**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 September 30, 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 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 T  No £





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





The
      number of shares of the issuer’s Common Stock outstanding on November 10, 2006
      was 6,018,338.





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













**GigaBeam
      Corporation**


**Index
      to Form 10-QSB**




Table
      of Contents




PagePART
                I-FINANCIAL
                INFORMATIONItem
                1 -   Financial Statements (Unaudited)Condensed
                Consolidated Balance Sheets as of September 30, 2006  and December
                31, 2005
            3Condensed
                Consolidated Statements of Operations for the three months ended
                September
                30, 2006 and 2005 and the nine months ended September 30, 2006 and
                2005
            4Condensed
                Consolidated Statements of Cash Flows for the nine months ended September
                30, 2006 and 2005
            5Notes
                to Condensed Consolidated Financial Statements
            7Item
                2 -   Management’s Discussion and Analysis of Financial
                Condition and Results of Operations
            19Item
                3 -   Controls and Procedures
            37PART
                II -OTHER
                INFORMATIONItem
                6 -   Exhibits
            37Signature
            38








2


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





**GigaBeam
      Corporation**


**Condensed
      Consolidated Balance Sheets**


**(Unaudited)**






**September
                30,**
            
            **December
                31,****2006**
            
            **2005****ASSETS****Current
                assets:**Cash
                and cash equivalents
            
            $
            5,195,810
            
            $
            12,726,986Restricted
                cash
            
            
            -
            
            
            160,405Accounts
                receivable, net of allowance of $246,843 and $139,140 at September
                30,
                2006 and December 31, 2005, respectively
            
            
            2,100,295
            
            
            697,156Inventories
            
            
            7,928,257
            
            
            3,066,451Prepaid
                expenses and other current assets
            
            
            666,308
            
            
            533,078**Total
                current assets**
            
            
            15,890,670
            
            
            17,184,076Property
                and equipment, net
            
            
            2,072,710
            
            
            1,658,512Other
                assets
            
            
            382,664
            
            
            291,162Debt
                issuance costs
            
            
            240,023
            
            
            475,310Deferred
                charges
            
            
            429,000
            
            
            429,000**Total
                assets**
            
            $
            19,015,067
            
            $
            20,038,060**LIABILITIES
                AND STOCKHOLDERS’ EQUITY****Current
                liabilities:**Accounts
                payable
            
            $
            2,981,392
            
            $
            2,417,723Accrued
                liabilities
            
            
            1,421,039
            
            
            1,465,803Current
                portion of capital lease obligations
            
            
            28,783
            
            
            221,300**Total
                current liabilities**
            
            
            4,431,214
            
            
            4,104,826Capital
                lease obligations, non-current
            
            
            48,572
            
            
            33,228Convertible
                notes payable, net of discount
            
            
            1,044,332
            
            
            895,896**Total
                liabilities**
            
            
            5,524,118
            
            
            5,033,950**Stockholders’
                equity:**Series
                A redeemable preferred stock, $.001 par value, 20,000 shares authorized;
                11,277 shares issued and outstanding at September 30, 2006 and December
                31, 2005
            
            
            11
            
            
            11Series
                B convertible preferred stock, $.001 par value; 20,000 shares authorized;
                15,100 and 18,900 shares issued and outstanding at September 30,
                2006 and
                December 31, 2005, respectively
            
            
            15
            
            
            19Series
                C convertible preferred stock, $.001 par value; 10,000 shares authorized;
                10,000 shares issued and outstanding at September 30, 2006
            
            
            10
            
            
            -Common
                stock, $.001 par value, 40,000,000 shares authorized; 6,008,338and 4,999,132 shares issued and outstanding at September 30, 2006
                and
                December 31, 2005, respectively
            
            
            6,008
            
            
            4,999Additional
                paid in capital
            
            
            50,558,502
            
            
            37,841,214Deferred
                compensation
            
            
            (19,948
            )
            
            (30,775
            )Accumulated
                deficit
            
            
            (37,053,649
            )
            
            (22,811,358
            )**Total
                stockholders’ equity**
            
            
            13,490,949
            
            
            15,004,110**Total
                liabilities and stockholders’ equity**
            
            $
            19,015,067
            
            $
            20,038,060





*See
      notes to condensed consolidated financial statements.*





3








**GigaBeam
      Corporation**


**Condensed
      Consolidated Statements of Operations**


**(Unaudited)**









**Three
                Months Ended******
            
            
            **Nine
                Months Ended********September
                30,**
            
            
            **September
                30,****2006**
            
            
            **2005**
            
            
            **2006**
            
            
            **2005****(As
                Restated)**
            
            
            
            
            
            **(As
                Restated)**Net
                sales
            
            $
            2,045,941
            
            $
            371,238
            
            $
            4,401,140
            
            $
            479,438Cost
                of sales
            
            
            1,400,538
            
            
            566,474
            
            
            3,153,729
            
            
            727,338Gross
                margin
            
            
            645,403
            
            
            (195,236
            )
            
            1,247,411
            
            
            (247,900
            )**Operating
                expenses:**Research
                and development
            
            
            1,208,201
            
            
            1,200,562
            
            
            3,840,557
            
            
            3,944,963General
                and administrative
            
            
            1,209,308
            
            
            797,739
            
            
            4,752,691
            
            
            2,759,739Selling
                and marketing
            
            
            1,289,368
            
            
            673,507
            
            
            3,825,825
            
            
            1,863,402Service,
                install and link operations
            
            
            849,102
            
            
            290,872
            
            
            2,394,498
            
            
            716,688Total
                operating expenses
            
            
            4,555,979
            
            
            2,962,680
            
            
            14,813,571
            
            
            9,284,792Operating
                loss
            
            
            (3,910,576
            )
            
            (3,157,916
            )
            
            (13,566,160
            )
            
            (9,532,692
            )Other
                income (expense):Interest
                income
            
            
            40,579
            
            
            1,834
            
            
            190,362
            
            
            8,084Interest
                expense
            
            
            (248,492
            )
            
            (302,597
            )
            
            (866,493
            )
            
            (803,016
            )**Loss
                before provision for income taxes**
            
            
            (4,118,489
            )
            
            (3,458,679
            )
            
            (14,242,291
            )
            
            (10,327,624
            )**Provision
                for income taxes**
            
            
            -
            
            
            -
            
            
            -
            
            
            -**Net
                loss**
            
            $
            (4,118,489
            )
            $
            (3,458,679
            )
            $
            (14,242,291
            )
            $
            (10,327,624
            )Series
                B convertible preferred stock dividends
            
            
            (319,067
            )
            
            
            
            
            (921,412
            )Effect
                of beneficial conversion feature related to issuance of Series C
                convertible preferred stock
            
            
            (2,252,398
            )
            
            -
            
            
            (2,252,398
            )
            
            -**Net
                loss allocated to common shareholders**
            
            
            (6,689,954
            )
            
            (3,458,679
            )
            
            (17,416,101
            )
            
            (10,327,624
            )**Basic
                and diluted loss per share**
            
            $
            (1.12
            )
            $
            (.70
            )
            $
            (3.11
            )
            $
            (2.12
            )**Basic
                and diluted weighted average shares outstanding**
            
