**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 June 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 of 1934 during the past 12 months (or for such
        shorter
        period that the registrant was required to file such reports), and (2) has
        been
        subject to such filing requirements for the past 90
        days.    Yes 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 August 14, 2006 was
        5,960,552.
 
 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 June 30, 2006  and December 31,
                  2005
              3Condensed
                  Consolidated Statements of Operations for the three months ended
                  June 30,
                  2006 and 2005 and the six months ended June 30, 2006 and
                  2005
              4Condensed
                  Consolidated Statements of Cash Flows for the six months ended
                  June 30,
                  2006 and 2005
              5Notes
                  to Condensed Consolidated Financial Statements
              7Item
                  2 -   Management’s Discussion and Analysis of Financial
                  Condition and Results of Operations
              18Item
                  3 -   Controls and Procedures
              36PART
                  II -OTHER
                  INFORMATIONItem
                  2 -   Unregistered Sales of Equity Securities and Use of
                  Proceeds
              37Item
                  2 -Submission
                  of Matters to a Vote of Security Holders
              37Item
                  5 - Other Information
              37Item
                  6 -   Exhibits
              38Signature
              39
  2
  **Part
        I - Financial Information, Item 1 - Financial Statements**
  **GigaBeam
        Corporation**
 **Condensed
        Consolidated Balance Sheets**
 **(Unaudited)**
 **June
                    30, 2006**
                
                **December
                    31, 2005****ASSETS****Current
                    assets:**Cash
                    and cash equivalents
                
                $
                2,067,406
                
                $
                12,726,986Restricted
                    cash
                
                
                160,405
                
                
                160,405Accounts
                    receivable, net of allowance of $261,471 and $139,140 at June
                    30, 2006 and
                    December 31, 2005, respectively
                
                
                787,754
                
                
                697,156Inventories
                
                
                7,422,936
                
                
                3,066,451Prepaid
                    expenses and other current assets
                
                
                387,286
                
                
                533,078**Total
                    current assets**
                
                
                10,825,787
                
                
                17,184,076Property
                    and equipment, net
                
                
                2,079,900
                
                
                1,658,512Other
                    assets
                
                
                372,712
                
                
                291,162Debt
                    issuance costs
                
                
                299,398
                
                
                475,310Deferred
                    charges
                
                
                429,000
                
                
                429,000**Total
                    assets**
                
                $
                14,006,797
                
                $
                20,038,060**LIABILITIES
                    AND STOCKHOLDERS’ EQUITY****Current
                    liabilities:**Accounts
                    payable
                
                $
                3,415,541
                
                $
                2,417,723Accrued
                    liabilities
                
                
                1,509,853
                
                
                1,465,803Current
                    portion of capital lease obligations
                
                
                63,544
                
                
                221,300**Total
                    current liabilities**
                
                
                4,988,938
                
                
                4,104,826Capital
                    lease obligations, non-current
                
                
                22,458
                
                
                33,228Convertible
                    notes payable, net of discount
                
                
                990,429
                
                
                895,896**Total
                    liabilities**
                
                
                6,001,825
                
                
                5,033,950**Stockholders’
                    equity:**Series
                    A redeemable preferred stock, $.001 par value, 20,000 shares
                    authorized;
                    11,277 shares issued and outstanding at June 30, 2006 and December
                    31,
                    2005
                
                
                11
                
                
                11Series
                    B convertible preferred stock, $.001 par value; 20,000 shares
                    authorized;
                    15,300 and 18,900 shares issued and outstanding at June 30, 2006
                    and
                    December 31, 2005, respectively
                
                
                15
                
                
                19Common
                    stock, $.001 par value, 40,000,000 shares authorized; 5,960,552and 4,999,132 issued and outstanding shares at June 30, 2006
                    and December
                    31, 2005, respectively
                
                
                5,961
                
                
                4,999Additional
                    paid in capital
                
                
                40,957,702
                
                
                37,841,214Deferred
                    compensation
                
                
                (23,557
                )
                
                (30,775
                )Accumulated
                    deficit
                
                
                (32,935,160
                )
                
                (22,811,358
                )**Total
                    stockholders’ equity**
                
                
                8,004,972
                
                
                15,004,110**Total
                    liabilities and stockholders’ equity**
                
                $
                14,006,797
                
                $
                20,038,060
 
 
 *See
        notes to condensed consolidated financial statements.*
 
  3
  **GigaBeam
        Corporation**
 **Condensed
        Consolidated Statements of Operations**
 **(Unaudited)**
 **Three
                          Months Ended June 30,**
                      
                      **Six
                          Months Ended********June
                          30,****2006**
                      
                      **2005**
                      
                      **2006**
                      
                      **2005****(As
                          Restated)**
                      
                      
                      
                      
                      
                      **(As
                          Restated)**Net
                          Sales
                      
                      $
                      696,657
                      
                      $
                      108,200
                      
                      $
                      2,355,198
                      
                      $
                      108,200Cost
                          of sales
                      
                      
                      267,556
                      
                      
                      160,865
                      
                      
                      1,753,190
                      
                      
                      160,865Gross
                          margin
                      
                      
                      429,101
                      
                      
                      (52,665
                      )
                      
                      602,008
                      
                      
                      (52,665
                      )**Operating
                          expenses:**Research
                          and development
                      
                      
                      1,290,675
                      
                      
                      1,472,128
                      
                      
                      2,632,357
                      
                      
                      2,778,910General
                          and administrative
                      
                      
                      2,009,840
                      
                      
                      1,188,046
                      
                      
                      3,543,383
                      
                      
                      1,962,000Selling
                          and marketing
                      
                      
                      1,361,636
                      
                      
                      678,038
                      
                      
                      2,536,456
                      
                      
                      1,189,895Service,
                          install and link operations
                      
                      
                      877,202
                      
                      
                      273,839
                      
                      
                      1,545,395
                      
                      
                      391,316Total
                          operating expenses
                      
                      
                      5,539,353
                      
                      
                      3,612,051
                      
                      
                      10,257,591
                      
                      
                      6,322,121Operating
                          loss
                      
                      
                      (5,110,252
                      )
                      
                      (3,664,716
                      )
                      
