement to
merge with P-Com, Inc. There have been changes in business conditions,  results,
and expectations  for both companies since the merger  agreement was signed.  We
are  continuing  to  pursue a  transaction  with  P-Com in light of the  changed
conditions of the two  companies.  There can be no assurance  whatsoever  that a
merger will be  consummated on the terms  previously  announced or at all due to
the risks and  uncertainties  relating to and  arising  from  changes  that have
occurred  since the merger  agreement  was signed,  our and  P-Com's  ability to
secure the  necessary  stockholder  approvals,  and our and  P-Com's  desire and
ability to satisfy the other conditions to the closing of the merger. We are not
currently able to provide an estimated  closing date for a transaction.  Whether
or not a merger is completed, we will be expending



                                       14
<PAGE>

substantial  time and incurring  substantial  costs relating to the contemplated
merger and our directors and  management  may be interested in and distracted by
the  contemplated  merger.  There  are  additional  risks  even if a  merger  is
completed,  including,  without limitation, risks relating to the ability of the
companies to integrate  effectively in a  cost-effective,  timely manner without
material loss of employees or customers, the risk that the contemplated benefits
and cost savings from the merger may not be fully realized or may take longer to
realize  than  expected,   and  potential   negative   reactions  of  investors,
competitors, customers, employees, and others.

     Specific  Cautionary  Statements  Concerning  Focus  on  FiberLeap(TM)  and
EtherLeap(TM) Product Lines

     In July 2001, we announced that we were going to focus on our FiberLeap(TM)
product line and exit our old point-to-multipoint  outdoor unit product line. In
September 2002, we introduced our EtherLeap(TM) product line. As a result, it is
difficult to predict our future  prospects in these markets based on our limited
history.  Many of the  cautionary  statements  contained  in this  Form 10-Q are
particularly  relevant in light of this recent  decision  and focus.  Our future
depends on our ability to develop,  market,  gain market acceptance of, and sell
our FiberLeap(TM) and EtherLeap(TM)  products.  We have limited  experience with
these new product lines and in the markets the  FiberLeap(TM)  and EtherLeap(TM)
products   address.   We  currently  have  no  significant   customers  for  our
FiberLeap(TM) or EtherLeap(TM) products. We are in the process of developing our
FiberLeap(TM)  and  EtherLeap(TM)  product lines and obtaining the  governmental
approvals  necessary for the commercial sale and deployment of our FiberLeap(TM)
products. There can be no assurance that we will be successful in developing the
FiberLeap(TM)  or  EtherLeap(TM)  product  line,  obtaining  customers  for  our
FiberLeap(TM) or EtherLeap(TM)  products,  obtaining all necessary  governmental
approvals for our FiberLeap(TM) and EtherLeap(TM) products at all or in a timely
manner,  developing or establishing an acceptable business based solely on sales
of  FiberLeap(TM)  and  EtherLeap(TM)  products,  or addressing the other issues
inherent in entering a new line of business. These issues, together with many of
the other  cautionary  statements  contained  in this Form  10-Q,  could have an
adverse effect on our business,  financial condition, results of operations, and
viability as an ongoing company.

     Specific  Cautionary  Statements relating to Possible Delisting from Nasdaq
National Market

     Our common stock is currently traded on the Nasdaq National Market.  One of
the  requirements  for continued  listing on that market is that the minimum bid
price of our stock must remain above $1.00. We received a letter of notice dated
July 11, 2002 from the Nasdaq Stock Market  stating that, due to our minimum bid
price levels remaining under the $1.00 level for 30 consecutive trading days, we
were on notice that we could be subject to a delisting  procedure should the bid
price  continue to remain under the $1.00 level for an additional  90-day period
(ending October 9, 2002), unless our stock attained a bid price of $1.00 or more
for a period of 10  consecutive  days during that 90-day  period.  We received a
notice,  dated October 10, 2002,  from the Nasdaq Stock Market stating that, due
to the minimum bid price remaining below $1.00,  our common stock was subject to
delisting from the Nasdaq  National Market  effective  October 18, 2002. We have
requested a hearing before a Nasdaq Listing  Qualifications Panel to review that
determination.  This request stays the  delisting.  The hearing is scheduled for
Friday November, 22, 2002.

