**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**











**Form
      10-QSB**











**x**
            **QUARTERLY
                REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
                1934**





**For
      the quarterly period ended March 31, 2006**





**OR**





** ̈**
            **TRANSITION
                REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT**





For
      the
      transition period from __________ to ___________




**(Commission
      file number: 005-50985)**










**GigaBeam
      Corporation**


**(Exact
      name of small business issuer as specified in its charter)**











**Delaware**
            
            
            
            **20-0607757****(State
                or other jurisdiction of**
              **incorporation
                or organization)**
            
            
            
            **(I.R.S.
                Employer**
              **Identification
                No.)**





**470
      Springpark Place, Suite 900**


**Herndon,
      VA 20170**


**(Address
      of principal executive offices)**





**(571)
      283-6200**


**(Issuer’s
      telephone number)**








Check
      whether the issuer (1) filed all reports required to be filed by Section 13
      or
      15(d) of the Exchange Act of 1934 during the past 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 £





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act)  Yes £  No  
      x




The
      number of shares of the issuer’s Common Stock outstanding on May 9, 2006 was
      5,651,617.





Transitional
      Small Business Disclosure Format (check one): Yes £  No  
      x










**GigaBeam
      Corporation**


**Index
      to Form 10-QSB**




Table
      of Contents




PagePART
                I-FINANCIAL
                INFORMATION
            3Item
                1 -   Financial Statements (Unaudited)Condensed
                Consolidated Balance Sheets as of March 31, 2006  and December 31,
                2005
            3Condensed
                Consolidated Statements of Operations for the three months ended
                March 31,
                2006 and 2005
            4Condensed
                Consolidated Statements of Cash Flows for the three months ended
                March 31,
                2006 and 2005
            5Notes
                to Condensed Consolidated Financial Statements
            7Item
                2 -   Management’s Discussion and Analysis of Financial
                Condition and Results of Operations
            17Item
                3 -   Controls and Procedures
            34PART
                II -OTHER
                INFORMATIONItem
                2 -   Unregistered Sales of Equity Securities and Use of
                Proceeds
            34Item
                5 -   Other Information
            34Item
                6 -   Exhibits
            36Signature
            37




2


**Part
      I - Financial Information, Item 1 - Financial Statements**





**GigaBeam
      Corporation**


**Condensed
      Consolidated Balance Sheets**


**(Unaudited)**


**March
                  31,**
              
              **December
                  31,****2006**
              
              **2005****ASSETS****Current
                  assets:**Cash
                  and cash equivalents
              
              $
              7,140,425
              
              $
              12,726,986Restricted
                  cash
              
              
              160,405
              
              
              160,405Accounts
                  receivable, net of allowance of $155,000 and $139,140at
                  March 31, 2006 and December 31, 2005, respectively
              
              
              1,462,014
              
              
              697,156Inventories
              
              
              3,474,349
              
              
              3,066,451Prepaid
                  expenses and other current assets
              
              
              470,229
              
              
              533,078**Total
                  current assets**
              
              
              12,707,422
              
              
              17,184,076Property
                  and equipment, net
              
              
              1,778,430
              
              
              1,658,512Other
                  assets
              
              
              329,949
              
              
              291,162Debt
                  issuance costs
              
              
              368,799
              
              
              475,310Deferred
                  charges
              
              
              429,000
              
              
              429,000**Total
                  assets**
              
              $
              15,613,600
              
              $
              20,038,060**LIABILITIES
                  AND STOCKHOLDERS’ EQUITY****Current
                  liabilities:**Accounts
                  payable
              
              $
              2,038,814
              
              $
              2,417,723Accrued
                  liabilities
              
              
              1,149,645
              
              
              1,465,803Other
                  current liabilities
              
              
              389,173
              
              
              -Current
                  portion of capital lease obligations
              
              
              143,562
              
              
              221,300**Total
                  current liabilities**
              
              
              3,721,194
              
              
              4,104,826Capital
                  lease obligations, non-current
              
              
              28,077
              
              
              33,228Convertible
                  notes payable, net of discount
              
              
              967,617
              
              
              895,896**Total
                  liabilities**
              
              
              4,716,888
              
              
              5,033,950**Stockholders’
                  equity:**Series
                  A redeemable preferred stock, $.001 par value, 20,000
                  sharesauthorized;
                  11,277 shares issued and outstanding at March 31, 2006 andDecember
                  31, 2005
              
              
              11
              
              
              11Series
                  B convertible preferred stock, $.001 par value; 20,000
                  sharesauthorized;
                  17,800 and 18,900 shares issued and outstanding at March
                  31,2006
                  and December 31, 2005, respectively
              
              
              18
              
              
              19Common
                  stock, $.001 par value, 40,000,000 shares authorized; 5,210,469
                  and4,999,132
                  issued and outstanding shares at March 31, 2006 and
                  December31,
                  2005, respectively
              
              
              5,210
              
              
              4,999Additional
                  paid in capital
              
              
              38,510,861
              
              
              37,841,214Deferred
                  compensation
              
              
              (27,166
              )
              
              (30,775
              )Accumulated
                  deficit
              
              
              (27,592,222
              )
              
              (22,811,358
              )**Total
                  stockholders’ equity**
              
              
              10,896,712
              
              
              15,004,110**Total
                  liabilities and stockholders’ equity**
              
              $
              15,613,600
              
              $
              20,038,060




*See
      notes to condensed consolidated financial statements.*


3




**GigaBeam
      Corporation**


**Condensed
      Consolidated Statements of Operations**


**(Unaudited)**


**Three
                  Months Ended March 31, 2006**
              
              **Three
                  Months Ended March 31, 2005**(As
                  Restated)Net
                  Sales
              
              $
              1,658,541
              
              $
              -Cost
                  of sales
              
              
              1,485,634
              
              
              -Gross
                  margin
              
              
              172,907
              
              
              -**Operating
                  expenses:**Research
                  and development
              
              
              1,341,682
              
              
              1,272,283General
                  and administrative
              
              
              1,533,543
              
              
              773,954Selling
                  and marketing
              
              
              1,174,820
              
              
              511,857Service,
                  install and link operations
              
              
              668,193
              
              
              151,977Total
                  operating expenses
              
              
              4,718,238
              
              
              2,710,071Operating
                  loss
              
              
              (4,545,331
              )
              
              (2,710,071
              )Other
                  income (expense):Interest
                  income
              
              
              93,833
              
              
              4,629Interest
                  expense
              
              
              (329,366
              )
              
              (196,632
              )**Loss
                  before provision for income taxes**
              
              
              (4,780,864
              )
              
              (2,902,074
              )**Provision
                  for income taxes**
              
              
              -
              
              
              -**Net
                  loss**
              
              $
              (4,780,864
              )
              $
              (2,902,074
              )Series
                  B convertible preferred stock dividend
              
              
              (231,034
              )
              
              -**Net
                  loss allocated to common shareholders**
              
              
              (5,011,898
              )
              
              (2,902,074
              )**Basic
                  and diluted loss per share**
              
              $
              (.99
              )
              $
              (.63
              )**Basic
                  and diluted weighted average shares outstanding**
              
              
              5,087,277
              
              
              4,634,785





*See
      notes to condensed consolidated financial statements.*





4


**GigaBeam
      Corporation**


**Condensed
      Consolidated Statements of Cash Flows**


**(Unaudited)**




**Three
                  Months Ended**
              
              **Three
                  Months Ended****March
                  31, 2006**
              
              **March
                  31, 2005**(As
                  Restated)**Cash
                  flows from operating activities:**Net
                  loss
              
              $
              (4,780,864
              )
              $
              (2,902,074
              )Adjustments
                  to reconcile net loss to net cash used for operating
                  activities:Amortization of debt discount and beneficial conversion feature
              
              
              278,232
              
              
              153,816Provision
                  for doubtful accounts
              
              
              15,860
              
              
              -Increase
                  in inventory provision for obsolescence
              
              
              492,054
              
              
              -Warranty
                  costs
              
              
              102,000
              
              
              -Depreciation
                  and amortization
              
              
              115,855
              
              
              28,208Non-cash
                  compensation expenses
              
              
              608,014
              
              
              114,586Changes
                  in operating assets and liabilities:Accounts
                  receivable
              
              
              (780,718
              )
              
              -Inventories
              
              
              (899,952
              )
              
              (540,490
              )Prepaid
                  expenses and other current assets
              
              
              62,849
              
              
              (25,862
              )Deposits
              
              
              (17,240
              )
              
              (6,990
              )Accounts
                  payable
              
              
              (378,909
              )
              
              (89,317
              )Accrued
                  liabilities
              
              
              (414,492
              )
              
              (55,154
              )**Net
                  cash used in operating activities**
              
              
              (5,597,311
              )
              
              (3,323,277
              )**Cash
                  flows from investing activities:**Restricted
                  cash
              
              
              
              
              
              (160,405
              )Purchases
                  of property and equipment
              
              
              (233,245
              )
              
              (441,044
              )Acquisition
                  of patents & intangibles
              
              
              (24,075
              )
              
              (25,000
              )**Net
                  cash used in investing activities**
              
              
              (257,320
              )
              
              (626,449
              )**Cash
                  flows from financing activities:**Repayments
                  of capital lease obligations
              
              
              (82,889
              )
              
              (15,364
              )Issuance
                  of convertible debt, net of related costs
              
              
              -
              
              
              2,169,481Exercise
                  of common stock warrants
              
              
              172,820
              
              
              888,295Proceeds
                  from warrant holders in advance of issuance of shares of common
                  stock
              
              
              389,173
              
              
              -Exercise
                  of common stock options
              
              
              20,000
              
              
              -Series
                  B convertible preferred stock dividend paid
              
              
              (231,034
              )
              
              -**Net
                  cash provided by financing activities**
              
              
              268,070
              
              
              3,042,412**Net
                  decrease in cash and cash equivalents**
              
              
              (5,586,561
              )
              
              (907,314
              )Cash
                  and cash equivalents at beginning of period
              
              
              12,726,986
              
              
              1,742,716**Cash
                  and cash equivalents at end of period**
              
              $
              7,140,425
              
              $
              835,402





*See
      notes to*  *condensed
      consolidated financial statements.*


5


**GigaBeam
      Corporation**


**Condensed
      Consolidated Statements of Cash Flows**


**(Unaudited)**




**Three
                Months Ended**
            
            **Three
                Months Ended****March
                31, 2006**
            
            **March
                31, 2005**(As
                Restated)**Supplemental
                disclosures:**Interest
                Paid
            
            $
            52,424
            
            $
            -Non-cash
                investing and financingtransactions:Conversion
                of convertible notes payable into shares of common stock
            
            $
            103,667
            
            $
            -Conversion
                of Series B convertible preferred stock into shares of common
                stock
            
            $
            144
            
            $
            -Fair
                value adjustment of options granted
            
            $
            199,886
            
            $
            -Issuance
                of warrants in connection with convertible notes payable
            
            $
            -
            
            $
            1,194,761Issuance
                of warrants and options in connection with convertible notes payable
                debt
                issue costs
            
            $
            -
            
            $
            384,835Capital
                lease obligation incurred to finance the purchase of
                equipment
            
            $
            -
            
            $
            319,756





*See
      notes to*  *condensed
      consolidated financial statements.*


6





**GigaBeam
      Corporation**


**Notes
      to Condensed Consolidated Financial Statements (Unaudited)**





1.
      Description of the Business:





GigaBeam
      Corporation (referred to as “the Company”, “us”, “our”, “we” or similar
      pronouns) designs, develops, markets, sells, leases, rents and installs advanced
      point-to-point wireless communication solutions for commercial and government
      customers. Our communication links are capable of transmission speeds at or
      above one gigabit-per-second under the trade name “WiFiber TM.” Our products
      operate in the 71-76 GHz and 81-86 GHz spectrum bands. The Company believes
      that
      the unprecedented amounts of bandwidth provided by these spectrum blocks and
      the
      quality of its proprietary product designs will provide for wireless
      communications at previously unattainable fiber-equivalent speed and
      reliability. The Company also believes that it was one of the first entrants
      into this new and emerging market with the commercial deployment of its first
      communications link in March 2005 and initial revenue recognition from sale
      of
      its WiFiber II Gig *E* series
      links in the quarter ended June 30, 2005.





WiFiber
      is fast, reliable, cost effective and can be rapidly installed or moved. Our
      solutions address the requirements of fixed wireless carriers, service
      providers, enterprises, and government institutions through broadband wireless
      networks. WiFiber, by providing the last mile access and backhaul, is
      complementary to both WiFi and WIMAX.





Our
      primary activities to date have consisted of securing financing, developing
      strategic alliances associated with the development of our technology, design,
      development and deployment of our initial WiFiber II series Gig *E* and ** WiFiber
      G ** Series
      Gig *E* products
      and initial sales, marketing, production and installation of these products.
      In
      October 2004, the Company completed its initial public offering (“IPO”),
      generating net proceeds of approximately $5,490,987. In February 2005, the
      Company completed a private placement of $2,500,000 principal amount of 8%
      convertible notes and common stock purchase warrants, generating net proceeds
      of
      approximately $2,169,481. During the year ended 2005, the Company received
      $1,155,440 from the exercise of common stock purchase warrants issued in
      connection with its IPO. In addition, between May and July 2005, the Company
      completed a private offering of its 10% Series A redeemable preferred stock
      and
      common stock purchase warrants for gross proceeds of $7,950,285 and an offshore
      private placement of its common stock and common stock purchase warrants for
      gross proceeds of $652,125, resulting in aggregate net proceeds to the Company
      from these financings of $7,277,658, after its payment of placement fees and
      other offering expenses of approximately $1,324,752. In November 2005, the
      Company completed a private offering of its Series B convertible preferred
      stock
      and common stock purchase warrants for gross proceeds of $18,900,000 resulting
      in net proceeds of $17,382,562, after payment of placement fees and other
      offering expenses of $1,517,438. During the first quarter of 2006, the Company
      received $561,993 from the exercise of additional common stock purchase warrants
      issued in connection with its IPO.





*Basis
      of Presentation*





The
      condensed consolidated financial statements include the accounts of the Company
      and its wholly owned subsidiary. Intercompany accounts and transactions have
      been eliminated in consolidation.





Our
      accompanying unaudited Condensed Consolidated Financial Statements have been
      prepared in accordance with accounting principles generally accepted in the
      United States of America for interim financial statements and the rules and
      regulations of the Securities and Exchange Commission (“SEC”), for interim
      financial statements, and should be read in conjunction with our consolidated
      Financial Statements and other financial information for the year ended December
      31, 2005, which were included in our annual report on Form 10-KSB filed with
      the
      SEC on April 3, 2006. In our opinion, the unaudited Condensed Consolidated
      Financial Statements reflect all adjustments, consisting of normal and recurring
      adjustments, necessary for a fair presentation of the financial condition,
      results of operations and cash flows for the periods indicated. Certain prior
      year accounts have been reclassified to conform to the current interim period
      presentation. The consolidated results of operations for the interim periods
      reported are not necessarily indicative of the results to be experienced for
      the
      entire fiscal year.





