**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**WASHINGTON,
      D.C. 20549**




**FORM
      10-Q**





ý
            
            QUARTERLY
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES
                EXCHANGE ACT OF 1934**For
                the quarterly period ended October 1, 2006**ORo
            
            TRANSITION
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES
                EXCHANGE ACT OF 1934For
                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
            
            (I.R.S.
                Employerincorporation
                or organization)
            
            Identification
                No.)**777
                Yamato Road, Suite 310**
              **Boca
                Raton, FL**
            
            **33431**(Address
                of principal executive offices)
            
            (Zip
                Code)





**561-893-8670**


(Registrant’s
      telephone number, including area code)





**None**


(Former
      name, former address and former fiscal year, if changed since last
      report)





Indicate
      by check mark whether the registrant (1) has filed all reports required to
      be
      filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
      the
      preceding 12 months (or for such shorter period that the registrant was required
      to file such reports), and (2) has been subject to such filing requirements
      for
      the past 90 days.




Yes x No  ̈





Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, or a non-accelerated filer. See definition of “accelerated
      filer and large accelerated filer” in Rule 12b-2 of the Exchange
      Act.





Large
                accelerated filer ̈
            Accelerated
                filerx
            Non-accelerated
                filer ̈




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





Indicate
      the number of shares outstanding of each of the issuer's classes of common
      stock, as of the latest practicable date.





Class
            
            Outstanding
                at November 8, 2006Common
                Stock, $.0003 par value per share
            
            40,385,882
                shares









**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,**
                **2005
                  (1)**
              
              **October
                  1,**
                **2006****(unaudited)****ASSETS****Current
                  Assets**Cash
                  and cash equivalents
              
              $
              44,140
              
              $
              38,178Restricted
                  cash
              
              
              2,290
              
              
              1,280Short
                  term investments
              
              
              6,020
              
              
              1,008Accounts
                  receivable, less allowance for doubtful accounts of $3,519 at December
                  31,
                  2005 and $4,816 at October 1, 2006
              
              
              24,348
              
              
              24,422Unbilled
                  accounts receivable
              
              
              273
              
              
              2,018Inventory
              
              
              16,850
              
              
              23,365Prepaid
                  expenses and other current assets
              
              
              3,722
              
              
              6,314Total Current Assets
              
              
              97,643
              
              
              96,585Property,
                  plant and equipment, net
              
              
              5,268
              
              
              6,044Goodwill
              
              
              10,231
              
              
              10,231Intangible
                  assets, net
              
              
              3,865
              
              
              3,040Other
                  non-current assets
              
              
              3,445
              
              
              3,460Total Assets
              
              $
              120,452
              
              $
              119,360**LIABILITIES
                  AND STOCKHOLDERS’ EQUITY****Current
                  Liabilities**Accounts
                  payable
              
              $
              24,678
              
              $
              23,975Accrued
                  taxes
              
              
              1,156
              
              
              760Deferred
                  revenue
              
              
              1,514
              
              
              2,720Customer
                  advances
              
              
              13,935
              
              
              4,576Other
                  accrued expenses
              
              
              13,113
              
              
              14,610Current
                  portion long term debt
              
              
              96
              
              
              -Total Current Liabilities
              
              
              54,492
              
              
              46,641**Non
                  Current Liabilities**Long
                  term debt
              
              
              1,296
              
              
              1,493Accrued
                  interest on long term debt
              
              
              53
              
              
              133Total
                  Non Current Liabilities
              
              
              1,349
              
              
              1,626**Stockholders’
                  Equity**Preferred
                  stock, $0.0001 par value; 74,200 Series A Preferred shares authorized
                  at
                  December 31, 2005 and October 1, 2006 and 0 and 250,000 Series B
                  Preferred shares authorized at December 31, 2005 and October 1, 2006
                  respectively: 73,000 Series A Preferred shares issued at December
                  31, 2005
                  and 200,690 Series B Preferred shares issued at October 1, 2006
              
              
              -
              
              
              -Common
                  stock, $0.0003 par value; 100,000,000 shares authorized at December
                  31,
                  2005 and October 1, 2006: 39,768,271 issued at December 31, 2005
                  and
                  40,230,342 issued at October 1, 2006
              
              
              12
              
              
              12Note
                  receivable - stockholder
              
              
              (87
              )
              
              (87
              )Additional
                  paid in capital
              
              
              267,426
              
              
              308,041Accumulated
                  other comprehensive income
              
              
              (130
              )
              
              -Accumulated
                  deficit
              
              
              (202,610
              )
              
              (236,873
              )Total Stockholders’ Equity
              
              
              64,611
              
              
              71,093Total Liabilities and Stockholders’ Equity
              
              $
              120,452
              
              $
              119,360


(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
                End**
            
            **Year-to-Date****October
                2, 2005**
            
            **October
                1, 2006**
            
            **October
                2, 2005**
            
            **October
                1,****2006****(unaudited)**
            
            **(unaudited)**Revenue
            
            $
            30,545
            
            $
            27,303
            
            $
            73,072
            
            $
            96,538Cost
                of revenue
            
            
            (21,462
            )
            
            (20,047
            )
            
            (51,711
            )
            
            (74,119
            )Gross
                profit
            
            
            9,083
            
            
            7,256
            
            
            21,361
            
            
            22,419Operating
                expenses:Research
                and development
            
            
            5,398
            
            
            6,065
            
            
            15,058
            
            
            18,850Sales
                and marketing
            
            
            2,858
            
            
            4,051
            
            
            8,105
            
            
            13,582Bad
                debt provision
            
            
            307
            
            
            297
            
            
            802
            
            
            1,548General
                and administrative
            
            
            3,223
            
            
            4,072
            
            
            9,046
            
            
            12,154Amortization
                of intangibles
            
            
            337
            
            
            276
            
            
            593
            
            
            826Restructuring
                provision
            
            
            -
            
            
            1,528
            
            
            1,150
            
            
            1,528Total
                operating expenses
            
            
            12,123
            
            
            16,289
            
            
            34,754
            
            
            48,488Loss
                from operations
            
            
            (3,040
            )
            
            (9,033
            )
            
            (13,393
            )
            
            (26,069
            )Interest
                expense
            
            
            -
            
            
            (78
            )
            
            -
            
            
            (162
            )Interest
                and other income
            
            
            345
            
            
            5
            
            
            1,068
            
            
            885Loss
                before income taxes
            
            
            (2,695
            )
            
            (9,106
            )
            
            (12,325
            )
            
            (25,346
            )Income
                tax credit/(charge)
            
            
            567
            
            
            (17
            )
            
            562
            
            
            262Net
                loss before deemed dividend
            
            
            (2,128
            )
            
            (9,123
            )
            
            (11,763
            )
            
            (25,084
            )Deemed
                dividend associated with issuance of preferred stock
            
            
            -
            
            
            (9,179
            )
            
            -
            
            
            (9,179
            )Net
                loss attributable to common stockholders
            
            $
            (2,128
            )
            $
            (18,302
            )
            $
            (11,763
            )
            $
            (34,263
            )Net
                loss attributable to common stockholders per share - basic and diluted
            
            $
            (0.05
            )
            $
            (0.46
            )
            $
            (0.30
            )
            $
            (0.86
            )Weighted
                average shares outstanding- basic and diluted
            
            
            39,396,155
            
            
            40,137,526
            
            
            38,677,301
            
            
            39,924,492





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
                  2, 2005**
              
              **October
                  1,  2006****(unaudited)****CASH
                  FLOWS FROM OPERATING ACTIVITIES**Net
                  loss
              
              $
              (11,763
              )
              $
              (25,084
              )Adjustments
                  to reconcile net loss to net cash used in operating activities:Depreciation
                  and amortization
              
              
              1,894
              
              
              2,793Loss
                  on sale of fixed assets
              
              
              19
              
              
              -Stock
                  compensation
              
              
              251
              
              
              1,829Accrued
                  interest on long term debt
              
              
              -
              
              
              (101
              )Revaluation
                  of long term debt
              
              
              -
              
              
              200Change
                  in operating assets and liabilities:Decrease/(increase)
                  in receivables
              
              
              (281
              )
              
              (74
              )Decrease/(increase)
                  in inventories
              
              
              (1,737
              )
              
              (6,515
              )Decrease/(increase)
                  in other current assets
              
              
              605
              
              
              (4,207
              )(Decrease)/increase
                  in accounts payable
              
              
              (5,190
              )
              
              (703
              )Increase
                  in deferred revenue
              
              
              1,314
              
              
              1,206Increase/(decrease)
                  in customer advances
              
              
              5,996
              
              
              (9,359
              )(Decrease)/increase
                  in accrued expenses
              
              
              (1,887
              )
              
              1,183(Increase)/decrease
                  in long-term accounts receivable
              
              
              305
              
              
              -Increase
                  in other non current assets
              
              
              (102
              )
              
              (15
              )Restricted
                  cash movement
              
              
              138
              
              
              1,010Net
                  cash used in operating activities
              
              
              (10,438
              )
              
              (37,837
              )**CASH
                  FLOWS FROM INVESTING ACTIVITIES**Purchase
                  of property and equipment
              
              
              (1,958
              )
              
              (2,744
              )Acquisition
                  of ArelNet (net of cash acquired)
              
              
              (4,242
              )
              
              -Purchase
                  of investment securities
              
              
              -
              
              
              (2,005
              )Proceeds
                  from sale of investment securities
              
              
              -
              
              
              7,017Net
                  cash from/(used in) investing activities
              
              
              (6,200
              )
              
              2,268**CASH
                  FLOWS FROM FINANCING ACTIVITIES**Exercise
                  of stock options
              
              
              653
              
              
              583Net
                  proceeds from sale of common stock
              
              
              485
              
              
              332Proceeds
                  from sale of Series “B” preferred stock, net of issuance
                  costs
              
              
              -
              
              
              28,692Net
                  cash from financing activities
              
              
              1,138
              
              
              29,607Decrease
                  in cash and cash equivalents
              
              
              (15,500
              )
              
              (5,962
              )Cash
                  and cash equivalents, beginning of period
              
              
              66,296
              
              
              44,140Cash
                  and cash equivalents, end of period
              
              $
              50,796
              
              $
              38,178**SUPPLEMENTAL
                  DISCLOSURES OF CASH FLOW INFORMATION**Interest
                  paid
              
              $
              -
              
              $
              24Taxes
                  paid
              
              $
              -
              
              $
              21




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


4




**BUSINESS**





We
      are a
      global supplier of Broadband Wireless equipment and other technologies,
      including Voice-over-IP (VoIP) switching that allow 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 fixed point-to-multipoint market in radio
      frequencies below 6.0GHz.




Each
      of
      our wireless systems utilizes digital radio technology, which provides either
      wide- or local-area coverage, robust security and resistance to fading. These
      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
      broadband wireless systems have been installed by more than 350 network
      operators in more than 100 countries.





Our
      product portfolio is comprised of a variety of products which operate based
      on
      (i) proprietary technologies we or others have developed and patented, (ii)
      WiMAX standards or (iii) WiFi standards. Our product portfolio also includes
      VoIP products.





*Products
      Based Upon Proprietary Technologies*





Our
      earliest 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
      as
      the AS4000 and AS4020 products, in systems capable of delivering high-capacity
      broadband data with carrier-quality voice connections to operators globally.




In
      October 2002, we strengthened our position in the Broadband Wireless Access
      (BWA) equipment market with the acquisition of the WipLL (Wireless Internet
      Protocol in the Local Loop) business from Marconi (“Marconi WipLL”) for $3
      million in cash, and we 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 the Internet,
      using
      the Internet Protocol (“IP”).




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 Orthogonal Frequency Division Multiplexing
      (“OFDM”) technology, can also be used for a wide range of backhaul applications,
      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” for $13.1
      million
      in cash. The Proximity products enable operators to provide carrier class
      circuit switched voice and data services using Time Division Multiple Access
      (“TDMA”) technology. 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 then directly employed in the Proximity
      business.





*Products
      Based on WiMAX Standards*





All
      of
      the BWA products we had sold or acquired before 2005 operated according to
      proprietary technologies we or others had developed and patented. The same
      applied to BWA technologies against which we competed. At the end of 2002,
      a
      small group of BWA system and component manufactures, including Intel
      Corporation and Airspan, formed the WiMAX Forum. The goal of the Forum was
      to
      create global standards to ensure true interoperability between BWA systems.
      The
      founding members believed that interoperability was essential to the future
      growth of the broadband wireless market. By the end of 2005, the Forum members,
      working together with the Institute of Electrical and Electronics Engineers
      (IEEE), had established the first three WiMAX standards - the IEEE 802.16a
      standard; the IEEE 802.16-2004 WirelessMAN® Standard for Wireless Metropolitan
      Area Networks (formerly the 802.16d) standard, intended for fixed and some
      nomadic applications; and the 802.16-2005 (formerly the 802.16e) standard,
      intended for mobile and some nomadic/portable applications. See the “Risk
      Factors” section of our Form 10-K for a discussion of some of the potential
      implications for Airspan of the introduction of standard-based systems and
      technologies.




5





Where
      we
      refer in this document to “WiMAX” products, we are referring to both WiMAX Forum
      Certified TM products
      (those products that been certified as meeting the standards established by
      the
      WiMAX Forum) and non-certified products that we believe we have manufactured
      according to those standards but which may or may not become WiMAX Forum
      Certified TM products
      in the future.




*AS.MAX
      Product Portfolio*




Our
      first
      products based on WiMAX standards, part of our “AS.MAX” product portfolio, were
      introduced in March 2005. “AS.MAX” is a portfolio of WiMAX systems comprising
      Base Stations and Customer Premise Equipment (“CPEs”) based on the 802.16
      standard. As of the date of this report, we have available three primary types
      of Base Stations - the MacroMAX base station, the MicroMAX base station and
      the
      HiperMAX base station - and two types of CPEs - the indoor self-installable
      EasyST, and the outdoor mounted ProST.




The
      AS.MAX product range is designed to serve both:




·  our
      traditional fixed point-to-multipoint BWA market; and




·  new
      markets, such as the BWA market for nomadic and portable, and eventually mobile,
      applications




In
      March
      2006, we announced that the MacroMAX base station and the EasyST CPE had been
      certified in the 3.5GHz band by the WiMAX Forum as meeting the standards
      required by the IEEE for interoperability.




In
      June
      2006, we announced the availability of the AS.MAX MicroMAX base station and
      ProST Wi-Fi access point for deployment in the Public Safety and Municipal
      Wireless markets in the USA. The system is available in the licensed 4.9GHz
      band
      for Public Safety applications and in the unlicensed 5.8GHz band for Municipal
      Wireless systems. By combining 802.11 Wi-Fi for access and 802.16 WiMAX for
      backhaul in a single integrated package, we provide the benefits of WiMAX range,
      capacity and quality of service together with the flexibility of Wi-Fi at no
      extra cost.




In
      October 2006, we announced that the MicroMAX base station had been certified
      in
      the 3.5GHz band by the WiMAX Forum as meeting the standards required by the
      IEEE
      for interoperability.




In
      October 2006, we announced the launch of our HiperMAX base station portfolio.
      The HiperMAX base station is based on an industry-leading design that uses
      a
      fully Software Defined Radio (SDR) that enables network operators to use the
      platform for either mobile or fixed WiMAX services. HiperMAX products also
      allow
      for simultaneous mobile and fixed operation from the same baseband and radio
      transceiver hardware.





