**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**








**FORM
      10-Q**




**(Mark
      one)**


x
              **Quarterly Report Pursuant
                to Section
                13 or 15(d) of the Securities Exchange Act of
                1934****For the quarterly
                period
                ended October 2, 2005****OR**o
              **Transition Report Pursuant
                to Section
                13 or 15(d) of the Securities Exchange Act of
                1934****For the transition
                period
                from to.**
 **Commission
      file number 000-31031**





**AIRSPAN
      NETWORKS INC.**


**(Exact
      name of registrant as specified in its charter)**





**Washington**
            
            **75-2743995****(State
                or other jurisdiction of**
              **incorporation
                or organization)**
            
            **(I.R.S.
                Employer**
              **Identification
                No.)****777
                Yamato Road, Suite 105**
              **Boca
                Raton, FL**
            
            **33431****(Address
                of principal executive offices)**
            
            **(Zip
                Code)**


**Registrant’s
      telephone number, including area code:**


**561-893-8670**





Indicate
      by a check mark whether the registrant (1) has filed all reports required to
      be
      filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
      the
      preceding 12 months (or for such shorter period that the registrant was required
      to file such reports), and (2) has been subject to such filing requirements
      for
      the past 90 days.    Yes x No   o





Indicate
      by check mark whether the registrant is an accelerated filer (as defined in
      Rule
      12b-2 of the Exchange Act).    Yes x No o





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





Number
      of shares outstanding of the registrant’s common stock as of November 4, 2005:
      39,414,792









**PART
      1. FINANCIAL INFORMATION**





**Item
      1. Financial Statements**


**AIRSPAN
      NETWORKS INC.**




**CONDENSED
      CONSOLIDATED BALANCE SHEETS**




(in
      thousands except for share and per share data)


**December
                  31,**
                **2004
                  (1)**
              
              **October
                  2,**
                **2005****(unaudited)****ASSETS****Current
                  Assets**Cash
                  and cash equivalents
              
              $
              66,296
              
              $
              50,796Restricted
                  cash
              
              
              1,687
              
              
              1,549Accounts
                  receivable, less allowance for doubtful accounts of $2,814 at December
                  31,
                  2004
                and
                  $3,553 at October 2, 2005
              
              
              20,947
              
              
              22,187Unbilled
                  accounts receivable
              
              
              43
              
              
              532Inventory
              
              
              12,834
              
              
              14,943Prepaid
                  expenses and other current assets
              
              
              5,702
              
              
              4,752Total Current Assets
              
              
              107,509
              
              
              94,759Property,
                  plant and equipment, net
              
              
              3,707
              
              
              4,615Goodwill
              
              
              789
              
              
              7,800Intangible
                  assets, net
              
              
              1,672
              
              
              3,790Long-term
                  accounts receivable
              
              
              305
              
              
              —Other
                  non-current assets
              
              
              1,216
              
              
              2,291Total Assets
              
              $
              115,198
              
              $
              113,255**LIABILITIES
                  AND STOCKHOLDERS’ EQUITY****Current
                  Liabilities**Accounts
                  payable
              
              $
              24,615
              
              $
              19,594Accrued
                  taxes
              
              
              653
              
              
              651Deferred
                  revenue
              
              
              627
              
              
              1,961Customer
                  advances
              
              
              4,789
              
              
              11,172Other
                  accrued expenses
              
              
              11,349
              
              
              12,442Total Current Liabilities
              
              
              42,033
              
              
              45,820**Stockholders’
                  Equity**Preferred
                  stock, $0.0001 par value; 74,200 shares authorized at December
                  31,
                  2004
                and
                  October 2, 2005: 73,000 issued at December 31, 2004 and
                  October 2,
                  2005
              
              
              —
              
              
              —Common
                  stock, $0.0003 par value; 100,000,000 shares authorized at December
                  31,
                  2004 and
                October
                  2, 2005: 37,644,627 issued at December 31, 2004 and 39,413,542
                  issued at
                  October 2, 2005
              
              
              11
              
              
              12Note
                  receivable - stockholder
              
              
              (87
              )
              
              (87
              )Additional
                  paid in capital
              
              
              260,356
              
              
              266,805Accumulated
                  other comprehensive income
              
              
              418
              
              
              —Accumulated
                  deficit
              
              
              (187,533
              )
              
              (199,295
              )Total Stockholders’ Equity
              
              
              73,165
              
              
              67,435Total Liabilities and Stockholders’ Equity
              
              $
              115,198
              
              $
              113,255


(1)
      Derived from audited financial statements





The
      accompanying notes are an integral part of these condensed consolidated
      financial statements




2


**AIRSPAN
      NETWORKS INC.**




**CONDENSED
      CONSOLIDATED STATEMENTS OF OPERATIONS**




(in
      thousands except for share and per share data)


**Quarter
                    Ended**
              
              
              **Year-to-Date****October
                    3, 2004**
              
              
              **October
                    2, 2005**
              
              
              **October
                    3, 2004**
              
              
              **October
                  2, 2005****(unaudited)**
              
              
              **(unaudited)**Revenue
              
              $
              26,452
              
              $
              30,545
              
              $
              57,124
              
              $
              73,072Cost
                  of revenue
              
              
              (18,294
              )
              
              (21,462
              )
              
              (39,169
              )
              
              (51,711
              )Inventory
                  provision
              
              
              (1,099
              )
              
              —
              
              
              (1,099
              )
              
              —Gross
                  profit
              
              
              7,059
              
              
              9,083
              
              
              16,856
              
              
              21,361Operating
                  expenses:Research
                  and development
              
              
              4,495
              
              
              5,398
              
              
              14,284
              
              
              15,058Sales
                  and marketing
              
              
              2,782
              
              
              2,858
              
              
              8,094
              
              
              8,105Bad
                  debt provision
              
              
              249
              
              
              307
              
              
              549
              
              
              802General
                  and administrative
              
              
              3,342
              
              
              3,223
              
              
              8,221
              
              
              9,046Amortization
                  of intangibles
              
              
              175
              
              
              337
              
              
              579
              
              
              593Restructuring
                  provision
              
              
              16
              
              
              —
              
              
              413
              
              
              1,150Total
                  operating expenses
              
              
              11,059
              
              
              12,123
              
              
              32,140
              
              
              34,754Loss
                  from operations
              
              
              (4,000
              )
              
              (3,040
              )
              
              (15,284
              )
              
              (13,393
              )Interest
                  expense
              
              
              —
              
              
              —
              
              
              —
              
              
              —Interest
                  and other income
              
              
              591
              
              
              345
              
              
              2,084
              
              
              1,068Loss
                  before income taxes
              
              
              (3,409
              )
              
              (2,695
              )
              
              (13,200
              )
              
              (12,325
              )Income
                  tax charge/(credit)
              
              
              48
              
              
              (567
              )
              
              50
              
              
              (562
              )Net
                  loss
              
              
              (3,457
              )
              
              (2,128
              )
              
              (13,250
              )
              
              (11,763
              )Deemed
                  dividend associated with the beneficial
                conversion
                  of preferred stock
              
              
              (10,439
              )
              
              —
              
              
              (10,439
              )
              
              —Net
                  loss attributable to common stockholders
              
              $
              (13,896
              )
              $
              (2,128
              )
              $
              (23,689
              )
              $
              (11,763
              )Net
                  loss attributable to common stockholders
                per
                  share - basic and diluted
              
              $
              (0.38
              )
              $
              (0.05
              )
              $
              (0.65
              )
              $
              (0.30
              )Weighted
                  average shares outstanding- basic and diluted
              
              
              36,439,662
              
              
              39,396,155
              
              
              36,169,249
              
              
              38,677,301





The
      accompanying notes are an integral part of these condensed consolidated
      financial statements




3


**AIRSPAN
      NETWORKS INC.**  
 **CONDENSED
        CONSOLIDATED STATEMENTS OF CASH FLOWS**
 
 (in
        thousands)
 **Year-to-date****October
                      3, 2004**
                  
                  
                  **October
                      2, 2005****(unaudited)****CASH
                    FLOWS
                    FROM OPERATING ACTIVITIES**Net
                      loss
                  
                  $
                  (13,250
                  )
                  $
                  (11,763
                  )Adjustments
                      to reconcile net loss to net cash from/(used) in operating
                      activities:Depreciation and amortization
                  
                  
                  1,975
                  
                  
                  1,894Loss
                      on sale of property, plant and equipment
                  
                  
                  —
                  
                  
                  19Stock
                      compensation
                  
                  
                  —
                  
                  
                  251Change
                      in operating assets and liabilities:Increase in receivables
                  
                  
                  (196
                  )
                  
                  (281
                  )Decrease/(increase) in inventories
                  
                  
                  9,688
                  
                  
                  (1,737
                  )(Increase)/decrease
                      in other current assets
                  
                  
                  (3,487
                  )
                  
                  605Increase/(decrease) in accounts payable
                  
                  
                  6,725
                  
                  
                  (5,190
                  )Increase in deferred revenue
                  
                  
                  72
                  
                  
                  1,314Increase in customer advances
                  
                  
                  3,609
                  
                  
                  5,996Decrease in accrued expenses
                  
                  
                  (439
                  )
                  
                  (1,887
                  )(Increase)/decrease in long-term accounts receivable
                  
                  
                  (305
                  )
                  
                  305Increase in other non current assets
                  
                  
                  (135
                  )
                  
                  (102
                  )Net
                      cash from/(used in) operating activities
                  
                  
                  4,257
                  
                  
                  (10,576
                  )**CASH
                      FLOWS FROM INVESTING ACTIVITIES**Purchase
                      of property and equipment
                  
                  
                  (1,855
                  )
                  
                  (1,958
                  )Acquisition
                      of ArelNet (net of cash acquired)
                  
                  
                  —
                  
                  
                  (4,242
                  )Net
                      cash used in investing activities
                  
                  
                  (1,855
                  )
                  
                  (6,200
                  )**CASH
                      FLOWS FROM FINANCING ACTIVITIES**Net
                      proceeds from issuance of common stock
                  
                  
                  373
                  
                  
                  485Repayment
                      of note receivable - stockholder
                  
                  
                  43
                  
                  
                  —Exercise
                      of stock options
                  
                  
                  901
                  
                  
                  653Proceeds
                      from the sale of Series “A” preferred stock, net of issuance costs
                  
                  
                  29,132
                  
                  
                  —Restricted
                      cash movement
                  
                  
                  (14,841
                  )
                  
                  138Net
                      cash from financing activities
                  
                  
                  15,608
                  
                  
                  1,276Increase/(decrease)
                      in cash and cash equivalents
                  
                  
                  18,010
                  
                  
                  (15,500
                  )Cash
                      and cash equivalents, beginning of period
                  
                  
                  33,926
                  
                  
                  66,296Cash
                      and cash equivalents, end of period
                  
                  $
                  51,936
                  
                  $
                  50,796
 The
        accompanying notes are an integral part of these condensed consolidated
        financial statements
 
 4
 ****AIRSPAN
          NETWORKS INC.****
 **NOTES
          TO THE CONDENSED FINANCIAL STATEMENTS**
 
 **(in
          thousands, except for share and per share data)**
  **BUSINESS**
 
 We
        are a
        leading worldwide provider of WiMAX-based and proprietary broadband access
        networks and carrier class voice over internet protocol (VOIP) solutions.
        Our
        Broadband Wireless Access (“BWA”) equipment allows communications service
        providers (often referred to as “local exchange carriers,” or simply telephone
        companies), internet service providers (often referred to as “ISPs”) and other
        telecommunications users, such as utilities and enterprises, to cost-effectively
        deliver high-speed data and voice services using radio frequencies rather
        than
        wires. We call this transmission method “Broadband Wireless”. The primary market
        for our systems has historically been a subset of the fixed broadband wireless
        access systems market, which is the point-to-multipoint market in radio
        frequencies below 6.0GHz. That market now encompasses BWA applications that
        are
        nomadic and portable as well as fixed.
 
 Each
        of
        our wireless access systems utilizes digital wireless techniques, which provide
        wide-area coverage, security and resistance to fading. Our systems can be
        deployed rapidly and cost effectively, providing an attractive alternative
        or
        complement to traditional copper wire, cable, or fiber-optic communications
        access networks. Our products also include software tools that optimize
        geographic coverage of our systems and provide ongoing network management.
        To
        facilitate the deployment and operation of our systems, we also offer network
        installation, training and support services. A more complete description
        of our
        various wireless access systems is provided below. Our BWA systems (the “Airspan
        BWA Solutions”) have been installed by more than 300 network operators in more
        than 95 countries and are being tested by numerous other service providers.
 