7





2.
      Summary of Significant Accounting Policies:





*Concentration
      of Credit Risk*





Financial
      instruments that potentially subject the Company to significant concentrations
      of credit risk consist principally of cash and cash equivalents. The Company
      deposits its cash with financial institutions that the Company considers to
      be
      of high credit quality.





The
      Company operates in a single business segment, and is primarily producing
      advanced point-to-point wireless communication solutions for commercial,
      governmental and enterprise customers. Accounts receivable are concentrated
      with
      certain customers in the global telecommunications industry, which may subject
      the Company to concentration of credit risk.





The
      following table summarizes the number of our significant customers as of March
      31, 2006, each of whom accounted for more than 10% of our revenues, along with
      the percentage of revenues they individually represent.




**Quarter
                Ended****March
                31, 2006**Number
                of significant customers
            4Percentage
                of net sales
            32%,
                12%, 11%, 11%





*Inventories*





Inventories
      are valued at the lower of cost (first-in, first-out method) or market. We
      regularly review parts and finished goods inventories on hand and, when
      necessary, record a provision for excess or obsolete inventories based primarily
      on current selling price and sales prices in confirmed backlog orders.





Inventories
                include the following:




**March
                31,**
              **2006**
            
            **December
                31,****2005**


Raw
                material
            
            $
            2,705,438
            
            $
            2,142,401Finished
                goods
            
            
            1,435,965
            
            
            1,099,0504,141,403
            
            
            3,241,451Less
                provision for obsolescence
            
            
            (667,054
            )
            
            (175,000
            )$
            3,474,349
            
            $
            3,066,451





Work
      in
      process at March 31, 2006 was insignificant. During the quarter ended March
      31,
      2006, a provision for obsolescence of $492,054 was expensed to cost of sales
      related to the carrying value of our WiFiber II series Gig *E* links *.*





*Other
      Current Liabilities*





At
      March
      31, 2006 other current liabilities consists of cash proceeds totaling $389,173
      received from warrant holders in advance of the subsequent April 2006 issuance
      of the related shares of common stock.





*Revenue
      Recognition*





The
      Company commenced revenue recognition in the quarter ended June 30, 2005.
      Revenue is recognized pursuant to SEC Staff Accounting Bulletin No. 104 “Revenue
      Recognition in Financial Statements” (“SAB 104”). Accordingly, revenue is
      recognized when all four of the following criteria are met: (i) persuasive
      evidence that an arrangement exits, (ii) delivery of the product and/or services
      has occurred, (iii) the selling process is fixed or determinable, and (iv)
      collection is reasonably assured. Further, if an arrangement other than a
      long-term contract requires the delivery or performance of multiple deliveries
      or elements under a bundled sale, we determine whether the individual elements
      represent “separate units of accounting” under the requirements of Emerging
      Issues Task Force Issue 00-21 (“EITF 00-21”) “Multiple Delivery Revenue
      Arrangements.”





8


If
      the
      separate elements within a bundled sale are not considered separate units of
      accounting, the delivery of individual elements is considered not to have
      occurred if there are undelivered elements that are essential to the overall
      functionality of the bundled sale transaction.




In
      accordance with SAB 104, revenues from product sales are generally recognized
      when title and risk of loss pass to the customer, except when product sales
      are
      combined with significant post-shipment installation services or if the terms
      of
      the sale specifically call for formal acceptance by the customer. Under this
      exception, revenues will be deferred until such services have been performed
      and/or acceptance is acknowledged. Unearned income on service contracts is
      amortized by the straight-line method over the term of the individual contract.
      Installation revenue is recognized when the related services are performed.
      Shipping and handling fees billed to customers are classified on the Condensed
      Consolidated Statement of Operations as “Net sales” and the associated costs are
      classified in “Cost of sales”.





*Warranties*




As
      revenues have occurred, the Company has established an accrual for warranty
      work
      associated with its link sale. Such warranty accrual is recognized as a
      component of cost of sales. The Company’s standard warranty has been established
      generally for a period of 12 months from the date of installation if the
      customer utilizes the Company’s personnel or any of its approved installer
      groups to install the product; otherwise the standard warranty is 12 months
      from
      the date of shipment. The warranty accrual at present represents the Company’s
      best estimate of the cost to settle existing and future claims on products
      sold
      and currently under warranty as of the balance sheet date. As of March 31,
      2006,
      the Company has little historical trend of shipment levels related to return
      rates. As the number of product sales increase, we will begin to accumulate
      information on current and forecast returns and average costs to repair. As
      with
      any estimate that requires application of judgment, amounts estimated in the
      warranty accrual could differ materially from what will actually transpire
      in
      the future.





*Net
      Loss Per Share*





Basic
      loss per share is computed by dividing loss available to common stockholders
      by
      the weighted average number of common shares outstanding for the period. Diluted
      loss per share reflects, in periods in which such losses have a dilutive effect,
      the effect of common shares issuable upon the exercise of stock options and
      warrants or conversion of any convertible equity securities. Diluted loss per
      share amounts  are
      the
      same as basic amounts because the impact of the stock equivalents was
      anti-dilutive. The following securities were excluded from the computation
      of
      diluted loss per common share for the period because their effect is
      anti-dilutive:





**Number
                of Shares**Notes
                convertible into common stock
            
            
            474,641Options
                to purchase common stock
            
            
            2,029,124Warrants
                to purchase common stock
            
            
            4,334,543Shares
                underlying Series B convertible preferred stock
            
            
            2,335,992





*Income
      Taxes*





The
      Company accounts for its income taxes using the liability approach under which
      deferred taxes are determined based upon the differences between the financial
      statement and tax bases of assets and liabilities using enacted rates in effect
      in the years in which the differences are expected to reverse. Valuation
      allowances are provided against deferred tax assets when management is uncertain
      as to the ultimate realization of the asset. As of March 31, 2006, deferred
      tax
      assets are covered 100% by a valuation allowance.





*Use
      of Estimates*





The
      preparation of financial statements in conformity with generally accepted
      accounting principles 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 period.
      Actual results could differ from those estimates.





9


*Share-Based
      Compensation*





On
      January 1, 2006, the Company adopted Statement of Financial Accounting Standards
      No. 123 (revised 2004), “Share Based Payment,” (“SFAS 123(R)”) which requires
      the measurement and recognition of compensation expense for all share-based
      payment awards made to employees and directors including employee stock options
      based on estimated fair values. SFAS 123(R) supersedes the Company’s previous
      accounting under Accounting Principles Board Opinion No. 25, “Accounting for
      Stock Issued to Employees” (“APB 25”) for periods beginning in 2006. In March
      2005, the SEC issued Staff Accounting Bulletin No. 107 (“SAB 107”) relating to
      SFAS 123(R). The Company has applied provisions of SAB 107 in its adoption
      of
      SFAS 123(R).





The
      Company has adopted SFAS 123(R) using the modified prospective transition
      method, as of January 1, 2006. The Company’s Condensed Consolidated Financial
      Statements as of and for the three months ended March 31, 2006 reflect the
      impact of SFAS 123(R). In accordance with the modified prospective transition
      method, the Company’s Condensed Consolidated Financial Statements for the prior
      periods have not been restated to reflect, and do not include, the impact of
      SFAS 123(R). Under the modified-prospective transition method, compensation
      cost
      recognized in 2006 includes (a) compensation cost for all share-based payments
      granted but not yet vested as of December 31, 2005, based on grant date fair
      value estimated in accordance with the original provisions of SFAS 123, and
      (b)
      compensation costs for all share-based payments granted subsequent to December
      31, 2005 based on the grant date fair value estimate in accordance with the
      provisions of SFAS 123(R). The results of prior periods have not been restated.
      Share-based compensation for the three months ended March 31, 2006 was $404,519,
      and related solely to stock options however. Under the requirements of APB
      25,
      no statement of share-based compensation expense was required to be recorded
      during the three months ended March 31, 2005.





SFAS
      123(R) requires companies to estimate the fair value of share-based payment
      awards on the grant-date using an option-pricing model. The value of the portion
      of the award that is ultimately expected to vest is recognized as an expense
      over the requisite expected service periods in the Company’s Consolidated
      Statement of Operations. Prior to the adoption of SFAS 123(R), the Company
      accounted for share-based awards to employees and directors using the intrinsic
      value method in accordance with APB 25 as allowed under Statement of Financial
      Accounting Standards No. 123, “Accounting for Stock-Based Compensation” (“SFAS
      123”). Under the intrinsic value method, no share-based compensation expense
      related to stock options had been recognized in the Company’s Condensed
      Consolidated Statement of Operations, because the exercise price of the
      Company’s stock options granted to employees and directors equaled the fair
      market value of the underlying stock at the grant date.





Share-based
      compensation expense recognized during the current period is based on the value
      of the portion of share-based payment awards that is ultimately expected to
      vest. SFAS 123(R) requires forfeitures to be estimated at the time of grant
      in
      order to estimate the amount of share-based awards that will ultimately vest.
      The forfeiture rate is based on historical rates, and due to the relatively
      short period of time which options have been granted as a publicly traded
      company, estimated future forfeitures related to expected turnover rates are
      included in the Company’s internal financial projections. Share-based
      compensation expense recognized in the Company’s Condensed Consolidated
      Statement of Operations for the first quarter of 2006 includes (i) compensation
      expense for share-based payment awards granted prior, but not yet vested as
      of
      December 31, 2005, based on the grant date fair value estimated in accordance
      with the pro forma provisions of SFAS 123 and (ii) compensation expense for
      the
      share-based payment awards granted subsequent to December 31, 2005, based on
      the
      grant date fair value estimated in accordance with the provisions of SFAS
      123(R). As share-based compensation expense recognized in the Condensed
      Consolidated Statement of Operation for the first quarter of 2006 is based
      on
      awards ultimately expected to vest, it has been reduced for estimated
      forfeitures. In the Company’s pro forma information required under SFAS 123 for
      the periods prior to fiscal 2006, the Company accounted for forfeitures as
      they
      occurred.





Upon
      adoption of SFAS 123(R), the Company continues to use the Black-Scholes option
      pricing models for share-based awards.





On
      November 10, 2005, the Financial Accounting Standards (“FASB”) issued FASB Staff
      Position No. SFAS 123(R)-3, “Transition Election Related to Accounting for Tax
      Effects of Share-Based Payment Awards,” (“SFAS 123(R)-3”). The alternative
      transition method includes simplified methods to establish the beginning balance
      of the additional paid-in capital pool (“APIC pool”) related to the tax effects
      of employee share-based compensation, and to determine the subsequent impact
      on
      the APIC pool and Condensed Consolidated Statement of Cash Flows of the tax
      effects of employee share-based compensation awards that are outstanding upon
      adoption of SFAS 123(R). The Company is in the process of evaluating whether
      to
      adopt the provisions of SFAS 123(R)-3.





10


Share-based
      compensation expense reduced the Company’s results of operations as
      follows:





**Three
                Months Ended****March
                31, 2006**Loss
                before income taxes
            
            $
            (404,519
            )Net
                loss
            
            $
            (404,519
            )Loss
                per common share-basic and diluted
            
            $
            (0.08
            )








The
      following table illustrates the effect on net loss and net loss per common
      share
      as if the Company had applied the fair value recognition provisions of SFAS
      123,
      as amended by SFAS 148, “Accounting for Stock-Based Compensation - Transition
      and Disclosure, using a Black-Scholes option-pricing model and amortized expense
      over the options’ vesting periods.





**Three
                Months Ended****March
                31, 2005**(As
                Restated)Net
                loss attributed to common stockholders, as reported
            
            $
            (2,902,074
            )Less:  Stock-based
                compensation expense determined underthe fair value based method
            
            
            3,609Add:  Stock-based
                compensation expense included in reportednet loss
            
            
            (83,612
            )Net
                loss attributed to common stockholders, pro forma
            
            $
            (2,982,077
            )Loss
                per share-Basic and Diluted:As reported
            
            $
            (0.63
            )Pro forma
            
            $
            (0.64
            )





The
      following weighted-average assumptions were used for options granted in the
      three months ended March 31, 2006 and 2005 and a discussion of the Company’s
      methodology for developing each of the assumptions used in the valuation model
      follows:





**Three
                months ended**
            
            **Three
                months ended****March
                31, 2006**
            
            **March
                31, 2005**Dividend
                yield
            
            
            0.0
            %
            
            0.0
            %Expected
                volatility
            
            
            85.0
            %
            
            85.0
            %Risk-free
                interest rate
            
            
            4.32%
                to 4.75
            %
            
            3.5
            %Expected
                life of the option term (in years)
            
            
            4.0
                - 7.0
            
            
            4.0Forfeiture
                rate
            
            
            10.0
            %
            
            -





Dividend
      yield - The Company has never declared or paid dividends on its common stock
      and
      has no plans to do so in the foreseeable future.





Expected
      volatility - Volatility is a measure of the amount by which a financial variable
      such as a share price has fluctuated (historical volatility) or is expected
      to
      fluctuate (expected volatility) during a period. Due to the fact that the
      Company’s common shares have traded for a period less than two years as of March
      31, 2006, and pursuant to SFAS 123(R), the Company estimates expected volatility
      through use of historical and current data for similar guideline companies.
      We
      have used as baseline companies, selections from our industry sector, within
      similar life cycle ranges, of similar size, and where appropriate, companies
      with similar levels of financial leverage. Our expected volatility is based
      on a
      range of baseline comparable companies’ volatilities from most recent financial
      statement disclosures.





11


Risk-free
      interest rate - This is the U.S. treasury rate for the week of the various
      options granted during the quarter having a term that most clearly resembles
      the
      expected life of the option.





Expected
      life of the option term - This is the period of time that the options granted
      are expected to remain unexercised. Options granted during the quarter have
      a
      maximum term of ten years. The Company estimates the expected life of the option
      term based on an average life between the dates that options become fully vested
      and the maximum life of options granted in the quarter ended March 31, 2006.
      For
      options granted on or prior to December 31, 2005, the Company continues to
      use
      the expected option life assigned to such options as used under the intrinsic
      value method utilizing APB 25.





Forfeiture
      rate - This is the estimated percentage of options granted that are expected
      to
      be forfeited or canceled on an annual basis before becoming fully vested. Given
      the relatively short period of history for outstanding options since the
      Company’s IPO in October 2004, we use a forfeiture rate that is a blend of past
      turnover data and a projection of expected results over the following 12 month
      period based on projected levels of operations and headcount levels at various
      classification levels with the Company.





The
      Company accounted for equity instruments issued to non-employees in accordance
      with EITF 96-18, “Accounting for Equity Instruments that are Issued to Other
      Than Employees for Acquiring, or in Conjunction with Selling, Goods, or
      Services.” For the three month period ended March 31, 2006, compensation expense
      of approximately $200,000 was recognized related to equity awarded to
      non-employees.