            
            5,978,757
            
            
            4,973,156
            
            
            5,604,841
            
            
            4,860,948








*See
      notes to condensed consolidated financial statements.*


4








**GigaBeam
      Corporation**


**Condensed
      Consolidated Statements of Cash Flows**


**(Unaudited)**






**Nine
                Months Ended****September
                30,****2006**
            
            **2005****(As
                Restated)****Cash
                flows from operating activities:**Net
                loss
            
            $
            (14,242,291
            )
            $
            (10,327,624
            )Adjustments
                to reconcile net loss to net cash used for operating
                activities:Amortization
                of debt discount and beneficial conversion feature
            
            
            753,723
            
            
            368,739Provision
                for doubtful accounts
            
            
            107,703
            
            
            95,000Increase
                in inventory provision for obsolescence
            
            
            758,554
            
            
            -Warranty
                costs
            
            
            270,000
            
            
            -Depreciation
                and amortization
            
            
            388,606
            
            
            169,120Non-cash
                compensation expenses
            
            
            1,962,235
            
            
            98,227Changes
                in operating assets and liabilities:Accounts
                receivable
            
            
            (1,510,842
            )
            
            (216,175
            )Inventories
            
            
            (5,574,792
            )
            
            (1,281,885
            )Prepaid
                expenses and other current assets
            
            
            61,830
            
            
            (331,334
            )Deposits
            
            
            (13,643
            )
            
            (3,685
            )Accounts
                payable
            
            
            563,669
            
            
            478,232Accrued
                liabilities
            
            
            (506,158
            )
            
            84,228**Net
                cash used in operating activities**
            
            
            (16,981,406
            )
            
            (10,867,157
            )**Cash
                flows from investing activities:**Restricted
                cash
            
            
            160,405
            
            
            (160,405
            )Investment
                in notes receivable
            
            
            -
            
            
            (95,000
            )Purchases
                of property and equipment
            
            
            (804,876
            )
            
            (779,336
            )Acquisition
                of patents & intangibles
            
            
            (82,669
            )
            
            (106,005
            )**Net
                cash used in investing activities**
            
            
            (727,140
            )
            
            (1,140,746
            )**Cash
                flows from financing activities:**Repayments
                of capital lease obligations
            
            
            (215,859
            )
            
            (155,730
            )Issuance
                of common stock; net of related costs
            
            
            -
            
            
            577,159Issuance
                of convertible debt; net of related costs
            
            
            -
            
            
            2,432,437Issuance
                of convertible preferred stock; net of related costs
            
            
            9,224,705
            
            
            -Issuance
                of redeemable preferred stock; net of related costs
            
            
            -
            
            
            6,923,914Exercise
                of common stock warrants
            
            
            2,011,036
            
            
            888,295Exercise
                of common stock options
            
            
            78,900
            
            
            -Series
                B convertible preferred stock dividend paid
            
            
            (921,412
            )
            
            -**Net
                cash provided by financing activities**
            
            
            10,177,370
            
            
            10,666,075**Net
                decrease in cash and cash equivalents**
            
            
            (7,531,176
            )
            
            (1,341,828
            )Cash
                and cash equivalents at beginning of period
            
            
            12,726,986
            
            
            1,742,716**Cash
                and cash equivalents at end of period**
            
            $
            5,195,810
            
            $
            400,888





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


5


**GigaBeam
      Corporation** **Condensed
      Consolidated Statements of Cash Flows**


**(Unaudited)**






**Nine
                Months Ended****September
                30,****2006**
            
            **2005****(As
                Restated)****Supplemental
                disclosures:**Interest
                Paid
            
            $
            119,376
            
            $
            87,927Non-cash
                investing and financingtransactions:Conversion
                of convertible notes payable into shares of common stock
            
            $
            373,666
            
            $
            -Conversion
                of Series B convertible preferred stock into shares of common
                stock
            
            $
            505
            
            $
            -Fair
                value adjustment of options granted
            
            $
            127,380
            
            $
            -Issuance
                of warrants in connection with convertible notes payable
            
            $
            -
            
            $
            1,194,761Issuance
                of warrants in connection with redeemable preferred stock
            
            $
            -
            
            $
            61,101Issuance
                of warrants and options in connection with convertible notes payable
                debt
                issue costs
            
            $
            -
            
            $
            384,835Capital
                lease obligations incurred to finance the purchase of
                equipment
            
            $
            38,686
            
            $
            524,832








*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, installs and services
      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®.” 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.





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.





The
      Company was incorporated under the laws of the State of Delaware on January
      4,
      2004. 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 and
      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 $5,491,000. Since that date, the
      Company has completed various private placements of its debt and equity
      securities and stock purchase warrants, totaling approximately $39,975,000,
      and
      from which net proceeds totaled approximately $36,054,000. Additionally, the
      Company has received approximately $2,622,000 to date from the exercise of
      common stock purchase warrants.





*Basis
      of Presentation*





The
      condensed consolidated financial statements include the accounts of the Company
      and its wholly owned subsidiary. Inter-company 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.





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.











7











The
      following table summarizes the number of our significant customers as of
      September 30, 2006, each of whom accounted for more than 10% of our revenues,
      along with the percentage of revenues they individually
      represent.


**Nine
                Months Ended****September
                30, 2006**Number
                of significant customers
            3Percentage
                of net sales
            18%,
                13%, 12%





*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:**September
                30, 2006**
            
            **December
                31,**
              **2005**Raw
                material
            
            $
            4,951,309
            
            $
            2,142,401Finished
                goods
            
            
            3,910,502
            
            
            1,099,0508,861,881
            
            
            3,241,451Less
                provision for obsolescence
            
            
            (933,554
            )
            
            (175,000
            )$
            7,928,257
            
            $
            3,066,451





Work
      in
      process at September 30, 2006 was insignificant.





*Revenue
      Recognition*





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 would determine whether the individual
      elements represent “separate units of accounting” under the requirements of
      Emerging Issues Task Force Issue 00-21 “Multiple Delivery Revenue Arrangements”
(“EITF 00-21”).





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. Bandwidth sale revenues are recognized as
      billed to customers based upon contract terms, and are generally billed one
      month in arrears. Unearned income on service contracts is amortized using 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”.





*Allowance
      for Doubtful Accounts*





The
      Company records its trade receivables at invoiced amounts. The Company maintains
      an allowance for doubtful accounts for estimated losses that result from the
      failure or inability of customers to make required payments. When determining
      the allowance level, the Company considers the probability of collection based
      upon past experience, taking into account current collection effort results,
      as
      well as industry and general economic factors. Amounts may be eventually written
      off if the Company determines that it is probable that the amount will not
      be
      collected.





8








*Warranties*




As
      revenues have occurred, the Company has established an accrual for warranty
      work
      associated with its link sales. 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 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
            
            
            400,006Options
                to purchase common stock
            
            
            2,552,894Warrants
                to purchase common stock
            
            
            5,352,914Shares
                underlying Series B convertible preferred stock
            
            
            2,475,410Shares
                underlying Series C convertible preferred stock
            
            
            1,639,344





*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 September 30, 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.