                      (9,655,583
                      )
                      
                      (6,374,786
                      )Other
                          income (expense):Interest
                          income
                      
                      
                      55,950
                      
                      
                      1,621
                      
                      
                      149,783
                      
                      
                      6,250Interest
                          expense
                      
                      
                      (288,636
                      )
                      
                      (303,778
                      )
                      
                      (618,002
                      )
                      
                      (500,410
                      )**Loss
                          before provision for income taxes**
                      
                      
                      (5,342,938
                      )
                      
                      (3,966,873
                      )
                      
                      (10,123,802
                      )
                      
                      (6,868,946
                      )**Provision
                          for income taxes**
                      
                      
                      -
                      
                      
                      -
                      
                      
                      -
                      
                      
                      -**Net
                          loss**
                      
                      $
                      (5,342,938
                      )
                      $
                      (3,966,873
                      )
                      $
                      (10,123,802
                      )
                      $
                      (6,868,946
                      )Series
                          B convertible preferred stock dividend
                      
                      
                      (371,311
                      )
                      
                      -
                      
                      
                      (602,345
                      )
                      
                      -**Net
                          loss allocated to common shareholders**
                      
                      
                      (5,714,249
                      )
                      
                      (3,966,873
                      )
                      
                      (10,726,147
                      )
                      
                      (6,868,946
                      )**Basic
                          and diluted loss per share**
                      
                      $
                      (1.00
                      )
                      $
                      (.83
                      )
                      $
                      (1.98
                      )
                      $
                      (1.46
                      )**Basic
                          and diluted weighted average shares outstanding**
                      
                      
                      5,739,425
                      
                      
                      4,780,109
                      
                      
                      5,415,153
                      
                      
                      4,708,647
 *See
        notes to condensed consolidated financial statements.*
  4
  **GigaBeam
        Corporation**
 **Condensed
        Consolidated Statements of Cash Flows**
 **(Unaudited)**
  **Six
                  Months Ended June 30,****2006**
              
              **2005****(As
                  Restated)****Cash
                  flows from operating activities:**Net
                  loss
              
              $
              (10,123,802
              )
              $
              (6,868,946
              )Adjustments
                  to reconcile net loss to net cash used for operating
                  activities:Amortization
                  of debt discount and beneficial conversion feature
              
              
              520,445
              
              
              122,535Provision
                  for doubtful accounts
              
              
              122,331
              
              
              95,000Increase
                  in inventory provision for obsolescence
              
              
              492,054
              
              
              -Warranty
                  costs
              
              
              146,000
              
              
              -Depreciation
                  and amortization
              
              
              241,378
              
              
              199,122Non-cash
                  compensation expenses
              
              
              1,383,407
              
              
              94,700Changes
                  in operating assets and liabilities:Accounts
                  receivable
              
              
              (212,929
              )
              
              (132,100
              )Inventories
              
              
              (4,848,539
              )
              
              (822,966
              )Prepaid
                  expenses and other current assets
              
              
              145,792
              
              
              (30,515
              )Deposits
              
              
              (13,743
              )
              
              (3,685
              )Accounts
                  payable
              
              
              997,818
              
              
              637,428Accrued
                  liabilities
              
              
              (98,284
              )
              
              97,165**Net
                  cash used in operating activities**
              
              
              (11,248,072
              )
              
              (6,612,262
              )**Cash
                  flows from investing activities:**Restricted
                  cash
              
              
              -
              
              
              (160,405
              )Investment
                  in notes receivable
              
              
              -
              
              
              (95,000
              )Purchases
                  of property and equipment
              
              
              (657,708
              )
              
              (735,245
              )Acquisition
                  of patents & intangibles
              
              
              (72,865
              )
              
              (31,700
              )**Net
                  cash used in investing activities**
              
              
              (730,573
              )
              
              (1,022,350
              )**Cash
                  flows from financing activities:**Repayments
                  of capital lease obligations
              
              
              (168,526
              )
              
              (77,796
              )Issuance
                  of convertible debt, net of related costs
              
              
              -
              
              
              2,332,055Issuance
                  of redeemable preferred stock; net of related costs
              
              
              -
              
              
              3,835,552Exercise
                  of common stock warrants
              
              
              2,011,036
              
              
              888,295Exercise
                  of common stock options
              
              
              78,900
              
              
              -Series
                  B convertible preferred stock dividend paid
              
              
              (602,345
              )
              
              -**Net
                  cash provided by financing activities**
              
              
              1,319,065
              
              
              6,978,106**Net
                  decrease in cash and cash equivalents**
              
              
              (10,659,580
              )
              
              (656,506
              )Cash
                  and cash equivalents at beginning of period
              
              
              12,726,986
              
              
              1,742,716**Cash
                  and cash equivalents at end of period**
              
              $
              2,067,406
              
              $
              1,086,210
 
 *See
        notes to*  *condensed
        consolidated financial statements.*
  5
  **GigaBeam
        Corporation** **Condensed
        Consolidated Statements of Cash Flows**
 **(Unaudited)**
 **Six
                    Months Ended****June
                    30,****2006**
                
                **2005****(As
                    Restated)****Supplemental
                    disclosures:**Interest
                    Paid
                
                $
                64,585
                
                $
                23,038Non-cash
                    investing and financingtransactions:Conversion
                    of convertible notes payable into shares of common stock
                
                $
                253,667
                
                $
                -Conversion
                    of Series B convertible preferred stock into shares of common
                    stock
                
                $
                472
                
                $
                -Fair
                    value adjustment of options granted
                
                $
                277,642
                
                $
                -Issuance
                    of warrants in connection with convertible notes payable
                
                $
                -
                
                $
                1,194,761Issuance
                    of warrants in connection with redeemable preferred stock
                
                
                -
                
                $
                385,552Issuance
                    of warrants and options in connection with convertible notes
                    payable debt
                    issue costs
                
                $
                -
                
                $
                384,835Capital
                    lease obligation incurred to finance the purchase of
                    equipment
                
                $
                -
                
                $
                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, rents and installs advanced
        point-to-point wireless communication solutions for commercial and government
        customers. Our communication links are capable of transmission speeds at
        or
        above one gigabit-per-second under the trade name “WiFiber ®.” Our products
        operate in the 71-76 GHz and 81-86 GHz spectrum bands. The Company believes
        that
        the unprecedented amounts of bandwidth provided by these spectrum blocks
        and the
        quality of its proprietary product designs will provide for wireless
        communications at previously unattainable fiber-equivalent speed and
        reliability. The Company also believes that it was one of the first entrants
        into this new and emerging market with the commercial deployment of its first
        communications link in March 2005 and initial revenue recognition from sale
        of
        its WiFiber II Gig *E* series
        links in the quarter ended June 30, 2005.
 