*Products
      Based on WiFi Standards*




In
      November 2005 we acquired Radionet Oy, a Finnish limited liability company
      (“Radionet”), for $2 million in cash. Established in 2000, Radionet is a leading
      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. Radionet’s
      environmentally-robust product portfolio, operating in unlicensed frequency
      bands using IEEE 802.11 a/b/g WiFi standards, delivers high performance
      connectivity with built-in bandwidth management and advanced security features.
      The Radionet product architecture includes network and subscriber management
      capabilities and Radionet’s patented “MageIP”TM technology allows roaming within
      Hotzones, offering seamless mobility between access points and subnets in a
      wireless network. The acquisition added to our product portfolio wireless
      products that operate according to the IEEE 802.11 standard for wireless local
      area networks (also known as WiFi). Radionet products are now being sold under
      the “AS.NET” name.




6





Our
      AS.MAX and AS.NET products constitute our first entry into the market of
      open-standard systems, in which products that operate according to the same
      standards are interoperable. AS.MAX and AS.NET support nomadic and portable
      users in addition to our traditional fixed broadband access users. AS.NET
      systems also have the ability to support mobile users today. In June 2006,
      we
      announced the availability of AS.NET SR2.0 enhancements targeted at the North
      American market. We believe that the new higher power radios and Quality of
      Service (QoS) features available on our AS.NET product line are significant
      improvements for operators looking to expand their coverage area and service
      offerings.




*Voice
      Over Internet Protocol (VoIP) Products*




In
      June
      2005, we acquired all of the outstanding shares of capital stock of ArelNet
      Ltd
      (“ArelNet”). 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. The final
      purchase price of $9.1 million included $4.0 million of cash, $4.7 million
      for
      shares in Airspan and $0.3 million in Airspan options. The ArelNet product
      portfolio (“AS.TONE”) gives us the ability to sell VoIP products on a
      stand-alone basis or in combination with AS.MAX or Radionet products to
      operators wishing to offer voice services over their IP-based
      networks.





Our
      corporate headquarters are located in Boca Raton, Florida. Our main operations,
      manufacturing and product development centers are located in Uxbridge, UK,
      Airport City, Israel, and in Espoo, Finland. Our telephone number in Boca Raton
      is (561) 893-8670. Further contact details and the location of all Airspan’s
      worldwide offices may be found at www.airspan.com.





**BASIS
      OF PRESENTATION**





The
      accompanying unaudited condensed consolidated financial statements have been
      prepared in accordance with accounting principles generally accepted in the
      United States of America for interim financial 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 accounting
      principles generally accepted in the United States of America 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, 2005 has been derived
      from
      the audited financial statements at that date included in our Form 10-K for
      the
      year ended December 31, 2005 but does not include all of the information and
      footnotes required by accounting principles generally accepted in the United
      States of America for complete financial statements.





For
      further information, refer to the consolidated financial statements and
      footnotes thereto included in our Annual Report on Form 10-K for the year ended
      December 31, 2005.





All
      notes
      to the condensed consolidated financial statements are shown in thousands,
      except for share and per share data.




*Reclassifications*




Certain
      prior-year amounts have been reclassified to conform to the current period
      presentations. These reclassifications are between restricted cash and other
      non
      current assets for guarantees in the amount of $1,045 that have maturities
      greater than one year as at December 31, 2005.




7




**CONTINGENCIES**





*Warranty*





We
      provide a limited warranty for periods, usually ranging from twelve to
      twenty-four months, to all purchasers of our 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 other relevant factors, including “back to back” warranty
      coverage provided by our contract manufacturers. Management believes that the
      amounts provided for are sufficient for all future warranty costs on equipment
      sold through October 1, 2006 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 our product warranty liabilities was as follows for
      the
      nine months ended October 1, 2006.





**Balance
                at beginning of period**
            
            **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 1, 2006Product
                warranty liability
            
            $
            410
            
            $
            1,008
            
            $
            237
            
            $
            (572
            )
            $
            1,083





*Other
      guarantees*





We
      had
      delivered to our landlords and customers bank guarantees aggregating to $3,119
      at December 31, 2005 and $5,008 at October 1, 2006. The increase in other
      guarantees during the nine month period ended October 1, 2006 occurred primarily
      as a result of new guarantees being issued to two of our key customers, Yozan,
      Inc. (“Yozan”) and Axtel S.A. de C.V. (“Axtel”), to support the performance
      under our contracts with these customers. The foregoing figures represent the
      maximum potential amount of future payments we could be required to make under
      these guarantees. The guarantees secure our payment or performance obligations
      under contracts. In some instances, we have collateralized these guarantees
      by
      means of standby letters of credit issued under our line of credit with Silicon
      Valley Bank ($2,851). In other cases, we have pledged cash to the issuing banks
      as collateral for the guarantees in the same amounts as the guarantees. Where
      the cash has been pledged for guarantees that expire in less than one year,
      we
      have classified these pledges as Restricted cash ($1,020 in aggregate). Where
      the guarantees have maturities greater than one year, the cash pledged as
      collateral has been classified as Other non-current assets ($1,137). For further
      discussion regarding our restricted cash balance, see “Management’s Discussion
& Analysis - Liquidity and Capital Resources. We have 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 by the first
      quarter of 2007.





*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.




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. The Underwriter Defendants
      sought to appeal the class certification decision and the Second Circuit has
      accepted the appeal. Plaintiffs have not yet moved to certify a class in the
      Airspan case.




8




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. On
      April
      20, 2006, JPMorgan Chase and the plaintiffs reached a preliminary agreement
      for
      a settlement for $425 million. The JPMorgan Chase settlement has not yet been
      approved by the Court. However, if it is finally approved, then the maximum
      amount that the issuers’ insurers will be potentially liable for is $575
      million.  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. However,
      if the JPMorgan Chase settlement is finally approved, Airspan’s maximum
      financial obligation to the plaintiffs pursuant to the settlement agreement
      would be less than $2 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. On March 20, 2006, the Underwriter Defendants
      submitted objections to the settlement to the Court. The Court held a hearing
      regarding those and other objections to the settlement at a fairness hearing
      on
      March 24, 2006, but has not yet issued a ruling. 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.




**REVENUE
      RECOGNITION**





Our
      material revenue streams are the result of a range of activities. Management
      must use significant judgment in determining how to apply the current accounting
      standards and interpretations. Our revenues may fluctuate from period to period
      based on the mix of products sold and services provided as well as the customers
      involved.




9





Our
      revenue recognition policy reflects the fact that our revenue streams are
      primarily derived from sales of hardware and software that do not require
      significant customization; and (ii) revenues relating to services rendered
      (e.g.
      extended warranty, product maintenance, radio planning, consulting services,
      etc).





In
      any
      one arrangement, we sometimes generate revenue from more than one of these
      revenue streams. In those instances, there is an added level of complexity
      in
      determining the appropriate method of revenue recognition (See the Section
      below
      entitled - “Revenue Arrangements that include Multiple Elements”).





Management
      must apply significant judgment in determining how to apply the current
      accounting standards and interpretations related to revenue
      recognition.





Subject
      to the more specific revenue recognition policies discussed below, we recognize
      revenue when all of the following conditions are met:





·  persuasive
      evidence of an arrangement with a customer exists;




·  delivery
      has occurred or services have been rendered;




·  the
      price
      for the product or service is fixed or determinable; and




·  collection
      of the receivable is reasonably assured.





For
      new
      products, if we can reasonably and reliably estimate the amount of warranty
      obligations, we recognize revenue on sales of such products that otherwise
      meet
      the criteria for revenue recognition. For the new WiMAX products introduced
      in
      2005 and 2006, we believe we have the ability to reasonably and reliably
      estimate the amount of warranty obligations and therefore we have recognized
      revenue on sales of such products.





The
      following are our specific revenue recognition policies:





Delivery
      of Hardware: Delivery of hardware is considered to have occurred upon shipment
      provided that risk of loss, and title in certain jurisdictions, have been
      transferred to the customer. For arrangements where the criteria for revenue
      recognition have not been met because legal title or risk of loss on products
      did not transfer to the buyer until final payment had been received or where
      delivery had not occurred, revenue is deferred to a later period when title
      or
      risk of loss passes either on delivery or on receipt of payment from the
      customer.





Assessment
      of Creditworthiness: We are required to assess the credit worthiness of our
      customers. We use judgment in assessing their credit worthiness, and the
      criteria by which each judgment is made may change in future periods and
      therefore may change future revenue recognition. The collectibility of
      receivables is critical in determining whether revenue should be recognized.
      We
      will defer revenue if we are uncertain as to whether we will be able to collect
      the receivable. As a result, our judgment regarding customer credit quality
      could significantly impact the timing and amount of revenue recognition.





Extended
      Payment Terms: We provide extended payment terms to certain customers. For
      these
      customers, the agreement is considered fixed or determinable if the contracts
      pursuant to which we are providing products and/or services are similar to
      others for which we have a standard business practice of providing extended
      payment terms and we have a history of successfully collecting from the customer
      under the original payment terms without making concessions. If the agreement
      is
      not considered fixed or determinable at the outset of the arrangement, revenue
      for delivered products is generally deferred until the fees become legally
      due
      and payable. In certain cases where there have previously been collection
      issues, revenue is recognized as cash is collected. Therefore, estimates and
      judgment in this area can impact the timing of revenue recognition.





Product
      Revenue: Revenue from product sales, including sales to distributors and
      resellers, is generally recognized at the time the product is delivered to
      the
      customer. Revenue is deferred when customer acceptance is required, rights
      of
      return exist, collection of the receivable becomes less than assured or other
      significant obligations remain that are essential to the functionality of the
      delivered products. Revenue is then recognized when these conditions have been
      satisfied. The estimated cost of any post-sale obligations, including basic
      product warranties, is accrued at the time revenue is recognized based on a
      number of factors, which include historical experience and known conditions
      that
      may impact future warranty costs. Revenue from sales to resellers and
      distributors is generally recognized only when the resellers are creditworthy
      in
      their own right or have an identified creditworthy end customer for our products
      and services.




10





Software
      sales: Many of our products include software that is embedded in our hardware
      at
      delivery. The software is usually incidental to the hardware. However, in those
      cases in which it is more than incidental and is a significant factor in the
      customer’s decision to acquire the product, such as where the transaction
      includes obligations to upgrade or enhance the software, we apply software
      revenue recognition rules to determine the amount and timing of revenue
      recognition. In multiple element arrangements where software is considered
      more
      than incidental, the fair value of an undelivered element is determined using
      vendor-specific objective evidence (See the Section below entitled - “Revenue
      Arrangements that include Multiple Elements”).





Service
      Revenue: Revenue from time-and-material service contracts is recognized once
      the
      services have been performed. Revenue from service contracts pursuant to which
      we provide services over a period of time is recognized ratably over the given
      contract period. Revenue is recognized on fixed-price service contracts when
      the
      services have been completed.





Revenue
      Arrangements that include Multiple Elements: In certain cases, we enter into
      agreements with customers whereby we are obligated to deliver multiple products
      and/or multiple services (multiple elements). In these transactions, we allocate
      the total revenue to be earned under the arrangement among the various elements
      based on their relative fair value. Revenue for these transactions is recognized
      on each element when the revenue recognition criteria have been met for that
      element. Revenue is recognized for delivered products and services only if:
      (i)
      the above Product Revenue or Service Revenue criteria are met; (ii) undelivered
      products or services are not essential to the functionality of the delivered
      elements, (iii) payment for the delivered products or services is not contingent
      upon delivery of the remaining products or services; and (iv) the fair value
      for
      each of the undelivered elements is known. If objective and reliable evidence
      of
      fair value exists for all units of accounting in the contract, revenue is
      allocated to each unit of accounting or element based on relative fair values.
      In situations where there is objective and reliable evidence of fair value
      for
      all undelivered elements, but not for delivered elements, the residual method
      is
      used to allocate the contract consideration. Under the residual method, the
      amount of revenue allocated to delivered elements equals the total arrangement
      consideration less the aggregate fair value of any undelivered elements. Each
      unit of accounting is then accounted for under the applicable revenue
      recognition guidance. If fair value does not exist for any undelivered element,
      revenue is not recognized until the earlier of the time that (i) the undelivered
      element is delivered or (ii) fair value of the undelivered element exists,
      unless the undelivered element is a service, in which case revenue is recognized
      as the service is performed once the service is the only undelivered element.
      Our determination of whether deliverables within a multiple element arrangement
      can be treated separately for revenue recognition purposes involves significant
      estimates and judgment, such as whether fair value can be established on
      undelivered obligations and/or whether delivered elements have standalone value
      to the customer. Changes to our assessment of the accounting units in an
      arrangement and/or our ability to establish fair values could significantly
      change the timing of revenue recognition. Our assessment of which revenue
      recognition guidance is appropriate to account for a deliverable also can
      involve significant judgment .





Contract
      Accounting: When the Company performs a specific development type contract
      for a
      customer subject to contract accounting under SOP 81-1, we may adopt the
      percentage-of-completion method or the completed-contract method to recognize
      revenues under the contract. Alternatively, where contracts under which separate
      units of output are produced, where progress can be measured on the basis of
      units of work completed, output is used to measure results directly and is
      generally the best measure of progress toward completion in circumstances in
      which a reliable measure of output can be established and the agreement contains
      milestones at which nonrefundable payments will be made by the
      customer.





**STOCK
      COMPENSATION**




At
      October 1, 2006, we had three stock option plans as well as the 2004 Omnibus
      Equity Compensation plan and the 2000 Employee Stock Purchase Plan (“ESPP”).
      Awards under the 2004 Omnibus Equity Compensation Plan may be made to
      participants in the form of Incentive Stock Options, Nonqualified Stock Options,
      Stock Appreciation Rights, Restricted Stock, Deferred Stock, Stock Awards,
      Performance Shares, Other Stock-Based Awards and others forms of equity based
      compensation as may be provided and are permissible under this Plan and the
      law.
      Employee stock options granted under all of the plans generally vest over a
      four-year period and expire on the tenth anniversary of their issuance.
      Restricted stock is common stock that is subject to a risk of forfeiture or
      other restrictions that will lapse upon satisfaction of specified performance
      conditions and/or the passage of time. Awards of restricted stock that vest
      only
      by the passage of time will generally fully vest after four years from the
      date
      of grant. At October 1, 2006, the Company had reserved a total of 9,259,039
      shares of its common stock for issuance under the above plans.




11





Prior
      to
      January 1, 2006, we accounted for awards issued under these plans under the
      recognition and measurement principles of Accounting Principles Board (APB)
      Opinion No. 25, Accounting for Stock Issued to Employees, and related
      interpretations. In all periods shown prior to January 1, 2006, we valued
      stock-based employee compensation using the intrinsic value method. In December
      2004, the Financial Accounting Standards Board (FASB) issued Statement No.
      123(R), Share-Based Payment (SFAS 123(R)). This Statement eliminates the use
      of
      the intrinsic value method described in APB Opinion No. 25, and requires an
      entity to measure the cost of employee services received in exchange for an
      award of equity instruments based on the grant-date fair value of the award.
      That cost will be recognized over the period during which an employee is
      required to provide service in exchange for the award.