*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 for the three and nine months ended September 30, 2006 reflect the
      impact of SFAS 123(R). In accordance with the modified prospective transition
      method, the Company’s


9





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 Statement of Financial Accounting
      Standards No. 123, “Accounting for Stock-Based Compensation” (“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 as a result of SFAS 123(R). Share-based compensation for the three
      and
      nine months ended September 30, 2006 was $725,481 and $1,824,028, respectively,
      related solely to stock options. Under the requirements of APB 25, no statement
      of share-based compensation expense was required to be recorded during the
      nine
      months ended September 30, 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 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 nine months ended September 30, 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 nine months ended
      September 30, 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 Board (“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.





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




**Three
                Months Ended**
            
            
            **Nine
                Months Ended****September
                30,**
            
            
            **September
                30,****2006**
            
            
            **2005**Loss
                before income taxes
            
            $
            (725,481
            )
            $
            (1,824,028
            )Net
                loss
            
            $
            (725,481
            )
            $
            (1,824,028
            )Loss
                per common share, basic and diluted
            
            $
            (0.12
            )
            $
            (0.33
            )





10










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” (“SFAS 148”), using a Black-Scholes option-pricing model and
      amortized expense over the options’ vesting periods.




**Three
                Months Ended**
            
            
            **Nine
                Months Ended****September
                30,**
            
            
            **September
                30,****2005**
            
            
            **2005****(As
                Restated)**
            
            
            **(As
                Restated)**


Net
                loss attributed to common stockholders
            
            $
            (3,458,679
            )
            $
            (10,327,624
            )Less:
                Stock-based compensation expense determined underthe
                fair value based method
            
            
            3,609
            
            
            10,827Add:
                Stock-based compensation expense included in reportednet
                loss
            
            
            (331,358
            )
            
            (685,529
            )Net
                loss attributed to common stockholders, pro forma
            
            $
            (3,786,428
            )
            $
            (11,002,326
            )Loss
                per share-Basic and diluted:Reported
            
            $
            (0.70
            )
            $
            (2.12
            )Pro
                forma
            
            $
            (0.76
            )
            $
            (2.26
            )





The
      following weighted-average assumptions were used for options granted in the
      nine
      months ended September 30, 2006 and 2005 and a discussion of the Company’s
      methodology for developing each of the assumptions used in the valuation model
      follows:







**Nine
                    Months Ended**
              
              
              **Nine
                  Months Ended****September
                  30,**
              
              
              **September
                  30,****2006**
              
              
              **2005****(As
                  Restated)**


Dividend
                yield
            
            
            0.0
            %
            
            0.0
            %Expected
                volatility
            
            
            101
            %
            
            85
            %Risk-free
                interest rate
            
            
            4.60%
                to 5.23
            %
            
            3.7
            %Expected
                life of the option term (in years)
            
            
            4.0
                - 7.0
            
            
            4Forfeiture
                rate
            
            
            10
            %
            
            -





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
      September 30, 2006, and pursuant to SFAS 123(R), the Company estimates expected
      volatility through use of historical and current data using a combined
      volatility index of it’s own common stock and for similar baseline 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 our and 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 nine months ended September
      30,
      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 Emerging Issues Task Force No. EITF 96-18, “Accounting for Equity
      Instruments that are Issued to Other Than Employees for Acquiring, or in
      Conjunction with Selling, Goods, or Services,”(“EITF 96-18”). EITF 96-18
      requires the options issued to non-employees to be accounted for at fair value.
      The fair value of the options is re-valued at each reporting period and the
      compensation expense is adjusted accordingly. For the three months ended
      September 30, 2006, negative compensation expense of approximately ($150,000)
      was recognized related to equity awarded to non-employees. For the nine months
      ended September 30, 2006, the Company recognized compensation expense of
      approximately $127,000 related to equity awarded to non-employees.





There
      were 7,750 employee options exercised during the nine months ended September
      30,
      2006 which provided proceeds totaling $58,900. The weighted-average grant date
      fair value price of options granted during the nine month period ended September
      30, 2006 and September 30, 2005 were $7.95 and $6.67, respectively. The total
      fair value of options granted during the nine month period ended September
      30,
      2006, were approximately $7,334,942. There were 1,508,105 options outstanding
      at
      September 30, 2006. These options had a weighted-average exercise price of
      $8.72
      and an intrinsic value of approximately $10,331,607 and a weighted-average
      remaining contractual life of 9.04 years. There were 265,269 fully vested
      options exercisable at September 30, 2006. These options had a weighted average
      exercise price of $5.95 and an intrinsic value of approximately $1,466,951
      and a
      weighted average remaining contractual life of 8.05 years.





Total
      Common Stock option activity during the nine months ended September 30, 2006,
      is
      summarized as follows:





**Shares**
            
            **Weighted-Average
                Exercise Price**Options
                outstanding at beginning of period
            
            
            855,605
            
            $
            6.16Granted
            
            
            922,250
            
            
            11.46Exercised
            
            
            (7,750
            )
            
            7.29Canceled
                or expired
            
            
            (262,000
            )
            
            6.66Options
                outstanding at end of period
            
            
            1,508,105
            
            
            8.93




Exercisable
      option activity during the nine months ended September 30, 2006, is summarized
      as follows:





**Shares**
            
            **Weighted-Average
                Exercise Price**Exercisable
                options outstanding at beginning of period
            
            
            100,351
            
            $
            4.78Vested
            
            
            187,668
            
            
            6.57Exercised
            
            
            (7,750
            )
            
            7.29Canceled
                or expired
            
            
            (15,000
            )
            
            5.05Exercisable
                options outstanding at end of period
            
            
            265,269
            
            
            5.95





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.





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”), an amendment to SFAS 133, and SFAS 140. SFAS
      155 resolves issues addressed in SFAS 133 Implementation issue D1, “Application
      of Statement 133 to Beneficial Interests in Securitized Financial Assets.” SFAS
      155 simplifies the accounting for certain hybrid financial instruments
      containing embedded derivatives. SFAS 155 allows fair value measurement for
      any
      hybrid financial instrument that contains an embedded derivative that otherwise
      would require bifurcation under SFAS 133. Additionally, it amends SFAS 140
      to
      eliminate the prohibition on a qualifying special-purpose entity from holding
      a
      derivative financial instrument that pertains to a beneficial interest other
      than another derivative financial instrument.





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.
      The Company will adopt the provisions of SFAS 155 beginning in 2007. The Company
      does not expect SFAS 155 to have any significant impact on the Company’s
      financial position, results of operations or cash flows.





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 related to servicing assets and liabilities
      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.




In
      September 2006, the Securities and Exchange Commission issued Staff Accounting
      Bulletin No. 108, “Considering the Effects of Prior Year Misstatements When
      Quantifying Misstatements in Current Year Financial Statements” (“SAB 108”). SAB
      108 provides guidance on how prior year misstatements should be taken into
      consideration when quantifying misstatements in current year financial
      statements for purposes of determining whether the current year’s financial
      statements are materially misstated. SAB 108 is effective for fiscal years
      ending after November 15, 2006. The Company is still determining the
      impact, if any, of the adoption of SAB 108 on its financial statements.