 WiFiber
        is fast, reliable, cost effective and can be rapidly installed or moved.
        Our
        solutions address the requirements of fixed wireless carriers, service
        providers, enterprises, and government institutions through broadband wireless
        networks. WiFiber, by providing the last mile access and backhaul, is
        complementary to both WiFi and WIMAX.
 
 Our
        primary activities to date have consisted of securing financing, developing
        strategic alliances associated with the development of our technology, design,
        development and deployment of our initial WiFiber II series Gig *E* and ** WiFiber
        G ** Series
        Gig *E* products
        and initial sales, marketing, production and installation of these products.
        In
        October 2004, the Company completed its initial public offering (“IPO”),
        generating net proceeds of approximately $5,490,987. In February 2005, the
        Company completed a private placement of $2,500,000 principal amount of 8%
        convertible notes and common stock purchase warrants, generating net proceeds
        of
        approximately $2,169,481. During the year ended 2005, the Company received
        $1,155,440 from the exercise of common stock purchase warrants issued in
        connection with its IPO. In addition, between May and July 2005, the Company
        completed a private offering of its 10% Series A redeemable preferred stock
        and
        common stock purchase warrants for gross proceeds of $7,950,285 and an offshore
        private placement of its common stock and common stock purchase warrants
        for
        gross proceeds of $652,125, resulting in aggregate net proceeds to the Company
        from these financings of $7,277,658, after its payment of placement fees
        and
        other offering expenses of approximately $1,324,752. In November 2005, the
        Company completed a private offering of its Series B convertible preferred
        stock
        and common stock purchase warrants for gross proceeds of $18,900,000 resulting
        in net proceeds of $17,382,562, after payment of placement fees and other
        offering expenses of $1,517,438. During the first six months of 2006, the
        Company received $1,466,702 from the exercise of additional common stock
        purchase warrants issued in connection with its IPO. In August 2006 the Company
        completed a private offering of its Series C convertible preferred stock
        and
        common stock purchase warrants for gross proceeds of $10,000,000, resulting
        in
        net proceeds of approximately $9,200,000 after payment of placement fees
        and
        other expenses of $800,000 (see Note 6).
 
 *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.
  7


2.
      Summary of Significant Accounting Policies:





*Concentration
      of Credit Risk*





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





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





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




**Six
                  Months Ended**June
                30, 2006Number
                of significant customers
            
            4Percentage
                of net sales
            
            24%,
                19%, 11%, 10.3%





*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:


**June
                30, 2006**
            
            **December
                31, 2005**Raw
                material
            
            $
            4,380,140
            
            $
            2,142,401Finished
                goods
            
            
            3,709,850
            
            
            1,099,0508,089,990
            
            
            3,241,451Less
                provision for obsolescence
            
            
            (667,054
            )
            
            (175,000
            )$
            7,422,936
            
            $
            3,066,451





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





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”.


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
            
            
            424,371Options
                to purchase common stock
            
            
            2,648,644Warrants
                to purchase common stock
            
            
            4,016,596Shares
                underlying Series B convertible preferred stock
            
            
            2,007,906





*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 June 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).


9





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 six months ended June 30, 2006 reflect the impact
      of SFAS 123(R). In accordance with the modified prospective transition method,
      the Company’s Condensed Consolidated Financial Statements for the prior periods
      have not been restated to reflect, and do not include, the impact of SFAS
      123(R). Under the modified-prospective transition method, compensation cost
      recognized in 2006 includes (a) compensation cost for all share-based payments
      granted but not yet vested as of December 31, 2005, based on grant date fair
      value estimated in accordance with the original provisions of SFAS 123, and
      (b)
      compensation costs for all share-based payments granted subsequent to December
      31, 2005 based on the grant date fair value estimate in accordance with the
      provisions of SFAS 123(R). The results of prior periods have not been restated
      as a result of SFAS 123 (R). Share-based compensation for the three and six
      months ended June 30, 2006 was $694,028 and $1,098,547, 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 six
      months ended June 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 Statement of Financial
      Accounting Standards No. 123, “Accounting for Stock-Based Compensation” (“SFAS
      123”). Under the intrinsic value method, no share-based compensation expense
      related to stock options had been recognized in the Company’s Condensed
      Consolidated Statement of Operations, because the exercise price of the
      Company’s stock options granted to employees and directors equaled the fair
      market value of the underlying stock at the grant date.





Share-based
      compensation expense recognized during the current period is based on the value
      of the portion of share-based payment awards that is ultimately expected to
      vest. SFAS 123(R) requires forfeitures to be estimated at the time of grant
      in
      order to estimate the amount of share-based awards that will ultimately vest.
      The forfeiture rate is based on historical rates, and due to the relatively
      short period of time which options have been granted as a publicly traded
      company, estimated future forfeitures related to expected turnover rates are
      included in the Company’s internal financial projections. Share-based
      compensation expense recognized in the Company’s Condensed Consolidated
      Statement of Operations for the six months ended June 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 six months ended June
      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 (“FASB”) issued FASB Staff
      Position No. SFAS 123(R)-3, “Transition Election Related to Accounting for Tax
      Effects of Share-Based Payment Awards,” (“SFAS 123(R)-3”). The alternative
      transition method includes simplified methods to establish the beginning balance
      of the additional paid-in capital pool (“APIC pool”) related to the tax effects
      of employee share-based compensation, and to determine the subsequent impact
      on
      the APIC pool and Condensed Consolidated Statement of Cash Flows of the tax
      effects of employee share-based compensation awards that are outstanding upon
      adoption of SFAS 123(R). The Company is in the process of evaluating whether
      to
      adopt the provisions of SFAS 123(R)-3.