We
      adopted SFAS 123(R) as of January 1, 2006, the first day of fiscal year
      2006 using the modified prospective transition method. Our consolidated
      financial statements for the first nine months of fiscal 2006 reflect
      the impact of SFAS 123(R). The consolidated financial statements for prior
      periods have not been restated to reflect, and do not include, the impact of
      SFAS 123(R). The adoption of this statement has resulted in higher reported
      operating expenses for the first nine months of 2006 and will result in higher
      reported operating expenses in our future financial statements. Share-based
      compensation expense recognized under SFAS 123(R) for the third quarter of
      fiscal 2006 was $585 and for the first nine months of fiscal 2006 was
      $1,843.





The
      following table summarizes share-based compensation expense under SFAS 123(R)
      for the three and nine months ended October 1, 2006 and under APB 25 for the
      three and nine months ended October 2, 2005, which was allocated as follows
      (in
      thousands):





Quarter
                Ended
              October
                2, 2005
            
            Quarter
                Ended
              October
                1, 2006
            
            Nine
                Months Ended
              October
                2,
              2005
            
            Nine
                Months Ended
              October
                1,
              2006Research
                and development
            
            $
            16
            
            $
            145
            
            $
            32
            
            $
            511Sales
                and marketing
            
            
            27
            
            
            171
            
            
            60
            
            
            635General
                and administrative
            
            
            57
            
            
            265
            
            
            157
            
            
            667Stock-based
                compensation expense included in operating expense
            
            
            100
            
            
            581
            
            
            249
            
            
            1,813Cost
                of sales
            
            
            2
            
            
            4
            
            
            2
            
            
            30Total
                stock-based compensation
            
            $
            102
            
            $
            585
            
            $
            251
            
            $
            1,843




SFAS
      123(R) requires companies to estimate the fair value of share-based awards
      on
      the date of grant using an option-pricing model. The value of the portion of
      the
      award that is ultimately expected to vest is recognized as an expense in our
      consolidated statement of operations over the requisite service periods.
      Share-based compensation expense recognized in our consolidated statement of
      operations for the first nine months of fiscal 2006 includes compensation
      expense for share-based awards granted (i) prior to, but not yet vested as
      of December 31, 2005, based on the grant date fair value estimated in accordance
      with the provisions of SFAS 123, “Accounting
      for Stock Based Compensation”, and (ii) subsequent to December 31,
      2005, based on the grant date fair value estimated in accordance with the
      provisions of SFAS 123(R). Compensation expense for all share-based awards
      is
      recognized using the straight-line single-option method. Because share-based
      compensation expense is based on awards that are ultimately expected to vest,
      share-based compensation expense has been reduced to account for estimated
      forfeitures. SFAS 123(R) requires forfeitures to be estimated at the time of
      grant and revised, if necessary, in subsequent periods if actual forfeitures
      differ from those estimates. In the Company’s pro forma information required
      under SFAS 123 for periods prior to fiscal 2006, the Company accounted for
      forfeitures as they occurred.




To
      calculate option-based compensation under SFAS 123(R), we used the Black-Scholes
      option-pricing model, which we had previously used for valuation of option-based
      awards for the pro forma information required under SFAS 123 for periods prior
      to fiscal 2006. Our determination of fair value of option-based awards on the
      date of grant using the Black-Scholes model is affected by our stock price
      as
      well as assumptions regarding a number of subjective variables. These variables
      include, but are not limited to our expected stock price volatility over the
      term of the awards, and actual and projected employee stock option exercise
      behaviors.




12





All
      options granted under the stock option 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 2005 related to these
      stock option plans. In the third quarter of 2006 and the first nine months
      of
      2006, we recognized stock-based compensation costs in net income related to
      these stock option plans of $499 and $1,525 respectively.




The
      summary of the changes in stock options outstanding under the Company’s stock
      based compensation plans during
      the nine months ended October 1, 2006 is presented below:


**Nine
                  months ended**
                **October
                  1, 2006****Number of**
                **Shares**
              
              **Weighted-**
                **Average**
                **Exercise**
                **Price****Options:**Outstanding
                  at beginning of period
              
              
              5,291,679
              
              $
              4.00Granted
              
              
              1,124,150
              
              $
              4.03Forfeited
              
              
              (258,481
              )
              $
              5.53Exercised
              
              
              (308,073
              )
              $
              1.90Outstanding
                  at end of period
              
              
              5,849,275
              
              $
              4.05Exercisable
                  at end of period
              
              
              3,541,145
              
              $
              3.78




13




The
      following table summarizes the ranges of the exercise prices of outstanding
      and
      exercisable options as of October 1, 2006:


**Outstanding
                  options**
              
              **Exercisable
                  options****Weighted
                  average**
              
              
              
              **Weighted****Number**
              
              **Exercise**
                **price**
              
              **Remaining
                  contractual life in years**
              
              **Number**
              
              **average**
                **Exercise**
                **price**Exercise
                  Price ranges$0.30-0.80
              
              
              679,713
              
              $
              0.48
              
              
              5.19
              
              
              672,380
              
              $
              0.480.87-1.95
              
              
              636,050
              
              
              1.77
              
              
              6.44
              
              
              435,883
              
              
              1.712.00-2.80
              
              
              626,296
              
              
              2.35
              
              
              8.64
              
              
              197,271
              
              
              2.252.81-4.12
              
              
              935,101
              
              
              3.50
              
              
              6.26
              
              
              642,920
              
              
              3.314.22-4.38
              
              
              673,552
              
              
              4.37
              
              
              5.03
              
              
              660,750
              
              
              4.374.55-5.08
              
              
              883,819
              
              
              5.00
              
              
              8.27
              
              
              342,792
              
              
              5.035.14-6.00
              
              
              685,328
              
              
              5.85
              
              
              5.85
              
              
              327,380
              
              
              5.876.01-7.50
              
              
              527,750
              
              
              6.30
              
              
              8.72
              
              
              60,104
              
              
              7.299.60
              
              
              48,333
              
              
              9.60
              
              
              3.70
              
              
              48,332
              
              
              9.6015.00
              
              
              153,333
              
              
              15.00
              
              
              3.82
              
              
              153,333
              
              
              15.00Total
              
              
              5,849,275
              
              $
              4.05
              
              
              6.66
              
              
              3,541,145
              
              $
              3.78




As
      of
      October 1, 2006, the weighted average remaining contractual life of options
      exercisable was 5.4 years and their aggregate intrinsic value was $1,998. The
      total intrinsic value of options exercised during the nine months ended October
      1, 2006 was $1,111. Cash received from stock option exercises for the nine
      months ended October 1, 2006 was $584. Because we maintained a full valuation
      allowance on our U.S. deferred tax assets, we did not recognize any tax benefit
      related to stock based compensation expense
      for the nine months ended October 1, 2006.




During
      2006, a total of 50,596 restricted
      shares were granted to employees, all of which vest based on the passage of
      time. A total expense of $66 was recorded for the nine months ended October
      1
      related to these shares and those issued in 2005. The summary of the changes
      in
      restricted stock outstanding during the nine months ended October 1, 2006 is
      presented below:





**Nine
                Months Ended**
              **October
                1, 2006****Number of**
              **Shares**
            
            **Weighted-Average**
              **Grant Date
                Fair Value**Nonvested
                balance at beginning of period
            
            
            100,000
            
            $
            4.12Granted
            
            
            50,596
            
            $
            5.67Forfeited
            
            
            (3,312
            )
            $
            5.80Vested
            
            
            (24,692
            )
            $
            4.14Nonvested
                balance at end of period
            
            
            122,592
            
            $
            5.21





As
      of
      October 1, 2006, there was $4,756 of unrecognized compensation expense, net
      of estimated forfeitures, related to stock options that will be recognized
      over
      the weighted average period of 2.72 years. Also, as of October 1, 2006, there
      was $289 of unrecognized compensation expense related to restricted stock awards
      that will be recognized over the weighted average period of 3.07 years. A
      total of 122,592 nonvested restricted shares are scheduled to vest based on
      passage of time and an additional 124,221 of shares will be issued
      beginning in 2007 if certain performance conditions are achieved, which we
      consider to be unlikely.





Under
      our
      ESPP, eligible employees may purchase shares of common stock through payroll
      deductions. 208,102 shares were issued under the ESPP during the nine months
      ended October 1, 2006.




14





***Pro
      Forma Share-Based Compensation under SFAS 123 for Fiscal
      2005***





Had
      (i) compensation expense for our stock option plans and employee stock
      purchase plan been determined based on the Black-Scholes valuation method;
      and
      (ii) the fair value at the grant date for awards in the third quarter of
      fiscal 2005 and the first nine months of fiscal 2005 been determined consistent
      with the provisions of SFAS 123, as amended by SFAS 148, “Accounting for Stock
      Based Compensation-Transition and Disclosure,” our net loss and net loss per
      share for the third quarter of fiscal 2005 and the first nine months of fiscal
      2005 would have changed by the pro forma amounts indicated below (in thousands,
      except per share data):





Quarter
                Ended October 2, 2005
            
            Nine
                Months Ended October 2, 2005Net
                loss applicable to common stockholders — as reported
            
            $
            (2,128
            )
            $
            (11,763
            )Deduct:
                Total stock-based employee compensation expense determined under
                fair
                value based method for all awards, net of related tax
                effects
            
            
            (619
            )
            
            (1,840
            )Add:
                Stock-based employee compensation expense included in reported net
                income,
                net of related tax effects
            
            
            102
            
            
            251Net
                loss applicable to common stockholders — pro forma
            
            $
            (2,645
            )
            $
            (13,352
            )Basic
                and diluted net loss per share — as reported
            
            $
            (0.05
            )
            $
            (0.30
            )Basic
                and diluted net loss per share — pro forma
            
            $
            (0.07
            )
            $
            (0.35
            )








***Fair
      Value and Assumptions Used to Calculate Fair Value under SFAS 123(R) and SFAS
      123***





The
      weighted average fair value of each restricted stock share granted under our
      equity compensation plans for the first nine months of fiscal 2005 was $4.14
      and
      for the first nine months of 2006 was $5.67. The fair value of each restricted
      stock award is estimated on the date of grant using the intrinsic value
      method.





The
      weighted average fair value of each option granted during the first nine months
      of fiscal 2005 and the first nine months of fiscal 2006 was $2.83 and $2.63,
      respectively. The fair value of each option award is estimated on the date
      of
      grant using the Black-Scholes Option Pricing Model, using the following weighted
      average assumptions for the first nine months of fiscal 2005 and of fiscal
      2006:





Nine
                Months EndedOctober
                2,
              2005
            
            October
                1,
              2006Expected
                volatility
            
            
            82
            %
            
            85
            %Risk-free
                interest rate
            
            
            3.82
            %
            
            4.74
            %Expected
                life (years)
            
            
            4
            
            
            5Expected
                dividend yield
            
            
            0
            %
            
            0
            %





*Assumptions
      for Option-Based Awards under SFAS 123(R)*





The
      expected volatility is determined based on historical price changes of our
      common stock over a period of time which approximates the expected option
      term.





The
      risk-free interest rate assumption is based upon observed interest rates
      appropriate for the term of our stock options.




The
      expected term of options is estimated based on our historical data regarding
      exercise behavior.





The
      dividend yield assumption is based on our history and expectation of no dividend
      payouts.




15





As
      share-based compensation expense recognized in the consolidated statement of
      operations is based on awards ultimately expected to vest, it has been reduced
      for estimated forfeitures. Forfeitures were estimated based on our historical
      experience.





*Assumptions
      for option-based awards under SFAS 123*





Prior
      to
      2006, we used historical volatility of our stock price in determining expected
      volatility. The risk-free interest rate was based upon assumption of interest
      rates appropriate for the term of our employee stock options. The dividend
      yield
      assumption was based on our history and expectation of dividend payouts.
      Forfeitures prior to 2006 were accounted for as they occurred.




**INVENTORY**





Inventory
      consists of the following:




**December
                31,**
            
            **October
                1,****2005**
            
            **2006****(unaudited)**Purchased
                parts and materials
            
            $
            9,743
            
            $
            14,590Work
                in progress
            
            
            1,198
            
            
            1,175Finished
                goods and consumables
            
            
            16,395
            
            
            20,619Inventory
                provision
            
            
            (10,486
            )
            
            (13,019
            )$
            16,850
            
            $
            23,365





Inventories
      are stated at the lower of cost or market value. Cost includes all costs
      incurred in bringing each product to its present location and condition, as
      follows:




·
            Raw
                materials, consumables and finished goods — average cost





·
            Work
                in progress— cost of direct materials and labor.




**ACCRUED
      RESTRUCTURING CHARGES**





In
      the
      fourth quarter of 2002, the decision was made to completely outsource all of
      our
      manufacturing. As a result, a $1.0 million restructuring charge was recorded
      for
      the closure of our Riverside, Uxbridge facility in 2003. All of this cost
      relates 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 expected to be incurred 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 was $2.5 million
      as shown in the table below.




**Total
                expected**
              **to
                be**
              **incurred**
            
            **Incurred
                during the quarter ended October 1,**
              **2006**
            
            **Cumulative
                incurred at October 1,**
              **2006****(unaudited)**
            
            **(unaudited)**
            
            **(unaudited)**Contract
                termination costs
            
            $
            2,425
            
            $
            -
            
            $
            1,145Other
                associated costs
            
            
            82
            
            
            -
            
            
            38$
            2,507
            
            $
            -
            
            $
            1,183





Included
      in the remaining costs to be incurred is the estimated cost to repair
“dilapidations” at our Riverside facility. The final cost of these dilapidations
      will depend on the lessor’s intended use for this facility, and the estimates
      will be revised accordingly once this intention is disclosed to us. Currently,
      the lessor expects us to refurbish the facility, and accordingly, we have
      accrued the estimated total cost of this refurbishment. However, if the
      lessor should subsequently decide to demolish the building and completely
      rebuild on this site, our costs could be materially lower. We are currently
      in a
      negotiation with the lessor to reach a possible settlement. All cash
      outflows in connection with this restructuring are expected to occur by the
      end
      of 2007.