     There are other  requirements for continued  listing on the Nasdaq National
Market,  such as having a minimum of $4.0 million of net tangible  assets,  $5.0
million  minimum  value of public  float,  400 round lot  stockholders,  and two
market  makers.  We received a letter of notice  dated  October 2, 2002 from the
Nasdaq Stock  Market  stating that the market value of our public float had been
below $5.0 million for 30 consecutive trading days and our common stock could be
delisted  on that  basis  if not  cured.  We will  also  have  to  address  this
noncompliance  at our hearing  scheduled for November 22, 2002.  There can be no
assurance   that  we  will  continue  to  meet  the  other   continued   listing
requirements.

     There can be no assurance that the Nasdaq Listing Qualifications Panel will
grant our request  for  continued  listing or any other  requests we might make,
including any request to have the listing of our common stock transferred to the
Nasdaq  SmallCap  Market.  Should our stock be delisted from the Nasdaq National
Market,  we may apply to have our stock listed on the Nasdaq  SmallCap Market or
traded on the OTC Bulletin Board. These alternatives may result in a less liquid
market available for existing and potential  stockholders to buy and sell shares
of our stock and could further  depress the price of our stock.  Further,  there
can be no assurance that we will meet the requirements for listing on the Nasdaq
SmallCap Market, one of which is a minimum $1.00 bid price.


                                       15
<PAGE>


     We may take certain actions to attempt to increase the bid price and market
value of our stock.  While  there are  numerous  actions  that could be taken to
attempt  to  increase  the bid price and market  value of our stock,  two of the
possibilities are a reverse stock split and a stock repurchase. Any such actions
(even if successful)  may have adverse  effects on us, such as adverse  reaction
from employees,  investors and financial markets in general,  adverse publicity,
and adverse reactions from customers. Further, there can be no assurance that we
will have or be given  sufficient time to undertake these activities in light of
the status of the delisting process.

     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.  These items
could  also  impair  our  ability  to fulfill  the  conditions  to  closing  the
contemplated  merger sith P-Com,  which could prevent the merger from happening.
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.


Item 4. Controls and Procedures.

     (a) Disclosure  controls and procedures.  Within 90 days before filing this
report,  we  evaluated  the  effectiveness  of the design and  operation  of our
disclosure  controls and procedures.  Our disclosure controls and procedures are
the  controls  and other  procedures  that we designed to ensure that we record,
process,  summarize  and  report  in a timely  manner  the  information  we must
disclose  in  reports  that we file with or submit  to the SEC.  Our  disclosure
controls and procedures include a significant portion of our internal accounting
controls.  John L. Youngblood,  our President and Chief Executive  Officer,  and
Dennis C.  Stempel,  our Senior  Vice  President  and Chief  Financial  Officer,
supervised and  participated in this evaluation.  Based on this evaluation,  Dr.
Youngblood and Mr. Stempel  concluded that, as of the date of their  evaluation,
our disclosure controls and procedures were effective.

     (b) Internal  controls.  Since the date of the evaluation  described above,
there have not been any significant  changes in our internal accounting controls
or in other factors that could significantly affect those controls.


                           PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

     During the period from June 12 to September 13, 2001, four purported
securities class action lawsuits were filed against us 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.,
Paquette v. Telaxis Communications Corporation et al., and Inglis v. Telaxis
Communications Corporation et al. The lawsuits also named one or more of the
underwriters in our initial public offering and certain of our officers and
directors. On April 19, 2002, the plaintiffs filed a single consolidated amended
complaint which supersedes the individual complaints originally filed. The
amended complaint alleges, among other things, violations of the registration
and antifraud provisions of the federal securities laws due to alleged
statements in and omissions from our initial public offering registration
statement concerning the underwriters' alleged activities in connection with the
underwriting of our shares to the public. The amended complaint seeks, among
other things, unspecified damages and costs associated with the litigation.
These lawsuits against us have been assigned along with, we understand,
approximately 1,000 other lawsuits making substantially similar allegations
against approximately 300 other publicly-traded companies and