10





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


**Three
                  Months Ended June 30,**
              
              **Six
                  Months Ended June 30,****2006**
              
              **2006**Loss
                  before income taxes
              
              $
              (694,028
              )
              $
              (1,098,547
              )Net
                  loss
              
              $
              (694,028
              )
              $
              (1,098,547
              )Loss
                  per common share, basic and diluted
              
              $
              (0.12
              )
              $
              (0.20
              )





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


**Three
                  Months Ended June 30,**
              
              **Six
                  Months Ended June 30,****2005**
              
              **2005****(As
                  Restated)**
              
              **(As
                  Restated)**Net
                  loss attributed to common stockholders
              
              $
              (3,966,873
              )
              $
              (6,868,946
              )Less:
                  Stock-based compensation expense determined underthe
                  fair value based method
              
              
              3,609
              
              
              7,218Add:
                  Stock-based compensation expense included in reportednet
                  loss
              
              
              (270,559
              )
              
              (354,171
              )Net
                  loss attributed to common stockholders, pro forma
              
              $
              (4,233,823
              )
              $
              (7,215,899
              )Loss
                  per share-Basic and diluted:Reported
              
              $
              (0.83
              )
              $
              (1.46
              )Pro
                  forma
              
              $
              (0.89
              )
              $
              (1.53
              )




11





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


**Six
                  Months Ended June 30,**
              
              **Six
                  Months Ended June 30,****2006**
              
              **2005****(As
                  Restated)**Dividend
                  yield
              
              
              0.0
              %
              
              0.0
              %Expected
                  volatility
              
              
              94
              %
              
              85
              %Risk-free
                  interest rate
              
              
              4.84%
                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 June
      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 guideline companies. We have used as
      baseline companies, selections from our industry sector, within similar life
      cycle ranges, of similar size, and where appropriate, companies with similar
      levels of financial leverage. Our expected volatility is based on a range of
      GigaBeam and baseline comparable companies’ volatilities from most recent
      financial statement disclosures.





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 six months ended June 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 EITF 96-18, “Accounting for Equity Instruments that are Issued to Other
      Than Employees for Acquiring, or in Conjunction with Selling, Goods, or
      Services.” For the three and six months ended June 30, 2006, compensation
      expense of approximately $78,000 and $278,000, respectively, was recognized
      related to equity awarded to non-employees.





There
      were 7,750 employee options exercised during the six months ended June 30,
      2006
      which provided proceeds totaling $58,900. The weighted-average grant date fair
      value price of options granted during the six month period ended June 30, 2006
      and June 30, 2005 were $8.17 and $9.59, respectively. The total fair value
      of
      options granted during the six month period ended June 30, 2006 approximately
      $6,967,442. There were 1,608,855 options outstanding at June 30, 2006. These
      options had a weighted-average exercise price of $8.93 and an intrinsic value
      of
      approximately $11,176,866 and a weighted-average remaining contractual life
      of
      9.25 years. There were 240,386 fully vested options exercisable at June 30,
      2006. These options had a weighted average exercise price of $5.94 and an
      intrinsic value of approximately $1,307,554 and a weighted average remaining
      contractual life of 8.25 years.


12





Common
      Stock option activity during the six months ended June 30, 2006, is summarized
      as follows:





**Shares**
            
            **Weighted-Average
                Exercise Price**Options
                outstanding at beginning of period
            
            
            855,605
            
            $
            6.16Granted
            
            
            852,250
            
            
            11.46Exercised
            
            
            (7,750
            )
            
            7.29Canceled
                or expired
            
            
            (91,250
            )
            
            6.66Options
                outstanding at end of period
            
            
            1,608,855
            
            
            8.93Options
                exercisable at end of period
            
            
            240,386
            
            
            5.94




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





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




The
      Company 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. The Company does not
      have any embedded derivative instruments that would be subject to the
      bifurcation requirements in paragraph 12 of SFAS 133.





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


13





*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 June
      30,
      2005, interest expense and net loss increased by $73,521 to $303,778 and
      3,966,873, respectively, and the loss per share increased by $0.02 to $(0.83).
      For the six months ended June 30, 2005, interest expense and net loss decreased
      by $759,726 to $500,410 and 6,868,946, respectively, and the loss per share
      decreased by $0.16 to $(1.46).





3.
      Convertible notes payable:





Convertible
      notes payable consist of the following:


**June
                  30, 2006**
              
              **December
                  31, 2005**8%
                  senior notes payable
              
              $
              2,090,000
              
              $
              2,340,000Less
                  unamortized debt discount
              
              
              (633,933
              )
              
              (831,423
              )Less
                  unamortized beneficial conversion feature
              
              
              (465,638
              )
              
              (612,681
              )$
              990,429
              
              $
              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 June 30, 2006 the Company recorded amortization of $99,290. For the six
      months ended June 30, 2006 the Company recorded amortization of $197,490.





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 June 30, 2006,
      the Company recorded amortization of $69,401. For the six months ended June
      30,
      2006 the Company recorded amortization of $175,912.


14





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
      June
      30, 2006 related to amortization of the beneficial conversion feature. For
      the
      six months ended June 30, 2006 the Company recorded amortization of $147,044.
      The unamortized balance of $465,638 and $612,681 has been recorded as a
      reduction to convertible notes payable at June 30, 2006 and December 31, 2005,
      respectively.




During
      the six months ended June 30, 2006, three Note holders requested conversion
      of
      $250,000 face value of Notes to shares of common stock. Shares of common stock
      were issued and the related Notes were retired.





The
      carrying value as of June 30, 2006 of $990,429 is comprised of the aggregate
      principal amount outstanding of $2,090,000, net of unamortized discount and
      the
      net unamortized beneficial conversion feature. The increase in carrying value
      as
      of June 30, 2006 is due to the amortization of the debt discount and beneficial
      conversion feature, offset by the conversion of three notes
      payable.




At
      June
      30, 2006 and December 31, 2005 the Company estimates the fair value of the
      convertible notes payable to be equal to their face value of $2,090,000 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 issue on the Nasdaq Capital Market
      under the symbol GGBMZ.