13





*Derivative
      Instruments*





The
      Company enters into financing arrangements that consist of freestanding
      derivative instruments or are hybrid instruments that contain embedded
      derivative features. The Company accounts for these arrangement in accordance
      with Statement of Financial Accounting Standards No. 133, "Accounting for
      Derivative Instruments and Hedging Activities", ("SFAS No. 133") and Emerging
      Issues Task Force Issue No. 00-19, "Accounting for Derivative Financial
      Instruments Indexed to, and Potentially Settled in, a Company's Own Stock",
      ("EITF 00-19"),as well as related interpretations of these standards. In
      accordance with accounting principles generally accepted in the United States
      ("GAAP"), derivative instruments and hybrid instruments are recognized as either
      assets or liabilities in the statement of financial position and are measured
      at
      fair value with gains or losses recognized in earnings or other comprehensive
      income depending on the nature of the derivative or hybrid instruments. Embedded
      derivatives that are not clearly and closely related to the host contract are
      bifurcated and recognized at fair value with changes in fair value recognized
      as
      either a gain or loss in earnings if they can be reliably measured. When the
      fair value of embedded derivative features can not be reliably measured, the
      Company measures and reports the entire hybrid instrument at fair value with
      changes in fair value recognized as either a gain or loss in earnings. The
      Company determines the fair value of derivative instruments and hybrid
      instruments based on available market data using appropriate valuation models,
      giving consideration to all of the rights and obligations of each instrument
      and
      precluding the use of "blockage" discounts or premiums in determining the fair
      value of a large block of financial instruments. Fair value under these
      conditions does not necessarily represent fair value determined using valuation
      standards that give consideration to blockage discounts and other factors that
      may be considered by market participants in establishing fair
      value.





*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 three months ended
      September 30, 2005, interest expense and net loss increased by $73,522 to
      $302,597 and $3,458,679, respectively, and the loss per share increased by
      $0.02
      to $0.70. For the nine months ended September 30, 2005, interest expense and
      net
      loss decreased by $686,203 to $803,016 and $10,327,624, respectively, and the
      loss per share decreased by $0.15 to $2.12.





3.
      Convertible notes payable:





Convertible
      notes payable consist of the following:




**September
                30, 2006**
            
            
            **December
                31, 2005**8%
                senior notes payable
            
            $
            1,970,000
            
            $
            2,340,000Less
                unamortized debt discount
            
            
            (533,552
            )
            
            (831,423
            )Less
                unamortized beneficial conversion feature
            
            
            (392,116
            )
            
            (612,681
            )$
            1,044,332
            
            $
            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.





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 three months
      ended September 30,


2006,
      the
      Company recorded amortization of $100,382. For the nine months ended September
      30, 2006 the Company recorded amortization of $297,871.


14








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 three months ended September
      30,
      2006, the Company recorded amortization of $59,375. For the nine months ended
      September 30, 2006, the Company recorded amortization of $235,288.





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 $73,522 during the three months ended
      September 30, 2006 related to amortization of the beneficial conversion feature.
      For the nine months ended September 30, 2006, the Company recorded amortization
      of $220,565. The unamortized balance of $392,116 and $612,681 has been recorded
      as a reduction to convertible notes payable at September 30, 2006 and December
      31, 2005, respectively.




During
      the nine months ended September 30, 2006, seven Note holders requested
      conversion of $530,000 face value of Notes to shares of common stock. Shares
      of
      common stock were issued and the related Notes were retired or reduced in face
      value.





The
      carrying value as of September 30, 2006 of $1,044,332 is comprised of the
      aggregate principal amount outstanding of $1,970,000, net of unamortized
      discount and the net unamortized beneficial conversion feature. The increase
      in
      carrying value as of September 30, 2006 is due to the amortization of the debt
      discount and beneficial conversion feature, offset by the conversion of seven
      notes payable.




At
      September 30, 2006 and December 31, 2005, the Company estimated the fair value
      of the notes to be equal to their face value of $1,970,000 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 days
      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.





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 Notes financing (the “Z warrants”) on
      the Nasdaq Capital Market under the symbol “GGBMZ”.


15








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, 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 42,392 based on the formula as noted above. On May 15, 2006 we paid the
      semi-annual required dividend through the issuance of 31,798 shares of common
      stock based on the stated formula.





Our
      common stock, the Z 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 $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.





Pursuant
      to the anti-dilution provisions contained in the Certificate of Designation
      of
      Preferences, Rights and Limitations of the Series B stock, at the time of any
      issuance of common stock or common stock equivalents at an effective price
      below
      the conversion price then in effect, the conversion price of the Series B stock
      shall be adjusted to the effective price of the subsequently issued common
      stock
      or common stock equivalents as of the date of such issue. On August 21, 2006
      we
      issued 10,000 shares of our variable dividend Series C convertible preferred
      stock with a conversion price of $6.10 which was below the Series B stock
      conversion price. Consequently, the original conversion price of the Series
      B
      stock of $7.6199 per share was adjusted to equal the effective price of our
      variable dividend series C preferred stock (“Series C stock”) of $6.10 that we
      issued in August 2006. Based upon the adjusted conversion price of $6.10 per
      share, and based upon the number of outstanding shares of Series B stock at
      August 21, 2006 (15,300), the number of common shares issuable upon conversion
      of the Series B stock was adjusted from 2,007,906 shares to 2,508,204
      shares.





Additionally,
      pursuant to the anti-dilution provisions of the warrants issued to the holders
      of the Series B stock, the number of shares of common stock issuable upon
      exercise of the warrants issued to the Series B stock shareholders has been
      adjusted from 1,274,630 shares to 1,667,467 shares and the exercise price has
      been adjusted from $7.9827 to $6.10.





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 reached, 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.


16








On
      January 3, 2006, April 1, 2006, July 3, 2006 and October 2, 2006, we paid the
      quarterly dividend to holders of Series B stock in cash amounting to $231,034,
      $371,311, $319,067 and $314,781, respectively, since the 20 trading days average
      trading volume in our stock did not exceed the threshold 20,000 share figure
      noted above.





On
      August
      21, 2006, we issued 10,000 shares of our Series C stock with a conversion price
      of $6.10 per common share and warrants to purchase an aggregate of 860,651
      shares of common stock for gross proceeds of $10 million resulting in net
      proceeds of $9,224,705 after payment of placement fees and other expenses of
      $775,295. The proceeds from the issuance of the Series C stock and warrants
      were
      allocated between the Series C 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 $2,252,398. 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 C stock is outstanding.





The
      conversion price of the Series C stock is $6.10 per share, subject to adjustment
      as set forth in the Certification of Designation of Preferences, Rights and
      Limitations covering the Series C stock.





The
      exercise price of the common stock purchase warrants issued to holders of the
      Series C stock is $ 6.39, subject to adjustment.





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





We
      may
      redeem the outstanding Series C stock in whole or in part after August 21,
      2009,
      subject to certain conditions and limitations upon appropriate notice at a
      cash
      redemption price equal to 110% of the stated value if redeemed prior to August
      21, 2010, and at 100% of the stated value if redeemed after August 21,
      2011.