There
      were no employee or director options exercised during the three-month period
      ended March 31, 2006. The weighted-average grant date fair value price of
      options granted during the three-month period ended March 31, 2006 and March
      31,
      2005 were $6.93 and $7.20, respectively. The total fair value of options during
      the three month period ended March 31, 2006 was approximately $1,361,987. There
      were 1,019,600 options outstanding at March 31, 2006. These options had a
      weighted-average exercise price of $6.81 and an intrinsic value of approximately
      $5,960,678 and a weighted-average remaining contractual life of 9.05 years.
      There were 162,850 fully vested options exercisable at March 31, 2006. These
      options had a weighted average exercise price of $6.12 and an intrinsic value
      of
      approximately $2,984,908 and a weighted average remaining contractual life
      of
      8.66 years.





Common
      Stock option activity during the three months ended March 31, 2006, is
      summarized as follows:





Shares
            
            Weighted-Average
                Exercise PriceOptions
                outstanding at beginning of period
            
            
            830,600
            
            $
            6.32Granted
            
            
            196,500
            
            
            8.93Exercised
            
            
            -
            
            
            -Canceled
                or expired
            
            
            (7,500
            )
            
            7.90Options
                outstanding at end of period
            
            
            1,019,600
            
            
            6.81Options
                exercisable at end of period
            
            
            162,850
            
            
            6.12




Both
      SFAS
      123 and SFAS 123(R) require management to make assumptions regarding the
      expected life of the options, the expected liability of the options and other
      items in determining estimated fair value.  Changes to the underlying
      assumptions may have significant impact on the underlying value of the stock
      options, which could have a material impact on our financial
      statements.





*Recent
      Accounting Pronouncements*





In
      September 2005, the Emerging Issues Task Force (“EITF”) reached a consensus on
      Issues No. 05-07 and 05-08, “Accounting for Modifications to Conversion Options
      Embedded in Debt Instruments and Related Issues” (“EITF 05-07”), and “Income Tax
      Consequences of Issuing Convertible Debt with a Beneficial Conversion Feature,”
(“EITF 05-08”) respectively.





EITF
      05-07 covers the issue of the requirement to give effect to a change in the
      fair
      value of an embedded beneficial conversion feature should a debtor and creditor
      modify cash or non-cash features in an outstanding convertible debt instrument,
      as defined within the conclusions of the EITF in EITF 96-19.





12


The
      Company has outstanding 8% convertible notes, which include an embedded
      beneficial conversion feature accounted for under the provisions of EITF 00-27.
      The Company and its note holders have not modified either terms of the
      convertible notes issue that affect cash flow or other non-cash features since
      the original issue date of the notes.





EITF
      05-08 requires issuers of convertible debt securities with non-detachable
      beneficial conversion features to account for differences in accounting and
      tax
      treatment of such conversion features as timing differences under the provisions
      of FASB SFAS 109 (“Accounting for Income Taxes”). EITF 05-08 is effective for
      the first interim or accounting period beginning after December 15,
      2005.





The
      Company adopted the reporting requirements of EITF 05-08 effective with the
      interim accounting period commencing January 1, 2006. The adoption of EITF
      05-07
      and 05-08 did not have a material impact on the Company’s financial position,
      results of operations or cash flows.





In
      February 2006 the FASB issued SFAS No. 155, “Accounting for Certain Hybrid
      Financial Instruments” (“SFAS 155”). SFAS 155 amends FASB SFAS 133,
“ *Accounting
      for Derivative Financial Instruments and Hedging Activities”* (“SFAS
      133”) and SFAS 140, “ *Accounting
      for Transfers and Servicing of Financial Assets and Extinguishments of
      Liabilities”* (“SFAS
      140”). SFAS 155 resolves issues addressed in SFAS 133 Implementation Issue No.
      D1, “Application of Statement 133 to Beneficial Interests in Securitized
      Financial Assets.”





SFAS
      155
      is effective for all financial instruments acquired or issued after the
      beginning of an entity’s first fiscal year beginning after September 15, 2006,
      and can also be applied upon adoption for hybrid financial statements that
      had
      been bifurcated under paragraph 12 of SFAS 133 prior to the adoption of SFAS
      155.





The
      Company does not expect SFAS 155 to have any significant impact on the Company’s
      financial position, results of operations or cash flows. The Company does not
      have any embedded derivative instruments that would be subject to the
      bifurcation requirements in paragraph 12 of SFAS 133.





In
      March 2006, the FASB issued Statement of Financial Accounting Standards
      No. 156, “Accounting for Servicing of Financial Assets - an amendment of
      FASB Statement No. 140” (“SFAS 156”), which is effective for fiscal years
      beginning after September 15, 2006. SFAS 156 was issued to simplify the
      accounting for servicing rights and to reduce the volatility that results from
      using different measurement attributes. The Company does not expect SFAS 156
      to
      have a material effect on its financial position, results of operations or
      cash
      flows.





*Reclassifications*





Certain
      amounts reported in the previous period have been reclassified to conform to
      the
      current period presentation.




Restatements




Certain
      amounts reported in 2005 have been restated. The restatement resulted from
      the
      Company determining that a beneficial conversion feature related to the issuance
      of the Company's convertible notes payable is required to be amortized to
      interest expense over the period from the date of issuance of the notes until
      the stated redemption date, January 28, 2008 and not fully amortized to interest
      expense in the period incurred. As a result, for the quarter ended March 31,
      2005, interest expense and net loss decreased by $833,247 to $196,632 and
      $2,902,074, respectively, and the loss per share decreased by $0.18 to
      $(0.63).




3.
      Convertible notes payable:





Convertible
      notes payable consist of the following:




**March
                31, 2006**
            
            **December
                31, 2005**8%
                senior notes payable
            
            $
            2,240,000
            
            $
            2,340,000Less
                unamortized discount
            
            
            (733,223
            )
            
            (831,423
            )Less
                unamortized beneficial conversion feature
            
            
            (539,160
            )
            
            (612,681
            )$
            967,617
            
            $
            895,896





On
      January 28 and February 1, 2005, the Company issued 8% senior convertible notes
      with an aggregate principal amount of $2,500,000, due January 28, 2008
      (“Notes”), in an asset-backed financing. Additionally, warrants to purchase
      common stock were issued in connection with the financing.





The
      principal amount of the Notes is convertible at the election of the holders
      into
      shares of the Company’s common stock at $8.00 per share. One-half of the
      interest on the Notes is payable in cash, semi-annually beginning July 31,
      2005,
      and the balance is payable, on the earlier of the Note’s maturity or conversion,
      in cash or, at each holder’s option, in shares of the Company’s common stock
      valued at the lesser of (i) $10.00 per share and (ii) the volume weighted
      average per-share price of the common stock for the ten trading days ended
      five
      business days prior to the applicable interest payment date. The Notes are
      collateralized by substantially all of the Company’s assets as well as by the
      personal pledge of shares of common stock of the Company by each of the
      Company’s Chief Executive Officer and President.





13


The
      warrants are exercisable to purchase an aggregate of 446,429 shares of common
      stock at an exercise price of $7.00 per share through January 28, 2011. The
      Company estimated the fair value of the warrants using the Black-Scholes model.
      The resulting fair value of $1,194,761 was recorded as a debt discount, which
      is
      being amortized over the term of the debt. The debt discount was recorded as
      a
      reduction to convertible notes payable and the amortization of the debt discount
      is being recorded as a component of interest expense. During the quarter ended
      March 31, 2006 the Company recorded amortization of $98,200.





In
      connection with the issuance of the Notes, the Company paid issuance costs
      of
      $330,519. In addition, the placement agent received warrants (identical to
      the
      warrants issued to the investors in the financing) to purchase 44,642 shares
      of
      common stock and options to purchase 31,250 shares of common stock for $8.00
      per
      share. The Company estimated the fair value of the placement agent warrants
      and
      options using the Black-Scholes model to be $384,835. The resulting aggregate
      debt issuance costs of $715,354 are being amortized as a component of interest
      expense over the term of the debt. During the quarter ended March 31, 2006,
      the
      Company recorded amortization of $106,511.





The
      proceeds from the issuance of the Notes and warrants were allocated between
      the
      Notes and the warrants based on the relative fair values of the components.
      The
      portion of the proceeds allocated to the warrants was classified as additional
      paid-in capital. The proceeds allocated to the Notes were compared to the fair
      value of the common stock that would be received on the conversion and the
      Company determined that a beneficial conversion feature existed. The Company
      has
      estimated the fair value of such beneficial conversion feature to be
      approximately $882,261 and recorded such amount as a debt discount. Such
      discount is required to be amortized to interest expense over the period from
      the date of issuance of the notes until the stated redemption date, January
      28,
      2008. We recorded interest expense of $73,521 during the quarter ended March
      31,
      2006 related to amortization of the beneficial conversion feature. The
      unamortized balance of $539,160 and $612,681 has been recorded as a reduction
      to
      convertible notes payable at March 31, 2006 and December 31, 2005,
      respectively.




During
      the quarter ended March 31, 2006, one Note holder requested conversion of
      $100,000 face value of Notes to shares of common stock. Shares of common stock
      were issued and the related Notes were retired.





The
      carrying value as of December 31, 2005 of $895,896 is comprised of the aggregate
      principal amount outstanding of $2,240,000, net of unamortized discount and
      the
      net unamortized beneficial conversion feature. The increase in carrying value
      as
      of March 31, 2006 is due to the amortization of the discount and beneficial
      conversion feature, offset by the conversion of a note payable.




At
      March
      31, 2006 and December 31, 2005 the Company estimates the fair value of the
      convertible notes payable to be equal to their face value of $2,240,000 and
      $2,340,000, respectively.




4.
      Equity
      Issues- Preferred Stock





During
      the period May 6, 2005 through July 26, 2005, we completed a private placement
      of 11,277 shares of our 10% Series A redeemable preferred stock (“Series A
      stock”), with a stated value of $700 per share, and 1,127,700 common stock
      purchase warrants for aggregate proceeds of $7,950,285, before payment of
      approximately $1,250,000 in placement and legal fees. Dividends are payable,
      at
      the rate of 10% per year, semi-annually, commencing November 15, 2005. Dividends
      can be paid, at our option, in either cash or shares of our common stock. At
      any
      dividend date, if we choose to make the dividend payment in shares of common
      stock, the number of shares to be issued will be based on a ten trading day
      volume weighted average price per share of the common stock ending five trading
      days before the dividend date.





Each
      warrant is exercisable to purchase one share of common stock at an exercise
      price of $7.00 per share until January 28, 2011.





In
      the
      event we conduct a financing with gross proceeds of $30 million or more (a
      “Qualified Financing”), holders of the Series A stock will have the right to
      exchange all or a portion of their then outstanding shares into securities
      identical to those issued in the Qualified Financing, at an exchange rate per
      share equal to the then-applicable redemption price of the shares. Following
      the
      completion of a Qualified Financing, shares of Series A stock still outstanding
      are mandatorily redeemable, in accordance with the terms of the Certificate
      of
      Designation governing the Series A stock. Prior to the completion of a Qualified
      Financing we may redeem all or any of the outstanding shares of the Series
      A
      stock in cash, and upon notice annually on May 15 at a stipulated premium price,
      which declines annually until May 15, 2010, when the redemption price will
      be at
      the $700 per share stated price.





14


In
      June
      and July 2005, we issued 92,500 shares of our common stock in an offshore
      offering as part of a unit that included 92,500 common stock purchase warrants
      for aggregate proceeds of $652,125, before payment of approximately $75,000
      in
      placement and legal fees. The stated price of each unit was $705. Each warrant
      is exercisable to purchase one share of common stock at an exercise price of
      $7.00 per share until January 28, 2011. The warrants have been listed together
      with warrants issued with the Series A stock and with warrants issued in
      February 2005 related to our $2,500,000 Note issue on the Nasdaq Capital Market
      under the symbol GGBMZ.





The
      net
      proceeds from the issuance of the Series A stock and the related concurrent
      common stock and warrant sales, are designated for continuing research and
      development activities toward development for commercial marketing of our
      Gig *E* product
      lines, marketing of current and future product lines, acquisition of equipment
      and fixtures for engineering and production purposes, and for general corporate
      purposes.





On
      November 15, 2005, we paid the first required dividend on the Series A stock
      in
      shares of common stock. The total shares issued to holders of the Series A
      stock
      were 43,392 based on the formula as noted above.





Our
      common stock, the warrants described above and our IPO warrants commenced
      trading on the Nasdaq Capital Market on March 27, 2006.





On
      November 7, 2005, we issued 18,900 shares of our variable dividend series B
      convertible preferred stock (“Series B stock”), and 1,302,191 common stock
      purchase warrants at a price of $1,000 per unit for gross proceeds of
      $18,900,000 before payment of placement fees of approximately $1,323,000 and
      other related expenses of approximately $125,000, resulting in net proceeds
      to
      us of approximately $17,452,000 in a private placement of such securities to
      institutional investors. The proceeds from the issuance of the Series B stock
      and warrants were allocated between the Series B stock and the warrants based
      on
      the relative fair value of the components. The proceeds allocated to the shares
      were compared to the par value of the common stock that would be received upon
      conversion and we determined that a beneficial conversion feature existed.
      We
      have estimated the fair value of such beneficial conversion feature, through
      use
      of the Black-Scholes model, to be approximately $3,936,794. The value of the
      beneficial conversion feature is included as an adjustment to the net loss
      to
      arrive at the net loss allocated to common stockholders while such Series B
      stock is outstanding.





The
      conversion price for the Series B stock is $7.6199 per share, subject to
      adjustments set forth in the Certificate of Designation of Preferences, Rights
      and Limitations governing the Series B stock.





The
      exercise price of the common stock purchase warrants is $7.9827, subject to
      adjustment, based on a weighted volume average trading volume as set out in
      a
      formula.





The
      variable dividend rate on the Series B stock is 8% per annum for the first
      three
      years, then 11% for the fourth year, and 14% thereafter.





We
      may
      redeem any then outstanding shares of the Series B stock in whole or in part,
      after November 7, 2008, subject to certain conditions and limitations, upon
      appropriate notice, at a cash redemption price equal to 110% of the stock’s
      stated value if redeemed prior to November 7, 2009, and at 100% of the stated
      value after November 7, 2009.





Under
      terms of the Series B stock, so long as any shares of the Series B stock remain
      outstanding, we are prohibited from paying dividends on our common stock or
      other designated junior securities, other than dividend payments in the ordinary
      course under our Series A stock provided we are current in our obligations
      under
      our Series B stock, and the terms of our Series A stock have not been amended
      since November 7, 2005.





Dividends
      on the Series B stock are due quarterly on the first day of January, April,
      July
      and October to shareholders of record on the immediately preceding day of the
      prior month. Dividends are payable in cash unless certain stipulated events
      have
      occurred or are reached, and unless the daily trading volume for our common
      stock on the trading market exceeds 20,000 shares per trading day for 20
      consecutive trading days prior to the specified dividend date. Should the
      stipulated events occur and the minimum trading volume noted occur, and if
      funds
      required for the quarterly dividend payment are legally available, solely at
      our
      election, the dividend may be paid in cash or in shares of our common stock.