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





On
      November 15, 2005, we paid the first required dividend on the Series A stock
      in
      shares of common stock. The total shares issued to holders of the Series A
      stock
      were 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.


15




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





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





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





The
      original exercise price of the common stock purchase warrants was $7.9827,
      subject to adjustment, based on a weighted average trading volume as set out
      in
      a formula. Following the issuance of the Series C stock the adjusted exercise
      price of the common stock purchase warrants was $6.46.





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.





On
      January 3, 2006, April 1, 2006 and July 3, 2006 we paid the quarterly dividend
      to Series B stock shareholders in cash, amounting to $231,034, $371,311 and
      $319,067, 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 variable dividend series C convertible
      preferred stock (“Series C stock”) with a conversion price of $6.10 per common
      share and warrants to purchase an aggregate of approximately 860,653 shares
      of
      common stock for an aggregate purchase price of $10 million (see Note 6).
      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.
      The original conversion price of the Series B stock was $7.6199 per share.
      Based
      upon the conversion price set for the Series C stock 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 $6.39.





16




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 adjustments.





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.





5.
      Commitments and contingencies





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





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





2007
            
            $
            559,6052008
            
            
            357,5142009
            
            
            62,281$
            979,400





Rental
      expense for operating leases was $300,854 for the six months ended June 30,
      2006.





6.
      Subsequent Events:





On
      August
      21, 2006, the Company issued 10,000 shares of its variable dividend Series
      C
      stock and warrants to purchase an aggregate of approximately 860,653 shares
      of
      common stock for aggregate gross proceeds of $10,000,000 before payment of
      placement fees of approximately $700,000 and other related expenses of
      approximately $100,000, resulting in net proceeds to the Company of
      approximately $9,200,000 in a private placement of such securities to
      institutional investors.





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





The
      exercise price of the common stock purchase warrants issued to the holders
      of
      the Series C stock is $ 6.39, subject to adjustment based on a weighted average
      trading volume as set out in a formula.





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 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.





7.
      Related Party Transactions




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





17




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.




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





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





**OPERATIONS
      REVIEW**




**Overview**




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




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





Our
      initial revenue recognition was in the second quarter of 2005. For the six
      months ended June 30, 2006 our net sales totaled $2.4 million primarily from
      the
      sale of our WiFiber G series Gig *E* products. Sales for the six months ended June 30, 2005 totaled $108,200 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 break even 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 realize 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
      6 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 approximately $9,200,000. 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
      otherwise, 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.




18




**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.





**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”), its
      Middle East and North Africa (“MENA”) reseller, that we are terminating our
      reseller/distributor agreement with CircleTel. Our determination to terminate
      this agreement is a result of CircleTel’s failure to comply with certain
      material provisions of the agreement. International markets represent an
      important market opportunity for our company 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 our
      company. Under the circumstances, however, we believe that it is in the best
      interests of our company 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 quickly introduce and commercially deploy our products, develop
      subsequent generations of these products and identify and address demand for
      new
      solutions with additional products. In the past we have devoted the substantial
      majority of our resources to completing the development of our first product,
      our WiFiber II series Gig *E,* which we
      commenced commercial deployment in March 2005. Additionally, during 2005, we
      were heavily involved in the development of our WiFiber G series Gig *E* product,
      which commenced deployment in the fourth quarter of 2005. We are currently
      devoting resources to completing the development of our WiFiber G series *OC-48* ,
      which
      we expect to deploy in the third quarter of 2006 and to initiatives related
      to
      product unit cost reduction.





Research
      and development expenses for the six months ended June 30, 2006 were $2,632,357,
      compared to $2,778,910 for the six months ended June 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 six months ended June 30, 2006, we invested
      an
      additional $290,972 in equipment, and estimate that we will spend an additional
      $270,000 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.





19




**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 substantially identified. We
      expect to 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.




We
      spent
      $4,879,934 on manufacturing inventory and materials for the six months ended
      June 30, 2006 compared to $998,558, for the six months ended June 30, 2005.
      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. Our current
      operating locations include a combination corporate office, research and light
      manufacturing facility in Herndon, Virginia of approximately 9,100 square feet,
      a sales and marketing support office in Waltham, Massachusetts totaling 5,156
      square feet, an engineering and manufacturing support facility in Sunnyvale,
      California of 7,243 square feet and office and warehouse facilities in
      Lewisville, Texas, with a total square footage of 3,865. Our monthly minimum
      lease and maintenance cost for the aforementioned facilities is approximately
      $37,162.





**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 six months ended June
      30,
      2006 were $2,536,456, compared to $1,189,895 for the six months ended June
      30,
      2005. The sales and marketing operations in the Company escalated substantially
      since June 2005 to promote and sell commercial quantities of our WiFiber II
      series Gig *E* and
      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. Travel costs increased
      in proportion to the increase in the sales group personnel levels since June
      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
      six
      months ended June 30, 2006 were $1,545,395, compared to $391,316 for the six
      months ended June 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.





20




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





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




**Three
                Months Ended****June
                30,**
              **2006**
            
            **June
                30,**
              **2005**Net
                sales
            
            $
            696,657
            
            $
            108,200Gross
                margin
            
            $
            429,101
            
            $
            (52,665
            )Net
                loss
            
            $
            (5,342,938
            )
            $
            (3,966,873
            )




O ur
      initial revenue recognition was in the three months ended June 30, 2005. For
      the
      three months ended June 30, 2006 our revenue totaled $696,657 primarily from
      the
      sale of our WiFiber G series Gig *E* products. Sales for the three months ended June 30, 2005 totaled $108,200 from
      the sale of our WiFiber II series Gig *E* product.
      Gross margin for the three months ended June 30, 2006 was 61%. 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.





***Research
      and development.*** Our
      research and development expenses decreased from $1,472,128 in the second
      quarter of 2005 to $1,290,675 for the second quarter of 2006. The decreased
      expense level was due primarily to 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 decreased spending
      on
      outside engineering 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 increases in salaries and benefits related to
      increases in the internal engineering personnel.