16






**Balance
                at**
            
            
            
            
            
            **Balance****beginning
                of**
            
            **Restructuring**
            
            
            
            **at
                end of****period**
            
            **charge**
            
            **Utilized**
            
            **period****(unaudited)**
            
            **(unaudited)**
            
            **(unaudited)**
            
            **(unaudited)**Three
                months ended October 1, 2006Contract
                termination costs
            
            $
            1,280
            
            
            -
            
            
            -
            
            $
            1,280Other
                associated costs
            
            
            44
            
            
            -
            
            
            -
            
            
            44$
            1,324
            
            
            -
            
            
            -
            
            $
            1,324Nine
                months ended October 1, 2006Contract
                termination costs
            
            $
            1,436
            
            
            -
            
            $
            (156
            )
            $
            1,280Other
                associated costs
            
            
            50
            
            
            -
            
            
            (6
            )
            
            44$
            1,486
            
            
            -
            
            $
            (162
            )
            $
            1,324Year
                ended December 31, 2005
            
            
            **(audited**
            **)**
            
            **(audited**
            **)**
            
            **(audited**
            **)**
            
            **(audited**
            **)**Contract
                termination costs
            
            $
            599
            
            $
            1,150
            
            $
            (313
            )
            $
            1,436Other
                associated costs
            
            
            61
            
            
            -
            
            
            (11
            )
            
            50$
            660
            
            $
            1,150
            
            $
            (324
            )
            $
            1,486




In
      the
      third quarter of 2006, we recorded restructuring charges of $1.5 million, to
      reflect the company-wide restructuring program we commenced in July 2006, the
      goal of which is to reduce operating expenses. The total cost expected to be
      incurred as part of this restructuring program is $1.8 million as set out in
      the
      table below:





**Total
                expected**
              **to
                be**
              **incurred**
            
            **Incurred
                during the quarter ended October 1,**
              **2006**
            
            **Cumulative
                incurred at October 1,**
              **2006****(unaudited)**
            
            **(unaudited)**
            
            **(unaudited)**One-time
                termination benefits
            
            $
            1,631
            
            $
            1,337
            
            $
            1,337Other
                associated costs
            
            
            191
            
            
            191
            
            
            191$
            1,822
            
            $
            1,528
            
            $
            1,528





The
      cost
      reduction will be accomplished primarily as a result of reduction in worldwide
      headcount. As of the end of the third quarter, we had given notice of
      termination that will result in a reduced headcount by approximately 17%
      compared to levels at the end of the second quarter. We expect to complete
      the
      restructuring by the end of the fourth quarter. We estimate that this will
      result in a restructuring charge in the fourth quarter of approximately $0.3
      million. The restructuring will result in a direct cash outlay in the fourth
      quarter and the first quarter of 2007. Once the program is completed, we project
      we will be able to realize annual cost savings of approximately $7-$8 million
      relative to the cost structure that existed at the end of the second quarter
      of
      2006. Despite our efforts to prepare reliable projections, we recognize that
      our
      forecasts may prove to be imprecise due to unforeseen events, including
      unanticipated expenses or difficulties associated with reducing our workforce,
      requiring retained staff members to assume additional responsibilities and/or
      reorganizing our operations to more cost efficiently produce a given level
      of
      product revenue.




17





The
      restructuring charges and their utilization are summarized as follows:




**Balance
                at**
            
            
            
            
            
            **Balance****beginning
                of**
            
            **Restructuring**
            
            
            
            **at
                end of****period**
            
            **charge**
            
            **Utilized**
            
            **period****(unaudited)**
            
            **(unaudited)**
            
            **(unaudited)**
            
            **(unaudited)**Three
                months ended October 1, 2006One
                time termination benefits
            
            
            -
            
            $
            1,337
            
            $
            (734
            )
            $
            603Other
                associated costs
            
            
            -
            
            
            191
            
            
            (191
            )
            
            --
            
            $
            1,528
            
            $
            (925
            )
            $
            603Nine
                months ended October 1, 2006One
                time termination benefits
            
            
            -
            
            $
            1,337
            
            $
            (734
            )
            $
            603Other
                associated costs
            
            
            -
            
            
            191
            
            
            (191
            )
            
            --
            
            $
            1,528
            
            $
            (925
            )
            $
            603




**GEOGRAPHIC
      INFORMATION**





As
      a
      developer and supplier of broadband wireless communications access systems
      and
      solutions, Airspan 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 our revenue is generated from products manufactured
      in
      the United Kingdom, Mexico, Israel and Finland, with additional revenue
      generated from sales of original equipment manufacturer’s (OEM) products.





An
      analysis of revenue by location of the customer is given below:


**Quarter
                  End**
              
              **Year-to-Date****October
                  2, 2005**
              
              **October
                  1, 2006**
              
              **October
                  2, 2005**
              
              **October
                  1, 2006****(unaudited)**
              
              **(unaudited)**USA
                  and Canada
              
              $
              2,485
              
              
              2,646
              
              
              5,867
              
              
              6,753Asia
              
              
              2,957
              
              
              5,830
              
              
              8,339
              
              
              30,408Europe
              
              
              3,880
              
              
              3,783
              
              
              7,326
              
              
              18,042Africa
                  and the Middle East
              
              
              902
              
              
              1,451
              
              
              4,061
              
              
              3,109Mexico,
                  Latin America and Caribbean
              
              
              20,321
              
              
              13,593
              
              
              47,479
              
              
              38,226$
              30,545
              
              
              27,303
              
              
              73,072
              
              
              96,538




**COMPREHENSIVE
      LOSS**





Total
      comprehensive loss was $2,128 for the quarter ended October 2, 2005 and $18,302
      for the quarter ended October 1, 2006 comprising:


**Quarter
                  End**
              
              **Year-to-Date****October
                  2, 2005**
              
              **October
                  1, 2006**
              
              **October
                  2, 2005**
              
              **October
                  1, 2006****(unaudited)**
              
              **(unaudited)**Net
                  loss
              
              $
              (2,128
              )
              $
              (18,302
              )
              $
              (11,763
              )
              $
              (34,263
              )Other
                  comprehensive income/(loss):Movement
                  in the fair value of cash flow hedges-
                  unrealized gain on foreign currency cash flow hedges
              
              
              -
              
              
              -
              
              
              -
              
              
              --
                  reclassification of adjustment for gains realized in net
                  loss
              
              
              -
              
              
              -
              
              
              (418
              )
              
              130Comprehensive
                  loss
              
              $
              (2,128
              )
              $
              (18,302
              )
              $
              (12,181
              )
              $
              (34,133
              )





18




**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 Series
      B
      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
                End**
            
            **Year-to-Date****October
                2, 2005**
            
            **October
                1, 2006**
            
            **October
                2, 2005**
            
            **October
                1, 2006**Numerator:Net
                loss attributable to common stockholders
            
            $
            (2,128
            )
            $
            (18,302
            )
            $
            (11,763
            )
            $
            (34,263
            )Denominator:Weighted
                average common shares outstanding basic and diluted
            
            
            39,396,155
            
            
            40,137,526
            
            
            38,677,301
            
            
            39,924,492Net
                loss attributable to common stockholders per share- basic and diluted
            
            $
            (0.05
            )
            $
            (0.46
            )
            $
            (0.30
            )
            $
            (0.86
            )





There
      were 5,359,802 stock options outstanding at October 2, 2005 and 5,849,275 stock
      options outstanding at October 1, 2006 that were excluded from the computation
      of diluted net loss per share as their effect was antidilutive. If the Company
      had reported net income, the calculation of these per share amounts would have
      included the dilutive effect of these common stock equivalents using the
      treasury stock method for stock options. The convertible preferred stock
      referred to in **ISSUANCE
      OF SERIES B PREFERRED STOCK** was
      also
      excluded from the computation of diluted net loss per share as its effect was
      antidilutive. There were 100,000 nonvested shares of restricted stock at October
      2, 2005 and 122,592 nonvested shares at October 1, 2006 that were excluded
      from
      the computation of diluted net loss per share as their effect was
      antidilutive.





On
      September 25, 2006, the Company consummated the private sale (the “Private
      Placement”) of 200,690 shares of Series B Preferred Stock (the “Shares”) to Oak
      Investment Partners XI Limited Partnership (“Oak”). Oak received 100,000 of the
      Shares in exchange for a $29
      million cash investment and 100,690 of the Shares in exchange for Oak’s transfer
      to the Company of all 73,000 shares of Series A Preferred Stock held by Oak
      prior to the closing of the Private Placement, or 1.379 of the Shares for each
      share of Series A Preferred Stock transferred by Oak to the Company. The
      terms
      of the transaction are more fully described below in - **ISSUANCE
      OF SERIES B PREFERRED STOCK**





The
      issuance to Oak resulted in a non-cash charge of $9,179 for a deemed dividend,
      comprised of $8,279 related to the Shares issued in respect of Oak’s exchange of
      its Series A Preferred Stock and $900 related to the Shares issued in respect
      of
      Oak’s cash investment.





Oak,
      by
      exchanging its Series A Preferred Stock for the new Series B Preferred Stock
      in
      connection with the Private Placement, will receive on conversion of the Series
      B Preferred Stock a larger number of common shares than the number of common
      shares they would have received on conversion of the Series A Preferred Stock.
      When convertible preferred stock is exchanged for other securities issued by
      the
      registrant pursuant to an inducement offer, according to the relevant accounting
      principles, the transaction is deemed to be a conversion and the excess of
      the
      fair value of the newly issued securities and other consideration transferred
      over the fair value of the previously outstanding convertible preferred stock
      should be subtracted from net earnings to arrive at net earnings available
      to
      common shareholders. The fair value of the newly issued securities and the
      previously outstanding convertible preferred stock is determined by reference
      to
      the fair value of the shares of common stock issuable upon conversion of such
      securities. Accordingly, the Private Placement resulted in a charge for a deemed
      dividend that reduced net income available to common stockholders. The amount
      of
      the charge $8,279 was calculated by multiplying the closing price of the
      Company’s common stock on the NASDAQ on September 25, 2006, the date of the
      closing of the Private Placement ($2.99), by 2,769,000, the number of additional
      common shares that are potentially issuable upon conversion of the 100,690
      shares issued to Oak in exchange for the 73,000 shares of Series A Preferred
      Stock.




19





In
      addition, the issuance of the 100,000 Series B shares in respect of Oak’s cash
      investment with a conversion price of $2.90 compared to the closing price of
      $2.99 represents a beneficial conversion and resulted in an additional deemed
      dividend of $900 on the 10,000,000 shares of common stock that are potentially
      issuable. Total
      deemed dividend is $9,179.





The
      charge for a deemed dividend was accounted for as a reduction in net income
      available to common shareholders, and it created an offsetting credit in
      Addi tional
      Paid in Capital.





**ISSUANCE
      OF SERIES B PREFERRED STOCK**





On
      September 25, 2006 (the “Closing Date”), in accordance with the terms of that
      certain Preferred Stock Purchase Agreement (the “Series B Purchase Agreement”),
      dated July 28, 2006, by and between the Company and Oak, the Company issued
      200,690 shares (the “Shares”) of Series B Preferred Stock to Oak in exchange for
      $29 million
      of cash and Oak’s transfer to the Company of all 73,000 shares of Series A
      Preferred Stock held by Oak prior to the closing of the transaction.




The
      73,000 shares of Series A Preferred Stock transferred to Oak at closing
      represented all of the issued and outstanding Series A Preferred Stock and,
      accordingly, as of the date of this report, there are no shares of Series A
      Preferred Stock issued and outstanding.




Based
      upon the Company’s capitalization as of the Closing Date, the Shares are
      initially convertible into a total of approximately 33% of the Company’s Common
      Stock (assuming conversion of the Shares, but without giving effect to the
      exercise or conversion of any other outstanding options, warrants or convertible
      securities) and, as of the Closing Date, represent approximately 29% of the
      voting power outstanding.





The
      transactions contemplated by the Series B Purchase Agreement were approved
      of by
      the holders of a majority of the Company’s Common Stock that voted at the
      Special Meeting of the Company’s shareholders (excluding shares held by Oak and
      its affiliates) - see Item 4 **SUBMISSION
      OF MATTERS TO A VOTE OF SECURITY HOLDER** below.





Pursuant
      to the Series B Purchase Agreement, the holders of the Series B Preferred Stock
      have agreed to a lockup with respect to 125,172 of the Shares (and the
      underlying common stock). The lockup with respect to approximately 33,333.3
      of
      the Shares (initially convertible into approximately 3,333,333 shares of the
      Company’s Common Stock) will expire on each of the ninth month, the twelfth
      month and the fifteenth month after the Closing Date. The lock up with respect
      to 25,172 of the Shares (initially convertible into 2,517,200 shares of Common
      Stock) will expire on December 31, 2006. The remainder of the Shares will not
      be
      subject to a lockup.





The
      lockup arrangements may expire earlier than indicated above (i) if any
      representation or warranty made by the Company in connection with the Series
      B
      Purchase Agreement is materially untrue and such breach has or will result
      in at
      least a 20% decline in the value of the Purchaser’s investment in the Company,
      or (ii) upon an event of Liquidation (as defined below).





The
      Company has agreed, upon certain terms and conditions, to register the resale
      of
      the shares of Common Stock underlying the Series B Preferred Stock with the
      Securities and Exchange Commission (the “SEC”). If a registration statement with
      respect to the resale of such shares has not been declared effective by the
      SEC
      prior to the 9-month anniversary of the closing of the Series B Purchase
      Agreement or if declared effective, ceases to be effective as to the shares
      at
      any time thereafter for longer than 30 days at any one time or 60 days during
      any one year, the Company may be required to pay certain liquidated damages
      to
      the Purchaser not to exceed $30 million. We believe that the liquidated damages
      are a contingent liability. However, since such liability is not perceived
      to be
      probable at this time, we have made no expense accrual for it.




20





**CREDIT
      FACILITY**





On
      August
      1, 2006, the Company and its wholly owned subsidiary, Airspan Communications
      Limited, entered into a Loan and Security Agreement (the "Loan and Security
      Agreement") with Silicon Valley Bank ("SVB"), with respect to a revolving credit
      line. For the two year term of the credit line, the Company may, subject to
      certain adjustments, borrow up to the lesser of (i) $10,000,000 and (ii) 80%
      of
      eligible accounts receivable. A certain portion of the credit available to
      the
      Company under the credit facility may also be utilized to issue letters of
      credit through, or enter into foreign exchange contracts with, SVB. During
      the
      third quarter, we issued $3.0 million of letters of credit under the facility,
      all of which were outstanding at the date of this report. We also borrowed
      $2.5
      million in the third quarter, all of which was repaid by the end of the
      quarter.





To
      secure
      its obligations under the Loan and Security Agreement, the Company has granted
      SVB a security interest in all of its assets and has established a receivables
      lockbox account at a financial institution affiliated with SVB.





Advances
      under the Loan and Security Agreement bear interest at SVB's prime rate plus
      a
      percentage ranging from 0.25% to 1.5%, depending on certain financial and
      collateral tests. The Company has also agreed to pay SVB (i) a commitment fee
      of
      $90,000; (ii) an unused facility fee in the amount of 0.375% per year; (iii)
      1%
      per year on the face amount of any issued letter of credit; and (iv) an early
      termination fee of 1% or 0.5% of the principal amount of the credit line if
      the
      facility is terminated by the Company within the first or second year,
      respectively. SVB has retained the right, upon limited notice, to make
      reasonable adjustments to the definition of eligible receivables. SVB has also
      reserved its right to modify the rate (the "Advance Rate") at which advances
      are
      made against eligible receivables if the Bank determines, after an audit, that
      there are events, contingencies or risks that adversely affect the Company's
      assets.





Pursuant
      to the Loan and Security Agreement, the Company must maintain a certain tangible
      net worth and liquidity coverage. The Company's tangible net worth (which is
      a
      measure of total assets minus total liabilities minus any amounts attributable
      to goodwill, intangible items and obligations owing to the Company from its
      officers and other affiliates) must be at least the sum of $27,000,000 plus
      50%
      of quarterly net income, plus 50% of proceeds of any sale of stock by the
      Company, plus 50% of any subordinated debt incurred by the Company. The Company
      must also maintain a liquidity coverage ratio that ranges from month to month
      between 1.5:1 to 1.75:1. The liquidity coverage ratio is the ratio of (A) the
      sum of unrestricted cash and cash equivalents maintained at SVB, plus 50% of
      unrestricted cash and cash equivalents in the United Kingdom over which SVB
      has
      a fixed or floating charge, plus 80% of eligible accounts, minus the funded
      debt
      (which is the debt that the Company owes to SVB and certain other creditors)
      to
      (B) the funded debt.