                                       16
<PAGE>

their public offering underwriters to a single federal judge in the U.S.
District Court for the Southern District of New York for consolidated pre-trial
purposes. On July 15, 2002, we, together with the other issuers named as
defendants in these coordinated proceedings, filed a collective motion to
dismiss the consolidated amended complaints on various legal grounds common to
all or most of the issuer defendants. This motion is currently pending. In
October 2002, all claims against our directors and officers who had been parties
to these lawsuits were dismissed without prejudice. We deny any liability and
intend to vigorously defend the allegations against us.

     We are subject to potential liability under contractual and other matters
and various claims and legal actions which may be asserted. These matters may
arise in the ordinary course and conduct of our business. While the outcome of
the 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

     We did not issue or sell any unregistered securities in the three months
ended September 30, 2002.

Use of Proceeds from Registered Offerings

     On February 1, 2000, the Securities and Exchange Commission declared
effective our registration statement on Form S-1 (File No. 333-87885) filed in
connection with the initial public offering of 4,600,000 shares of our common
stock.

     We received approximately $71.1 million of net proceeds from the offering.
Those net proceeds are being used for working capital and 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, 2002, we have applied approximately $57.9 million of the net proceeds from
the offering toward working capital, financing capital expenditures, and funding
operating losses.

Item 5.  Other Information.

Certification Under Sarbanes-Oxley Act

     Our chief executive officer and chief financial officer have furnished to
the Securities and Exchange Commission the certification with respect to this
report that is required by Section 906 of the Sarbanes-Oxley Act of 2002.

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

           (a)       Exhibits

         Exhibit
         Number   Description
         ------   -----------

          2.1     Agreement and Plan of Merger, dated as of September 9, 2002,
                  by and among P-Com, Inc., XT Corporation and the Company*

          4.1     Amendment No. 1 to Rights Agreement, dated as of September 9,
                  2002, between Telaxis and Registrar and Transfer Company*

          10.1    Amendment 1 to Employment Agreement, dated as of August 29,
                  2002, by and between Telaxis and Dennis C. Stempel

          10.2    Amendment 1 to Employment Agreement, dated as of August 29,
                  2002, by and between Telaxis and David L. Renauld


---------------------------
All non-marked exhibits are being filed herewith.


*    Incorporated herein by reference to the exhibits to Form 8-K filed with the
     SEC on September 12, 2002.

                                       17
<PAGE>



           (b)       Reports on Form 8-K

     On August 14, 2002, we filed a report on Form 8-K to report that we were
exploring strategic opportunities.

     On September 12, 2002, we filed a report on Form 8-K to report that we had
signed an agreement to merge with P-Com, Inc.


                                   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, 2002    By:  /s/  Dennis C. Stempel
                                 ----------------------------------------------
                                 Dennis C. Stempel,
                                 Senior Vice President, Chief Financial Officer
                                 and Treasurer (principal financial and
                                 accounting officer)



                                 CERTIFICATIONS

     I, John L. Youngblood, President and Chief Executive Officer of Telaxis
Communications Corporation, certify that:

          1.   I have reviewed this quarterly report on Form 10-Q of Telaxis
               Communications Corporation;

          2.   Based on my knowledge, this quarterly report does not contain any
               untrue statement of a material fact or omit to state a material
               fact necessary to make the statements made, in light of the
               circumstances under which such statements were made, not
               misleading with respect to the period covered by this quarterly
               report;

          3.   Based on my knowledge, the financial statements, and other
               financial information included in this quarterly report, fairly
               present in all material respects the financial condition, results
               of operations and cash flows of the registrant as of, and for,
               the periods presented in this quarterly report;