 Our
        initial products were developed and sold originally to provide wireless voice
        connections between network operators and their end customers. Product
        enhancements introduced in 1998 enabled us to offer both voice and data
        connectivity over a single wireless link. We have continued to develop the
        capabilities and features of the original products, and today we sell them
        to
        operators globally as the AS4000 and AS4020 products, in systems capable
        of
        delivering high-capacity broadband data with carrier-quality voice connections
        using our proprietary Code Division Multiple Access (“CDMA”) technology.
 
 In
        October 2002, we strengthened our position in the BWA equipment market with
        the
        acquisition of the WipLL (Wireless Internet Protocol in the Local Loop) business
        from Marconi (“Marconi WipLL”) pursuant to a stock purchase agreement, and
        renamed the business Airspan Networks (Israel) Limited (“Airspan Israel”). The
        products and services produced by Airspan Israel enable operators in licensed
        and unlicensed wireless bands to offer high-speed, low cost, wireless broadband
        connections for data and voice over IP using CDMA technology. We acquired
        all of
        the issued and outstanding capital stock and debt of Marconi WipLL in exchange
        for $3 million of cash.
 
 In
        October 2003, we began marketing our AS4030 and AS3030 product range of Airspan
        branded high-end point-to-multipoint and point-to-point products suitable
        for
        operators wishing to deliver service offerings to medium and large businesses
        and multi-tenant dwellings that require considerable bandwidth for their
        end
        users. These products, based on 802.16 Orthogonal Frequency Division
        Multiplexing (“OFDM”) technology, can also be used for a wide range of backhaul
        applications, including, for example connecting remote base stations to a
        central office.
 
 In
        December 2003, we acquired the fixed wireless access business of Nortel Networks
        known as “Proximity” under a Purchase and Sale Agreement. The Proximity products
        enable operators to provide carrier class circuit switched voice and data
        services, based on a Time Division Multiple Access (“TDMA”) technology. As part
        of the acquisition, we acquired inventory relating to the Proximity business
        as
        well as existing assets associated with the manufacture, development and
        support
        of the Proximity product line. We also assumed the product supply obligations
        associated with customer contracts and certain other liabilities and obligations
        along with the workforce of 26 persons directly employed in the Proximity
        business. The final purchase price was $13.1 million.
   5
 **AIRSPAN
          NETWORKS INC.**
 **NOTES
          TO THE CONDENSED FINANCIAL STATEMENTS**
 
 **(in
          thousands, except for share and per share data)**
  In
        March
        2005, we announced the introduction of a new product line known as “AS.MAX”.
        AS.MAX is a full portfolio of WiMAX systems, Base Stations and Customer Premise
        Equipment (“CPEs”), using OFDM and Orthogonal Frequency Division Multiple Access
        (OFDMA) technology and based on the 802.16 standard. The AS.MAX product range
        is
        designed to serve both:
 
 ·
              our
                  traditional fixed point-to-multipoint BWA market;
                  and
 
 ·
              new
                  BWA markets, for nomadic, portable and combined WiMAX and WiFi
                  applications and eventually mobile
                  applications.
 
 During
        the second quarter of 2005, we launched the world’s first self installable WIMAX
        CPE and made our first WiMAX sale in the United States.
 
 In
        June
        2005, we completed our acquisition of all of the outstanding shares of ArelNet
        Limited (“ArelNet”), an Israeli company providing Voice over IP (“VoIP”) network
        infrastructure equipment and solutions, including soft switches and gateways
        supporting major VoIP standards. ArelNet’s iTone VoIP system is a carrier class,
        turnkey solution that provides carriers with Class 4, Class 5 and IP-Centrex
        solutions and has a Softswitch and Gateways supporting SIP and H323. i-Tone’s
        design provides customers; carriers, next-generation telephone carriers,
        cellular providers and Internet telephony service providers with a wide range
        of
        solutions with the best price/performance system for IP telephony. Under
        the
        Purchase Agreement, we acquired all of the outstanding shares of ArelNet,
        for a
        purchase price of $9.4 million, comprised of $4.0 million of cash, $4.8 million
        of the Company's common stock (1,001,325 shares), $0.3 million of employee
        stock
        options and transaction costs of approximately $0.4 million.
 
 On
        November 9, 2005, we acquired Radionet Oy, Ltd. of Finland under a Share
        Purchase Agreement. Radionet is a provider of municipal wireless Hotzones
        (a
        Hotzone is created by linking wireless local-area networks, known as hotspots),
        community networks, mobile broadband solutions for industrial applications,
        such
        as ports, mines and public transport, and link solutions for wireless backhaul
        and enterprises. Operating in unlicensed frequency bands using IEEE802.11
        a/b/g
        Wi-Fi standards, the product architecture includes network and subscriber
        management capabilities and a patented “MageIP”TM technology that allows roaming
        within Hotzones. The purchase price paid was $1.8 million cash, in return
        for
        99.72% of the outstanding common stock. We will pay an additional $0.1 million
        cash if the outstanding balance of shares and options are tendered for sale
        by
        November 24, 2005.
 
 Our
        corporate headquarters are located in Boca Raton, Florida. Our primary
        operations, manufacturing and product development centers are located in
        Uxbridge, U.K., and Airport City, Israel. Our telephone number in Boca Raton
        is
        (561) 893-8670.
 
 **BASIS
        OF PRESENTATION**
 
 The
        accompanying unaudited condensed consolidated financial statements have been
        prepared in accordance with generally accepted accounting principles for
        interim
        financial information and with the instructions to Form 10-Q and Article
        10 of
        Regulation S-X. Accordingly, they do not include all of the information and
        footnotes required by generally accepted accounting principles for complete
        financial statements. In the opinion of management, all adjustments considered
        necessary for a fair presentation have been included and are of a normal
        recurring nature. The interim operating results are not necessarily indicative
        of operating results expected in subsequent periods or for the year as a
        whole.
 
 The
        condensed consolidated balance sheet at December 31, 2004 has been derived
        from
        the audited financial statements at that date included in Amendment No. 1
        to the
        Company’s Form 10-K/A for the year ended December 31, 2004 but does not include
        all of the information and footnotes required by generally accepted accounting
        principles for complete financial statements.
 
 For
        further information, refer to the consolidated financial statements and
        footnotes thereto included in the company’s Annual Report on Form 10-K for the
        year ended December 31, 2004, as amended by Amendment No. 1 on Form 10-K/A.
 
 All
        notes
        to the condensed consolidated financial statements are shown in thousands,
        except for share and per share data.
  6
 **AIRSPAN
          NETWORKS INC.**
 
 **NOTES
          TO THE CONDENSED FINANCIAL STATEMENTS**
 
 **(in
          thousands, except for share and per share data)**
  **CONTINGENCIES**
 
 *Warranty*
 
 The
        Company provides a limited warranty for periods, usually ranging from twelve
        to
        twenty-four months, to all purchasers of its new equipment. Warranty expense
        is
        accrued at the date revenue is recognized on the sale of equipment and is
        recognized as a cost of revenue. The expense is estimated based on analysis
        of
        historic costs and is amortized over the warranty period. Management believes
        that the amounts provided for are sufficient for all future warranty costs
        on
        equipment sold through October 2, 2005 but if actual product failure rates,
        material usage or service delivery costs differ from estimates, revisions
        to the
        estimated warranty liability would be required.
 
 Information
        regarding the changes in the Company’s product warranty liabilities was as
        follows for the nine months ended October 2, 2005.
 **Balance
                    at beginning of period**
                
                **Accruals
                    acquired on acquisition**
                
                **Accrual
                    for warranties issued during the period**
                
                **Changes
                    in accruals related to pre-existing warranties (including changes
                    in
                    estimates)**
                
                **Settlements
                    made (in cash or in kind) during the period**
                
                **Balance
                    at**
                  **end
                    of**
                  **period**Nine
                    months ended October 2 2005Product
                    warranty liability
                
                $
                604
                
                $
                120
                
                $
                372
                
                $
                (209
                )
                $
                (319
                )
                $
                568
 *Other
        guarantees*
 
 The
        Company had delivered to its landlords and customers bank guarantees aggregating
        to $1,502 at December 31, 2004 and $1,487 at October 2, 2005. The
        foregoing
        figures represent the maximum potential amount of future payments the Company
        could be required to make under these guarantees. The guarantees secure payment
        or performance obligations of the Company under contracts. The Company has
        pledged cash to the banks as collateral for the guarantees in the same amounts
        as the guarantees. These pledges have been classified as restricted cash.
        The
        Company has not recognized any liability for these guarantees as in management’s
        opinion the likelihood of having to make payments under the guarantees is
        remote. These guarantees will all expire before the end of 2010 with the
        majority expiring in the fourth quarter of 2010.
 
 *Legal
        claims*
 
 On
        and
        after July 23, 2001, three Class Action Complaints were filed in the United
        States District Court for the Southern District of New York naming as defendants
        Airspan, and Eric D. Stonestrom (our President and Chief Executive Officer),
        Joseph J. Caffarelli (our former Senior Vice President and Chief Financial
        Officer), Matthew Desch (our Chairman) and Jonathan Paget (our Executive
        Vice
        President and Chief Operating Officer) (the “Individual Defendants”) together
        with certain underwriters of our July 2000 initial public offering. A
        Consolidated Amended Complaint, which is now the operative complaint, was
        filed
        on April 19, 2002. The complaint alleges violations of Sections 11 and 15
        of the
        Securities Act of 1933 and Sections 10(b) and 20(a) of the Securities Exchange
        Act of 1934 for issuing a Registration Statement and Prospectus that contained
        materially false and misleading information and failed to disclose material
        information. In particular, Plaintiffs allege that the underwriter-defendants
        agreed to allocate stock in our initial public offering to certain investors
        in
        exchange for excessive and undisclosed commissions and agreements by those
        investors to make additional purchases of stock in the aftermarket at
        pre-determined prices. The action seeks damages in an unspecified amount.
  7
 **AIRSPAN
          NETWORKS INC.**
 
 **NOTES
          TO THE CONDENSED FINANCIAL STATEMENTS**
 
 **(in
          thousands, except for share and per share data)**
  This
        action is being coordinated with approximately three hundred other nearly
        identical actions filed against other companies. On July 15, 2002, the Company
        moved to dismiss all claims against it and the Individual Defendants. On
        October
        9, 2002, the Court dismissed the Individual Defendants from the case without
        prejudice based upon Stipulations of Dismissal filed by the plaintiffs and
        the
        Individual Defendants. This dismissal disposed of the Section 15 and 20(a)
        control person claims without prejudice, since these claims were asserted
        only
        against the Individual Defendants. On February 19, 2003, the Court dismissed
        the
        Section 10(b) claim against us, but allowed the Section 11 claim to proceed.
        On
        October 13, 2004, the Court certified a class in six of the approximately
        300
        other nearly identical actions. In her Opinion, Judge Scheindlin noted that
        the
        decision is intended to provide strong guidance to all parties regarding
        class
        certification in the remaining cases. Judge Scheindlin determined that the
        class
        period for Section 11 claims is the period between the IPO and the date that
        unregistered shares entered the market. Judge Scheindlin also ruled that
        a
        proper class representative of a Section 11 class must (1) have purchased
        shares
        during the appropriate class period; and (2) have either sold the shares
        at a
        price below the offering price or held the shares until the time of suit.
        In two
        of the six cases, the class representatives did not meet the above criteria
        and
        therefore, the Section 11 cases were not certified. Plaintiffs have not yet
        moved to certify a class in the Airspan case.
  Airspan
        has approved a settlement agreement and related agreements which set forth
        the
        terms of a settlement between Airspan, the Individual Defendants, the plaintiff
        class and the vast majority of the other approximately 300 issuer defendants
        and
        the individual defendants currently or formerly associated with those companies.
        Among other provisions, the settlement provides for a release of Airspan
        and the
        individual defendants for the conduct alleged in the action to be wrongful.
        Airspan would agree to undertake certain responsibilities, including agreeing
        to
        assign away, not assert, or release certain potential claims Airspan may
        have
        against its underwriters. The settlement agreement also provides a guaranteed
        recovery of $1 billion to plaintiffs for the cases relating to all of the
        approximately 300 issuers. To the extent that the underwriter defendants
        settle
        all of the cases for at least $1 billion, no payment will be required under
        the
        issuers’ settlement agreement. To the extent that the underwriter defendants
        settle for less than $1 billion, the issuers are required to make up the
        difference. It is anticipated that any potential financial obligation of
        Airspan
        to plaintiffs pursuant to the terms of the settlement agreement and related
        agreements will be covered by existing insurance. The Company currently is
        not
        aware of any material limitations on the expected recovery of any potential
        financial obligation to plaintiffs from its insurance carriers. Its carriers
        are
        solvent, and the company is not aware of any uncertainties as to the legal
        sufficiency of an insurance claim with respect to any recovery by plaintiffs.
        Therefore, we do not expect that the settlement will involve any payment
        by
        Airspan. If material limitations on the expected recovery of any potential
        financial obligation to the plaintiffs from Airspan’s insurance carriers should
        arise, Airspan’s maximum financial obligation to plaintiffs pursuant to the
        settlement agreement would be less than $3.4 million. On February 15, 2005,
        the
        Court granted preliminary approval of the settlement agreement, subject to
        certain modifications consistent with its opinion. Those modifications have
        been
        made. There is no assurance that the court will grant final approval to the
        settlement. If the settlement agreement is not approved and Airspan is found
        liable, we are unable to estimate or predict the potential damages that might
        be
        awarded, whether such damages would be greater than Airspan’s insurance
        coverage, and whether such damages would have a material impact on our results
        of operations or financial condition in any future period.
  Except
        as
        set forth above, the Company is not currently subject to any other material
        legal proceedings. The Company may from time to time become a party to various
        other legal proceedings arising in the ordinary course of its
        business.
  **REVENUE
        RECOGNITION**
 