The
      Loan
      and Security Agreement provides that, with the exception of certain permitted
      indebtedness and liens, the Company may not incur additional indebtedness or
      liens. Permitted indebtedness is defined to include unsecured trade debt and
      currency hedges incurred in the ordinary course business, subordinated debt
      incurred on terms acceptable to SVB, and capitalized lease and purchase money
      indebtedness not exceeding $1,000,000 in any fiscal year. Permitted Liens are
      defined to include, among other things, certain liens for taxes or assessments,
      purchase money liens on property not exceeding $1,000,000, non-exclusive
      licenses of intellectual property incurred in the ordinary course of business,
      and certain liens incurred in the ordinary course of business. The Loan and
      Security Agreement further provides that the Company may not convey, sell,
      transfer or otherwise dispose of property except for inventory in the ordinary
      course of business and other similar dispositions. In addition, the Loan and
      Security Agreement limits the Company's right to enter into a merger or
      acquisition, or make investments in other entities.





**RECENT
      ACCOUNTING PRONOUNCEMENTS**





In
      June
      2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation
      Number 48 (FIN 48), “Accounting for Uncertainty in Income Taxes - an
      interpretation of FASB Statement No. 109.” The interpretation contains a
      two step approach to recognizing and measuring uncertain tax positions accounted
      for in accordance with SFAS No 109. The first step is to evaluate the tax
      position for recognition by determining if the weight of available evidence
      indicates it is more likely than not that the position will be sustained on
      audit, including resolution of related appeals or litigation processes, if
      any.
      The second step is to measure the tax benefit as the largest amount which is
      more than 50% likely of being realized upon ultimate settlement. The
      interpretation is effective for fiscal years beginning after December 15, 2006.
      The Company has not yet analyzed the impact this interpretation will have on
      our
      financial condition, results of operations, cash flows or disclosures.




21





In
      September 2006, the Securities and Exchange Commission (“SEC”) issued Staff
      Accounting Bulletin No. 108 (“SAB 108”). SAB 108 provides guidance on the
      consideration of prior year misstatements in quantifying current year
      misstatements for the purpose of a materiality assessment. The staff of the
      SEC
      (the “Staff”) believes registrants must quantify the impact of correcting all
      misstatements, including both carryover and reversing effects of prior year
      misstatements, on a company’s current year consolidated financial statements.
      The Staff prescribes two approaches to assessing the materiality of
      misstatements: the “rollover” approach, which quantifies misstatements based on
      the amount of error originating in the current year income statement and the
      “iron curtain approach,” which quantifies misstatements based on the effects of
      correcting the cumulative effect existing in the balance sheet at the end of
      the
      current year. If under either approach, misstatements are deemed material,
      a
      company is required to adjust its financial statements, including correcting
      prior year financial statements, even if such correction was, and continues
      to
      be, immaterial to the prior year financial statements. Correcting prior year
      financial statements for immaterial errors would not require a company to amend
      previously filed reports, and such corrections may be made the next time the
      company files its prior year statements. We do not currently anticipate any
      adjustments resulting from the application of SAB 108.





In
      September 2006,  the FASB issued SFAS No. 157,
      “Fair Value Measurements” (“SFAS No. 157”),
      which defines fair value of certain assets and liabilities, establishes a
      framework for measuring fair value, and expands disclosures about fair value
      measurements.  This statement does not require any new fair value
      measurements, but may change current practice for certain entities.  This
      statement is effective for financial statements issued for fiscal years
      beginning after November 15, 2007, and interim periods within those years.
      We
      are currently assessing the impact of SFAS No. 157
      on
      our consolidated financial statements.


22





**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 FOR THE YEAR ENDED DECEMBER 31, 2005, 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) OUR INABILITY TO RETAIN AXTEL, S.A. DE CV (“AXTEL”), YOZAN INC. (“YOZAN”)
      AND OTHER KEY CUSTOMERS; (VI) POSSIBLE INFRINGEMENT OF THIRD PARTY TECHNOLOGIES
      WHICH MAY RESULT IN LAWSUITS THAT COULD BE COSTLY TO DEFEND AND PROHIBIT US
      FROM
      SELLING OUR PRODUCTS, (VII)** **THE
      POSSIBILITY THAT YOZAN WILL NOT MEET ITS OBLIGATIONS TO PURCHASE ADDITIONAL
      EQUIPMENT IN THE QUANTITIES ANTICIPATED;**  **(VII)
      OUR INABILITY TO USE OR SELL ANY EXCESS INVENTORY WE ACCUMULATE AS A RESULT
      OF
      THE YOZAN CONTRACT AMENDMENTS, AND (IX) DISRUPTIONS TO OUR OPERATIONS IN ISRAEL,
      INCLUDING THE ABSENCE OF EMPLOYEES, DUE TO REQUIRED MILITARY SERVICE, CAUSED
      BY
      POLITICAL AND MILITARY TENSIONS IN THE MIDDLE EAST.**  **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 FOR THE YEAR ENDED DECEMBER 31, 2005 AND THIS QUARTERLY REPORT
      ON
      FORM 10-Q FOR THE QUARTER ENDED OCTOBER 1, 2006.**





**COMPARISON
      OF THE QUARTER ENDED OCTOBER 1, 2006 TO THE QUARTER ENDED OCTOBER 2, 2005**





Revenue





Revenue
      totaled $27.3 million for the quarter ended October 1, 2006 representing an
      11%
      decrease from the $30.5 million reported for the quarter ended October 2, 2005,
      and a 40% decrease from the second quarter of 2006. The year over year decrease
      in revenues was attributable primarily to lower sales of our Proximity and
      AS4000/4020 products, offset in part by increased sales of WiMAX, WipLL and
      AS.NET product lines. Our WiMAX products were only introduced commercially
      in
      the third quarter of 2005. AS.NET was acquired in November 2005. The decline
      compared to the prior quarter in 2006 was attributable mainly to declines in
      Yozan WiMAX sales and lower Proximity deliveries.





Geographically,
      21.3% of our revenue was derived from customers in Asia, 49.8% from customers
      in
      Mexico, Latin America and the Caribbean, and 13.9% from customers in Europe.
      Customers in the United States and Canada, and Africa and the Middle East
      accounted for 9.7% and 5.3% of revenues, respectively.




In
      the
      third quarter of 2006, we had revenue from our customer-Axtel-that comprised
      32%
      of total revenue for the period. In the corresponding period of 2005, Axtel
      revenue was 59% of total revenue. We had no other customers in the third quarter
      of 2005 or 2006 that represented more than 10% of our revenue.




In
      a
      Memorandum of Understanding (MOU) signed on September 8, 2006 with Yozan Inc
      of
      Japan, we agreed that the amount of the original supply contract with Yozan
      would be reduced from $42.9 million to approximately $28 million. The MOU
      requires delivery of 2,000 MicroMAX-SDR base stations and 20,000 subscriber
      terminals, but the final composition of products to be delivered may change
      under the agreement. We have agreed to use reasonable efforts to complete
      deliveries by the end of 2006, but accept that reasonable delays may occur
      in
      the delivery schedule. At the end of the second quarter 2006, we had delivered
      but not recognized revenue on $2.7 million for equipment and services, of which
      $2.2 million has now been accepted by Yozan and recognized as revenues in the
      third quarter. We have also received $2.2 million in payment. The remaining
      $8.5
      million of equipment contracted for is subject to revised payment terms,
      including payment by Yozan 45 days after equipment acceptance. Scheduling of
      future deliveries is still under discussion.




23





On
      October 20, 2006, we also entered into a Service Purchase Contract with Yozan
      pursuant to which we agreed to provide Yozan with additional network
      optimization and other services in exchange for $2.3 million. Services to be
      provided include systems consultancy, project management, RF planning, training,
      site preparation, support services for installation, commissioning and
      maintenance of Yozan’s network, help desk support, repair of equipment,
      in-country repair and equipment support.





See
      also
“Cost of Revenue” below.





In
      the
      third quarter, WiMAX continued to gain market acceptance. During the quarter,
      we
      announced the introduction of new WiMAX products and frequencies. Since the
      beginning of 2006 we have seen growth in the number of our WiMAX customers.
      During the third quarter, more than 60 operators purchased WiMAX equipment
      from
      us and nine operators placed orders in excess of $200,000.





We
      recorded revenue of approximately $6.1 million on sales of WiMAX equipment
      in
      the third quarter 2006, including sales to Deutsche Breitband Dienste GmbH
      (“DBD”) of Germany, which has placed orders for 400 base stations in 2006.
      PuntoNet S.A. of Ecuador signed an agreement for the supply, installation and
      maintenance of more than $1 million of Airspan's pre-WiMAX, WiMAX and AS.TONE
      product lines. The equipment will be used to develop Ecuador's first end-to-end
      network solution combining broadband wireless with soft switch and gateway
      capabilities for providing VoIP solutions. In the quarter, Pipex Wireless,
      a
      joint venture between Pipex Communications plc UK and Intel Corporation, agreed
      to deploy a trial WiMAX network in Milton Keynes, UK. Base station equipment
      and
      subscriber terminals will be provided by Airspan, and Ericsson will build and
      operate the radio network and required roof-top infrastructure. The trial will
      commence in December 2006 and continue for six months, and if successful, will
      be extended to provide wider coverage across Milton Keynes. Last Mile Broadband
      of Ireland, an existing WipLL customer, announced in August that it had placed
      new orders for additional WipLL base station and CPE equipment, and had also
      agreed to purchase 35 AS.MAX base stations and more than 1,000 ProST CPE devices
      to operate in the 3.6-3.8GHz FDD and 5.8GHz frequency bands. Last Mile Broadband
      has indicated that it will use this equipment to launch new higher speed data
      and VoIP services





WipLL
      sales continued to remain strong in the third quarter, particularly in India,
      Russia and Colombia. WipLL revenues were up 25% year over year, but down
      slightly by 3% compared to the prior quarter this year. We believe that the
      yearly growth in WipLL sales will begin to slow down as new frequencies are
      added to our WiMAX products, and those WiMAX products become the first choice
      of
      customers who utilize the covered frequencies. During the third quarter, we
      continued WipLL deliveries under a large expansion order from Tulip India.
      We
      also continued to make significant deliveries to Verytel in Colombia and Stutler
      in the USA. As mentioned earlier, existing customers like Last Mile Broadband
      also continued to buy our WipLL products together with newer WiMAX
      products.




Proximity
      revenues of $8.7 million
      were approximately 32% of the
      total Company’s revenue, mainly comprised of sales to Axtel Mexico. Axtel
      continued to take shipments of Proximity, but at lower volumes than in prior
      quarters. The decline in Proximity revenues is believed to be primarily a
      function of Axtel’s consideration of WiMAX technology for its network, and a
      slowdown in the rate of growth in the network. In the third quarter of 2006,
      Axtel placed new Proximity orders for deliveries which are anticipated to be
      made throughout the fourth quarter of 2006 and first quarter of 2007. It is
      our
      understanding that Axtel’s number of lines in service continues to grow. Axtel
      reported that its lines in service at the end of the third quarter of 2006
      increased to 733,067, compared to 696,968 at the end of the second quarter
      of
      2006 and 567,191 at the end of the same period in 2005. At the end of the third
      quarter of 2006, internet subscribers totaled 61,062, up from 43,065 at the
      end
      of the third quarter of 2005. Most of these lines operate using Proximity
      equipment. Proximity sales are expected to match third-quarter levels in the
      fourth quarter of 2006.





We
      continue to expect that full year revenues will be in the range of $125-$130
      million. Growth beyond this level remains challenging due to the reduction
      in
      size of the Yozan project, and as described below, we will focus for the rest
      of
      the year on aligning our cost structure with the business outlook.




24





Cost
      of
      Revenue





Cost
      of
      revenue decreased 6% to $21.4 million in the quarter ended October 1, 2006
      from
      $21.5 million in the quarter ended October 2, 2005. The gross profit for the
      third quarter of 2006 was $7.3 million (27% of revenue) compared to a gross
      profit of $9.1 million (30% of revenue) for the third quarter of 2005 and as
      compared to a gross profit for the second quarter of 2006 of $8.7 million (19%
      of revenue). During the third quarter of 2006, the Company credited cost of
      sales for $1.3 million from the reduction in the inventory provision related
      to
      the Yozan contract amendment, as further discussed in Item 1A Risk Factors.
      Offsetting that credit were inventory provisions of $1.0 million recorded during
      the third quarter for other identified inventory exposures. The decrease in
      gross profit as a percentage of revenue in the third quarter of 2006 as compared
      to the third quarter of 2005 is primarily
      attributable to increased
      new product introduction costs, including new customer contracting charges,
      freight and warranty charges.




To
        reduce
        cost of revenues in the future periods, we are planning to transfer some
        of our
        manufacturing from the UK to a lower-cost manufacturing region. We expect
        to
        complete this transfer by the end of June 2007. We expect that this transfer
        will not only reduce labor costs associated with manufacturing, but will
        also
        eliminate costs that have resulted from fluctuations in the British pound-U.S.
        dollar exchange rate because the new manufacturing contract will be denominated
        in U.S. dollars. Commencing in the fourth quarter of 2006, we will introduce
        lower-cost versions of WIMAX products that, together with an expected change
        in
        the mix of products sold, should improve our overall gross
        margins.




Research
      and Development Expenses





Research
      and development expenses increased 12% to $6.1 million in the quarter ended
      October 1, 2006 from $5.4 million in the quarter ended October 2, 2005, and
      decreased by 9% from the $6.7 million incurred in the second quarter 2006.
      The
      decrease as compared to the second quarter of 2006 reflects the reductions
      in
      headcount that we achieved through the restructuring we commenced in July.
      The
      year-over-year increase was due primarily to the increased investment in our
      WiMAX development plans and the inclusion in the third quarter 2006 of a full
      quarter of costs associated with Radionet research and development staff, which
      became part of our consolidated operations in November 2005. Through this
      acquisition, we added 11 engineers to our headcount. The development of our
      WiMAX products required a significant increase in our number of employees over
      the last year. By October 1, 2006, 78 of our 116 engineers in the United Kingdom
      and Israel were devoted to WiMAX projects, including some engineers who had
      been
      working previously on Proximity and AS.TONE products. We anticipate that our
      customers will increasingly demand WiMAX products that support both fixed and
      mobile links.  Accordingly, although we have already introduced a suite of
      WiMAX products that
      primarily supports fixed links **,** the
      Company intends to continue to invest in the further development and enhancement
      of WiMAX products, particularly in its HiperMAX family of WiMAX products, which
      will support both fixed and mobile connectivity. Accordingly, our investment
      in
      research and development is expected to be the operating expense least affected
      by the restructuring that commenced in the third quarter of 2006.





Sales
      and
      Marketing Expenses





Sales
      and
      marketing expenses increased 42% to $4.1 million in the quarter ended October
      1,
      2006 from $2.9 million in the quarter ended October 2, 2005. Sales and marketing
      expenses for the third quarter 2006 decreased 19% relative to the $5.0 million
      of sales and marketing expenses incurred in the second quarter of 2006. The
      decrease as compared to the second quarter of 2006 reflects the reductions
      in
      headcount that we achieved through the restructuring we commenced in July.
      The
      increase as compared to the third quarter of 2005 is attributable to an increase
      in headcount, participation in trade shows and additional travel related costs.
      We expect a small decrease in sales and marketing expenses in the fourth quarter
      of 2006 as a result of our restructuring.