          4.   The registrant's other certifying officers and I are responsible
               for establishing and maintaining disclosure controls and
               procedures (as defined in Exchange Act Rules 13a-14 and 15d-14)
               for the registrant and we have:

               a)   designed such disclosure controls and procedures to ensure
                    that material information relating to the registrant,
                    including its consolidated subsidiaries, is made known to us
                    by others within those entities, particularly during the
                    period in which this quarterly report is being prepared;

               b)   evaluated the effectiveness of the registrant's disclosure
                    controls and procedures as of a date within 90 days prior to
                    the filing date of this quarterly report (the "Evaluation
                    Date"); and

               c)   presented in this quarterly report our conclusions about the
                    effectiveness of the disclosure controls and procedures
                    based on our evaluation as of the Evaluation Date;

--------------------------------------------------------------------------------
                                       18
<PAGE>


          5.   The registrant's other certifying officers and I have disclosed,
               based on our most recent evaluation, to the registrant's auditors
               and the audit committee of registrant's board of directors (or
               persons performing the equivalent function):

               a)   all significant deficiencies in the design or operation of
                    internal controls which could adversely affect the
                    registrant's ability to record, process, summarize and
                    report financial data and have identified for the
                    registrant's auditors any material weaknesses in internal
                    controls; and

               b)   any fraud, whether or not material, that involves management
                    or other employees who have a significant role in the
                    registrant's internal controls; and

          6.   The registrant's other certifying officers and I have indicated
               in this quarterly report whether or not there were significant
               changes in internal controls or in other factors that could
               significantly affect internal controls subsequent to the date of
               our most recent evaluation, including any corrective actions with
               regard to significant deficiencies and material weaknesses.


Date: November 14, 2002                   /s/ John L. Youngblood
                                          ------------------------------
                                          John L. Youngblood
                                          President and Chief Executive Officer







     I, Dennis C. Stempel, Senior Vice President and Chief Financial Officer of
Telaxis Communications Corporation, certify that:

          1.   I have reviewed this quarterly report on Form 10-Q of Telaxis
               Communications Corporation;

          2.   Based on my knowledge, this quarterly report does not contain any
               untrue statement of a material fact or omit to state a material
               fact necessary to make the statements made, in light of the
               circumstances under which such statements were made, not
               misleading with respect to the period covered by this quarterly
               report;

          3.   Based on my knowledge, the financial statements, and other
               financial information included in this quarterly report, fairly
               present in all material respects the financial condition, results
               of operations and cash flows of the registrant as of, and for,
               the periods presented in this quarterly report;

          4.   The registrant's other certifying officers and I are responsible
               for establishing and maintaining disclosure controls and
               procedures (as defined in Exchange Act Rules 13a-14 and 15d-14)
               for the registrant and we have:

               a)   designed such disclosure controls and procedures to ensure
                    that material information relating to the registrant,
                    including its consolidated subsidiaries, is made known to us
                    by others within those entities, particularly during the
                    period in which this quarterly report is being prepared;

               b)   evaluated the effectiveness of the registrant's disclosure
                    controls and procedures as of a date within 90 days prior to
                    the filing date of this quarterly report (the "Evaluation
                    Date"); and

               c)   presented in this quarterly report our conclusions about the
                    effectiveness of the disclosure controls and procedures
                    based on our evaluation as of the Evaluation Date;


                                       19
<PAGE>

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


          5.   The registrant's other certifying officers and I have disclosed,
               based on our most recent evaluation, to the registrant's auditors
               and the audit committee of registrant's board of directors (or
               persons performing the equivalent function):

               a)   all significant deficiencies in the design or operation of
                    internal controls which could adversely affect the
                    registrant's ability to record, process, summarize and
                    report financial data and have identified for the
                    registrant's auditors any material weaknesses in internal
                    controls; and

               b)   any fraud, whether or not material, that involves management
                    or other employees who have a significant role in the
                    registrant's internal controls; and

          6.   The registrant's other certifying officers and I have indicated
               in this quarterly report whether or not there were significant
               changes in internal controls or in other factors that could
               significantly affect internal controls subsequent to the date of
               our most recent evaluation, including any corrective actions with
               regard to significant deficiencies and material weaknesses.


Date: November 14, 2002       /s/ Dennis C. Stempel
                              -------------------------------------------------
                              Dennis C. Stempel
                              Senior Vice President and Chief Financial Officer