 On
        June
        16, 2005 the Company acquired ArelNet. ArelNet’s products include VoIP network
        infrastructure equipment and solutions, including soft switches and gateways
        that may include a significant amount of software. Revenue is recognized on these products when earned in accordance with
        applicable accounting standards and guidance, including Staff Accounting
        Bulletin, or
        SAB,
        No. 104, Revenue Recognition *,* and
        American Institute of Certified Public Accountants Statement Of Position
        No. 97-2, (SOP 97-2) *Software
        Revenue* *Recognition,* as
        amended. When products contain significant software elements as well as non-software elements, we allocate revenue to
        each
        element based on the relative fair values of the elements. Multiple-element
        arrangements generally include software, post-contract support (PCS or software
        maintenance), and in some cases, other professional services. Revenue from
        multiple-element arrangements is allocated to undelivered elements of the
        arrangement, such as PCS, based on the relative fair values of the elements.
        The
        determination of fair value of each element in multiple-element arrangements
        is
        based on vendor-specific objective evidence. Revenue accounted for under
        SOP
        97-2 for the third quarter 2005 was insignificant.






8


**AIRSPAN
        NETWORKS INC.**
 
 **NOTES
        TO THE CONDENSED FINANCIAL STATEMENTS**
 
 **(in
        thousands, except for share and per share data)**




**STOCK
      COMPENSATION**





At
      October 2, 2005, the Company had three stock option employee compensation plans,
      the 2004 omnibus equity compensation plan and the 2000 Employee Stock Purchase
      Plan (“ESPP”). The Company accounts for these plans under the recognition and
      measurement principles of APB Opinion No.25 Accounting for Stock Issued to
      Employees, and related interpretations. In all periods shown, the Company has
      valued stock-based employee compensation using the intrinsic value method.
      All
      options granted under these plans had an exercise price equal to the market
      value of the underlying common stock on the date of grant. There was no
      stock-based compensation cost reflected in net income in 2004 and 2005 related
      to these stock option plans. Awards under the 2004 omnibus equity compensation
      plan may be made to Participants in the form of (i) Incentive Stock Options;
      (ii) Nonqualified Stock Options; (iii) Stock Appreciation Rights; (iv)
      Restricted Stock; (v) Deferred Stock; (vi) Stock Awards; (vii) Performance
      Shares; (viii) Other Stock-Based Awards; and (ix) other forms of equity-based
      compensation as may be provided and are permissible under this Plan and the
      law.
      The Company recognized a charge of $224 in the first nine months of 2005
      relating to the issuance of 200,000 shares of restricted stock awarded in
      January 2005 under the 2004 omnibus equity compensation plan. The restricted
      stock vests over a four-year period from January 28, 2005. In addition, 100,000
      shares of the 200,000 shares have performance conditions relating to 2005 annual
      earnings and shipment targets.





During
      2005 the Company commenced contributions to a 401(K) retirement plan (the
“401(K) Plan”) for its U.S. employees. Pursuant to the 401(K) Plan the Company
      will match contributions made by a participating employee up to the lower of
      (i)
      6% of such employee’s gross salary or (ii) the annual plan maximum, which is $8
      per employee in 2005. The Company’s contributions are made quarterly in the form
      of shares of the Company’s common stock by using the closing price of the
      Company’s common stock as reported on the Nasdaq National Market on the last
      business day of each calendar quarter. During the third quarter of 2005, the
      Company issued 3036 shares under the 401(k) Plan at $5.03 per share. The
      aggregate value of the Company’s contribution ($15) was recorded as a stock
      compensation expense in the third quarter 2005.





The
      following table illustrates the effect on net loss and net loss per share if
      the
      Company had applied the fair value recognition provisions of FASB Statement
      No.
      123, Accounting for Stock-Based Compensation, to stock-based employee
      compensation.


**Quarter
                    Ended**
              
              
              **Year-to-Date****October
                  3,2004**
              
              
              **October
                    2,2005**
              
              
              **October
                    3,2004**
              
              
              **October
                    2,2005****(unaudited)**
              
              
              **(unaudited)**Net
                  loss attributable to common stockholders, as reported
              
              $
              (13,896
              )
              $
              (2,128
              )
              $
              (23,689
              )
              $
              (11,763
              )Add
                  back:Stock-based
                  employee compensation cost included in the
                determination
                  of net loss as reported
              
              
              —
              
              
              102
              
              
              —
              
              
              251Deduct:Stock-based
                  employee compensation cost that would have
                been
                  included in the determination of net loss if the fair
                value
                  method had been applied to all awards
              
              
              (556
              )
              
              (619
              )
              
              (1,553
              )
              
              (1,840
              )Pro
                  forma net loss
              
              $
              (14,452
              )
              $
              (2,645
              )
              $
              (25,242
              )
              $
              (13,352
              )Net
                  loss attributable to common stockholders
                per
                  share - basic and diluted
              
              $
              (0.38
              )
              $
              (0.05
              )
              $
              (0.65
              )
              $
              (0.30
              )Pro
                  forma net loss attributable to common stockholders
                per
                  share- basic and diluted
              
              $
              (0.40
              )
              $
              (0.07
              )
              $
              (0.70
              )
              $
              (0.35
              )


**ACQUISITIONS**





On
      June
      16, 2005, the Company consummated its acquisition of all of the outstanding
      shares of capital stock of ArelNet. This business combination has been accounted
      for under the purchase method and the results of operations of ArelNet from
      June
      16, 2005 to October 2, 2005 are included in the consolidated statement of
      operations of the Company. ArelNet is a pioneer in VoIP network infrastructure
      equipment and solutions, including soft switches and gateways supporting all
      major VoIP standards. ArelNet has extensive experience worldwide, having
      installed network equipment with a capacity exceeding two billion minutes per
      year.





9


**AIRSPAN
          NETWORKS INC.**
 
 **NOTES
          TO THE CONDENSED FINANCIAL STATEMENTS**
 
 **(in
          thousands, except for share and per share
          data)**




ArelNet
      was acquired to enable the Company to develop carrier grade voice telephony
      using switching and gateway technologies in the Company’s WiMAX data platforms.
      The purchase price of $9.4 million was made up of $4.0 million of cash,
      1,001,325 shares of the Company’s common stock valued at $4.8 million, employee
      stock options to purchase 100,000 shares of the Company’s common stock valued at
      $0.3 million and $0.4 million of direct acquisition costs. Of the total purchase
      price $0.5 million was deposited in escrow with an escrow agent to secure the
      sellers’ representations and warranties under the purchase agreement. These
      funds will remain in escrow until June 16, 2006, unless sooner released to
      us in
      payment of indemnification claims. The options issued to ArelNet employees
      were
      valued in accordance with FASB Statement No. 123, “Accounting for Stock-Based
      Compensation” and measured at fair value using a Black-Scholes option-pricing
      model. In accordance with the FASB Emerging Issues Task Force (EITF) issue
      No . 99-12 -“
      Determination of the Measurement Date for the Market Price of Acquirer
      Securities Issued in a Purchase Business Combination” and FASB Statement No.
      141, “Business Combinations”, the 1,001,325 shares issued in connection with the
      transaction were valued based on market prices on the three days before the
      measurement date of June 16, 2005.




The
      preliminary purchase price allocation made in the second quarter of 2005 (the
      “Preliminary Allocation”) was revised and finalized in the third quarter. The
      final purchase price allocation and the revisions to the Preliminary Allocation
      are shown in the tables below. The Company engaged an independent third party
      to
      assist in the valuation of intangible assets.




Calculation
      of purchase price:


**Original**
            
            **Revisions**
            
            **Total**Cash
                consideration
            
            $
            4,000
            
            
            —
            
            $
            4,000Shares
                issued
            
            
            4,752
            
            
            —
            
            
            4,752Options
                granted
            
            
            309
            
            
            —
            
            
            309Direct
                acquisition costs
            
            
            450
            
            $
            (71
            )
            
            379Total
                purchase price
            
            $
            9,511
            
            $
            (71
            )
            $
            9,440





The
      following table shows the preliminary allocation and the final purchase price
      allocation.


**Allocation
                of purchase price****Historical**
              **book
                value**
            
            **Purchase
                price allocation/fair value****adjustments**
            
            **Revision
                to**
              **Purchase
                price allocation/fair**
              **value**
              **adjustments**
            
            **Fair
                value**Cash
            
            $
            18
            
            
            —
            
            
            —
            
            $
            18Accounts
                receivable
            
            
            1,507
            
            $
            (548
            )
            $
            (42
            )
            
            917Inventory
            
            
            1,161
            
            
            (789
            )
            
            —
            
            
            372Prepaid
                expenses and other current assets
            
            
            581
            
            
            (19
            )
            
            —
            
            
            562Property,
                plant and equipment, net
            
            
            110
            
            
            161
            
            
            —
            
            
            271Other
                long term assets
            
            
            1,037
            
            
            (64
            )
            
            —
            
            
            973Intangible
                assets, net:Core
                developed technology
            
            
            —
            
            
            2,440
            
            
            —
            
            
            2,440Other
                technology
            
            
            —
            
            
            65
            
            
            —
            
            
            65Customer
                relationships
            
            
            —
            
            
            45
            
            
            —
            
            
            45Backlog
            
            
            —
            
            
            160
            
            
            —
            
            
            160Accounts
                payable
            
            
            (169
            )
            
            —
            
            
            —
            
            
            (169
            )Deferred
                revenue
            
            
            (1,510
            )
            
            1,490
            
            
            —
            
            
            (20
            )Customer
                advances
            
            
            —
            
            
            (386
            )
            
            —
            
            
            (386
            )Accrued
                taxes
            
            
            (225
            )
            
            —
            
            
            —
            
            
            (225
            )Other
                accrued expenses
            
            
            (2,228
            )
            
            (293
            )
            
            (73
            )
            
            (2,594
            )Goodwill
            
            
            —
            
            
            6,967
            
            
            44
            
            
            7,011Total
                purchase price
            
            $
            282
            
            $
            9,229
            
            $
            (71
            )
            $
            9,440





10


**AIRSPAN
          NETWORKS INC.**
 
 **NOTES
          TO THE CONDENSED FINANCIAL STATEMENTS**
 
 **(in
          thousands, except for share and per share
          data)**




All
      intangible assets acquired, other than goodwill, are subject to amortization
      over the periods shown in the table below:


Value
            
            Life
                  inyearsCore
                developed technology
            
            $
            2,440
            
            
            5Other
                technology
            
            
            65
            
            
            5Customer
                relationships
            
            
            45
            
            
            3Backlog
            
            
            160
            
            
            0.5Weighted-average
                amortization period
            
            $
            2,710
            
            
            4.7


The
      unaudited pro forma revenue and net loss of the Company for the periods
      indicated, as if the ArelNet acquisition had occurred as of January 1 2004
      and
      January 1, 2005, respectively, are shown in the following
      table.