On
      January 3, 2006 and April 1, 2006, we paid the quarterly dividend to Series
      B
      stock shareholders in cash, amounting to $231,034, and $371,311 respectively
      since the 20 trading days average trading volume in our stock did not exceed
      the
      threshold 20,000 share figure noted above.


15





5.
      Commitments and contingencies





The
      Company leases certain office space, roof rental rights and equipment under
      non-cancelable operating leases.





At
      March
      31, 2006 future minimum lease payments under these operating leases are as
      follows:





2007
            
            $
            427,7732008
            
            
            402,0882009
            
            
            112,8872010
            
            
            71,102$
            1,013,850





Rental
      expense for operating leases was $125,942 for the quarter ended March 31,
      2006.





6.
      Subsequent Events:





The
      Compensation Committee of the Board of Directors on May 11, 2006 approved an
      amendment to the form of the option agreements that we attached as appendices
      to
      the Company’s 2004 Stock Option Plan (the “Plan”), as amended, which would
      effectively provide that in the event of a change of control (as defined in
      the
      Plan) of the Company, stock options granted under the Plan may be immediately
      exercised for up to 100% of the total number of shares then subject to the
      option minus the number of shares previously purchased upon exercise of the
      option (as adjusted for any change in the outstanding shares of the common
      stock
      of the Company by reason of a stock dividend, stock split, combinations of
      shares, recapitalization, merger, consolidation, transfer of assets,
      reorganization, conversion or what the Compensation Committee deems in its
      sole
      discretion to be similar circumstances).





Prior
      to
      the amendment, optionees were required to wait a period of six months before
      their options as noted above could be exercised in the event of any change
      of
      control event as defined in the Plan.





In
      addition, as of the date of the amendment to the Plan we are amending all
      outstanding options to provide that such outstanding options will become
      immediately exercisable in the event of a change of control in the same form
      as
      the amendment noted above. Some of the options subject to such amendment are
      options previously issued to certain of our officers and directors.





7.
      Related Party Transactions




As
      described in Note 1, the Company completed a private offering of its 10% Series
      A stock and warrants and concurrent offshore placement of common stock and
      warrants in tranches placed between May and July 2005. Of the total $8,602,410
      gross proceeds of the financings, approximately $312,000, or 4% of the total
      monies raised were from related parties, specifically officers and directors
      of
      the Company. The terms of investment for the related parties were the same
      as
      those offered to non-related investors in these transactions.





The
      Company paid fees in 2005 totaling $83,000 to The Hamblin Group for personnel
      recruitment services. The Hamblin Group is owned by an immediate family member
      of Mr. Alphonse M. Lucchese, who was a member of the Company’s Board of
      Directors until his resignation March 20, 2006. The terms, including pricing,
      on
      which the Company did business with Hamblin during 2005 were comparable to
      those
      on which the Company obtained similar services from other vendors.





16





**ITEM
      2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS**





The
      following Management’s Discussion and Analysis (“MD&A”) is intended to help
      the reader understand our business and financial position. The MD&A is
      provided as a supplement to, and should be read in conjunction with, and is
      qualified in its entirety by reference to, our unaudited Condensed Consolidated
      Financial Statements and related notes to Condensed Consolidated Financial
      Statements (“Notes”) appearing elsewhere in this report. In
      addition, reference should be made to our consolidated financial statements
      and
      other financial information for the fiscal year ended December 31, 2005, which
      were included in our Annual Report on Form 10-KSB filed with the SEC on
      April 3, 2006. This
      discussion and analysis contains forward-looking statements that involve risks,
      uncertainties, and assumptions. Our actual results may differ materially from
      those anticipated in these forward-looking statements as a result of certain
      factors, including, but not limited to, those set forth under “Risk Factors”
found and elsewhere in this Quarterly Report on Form 10-QSB.





**OPERATIONS
      REVIEW**




**Overview**




Our
      primary business is to design, develop, sell, lease, install and service
      point-to-point communications links capable of transmission speeds at or in
      excess of a gigabit-per-second. Our products operate in the 71-76 GHz and 81-86
      GHz spectrum bands. We believe that the unprecedented amounts of bandwidth
      provided by these spectrum blocks and the quality of our proprietary product
      designs allows for wireless communications at previously unattainable
      fiber-equivalent speed and reliability. Our target customers are telecom
      operators, carriers and network operators, communications and IT service
      providers, system integrators and value added resellers, Fortune 500 companies,
      government and military entities and other enterprises, seeking cost-effective
      millimeter wave wireless solutions.




Since
      our
      inception in January 2004, our focus has been primarily on the design,
      development, production, sale and installation of our initial product lines,
      developed both, internally and through our strategic partnering activities
      as
      well as obtaining financing to fund such efforts.





Our
      initial revenue recognition was in the second quarter of 2005. For the quarter
      ended March 31, 2006 our revenue totaled $1.7 million primarily from the sale
      of
      our WiFiber series Gig *E* products. For the year ended December 31, 2005 our revenue totaled $1.2
      million.




Since
      commercial deployment of our first product commenced within the past year and
      we
      have not yet generated significant revenues or achieved cash flow break even
      level from operations, we continue to be dependent on debt and equity financings
      to fund our cash requirements and without additional such financings and/or
      significant additional revenues we will not have sufficient capital to implement
      fully our current plan of operations and meet our anticipated working capital
      needs with respect thereto through the next 12 months. We expect our operating
      expenses to increase in the future, particularly in the research and development
      and manufacturing areas, as we work to complete the cost reduction schedule
      of
      our WiFiber G series Gig *E* products
      and realize commercial deployment of our next generation of wireless radio
      products. If additional working capital is required in the twelve month period,
      we believe that a combination of funds generated from product sales, accounts
      receivable financings and the exercise of outstanding stock
      warrants, as well as continued access to public and private debt and equity
      markets should be sufficient to meet our operating working capital needs over
      the next twelve months. If we are unable to obtain additional capital or at
      prohibitive costs or terms, we will need to change our business strategy, which
      could include a reduction or scale back of our operations to conserve cash
      and
      maintain liquidity until such time, if ever, that sufficient proceeds from
      operations are realized. Any future sale of our equity securities would dilute
      the ownership and control of our existing stockholders.





**Critical
      Accounting Policies**





Our
      critical accounting policies, the policies we believe are most important to
      the
      presentation of our financial statements and require the most difficult,
      subjective and complex judgments are outlined in our Annual Report on Form
      10-KSB for the year ended December 31, 2005 and have not changed
      significantly.





17


**Trends
      and uncertainties affecting our revenue**





The
      following are key factors currently and potentially affecting our
      revenue:





·
            Economic
                conditions - An important factor affecting our ability to generate
                revenue
                is the effect of general economic conditions on our customers’ willingness
                to spend on wireless technology, and particularly, last mile
                implementation and enterprise communication technology. As economic
                conditions have globally improved since our inception, we have seen
                indications that enterprises may be more willing to spend capital
                on
                communication technology. While the world economy is expected to
                grow,
                variability in corporate profit growth, interest rates, energy prices
                and
                other factors in specific markets could impact the willingness of
                corporate, governmental and enterprise target markets to spend capital
                on
                communication technology in the near term. Additionally, the by-country
                variability in worldwide economic growth could also impact our business
                as
                growth rates of developed and more stable economies tend to be lower
                than
                that of emerging economies, where there could be more variables affecting
                the economic growth.





·
            Competitive
                environment - Although we believe that we are one of the first entrants
                into the higher spectrum bands and at the speeds of our current millimeter
                wave products, as the carrier, reseller and enterprise communication
                markets evolve, we expect other companies, who may not currently
                compete
                with us, to enter the high speed bandwidth wireless communication
                sector
                in the future.




**Research
      and development**





In
      order
      to compete effectively in our markets, we are, and expect to continue, investing
      significant resources to quickly introduce and commercially deploy our products,
      develop subsequent generations of these products and identify and address demand
      for new solutions with additional products. In the past we have devoted the
      substantial majority of our resources to completing the development of our
      first
      product, our WiFiber II series Gig *E,* which we
      commenced commercial deployment in March 2005. Additionally, during 2005, we
      were heavily involved in the development of our WiFiber G series *Gig* E product,
      which commenced deployment in the fourth quarter of 2005. We are currently
      devoting resources to completing the development of our WiFiber G series *OC-48* ,
      which
      we expect to deploy in the third quarter of 2006 and to initiatives related
      to
      product unit cost reduction.





Research
      and development expenses for the quarter ended March 31, 2006 were $1,341,682,
      compared to $1,272,283, for the quarter ended March 31, 2005. Research and
      development expenditures include engineering and product design fees paid to
      contractors as we continue to develop new products to the stage of commercial
      production. Research and development expenses also include salaries and benefits
      for our engineering and production staff, as well as depreciation of capitalized
      testing and production equipment purchased.





**Investment
      in laboratory and production equipment**





For
      the
      year ended December 31, 2005, we invested $1,294,358 in laboratory and
      production equipment. During the quarter ended March 31, 2006, we invested
      an
      additional $74,546 in equipment, and estimate that we will spend approximately
      an additional $600,000 during the next twelve months for the purchase or lease
      of laboratory test equipment, production and product testing equipment to be
      used by us or contract manufacturers used by us in the final assembly of our
      products and other related assets for our WiFiber G Series Gig *E* product
      lines.





**Manufacturing
      plan**





All
      of
      our proposed initial products have a modular design. With detailed designs
      of
      our initial products complete and the necessary components and modules
      (subassemblies) to produce these products substantially identified, we expect
      to
      outsource the manufacture of the key components and modules to leading companies
      in their respective fields, including some of our strategic partners, who are
      currently adapting their particular components and/or modules to fit within
      our
      product designs. The final assembly of our products’ modules and final quality
      control testing of the finished products, however, will occur in-house at our
      facilities. As the scale of our operations increase, we may contract out
      significant aspects of assembly and testing of our products.




We
      spent
      $1,054,588 on manufacturing inventory and materials for the quarter ended March
      31, 2006 compared to $540,490, for the quarter ended March 31, 2005. We expect
      to spend a significant amount on manufacturing activities during the next twelve
      months as we commence outsourcing all or part of our manufacturing assembly
      and
      test activities for commercial production and also plan to hire employees in
      support of these activities.


18





**General
      and administrative**





Our
      primary focuses in this area are attracting additional operating capital,
      managing the general legal and administrative issues in the Company, and
      acquiring and/or maintaining facilities for our research and development,
      manufacturing, product support and sales and marketing operations. Our current
      operating locations include a combination corporate office, research and light
      manufacturing facility in Herndon, Virginia of approximately 9,100 square feet,
      a sales and marketing support office in Waltham, Massachusetts totaling 5,156
      square feet, an engineering and manufacturing support facility in Sunnyvale,
      California of 7,243 square feet and office and warehouse facilities in
      Lewisville, Texas, with a total square footage of 3,865. Our monthly minimum
      lease and maintenance cost for the aforementioned facilities is approximately
      $31,970.





We
      expect
      to increase our personnel levels for finance, accounting and administrative
      support over the next twelve months to support our growth in operating levels
      both domestically and internationally.





**Selling
      and marketing**





Our
      sales
      and marketing group includes geographic and industry-focused outside sales,
      marketing research, technical support and sales engineering personnel. This
      group provides overall marketing strategy, develops strategic partnering
      alliances, and seeks new global applications for our product lines. Selling
      and
      marketing expenses for the quarter ended March 31, 2006 were $1,174,820,
      compared to $511,857 for the quarter ended March 31, 2005. The sales and
      marketing operations in the Company escalated substantially since March 2005
      to
      promote and sell commercial quantities of our WiFiber II series Gig *E* and our
      WiFiber G series Gig *E* products. We moved our primary sales and marketing offices to a larger location
      in Waltham, Massachusetts in the current quarter. Travel costs increased in
      proportion to the increase in the sales group personnel levels since March
      2005,
      particularly international travel to obtain regulatory approvals and to set
      up
      reseller networks.





We
      expect
      to increase our personnel levels for selling and marketing over the next twelve
      months to support our increased operating levels both domestically and
      internationally.





**Service,
      install and link operations**





Our
      link
      operations group provides testing, installation and after sale maintenance
      support for the Company’s products. We believe that this part of the business
      operation could become a significant source of revenues within the next 12-24
      months, utilizing both full time employees and strategic installation and
      maintenance partners. Service, install and link operations expenses for the
      quarter ended March 31, 2006 were $668,193, compared to $151,977 for the quarter
      ended March 31, 2005. The link operations group supports product testing,
      product installation and maintenance and installation and maintenance of our
      IT
      infrastructure. The expenses of this group are primarily salaries and benefits
      of the personnel that install our products, travel expenses to support installed
      customers link testing, as well as supplies for their daily
      operations.




We
      expect
      to increase our personnel levels for s ervice,
      install and link operations over
      the
      next twelve months to support our increased operating levels both domestically
      and internationally.





19





**Results
      of operations for the quarter ended March 31, 2006 compared to the quarter
      ended
      March 31, 2005**





***Net
      sales, gross margin and net loss***





**Quarter
                Ended****March
                31,**
            
            **March
                31,****2006**
            
            **2005**(1)


Net
                sales
            
            $
            1,658,541
            
            $
            —Gross
                margin
            
            $
            172,907
            
            $
            —Net
                loss
            
            $
            (4,780,864
            )
            $
            (2,902,074
            )




(1)
            Initial
                revenues were recognized in the quarter ended June 30, 2005. During
                the
                preceding periods of operation, we were considered to be in the
                development stage. Due to the lack of revenue recognition in the
                comparative period covered in this report, gross margin percentages
                and
                operating results as a percentage of revenues are not considered
                relevant.




As
      noted
      above, initial revenues from operations did not commence until the latter part
      of the quarter ended


June
      30,
      2005. Thus revenue comparisons of the quarter ended March 31, 2006 to those
      of
      the quarter ended March 31, 2005 are inconclusive and not
      meaningful.





During
      the quarter ended March 31, 2006, a provision for obsolescence of $492,054
      was
      expensed to cost of sales related to the Company value of our WiFiber II series
      Gig *E* links.
      The gross margin figure above is net of the obsolescence charge.




***Research
      and development.*** Our
      research and development expenses increased from $1,272,283, in the first
      quarter of 2005 to $1,341,682 for the first quarter of 2006. The increased
      expense level was due primarily to increased spending for outside engineering
      development projects for our WiFiber G series Gig *E* product
      line and future products within our product road map, increased depreciation
      related to testing and production equipment purchases, increased equipment
      rental costs, and increases in salaries and benefits related to increases in
      the
      internal engineering personnel..