Bad
      Debt
      Provision





In
      the
      third quarter 2006, 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 $0.3 million in the corresponding
      quarter of 2005 and $0.7 million in the second quarter of 2006.





General
      and Administrative Expenses




General
      and administrative expenses increased 26% to $4.1 million in the quarter ended
      October 1, 2006 from $3.2 million in the quarter ended October 2, 2005. The
      increase in these expenses was due to an increase in audit, legal and
      professional expenditures, including an increase in costs related to internal
      control improvements, foreign
      exchange losses arising from the revaluation of accounts payable and accounts
      receivable balances, an increase in facility costs through acquisitions in
      Finland and increased office space in Israel and the USA, and an increase in
      travel costs. General and administrative expenses decreased by 6% compared
      to
      the second quarter of 2006, reflecting the reductions in headcount that we
      achieved through the restructuring we commenced in July. We expect a small
      decrease in general and administrative expenses in the fourth quarter of 2006
      as
      a result of our restructuring.




25





Amortization
      of Intangibles





We
      recorded amortization of intangibles expense of $0.3 million in the third
      quarter 2006 compared with amortization of intangibles expense of $0.3 million
      for the third quarter 2005. The amortization expense arises primarily as a
      result of our acquisition of intangible assets in connection with the ArelNet
      and Radionet acquisitions in June and November 2005, respectively. During the
      third 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. We
      acquired all of the outstanding equity of Radionet in November 2005 and
      identified two intangible assets with a total value of $0.4 million. These
      assets will be amortized over their expected lives of up to six
      years.





Restructuring





In
      the
      third quarter of 2005, we recorded no restructuring charges or provisions.
      In
      the third quarter of 2006, we recorded provisions and restructuring charges
      of
      $1.5 million, to reflect the company-wide restructuring program we commenced
      in
      July 2006, the goal of which is to reduce operating expenses. The cost reduction
      will be accomplished primarily as a result of reduction in worldwide headcount,
      As of the end of the third quarter, we had given notice of termination that
      will
      result in reduced headcount by approximately 17% compared to levels at the
      end
      of the second quarter. We expect to complete the restructuring by the end of
      the
      fourth quarter. We estimate that this will result in a restructuring charge
      in
      the fourth quarter of approximately $0.3 million. The restructuring will result
      in a direct cash outlay in the fourth quarter of 2006 and the first quarter
      of
      2007. Once the program is completed, we project we will be able to realize
      annual cost savings of approximately $7-$8 million relative to the cost
      structure that existed at the end of the second quarter 2006. Despite our
      efforts to prepare reliable projections, we recognize that our forecasts may
      prove to be imprecise due to unforeseen events, including unanticipated expenses
      or difficulties associated with reducing our workforce, requiring retained
      staff
      members to assume additional responsibilities and/or reorganizing our operations
      to more cost efficiently produce a given level of product revenue. See also
      “Item 1 - Financial Statements - ACCRUED RESTRUCTURING CHARGES” for additional
      information regarding the restructuring.




Interest
      Expense and Interest and Other Income





At
      October 1, 2006, the outstanding principal and accrued interest payable on
      loans
      made to us by the Finnish Funding Agency for Technology and Innovation, (the
      “Tekes Loans”) was $1.5 million. In the third quarter 2006, we accrued interest
      on the Tekes Loans of $12 thousand. During the third quarter 2006, we also
      borrowed $2.5 million under the SVB Loan and Security Agreement for a period
      of
      20 days. In the quarter, we incurred interest expense on that loan of $13
      thousand. We had interest expense of $32 thousand in the third quarter of
      2005.





Interest
      and other income was $5 thousand for the quarter ended October 1, 2006, down
      from $0.3 million for the quarter ended October 2, 2005. The decrease was
      attributable to the fact that we had no foreign exchange gains in the third
      quarter of 2006 as compared to a foreign exchange gain of $0.3 million recorded
      in the comparable period of 2005, and lower average cash balances through the
      quarter. The foreign exchange gains in 2005 were primarily a result of the
      translation of our British pound sterling cash balances.




Income
      Taxes





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. in exchange for this tax credit. There was no corresponding credit
      in
      the third quarter of 2006 as we are no longer eligible to receive tax credits
      from the U.K. taxing authorities in lieu of our carry-forward of tax losses.
      We
      are subject to US franchise taxes resulting from business activities performed
      within certain states in the United States of America and income taxes in
      certain tax jurisdictions in which we do not have carryforward
      losses.




26





Deemed
      Dividend Upon Issuance of Preferred Stock





In
      the
      third quarter 2006, we recognized a non cash charge of $9.2 million for a deemed
      dividend to preferred stockholders and other related costs associated with
      our
      issuance of Series B preferred stock (the “Private Placement”) in the quarter to
      Oak Investment Partners XI, Limited Partnership (“Oak”) in exchange for $29
      million in cash and Oak’s transfer to us of all 73,000 shares of Series A
      Preferred Stock owned by Oak as of the closing of the transaction. $8.3 million
      of this charge is related to the shares of Series B Preferred Stock issued
      to
      Oak in exchange of its Series A Preferred Stock and $0.9 million of this charge
      is related to the shares of Series B Preferred Stock issued in respect of Oak’s
      cash investment.





$8.3
      million of the charge was calculated by multiplying the closing price of the
      Company’s common stock on the NASDAQ on September 25, 2006, the date of the
      closing of the Private Placement ($2.99), by 2,769,000, the number of additional
      common shares that were issuable upon conversion of the 100,690 shares issued
      to
      Oak in exchange for the 73,000 shares of Series A Preferred Stock.





In
      addition, the issuance of the 100,000 shares of Series B Preferred Stock in
      respect of Oak’s cash investment with a conversion price of $2.90 compared to
      the closing price of $2.99 represents a beneficial conversion and resulted
      in an
      additional deemed dividend of $0.9 million on the 10,000,000 common shares
      that
      are potentially issuable. Total deemed dividend is $9,179.





For
      more
      detailed information regarding the terms of the Private Placement, see “Item 1 -
      Financial Statements - **ISSUANCE
      OF SERIES B PREFERRED STOCK.**





There
      was
      no corresponding charge in 2005.





Net
      Loss
      Attributable to Common Stockholders





For
      the
      reasons described above, we incurred a net loss attributable to common
      stockholders of $18.3 million, or $(0.46) per share, in the quarter ended
      October 1, 2006, compared to a net loss attributable to common stockholders
      of
      $2.1 million, or $(0.05) per share, for the quarter ended October 2, 2005.





Share-Based
      Compensation





On
      January 1, 2006, we adopted SFAS 123(R), “Shared-Based Payment,” which requires
      the measurement and recognition of compensation expense, based on estimated
      fair
      values, for all share-based awards, made to employees and directors, including
      stock options, restricted stock, restricted stock units and participation in
      our
      employee stock purchase plan. Share-based compensation expense recognized in
      our
      consolidated statement of operations for the third quarter of fiscal 2006
      includes compensation expense for share-based awards granted (i) prior to,
      but not yet vested as of December 31, 2005, based on the grant date fair value
      estimated in accordance with the provisions of SFAS 123, and
      (ii) subsequent to December 31, 2005, based on the grant date fair value
      estimated in accordance with the provisions of SFAS 123(R).





We
      estimate the fair value of stock options granted using the Black-Scholes option
      pricing method. This option pricing model requires the input of highly
      subjective assumptions, including the option’s expected life and the price
      volatility of the underlying stock. In our pro forma information required under
      SFAS 123 for the periods prior to fiscal 2006, we accounted for forfeitures
      as
      they occurred. Changes in these inputs and assumptions can materially affect
      the
      measure of estimated fair value of our share-based compensation.





We
      have
      elected to continue to use the straight-line single-option method. Stock-based
      compensation expense was $0.6 million and $0.1 million during the three months
      ended October 1, 2006 and October 2, 2005, respectively. Stock-based
      compensation expense is expected to be approximately $2.4 million for the full
      year 2006. This estimate is affected by assumptions regarding a number of
      complex and subjective variables.





Stock-based
      compensation expense recognized in the results of operations during the third
      quarter of fiscal 2006 was materially the same as the proforma amount determined
      under the fair value-based method and disclosed in accordance with SFAS 123
      for
      the comparable prior year period. There were no modifications to existing awards
      or acceleration of vesting periods during fiscal 2005 or the first three
      quarters of fiscal 2006. There was no significant change in our compensation
      strategy as a result of the implementation of FAS 123(R).




27





Refer
      to
      Note **STOCK
      COMPENSATION** to our
      unaudited consolidated financial statements above for more information on
      stock-based compensation.





**COMPARISON
      OF THE NINE MONTHS ENDED OCTOBER 1, 2006 TO THE NINE MONTHS ENDED OCTOBER 2,
      2005**





Revenue





Revenue
      totaled $96.5 million for the nine months ended October 1, 2006 representing
      a
      32% increase from the $73.1 million reported for the nine months ended October
      2, 2005.




For
        the
        first nine months of 2006, we had revenue from our customers-Axtel (26.7%
        of
        revenue) and Yozan (20.2% of revenue) that represented more than 10% of revenue
        in the period. In the corresponding period of 2005, Axel (56% of revenue)
        was
        the only customer representing more than 10% of our revenue.


The
      increase in revenues was primarily attributable to increases in sales of our
      WiMAX, WipLL and AS.3030 products, and to sales of our AS.NET product line,
      which was acquired in November 2005. Revenue generated from these increased
      sales and product introductions was partially offset by declines in sales of
      our
      Proximity and AS4000/4020 products. Geographically, year over year revenue
      growth in Asia, Europe, the USA and Canada was partially offset by declines
      in
      Middle East and Africa and in Mexico.





Our
      WiMAX
      products were only introduced commercially in the third quarter of 2005. Almost
      all of the year over year growth in WiMAX revenues is therefore derived from
      new
      WiMAX sales in 2006 to new WiMAX customers. Yozan in Japan has been the most
      significant WiMAX customer in this period, accounting for approximately 60%
      of
      WiMAX revenues in the first nine months of 2006.





The
      more
      significant WiMAX transactions and product developments in 2006 are further
      described in the section - **COMPARISON
      OF THE QUARTER ENDED OCTOBER 1, 2006 TO THE QUARTER ENDED OCTOBER 2,
      2005** - above.
      During the first nine months of 2006, we also recorded significant WiMAX
      revenues from DBD in Germany and under our OEM reseller agreements. We also
      received several significant orders from large operators in Latin America,
      North
      America and Asia for the new MicroMAX-SOC product, which is a low-cost,
      high-performance WiMAX base station packaged in the WipLL form factor. In total,
      more than 100 operators had purchased or were using WiMAX products in trials
      by
      the end of the third quarter of 2006, compared to 8 by the end of the
      corresponding quarter of 2005.





WipLL
      sales grew by 35% in the first nine months of 2006 compared to the prior year,
      primarily as a result of strong growth from customers in India, Russia and
      Colombia.





Axtel
      continued to take shipments of Proximity in Mexico, but at lower volumes than
      the first nine months of 2005. Axtel placed new orders for deliveries running
      into the first quarter of 2007, as it reported continued growth in its lines
      in
      service at the end of the third quarter of 2006.





We
      had
      our first full nine months period of AS.NET shipments and we have delivered
      products to more than 47 customers worldwide in 2006. Customers in Europe
      continued to show strong interest for these 802.11 products. I-Tone revenues
      also grew by 14% for the first nine months of 2006 compared to the prior year
      period.





Cost
      of
      Revenue





Cost
      of
      revenue increased 43% to $74.1 million in the nine months ended October 1,
      2006
      from $51.7 million in the nine months ended October 2, 2005. Gross Profits
      for
      the first nine months of 2006 were $22.4 million or 23% of revenues, compared
      to
      $21.4 million or 29% of revenues for the first nine months of 2005. The decrease
      in gross profit as a percentage of revenue for the first nine months of 2006
      as
      compared to the same period in 2005 is primarily attributable to:





·
            the
                charges taken in 2006 to reflect our estimates at the end of the
                third
                quarter of the probable amount of excess inventories and purchase
                commitments (net of amounts that are cancellable), based on the expected
                deliveries to Yozan under the amended supply contract;





·
            a
                change in the mix of products sold;
                and





·
            increased
                new product introduction costs, freight and warranty
                charges.






28




Research
      and Development Expenses





Research
      and development expenses increased 25% to $18.9 million in the nine months
      ended
      October 1, 2006 from $15.1 million in the nine months ended October 2, 2005.
      The
      year-over-year increase was due primarily to the increased investment in our
      WiMAX development plans and the inclusion in the first nine months of 2006
      of
      three full quarters of costs associated Radionet research and development staff,
      which became part of our consolidated operations in November 2005. Through
      our
      Radionet acquisition, we added 11 engineers. The development of our WiMAX
      products required a significant increase in our number of employees over the
      last year. By October 1, 2006, 78 of our 116 engineers in the United Kingdom
      and
      Israel were devoted to WiMAX projects, including some engineers who had been
      working previously on Proximity and AS.TONE products. We expect our customers
      to
      increasingly demand WiMAX products that support both fixed and mobile
      links.  Accordingly, although we have already introduced a suite of WiMAX
      products that ** supports
      fixed link *s* **,** we
      intend to continue to invest in the further development and enhancement of
      WiMAX
      products, in particular products that will support both fixed and mobile
      connectivity. Accordingly, our investment in research and development is
      expected to be the operating expense least affected by the restructuring that
      commenced in the third quarter of 2006.





Sales
      and
      Marketing Expenses





Sales
      and
      marketing expenses increased to $13.6 million for the first nine months of
      2006,
      up from and $8.1 million for the first nine months of 2005. The increases were
      attributable primarily to an increase in headcount, higher agents’ commissions
      on increased sales, additional travel related costs as well as increased
      attendance at trade shows.





Bad
      Debt
      Provision





In
      the
      first nine months of 2006, we recorded bad debt provisions of $1.5 million
      relating to customer accounts for which management has determined that full
      recovery was unlikely. We recorded bad debt provisions of $0.8 million in the
      corresponding period of 2005.





General
      and Administrative Expenses





General
      and administrative expenses increased 34% to $12.2 million in the nine months
      ended October 1, 2006 from $9 million in the nine months ended October 2, 2005.
      The increase is due to an increase in audit, legal and professional
      expenditures, including costs arising from compliance with the Sarbanes Oxley
      Act of 2002, legal and accounting costs incurred in the pursuit of certain
      acquisition opportunities, foreign exchange losses arising form the revaluation
      of accounts payable and accounts receivable balances in the normal course of
      business, and the stock compensation costs accounted for under FAS 123(R) (see
      STOCK COMPENSATION in the notes to the financial statements) .





Amortization
      of Intangibles





We
      recorded amortization of intangibles expense of $0.8 million in the first nine
      months of 2006 compared with amortization of intangibles expense of $0.6 million
      for the first nine months of 2005. The amortization expense arises primarily
      from our acquisition of intangible assets in connection with the ArelNet and
      Radionet acquisitions in June and November 2005, respectively. In June 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. We acquired all of the outstanding
      equity of Radionet in November 2005 and identified two intangible assets with
      a
      total value of $0.4 million. These assets will be amortized over their expected
      lives of up to six years.





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.