**Year-to-Date****October
                    3,**
                  **2004**
              
              
              **October
                    2**
                  **2005**Revenue
              
              $
              59,795
              
              $
              74,903Net
                  loss
              
              $
              (24,021
              )
              
              (12,300
              )Net
                  loss per share- basic and diluted
              
              $
              (0.65
              )
              
              (0.31
              )Weighted
                  average shares outstanding- basic and diluted
              
              
              37,170,574
              
              
              39,233,592


There
      were no extraordinary items or cumulative effect of accounting changes included
      in the pro forma results of operations. The unaudited pro forma results above
      have been prepared for comparative purposes only and do not purport to be
      indicative of the results of operations which actually would have resulted
      had
      the acquisition occurred at January 1, 2004 or 2005, nor are they necessarily
      indicative of future operating results.





**INVENTORY**




Inventory
      consists of the following:


**December
                  31,2004**
              
              
              **October
                    2,**
                  **2005****(unaudited)**Purchased
                  parts and materials
              
              $
              4,419
              
              $
              4,276Work
                  in progress
              
              
              1,214
              
              
              1,207Finished
                  goods and consumables
              
              
              7,201
              
              
              9,460$
              12,834
              
              $
              14,943




11


**AIRSPAN
        NETWORKS INC.**
 
 **NOTES
        TO THE CONDENSED FINANCIAL STATEMENTS**
 
 **(in
        thousands, except for share and per share data)**
  **ACCRUED
        RESTRUCTURING CHARGES**





In
      the
      fourth quarter of 2002 the decision was made to completely outsource all our
      manufacturing. As a result the Company recorded a $975 restructuring charge
      for
      the closure of its Riverside, Uxbridge facility in 2003. All of this cost
      relates to the excess facility. A further $368 was recognized as restructuring
      in the income statement in the fourth quarter of 2003 as the Company reassessed
      the ability to sublease the Riverside facility. During the second quarter of
      2005 the Company recognized an additional restructuring charge of $1,150 for
      additional costs related to certain facility charges in respect of buildings
      in
      the UK. The total amount expected to be incurred as a result of the closure
      of
      the Riverside facility is up to $2,493 of which $1,567 remains accrued as at
      the
      end of October 2, 2005. All cash outflows in connection with this restructuring
      are expected to occur by the end of 2007.





During
      the first quarter of 2004 the Company initiated a program to further reduce
      operating expenses. This program was completed by the end of the third quarter
      of 2004. The total cost incurred for this restructuring program was $413,
      recorded as a restructuring charge, related to termination costs for 21
      employees. All of these employees had left the Company by December 31, 2004.





In
      conjunction with the purchase of the Proximity business in 2003 the Company
      implemented its plan to relocate the Proximity business from Maidenhead, England
      and Sunrise, Florida to the Company’s facilities in Uxbridge, England and Boca
      Raton, Florida. The Company recorded acquisition-related restructuring charges
      of $520, in the fourth quarter of 2003, in connection with the relocation of
      the
      Proximity business. The estimated relocation costs were reduced during 2004
      to
      $181. The adjustment formed part of the revised fair value adjustments of the
      Proximity acquisition. This relocation plan was completed by December 31, 2004.





The
      restructuring charges and their utilization are summarized as follows:


**Balance
                      at beginning of period**
                  
                  
                  **Restructuring
                        charge**
                  
                  
                  **Accrued
                      on
                      acquisition**
                  
                  
                  **Utilized**
                  
                  
                  **Balance
                        at**
                      **end
                        of**
                      **period****(unaudited)**
                  
                  
                  **(unaudited)**
                  
                  
                  **(unaudited)**
                  
                  
                  **(unaudited)**
                  
                  
                  **(unaudited)**Three
                    months ended
                    October 2, 2005Contract
                      termination costs
                  
                  $
                  1,592
                  
                  $
                  —
                  
                  
                  —
                  
                  $
                  (78
                  )
                  $
                  1,514Other
                      associated costs
                  
                  
                  56
                  
                  
                  —
                  
                  
                  —
                  
                  
                  (3
                  )
                  
                  53$
                  1,648
                  
                  $
                  —
                  
                  $
                  —
                  
                  $
                  (81
                  )
                  $
                  1,567
  Nine
                    months ended October 2, 2005Contract
                      termination costs
                  
                  $
                  599
                  
                  $
                  1,150
                  
                  
                  —
                  
                  $
                  (235
                  )
                  $
                  1,514Other
                      associated costs
                  
                  
                  61
                  
                  
                  —
                  
                  
                  —
                  
                  
                  (8
                  )
                  
                  53$
                  660
                  
                  $
                  1,150
                  
                  $
                  —
                  
                  $
                  (243
                  )
                  $
                  1,567
  Year
                      ended December 31, 2004
                    
                    **(audited)**
                    
                    
                    
                    
                    
                    
                    
                    **(audited)**One-time
                        termination benefits
                    
                    
                    —
                    
                    $
                    413
                    
                    
                    —
                    
                    $
                    (413
                    )
                    
                    —Contract
                        termination costs
                    
                    $
                    947
                    
                    
                    —
                    
                    
                    —
                    
                    
                    (348
                    )
                    $
                    599Other
                        associated costs
                    
                    
                    592
                    
                    
                    —
                    
                    $
                    (339
                    )
                    
                    (192
                    )
                    
                    61$
                    1,539
                    
                    $
                    413
                    
                    $
                    (339
                    )
                    $
                    (953
                    )
                    $
                    660
 All
      charges will result in direct cash outlays.




12


**AIRSPAN
        NETWORKS INC.**
 
 **NOTES
        TO THE CONDENSED FINANCIAL STATEMENTS**
 
 **(in
        thousands, except for share and per share data)**
  **SEGMENTAL
        INFORMATION**





As
      a
      developer and supplier of fixed wireless communications access systems and
      solutions, the Company has one reportable segment. The revenue of this single
      segment is comprised primarily of revenue from products and, to a lesser extent,
      services. The majority of the Company’s revenue is generated from products
      manufactured in the United Kingdom, Mexico and Israel, with additional revenue
      generated from sales of original equipment manufacturer’s (OEM) products.


An
      analysis of revenue by geographical market is given
      below:


**Quarter
                    Ended**
              
              
              **Year-to-Date****October
                    3,2004**
              
              
              **October
                    2,2005**
              
              
              **October
                    3,**
                  **2004**
              
              
              **October
                    2,**
                  **2005****(unaudited)**
              
              
              **(unaudited)**USA
                  and Canada
              
              $
              647
              
              $
              2,485
              
              $
              2,132
              
              $
              5,867Asia
              
              
              2,312
              
              
              2,957
              
              
              5,219
              
              
              8,339Europe
              
              
              2,752
              
              
              3,880
              
              
              7,258
              
              
              7,326Africa
                  and the Middle East
              
              
              651
              
              
              902
              
              
              1,644
              
              
              4,061Latin
                  America and Caribbean
              
              
              20,090
              
              
              20,321
              
              
              40,871
              
              
              47,479$
              26,452
              
              $
              30,545
              
              $
              57,124
              
              $
              73,072


**COMPREHENSIVE
      LOSS**





Total
      comprehensive loss was $14,352 for the quarter ended October 3, 2004 and $2,128
      for the quarter ended October 2, 2005 comprising:


**Quarter
                    Ended**
              
              
              **Year-to-Date****October
                    3,**
                  **2004**
              
              
              **October
                    2,**
                  **2005**
              
              
              **October
                    3,**
                  **2004**
              
              
              **October
                    2,**
                  **2005****(unaudited)**
              
              
              **(unaudited)**Net
                  loss attributable to common stockholders
              
              $
              (13,896
              )
              $
              (2,128
              )
              $
              (23,689
              )
              $
              (11,763
              )Other
                  comprehensive income/(loss):Movement
                  in the fair value of cash flow hedges-
                  unrealized gain on foreign currency cash flow hedges
              
              
              53
              
              
              —
              
              
              282
              
              
              —-
                  reclassification of adjustment for gains realized in net
                  loss
              
              
              (509
              )
              
              —
              
              
              (1,545
              )
              
              (418
              )Comprehensive
                  loss
              
              $
              (14,352
              )
              $
              (2,128
              )
              $
              (24,952
              )
              $
              (12,181
              )







13


**AIRSPAN
        NETWORKS INC.**
 
 **NOTES
        TO THE CONDENSED FINANCIAL STATEMENTS**
 
 **(in
        thousands, except for share and per share data)**
  **NET
        LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS PER SHARE**





Net
      loss
      attributable to common stockholders per share is computed using the weighted
      average number of shares of common stock outstanding. Shares associated with
      stock options and or common stock to be issued on the conversion of the
      Company’s Series A Preferred stock are not included in the calculation of
      diluted net loss per share as they are antidilutive.





The
      following table sets forth the computation of basic and diluted net loss per
      share for the periods indicated.


**Quarter
                          Ended**
                    
                    **Year-to-Date****October
                          3,**
                        **2004**
                    
                    **October
                          2,**
                        **2005**
                    
                    **October
                          3,**
                        **2004**
                    
                    **October
                          2,**
                        **2005****(unaudited)**
                    
                    **(unaudited)**Numerator:Net
                        loss attributable to common stockholders
                    
                    $
                    (13,896
                    )
                    $
                    (2,128
                    )
                    $
                    (23,689
                    )
                    $
                    (11,763
                    )Denominator:Weighted
                        average common shares
                      outstanding
                        basic and diluted
                    
                    
                    36,439,662
                    
                    
                    39,396,155
                    
                    
                    36,169,249
                    
                    
                    38,677,301Net
                        loss attributable to common stockholders
                      per
                        share- basic and diluted
                    
                    $
                    (0.38
                    )
                    $
                    (0.05
                    )
                    $
                    (0.65
                    )
                    $
                    (0.30
                    )


In
      2000,
      the Company adopted the 2000 Employee Stock Purchase Plan (“ESPP”), which
      qualifies as an employee stock purchase plan under Section 423 of the Internal
      Revenue Code of 1986. As of October 2, 2005, there were 1,694,947 shares of
      common stock reserved for issuance under the ESPP. On August 1, 2005 the Company
      issued 130,630 shares at $3.72 per share to employees participating in the
      ESPP.





During
      the nine months ended October 2, 2005, 431,807 options granted pursuant to
      the
      1998 and 2003 stock option plans were exercised at an average exercise price
      of
      $1.52. Also during this period, under the 2004 Omnibus Equity Compensation,
      200,000 shares of Restricted Stock were issued to employees and 5,154 shares
      were deposited into U.S. employee’s 401K retirement plans.





On
      June
      16, 2005, the Company consummated its acquisition of all of the outstanding
      shares of capital stock of ArelNet Ltd. As part of the purchase price the
      Company issued, among other things, 1,001,325 shares with a market value of
      $4.8
      million.




**RECENT
      ACCOUNTING
      PRONOUNCEMENTS**




In
      June 2005, the FASB issued FSP No. 143-1,
“Accounting for Electronic Equipment Waste Obligations” (“FSP 143-1”). FSP 143-1
      provides guidance on how commercial users and producers of electronic equipment
      should recognize and measure asset retirement obligations associated with the
      European Union (“EU”) Directive 2002/96/EC on Waste Electrical and Electronic
      Equipment. FSP 143-1 is effective as of the later of Airspan’s fiscal
      quarter ended October 2, 2005 or the date of the adoption of the law by the
      applicable EU-member country. In the third quarter of 2005, Airspan adopted
      FSP
      143-1 with respect to those EU-member countries that had adopted the directive
      into country specific laws by the end of the third quarter. The adoption of
      the
      FSP 143-1 in the third quarter of 2005 did not have a material impact on
      Airspan’s results of operations and financial condition. Due to the fact that
      certain EU-member countries have not yet enacted country-specific laws, Airspan
      cannot estimate the impact of applying this guidance in future
      periods.