***General
      and administrative.*** For the
      quarter ended March 31, 2006, general and administrative expenses were
      $1,533,543 an increase of $759,589 over the comparable expenses incurred in
      the
      first quarter of 2005. Increased legal and professional fees, higher insurance
      premiums due to increased coverage, costs associated with compliance with the
      requirements of the Sarbanes-Oxley Act of 2002 (“SOA”) and increased the overall
      size of operations, expenses of operating as a publicly traded company were
      the
      primary areas of increased general and administrative expenses in the first
      quarter of 2006 compared to the previous period.





***Selling
      and marketing.*** For
      the
      quarter ended March 31, 2006, sales and marketing expenses were $1,174,820,
      an
      increase of $662,963 over comparable expenses incurred in the comparable 2005
      period. The increased level of expenses were attributable to increased sales
      and
      product development personnel to promote, market and sell our WiFiber G series
      Gig *E* products, increased sales activity and travel costs, particularly international
      travel associated with development of geographically dispensed reseller
      agreements.





***Service,
      install and link operations.*** For
      the
      quarter ended March 31, 2006, service, install and link operations expenses
      were
      $668,193, an increase of $516,216 over comparable expenses incurred in the
      comparable 2005 period. The expenses of this group are primarily salaries and
      benefits of the personnel that install our products, travel to support installed
      customers’ link testing, as well as supplies for their daily operations.





***Interest
      expense.*** Interest
      expense for the quarter ended March 31, 2006 was $329,366, compared to $196,632
      for the comparable 2005 period. Interest expense includes $73,522 and $24,507
      for the first quarter of 2006 and 2005 periods, respectively, related to
      amortization of a beneficial conversion feature from the $2,500,000 convertible
      debt issued in the first quarter of 2005, as well as interest accruing on the
      8%
      convertible debt, amortization of debt issuance costs and beneficial conversion
      feature, amortization of debt discount and interest related to capitalized
      leases obligations.





20




**LIQUIDITY
      AND CAPITAL RESOURCES**




**Cash
      Flows**


**Quarter
                  Ended March 31, 2006**
              
              **Quarter
                  Ended March 31, 2005**Net
                  cash used in operating activities
              
              $
              (5,597,311
              )
              $
              (3,323,277
              )Net
                  cash used in investing activities
              
              
              (257,320
              )
              
              (626,449
              )Net
                  cash provided by financing activities
              
              
              268,070
              
              
              3,042,412Net
                  decrease in cash and cash equivalents****
              
              $
              (5,586,561
              )
              $
              (907,314
              )




***Cash
      and cash equivalents.*** Our cash
      and cash equivalents decreased $5,586,561 for the quarter ended March 31, 2006,
      due primarily to the increased cost of expanding our operations. Our net
      decrease in cash and cash equivalents for the quarter ended March 31, 2006
      was
      in large part due to the continuing high level of expenditures for research
      and
      development and other operating expenditures required by our business model.
      Additionally, we invested $257,320 for equipment and other capitalized assets
      purchased in the quarter ended March 31, 2006 related to the development and
      testing of our WiFiber G series Gig *E* product
      lines and implementation of managerial accounting systems. Other significant
      uses of cash included payment for capital lease obligations of $82,889 and
      Series B preferred stock dividends of $231,034. These uses of cash were
      partially offset by net proceeds from the exercise of common stock warrants
      and
      options totaling $581,993.





We
      currently believe that existing cash balances plus funds that will be generated
      from the sale of our products, anticipated cash receipts from the exercise
      of
“in the money” common stock warrants and sales of equity and/or debt securities
      through access to capital markets will be sufficient to provide for our
      anticipated requirements of working capital, capital expenditures, debt
      servicing and other operating requirements for the next 12 months.




There
      can
      be no assurance, however, that our business will generate positive cash flows
      from operations in the next twelve months, or that we will, if and when needed,
      be able to raise funds through the sale of equity and/or debt securities on
      terms acceptable to us. If we are unable to maintain cash balances or generate
      sufficient internal cash flows or raise funds through the sale of equity and/or
      debt securities at affordable rates to service our obligations and operations,
      we may be required to curtail operations, sell assets, reduce capital
      expenditures, refinance existing debt, or reduce our operating overhead
      substantially in the next twelve months. Our abilities to maintain our planned
      levels of activity and bring our development stage products to a commercial
      sales level are subject to general business conditions affecting our primary
      markets, the telecommunications sector, Federal, state and local governments
      and
      their operating agencies, business to business markets, and to general economic,
      political, financial, competitive, legislative and regulatory factors beyond
      our
      control.





***Net
      cash used in operating activities.*** Our net
      cash used in operating activities was $5,597,311 for the quarter ended March
      31,
      2006, compared to net cash used in operating activities of $3,323,277 in the
      comparable 2005 period. We were primarily in a developmental stage during the
      quarter ended March 31, 2005, dating from our inception on January 5, 2004.
      The
      significant use of cash for operations in the quarter ended March 31, 2006
      is
      related to expenditures for research and development for the WiFiber G series Gig *E* product
      lines, as well as increased levels of all other operating expenses, including
      salaries and benefits for an increased number of employees across the areas
      of
      the Company.





We
      expect
      our research and development costs to continue at high levels for at least
      the
      next year, as we continue to pursue our goals of continued efficiency, to
      achieve price reductions of our products in order to remain competitive in
      our
      primary markets, as well as, continuing development of future link products.
      Further, we expect other operating expenses to continue to increase as we expand
      our operations. We spent $1,054,588 during the quarter ended March 31, 2006
      to
      acquire material inventories in order to continue commercial production of
      our
      WiFiber G series Gig *E* product
      line. Our general and administrative expenses increased to $1,533,543, related
      to the expansion of employee levels, opening of additional offices, costs
      associated with compliance with the requirements of the SOA and general costs of
      maintaining a publicly traded entity. Our selling and marketing expenses
      increased to $1,174,820, related to expansion of employee levels, product and
      sales infrastructure development efforts and travel costs. Our service, install
      and link operations expenses increased to $668,193, related to expansion of
      employee levels, product deployment activity, travel costs and organizational
      support efforts. During the quarter ended March 31, 2005 the largest element
      of
      operating expenses was the research and development expense related to initial
      product lines of $1,272,283.





21


***Net
      cash used in investing activities.*** Our net
      cash used in investing activities was $257,320 for the quarter ended March
      31,
      2006, compared to $626,449 used in the comparable 2005 period. We invested
      $257,320 for the purchase of testing and production equipment and other
      capitalized assets in 2006 in order to continue our development of current
      and
      future product lines and to acquire managerial accounting systems. In 2005,
      we
      purchased $626,449 in testing equipment and other capitalized
      assets.





***Net
      cash provided by financing activities.*** Our net
      cash provided by financing activities for the quarter ended


March
      31,
      2006 was $268,070, which included net proceeds from the exercise of common
      stock
      warrants and options of $581,993, and was offset by the payment of Series B
      preferred stock dividends of $231,034. For the quarter ended March 31, 2005
      net
      cash provided by financing activities totaled $3,042,412, which included net
      proceeds from the issue of 8% convertible notes of $2,169,481, and the exercise
      of common stock warrants of $888,295.





***Capital
      structure and resource and requirements.*** Our
      capital requirements have been and will continue to be significant. We also
      expect our cash requirements to increase in future periods to implement our
      business plan fully , including the continued commercialization, deployment
      and
      cost reduction of our WiFiber G series Gig *E* and
      the
      development and general commercial deployment of our upcoming products,
      including our WiFiber G series *OC-48* products, which is expected to be deployed in the second half of 2006, and
      our
      10 Gig *E* and *OC-192* products,
      for which commercial deployment is expected to commence in 2007. Since
      inception, the significant excess of our expenses over our revenues has resulted
      in an accumulated deficit of $27,592,222 at March 31, 2006. To date, we have
      been dependent primarily on the net proceeds of our IPO, private placements
      of
      our debt and equity securities and proceeds from the exercise of common stock
      warrants to fund our capital requirements.




As
      of
      March 31 2006, we had $7,140,425 in available cash for our operating
      requirements. We anticipate funding our operating cash requirements over the
      next twelve months through the use of existing funds, the sale and installation
      of our WiFiber II series Gig *E* and
      WiFiber G series Gig *E* product
      lines, future exercises of common stock warrants outstanding, and if necessary,
      through continued access to public and private debt and equity markets. The
      inability to raise capital or realize these other sources of operating cash
      flows could require us to change or curtail our planned operations significantly
      in order to conserve cash until such time, if ever, that sufficient proceeds
      from operations are generated.





In
      light
      of the uncertainty of our ability to develop our targeted markets significantly
      and to predict the future of the wireless point-to-point industry in general,
      as
      well as our limited history of operations, it is difficult for our management
      to
      identify and assess fully any trends or uncertainties that would affect our
      liquidity or overall financial condition. Some known factors that could affect
      our liquidity and overall financial condition are the successful testing of
      our
      ongoing product lines currently in development, widespread customer acceptance
      and usage of the point-to-point technology as a solution to their
      telecommunications needs, and the adoption of the authorized 70 GHz and 80
      GHz
      frequencies for commercial and governmental use, and the potential for
      increasing penetration of broadband internet access in the mainstream commercial
      marketplace. If any of these trends or uncertainties change in an unfavorable
      manner, we may not be able to recognize revenues or obtain short term financings
      through accounts receivable discounting or development of short term lines
      of
      credit as currently anticipated, thereby forcing us to seek additional equity
      or
      debt financing, reduce our expenditures or scale back or curtail operations.
      We
      could, under such circumstances, also be unable to completely satisfy our
      material contractual obligations.





**Future
      Cash Requirements and Sources of Liquidity**




***Future
      Cash Requirements***




Our
      contractual obligations as of March 31, 2006 are summarized as
      follows:





(1)
            Long-term
                debt payments equal $2,411,600. Long term debt payments due in less
                than
                one year equal $143,562. Long-term debt payments due in 2-3 years
                equal
                $2,268,100.




(2)
            Contractual
                obligations for operating leases total approximately $1,000,000 million
                of
                future minimum lease payments primarily for real estate
                leases.




22


(3)
            We
                have strategic alliance and supply agreements with various designers,
                manufacturers and suppliers of critical components used in our products
                that provide for material payment and other obligations on our part.




We
      have a
      strategic alliance agreement with ThinKom Solutions, pursuant to which we issued
      143,000 shares of our common stock to ThinKom at par value per share upon the
      agreement’s inception in January 2004 and under which ThinKom granted us an
      exclusive worldwide license to use and commercialize its antenna technologies
      in
      products operating in the 70 GHz and 80 GHz bands. ThinKom also agreed to
      develop, design, manufacture and test certain antenna modules for us. This
      agreement has an initial term ending in January 2009 and automatically extends
      for additional one-year periods until terminated in accordance with its terms.
      This agreement, as amended December 2005, requires us to make minimum payments
      to ThinKom in return for the design and manufacture of an antenna module for
      our
      products, including minimum payments of approximately $650,000 in 2004, $771,817
      in 2005, **** $1,153,183
      in 2006, $3,000,000 in 2007, $6,500,000 in 2008, $8,800,000 in 2009 and
      $10,000,000 each year thereafter during the term of the agreement in return
      for
      maintaining the exclusivity license for its developed technology relative to
      antennas. In addition, we paid a $250,000 working capital advance to ThinKom
      in
      2004, which payment will be credited against minimum purchase amounts due to
      ThinKom in the last quarter of 2007 or payments to component suppliers to
      ThinKom or us. ThinKom’s design of our antenna has not been completed, and we do
      not expect to order any antennas from ThinKom until at least mid-2006.
      Consequently, all of the minimum payments that we have made to ThinKom to date
      have been for engineering costs associated with its adaptation of the ThinKom
      antenna technologies to our Gig *E* and
      OC-48 product designs. We will also pay to ThinKom 1% of our revenues generated
      from the sale of products using ThinKom’s technology, excluding specified costs.




We
      have
      strategic alliance agreements with each of Mantaro Networks, Inc. and Core
      Source Technologies, LLC, under which we have the right to market and distribute
      a wireless communications system utilizing the frequency range of 54 GHz through
      95 GHz, which incorporates components designed and manufactured by Mantaro
      and
      Core Source. The agreements each have an initial term ending in May 2008 and
      automatically extend for additional one-year terms until terminated in
      accordance with their respective terms. Mantaro and Core Source have each agreed
      that it will not compete by offering products similar to ours and will not
      pursue any transaction or arrangement with any third party that will be in
      conflict with the wireless communications system utilizing the frequency range
      of 54 GHz through 95 GHz during the term of the agreement and for a period
      of 12
      months thereafter. We are required to pay Mantaro and Core Source a minimum
      of
      $100,000 and $50,000, respectively, each year for the term of their agreements
      for engineering fees. In addition to the engineering fees, we have agreed to
      purchase a minimum number of components from Mantaro and Core Source for each
      of
      our proposed products over the life of their agreements.




We
      have a
      development and supply agreement with Vitesse Semiconductor Corporation under
      which it agreed to design, supply and develop certain communications integrated
      circuit products for us, and we agreed to issue to Vitesse an initial purchase
      order in the amount of $205,000 for the development of a custom semiconductor
      wafer using indium phosphide (InP). The term of the development agreement is
      through August 2010, renewable on a year-by-year basis, unless terminated sooner
      pursuant to its terms. The payment terms of the initial purchase order are
      $41,000 within 30 days of Vitesse’s receipt of the order and the balance payable
      in several installments upon Vitesse’s completion of certain development
      milestones. Subject to our placing development and/or production purchase orders
      of specified minimum dollar levels prior to each annual anniversary of the
      agreement, Vitesse has agreed that it will not compete with us by developing,
      designing or selling InP based products for radio communications applications
      in
      the 50-300 GHz range. Thereafter, in order to maintain worldwide exclusivity
      for
      the developed technology as noted above, We would have to commit to making
      minimum levels of payment of approximately $600,000 for the initial year (August
      2005 - July 2006), $2,000,000 for the second year, $5,000,000 for the third
      year, $7,000,000 for the fourth year, and $10,000,000 for the final year, for
      a
      combination of development and production orders from Vitesse.





(4)
            Other
                purchase obligations represent contractual obligations in the ordinary
                course of business, other than commitments with contract manufacturers
                and
                suppliers, for which we have not received the goods or services as
                of
                March 31, 2006.  Although contractual obligations are considered
                enforceable and legally binding, the terms generally allow us the
                option
                to cancel, reschedule, and adjust our requirements based on our business
                needs prior to the delivery of goods or performance of
                services.





Our
      primary cash requirements over the next twelve months will be to fund working
      capital requirements, capital expenditures, preferred stock dividend
      requirements, and future product development activities.




23


Specifically,
      we expect our primary cash requirements for the next twelve months to be as
      follows:




•
            *Capital
                expenditures*-
                We expect to spend approximately $1.2 million for capital expenditures,
                including capitalization of radio links that will be used at managed
                services customer sites.




•
            *Debt
                repayments -*During the next twelve months, we will make payments on capital leases
                totaling $177,988.