Under
      terms of the Series C stock, so long as any shares of the Series C 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 and Series B stock provided we are current
      in
      our obligations under our Series C stock, and the terms of our Series A stock
      have not been amended since November 7, 2005.





Dividends
      on the Series C 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 reached, 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
      October 2, 2006 we paid the quarterly dividend to holders of Series C stock
      in
      cash, amounting to $91,111, since the 20 trading days average trading volume
      in
      our stock did not exceed the threshold 20,000 share figure noted
      above.





5.
      Stock
      Option Plans





During
      May 2004, the Company established the 2004 Stock Option Plan (the “2004 Plan”)
      for the benefit of officers, directors, key employees, and important consultants
      to the Company. The 2004 Plan provides for the issuance of both incentive stock
      options and non-qualified stock options, to purchase an aggregate of up to
      1,850,000 shares of common stock. The terms of the options are determined at
      the
      time of grant by the administrative committee as set forth in the 2004 Plan.
      The
      options issued under this 2004 Plan vest in equal installments as determined
      by
      administrative committee. The 2004 Plan provides that no one individual may
      receive options for more than 80% of the total number of shares of common stock
      authorized for issuance under the 2004 Plan d uring
      the
      term of the 2006 Plan. As of September 30, 2006 options to purchase 1,623,800
      shares of common stock were outstanding under the 2004 Plan,


17







During
      June 2006, the Company established the 2006 Stock Option Plan (the “2006 Plan”)
      for the benefit of officers, directors, key employees, and important consultants
      to the Company. The 2006 Plan provides for the issuance of both incentive stock
      options and non-qualified stock options. Subject
      to anti-dilution adjustments as provided in the 2006 Plan, (i) a total of
      1,500,000 shares of Common Stock have been reserved for distribution pursuant
      to
      the 2006 Plan, up to 750,000 of which may be issued as Incentive Stock Options,
      and (ii) the maximum number of shares of Common Stock that may be issued to
      any
      individual participant under the 2006 Plan may not exceed 80% of the total
      shares of Common Stock authorized for issuance under the 2006 Plan during the
      term of the 2006 Plan. The
      terms
      of the options are determined at the time of grant by the administrative
      committee as set forth in the 2006 Plan The options issued under the 2006 Plan
      vest in equal installments as determined by administrative committee As
      of
      September 30, 2006, no 2006 Plan options were outstanding.





6.
      Commitments and contingencies





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





At
      September 30, 2006, future minimum lease payments under these operating leases
      are as follows:





2007
            
            $
            567,9012008
            
            
            243,8112009
            
            
            31,140$
            842,852





Rental
      expense for operating leases was $468,307 for the nine months ended September
      30, 2006.





7.
      Subsequent Events:





On
      October 2, 2006, Thomas Wetmore resigned as Senior Vice-President of Sales
      and
      Marketing, terminating his July 12, 2004 Employment Agreement with the Company,
      to form a new telecommunications company in the Boston, Massachusetts
      metropolitan area. Mr. Wetmore has entered into a Consulting and Separation
      Agreement with the Company, under which he has agreed to provide specified
      sales
      and marketing services for a two-year period. Under the Consulting Agreement,
      the Company also agreed to reimburse Mr. Wetmore for a portion of certain group
      health benefits for a period of six months, and to compensate him in the amount
      of $17,500 per month for a minimum of three months. Additionally, the Company
      has granted Mr. Wetmore ten-year options to purchase 34,000 shares of its common
      stock at an exercise price of $12.03, said options are to vest over a period
      of
      two years.





Effective
      September 26, 2006, the Company’s Board of Directors approved reductions in base
      salaries of the Company’s management team, including those of its executive
      officers. The reductions ranged from 10% - 50%. Additionally, the Company’s
      Board of Directors approved the accrual of and deferral of all compensation
      payments for the Company’s non-employee Directors for board and committee
      meeting attendance effective October 1, 2006.





8.
      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.














18








**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, market, sell, lease, install and service
      advanced point-to-point wireless 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.





For
      the
      nine months ended September 30, 2006, our net sales totaled $4.4 million
      primarily from the sale of our WiFiber G series Gig *E* products. Sales for the nine months ended September 30, 2005, totaled $479,438
      from the sale of our WiFiber II series Gig *E* .
      For the
      year ended December 31, 2005, our net sales totaled $1.2 million.




We
      have
      not yet generated significant revenues or achieved a cash flow breakeven level
      from operations. Consequently, 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 to
      continue our research and development activities over the next 12 months, as
      we
      work to complete the cost reduction schedule of our WiFiber G series Gig *E* products
      and progress toward the commercial deployment of our next generation of wireless
      radio products. If additional working capital is required in the next 12 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. As detailed in Note
      4
      to the financial statements, we completed a private placement of our Series
      C
      stock as of August 21, 2006, from which the gross proceeds were $10,000,000,
      net
      proceeds after fees and related costs were $9,224,705. However, if we are
      required to seek additional capital in the next 12 month period and such
      additional capital were only available at prohibitive costs or terms or not
      available, we will need to change our business strategy, which could include
      a
      reduction of our operations to conserve cash and maintain liquidity until such
      time, if ever, that sufficient cash 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**





The
      accounting 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.





19





**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.





·
            We
                anticipate delayed revenue and revenue growth in the near term as
                a result
                of our recent termination of the reseller distribution agreement
                with our
                Middle East and North Africa reseller in August
                2006





On
      August
      3, 2006, we gave notice to CircleTel Consultancies W.L.L. (“CircleTel”), our
      Middle East and North Africa (“MENA”) reseller, that we were terminating our
      reseller/distributor agreement with CircleTel. Our determination to terminate
      this agreement was a result of CircleTel’s failure to comply with certain
      material provisions of the agreement. International markets represent an
      important market opportunity for us and the termination of our existing MENA
      relationship creates near term uncertainty in selected international markets,
      which will result in delayed revenue and revenue growth for us. Under the
      circumstances, however, we believe that it is in our best interest to develop
      alternative distribution channels in the MENA region. We remain highly confident
      that there is significant demand for our products in the MENA region and we
      are
      confident that we will reestablish distribution channels in the region.




**Research
      and development**





In
      order
      to compete effectively in our markets, we are, and expect to continue, investing
      resources to introduce and commercially deploy our products, develop subsequent
      generations of these products and identify and address demand for new solutions
      with additional products. We are currently devoting resources to completing
      the
      development of our WiFiber G series *OC-48* ,
      which
      we expect to introduce in the fourth quarter of 2006 and to initiatives related
      to product unit cost reduction.





Research
      and development expenses for the nine months ended September 30, 2006 were
      $3,840,557, compared to $3,944,963 for the nine months ended September 30,
      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 nine months ended September 30, 2006, we
      invested an additional $376,295 in equipment, and estimate that we will spend
      an
      additional $155,000 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. The detailed designs of
      our
      initial products have been completed and the necessary components and modules
      (subassemblies) to produce these products are identified. We outsource the
      manufacture of 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 at our facilities. As
      the
      scale of our operations increase, we may contract out significant aspects of
      assembly and testing of our products.