14


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





**THE
      FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE COMPANY’S ANNUAL
      REPORT ON FORM 10-K AS AMENDED BY AMENDMENT NO.1 ON FORM 10-K/A FOR THE YEAR
      ENDED DECEMBER 31, 2004, AS WELL AS THE FINANCIAL STATEMENTS AND NOTES THERETO.
      EXCEPT FOR HISTORICAL MATTERS CONTAINED HEREIN, STATEMENTS MADE IN THIS
      QUARTERLY REPORT ON FORM 10-Q ARE FORWARD-LOOKING AND ARE MADE PURSUANT TO
      THE
      SAFE HARBOR PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995.
      WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, WORDS SUCH AS “MAY”, “WILL”,
“TO”, “PLAN”, “EXPECT”, “BELIEVE”, “ANTICIPATE”, “INTEND”, “COULD”, “WOULD”,
“ESTIMATE”, OR “CONTINUE” OR THE NEGATIVE OTHER VARIATIONS THEREOF OR COMPARABLE
      TERMINOLOGY ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. INVESTORS
      AND
      OTHERS ARE CAUTIONED THAT A VARIETY OF FACTORS, INCLUDING CERTAIN RISKS, MAY
      AFFECT OUR BUSINESS AND CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE
      SET
      FORTH IN THE FORWARD-LOOKING STATEMENTS. THESE RISK FACTORS INCLUDE, WITHOUT
      LIMITATION, (I) A SLOWDOWN OF EXPENDITURES BY COMMUNICATION SERVICE PROVIDERS;
      (II) INCREASED COMPETITION FROM ALTERNATIVE COMMUNICATION SYSTEMS; (III) THE
      FAILURE OF OUR EXISTING OR PROSPECTIVE CUSTOMERS TO PURCHASE PRODUCTS AS
      PROJECTED; (IV) OUR INABILITY TO SUCCESSFULLY IMPLEMENT COST REDUCTION OR
      CONTAINMENT PROGRAMS; (V) A LOSS OF ANY OF OUR KEY CUSTOMERS; (VI) OUR ABILITY
      TO RETAIN AXTEL, S.A. DE CV (“AXTEL”) AS OUR LARGEST CUSTOMER; AND (VII)
      POSSIBLE INFRINGEMENT OF THIRD PARTY TECHNOLOGIES WHICH MAY RESULT IN LAWSUITS
      THAT COULD BE COSTLY TO DEFEND AND PROHIBIT US FROM SELLING OUR PRODUCTS. THE
      COMPANY IS ALSO SUBJECT TO THE RISKS AND UNCERTAINTIES DESCRIBED IN ITS FILINGS
      WITH THE SECURITIES AND EXCHANGE COMMISSION, INCLUDING ITS ANNUAL REPORT ON
      FORM
      10-K AS AMENDED BY AMENDMENT NO.1 ON FORM 10-K/A FOR THE YEAR ENDED DECEMBER
      31,
      2004.**





**COMPARISON
      OF THE QUARTER ENDED OCTOBER 2, 2005 TO THE QUARTER ENDED OCTOBER 3, 2004**





Revenue





Revenue
      totaled $30.5 million for the quarter ended October 2, 2005 representing an
      15%
      increase from the $26.5 million reported for the quarter ended October 3, 2004.
      The increase in revenues was primarily attributable to an increase in sales
      of
      our WipLL products and
      introduction of our WiMAX and i-Tone products in 2005 .
      Revenue
      for the third quarter of 2005 was 50% higher than revenue recorded for the
      second quarter of 2005, primarily due to higher sales of our Proximity product
      to Axtel, our largest customer, the increase of WiMAX sales in the quarter
      and
      receipt of our first full quarter of i-Tone revenue. During the third quarter
      2005, revenue was derived from 149 customers in 76 countries. Geographically,
      67% of our revenue was derived from customers in Latin America and the
      Caribbean, 12% from Europe and 10% from Asia. Customers in North America and
      African and the Middle East accounted for 8% and 3% of revenues, respectively.





Cost
      of
      Revenue





Cost
      of
      revenue increased 17% to $21.4 million in the quarter ended October 2, 2005
      from
      $18.3 million in the quarter ended October 3, 2004. All of the increase is
      attributable to the increase in revenue. The gross profit for the third quarter
      of 2005 was $9.1 million (30% of revenue) compared to a gross profit of $7.1
      million (27% of revenue) for the third quarter 2004 and compared to a gross
      profit for the second quarter 2005 of $5.4 million (27% of revenue). The
      increase in gross profit in the third quarter 2005 as compared to the third
      quarter 2004 was due primarily to an increase in revenue and inventory provision
      in the amount of $1.1 million recorded in the third quarter 2004.





Research
      and Development Expenses





Research
      and development expenses increased 20% to $5.4 million in the quarter ended
      October 2, 2005 from $4.5 million in the quarter ended October 3, 2004. The
      increase in expenses was due to our increased investment in our WiMAX
      development plans and the inclusion in the third quarter 2005 of a full quarter
      of costs associated with our i-Tone product, which we acquired in the purchase
      of Arelnet at the end of the second quarter 2005.





Sales
      and
      Marketing Expenses





Sales
      and
      marketing expenses remained relatively constant between the third quarter of
      2004 and 2005 with $2.8 million for the third quarter of 2004 and $2.9 million
      for the third quarter of 2005.





15


Bad
      Debt
      Provision





In
      the
      third quarter 2005, we recorded bad debt provisions of $0.3 million relating
      to
      customer accounts for which management has determined that full recovery was
      unlikely. We recorded bad debt provisions of $0.2 million in the corresponding
      quarter of 2004.





General
      and Administrative Expenses





General
      and administrative expenses decreased 4% to $3.2 million in the quarter ended
      October 2, 2005 from $3.3 million in the quarter ended October 3, 2004. The
      decrease is primarily due to a decrease in audit, legal and professional
      expenditures, including a decrease in costs related to activities to facilitate
      compliance with the Sarbanes Oxley Act of 2002 incurred in 2004.





Amortization
      of Intangibles





We
      recorded amortization of intangibles expense of $0.3 million in the third
      quarter 2005 compared with amortization of intangibles expense of $0.2 million
      for the third quarter 2004. The increase in amortization expense is a result
      of
      our acquisition of intangible assets in connection with the Arelnet purchase
      in
      the second quarter of 2005. During the second quarter 2005, we acquired all
      of
      the outstanding equity of ArelNet and identified four intangible assets with
      a
      total value of $2.7 million. These assets will be amortized over their expected
      lives of up to five years.





Interest
      Expense and Interest and Other Income





We
      had
      interest expense in the third quarter of 2005 of $32 thousand relating to
      interest on R&D tax credit repayments for 2001 and 2002, compared to no
      interest expense for the third quarter of 2004. Interest and other income
      decreased to $0.4 million for the quarter ended October 2, 2005 from $0.6
      million for the quarter ended October 3, 2004. The decrease was due primarily
      to
      a foreign exchange gain of $32 thousand recorded in the third quarter of 2005
      as
      compared to a foreign exchange gain of $0.5 million recorded in the comparable
      period of 2004. Interest income increased to $0.3 million in the third quarter
      of 2005 compared to $0.1 million in the third quarter of 2004 as a result of
      higher interest rates on higher average cash balances. The foreign exchange
      gain
      in the third quarter 2005 is primarily the result of the revaluation of certain
      monetary sterling assets. The foreign exchange gains in 2004 are primarily
      a
      result of our settlement of certain currency hedging contracts entered into
      by
      the Company to protect itself against a strengthening of the British pound
      against the US dollar.





Income
      Taxes





We
      did
      not have a material income tax charge in either the third quarter of 2005 or
      2004 primarily due to our loss for the quarter and losses carried forward.
      In
      the third quarter 2005 we recorded an income tax credit of $0.6 million related
      to a benefit granted to us by the United Kingdom tax authorities, which we
      received in lieu of carrying forward tax losses related to research and
      development costs. We surrendered approximately $2.4 million of carry forward
      tax losses in the U.K. resulting exchange for this tax credit. We are subject
      to
      US franchise taxes resulting from business activities performed within certain
      states in the United States of America.





Net
      Loss
      Attributable to Common Stockholders





Our
      net
      loss attributable to common stockholders of $2.1 million, or $0.05 per share,
      in
      the quarter ended October 2, 2005 compares to a net loss attributable to common
      stockholders of $13.9 million, or $0.38 per share, for the quarter ended October
      3, 2004, a decrease of $11.8 million, or 85%. Comparing the third quarters
      of
      2005 and 2004, the increase in gross profit of $2.0 million and the increase
      in
      income tax credit of $0.6 million was partially offset by higher operating
      expenses of $1.1 million and lower net interest and other income of $0.2
      million. Additionally, the one time preferred stock deemed dividend of $10.4
      million recorded in the third quarter 2004 was not repeated in 2005.





Other
      Comprehensive Loss





Other
      comprehensive loss for the quarter ended October 2, 2005 from the monthly
      settlement of certain currency hedging contracts together with the
      reclassification of their realized gains to net loss was $0.0 million. These
      currency hedging contracts are used to hedge our UK expenses through to December
      2005. Other comprehensive loss for the quarter ended October 3, 2004 was $0.5
      million.





16


**COMPARISON
      OF THE NINE MONTHS ENDED OCTOBER 2, 2005 TO THE NINE MONTHS ENDED OCTOBER 3,
      2004**





Revenue





Revenue
      totaled $73.1 million for the nine months ended October 2, 2005 representing
      a
      28% increase from the $57.1 million reported for the nine months ended October
      3, 2004. The increase in revenues was primarily attributable to an increase
      in
      sales of our WipLL and Proximity products and receipt of our first material
      revenues from our WiMAX and i-Tone products in the third quarter of 2005. During
      the first nine months of 2005, revenue was derived from 223 customers in 89
      countries. Geographically, 65% of our revenue was derived from customers in
      Latin America and the Caribbean, 11% from Asia and 8% from North America. Africa
      and the Middle East customers and European customers accounted for 5% and 9%
      of
      revenues, respectively.





Cost
      of
      Revenue





Cost
      of
      revenue increased 32% to $51.7 million in the nine months ended October 2,
      2005
      from $39.2 million in the nine months ended October 3, 2004. All of the increase
      is attributable to the increase in revenue. The gross profit for the first
      nine
      months of 2005 was $21.4 million (29% of revenue) compared to a gross profit
      of
      $16.9 million (30% of revenue) for the first nine months of 2004. The increase
      in gross profit in the first nine months of 2005 as compared to the first nine
      months of 2004 was due primarily to increased revenue. Additionally in the
      first
      nine months of 2004 we recorded an inventory provision of $1.1 million.





Research
      and Development Expenses





Research
      and development expenses increased 5% to $15.1 million in the nine months ended
      October 2, 2005 from $14.3 million in the nine months ended October 3, 2004.
      The
      increase in expenses was due to our increased investment in our WiMAX
      development plans and the inclusion in the third quarter 2005 of a full quarter
      of costs associated with our i-Tone product, which we acquired in the purchase
      of Arelnet at the end of the second quarter 2005, all of which were partially
      offset by the effect of cost reduction programs initiated in fiscal 2004.





Sales
      and
      Marketing Expenses





Sales
      and
      marketing expenses remained constant at $8.1 million for the first nine months
      of 2004 and 2005.





Bad
      Debt
      Provision





In
      the
      first nine months of 2005, we recorded bad debt provisions of $0.8 million
      relating to customer accounts for which management has determined that full
      recovery was unlikely. We recorded bad debt provisions of $0.5 million in the
      corresponding period of 2004.





General
      and Administrative Expenses





General
      and administrative expenses increased 10% to $9.0 million in the nine months
      ended October 2, 2005 from $8.2 million in the nine months ended October 3,
      2004. The increase is primarily due to an increase in audit, legal and
      professional expenditures, including costs related to activities to facilitate
      compliance with the Sarbanes Oxley Act of 2002, which costs began to decline
      in
      the third quarter of 2005, and costs associated with the change of independent
      public accountants in the third quarter of 2005.





Amortization
      of Intangibles





We
      recorded amortization of intangibles expense of $0.6 million in the first nine
      months of 2005 and 2004. A reduction in the amortization expense as a result
      of
      the reduction in the value attributed to the intangibles acquired as part of
      the
      Proximity purchase in the fourth quarter of 2003 was offset by our amortization
      expense related to intangibles acquired in connection with the Arelnet
      acquisition completed in June 2005. The intangibles relating to our Proximity
      purchase are expected to be fully amortized by the end of 2008 and the four
      identified intangible assets, with a total value of $2.7 million, acquired
      from
      Arelnet acquisition will be fully amortized by the end of 2010.