•
            *Preferred
                stock dividend -*$1.4
                million in cash will be required to pay dividends on the Series B
                Convertible Preferred Stock currently outstanding, unless the trading
                volume of our common stock reaches certain stated volumes for a stated
                number of days prior to our quarterly dividend payment date. Should
                our
                common stock attain the designated trading volume level, the quarterly
                dividend(s) can be made, at our option in cash or in common stock,
                based
                upon a pre-determined share calculation
                ratio.




•
            *Working
                Capital Requirements*-
                Primarily inventory purchases, expanded sales and marketing activities,
                build out of our nationwide customer support and monitoring capacity
                and
                increased levels of accounts receivable related to increased sales
                volume
                over the next twelve months.





***Future
      Sources of Liquidity***




We
      expect
      our primary sources of cash during the next twelve months to be (1) common
      stock
      warrants exercises,


(2)
      collection of accounts receivable balances and (3) when necessary, accessing
      public and private capital markets for additional equity and/or debt
      financing.




Based
      on
      past performance and current expectations, we believe that our existing cash
      and
      cash equivalents of $7,140,425 as of March 31, 2006 and our net cash provided
      by
      operating activities will be sufficient to meet our near term cash
      requirements.  Our ability to meet requirements over the next 12 months
      will depend on our ability to generate cash in the future from sources as noted
      above, which is subject to economic, financial, competitive, legislative,
      regulatory and other factors that are beyond our control.




If
      we do
      not generate sufficient cash from operations, face unanticipated cash needs
      such
      as the need to fund significant strategic acquisitions or do not otherwise
      have
      sufficient cash and cash equivalents, we may need to incur additional debt
      or
      issue equity.  In order to meet our cash needs we may, from time to time,
      borrow under our credit facility or issue other long- or short-term debt or
      equity, if the market and the terms of our existing debt instruments permit
      us
      to do so.




***Uncertainties
      Regarding Our Liquidity***




We
      believe the following uncertainties exist regarding our liquidity:





•
            *Ability
                to Increase Revenue*-
                Our ability to generate net cash from future operating activities
                is
                critical to our maintaining adequate operating liquidity.  If our
                revenues were to stagnate, our ability to generate net cash from
                operating
                activities in a sufficient amount to meet our cash needs would be
                adversely affected.




•
            *Ability
                to access capital markets and debt markets*-Historically,
                we have depended on our ability to obtain funding from capital markets
                to
                fund ongoing operations. If we are unable to access debt and equity
                markets at reasonable rates it could require us to change or curtail
                significantly our planned operations in order to conserve cash until
                such
                time, if ever, that sufficient proceeds from operations are
                generated.





•
            *Ability
                to manage working capital requirements efficiently*-
                Maintaining adequate liquidity for operating needs includes satisfactory
                collection of outstanding trade receivables and ability to achieve
                acceptable inventory turnover rates.





**Recent
      Accounting Pronouncements**





In
      September 2005, the Emerging Issues Task Force (“EITF”) reached a consensus on
      Issues No. 05-07 and 05-08, “Accounting for Modifications to Conversion Options
      Embedded in Debt Instruments and Related Issues” (“EITF 05-07”), and “Income Tax
      Consequences of Issuing Convertible Debt with a Beneficial Conversion Feature,”
(“EITF 05-08”), respectively.





24


EITF
      05-07 covers the issue of the requirement to give effect to a change in the
      fair
      value of an embedded beneficial conversion feature should a debtor and creditor
      modify cash or non-cash features in an outstanding convertible debt instrument,
      as defined within the conclusions of the EITF in EITF 96-19.





The
      Company has outstanding 8% convertible notes, which includes an embedded
      beneficial conversion feature accounted for under the provisions of EITF 00-27.
      The Company or its note holders have not modified either terms of the
      convertible notes issue that affect cash flow or other non-cash features since
      the original issue date of the notes.





EITF
      05-08 requires issuers of convertible debt securities with non-detachable
      beneficial conversion features to account for differences in accounting and
      tax
      treatment of such conversion features as timing differences under the provisions
      of FASB SFAS 109 (“Accounting for Income Taxes”). EITF 05-08 is effective for
      the first interim or accounting period beginning after December 15,
      2005.





The
      Company adopted the reporting requirements of EITF 05-08 effective with the
      interim accounting period commencing January 1, 2006. The adoption of EITF
      05-07
      and 05-08 did not have a material impact on the Company’s financial position,
      results of operations or cash flows.





In
      February 2006 the FASB issued SFAS No. 155, “Accounting for Certain Hybrid
      Financial Instruments” (SFAS 155”). SFAS 155 amends FASB SFAS 133, “ *Accounting
      for Derivative Financial Instruments and Hedging Activities”* (“SFAS
      133”) and SFAS 140, “ *Accounting
      for Transfers and Servicing of Financial Assets and Extinguishments of
      Liabilities”* (“SFAS
      140”). SFAS 155 resolves issues addressed in SFAS 133 Implementation Issue No.
      D1, “Application of Statement 133 to Beneficial Interests in Securitized
      Financial Assets.”





SFAS
      155
      is effective for all financial instruments acquired or issued after the
      beginning of an entity’s first fiscal year beginning after September 15, 2006,
      and can also be applied upon adoption for hybrid financial statements that
      had
      been bifurcated under paragraph 12 of SFAS 133 prior to the adoption of SFAS
      155.





The
      Company does not expect SFAS 155 to have any significant impact on the Company’s
      financial position, results of operations or cash flows. The Company does not
      have any embedded derivative instruments that would be subject to the
      bifurcation requirements in paragraph 12 of SFAS 133.





In
      March 2006, the FASB issued Statement of Financial Accounting Standards
      No. 156, “Accounting for Servicing of Financial Assets - an amendment of
      FASB Statement No. 140” (“SFAS 156”), which is effective for fiscal years
      beginning after September 15, 2006. SFAS 156 was issued to simplify the
      accounting for servicing rights and to reduce the volatility that results from
      using different measurement attributes. The Company does not expect SFAS 156
      to
      have a material effect on its financial position, results of operations or
      cash
      flows.





**FORWARD-LOOKING
      STATEMENTS AND FACTORS THAT MAY AFFECT FUTURE RESULTS**





Statements
      made in the report on Form 10-QSB relating to the future, including those
      related to (1) our strategy, competitive forces, strategic partnership alliances
      and opportunities; (2) competitive advantages over existing wireless
      communications solutions providers; (3) the contemplated activity of regulatory
      bodies; (4) expectations regarding our future financial performance, such as
      our
      expectations of continued net losses; of increased sales and/or operating
      expense levels; that our revenues will continue to be concentrated among a
      few
      customers; that our gross margins will continue to fluctuate; of continuing
      significant levels of research and development expenses; and regarding
      accounting pronouncements; (5) the continued access to public and private
      capital markets; and (6) the adequacy of our facilities, are forward-looking
      statements within the meaning of the “safe harbor” provisions of the Private
      Securities Litigation Reform Act of 1995. Our discussion and analysis of the
      financial condition and results of operations are based upon our consolidated
      financial statements, which have been prepared in accordance with accounting
      principles generally accepted in the United States. The preparation of financial
      statements in conformity with generally accepted accounting principles requires
      us to make estimates and assumptions that affect the reported amounts of assets
      and liabilities, disclosure of any contingent assets and liabilities at the
      financial statement date and reported amounts of revenue and expenses during
      the
      reporting period. Our estimates were based on our historical experience and
      various other assumptions that we believe to be reasonable under the
      circumstances. Actual results are likely to differ from those estimates but
      we
      do not believe such differences will materially affect our financial position
      or
      results of operations. Terminology such as “may,” “will,” “should,” “intend,”
“expect,” “plan,” “estimate,” “project,” “anticipate,” or “believe” and similar
      language identifies forward-looking statements. Because those forward-looking
      statements involve risks and uncertainties, there are important factors that
      could cause our actual results to differ materially from those in the
      forward-looking statements. These factors include, without limitations, those
      set forth below under the caption “Risk Factors”.




25


**Risk
      Factors**





**We
      are still in the early stages of our product commercialization efforts and
      have
      no meaningful operating history upon which you can base your investment
      decision.** ****




We
      were
      incorporated on January 5, 2004, installed our first Gig *E* link in
      March 2005 and in the latter part of the quarter ended June 30, 2005, achieved
      our first revenues. We are currently completing enhancements to our initial
      product line and the development of our next generation products including
      the *OC-48* products. To date, we have generated only limited revenues and have no
      meaningful trend of operating history upon which you can evaluate our business
      strategy or future prospects. Our ability to generate meaningful revenues will
      depend on whether we can successfully market our initial products and develop
      and market additional products and on whether we are able to successfully
      complete our transition to full scale manufacturing and deployment of our
      products. In making your evaluation of our prospects, you should consider that
      we are an early stage business focused on new technologies, are designing
      solutions that have no proven market acceptance and operate in a rapidly
      evolving industry. As a result, we may encounter many expenses, delays, problems
      and difficulties that we have not anticipated and for which we have not planned.




**We
      have limited capital resources.**




Our
      business model is capital intensive, requiring significant expenditures ahead
      of
      any significant levels of projected revenues, and we will require additional
      capital to complete the transition necessary to commence full scale
      manufacturing and deployment of our products. In addition, if and when we
      achieve wider spread market acceptance for our first products, we may desire
      to
      accelerate our growth to take advantage of increasing demand, which will require
      additional capital to offset increased costs associated with accelerated growth.
      We have to date been dependent on cash provided largely by debt and/or equity
      financings to operate our business, and, while we expect to fund our cash
      requirements over the next 12 months from the $17.4 million in net proceeds
      we
      received from our November 2005 private placement, collections of anticipated
      revenues, the exercise of warrants and/or accounts receivable financing and,
      if
      necessary, through continued access to public and private debt and equity
      markets, there can be no assurance that we will be able to obtain any such
      capital, on terms or in amounts sufficient to meet our needs or at all. The
      inability to raise capital or realize these other sources of operating cash
      flows could require us to significantly change or curtail our planned operations
      in order to conserve cash until such time, if ever, that sufficient proceeds
      form operations are generated. In addition, if we raise additional funds by
      issuing equity securities, our then existing security holders will likely
      experience dilution.




**If
      we are unable to effectively manage the transition to full scale manufacturing
      and deployment of our products, our financial results will be negatively
      affected.**




For
      the
      period from our inception, January 5, 2004, through March 31, 2006, we incurred
      an aggregate net loss, and had an accumulated deficit of $27.6 million. Our
      losses are expected to continue for possibly the next 12 months as we commence
      full scale manufacturing and deployment of our products. As we make such
      transition, we expect our business to grow significantly in size and complexity.
      This growth is expected to place significant additional demands on our
      management, systems, internal controls and financial and physical resources.
      As
      a result, we will need to expend additional funds to hire additional qualified
      personnel, retain professionals to assist in developing appropriate control
      systems and expand our information technology and operating infrastructures.
      Our
      inability to secure additional resources, as and when needed, or manage our
      growth effectively, if and when it occurs, would significantly hinder our
      transition, as well as diminish our prospects of generating meaningful revenues
      and, ultimately, achieving profitability.




**Our
      existing and future debt obligations could impair our liquidity and financial
      condition.**




As
      of
      March 31, 2006, we had outstanding notes payable of $2.2 million ($967,617
      net
      of related discount and beneficial conversion feature), and we may incur
      additional debt in the future to fund all or part of our capital requirements.
      Our outstanding debt and future debt obligations could impair our liquidity
      and
      could:




·
            make
                it more difficult for us to satisfy our other
                obligations;




·
            require
                us to dedicate a substantial portion of any cash flow we may generate
                to
                payments on our debt obligations, which would reduce the availability
                of
                our cash flow to fund working capital, capital expenditures and other
                corporate requirements;




·
            impede
                us from obtaining additional financing in the future for working
                capital,
                capital expenditures, acquisitions and general corporate purposes;
                and




26


·
            make
                us more vulnerable in the event of a downturn in our business prospects
                and limit our flexibility to plan for, or react to, changes in our
                industry.




If
      we
      were to fail in the future to make any required payment under agreements
      governing indebtedness or fail to comply with the financial and operating
      covenants contained in those agreements, we would be in default as regards
      to
      that indebtedness. A debt default could significantly diminish the market value
      and marketability of our common stock. Our lenders would have the ability to
      require that we immediately pay all outstanding indebtedness, and we might
      not
      have sufficient assets to satisfy their demands. In this event, we would be
      forced to seek protection under bankruptcy laws, which could harm our future
      operations and overall financial condition.




**Our
      failure to quickly and positively distinguish our products from other “last
      mile” alternatives and limit the adoption curve associated with their market
      acceptance could negatively affect both our operations and our prospects.**




Point-to-point
      links operating in the 70 GHz and 80 GHz bands represent a last mile solution
      based on newly created designs and technologies. The frequencies in which they
      will operate did not until recently have service rules that would enable the
      frequencies to be put to commercial use. As a result, our products may be slow
      to achieve, or may never achieve, market acceptance, as potential customers
      may
      seek further validation of the efficacy and efficiency of our technology. In
      addition, failure to distinguish our products from competing products and
      technologies that provide wireless broadband access or connectivity could hinder
      market acceptance of our products. Meaningful numbers of customers may not
      be
      willing to adopt our products until they are proven through long-term field
      testing and demonstration. There is also no way to determine the adoption curve
      that will be associated with our products following their introduction to the
      market. Non-acceptance or delayed acceptance of our products could force
      reductions in contemplated sales prices of our products, reduce our overall
      sales and gross margins and negatively affect our operations and prospects.




**The
      rate at which potential customers are willing to adopt our solutions could
      be
      slowed by negative prior experiences they may have had with previously existing
      point-to-point wireless technologies.**




Potential
      customers within our targeted market segments may have had negative prior
      experiences with previously existing wireless point-to-point technologies,
      such
      as inadequate transmission capacity or service outages due to weather
      conditions. Accordingly, it could take significant time to educate the market
      as
      to the unique attributes of our products that enable our products to overcome
      the types of problems that prevented prior wireless technologies from serving
      as
      viable alternatives to fiber.




**The
      loss of the services of our founding executives could negatively affect our
      business, as could our inability to attract and retain qualified management,
      sales and technical personnel as and when needed.**




Our
      success depends largely on the continued efforts of our founders, Louis S.
      Slaughter, the chairman of our board of directors and our chief executive
      officer, and Douglas G. Lockie, our president and chief technology officer.
      Although they have entered into employment contracts with us, which do not
      expire until October 2007, either of these individuals may in the future choose
      to discontinue their employment with us. If so, we may not be able to find
      adequate replacements for them. Without their experience, expertise and
      reputation within the millimeter wave segment of the communications industry,
      our development efforts and future prospects would be substantially impaired.
      Further, as we grow, we will need to attract and retain other personnel
      possessing relevant sales, marketing, manufacturing and technical experience
      in
      the communications industry. Competition for qualified management, sales and
      technical personnel is intense, and we may not be successful in attracting
      or
      retaining them. Only a limited number of persons with the requisite skills
      to
      serve in these positions may exist, and it may be difficult for us to hire
      the
      skilled personnel we need on economically feasible terms.