20







We
      spent
      $6,696,162 on manufacturing inventory and materials for the nine months ended
      September 30, 2006 compared to $1,281,885, for the nine months ended September
      30, 2005. The increased spending was related to forecast increases in sales
      of
      our WiFiber G series Gig *E* products
      in 2006. We expect to continue our on premises manufacturing activities during
      the next 12 months as we consider outsourcing all or part of our manufacturing
      assembly and test activities for commercial production.





**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. For the
      nine
      months ended September 30, 2006 our current operating locations included 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. Additionally, we have an ongoing lease through
      February 2008 for our closed Waltham, Massachusetts sales office for which
      we
      are currently seeking a subtenant. Our monthly minimum lease and maintenance
      cost for the aforementioned facilities is approximately $37,162.





On
      November 1, 2006, the Company entered into a real estate lease agreement for
      a
      research and development and engineering facility in Durham, North Carolina.
      The
      location comprises approximately 11,700 square feet in a suburban office park.
      The facility is to be used for engineering offices and general office purposes.
      The initial lease period is 48 months. Monthly base rent level is $10,767 for
      the initial twelve months, and thereafter increasing annually by 3% over the
      previous year’s base rental level.





**Selling
      and marketing**





Our
      sales
      and marketing group includes geographic and industry-focused outside sales,
      marketing research, business development, 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 nine months ended
      September 30, 2006 were $3,825,825, compared to $1,863,402 for the nine months
      ended September 30, 2005. The sales and marketing operations in the Company
      escalated substantially since September 2005 to promote and sell commercial
      quantities of our WiFiber II series Gig *E* and
      later, our WiFiber G series Gig *E* products. We moved our primary sales and marketing offices to a larger location
      in Waltham, Massachusetts in the first quarter of 2006. In September 2006 we
      closed the Waltham office as part of our re-evaluation of the geographical
      requirements for our sales force office coverage needs. We are currently seeking
      a sub-lease tenant. Travel costs increased in proportion to the increase in
      the
      sales group personnel levels since September 2005, particularly international
      travel to obtain regulatory approvals and to establish reseller networks. We
      expect to increase our selling and marketing activities over the next twelve
      months to support our increased global marketing penetration objectives.





**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 an integral 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
      nine
      months ended September 30, 2006 were $2,394,498, compared to $716,688 for the
      nine months ended September 30, 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 the
      activity levels for installation and link operations over
      the
      next 12 months will track the anticipated increase in customer installation
      sites.





21





**Results
      of operations for the three months ended September 30, 2006 compared to the
      three months ended September 30, 2005**





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




**Three
                Months Ended****September
                30,**
            
            
            **September
                30,****2006**
            
            
            **2005**


Net
                sales
            
            $
            2,045,941
            
            $
            371,238Gross
                margin
            
            $
            645,403
            
            $
            (195,236
            )Net
                loss
            
            $
            (4,118,489
            )
            $
            (3,458,679
            )




For
      the
      three months ended September 30, 2006 our revenue totaled $2,045,941 primarily
      from the sale of our WiFiber G series Gig *E* products. Sales for the three months ended September 30, 2005 totaled $371,238
      from the sale of our WiFiber II series Gig *E* product.
      Gross margin for the three months ended September 30, 2006 was 32%. The
      percentage was affected by allocations of manufacturing overhead over a
      relatively small number of our WiFiber G series Gig *E* links
      sold during the quarter and a provision for obsolescence of $266,500 expensed
      to
      cost of sales related the value of our Wifiber II series Gig *E* links.





***Research
      and development.*** Our
      research and development expenses for the third quarter 2006 were $1,208,201,
      an
      increase of $7,639 over the comparable 2005 period. The increased expense level
      was due primarily to increased depreciation related to additional testing and
      production equipment purchases, increased equipment rental costs, expenses
      related to employee share-based compensation required to be recognized in 2006
      and increases in salaries and benefits related to increases in the internal
      engineering personnel. These increases were offset by net decreased spending
      for
      outside engineering development projects for our WiFiber Gig *E* series
      product lines. The WiFiber G series Gig *E* product
      reached the commercial production stage in late 2005; the development of our
      WiFiber G series OC 48 was ongoing as of September 30, 2006.





***General
      and administrative.*** For the
      quarter ended September 30, 2006, general and administrative expenses were
      $1,209,308 an increase of $411,569 over the comparable expenses incurred in
      the
      third quarter of 2005. The increase in general and administrative expenses
      was
      primarily due to increased legal and professional fees, higher insurance
      premiums due to increased coverage, expenses of operating as a publicly traded
      company including costs associated with compliance with the requirements of
      the
      Sarbanes-Oxley Act of 2002 (“SOA”), increases in the overall size of operations
      and expenses related to employee share-based compensation required to be
      recognized in 2006.





***Selling
      and marketing.*** For
      the
      quarter ended September 30, 2006, sales and marketing expenses were $1,289,368,
      an increase of $615,861 over comparable expenses incurred in the comparable
      2005
      period. The increased level of expenses were attributable to increased sales
      personnel to market and sell our WiFiber G series Gig *E* products, increased travel costs, particularly international travel associated
      with development of geographically dispersed reseller agreements and expenses
      related to employee share-based compensation required to be recognized in 2006,
      and the addition of contract sales agents internationally in 2006.





***Service,
      install and link operations.*** For
      the
      quarter ended September 30, 2006, service, install and link operations expenses
      were $849,102, an increase of $558,230 over comparable expenses incurred in
      the
      comparable 2005 period. The increase was primarily attributable to expenses
      related to employee share-based compensation required to be recognized in 2006,
      increases in salaries and benefits and levels of the personnel who install
      our
      products, travel to support installed customers’ link testing and operations,
      the commencement of operations of our Network Operations Center (“NOC”), as well
      as supplies and equipment for their daily operations.





***Interest
      expense.*** Interest
      expense for the quarter ended September 30, 2006 was $248,492, compared to
      $302,597 for the comparable 2005 period. Interest expense includes $73,522
      for
      both quarters ended September 30, 2006 and 2005, 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, amortization of debt
      discount and interest related to capitalized lease obligations. The decrease
      was
      due primarily to the reduction in interest expense related to expiring
      capitalized leases and lower interest expense on our 8% convertible notes due
      to
      the conversion of certain of the notes in late 2005 and in 2006.














22





**Results
      of operations for the nine months ended September 30, 2006 compared to the
      nine
      months ended September 30, 2005**





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




**Nine
                  Months Ended****September
                  30,**
              
              
              **September
                  30,****2006**
              
              
              **2005**


Net
                sales
            
            $
            4,401,140
            
            $
            479,438Gross
                margin
            
            $
            1,247,411
            
            $
            (247,900
            )Net
                loss
            
            $
            (14,242,291
            )
            $
            (10,327,624
            )




For
      the
      nine months ended September 30, 2006 our revenue totaled $4.4 million primarily
      from the sale of our WiFiber G series Gig *E* products. Sales for the nine months ended September 30, 2005 totaled $479,438
      primarily from the sale of our WiFiber II series Gig *E* .
      Gross
      margin for the nine months ended September 30, 2006 was 28%. The percentage
      was
      affected by allocations of manufacturing overhead over a relatively small number
      of our WiFiber G series Gig *E* links
      sold during the nine months and by a provision for obsolescence of $758,554
      expensed to cost of sales related to the carrying value of our WiFiber II series
      Gig *E* links.