Restructuring





In
      the
      first nine months of 2005, we recorded a restructuring provision of $1.2 million
      relating to certain facility charges in respect of buildings in the UK. We
      recorded a restructuring provision of $0.4 million in the corresponding period
      of 2004 related to a headcount and cost reduction program.




17


Interest
      Expense and Interest and Other Income


We
      had an
      interest expense of $32 thousand relating to interest on R&D tax credit
      repayments for 2001 and 2002 in the first nine months of 2005 compared to no
      interest expense for the first nine months of 2004. Interest and other income
      decreased to $1.1 million for the nine months ended October 2, 2005 from $2.1
      million for the nine months ended October 3, 2004. The decrease was due
      primarily to lower foreign exchange gains of $0.1 million recorded in the first
      nine months of 2005 as compared to foreign exchange gains of $1.7 million
      recorded in the comparable period of 2004. Interest income increased to $1.0
      million in the first nine months of 2005 compared to $0.4 million in the first
      nine months of 2004 as a result of higher interest rates on higher average
      cash
      balances. The foreign exchange gains are primarily a result of our settlement
      of
      certain currency hedging contracts entered into by the Company to protect itself
      against a strengthening of the British pound against the US dollar.





Income
      Taxes





We
      did
      not have a material income tax charge in either the first nine months of 2005
      or
      2004 primarily due to our current loss making position and losses carried
      forward. In the first nine months of 2005 we recorded an income tax credit
      of
      $0.6 million related to the benefit granted to us by the United Kingdom tax
      authorities, which we received in lieu of carrying forward tax losses related
      to
      research and development costs. We surrendered approximately $2.4 million of
      carry forward tax losses in the U.K. resulting exchange for this credit. We
      are
      subject to certain US franchise taxes resulting from business activities
      performed within certain states in the United States of America.





Net
      Loss
      Attributable to Common Stockholders





Our
      net
      loss attributable to common stockholders of $11.8 million, or $0.30 per share,
      in the nine months ended October 2, 2005 compares to a net loss attributable
      to
      common stockholders of $23.7 million, or $0.65 per share, for the nine months
      ended October 3, 2004, a decrease of $11.9 million, or 50%. Comparing the first
      nine months of 2005 and 2004, the increase in gross profit of $4.5 million
      and
      the increase in tax credit of $0.6 million were offset by higher operating
      expenses of $2.6 million and lower net interest and other income of $1.0
      million. Additionally, the one time preferred stock deemed dividend of $10.4
      million recorded in the first nine months of 2004 was not repeated in
      2005.





Other
      Comprehensive Loss





Other
      comprehensive loss for the nine months ended October 2, 2005 arose from the
      monthly settlement of certain currency hedging contracts together with the
      reclassification of their realized gains to net income of $0.4 million. These
      forward exchange contracts were used to hedge our UK expenses through to
      December 2005. Other comprehensive loss for the nine months ended October 3,
      2004 was $1.3 million.




**Subsequent
      events**





On
      November 9, 2005, we acquired Radionet Oy, Ltd. of Finland under a Share
      Purchase Agreement. Radionet is a provider of municipal wireless Hotzones,
      community networks, mobile broadband solutions for industrial applications,
      such
      as ports, mines and public transport, and link solutions for wireless backhaul
      and enterprises. Operating in unlicensed frequency bands using IEEE802.11 a/b/g
      Wi-Fi standards, the product architecture includes network and subscriber
      management capabilities and a patented “MageIP”TM technology that allows roaming
      within Hotzones. The purchase price paid was $1.8 million cash, in return for
      99.72% of the outstanding common stock. We will pay an additional $0.1 million
      cash if the outstanding balance of shares and options are tendered for sale
      by
      November 24, 2005.




**Critical
      accounting policies - revenue recognition**





On
      June
      16, 2005 the Company acquired ArelNet. ArelNet’s products include VoIP network
      infrastructure equipment and solutions, including soft switches and gateways
      that may include a significant amount of software. Revenue is recognized on
      these products when earned in accordance with applicable accounting standards
      and guidance, including Staff Accounting Bulletin, or SAB No. 104, Revenue
      Recognition, and American Institute of Certified Public Accountants Statement
      Of
      Position No. 97-2 (“SOP 97-2”), Software Revenue Recognition, as amended.
      When products contain significant software elements as well as non-software
      elements, we allocate revenue to each element based on the relative fair values
      of the elements. Multiple-element arrangements generally include software,
      post-contract support (PCS or software maintenance), and in some cases, other
      professional services. Revenue from multiple-element arrangements is allocated
      to undelivered elements of the arrangement, such as PCS, based on the relative
      fair values of the elements. The determination of fair value of each element
      in
      multiple-element arrangements is based on vendor-specific objective evidence.
      Revenue accounted for under SOP 97-2 for the third quarter 2005 was
      insignificant.




18


**Restructuring**





In
      the
      fourth quarter of 2002 the decision was made to completely outsource all our
      manufacturing. As a result we recorded a $1.0 million restructuring charge
      for
      the closure of our Riverside, Uxbridge facility in 2003. All of this cost
      related to the excess facility. A further $0.4 million was recognized as
      restructuring in the income statement in the fourth quarter of 2003 as we
      reassessed the ability to sublease the Riverside facility. During the second
      quarter of 2005 we recognized an additional restructuring charge of $1.2 million
      for additional costs related to certain facility charges in respect of buildings
      in the UK. The total amount expected to be incurred as a result of the closure
      of the Riverside facility is $2.5 million of which $1.6 million remains accrued
      as at the end of October 2, 2005. All cash outflows in connection with this
      restructuring are expected to occur by the end of 2007.





During
      the first quarter of 2004 we initiated a new program to further reduce operating
      expenses. This program was completed by the end of the third quarter of 2004.
      The total cost incurred for this restructuring program was $0.4 million,
      recorded as a restructuring charge, related to termination costs for 21
      employees. All of these employees had left the Company by December 31, 2004.





In
      conjunction with the purchase of the Proximity business in 2003, the Company
      implemented its plan to relocate the Proximity business from Maidenhead, England
      and Sunrise, Florida to the Company’s facilities in Uxbridge, England and Boca
      Raton, Florida. The Company recorded acquisition-related restructuring charges
      of $0.5 million, in the fourth quarter of 2003, in connection with the
      relocation of the Proximity business. The estimated relocation costs were
      reduced during 2004 to $0.2 million. The adjustment formed part of the revised
      fair value adjustments of the Proximity acquisition. This relocation plan was
      completed by December 31, 2004.





The
      restructuring charges and their utilization are summarized as follows (in US
      dollar ‘000s):


**Balance
                      at beginning of
                      period**
                  
                  **Restructuring
                        charge**
                  
                  **Accrued
                      on
                      acquisition**
                  
                  **Utilized**
                  
                  **Balance
                        at**
                      **end
                        of**
                      **period****(unaudited)**
                  
                  **(unaudited)**
                  
                  **(unaudited)**
                  
                  **(unaudited)**
                  
                  **(unaudited)**Three
                      months ended October 2, 2005Contract
                      termination costs
                  
                  $
                  1,592
                  
                  $
                  —
                  
                  
                  —
                  
                  $
                  (78
                  )
                  $
                  1,514Other
                      associated costs
                  
                  
                  56
                  
                  
                  —
                  
                  
                  —
                  
                  
                  (3
                  )
                  
                  53$
                  1,648
                  
                  $
                  —
                  
                  $
                  —
                  
                  $
                  (81
                  )
                  $
                  1,567Nine
                    months ended October 2, 2005Contract
                      termination costs
                  
                  $
                  599
                  
                  $
                  1,150
                  
                  
                  —
                  
                  $
                  (235
                  )
                  $
                  1,514Other
                      associated costs
                  
                  
                  61
                  
                  
                  —
                  
                  
                  —
                  
                  
                  (8
                  )
                  
                  53$
                  660
                  
                  $
                  1,150
                  
                  $
                  —
                  
                  $
                  (243
                  )
                  $
                  1,567Year
                      ended December 31, 2004
                  
                  
                  **(audited)**
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  ****(audited)****One-time
                      termination benefits
                  
                  
                  —
                  
                  $
                  413
                  
                  
                  —
                  
                  $
                  (413
                  )
                  
                  —Contract
                      termination costs
                  
                  $
                  947
                  
                  
                  —
                  
                  
                  —
                  
                  
                  (348
                  )
                  $
                  599Other
                      associated costs
                  
                  
                  592
                  
                  
                  —
                  
                  $
                  (339
                  )
                  
                  (192
                  )
                  
                  61$
                  1,539
                  
                  $
                  413
                  
                  $
                  (339
                  )
                  $
                  (953
                  )
                  $
                  660
 All
      charges will result in direct cash outlays.




19


**Liquidity
      and Capital Resources**





Since
      inception, we have financed our operations through private sales of convertible
      preferred stock, which have totaled $146.5 million (net of transaction expenses)
      and an initial public offering of common stock, which we completed on July
      25,
      2000. In the initial public offering, we issued 6,325,000 shares of common
      stock
      for approximately $86 million in cash (net of underwriting discounts, commission
      and other expenses). In our most recent private sale of convertible preferred
      stock, which we closed in September 2004, we raised $29.2 million through the
      issuance of Series A preferred stock to Oak Investment Partners XI, Limited
      Partnership. In November 2004, we also raised $4.4 million through the sale
      of
      treasury stock that was acquired through a share buy back program completed
      in
      2002. We have used the proceeds of the sales of securities to finance
      acquisitions, for working capital and for other general corporate
      purposes.





As
      of
      October 2, 2005, we had cash and cash equivalents of $50.8 million and $1.5
      million of restricted cash. Restricted cash is held as collateral for landlords
      and customers and contributions from employees in respect of the Employee Share
      Purchase Plan. We do not have a line of credit or similar borrowing facility,
      nor do we have any material capital commitments.





Until
      we
      are able to generate cash from operations, if ever, we intend to use our
      existing cash resources to finance our operations and/or business combinations.
      We believe we have sufficient cash resources to finance operations for at least
      the next twelve months.





For
      the
      nine months ended October 2, 2005, we used $10.6 million of cash in operating
      activities compared with a cash inflow of $4.3 million for the nine months
      ended
      October 3, 2004. The operating cash outflow for the first nine months of 2005
      was primarily a result of a decrease in accounts payable and accrued expenses
      of
      $5.2 million and $1.9 million respectively, the net loss of $11.8 million,
      and
      an increase in inventories of $1.7 million. The cash outflow was partially
      offset by an increase in customer advances of $6.0 million and deferred revenue
      of $1.3 million. The cash inflow from operations for the first nine months
      of
      2004 was primarily a result of a decrease in inventory levels of
      $9.7 _ million,
      a net increase in accounts payable of $6.7 million attributable to increased
      revenue and a net increase in customer advance payments of $3.6 million in
      connection with customer contract payments. The cash inflow for the nine months
      ended October 3, 2004 was partially offset by a net loss of $13.3 million and
      a
      $3.5 million increase in other current assets primarily related to amounts
      due
      from our contract manufacturer for inventories purchased by them from Airspan.
      Days sales outstanding increased to 62 days at the end of the third quarter
      2005
      from 49 at the end of the fourth quarter 2004, and compared to 40 days at the
      end of the third quarter 2004. Inventory turns were 5.7 at the end of the third
      quarter of 2005, compared with 8.4 for the fourth quarter 2004 and 5.9 turns
      for
      the third quarter of 2004.





The
      net
      cash used in investing activities for the first nine months of 2005 was $6.2
      million, comprised of $2.0 million for capital purchases and $4.2 million in
      connection with the acquisition of ArelNet. For the same period in 2004 capital
      purchases were $1.9 million.





Our
      net
      cash inflow from financing activities for the nine months ended October 2,
      2005
      was $1.3 million compared with an inflow of $15.6 _ million
      for the nine months ended October 3, 2004. During the first nine months of
      2005,
      we generated $0.7 million upon the exercises of stock options, $0.5 million
      from
      the sale of common stock under the ESPP and $0.1 million from a decrease in
      restricted cash. These inflows were partially offset by a $0.1 million increase
      in restricted cash. Restricted cash increases when the Company issues a
      guarantee secured by cash collateral or additional contributions are collected
      from employees under the ESPP and decreases whenever such a guarantee is
      cancelled or shares are actually purchased under the ESPP. For the comparable
      period of 2004 we generated $29.1 million by selling 73,000 shares of Series
      A
      Preferred Stock to Oak. In addition to the proceeds received from Oak upon
      the
      sale of the preferred stock, we received $0.9 million on exercise of stock
      options and $0.4 million as proceeds from the sale of common stock under the
      ESPP. These inflows were partially offset by a $14.8 million increase in
      restricted cash.