**Our
      inability to establish cost-effective sales channels would negatively affect
      our
      revenue potential.**




We
      currently have limited sales, marketing and distribution capabilities. In order
      to fully market our products, we need to continue building our sales and
      marketing infrastructure and/or rely on third parties to perform these
      functions. To market our products directly, on a commercial scale, we may need
      to hire additional marketing and sales personnel with technical expertise and
      will need to develop third party distribution channels, which will require
      the
      dedication of significant capital, management resources and time. Further,
      any
      agreement to sell our products through a third party, such as an established
      telecommunications provider or network services provider, could hamper our
      ability to sell our products to that third party’s competitors. We may not be
      able to establish the necessary sales force or make adequate third party
      arrangements for product sales. Our failure to do so could limit our ability
      to
      expand sales, as well as negatively affect our operations, financial results
      and
      long-term growth.




27


**Failure
      to obtain satisfactory performance from our strategic partners and other third
      party vendors on whom we are and will be dependent for the components and
      subassemblies used in our products could cause us to lose sales, incur
      additional costs and lose credibility in the market place.**




We
      substantially rely on outside vendors to manufacture many of the components
      and
      subassemblies for our products, and we obtain or expect to obtain many of these
      components and subassemblies from either a sole source or a limited group of
      suppliers. Our suppliers’ failure to perform satisfactorily could cause us to
      fail to meet customer requirements, lose sales and expose us to product quality
      issues. In turn, this could damage relationships with customers and harm our
      reputation, business, financial condition, and results of operations. Moreover,
      we expect to quote prices to our customers and accept customer orders for our
      products prior to purchasing components and subassemblies from our suppliers.
      If
      our suppliers increase their prices, we may not have alternative sources of
      supply and may not be able to raise the price of our products to cover all
      or
      part of the increased costs. Our inability to obtain these items at the prices
      we desire could hurt our sales and lower our margins.




**If
      we fail to receive sufficient quantities of components when needed, we could
      be
      required to reconfigure our products, which could reduce our sales, alter
      product performance and prove time consuming, expensive and/or impossible.**




Some
      of
      our suppliers are small companies and possess limited resources, which they
      will
      have to manage in order to meet both our demand and the demand of their other
      customers. If any of our suppliers becomes unable to make adequate and timely
      deliveries of our required components or subassemblies, we may have to:




·
            seek
                alternative sources of supply, which, in the case of limited or single
                source components, may not be
                possible;




·
            manufacture
                these components internally, which we may not have the ability, resources
                or, under our strategic alliance agreements, permission, to do;
                or




·
            reconfigure
                our products to work with different components, which could entail
                substantial time and expense and which could result in inferior
                performance as compared to previous
                configurations.




Even
      if
      we are successful at reconfiguring our products, a significant amount of time
      could be required to receive an adequate flow of replacement components, which
      could delay our ability to manufacture or ship our systems on a timely basis.
      Such delays would significantly damage our business by causing us to lose sales,
      incur additional costs, delay new product introductions and suffer harm to
      our
      reputation.




**Our
      inability to** **continuously
      manufacture our products in commercial quantities to specified standards would
      negatively affect our margins and profits.**




To
      achieve profitability, our products will need to be manufactured and assembled
      in commercial quantities, in compliance with all applicable regulatory
      requirements and at acceptable costs, especially since we are seeking to
      position our products as a low-cost alternative to fiber. In March 2005, we
      installed our first commercial grade *GigE* product.
      In December 2005, we deployed our WiFiber G series *GigE* product.
      Based on our progress to date, our first commercial grade *OC-48* product
      is expected to be deployed by the third quarter of 2006; however, we and/or
      our
      suppliers may experience unanticipated technical and management challenges
      during actual commercial production. Due to our limited manufacturing experience
      and capabilities, we may not be able to successfully manufacture, either
      directly or through third party manufacturers, commercial grade products in
      quantity and on a cost-efficient basis. In addition, in order to complete the
      final assembly portion of our products’ manufacture in commercial quantities, a
      task we plan to retain in-house, we will likely need to convert, rent, build
      or
      gain access to additional facilities or, if unable to do so, enter into
      agreements with third party product assemblers at significant cost.




**We
      will be required to purchase minimum quantities of components from certain
      suppliers, whether or not we need such components, which could create a
      significant drain on our capital resources.**




Under
      the
      terms of our agreements with some of our suppliers, we are or will be required
      to purchase various components only from them and in specified minimum
      quantities. These purchase requirements will represent a significant financial
      commitment for us. We will be required to purchase these components and make
      the
      corresponding expenditures whether or not we need such components to meet the
      demand of end customers for our products. If we have not generated sufficient
      demand for our products to at least offset the costs associated with our minimum
      required component purchases, our agreements with our suppliers may not create
      a
      significant drain on our capital resources.




28


**If
      we fail to develop products that keep pace with industry standards and needs
      and
      meet our customers’ technical specifications on a timely basis, our business may
      be harmed.**




The
      existing and potential markets for our products and technology are characterized
      by:




·
            ever
                increasing performance
                requirements,




·
            evolving
                industry standards,




·
            rapid
                technological changes, and




·
            product
                obsolescence.




These
      characteristics, in turn, lead to frequent new products and technology
      introductions and enhancements, shorter product life cycles and changes in
      customer demands. Our ability to succeed in our competitive market will depend
      upon our successful development, introduction and sale of new products and
      enhancements on a timely and cost-effective basis in response to changing
      customer requirements and competitors’ product developments. Due to our limited
      resources, we may not be able to complete the development and marketing of
      any
      of the new products we are currently developing. In addition, we may experience
      difficulties that could delay or prevent the completion, introduction and sale
      of future products, or that, once deployed, these products will adequately
      meet
      the requirements of the marketplace and achieve market acceptance.




**We
      may not successfully adapt to regulatory changes in our industry, which could
      significantly impact the operation of our business.**




The
      regulatory environment in which we operate is subject to change. Certifications
      for wireless equipment like that utilized in our products and the licensing
      and
      registrations required to use the radio frequency spectrum in which our products
      will operate, are governed by regulatory bodies like the FCC and the National
      Telecommunications and Information Administration (NTIA). Regulatory changes,
      which are affected by political, economic and technical factors, could
      significantly impact our operations by:




·
            restricting
                customers’ use of the millimeter wave bands used by our products or making
                that use more expensive;




·
            making
                the products or systems we develop obsolete;
                or




·
            increasing
                the opportunity for additional
                competition.




Regulatory
      changes like these could harm our business, financial condition and results
      of
      operations. In addition, it may be necessary or advisable in the future to
      modify our products to operate in compliance with new regulations. These
      modifications could be extremely expensive and time-consuming to complete,
      thus
      negatively affecting our margins. And, even after expending substantial
      additional resources, we may not be able to complete required modifications,
      which would affect our ability to even sell our products.




**Delays
      in obtaining necessary regulatory approvals and desired industry standard
      certifications relating to our equipment could hinder market acceptance of
      our
      products, delay sales of our products and impair our ability to market those
      products.**




Our
      products will typically need to receive regulatory approvals or certifications
      before they can be commercially deployed. As a result, customers may require
      that we obtain these approvals before buying or agreeing to buy our products.
      In
      addition, we expect that most customers will require that our products meet
      national industry equipment standards as well. Obtaining these approvals and
      meeting these standards can be a long, expensive process. Any significant delay
      obtaining the approvals or meeting the standards could hinder our ability to
      sell our products and, as a result, reduce our revenues.




**Countries
      outside of the U.S. may not approve for commercial use the frequencies in which
      our products will operate and/or may have different requirements for equipment
      operating in those frequencies than those set by the FCC, either of which events
      could negatively affect our prospects and growth.**




In
      2003,
      the FCC approved service rules for commercial use of the 71-76 GHz and 81-86
      GHz
      bands. These spectrum bands have not yet, however, been approved for such
      purpose in many other countries. If widespread authorization of these
      frequencies for wireless communication use by the public has not occurred by
      the
      time we are ready to expand our operations overseas, the size of our expected
      market will be greatly decreased, which would negatively affect our prospects
      and growth. In addition, if the requirements and standards set by other
      countries for equipment like ours are different than those set by the FCC,
      requiring us to make substantial changes to our product design and/or
      manufacture, our prospects and growth would also be significantly diminished.




29


**It
      could prove costly or impossible for us to effectively compete in the intensely
      competitive telecommunications equipment industry, which could negatively impact
      our financial results.**




Both
      the
      telecommunications equipment industry in general and the wireless communications
      equipment industry in particular are intensely competitive. Companies operating
      in the telecommunications equipment industry are always seeking to develop
      viable wireline and wireless high-speed communications products and services,
      whether it is by:




·
            developing
                technologies that improve the performance of existing copper
                alternatives;




·
            developing
                methods for lowering the cost of fiber optic cable;
                or




·
            innovating
                new and improved point-to-point and wide area wireless
                solutions.




The
      wireless communications industry in which we principally compete has attracted
      substantial media and other attention recently in part due to the ability of
      newly developed equipment to provide broadband Internet connectivity simply,
      quickly, and efficiently. These factors have led numerous companies to develop
      or commence developing products that compete or could compete with ours. The
      large number of companies offering products that may be perceived to be similar
      or even interchangeable with our products could have the effect of reducing
      the
      prices at which we are able to sell our products. In turn, this could reduce
      our
      gross margins and negatively impact our general financial results.




**A
      significant number of the companies with which we currently compete or will
      compete have substantially greater resources and longer operating histories
      than
      we do, and we may not be able to compete with them effectively, even if our
      products are technically superior.**




Many
      of
      the companies with which we compete or expect to compete offer a variety of
      potentially competitive products and services and some may offer broader
      telecommunications product lines. These companies include Stratex Networks,
      Inc., Ceragon Networks Ltd., Proxim Wireless Corporation, BridgeWave
      Communications, Inc., Loea Corporation and Harris Corporation. Additionally,
      our
      fiber-speed millimeter wave products will have to compete with the existing
      and
      new fiber optic infrastructure and suppliers and free space optic suppliers
      in
      the U.S. and elsewhere. Most of the companies providing competing products
      and
      services have greater customer recognition, installed bases, financial
      resources, and sales, production, marketing, manufacturing, engineering and
      other capabilities than we do. Some of these companies may be able to take
      away
      market share from us as a result of their greater marketing resources, pricing
      discounts and product breadth, even if our products are technically superior.




**We
      also expect to face competition from private and start-up companies given the
      FCC’s new open licensing rules relating to the radio frequencies on which our
      products will operate, effectively reducing the greatest barrier to entry for
      companies such as ours.**




We
      not
      only face actual and potential competition from established companies, but
      also
      from start-up and other small companies that are developing and marketing new
      commercial products and services. Some of these will be seeking, like us, to
      take advantage of the new FCC open licensing rules to enter the market with
      products capable of harnessing the frequencies between 71-76 GHz and between
      81-86 GHz to provide higher quality service. Also, other than the increased
      technical development skills and expertise required, there are no substantial
      manufacturing difficulties, prohibitive intellectual property rights, or high
      business start-up costs creating significant barriers to entry in this market.
      This lack of significant barriers and the perceived attractiveness among
      engineers of these newly licensed frequencies for commercial use are likely
      to
      result or have already resulted in other small companies entering the commercial
      markets with equipment utilizing these frequencies. These companies include
      Loea
      Corporation, BridgeWave Communications, Inc. and, perhaps, E-Band Communications
      Corp., ElvaLink LLC and Rayawave.




**Our
      success will likely be highly dependent upon a large number of sales to a
      limited number of customers.**




We
      expect
      to sell a significant portion of our products and services to a limited number
      of customers. Our business would be harmed if we lost a significant customer
      or
      suffered any reduction or delays in orders from any significant customer,
      including reductions or delays due to customer departures from recent buying
      patterns or market, economic or competitive conditions in the telecommunications
      industry. Additionally, the ongoing consolidation of the telecommunications
      industry is further limiting the number of customers. As a result, we will
      be
      more dependent on specific customers and their economic condition than if our
      sales were made to a broader client base.




30


**Our
      business depends on continued demand for broadband connectivity and access.**




The
      future success of our business is dependent in part upon the continued and
      increasing demand for high-speed, broadband connectivity and access,
      particularly with regard to the Internet, and for high-speed telecommunications
      products. The markets for broadband connectivity and high-speed
      telecommunication products are still relatively unseasoned and characterized
      by
      evolving technological and industry standards. Therefore, the markets for such
      services and products may not grow as expected or at all, which would limit
      the
      demand for our products.




**If
      we are unable to protect our intellectual property rights adequately, we may
      be
      deprived of legal recourse against those who misappropriate our intellectual
      property.**




Our
      intellectual property rights are important assets for us. However, there are
      events that are outside of our control that pose a threat to our intellectual
      property rights. For example, our proprietary rights may not provide the
      competitive advantages that we expect. Despite our efforts and those of our
      strategic partners to protect our intellectual property, our competitors may
      be
      able to legitimately ascertain the non-patented proprietary technology embedded
      in our products. If this occurs, we may not be able to prevent their use of
      this
      technology. Our means of protecting our proprietary rights may not be adequate,
      we may lack the financial resources to protect our proprietary rights, and
      our
      strategic partners’ existing patents may not be sufficiently broad to prevent
      others from using technology that is similar to or the same as the technology
      utilized by our product solutions. In addition, patents issued to our alliance
      partners might be challenged and might be invalidated or circumvented and any
      rights granted under such patents may not provide adequate protection to them
      or
      us. Our competitors may independently develop similar technology, duplicate
      features of our products or design around patents that may be issued to our
      alliance partners or us. As a result of these threats to our proprietary
      technology, we may have to resort to costly litigation to enforce or defend
      our
      intellectual property rights. Such litigation would divert our management’s
      attention and scarce financial resources that could otherwise be used to develop
      our products.




**Our
      products, technologies and other intellectual property could infringe on
      intellectual property rights of others, which could harm our business.**




Although
      we believe that our products, technologies and other intellectual property,
      including trademarks, trade names, and service marks, and those of our alliance
      partners do not and will not infringe upon any existing proprietary rights
      of
      others, third parties may assert such claims against us or our alliance partners
      in the future. We have received a notice alleging infringement with respect
      to
      our use of the name “GigaBeam.” Although we believe this allegation (and any
      potential future claim that might be based thereon) is without merit, such
      a
      claim or other future claims of infringement could be successful. We could
      also
      incur substantial costs and diversion of management resources with respect
      to
      the defense of any claims relating to proprietary rights, even if the claim
      is
      invalid, which could have negative effects on our business, financial condition,
      and results of operations.




Adverse
      determinations in any litigation could:




·
            subject
                us to significant liabilities to third
                parties,




·
            require
                us to seek costly or onerous licenses from third
                parties,




·
            force
                us to alter our products, which could be costly, time consuming and
                impractical and could detract from the value or quality of our products,
                and




·
            prevent
                us from manufacturing and selling our
                products.