***General
      and administrative.*** For the
      quarter ended June 30, 2006, general and administrative expenses were $2,009,840
      an increase of $821,794 over the comparable expenses incurred in the second
      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 June 30, 2006, sales and marketing expenses were $1,361,636,
      an
      increase of $683,598 over comparable expenses incurred in the comparable 2005
      period. The increased level of expenses were attributable to increased sales
      and
      business development personnel to promote, 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.





***Service,
      install and link operations.*** For
      the
      quarter ended June 30, 2006, service, install and link operations expenses
      were
      $877,202, an increase of $603,363 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 of the personnel that 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 June 30, 2006 was $288,636, compared to $303,778
      for the comparable 2005 period. Interest expense includes $73,522 for both
      quarters ended June 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 between the years, and lower interest expense on our 8% convertible
      notes
      due to the conversion of certain of the notes in late 2005 and in
      2006.





21




**Results
      of operations for the six months ended June 30, 2006 compared to the six months
      ended June 30, 2005**





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


**Six
                    months Ended****June
                    30,**
                  **2006**
                
                **June
                    30,**
                  **2005**(1)Net
                    sales
                
                $
                2,355,198
                
                $
                108,200Gross
                    margin
                
                $
                602,008
                
                $
                (52,665
                )Net
                    loss
                
                $
                (10,123,802
                )
                $
                (6,868,946
                )




(1)
            Initial
                revenues were recognized in the quarter ended June 30, 2005. During
                the
                preceding periods of operation, we were considered to be in the
                development stage.




As
      noted
      above o ur
      initial revenue recognition was in the quarter ended June 30, 2005. For the
      six
      months ended June 30, 2006 our revenue totaled $2.4 million primarily from
      the
      sale of our WiFiber G series Gig *E* products. Sales for the six months ended June 30, 2005 revenue totaled $108,200
      from the sale of our WiFiber II series Gig *E* .
      Gross
      margin for the six months ended June 30, 2006 was 26%. 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 six months and by a provision for obsolescence of $492,054
      expensed to cost of sales related to the carrying value of our WiFiber II series
      Gig *E* links.





During
      the six months ended June 30, 2006, a provision for obsolescence of $492,054
      was
      expensed to cost of sales related to the Company value of our WiFiber II series
      Gig *E* links.
      The gross margin figure above reflects the obsolescence charge.





***Research
      and development.*** Our
      research and development expenses decreased to $2,632,357, for the six months
      ended June 30, 2006, from $2,778,910 in the comparable period of 2005. The
      decreased expense level was due primarily to decreased spending for outside
      engineering development projects for our WiFiber Gig *E* series
      product lines. The WiFiber G series GigE product reached the commercial
      production stage in late 2005. The decreased spending on outside engineering
      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 increases in salaries and benefits related to increases in the level of
      internal engineering personnel.





***General
      and administrative.*** Our
      general and administrative expenses increased to $3,543,383 for the six months
      ended June 30, 2006, from $1,962,000 in the comparable 2005 period. The increase
      of $1,581,383 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, an increase in the overall size of operations,
      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 $2,536,456 for the six months ended
      June 30, 2006, from $1,189,895 in the comparable 2005 period. The increase
      of
      $1,346,561 was attributable to expenses related to employee share-based
      compensation required to be recognized in 2006, increased salaries and benefits
      for sales and business development personnel to promote, market and sell our
      WiFiber G series Gig *E* products, increased sales activity and travel costs, particularly international
      travel associated with development of geographically dispersed reseller
      agreements.





***Service,
      install and link operations.*** Our
      service, install and link operations expenses increased to $1,545,395 for the
      six months ended June 30, 2006, from $391,316 in the comparable period. The
      increase of $1,154,079 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 six months ended June 30, 2006 was $618,002 compared to $500,410
      for the comparable 2005 period. Interest expense includes $147,044 and $122,535
      for the six 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 decrease was due
      primarily to the reduction in interest expense related to expiring capitalized
      leases between the years, 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




**LIQUIDITY
      AND CAPITAL RESOURCES**




**Cash
      Flows**




**Six
                Months**
              **Ended**
              **June
                30, 2006**
            
            **Six
                Months**
              **Ended**
              **June
                30, 2005**Net
                cash used in operating activities
            
            $
            (11,248,072
            )
            $
            (6,612,262
            )Net
                cash used in investing activities
            
            
            (730,573
            )
            
            (1,022,350
            )Net
                cash provided by financing activities
            
            
            1,319,065
            
            
            6,978,106Net
                decrease in cash and cash equivalents****
            
            $
            (10,659,580
            )
            $
            (656,506
            )




***Cash
      and cash equivalents.*** Our cash
      and cash equivalents balance was $2,067,406 at June 30, 2006 and $12,726,986
      at
      December 31, 2005. The decrease of $10,659,580 for the six months ended June
      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. We invested $730,573 for equipment and other
      capitalized assets purchased in the six months ended June 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 $168,526 and Series
      B
      preferred stock dividends of $602,345. These uses of cash were partially offset
      by net proceeds from the exercise of common stock warrants and options totaling
      $2,089,936, and the collections of accounts receivable of $448,073.





On
      August
      21, 2006 we issued 10,000 shares of Series C stock with related common stock
      purchase warrants. We received $9,200,000 in net proceeds from the issuance
      of
      these securities.





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 $11,248,072 for the six months ended
      June
      30, 2006, compared to net cash used in operating activities of $6,612,262 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 six months ended June 30, 2006 was primarily related
      to expenditures for research and development for the WiFiber G series Gig *E* product
      lines, 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 expansion plans. We spent
      $4,879,934 during the six months ended June 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 $3,543,383, related
      to the expansion of employee levels, implementation of our managerial accounting
      systems, opening of additional sales and operational support offices, costs
      associated with compliance with the requirements of the SOA and general costs
      of
      maintaining a publicly traded entity. Our selling and marketing expenses
      increased to $2,536,456, related to expansion of employee sales levels, global
      sales infrastructure development efforts and travel costs. Our service, install
      and link operations expenses increased to $1,545,395, related to expansion
      of
      employee levels, product deployment activity, travel costs, opening and
      operating our NOC and organizational support efforts.