***Research
      and development.*** Our
      research and development expenses decreased to $3,840,557, for the nine months
      ended September 30, 2006, from $3,944,963 in the comparable period of 2005.
      The
      decreased expense level was due primarily to decreased overall spending for
      outside engineering development and testing projects for our WiFiber
      Gig *E* series
      product lines. The decreased spending on outside engineering and testing was
      partially offset by increased depreciation related to additional testing and
      production equipment purchases, increased equipment rental costs, expenses
      related to employee share-based compensation required to be recognized in 2006
      and increased benefits for employees on 2006.





***General
      and administrative.*** Our
      general and administrative expenses increased to $4,752,691 for the nine months
      ended September 30, 2006, from $2,759,739 in the comparable 2005 period. The
      increase of $1,992,952 was primarily due to increased legal and professional
      fees, higher insurance premiums due to increased coverage, costs associated
      with
      compliance with the requirements of SOA, costs of implementation of our
      integrated managerial accounting system, expenses related to employee
      share-based compensation required to be recognized in 2006, and expenses of
      operating as a publicly traded company.





***Selling
      and marketing.*** Our
      selling and marketing expenses increased to $3,825,825 for the nine months
      ended
      September 30, 2006, from $1,863,402 in the comparable 2005 period. The increase
      of $1,962,423 was attributable to expenses related to employee share-based
      compensation required to be recognized in 2006, increased benefits for sales
      and
      business development personnel, expenses related to employee share-based
      compensation required to be recognized in 2006 and increased sales activity
      and
      travel costs, particularly international travel associated with development
      of
      geographically dispersed reseller agreements.





***Service,
      install and link operations.*** Our
      service, install and link operations expenses increased to $2,394,498 for the
      nine months ended September 30, 2006, from $716,688 in the comparable 2005
      period. The increase of $1,677,810 was primarily attributable to expenses
      related to employee share-based compensation required to be recognized in 2006,
      increases in salaries and benefits of the personnel that install our products,
      travel to support installed customers’ link testing and operations, the
      commencement of operations of our NOC as well as supplies and equipment for
      daily operations.





***Interest
      expense.*** Interest
      expense for the nine months ended September 30, 2006 was $866,493 compared
      to
      $803,016 for the comparable 2005 period. Interest expense includes $220,565
      and
      $196,058 for the nine months ended 2006 and 2005, 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, amortization of debt
      discount and interest related to capitalized lease obligations. The increase
      was
      due primarily to the amortization of debt issuance costs, debt discounts and
      the
      beneficial conversion feature all of which commenced during the nine months
      ended September 30, 2005. This increased amortization was offset by a reduction
      in interest expense related to expiring capitalized leases, and lower interest
      expense on our 8% convertible notes due to the conversion of certain of the
      notes in late 2005 and in 2006.














23








**LIQUIDITY
      AND CAPITAL RESOURCES**




**Cash
      Flows**


**Nine
                Months Ended September 30, 2006**
            
            **Nine
                Months Ended September 30, 2005**Net
                cash used in operating activities
            
            $
            (16,981,406
            )
            $
            (10,867,157
            )Net
                cash used in investing activities
            
            
            (727,140
            )
            
            (1,140,746
            )Net
                cash provided by financing activities
            
            
            10,177,370
            
            
            10,666,075Net
                decrease in cash and cash equivalents****
            
            $
            (7,531,176
            )
            $
            (1,341,828
            )





***Cash
      and cash equivalents.*** Our cash
      and cash equivalents balance was $5,195,810 at September 30, 2006 and
      $12,726,986 at December 31, 2005. The decrease of $7,531,176 for the nine months
      ended September 30, 2006 was due primarily to costs for the build up of
      inventory, the expansion of our domestic and international operations, the
      continuing high level of expenditures for research and development and other
      operating expenditures including equipment purchases, as well as the timing
      of
      sales transactions and related receivable collections quarter to quarter. We
      invested $804,876 for equipment and other capitalized assets purchased in the
      nine months ended September 30, 2006 related to the development and testing
      of
      our WiFiber G series Gig *E* product
      lines, information technology infrastructure acquisitions and acquisition and
      implementation of our managerial accounting systems. Other significant uses
      of
      cash included payment for capital lease obligations of $215,859 and Series
      B
      stock dividends of $921,412. These uses of cash were partially offset by net
      proceeds from the issuance of our Series C stock of $9,224,705, the exercise
      of
      common stock warrants and options totaling $2,089,936, and the collections
      of
      accounts receivable of $1,254,161.





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 further sales of equity and/or debt
      securities, if necessary 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 12 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 commercial sales
      levels 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 $16,981,406 for the nine months ended
      September 30, 2006, compared to net cash used in operating activities of
      $10,867,157 in the comparable 2005 period. We were primarily in a developmental
      stage through March 31, 2005, dating from our inception on January 5, 2004.
      The
      significant use of cash for operations in the nine months ended September 30,
      2006 was primarily related to increased inventory materials acquisition and
      increased levels of operating expenses, including salaries and benefits for
      an
      increased number of employees across the Company.





Our
      research and development program will continue to be a significant part of
      our
      overall operating expenses during the next 12 months, 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, other operating expenses could
      continue to increase depending on our future operating plans. We spent
      $6,696,162 during the nine months ended September 30, 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 $4,752,691, related
      to the expansion of employee levels, implementation of our managerial accounting
      systems, increased levels of insurance coverage, 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
      $3,825,825, related to expansion of sales employee levels, global sales
      infrastructure development efforts and travel costs. Our service, install and
      link operations expenses increased to $2,394,498, related to expansion of
      employee levels to support, product deployment activity, travel costs, opening
      and operating our NOC and organizational support efforts.


24







Our
      net
      cash used in operating activities was $10,867,157 for the nine months ended
      September 30, 2005. The Company was primarily in a formative stage in the early
      months of 2005. The significant use of cash in the nine months ended September
      30, 2005 was primarily related to product development costs for the WiFiber
      II
      series Gig *E* and
      the
      WiFiber G series Gig *E* product
      lines over the period. In addition, we required $1,281,885 to acquire material
      inventories in order to reach commercial production of our WiFiber II series Gig *E* product
      lines. Moreover, the general and administrative overhead of the Company
      increased to $2,759,739, related to expansion of employee levels, opening of
      two
      additional offices, and general costs of maintaining a publicly traded entity
      following our IPO in October, 2004.





***Net
      cash used in investing activities.*** Net cash
      used in investing activities was $727,140 for the nine months ended September
      30, 2006, compared to $1,140,746 used in the comparable 2005 period. Net cash
      used in investing activities during 2006 included purchases of testing and
      production equipment and other capitalized assets of $804,876 and costs
      associated with the acquisition of patents of $82,669. In 2005, net cash used
      in
      investing activities primarily includes $779,336 for the purchase of engineering
      and testing equipment and other capitalized assets and $106,005 for the
      acquisition of patents. In 2006, the restricted cash related to capital lease
      obligations was returned to the Company following payment of the related lease
      obligations.