In
      the
      third quarter of 2006, we recorded provisions and restructuring charges of
      $1.5
      million, to reflect the company-wide restructuring program we commenced in
      July
      2006, the goal of which is to reduce operating expenses. The cost reduction
      will
      be accomplished primarily as a result of reduction in worldwide headcount,
      As of
      the end of the third quarter, we had given notice of termination that will
      result in reduced headcount of approximately 17% compared to levels at the
      end of the second quarter. We expect to complete the restructuring by the end
      of
      the fourth quarter. We estimate that this will result in a restructuring charge
      in the fourth quarter of approximately $0.3 million. The restructuring will
      result in a direct cash outlay in the fourth quarter of 2006 and the first
      quarter of 2007. Once the program is completed, we project we will be able
      to
      realize annual cost savings of approximately $7-$8 million relative to the
      cost
      structure that existed at the end of the second quarter 2006. Despite our
      efforts to prepare reliable projections, we recognize that our forecasts may
      prove to be imprecise due to unforeseen events, including unanticipated expenses
      or difficulties associated with reducing our workforce, requiring retained
      staff
      members to assume additional responsibilities and/or reorganizing our operations
      to more cost efficiently produce a given level of product revenue. See also
      “Item 1 - Financial Statements - ACCRUED RESTRUCTURING CHARGES” for additional
      information regarding the restructuring.




29





Interest
      Expense and Interest and Other Income





At
      October 1, 2006, the outstanding principal and accrued interest payable on
      loans
      made to us by the Finnish Funding Agency for Technology and Innovation, (the
      “Tekes Loans”) was $1.5 million. In the first nine months of 2006, we accrued
      interest on the Tekes Loans of $0.04 million. During the third quarter 2006,
      we
      also borrowed $2.5 million under the SVB Loan and Security Agreement. In first
      nine months of 2006, we incurred interest expense of $0.2 million, compared
      to
      interest expense of $32 thousand in corresponding period of 2005.





Interest
      and other income was $0.9 million for the first nine months of 2006, down from
      $1.1 million for the nine months ended October 2, 2005. The decrease was
      attributable to lower foreign exchange gains recorded in 2006 as compared to
      a
      foreign exchange gain of $0.3 million recorded in the comparable period of
      2005,
      and lower interest earned because of lower average cash balances during the
      2006
      period. The foreign exchange gains are primarily a result of the translation
      of
      our British pound sterling cash balances.





Income
      Taxes





An
      income
      tax credit of $0.3 million was recorded in the first nine months of 2006,
      related to losses we incurred in 2004. This tax credit was obtained from the
      U.K
      tax authorities in lieu of carrying forward tax losses related to research
      and
      development costs. We are no longer eligible to receive tax credits from the
      U.K. taxing authorities in lieu of our carry-forward of tax losses and therefore
      do not expect any further credits. 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 US franchise taxes resulting from business activities performed
      within certain states in the United States of America and income taxes in
      certain tax jurisdictions in which we do not have carryforward losses.





Deemed
      Dividend Upon Issuance of Preferred Stock





In
      the
      third quarter 2006, we recognized a non cash charge of $9.2 million for a deemed
      dividend to preferred stockholders and other related costs associated with
      our
      issuance of Series B preferred stock (the “Private Placement”) in the quarter to
      Oak Investment Partners XI, Limited Partnership (“Oak”) in exchange for $29
      million in cash and Oak’s transfer to us of all 73,000 shares of Series A
      Preferred Stock owned by Oak as of the closing of the transaction. $8.3 million
      of this charge is related to the shares of Series B Preferred Stock issued
      to
      Oak in exchange of its Series A Preferred Stock and $0.9 million of this charge
      is related to the shares of Series B Preferred Stock issued in respect of Oak’s
      cash investment.





$8.3
      million of the charge was calculated by multiplying the closing price of the
      Company’s common stock on the NASDAQ on September 25, 2006, the date of the
      closing of the Private Placement ($2.99), by 2,769,000, the number of additional
      common shares that were issuable upon conversion of the 100,690 shares issued
      to
      Oak in exchange for the 73,000 shares of Series A Preferred Stock.





In
      addition, the issuance of the 100,000 shares of Series B Preferred Stock in
      respect of Oak’s cash investment with a conversion price of $2.90 compared to
      the closing price of $2.99 represents a beneficial conversion and resulted
      in an
      additional deemed dividend of $0.9 million on the 10,000,000 common shares
      that
      are potentially issuable. Total deemed dividend is $9,179.




30





For
      more
      detailed information regarding the terms of the Private Placement, see “Item 1 -
      Financial Statements - **ISSUANCE
      OF SERIES B PREFERRED STOCK.**





There
      was
      no corresponding charge in 2005.





Net
      Loss





For
      the
      reasons described above, our net loss attributable to common stock holders
      of
      $34.3 million, or $0.86 per share, in the nine months ended October 1, 2006
      compares to a net loss of $11.8 million, or $0.30 per share, for the nine months
      ended October 2, 2005.





Other
      Comprehensive Loss





There
      was
      no other comprehensive loss for the nine months ended October 1, 2006 as our
      currency hedging contracts have not been accounted for as hedges in 2006. Other
      comprehensive income for the nine months ended October 2, 2005 was $0.4 million
      (see OTHER COMPREHENSIVE LOSS above for further discussion).




**Liquidity
      and Capital Resources**





Between
      our inception and our initial public offering, we financed our operations
      primarily through private sales of convertible preferred stock, which totaled
      $146.5 million (net of transaction expenses). In our initial public offering
      of
      common stock, which we completed on October 15, 2000, we issued 6,325,000 shares
      of common stock for approximately $86 million in cash (net of underwriting
      discounts, commissions and other expenses). In our September 2004 private sale
      of convertible preferred stock, we raised $29.2 million through the issuance
      of
      Series A preferred stock to Oak Investment Partners XI, Limited Partnership
      (“Oak”). 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. In our September 2006 private sale of convertible preferred stock, we
      raised an additional $29 million through the issuance of Series B preferred
      stock to Oak. We have used the proceeds of the sales of securities to finance
      acquisitions, for working capital and for other general corporate
      purposes




On
      August
      1, 2006, we entered into a loan and security agreement with Silicon Valley
      Bank
      (“SVB”), with respect to a two-year secured revolving credit line (the “Credit
      Facility”) pursuant to which, subject to certain adjustments, we may borrow up
      to the lesser of (i) $10,000,000 and (ii) 80% of eligible accounts receivable.
      See the Section above entitled “CREDIT FACILITY” for more information regarding
      the loan and security agreement. As of the end of the third quarter 2006, we
      had
      no borrowings under the Credit Facility, and we had issued letters of credit
      totaling $3.0 million.





As
      of
      October 1, 2006, we had cash and cash equivalents of $38.2 million, short term
      investments of $1.0 million, $1.3 million of restricted cash and $1.1 million
      of
      restricted cash included under Other Non Current Assets. Restricted cash is
      held
      as collateral for landlords and customers and contributions from employees
      in
      respect of the Employee Share Purchase Plan. As of the end of the third quarter,
      we did not have any material capital commitments.





In
      addition to seeking to expand our capital resources, we have been analyzing
      how
      to reduce our cash used in operations. See “Restructuring” above.




Until
      we
      are able to generate cash from operations, if ever, we intend to use our
      existing cash resources and funds available under the Credit Facility to
      finance:




·
            our
                plan of  operations, including certain  revenue growth
                opportunities and research and development costs,  and




·
            our
                limited investigation of certain perceived acquisition opportunities.




We
      believe we have sufficient cash resources to finance such activities for at
      least the next twelve months.  With the completion of the sale of Series B
      Preferred Stock, we anticipate that we will have sufficient capital to pursue
      a
      more aggressive operational plan, including a dedication of more capital
      resources to inventory and accounts receivable financing and a faster and more
      ambitious WiMAX equipment development and enhancement plan. We also anticipate
      that the net proceeds from the sale of the Series B Preferred Stock will enable
      us to more actively explore perceived acquisition opportunities that may be
      identified in the future, including more substantial acquisition
      targets.




31





We
      recognize that our projected demand for capital in future periods may change
      quickly due to a variety of factors, estimates and assumptions. If our projected
      demand for capital materially increases and our then current and/or projected
      cash resources have not increased a comparable amount, we may need to modify
      our
      existing business plan. If
      we are ever compelled to adopt measures to conserve cash resources, such
      measures may negatively impact our results of operations and our short term
      and/or long term prospects for growth and profitability.





To
      provide us additional capital for growth and pursue perceived business
      opportunities, we may from time to time seek to take advantage of favorable
      trends in equity markets to raise additional capital.





For
      the
      nine months ended October 1, 2006, we used $37.8 million of cash for operating
      activities, compared with a cash outflow of $10.6 million for the nine months
      ended October 2, 2005. The operating cash outflow for the first nine months
      of
      2006 was primarily a result of:





·
            the
                net loss of $25.1 million;





·
            a
                decrease of $9.4 million in customer advances, reflecting revenues
                recorded to customers - primarily Yozan, Japan - from whom we had
                received
                advances in prior periods





·
            an
                increase in inventories of $6.5 million, reflecting the introduction
                of
                WiMAX into our portfolio, the reduction in project size by Yozan
                and the
                significant increase in order volume, offset in part by reductions
                of our
                Proximity and AS4000/4020 inventories;





·
            an
                increase in other current assets of $4.2 million, reflecting increases
                in
                prepayments of certain expenses;
                and





·
            a
                decrease in cash held as collateral for customers of $1.0
                million.





The
      cash
      outflow was partially offset by:




·  an
      increase in deferred revenue of $1.2 million; and




·  an
      increase in accrued expenses of $1.2 million.





Days
      sales outstanding were at 79 days at the end of the third quarter 2006, up
      from
      50 at the end of the second quarter 2006, and as compared to 62 days at the
      end
      of the third quarter 2005. The change from the second quarter 2006 to the third
      quarter 2006 reflects longer payment terms we have given to some of our
      customers, in particular our WiMAX OEM resellers, and the decreases in customer
      prepayments reflecting additional deliveries made against customer deposits
      received in prior periods. Inventory turns were 3.4 at the end of the third
      quarter of 2006, compared with 6.7 for the second quarter 2006 and as compared
      to 5.7 turns for the third quarter of 2005. The decline in inventory turns
      is
      primarily attributable to lower revenues and related lower cost of sales,
      together with the increase in inventories caused primarily by our purchases
      of
      Yozan inventories in the third quarter.





The
      net
      cash provided by investing activities for the nine months ended October 1,
      2006
      was $2.3 million. The investing cash inflow for the first nine months of 2006
      resulted from our receipt of $5.0 million, net of sales of investment
      securities, partially offset by our use of $2.7 million for capital equipment
      purchases.





Our
      net
      cash inflow from financing activities for the nine months ended October 1,
      2006
      was $29.6 million, of which $28.7 million was generated by issuance of the
      Series B Preferred Stock and the balance of which was generated upon the
      exercise of stock options and sales of common stock under the Employee Share
      Purchase Plan.





As
      of
      October 1, 2006, our material commitments consisted of obligations on operating
      leases, repayment of principal and interest owed on the Tekes loans and purchase
      commitments to our manufacturing subcontractors. These purchase commitments
      totaled $29.4 million at October 1, 2006 and $48.6 million at October 2, 2005.




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 for the fiscal year ended December 31, 2005 and this Form 10-Q for the
      quarter ended October 1, 2006. There can be no assurances that our efforts
      to
      acquire other businesses will be successful.




32





We
      have
      raised equity 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. 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.


33





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





Interest
      Rate Risk





Our
      earnings are affected by changes in interest rates. As of October 1, 2006 and
      December 31, 2005, we had cash, cash equivalents, short term investments and
      restricted cash of $40.4 million and $52.5 million, respectively. These amounts
      on October 1, 2006 consisted of $38.2 million of highly liquid investments,
      with
      purchase to maturity terms of less than 90 days, and $1.0 million with
      maturities extending to 165 days. The balance is held in restricted cash. These
      investments are exposed to interest rate risk, but a hypothetical increase
      or
      decrease in market interest rates by two percentage points from October 1,
      2006
      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 1, 2006, 85% of our sales were denominated in U.S.
      dollars, 12% were denominated in euro and 2% were denominated in Australian
      dollars. Comparatively, 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. Our total euro denominated sales for the
      nine
      months ended October 1, 2006 were $12.0 million, which were recorded at an
      average exchange rate of $1US = €0.792. Our total Australian dollar denominated
      sales for the nine months ended October 1, 2006 were $2.0 million, which were
      recorded at an average exchange rate of $1US = AUS$1.3321. If the average
      exchange rates used had been higher or lower during the three month period
      ended
      October 1, 2006 by 10%, they would have decreased or increased the total
      Australian dollar and euro-denominated sales value by a total of $1.3 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.





For
      the
      nine months ended October 1, 2006, we incurred the majority of our cost of
      revenue in US dollars.





The
      Company’s operating results are affected by movements in foreign currency
      exchange rates against the US dollar, particularly the UK pound sterling and
      New
      Israeli Shekel. This is because most of our operating expenses, which may
      fluctuate over time, are incurred in pounds sterling and New Israeli Shekels.





During
      the nine months ended October 1, 2006, we paid expenses in local currency of
      approximately 12.3 million pounds sterling, at an average rate of $1US = 0.5536
      pounds sterling. During the nine months ended October 1, 2006, we paid expenses
      in local currency of approximately 58.3 million Israeli Shekels, at an average
      rate of $1US = 4.5400 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 1, 2006 by
      10%,
      the total pounds sterling and Israeli Shekel denominated operating expenses
      would have decreased or increased by $2.5 million and $1.4 million
      respectively.





To
      manage
      our pound foreign currency risk we have, at various times from 2003 through
      to
      the end of the third quarter 2006, forecast our likely net spending in non
      US
      dollars and, based on these forecasts, we have entered into forward exchange
      contracts to cover a percentage of the projected exposure. 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 may
      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 forward exchange contracts hedged
      a percentage of our UK pound sterling expenditure until June 2006. At October
      1,
      2006 we had no outstanding forward exchange contracts.




There
      were no forward contracts of pounds sterling that matured during the quarter
      ended October 1, 2006.




34





In
      all
      periods up to and including December 31, 2005, the effectiveness of the
      contracts as hedges was approximately 100%. Accordingly, in those periods,
      the
      unrealized gains and losses on the contracts were recorded to Other
      Comprehensive Income in our financial statements. We were unable to provide
      contemporaneous documentation of the effectiveness of hedges entered into during
      the first quarter of 2006 in accordance with the requirements of Statement
      of
      Financial Accounting Standards No. 133 - Accounting for Derivative Instruments
      and Hedging Activities. Under this Statement, an entity that elects to apply
      hedge accounting is required to establish at the inception of each hedge the
      method it will use for assessing the effectiveness of the hedging derivative
      and
      the measurement approach for determining the ineffective aspect of the hedge.
      Those methods must be consistent with the entity’s approach to managing risk. We
      may return to hedge accounting as we enter into new contracts.





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. There were no fair value currency hedge contracts outstanding at
      October 1, 2006 or during the third quarter 2006. We will continue to monitor
      our foreign currency exposures and may modify hedging strategies, as we deem
      prudent.





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




We
      do not
      enter into any currency hedging activities for speculative
      purposes.