We
      have
      no material commitments other than obligations on operating leases, foreign
      exchange contracts mentioned below  and
      purchase commitments to our manufacturing subcontractors as at October 2, 2005.
      These purchase commitments totaled $21.1 million at December 31, 2004 and at
      October 2, 2005 totaled $48.6 million.





We
      have
      explored and may in the future explore and pursue other perceived opportunities
      to acquire wireless access and related businesses. We may seek to acquire such
      businesses through a variety of different legal structures and may utilize
      cash,
      common stock, preferred stock, other securities or some combination thereof
      to
      finance the acquisition. In connection with such activities, we are subject
      to a
      variety of risks, a number of which are described further in the Company’s Form
      10-K, as amended by Amendment No.1 on Form 10-K/A, for the fiscal year ended
      December 31, 2004. There can be no assurances that our efforts to acquire other
      businesses will be successful.





We
      have
      raised in the past and may in the future seek to raise additional equity or
      debt
      capital to assist us in financing an acquisition and/or on-going operations
      of
      any business that we acquire. Among other securities, we may seek to sell
      additional shares of common stock, or shares of an existing or newly designated
      class of preferred stock or debt securities. We have not, as of the date of
      this
      report, entered into any definitive financing arrangements other than those
      described above and we anticipate that the terms of such financing, if secured,
      will be determined at some future date. There can be no assurances that we
      will
      be able to secure equity or debt capital in amounts and on terms acceptable
      to
      us. Although we will seek to secure financing on terms and conditions favorable
      to the Company and its existing shareholders, we may seek to raise capital
      by
      issuing securities, which, under certain circumstances, enjoy certain
      preferences and/or priorities relative to the common stock.





20


**Item
      3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK**





Interest
      Rate Risk





The
      Company’s earnings are affected by changes in interest rates. As of October 2,
      2005 and December 31, 2004, we had cash, cash equivalents and restricted cash
      of
      $52.3 million and $68.0 million, respectively. Substantially all of these
      amounts consisted of highly liquid investments with purchase to maturity terms
      of less than 90 days. These investments are exposed to interest rate risk,
      but a
      hypothetical increase or decrease in market interest rates by two percentage
      points from October 2, 2005 rates would cause the fair market value of these
      short-term investments to change by an insignificant amount. Due to the short
      duration of these investments, a short-term increase in interest rates would
      not
      have a material effect on our financial condition or results of operations.
      Declines in interest rates over time would, however, reduce our interest income.
      Due to the uncertainty of the specific actions that would be taken to mitigate
      this, and their possible effects, the sensitivity analysis does not take into
      account any such action.





Foreign
      Currency Exchange Rate Risk





For
      the
      nine months ended October 2, 2005, 94% of our sales were denominated
      in
      U.S. dollars, 3% were denominated in euro and 3% were
      denominated
      in Australian dollars. Comparatively, for the nine months ended October 3,
      2004, 97% of our sales were denominated in U.S. dollars, 2 %
      were
      denominated in euro and 1% was denominated in Australian dollars.
      Our
      total euro denominated sales for the nine months ended October 2, 2005 were
      $2.0 million, which were recorded at an average exchange rate of $1US
      =
€0.7857. Our total Australian dollar denominated sales for the nine months ended
      October 2, 2005 were $1.9 million,  which were recorded at an
      average
      exchange rate of $1US = AUS$1.2974. If the average exchange rates used had
      been
      higher or lower during the nine month period ended October 2, 2005 by 10%,
      they
      would have decreased or increased the total Australian dollar and
      euro-denominated sales value by $0.4 million. We expect the proportions of
      sales
      in euro and Australian dollars to fluctuate over time. The Company’s sensitivity
      analysis for changes in foreign currency exchange rates does not take into
      account changes in sales volumes.





We
      have
      from time to time entered into fair value currency hedging contracts that lock
      in minimum exchange rates for payments due to us under some of our sales
      contracts where those payments are to be made in currencies other than US
      dollars. We do not enter into any currency hedging activities for speculative
      purposes. The costs of these contracts are included under interest and other
      income in our financial statements. There were no fair value currency hedge
      contracts outstanding at October 2, 2005. We will continue to monitor our
      foreign currency exposures and may modify hedging strategies, as we deem
      prudent.





We
      have
      also entered from time to time into cash flow currency hedges to hedge our
      expected sterling expenditure. We assess the exposure of the Company to certain
      currencies on a quarterly basis and we obtain inputs from various financial
      institutions relating to forecast currency exchange rates. Based on that
      assessment and forecast exchange rates, we enter into currency hedges to hedge
      our expected exposure to those currencies for periods up to twelve months.
      The
      amounts we hedge are not expected to exceed forecasted expenditures in those
      periods. Our operating results are affected by movement in foreign currency
      exchange rates, particularly the rate between U.S. dollars and U.K. pounds
      sterling and the rate between U.S. dollars and Israeli shekels. This is because
      most of our operating expenses, which may fluctuate over time, are incurred
      in
      pounds sterling and Israeli shekels. During the nine months ended October 2,
      2005, we paid expenses in local currency of approximately 11.5 million pounds
      sterling, at an average rate of $1US = 0.5389 pounds sterling. During the nine
      months ended October 2, 2005, we paid expenses in local currency of
      approximately 27.4 million Israeli shekels, at an average rate of $1US = 4.4524
      shekels. If the expenses in pounds sterling had not been hedged and the average
      exchange rates for pounds sterling and Israeli shekels had been higher or lower
      for the nine month period ended October 2, 2005 by 10%, the total pounds
      sterling and Israeli shekel denominated operating expenses would have decreased
      or increased by $2.4 million and $0.7 million respectively.





We
      expect
      the proportions of operating expenses paid in pounds sterling and Israeli
      shekels to fluctuate over time.




21


To  hedge
      our
      pound sterling foreign currency risk, as of October 2, 2005 we had six
      outstanding foreign exchange contracts termed "Forward Extra Plus Contracts"
      for
      an aggregate 3.0 million pounds sterling. The terms of the contracts are set
      out
      below:




1)
            If
                the spot exchange rate has traded at or below the "Trigger Rate"
                at any
                time during the "Trigger Period" then Airspan must exchange the
                "Transaction Amount" for an amount of the Counter Value Currency
                calculated at the Advantage rate.




2)
            If
                the spot exchange rate has not traded at or below the "Trigger Rate"
                at
                any time during the "Trigger Period" and if the spot exchange rate
                at the
                expiration time on the "Expiration Date" is at or above the "Transaction
                Rate" then Airspan must exchange the "Transaction Amount" for an
                amount of
                the "Counter Value Currency at the "Transaction
                Rate"




3)
            If
                the spot exchange rate has not traded at or below the "Trigger Rate"
                at
                any time during the "Trigger Period" and if the spot exchange rate
                at the
                expiration time on the "Expiration Date" is below the "Transaction
                Rate"
                then Airspan is not obliged to make any exchange under the
                contract




The
      "Trigger period" is defined as the period between the "Trigger Start Date"
      and
      the "Expiration Date"





Outstanding
                Forward Extra Plus contracts at October 2 2005:**Transaction
                Rate**
            
            **Advantage
                Rate**
            
            **Trigger
                Rate**
            
            **Trigger
                Start Date**
            
            **Expiration
                Date**
            
            **Currency**
            
            **Transaction**
            
            **Counter
                Value Currency**1.8200
            
            1.7555
            
            1.6520
            
            07/13/2005
            
            10/12/2005
            
            GBP
            
            £
                500,000
            
            USD1.8200
            
            1.7555
            
            1.6520
            
            07/13/2005
            
            11/16/2005
            
            GBP
            
            500,000
            
            USD1.8200
            
            1.7555
            
            1.6520
            
            07/13/2005
            
            12/14/2005
            
            GBP
            
            500,000
            
            USD1.8200
            
            1.7650
            
            1.6600
            
            07/13/2005
            
            10/12/2005
            
            GBP
            
            500,000
            
            USD1.8200
            
            1.7650
            
            1.6600
            
            07/13/2005
            
            11/16/2005
            
            GBP
            
            500,000
            
            USD1.8200
            
            1.7650
            
            1.6600
            
            07/13/2005
            
            12/14/2005
            
            GBP
            
            500,000
            
            USD£3,000,000


Equity
      Price Risk





We
      do not
      own any equity investments. As a result, we do not currently have any direct
      equity price risk.





Commodity
      Price





We
      do not
      enter into contracts for the purchase or sale of commodities. As a result,
      we do
      not currently have any direct commodity price risk.





22


**Item
      4. CONTROLS AND PROCEDURES**





Our
      management is responsible for establishing and maintaining adequate internal
      control over the Company's financial reporting as defined in Rules 13a-15(f)
      and
      15d-15(f) under the Securities Exchange Act of 1934, as amended. Our internal
      control over financial reporting is designed to provide reasonable assurance
      regarding the reliability of financial reporting and the preparation of
      financial statements for external purposes in accordance with generally accepted
      accounting principles.





There
      are
      inherent limitations in the effectiveness of any internal control, including
      the
      possibility of human error and the circumvention or overriding of controls.
      Accordingly, even effective internal controls can provide only reasonable
      assurances with respect to financial statement preparation. Further because
      of
      changes in conditions, the effectiveness of internal controls may vary over
      time
      such that the degree of compliance with the policies or procedures may
      deteriorate.





Since
      the
      acquisition of ArelNet, the Company has focused on integrating the disclosure
      controls and procedures of the ArelNet business with the Company’s disclosure
      controls and procedures. The Company performed additional procedures to
      substantiate the financial information related to the ArelNet business included
      in this report





As
      of the
      end of the period covered by this quarterly report, an evaluation was performed
      under the supervision and with the participation of Airspan's management,
      including the Chief Executive Officer and Chief Financial Officer, of the
      effectiveness of the design and operation of Airspan's disclosure controls
      and
      procedures as defined in Section 13a-15(e) and 15d-15(e) of the Securities
      Exchange Act.





Based
      on
      that evaluation, the Chief Executive Officer and Chief Financial Officer
      concluded that as of such date, our disclosure controls and procedures were
      effective.





The
      acquisition of ArelNet in June 2005 represents a material change in internal
      control over financial reporting since management's last assessment of the
      Company's internal controls over financial reporting, which was completed as
      of
      December 31, 2004. The acquired ArelNet business utilizes separate information
      and accounting systems and processes. The Company intends to extend its
      Sarbanes-Oxley Section 404 compliance program to include ArelNet. However,
      the
      Company does not anticipate that it will be possible to complete an evaluation
      and review of ArelNet’s internal controls over financial reporting by December
      31, 2005, the date of management’s next assessment of the Company’s internal
      control over financial reporting (the “2005 Assessment”) and, accordingly,
      anticipates excluding ArelNet from the 2005 Assessment in accordance with the
      guidance from the Division of Corporation Finance and Office of the Chief
      Accountant of the Commission contained in the release captioned Frequently
      Asked
      Questions (revised October 6, 2004). Management intends to complete its
      assessment of the effectiveness of internal controls over financial reporting
      for the acquired ArelNet business within one year of the date of the
      acquisition.





*Remediation
      of material weakness relating to the accounting for complex and non-standard
      Stockholders’ equity transactions*





Management
      restated the financial statements included in the Company's Quarterly Report
      on
      Form 10-Q for the period ended October 3, 2004 and the financial statements
      included in the Company's Annual Report on Form 10-K for the year ended December
      31, 2004 by filing a Form 10-Q/A and Form 10-K/A on April 27, 2005. These
      restatements were required to correct the Company’s omission in its 2004
      consolidated financial statements of a $10.4 million, non-cash deemed dividend
      from the embedded beneficial conversion feature associated with the issuance
      of
      Series A Preferred Stock on September 13, 2004. This resulted in the
      misstatement of the net loss attributable to common stockholders and net loss
      per share as well as a misclassification within stockholders' equity at October
      3, 2004 and December 31, 2004. As a result, management concluded that there
      was
      a control deficiency that was a material weakness and that the Company did
      not
      maintain effective controls over financial reporting at October 3, 2004,
      December 31, 2004 and April 3, 2005.