23




Our
      net
      cash used in operating activities was $6,612,262 for the six months ended June
      30, 2005. The Company was primarily in a formative stage in the early months
      of
      2005. The significant use of cash in the six months ended June 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 $822,966 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 $1,962,000, 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 $730,573 for the six months ended June 30,
      2006, compared to $1,022,350 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 $657,708 and costs associated with
      the
      acquisition of patents of $72,865. In 2005, net cash used in investing
      activities primarily includes $735,245 for the purchase of engineering and
      testing equipment and other capitalized assets and $31,700 for the acquisition
      of patents.





***Net
      cash provided by financing activities.*** Net cash
      provided by financing activities for the six months ended June 30, 2006 was
      $1,319,065, compared to $6,978,106 provided in the comparable 2005 period.
      Net
      cash provided by financing activities during 2006 includes net proceeds from
      the
      exercise of common stock warrants and options of $2,089,936 offset by net cash
      used for the payment of Series B preferred stock dividends of $602,345 and
      capital lease payments of $168,526. For the six months ended June 30, 2005
      cash
      provided by financing activities included $3,835,552 from the issuance of Series
      A preferred stock, $2,332,055 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 six months ended June 30, 2005 was $77,796 for capital
      lease payments.





***Capital
      structure and resource and requirements.*** Our
      capital requirements have been and will continue to be significant. We also
      expect our cash requirements to increase in future periods to implement our
      business plan fully, including the continued deployment and cost reduction
      of
      our WiFiber G series Gig *E* and
      the
      development and general commercial deployment of our upcoming products,
      including our WiFiber G series *OC-48* products, which is expected to be deployed in the second half of 2006, and
      our
      10 Gig *E* and *OC-192* products,
      for which commercial deployment is expected to commence in 2007. Since
      inception, the significant excess of our expenses over our revenues levels
      has
      resulted in an accumulated deficit of $32,935,160 at June 30, 2006. To date,
      we
      have been dependent primarily on the net proceeds of our IPO, private placements
      of our debt and equity securities and proceeds from the exercise of common
      stock
      warrants to fund our capital requirements.




As
      of
      June 30 2006, we had $2,067,406 in available cash for our operating
      requirements. On August 21, 2006 we received approximately $9,200,000 in net
      proceeds from a private placement for our Series C stock (see Note 6). We
      anticipate funding our operating cash requirements over the next twelve months
      through the use of existing funds, the sale and installation of our WiFiber
      II
      series Gig *E* and
      WiFiber G series Gig *E* product
      lines, future exercises of common stock warrants outstanding and through
      continued access to public and private debt and equity markets. The inability
      to
      raise capital or realize these other sources of operating cash flows could
      require us to change or curtail our planned operations significantly in order
      to
      conserve cash until such time, if ever, that sufficient proceeds from operations
      are generated.





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





24




**Future
      Cash Requirements and Sources of Liquidity**




***Future
      Cash Requirements***




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





(1)
            Long-term
                debt payments equal $2,176,002. Long term debt payments due in less
                than
                one year equal $63,544. Long-term debt payments due in 2-3 years
                equal
                $2,112,458.





(2)
            Payment
                of dividends related to our Series B stock. We have paid out $602,345
                since the issuance of the Series B stock in November 2005. Future
                dividend
                payments 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 $979,000 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 will be credited against minimum purchase amounts due to ThinKom
      in
      the last quarter of 2006 or payments to component suppliers to ThinKom or us.
      ThinKom’s design of our antenna has not been completed, and we do not expect to
      order any antennas from ThinKom until at least the third quarter of 2006.
      Consequently, all of the minimum payments that we have made to ThinKom to date
      have been for engineering costs associated with its adaptation of the ThinKom
      antenna technologies to our Gig *E* and
      OC-48 product designs. We will also pay to ThinKom 1% of our revenues generated
      from the sale of products using ThinKom’s technology, excluding specified costs.




We
      have
      strategic alliance agreements with each of Mantaro Networks, Inc. (“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. In addition to the engineering fees,
      we have agreed to purchase a minimum number of components from Mantaro and
      Core
      Source for each of our proposed products over the life of their agreements.




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





25




(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 June 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 $270,000 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 will make payments on capital leases
                totaling $63,544.





·
            *Interest
                on Note**s**-*During
                the next twelve months, we will make interest payments on our Notes
                of
                approximately $84,000.





·
            *Preferred
                stock dividend*-$1.3
                million in cash will be required to pay dividends on the Series B
                Convertible Preferred Stock currently outstanding, unless the trading
                volume of our common stock reaches certain stated volumes for a stated
                number of days prior to our quarterly dividend payment date. Should
                our
                common stock attain the designated trading volume level, the quarterly
                dividend(s) can be made, at our option in cash or in common stock,
                based
                upon a pre-determined share calculation
                ratio.





Approximately
                an additional $800,000 will be required to pay dividends on the newly
                issued Series C stock.




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





***Future
      Sources of Liquidity***




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


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




Based
      on
      past performance and current expectations, we believe that our existing cash
      and
      cash equivalents of $2,067,406 as of June 30, 2006, the net proceeds of our
      Series C stock issued in August 2006 and our net cash provided by operating
      activities will be sufficient to meet our near term cash requirements.  Our
      ability to meet requirements over the next 12 months will depend on our ability
      to generate cash in the future from sources as noted above, which is subject
      to
      economic, financial, competitive, legislative, regulatory and other factors
      that
      are beyond our control.




If
      we do
      not generate sufficient cash from operations, face unanticipated 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.





26




***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 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.





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





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





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





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





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




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. The Company does not have any
      embedded derivative instruments that would be subject to the bifurcation
      requirements in paragraph 12 of SFAS 133.




27




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





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





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





**Risk
      Factors**





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




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




**We
      have limited capital resources.**




Our
      business model is capital intensive, requiring significant expenditures ahead
      of
      any significant levels of projected revenues, and we will require additional
      capital to complete the transition necessary to commence full scale
      manufacturing and deployment of our products. In addition, if and when we
      achieve wider spread market acceptance for our first products, we may desire
      to
      accelerate our growth to take advantage of increasing demand, which will require
      additional capital to offset increased costs associated with accelerated growth.
      We have to date been dependent on cash provided largely by debt and/or equity
      financings to operate our business, and, while we expect to fund our cash
      requirements over the next 12 months from 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.