***Net
      cash provided by financing activities.*** Net cash
      provided by financing activities for the nine months ended September 30, 2006
      was $10,177,370, compared to $10,666,075 provided in the comparable 2005 period.
      Net cash provided by financing activities during 2006 includes net proceeds
      from
      the issuance of our Series C stock of $9,224,705 and the exercise of common
      stock warrants and options of $2,089,936 offset by net cash used for the payment
      of Series B stock dividends of $921,412 and capital lease payments of $215,859.
      For the nine months ended September 30, 2005 cash provided by financing
      activities included $7,501,073 from the issuance of preferred stock and common
      stock, $2,432,437 from the issuance of convertible notes payable and $888,295
      from the exercise of common stock warrants. Net cash used by financing
      activities during the nine months ended September 30, 2005 was $155,730 for
      capital lease payments.





***Capital
      structure and resource and requirements.*** Our
      working 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 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* product,
      which is expected to be available in the fourth quarter 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 levels
      has
      resulted in an accumulated deficit of $37,053,649 at September 30, 2006. To
      date, we have been dependent primarily on the net proceeds of our IPO, private
      placements of our debt and equity securities, warrant conversions and collection
      of accounts receivable.




On
      August
      21, 2006, we received approximately $9,224,705 in net proceeds from a private
      placement of our Series C stock. As of September 30 2006, we had $5,195,810
      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 G series product lines,
      future exercises of common stock warrants outstanding and 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 in countries outside the United
      States of America, 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.


25








**Future
      Cash Requirements and Sources of Liquidity**




***Future
      Cash Requirements***




Our
      contractual obligations as of September 30, 2006 are summarized as
      follows:





(1)
            Long-term
                debt payments equal $2,047,355. Long term debt payments due in less
                than
                one year equal $28,783. Long-term debt payments due in 2-3 years
                equal
                $2,018,572.





(2)
            Payment
                of dividends related to our Series B and Series C stock. The amount
                of
                future dividend payment levels depend on both the outstanding shares
                at
                the stated dividend dates and the rate effective at such
                dates.




(3)
            Contractual
                obligations for operating leases total approximately $843,000 of
                future
                minimum lease payments primarily for real estate
                leases.




(4)
            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, Inc. (“ThinKom”), 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 is scheduled to be credited against minimum purchase amounts due
      to
      ThinKom in the last quarter of 2006 or payments to any 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 2007. 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 any 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. (“Mantaro”)
      and Core Source Technologies, LLC (“Core Source”), 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 a 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.




We
      have a
      development and supply agreement with Vitesse Semiconductor Corporation
      (“Vitesse”) under which it agreed to design, supply and develop certain
      communications integrated circuit products for us. We issued an initial purchase
      order to Vitesse 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. 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.


26








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
                September 30, 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.




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




•
            *Capital
                expenditures*-
                We expect to spend approximately $155,000 for capital expenditures,
                including capitalization of radio links that would be used at managed
                services customer sites.




•
            *Debt
                repayments -*During the next twelve months, we are scheduled to make payments
                on
                capital leases totaling $33,101





•
            *Interest
                on Note**s**-*During
                the next twelve months, we are scheduled to make interest payments
                on our
                Notes of approximately $79,000.





•
            *Preferred
                stock dividend*-Approximately
                $1,208,000 in cash will be required to pay dividends on the Series
                B 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.





Approximately
                $800,000 in cash will be required to pay dividends on the Series
                C
                stock.




•
            *Working
                Capital Requirements*-
                Primarily for inventory purchases, expanded international sales and
                marketing activities, build out of our customer support infrastructure
                and
                monitoring capacity and outstanding and uncollected accounts receivable
                related to sales results 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 $5,195,810 as of September 30, 2006 and our net cash
      provided by operating activities and exercise of warrants and/or accounts
      receivable financing 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 needs to fund
      growth opportunities or do not otherwise have sufficient cash and cash
      equivalents, we may need to incur additional debt or issue equity, either of
      which may be restricted by the terms of our exiting debt and equity agreements
      or otherwise be unavailable to us.











27








***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 fluctuate or 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, or at all, it could require us to change
                or
                curtail significantly our current and 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.








**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”.





**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 4, 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.




28







**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 reach 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 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 current or 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 September 30, 2006, we
      incurred an aggregate net loss, and had an accumulated deficit of $37.1 million.
      Our losses are expected to continue for possibly the next 12 months as we
      continue to manufacture and deploy our current and anticipated new products.
      As
      we develop, we expect our business to grow 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
      September 30, 2006, we had outstanding notes payable of $1.97 million, 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




·
            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.




29







**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., BridgeWave Communications, Inc., Alcatel 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., Elvalink, LLC, and perhaps, E-Band
      Communications Corp., Proxim, ComoTech and Rayawave.




**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.




30












**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.




**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 Gig *E* product.
      Based on our progress to date, our first commercial grade *OC-48* product
      is expected to be deployed in the fourth 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.




31







**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.




**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.




32







**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 internationally, 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.




**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.




**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.




**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.




33







**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.




**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 September 30, 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.




34







**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.




**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 (“Exchange Act”). Under these rules, broker-dealers who recommend such
      securities to persons other than institutional investors:




35











·
            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** **significant
      percentage of our company, and they could make business decisions with which
      you
      disagree that will affect the value of your investment.**




As
      of
      September 30, 2006, our executive officers and directors in the aggregate,
      beneficially owned approximately 41.1% **** 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.




**Provisions
      in our corporate documents and our certificate of incorporation and bylaws,
      as
      well as D** **elaware
      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.














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**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 quarter ended September 30, 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
      6. Exhibits**





**EXHIBIT
      INDEX**





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


**Exhibit**


**Number**       **Exhibit
      Title**


3.1
            (1)
            Certificate
                of Designation of the Series C Convertible Preferred Stock of the
                Company.4.1
            (1)
            Form
                of Registration Rights Agreement dated August 21, 2006 by and among
                the
                Company and each of the Purchasers signatory thereto.10.1
            (1)
            Form
                of Purchase Agreement dated August 21, 2006 by and among the Company
                and
                the Purchasers identified on the signature pages
                thereof.10.2
            (1)
            Form
                of Common Stock Warrant.10.3
            (2)
                *
            Amendment
                to Employment Letter Dated May 5, 2004 by and between the Company
                and Don
                E. Peck, dated September 26, 2006.10.4
            (2)
                *
            Amendment
                to Employment Letter Dated July 12, 2004 by and between the Company
                and
                Louis S. Slaughter, dated September 26, 2006.10.5
            (2)
                *
            Amendment
                to Employment Letter Dated July 12, 2004 by and between the Company
                and
                Douglas G. Lockie, dated September 26, 2006.31.1
            
            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 exhibit filed with the Company’s current report on
                Form 8-K/A for the event dated August 21, 2006.(2)
            Incorporated
                by reference to the exhibit filed with the Company’s current report on
                Form 8-K/A for the event dated September 26, 2006.*
            Denotes
                management compensation plan, agreement or
                arrangement.







37

















**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: November
                14, 2006
            By:
            /s/ Leighton
                J. StephensonLeighton
                J. StephensonChief
                Financial Officer






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