During
      the second fiscal quarter of 2005 the Company enhanced its internal control
      over
      financial reporting processes to reduce the likelihood of material errors in
      connection with the Company’s review of the accounting and disclosure
      implications of complex and non-standard Stockholders’ equity transactions.




Specifically,
      management has designed new internal control procedures so that complex and
      non
      standard Stockholders’ equity transactions are accounted for in accordance with
      generally accepted accounting principles. We have:




·
            Added
                an additional control that requires a comprehensive review of equity
                transactions for the period, and




·
            Required
                formal documentation and review of the accounting impact of any new
                equity
                transaction.




*Remediation
      of material weakness relating to revenue recognition accounting and disclosure
      of sales contracts with extended payment terms.*





23


Subsequent
      to July 3, 2005, the end of our second quarter, we became aware of a material
      weakness in our internal control over financial reporting. Our processes and
      procedures relating to the appropriate accounting treatment for the recognition
      of revenue under certain types of extended payment arrangements in our sales
      contracts did not operate effectively. Specifically two second quarter 2005
      customer contracts with extended payment terms, involving revenue of
      approximately $1 million, were not accounted for in accordance with generally
      accepted accounting principles in our initial closing of our consolidated
      financial information for the quarter ended July 3, 2005. We identified these
      contracts to our independent registered public accounting firm and following
      our
      independent registered public accounting firms’ quarterly review procedures, the
      correct accounting for the contracts in question was subsequently determined
      and
      applied, prior to the public release of our financial information for the second
      quarter of 2005 and, in accordance with that accounting, the related revenue
      was
      deferred.





During
      the third fiscal quarter the Company enhanced its internal control over
      financial reporting processes to reduce to remote the likelihood of errors
      in
      connection with the Company’s review of the accounting and disclosure
      implications of sales contracts with extended payment terms.




To
      this
      end, management has designed new internal control procedures so that sales
      contracts with extended payment terms are accounted for in accordance with
      generally accepted accounting principles. Specifically we have added an
      additional control that requires documented review and sign off of the
      accounting treatment of all sales contracts with payment terms extended further
      than the payment terms provided to customers in the normal course of the
      Company’s business.




We
      believe we have taken the steps necessary to remediate the material weaknesses
      relating to our complex and non-standard Stockholders’ equity transactions
      accounting processes, procedures and controls, and revenue recognition
      accounting and disclosure of sales contracts with extended payment terms;
      however, we cannot confirm the effectiveness of these enhanced internal controls
      until we and our independent auditors have conducted sufficient testing.
      Accordingly, we will continue to monitor the effectiveness of these processes,
      procedures and controls and will make any further changes management determines
      appropriate .




Except
      as
      described above, there have been no significant changes in Airspan’s internal
      controls over financial reporting that occurred during Airspan’s third fiscal
      quarter that have materially affected or are reasonably likely to materially
      affect, Airspan’s internal control over financial reporting.





**Part
      II OTHER INFORMATION**





**Item
      1. LEGAL PROCEEDINGS**





On
      and
      after July 23, 2001, three Class Action Complaints were filed in the United
      States District Court for the Southern District of New York naming as defendants
      Airspan, and Eric D. Stonestrom (our President and Chief Executive Officer),
      Joseph J. Caffarelli (our former Senior Vice President and Chief Financial
      Officer), Matthew Desch (our Chairman) and Jonathan Paget (our Executive Vice
      President and Chief Operating Officer) (the “Individual Defendants”) together
      with certain underwriters of our July 2000 initial public offering. A
      Consolidated Amended Complaint, which is now the operative complaint, was filed
      on April 19, 2002. The complaint alleges violations of Sections 11 and 15 of
      the
      Securities Act of 1933 and Sections 10(b) and 20(a) of the Securities Exchange
      Act of 1934 for issuing a Registration Statement and Prospectus that contained
      materially false and misleading information and failed to disclose material
      information. In particular, Plaintiffs allege that the underwriter-defendants
      agreed to allocate stock in our initial public offering to certain investors
      in
      exchange for excessive and undisclosed commissions and agreements by those
      investors to make additional purchases of stock in the aftermarket at
      pre-determined prices. The action seeks damages in an unspecified amount.




This
      action is being coordinated with approximately three hundred other nearly
      identical actions filed against other companies. On July 15, 2002, the Company
      moved to dismiss all claims against it and the Individual Defendants. On October
      9, 2002, the Court dismissed the Individual Defendants from the case without
      prejudice based upon Stipulations of Dismissal filed by the plaintiffs and
      the
      Individual Defendants. This dismissal disposed of the Section 15 and 20(a)
      control person claims without prejudice, since these claims were asserted only
      against the Individual Defendants. On February 19, 2003, the Court dismissed
      the
      Section 10(b) claim against us, but allowed the Section 11 claim to proceed.
      On
      October 13, 2004, the Court certified a class in six of the approximately 300
      other nearly identical actions. In her Opinion, Judge Scheindlin noted that
      the
      decision is intended to provide strong guidance to all parties regarding class
      certification in the remaining cases. Judge Scheindlin determined that the
      class
      period for Section 11 claims is the period between the IPO and the date that
      unregistered shares entered the market. Judge Scheindlin also ruled that a
      proper class representative of a Section 11 class must (1) have purchased shares
      during the appropriate class period; and (2) have either sold the shares at
      a
      price below the offering price or held the shares until the time of suit. In
      two
      of the six cases, the class representatives did not meet the above criteria
      and
      therefore, the Section 11 cases were not certified. Plaintiffs have not yet
      moved to certify a class in the Airspan case.




24


Airspan
      has approved a settlement agreement and related agreements which set forth
      the
      terms of a settlement between Airspan, the Individual Defendants, the plaintiff
      class and the vast majority of the other approximately 300 issuer defendants
      and
      the individual defendants currently or formerly associated with those companies.
      Among other provisions, the settlement provides for a release of Airspan and
      the
      individual defendants for the conduct alleged in the action to be wrongful.
      Airspan would agree to undertake certain responsibilities, including agreeing
      to
      assign away, not assert, or release certain potential claims Airspan may have
      against its underwriters. The settlement agreement also provides a guaranteed
      recovery of $1 billion to plaintiffs for the cases relating to all of the
      approximately 300 issuers. To the extent that the underwriter defendants settle
      all of the cases for at least $1 billion, no payment will be required under
      the
      issuers’ settlement agreement. To the extent that the underwriter defendants
      settle for less than $1 billion, the issuers are required to make up the
      difference. It is anticipated that any potential financial obligation of Airspan
      to plaintiffs pursuant to the terms of the settlement agreement and related
      agreements will be covered by existing insurance. The Company currently is
      not
      aware of any material limitations on the expected recovery of any potential
      financial obligation to plaintiffs from its insurance carriers. Its carriers
      are
      solvent, and the company is not aware of any uncertainties as to the legal
      sufficiency of an insurance claim with respect to any recovery by plaintiffs.
      Therefore, we do not expect that the settlement will involve any payment by
      Airspan. If material limitations on the expected recovery of any potential
      financial obligation to the plaintiffs from Airspan’s insurance carriers should
      arise, Airspan’s maximum financial obligation to plaintiffs pursuant to the
      settlement agreement would be less than $3.4 million. On February 15, 2005,
      the
      Court granted preliminary approval of the settlement agreement, subject to
      certain modifications consistent with its opinion. Those modifications have
      been
      made. There is no assurance that the court will grant final approval to the
      settlement. If the settlement agreement is not approved and Airspan is found
      liable, we are unable to estimate or predict the potential damages that might
      be
      awarded, whether such damages would be greater than Airspan’s insurance
      coverage, and whether such damages would have a material impact on our results
      of operations or financial condition in any future period.




Except
      as
      set forth above, we are not currently subject to any other material legal
      proceedings. We may from time to time become a party to various other legal
      proceedings arising in the ordinary course of our business.






**Item
      2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS**





Not
      Applicable





**Item
      3. DEFAULTS UPON SENIOR SECURITIES**





None





**Item
      4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**





None




**Item
      5. OTHER INFORMATION**





None





25


**Item
      6. EXHIBITS**


3.1
            Amended
                and Restated Articles of Incorporation of Airspan (1)3.2
            Articles
                of Amendment to the Articles of Incorporation (2)3.3
            Amended
                and Restated Bylaws of Airspan (3)4.1
            Form
                of Airspan’s common stock certificate (4)10.1
            1998
                Stock Option and Restricted Stock Plan (4)10.2
            2000
                Employee Stock Purchase Plan, as amended (4)10.3
            Employment
                Agreement with Eric Stonestrom (4), (5)10.4
            Employment
                Agreement with Jonathan Paget (4), (5)10.5
            Employment
                Agreement with Peter Aronstam, as amended (5), (7)10.6
            2001
                Supplemental Stock Option Plan (6)10.7
            Employment
                Agreement with Henrik Smith-Petersen (5), (7)10.8
            Employment
                Agreement with David Brant (5), (7)10.9
            2003
                Supplemental Stock Option Plan (3)10.10
            Airspan
                Omnibus Equity Compensation Plan (1)10.11
            Purchase
                and License Agreement, dated as of December 28, 2004, by and between
                Airspan Communications Limited and Axtel S.A. de C.V. ** (12)10.12
            Technical
                Assistance Support Services Agreement for FWA Equipment, dated as
                of
                February 14, 2003, by and between Nortel Networks UK Limited and
                Axtel,
                S.A. de C.V. (8)**10.13
            Preferred
                Stock Purchase Agreement, dated as of September 10, 2004 among Airspan
                Networks, Inc. and Oak Investment Partners XI, Limited Partnership
                (9)10.14
            Amendment
                to Preferred Stock Purchase Agreement (10)10.15
            Amendment
                Agreement No. 3 to FWA TASS, dated as of December 28, 2004, between
                Airspan Communications Limited and Axtel S.A. de C.V. (11) **31.1
            Certification
                of the Chief Executive Officer pursuant to Section 302 of the
                Sarbanes-Oxley Act of 2002*31.2
            Certification
                of the Chief Financial Officer pursuant to Section 302 of the
                Sarbanes-Oxley Act of 2002*32.1
            Certification
                of the Chief Executive Officer pursuant to section 906 of the
                Sarbanes-Oxley Act of 2002***32.2
            Certification
                of the Chief Financial Officer pursuant to section 906 of the
                Sarbanes-Oxley Act of 2002***


*     
      Filed herewith




**    Confidential
      treatment has been granted with respect to certain portions of this exhibit.
      Omitted portions have been filed separately with the Securities and Exchange
      Commission.





***
      Furnished herewith


26





1
            Incorporated
                by reference to Airspan’s Form 10-Q for the quarter ended April 4, 2004.2
            Incorporated
                by reference to the Company’s report on Form 8-K filed on September 15,
                2004.3
            Incorporated
                by reference to Airspan’s Form 10-K for the year ended December 31, 2003.4
            Incorporated
                by Reference to Airspan’s Registration Statement on Form S-1 (333-34514)
                filed July 18, 20005
            Management
                Agreement or Compensatory Plan or Arrangement6
            Incorporated
                by Reference to Airspan’s Form 10-K for the year ended December 31, 20007
            Incorporated
                by Reference to Airspan’s Form 10-K for the year ended December 31, 20028.
            Incorporated
                by reference by the Company’s report on Form 8-K/A filed on July 6, 2004.9
            Incorporated
                by reference to the Company’s report on Form 8-K filed on September 13,
                2004.10
            Incorporated
                by reference to the Company’s report on Form 8-K filed on September 27,
                2004.11
            Incorporated
                by reference to the Company’s Form 10-K for the year ended December 31,
                2004.12
            Incorporated
                by reference to the Company’s report on Form 8-K filed on June 9,
                2005.







27


**SIGNATURES**





Pursuant
      to the requirements of the Securities Act of 1934, the registrant has duly
      caused this report to be signed on its behalf by the undersigned thereunto
      duly
      authorized.





November
      11, 2005


AIRSPAN
                NETWORKS INC.By:
              /s/
                  PETER ARONSTAMPeter
                Aronstam*Chief
                Financial
                Officer*