28




**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 June 30, 2006, we incurred
      an aggregate net loss, and had an accumulated deficit of $32.9 million. Our
      losses are expected to continue for possibly the next 12 months as we commence
      full scale manufacturing and deployment of our products. As we make such
      transition, we expect our business to grow 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
      June 30, 2006, we had outstanding notes payable of $2.1 million ($990,429 net
      of
      related discount and beneficial conversion feature), and we may incur additional
      debt in the future to fund all or part of our capital requirements. Our
      outstanding debt and future debt obligations could impair our liquidity and
      could:




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




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




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




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




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




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




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




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




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




29




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




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




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




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




**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.




30




**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 by the third quarter of 2006; however, we and/or
      our
      suppliers may experience unanticipated technical and management challenges
      during actual commercial production. Due to our limited manufacturing experience
      and capabilities, we may not be able to successfully manufacture, either
      directly or through third party manufacturers, commercial grade products in
      quantity and on a cost-efficient basis. In addition, in order to complete the
      final assembly portion of our products’ manufacture in commercial quantities, a
      task we plan to retain in-house, we will likely need to convert, rent, build
      or
      gain access to additional facilities or, if unable to do so, enter into
      agreements with third party product assemblers at significant cost.




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




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




**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.






31




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




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




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




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




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




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




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




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




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




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




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




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




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




32




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




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




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




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




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




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




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




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




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




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




33




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 June 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.




**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.




34




**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. Under these rules, broker-dealers who recommend such securities to
      persons other than institutional investors:




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




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




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




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




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




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




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




35




**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
      June 30, 2006, our executive officers and directors in the aggregate,
      beneficially owned approximately 41.5% **** 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 Delaware General Corporation Law, may hinder a change of control.**




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




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




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




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




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




**ITEM
      3. CONTROLS AND PROCEDURES**





**Evaluation
      of Disclosure Controls and Procedures**




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




The
      Company’s management, with the participation of its principal executive officer
      and principal financial officer, also conducted an evaluation of changes
      in the Company's internal control over financial reporting, as defined
      in Exchange Act Rule 13a-15(f). Based on this evaluation, the Company’s
      management determined that no changes were made to the Company’s internal
      control over financial reporting, as defined in Exchange Act Rule 13a-15(f),
      during the quarter ended June 30, 2006 that has materially affected, or is
      reasonably likely to materially affect, the Company’s internal control over
      financial reporting.




36




**Part
      II. Other Information**




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





During
      the six months ended June 30, 2006 20,000 non-plan common stock options were
      exercised for cash proceeds totaling $20,000. In addition, pursuant to the
      exercise of purchase options issued in connection with our IPO, we issued 2,000
      shares of common stock and 2,000 IPO warrants for cash proceeds of
      $11,220.  These shares were issued without registration on reliance on
      exemption provided in section 4(2) of the Securities Act of 1933 and Regulation
      D promulgated there under. The proceeds were used for general working capital
      purposes.





**Item
      4. Submission of Matters to a Vote of Security Holders**





The
      Company **** held
      its
      Annual Meeting of Stockholders on June 23, 2006. At that meeting, shareholders
      elected Douglas G. Lockie and David A. Buckel as Class 2 Directors of the
      Company for a term to expire at the 2009 Annual Meeting. The results of the
      voting are as follows:




**Votes For**
            
            **Votes Withheld**Douglas
                G. Lockie
            
            
            4,304,324
            
            
            40,000David
                A. Buckel
            
            
            4,301,824
            
            
            42,500




In
      addition, at the Annual Meeting of Stockholders, shareholders voted to ratify
      an
      amendment to the Company’s 2004 Stock Option Plan increasing the number of
      shares of Common Stock available for issuance under the plan from 1,100,000
      to
      1,850,000 shares. The results
      of the voting are as follows:




**Votes For**
            
            **Votes
                Against**
            
            **Abstained**
            
            **Not
                Voted**Director’s
                Proposal—Ratification of an amendment to the Company’s 2004 Stock Option
                Plan
            
            
            2,988,724
            
            
            31,881
            
            
            1,130
            
            
            1,322,589




Further,
      at the Annual Meeting of Stockholders, shareholders voted to adopt the Company’s
      2006 Stock Option Plan. The results
      of the voting are as follows:




**Votes For**
            
            **Votes
                Against**
            
            **Abstained**
            
            **Not
                Voted**Director’s
                Proposal—Adoption of the Company’s 2006 Stock Option Plan
            
            
            2,986,345
            
            
            31,881
            
            
            3,509
            
            
            1,322,589




**Item
      5. Other Information**





The
      Company previously reported on SEC Form 8-K filed June 29, 2006 that certain
      options to purchase shares of the Company's Common Stock were exercisable at
      $10.67. The correct exercise price is $12.03.




37




**Item
      6. Exhibits**





**EXHIBIT
      INDEX**





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








**Exhibit****Number**
            
            
            **Exhibit
              Title**10.1
            (1)+
            
            2004
                Stock Option Plan, as amended.10.2
            (2)
                +
            
            2006
                Stock Option Plan.31.1
            
            
            Certification
                of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
                Act of 2002.31.2
            
            
            Certification
                of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
                Act of 2002.32.1
            
            
            Certification
                of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as
                adopted
                pursuant to Section 906 of the Sarbanes-Oxley Act of
                2002.32.2
            
            
            Certification
                of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as
                adopted
                pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.







(1)
            Incorporated
                by reference to Appendix B of our definitive proxy statement on Schedule
                14A filed with the SEC on May 30,
                2006.




(2)
            Incorporated
                by reference to Appendix C of our definitive proxy statement on Schedule
                14A filed with the SEC on May 30,
                2006.




+
            Management
                contract or compensatory plan or agreement.





38




**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
                Corporation**Date: August
                21, 2006
            By:
            /s/ Leighton
                J. StephensonLeighton
                J. StephensonChief
                Financial Officer





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