Any
      of
      these determinations could seriously harm our business.




**Our
      products will subject us to product liability exposure and our product liability
      insurance may not be sufficient to cover these claims.**




Use
      of
      our products will expose us to product liability claims in the event they cause
      injury or harm our customers or third parties’ businesses. Due to our limited
      financial resources, we may not be able to satisfy any liability resulting
      from
      these claims, which would negatively affect our financial condition. Although
      we
      have product liability insurance of $1 million per occurrence and $2 million
      in
      the aggregate, plus a $5 million umbrella, it is possible that our insurance
      coverage could be insufficient to fully cover potential claims.




31


**Our
      business and financial results could be negatively affected by warranty claims.**




Products
      as complex as ours frequently contain undetected errors or defects, especially
      when first introduced or when new versions are released. This is especially
      a
      concern for us given our anticipated continuing introduction of new products.
      The occurrence of errors or defects could result in products being returned
      under warranty for repair or replacement with us having to bear the associated
      expense. Due to the fact that our products are newly-developed and not proved
      with large numbers of installed units, we are currently unable to anticipate
      the
      likelihood of errors or defects. Although we intend to maintain appropriate
      overall warranty reserves, an unanticipated high repair occurrence related
      to a
      specific product or number of products could make our reserves inadequate at
      any
      specific time and negatively affect our financial results.




**Management’s
      failure to properly ascertain potential risks relating to any future
      acquisitions of businesses, products or technologies from others could place
      our
      operations and/or financial condition in harm.**




Although
      as of March 31, 2006, we had no agreements, understandings or commitments
      relating thereto, we could in the future seek to expand our operations by
      acquiring other businesses, products or technologies complementary to ours.
      Our
      investors will not, in all likelihood, receive or otherwise have the opportunity
      to evaluate any financial or other information that may be made available to
      us
      in connection with a potential acquisition. You will be dependent upon our
      management to select, structure and consummate any acquisitions in a manner
      consistent with our business objectives. Although our management will endeavor
      to evaluate the risks inherent in a particular acquisition, we may fail to
      properly ascertain or assess all significant and pertinent risk factors prior
      to
      our consummation of an acquisition. Our failure to properly ascertain those
      risks, particularly in instances where we have made significant capital
      investments, could result in significant harm to our operations and/or financial
      condition. Moreover, to the extent we do effect an acquisition, we may be unable
      to successfully integrate into our operations any business or opportunity that
      we acquire.




**Emissions
      from our antennas may be a health risk.**




The
      use
      of wireless equipment, like radio transmitters radiating through antennas,
      has
      been alleged to pose health risks due to radio frequency emissions. Our initial
      product is and our proposed products will be in compliance with all current
      U.S.
      radio emissions standards for continuous exposure, however, those standards
      could change or be insufficient. Any allegations of health risks, if proven,
      could result in liability on our part. In addition, we could be required to
      reduce power in our transmissions or otherwise change the way our systems
      operate in order to reduce emissions to acceptable levels. Any of these results
      could negatively affect our financial condition or results of operations and
      diminish the marketability of our products.




**Our
      failure to obtain the access rights necessary to install our equipment would
      adversely affect our ability to expand our business.**




We
      or our
      customers may not be able to obtain, from building owners or managers, access
      rights to buildings and rooftops to successfully install and service our
      equipment as planned. In order to install our equipment, we or our customers
      need access to each building where our antennas will be placed. Our failure
      or
      our customers’ failure to obtain access rights at the pace and locations
      necessary could have an adverse affect on our business and financial condition.
      In addition, we may need to obtain zoning or other governmental approvals in
      order to place our antennas on a particular building or in a particular area.
      We
      may not be able to obtain these approvals in a timely manner, or at all.




**The
      prices of our publicly traded securities have been volatile and may continue
      to
      be volatile.**




There
      is
      limited trading history and volume for our common stock, our IPO warrants and
      our Z warrants, therefore, even holders of our publicly traded securities may
      find it difficult to sell their securities. In addition, our securities have
      experienced, and are likely to experience in the future, significant price
      and
      volume fluctuations which could adversely affect the market price of our
      securities, without regard to our operating performance. In addition, the
      trading price of our publicly traded securities could be subject to significant
      fluctuations in response to actual or anticipated variations in our quarterly
      operating results, announcements by us or our competitors, factors affecting
      our
      industry generally, changes in national or regional economic conditions or
      general market conditions. The market prices of our publicly traded securities
      could also be affected by general market price declines or market volatility
      in
      the future or future declines or volatility in the prices of stocks for
      companies in our industry.




32


**If
      our common stock price, market value of our publicly traded shares, and/or
      our
      stockholders’ equity levels do not continue to meet the requirements set forth
      for the Nasdaq Capital Market, our stock could be
      delisted.**




In
      order
      to maintain our listing on the Nasdaq Capital Market, we must, among other
      financial and non-financial criteria, meet the following tests, with allowance
      for certain cure periods:




·
            Market
                value of publicly held shares of $1
                million;




·
            Stockholders’
                equity minimum level of $2.5 million;
                and




·
            Minimum
                bid price per share of $1.




**If
      our common stock becomes subject to the SEC’s penny stock rules, broker-dealers
      may experience difficulty in completing customer transactions and trading
      activity in our securities may be severely limited.**




If
      at any
      time our securities are no longer traded on Nasdaq or other securities exchange
      and we have net tangible assets of $5,000,000 or less and our common stock
      has a
      market price per share of less than $5.00, transactions in our securities may
      be
      subject to the “penny stock” rules promulgated under the Securities Exchange Act
      of 1934. Under these rules, broker-dealers who recommend such securities to
      persons other than institutional investors:




·
            must
                make a special written suitability determination for the
                purchaser;




·
            receive
                the purchaser’s written agreement to a transaction prior to
                sale;




·
            provide
                the purchaser with risk disclosure documents which identify risks
                associated with investing in “penny stocks” and which describe the market
                for these “penny stocks” as well as a purchaser’s legal remedies;
                and




·
            obtain
                a signed and dated acknowledgment from the purchaser demonstrating
                that
                the purchaser has actually received the required risk disclosure
                document
                before a transaction in a “penny stock” can be
                completed.




As
      a
      result of these requirements, broker-dealers may find it difficult to effectuate
      customer transactions and trading activity in our securities will be
      significantly limited. Accordingly, the market price of our publicly traded
      securities may be depressed, and you may find it more difficult to sell the
      offered shares.




**Future
      sales of our common stock may cause the prevailing market price to decrease
      and
      impair our capital raising abilities.**




We
      have
      issued a substantial number of shares of common stock that are eligible for
      resale under Rule 144 of the Securities Act and that may become freely tradable.
      We have also already registered a substantial number of shares of common stock
      that are issuable upon the exercise of warrants. If holders of warrants or
      other
      convertible securities choose to exercise their purchase rights and sell shares
      of common stock in the public market, or if holders of currently restricted
      common stock choose to sell such shares of common stock in the public market
      under Rule 144 or otherwise, the prevailing market price for our common stock
      may decline. Future public sales of shares of common stock may adversely affect
      the market price of our common stock or our future ability to raise capital
      by
      offering equity securities.




**Our
      officers, directors and affiliated entities own a large percentage of our
      company, and they could make business decisions with which you disagree that
      will affect the value of your investment.**




As
      of
      March 31, 2006, our executive officers and directors in the aggregate,
      beneficially owned approximately 47.4% **** of
      our
      outstanding common stock. These stockholders will be able to influence
      significantly all matters requiring approval by our stockholders, including
      the
      election of directors. Thus, actions might be taken even if other stockholders,
      including those who purchase securities pursuant to this prospectus, oppose
      them. This concentration of ownership might also have the effect of delaying
      or
      preventing a change of control of our company, which could cause our stock
      price
      to decline.




33


**Provisions
      in our corporate documents and our certificate of incorporation and bylaws,
      as
      well as Delaware General Corporation Law, may hinder a change of control.**




Provisions
      of our certificate of incorporation and bylaws, as well as provisions of the
      Delaware General Corporation Law, could discourage unsolicited proposals to
      acquire us, even though such proposals may be beneficial to you. These
      provisions include:




·
            A
                classified board of directors that cannot be replaced without cause
                by a
                majority vote of our stockholders;
                and




·
            Our
                board of director’s authorization to issue shares of preferred stock, on
                terms as the board of directors may determine, without stockholder
                approval.




**Provisions
      of Delaware General Corporation Law may restrict many business combinations.**




We
      are
      also subject to the provisions of Section 203 of the Delaware General
      Corporation Law, which could prevent us from engaging in a business combination
      with a 15% or greater stockholder for a period of three years from the date
      it
      acquired that status unless appropriate board or stockholder approvals are
      obtained.




**ITEM
      3. CONTROLS AND PROCEDURES**





**Evaluation
      of Disclosure Controls and Procedures**




The
      Company’s management, with the participation of its principal executive officer
      and principal financial officer, evaluated the effectiveness of the Company’s
      disclosure controls and procedures, as defined in Exchange Act Rule 13a-15(e),
      as of the end of the period covered by this report. Based on this evaluation,
      the principal executive officer and principal financial officer
      concluded that, as of the end of the period covered by this
      report, the Company’s disclosure controls and procedures, as defined in
      Exchange Act Rule 13a-15(e), were effective, at the reasonable assurance level,
      to ensure that (i) information required to be disclosed by the Company in the
      reports that it files or submits under the Exchange Act is recorded, processed,
      summarized and reported within the time periods specified in the Securities
      and
      Exchange Commission’s rules and forms and (ii) information required to be
      disclosed by the Company in the reports that it files or submits under the
      Exchange Act is accumulated and communicated to the Company’s management
      including its principal executive and principal financial officers, or persons
      performing similar functions, as appropriate to allow timely decisions regarding
      required disclosure.




The
      Company’s management, with the participation of its principal executive officer
      and principal financial officer, also conducted an evaluation of changes
      in the Company's internal control over financial reporting, as defined
      in Exchange Act Rule 13a-15(f). Based on this evaluation, the Company’s
      management determined that no changes were made to the Company’s internal
      control over financial reporting, as defined in Exchange Act Rule 13a-15(f),
      during the first quarter of 2006 that has materially affected, or is reasonably
      likely to materially affect, the Company’s internal control over financial
      reporting.




**Part
      II. Other Information**




**Item
      2. Unregistered Sales of Equity Securities and Use of
      Proceeds**





During
      the quarter ended March 31, 2006 20,000 non-plan common stock options were
      exercised for cash proceeds totaling $20,000. In addition, pursuant to the
      exercise of purchase options issued in connection with our IPO, we issued 2,000
      shares of common stock and 2,000 IPO warrants for cash proceeds of
      $11,220.  These shares were issued without registration on reliance on
      exemption provided in section 4(2) of the Act and Regulation D promulgated
      there
      under. The proceeds were used for general working capital purposes.




**Item
      5. Other Information**





The
      Compensation Committee of the Board of Directors on May 11, 2006 approved an
      amendment to the form of the option agreements that we attached as appendices
      to
      the Company’s 2004 Stock Option Plan (the “Plan”), as amended, which would
      effectively provide that in the event of a change of control (as defined in
      the
      Plan) of the Company, stock options granted under the Plan may be immediately
      exercised for up to 100% of the total number of shares then subject to the
      option minus the number of shares previously purchased upon exercise of the
      option (as adjusted for any change in the outstanding shares of the common
      stock
      of the Company by reason of a stock dividend, stock split, combinations of
      shares, recapitalization, merger, consolidation, transfer of assets,
      reorganization, conversion or what the Compensation Committee deems in its
      sole
      discretion to be similar circumstances).


34





Prior
      to
      the amendment, optionees were required to wait a period of six months before
      their options as noted above could be exercised in the event of any change
      of
      control event as defined in the Plan.





In
      addition, as of the date of the amendment to the Plan we are amending all
      outstanding options to provide that such outstanding options will become
      immediately exercisable in the event of a change of control in the same form
      as
      the amendment noted above. Some of the options subject to such amendment are
      options previously issued to our officers and directors listed below:




**Name**
            
            **Position(s)**Louis
                S. Slaughter
            
            Chairman
                of the Board, Chief Executive Officer, Treasurer and Assistant SecretaryDouglas
                G. Lockie
            
            President,
                Chief Technology Officer and DirectorThomas
                P. Wetmore
            
            Senior
                Vice President of Sales and MarketingLeighton
                J. Stephenson
            
            Chief
                Financial Officer and Vice President of Finance and
                AdministrationD.
                Duane Butler
            
            Vice
                President of Link OperationsDon
                E. Peck
            
            Vice
                President EngineeringCaroline
                Baldwin Kahl
            
            Vice
                President, Corporate Counsel and SecretaryJohn
                E. Krzywicki
            
            Vice
                President of Marketing, Strategy and Business
                DevelopmentRichard
                D. Fiorentino
            
            DirectorDavid
                A. Buckel
            
            DirectorGeneral
                Merrill A. McPeak
            
            Director





35


**Item
      6. Exhibits**





**EXHIBIT
      INDEX**





(a)
            The
                following exhibits are filed as part of this
                report:







**Exhibit**
              **Number**
            
            **Exhibit
                Title**10.1
            (1)*
            Agreement
                for Purchase and Sale of GigaBeam WiFiberTM Links between GigaBeam
                Corporation and Empire Telecom Solutions, Inc. dated February 1,
                2006.10.2
            (1)+
            Terms
                of 2006 Executive Bonus Plan.10.3
            +
            Form
                of Incentive Stock Option Under 2004 Stock Option Plan.10.4
            +
            Form
                of Non-Qualified Stock Option For Officers and Other Key Employees
                Under
                2004 Stock Option Plan.10.5
            +
            Form
                of Non-Qualified Stock Option For Directors and Important Consultants
                Under the 2004 Stock Option Plan.31.1
            
            Certification
                of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
                Act of 2002.31.2
            
            Certification
                of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
                Act of 2002.32.1
            
            Certification
                of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as
                adopted
                pursuant to Section 906 of the Sarbanes-Oxley Act of
                2002.32.2
            
            Certification
                of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as
                adopted
                pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


____________




(1)
            Incorporated
                by reference to the applicable exhibit filed with our Annual Report
                on
                Form 10-KSB filed with the SEC on April 3,
                2006.




+
            Management
                contract or compensatory plan or
                arrangement.




*
            Confidential
                treatment has been requested for certain portions of this exhibit
                which
                portions have been omitted and filed separately with the
                SEC.




36




**Signatures**





In
      accordance with the requirements of the Exchange Act, the registrant has caused
      this report to be signed on its behalf by the undersigned, thereunto duly
      authorized.





GigaBeam
                CorporationDate: May
                15, 2006
            By:
            /s/ Leighton
                J. StephensonLeighton
                J. StephensonChief
                Financial Officer




37