Equity
      Price Risk





We
      do not
      own any equity investments, other than the shares of our subsidiaries. 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.





**Item
      4. CONTROLS AND PROCEDURES**





As
      of the
      end of the period covered by this quarterly report, an evaluation was performed
      under the supervision and with the participation of our management, including
      our Chief Executive Officer and Chief Financial Officer, of the effectiveness
      of
      the design and operation of our disclosure controls and procedures (as defined
      in Section 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934,
      as
      amended). Based on that evaluation, and the similar evaluation undertaken at
      the
      end of 2005, the Chief Executive Officer and Chief Financial Officer concluded
      that as of October 1, 2006, our disclosure controls and procedures were (1)
      not
      sufficiently designed to ensure that material information relating to Airspan,
      including our consolidated subsidiaries, was made known to them by others within
      those entities, particularly in the period in which this report was being
      prepared and (2) not effective, in that they did not provide reasonable
      assurance that information required to be disclosed by us in the reports that
      we
      file or submit under the Exchange Act is recorded, processed, summarized and
      reported within the time periods specified in the SEC’s rules and forms. More
      specifically, the Chief Executive Officer and Chief Financial Officer concluded
      that our disclosure controls and procedures were not effective due to the
      material weakness in the Company’s internal control over financial reporting
      described in this section below.





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 accounting
      principles generally accepted in the United States of America.





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.




35





Following
      the performance of a physical inventory count at our Israeli subsidiary in
      January 2006, significant differences were identified between the count and
      the
      inventory subledger. The differences were for the most part due to inventory
      movements that had not been recorded or were recorded incorrectly. We also
      identified at our Israeli subsidiary insufficient segregation of duties in
      the
      Logistics department, inadequate security access controls and failure to perform
      effective and timely reviews of reconciliations by individuals with appropriate
      levels of experience, which contributed to the delay in the differences being
      detected.





As
      a
      result, management had concluded that, as of December 31, 2005, the Company
      did
      not maintain effective internal controls over financial reporting as of such
      date. This conclusion was based upon management’s determination that the
      Company’s internal control pertaining to the recording of inventory transactions
      at its Israeli subsidiary was not effective.





In
      making
      this assessment, management used the criteria set forth by the Committee of
      Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal
      Control-Integrated Framework. A material weakness in internal control over
      financial reporting is a control deficiency (within the meaning of the Public
      Company Accounting Oversight Board ("PCAOB") Auditing Standard No. 2), or
      combination of control deficiencies, that results in there being more than
      a
      remote likelihood that a material misstatement of the annual or interim
      financial statements will not be prevented or detected.





Our
      independent registered public accounting firm, Grant Thornton LLP, audited
      the
      consolidated financial statements included in our Annual Report on Form 10-K
      and
      issued an attestation report on management’s assessment of our internal control
      over financial reporting, agreeing with management’s assessment that we did not
      maintain effective internal control over financial reporting as of December
      31,
      2005, is based on the COSO criteria.




To
      address the Company’s material weakness relating to the recording of inventory
      at the Israeli subsidiary, in 2006 we have implemented a number of remediation
      measures:




·
            regular
                quarterly inventory counts in Israel, to be held until we and our
                auditors
                are satisfied with the integrity of the inventory management and
                the count
                processes;




·
            increased
                oversight by our Finance personnel and senior management in Israel
                and the
                United States;




·
            improved
                controls over access to inventory and access to our accounting
                systems;




·
            recruitment
                in Israel of a new Vice President Operations, Logistics Manager and
                additional Logistics staff; which has enabled us to upgrade the skills
                of
                the employees involved in management of inventories, reorganize
                responsibilities and improve the level of segregation of
                duties;




·
            moving
                inventory management to a managed warehouse. Components are now delivered
                to and shipments are now made from the managed
                warehouse




·
            a
                change of freight forwarders.




·
            receiving
                and shipping documents now being issued by managed warehouse and
                entered
                to subledger online in real time




·
            renegotiated
                with subcontractors so that we will buy only finished products and
                not
                products that are work in process.




·
            implemented
                a Material Requirements Planning (MRP) module on our accounting system
                to
                improve internal control and improve ability to manage forecasts.




We
      believe that these steps will be sufficient to remediate the material weaknesses
      relating to our recording of inventory transactions at the Israeli subsidiary.
      The inventory count in the third quarter was completed in less time than the
      previous quarter’s count required and, in management’s opinion, with better
      controls. The number of line items with differences between the subledger and
      the count and the net difference was lower in the third quarter count than
      in
      the previous quarters although, in management’s opinion, still not low enough to
      enable us to find that the material weakness had been remediated. By
      implementing certain additional processes and controls in October 2006, we
      have
      now implemented substantially all of the remediation measures we anticipate
      will
      be required. We will verify the effectiveness of those new controls through
      cycle counts during the fourth quarter and the year-end inventory
      count.




36





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 of 2006 that have materially affected or are reasonably likely to
      materially affect, Airspan’s internal control over financial
      reporting.


37





**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. The Underwriter Defendants
      sought to appeal the class certification decision and the Second Circuit has
      accepted the appeal. 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. On April 20, 2006, JPMorgan Chase and the plaintiffs reached a
      preliminary agreement for a settlement for $425 million. The JPMorgan Chase
      settlement has not yet been approved by the Court. However, if it is finally
      approved, then the maximum amount that the issuers’ insurers will be potentially
      liable for is $575 million. 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. However,
      if the JPMorgan Chase settlement is finally approved, Airspan’s maximum
      financial obligation to the plaintiffs pursuant to the settlement agreement
      would be less than $2 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.
      On March 20, 2006, the Underwriter Defendants submitted objections to the
      settlement to the Court. The Court held a hearing regarding those and other
      objections to the settlement at a fairness hearing on March 24, 2006, but has
      not yet issued a ruling. 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.




38




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
      1A. Risk Factors**




The
      Risk
      Factors included in our Annual Report on Form 10-K for the fiscal year ended
      December 31, 2005 have not materially changed other than as set forth below.





**Our
      use of the Credit Facility from SVB presents certain
      risks.**





Although
      we believe the credit facility will increase our financial resources and
      financial flexibility, our use of the credit facility does present certain
      risks. Our ability to borrow under the credit facility is a function of, among
      other things, our base of eligible accounts receivable and the Advance Rate.
      If
      the amount or quality of our accounts receivable deteriorates or the Advance
      Rate is adjusted downward, our ability to borrow under the credit facility
      will
      be directly, negatively affected. If there is a downward adjustment in the
      borrowing base at a time when we are unable to, within three business days,
      repay SVB the amount by which the borrowing base has been decreased, we will
      likely be in default under the Loan Agreement. In addition, as discussed above,
      the credit facility requires the Company to satisfy certain financial covenants.
      As a result, we cannot provide any assurances that it will be able to borrow
      under the Loan and Security Agreement at a time when we most need money to
      fund
      working capital or other needs. The credit facility also contains various
      provisions that restrict our use of cash and operating flexibility. These
      provisions could have important consequences for us, including (i) causing
      us to
      use a portion of our cash flow from operations for debt repayment and/or service
      rather than other perceived needs, (ii) precluding us from incurring additional
      debt financing for future working capital or capital expenditures and (iii)
      impacting our ability to take advantage of significant, perceived business
      opportunities, such as acquisition opportunities or to react to market
      conditions. Our failure to meet financial and other covenants could give rise
      to
      a default under the Loan and Security Agreement. In the event of an uncured
      default, the Loan Agreement provides that all amounts owed to SVB are
      immediately due and payable and that SVB has the right to enforce its security
      interest in our assets.





**We
      face certain risks related to the Yozan contract amendment**





We
      face
      the risk that Yozan will materially delay or seek to cancel equipment orders.
      In
      a Memorandum of Understanding (MOU) signed on September 8, 2006, we agreed
      with
      Yozan that the amount of the original supply agreement will be reduced from
      $42.9 million to approximately $28 million. As of the end of the third quarter
      of 2006, approximately $19.5 million of equipment had been delivered to Yozan,
      most of which had been accepted by Yozan. Yozan has made payments totaling
      $19.0
      million for this equipment. The MOU requires delivery of 2,000 MicroMAX-SDR
      Base
      Stations and 20,000 subscriber terminals, but the final composition of products
      to be delivered may change under the agreement. The parties have agreed to
      use
      reasonable efforts to complete deliveries by the end of 2006, but accept that
      reasonable delays may occur in the delivery schedule. The remaining $8.5 million
      of equipment contracted for is subject to revised payment terms, including
      payment by Yozan 45 days after equipment acceptance. Scheduling of future
      deliveries is still under discussion.





In
      the
      second quarter of 2006, we took a $4.4 million inventory expense provision
      reflecting our estimate of the most probable amount of excess inventories and
      purchase commitments (net of amounts that are cancelable), based on the amount
      we expected to deliver to Yozan under the amended supply contract. Since then,
      as a result of our ability to cancel or reduce some inventory purchase
      commitments with our contract manufacturers, and to obtain some more favorable
      payment and delivery terms for some of the inventories that are still to be
      delivered under orders we placed originally to fulfill the Yozan supply
      agreements, we revised our estimates of the most probable amount of excess
      inventories and purchase commitments. Accordingly, we reduced the amount of
      the
      inventory expense provision by approximately $1.3 million in the third quarter
      of 2006. The charge may increase, however, if Yozan does not fully honor its
      amended purchase commitments in the agreed timeframe.




39





**Our
      projected demand for capital in future periods may change quickly and may
      adversely affect Our results of operations and/or prospects**





We
      recognize that our projected demand for capital in future periods may change
      quickly due to a variety of factors, estimates and assumptions. If our projected
      demand for capital materially increases and our then current and/or projected
      cash resources have not increased a comparable amount, we may need to modify
      its
      existing business plan. If we are ever compelled to adopt measures to conserve
      cash resources, such measures may adversely affect our results of operations
      and
      our short term and/or long term prospects for growth and profitability.





**We
      have a significant shareholder whose interests may conflict with other
      shareholders of the Company.**





As
      of the
      date of this report, it is our understanding that Oak Investment Partners XI,
      Limited Partnership (“Oak”) owns all of the outstanding shares of the Company’s
      Series B Preferred Stock (the “Series B Shares”). Based upon our capitalization
      as of November 9, 2006, the Series B Shares are initially convertible into
      a
      total of approximately 33% of the our Common Stock (assuming conversion of
      the
      Series B Shares, but without giving effect to the exercise or conversion of
      any
      other outstanding options, warrants or convertible securities) and, upon such
      conversion, would represent approximately 29% of the voting power
      outstanding.




Because
      Oak will own a significant percentage of our voting power, it may have
      considerable influence in determining the outcome of any corporate transaction
      or other matter submitted to our shareholders for approval, including the
      election of directors and approval of mergers, consolidations and the sale
      of
      all or substantially all of our assets. In addition, for as long as Oak is
      the
      holder of at least a majority of the issued and outstanding shares of Series
      B
      Preferred Stock and the number of shares of Common Stock into which the then
      outstanding shares of Series B Preferred Stock are convertible represents at
      least fifteen percent of the total issued and outstanding shares of our Common
      Stock, Oak will be entitled to elect one member of our Board of Directors.
On
      September 22, 2006, the Board of Directors of the Company appointed a new
      member, Mr. Bandel I. Carano, to the Company's Board of Directors. Mr. Carano
      has been designated by Oak as Oak's appointee to the Board.




So
      long
      as the Series B Preferred Stock is outstanding, we have agreed to refrain from
      taking certain actions without the approval of our holders of a majority of
      the
      then outstanding Series B Preferred Stock voting separately as a
      class.




The
      rights and privileges of the Series B Preferred Stock may have an effect on
      our
      conduct of operations, financing or investing.  In
      addition, upon any liquidation of the Company, certain mergers, reorganizations
      and/or consolidations of the Company into or with another corporation, the
      sale
      by us of all or substantially all of our assets or any transaction or series
      of
      related transactions in which a person, entity or group acquires 50% or more
      of
      the combined voting power of our then outstanding securities (a
“Liquidation”) **,** the
      holders of the Series B Preferred Stock will have a claim against our assets
      senior to the claim of the holders of Common Stock in an amount equal to $290.00
      per share of Series B Stock (as appropriately adjusted for any combinations,
      divisions, or similar recapitalizations affecting the Series B Preferred Stock
      after issuance).




**Item
      3. DEFAULTS UPON SENIOR SECURITIES**





None





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





A
      Special
      Meeting of Shareholders (the “Special Meeting”) was held at Airspan’s offices in
      Boca Raton, Florida, on September 25, 2006 consider and vote upon a proposal
      to
      approve:





·  the
      issuance and sale by the Company of up to 200,690 shares of Series B Preferred
      Stock pursuant to the Preferred Stock Purchase Agreement (the “Purchase
      Agreement”), dated as of July 28, 2006, by and between the Company and Oak
      Investment Partners XI, Limited Partnership (“Oak”) in exchange
      for:




· $29
        million of cash; and
  40




· Oak’s
      transfer to the Company of all shares of the Company’s Series A
      Preferred Stock owned by Oak on the closing date of the Purchase Agreement;
      and





·  the
      issuance of the Company’s Common Stock and potentially certain other securities
      upon conversion of and/or with respect to the Series B Preferred Stock, which
      Common Stock and other securities, when issued, could result in Oak acquiring
      20% or more of the Common Stock outstanding as of the date hereof (collectively,
      the “Private Placement”).





Pursuant
      to the Company’s Articles of Incorporation as in effect prior to the closing of
      the Private Placement, shareholders were entitled to one vote for each share
      of
      Common Stock and 86 votes for each share of Series A Preferred Stock. As of
      the
      record date for the Special Meeting, Oak was the sole registered holder of
      all
      of the outstanding shares of the Series A Preferred Stock





The
      number of outstanding shares of the Company’s Common Stock and Series A
      Preferred Stock as of August 8, 2006, the record date for the Special Meeting,
      was 40,281,263 and 73,000, respectively. 18,808,344 shares of Common Stock
      and
      73,000 shares of Series A Preferred Stock were represented in person or by
      proxy
      at the Annual Meeting. Pursuant to the Company’s Bylaws, at least a majority of
      the outstanding shares of capital stock eligible to vote (with each share of
      Series A Preferred Stock counting as 86 shares for purposes of the quorum)
      was
      required to be represented at the meeting, either in person or by proxy, in
      order to transact business at the Special Meeting.





Pursuant
      to the Purchase Agreement, the Company and Oak agreed that, as a condition
      precedent to the consummation of the Private Placement, the Private Placement
      had to be approved by (the “Required Vote”):




(i)
            the
                affirmative vote of the holders of a majority of the outstanding
                shares of
                Series A Preferred Stock, represented in person or by proxy at the
                Special
                Meeting, voting separately as a class (the “Series A Class
                Vote”);


(ii)
            the
                affirmative vote of the holders of a majority of the outstanding
                shares of
                Common Stock and Series A Preferred Stock, represented in person
                or by
                proxy at the Special Meeting, taken together (the “Aggregate Shareholder
                Vote”); and


(iii)
            the
                affirmative vote of the holders of a majority of the outstanding
                shares of
                Common Stock and Series A Preferred Stock represented in person or
                by
                proxy at the Special Meeting, excluding votes cast by Oak and its
                affiliates (the “Disinterested Shareholder
                Vote”).





Each
      of
      the Series A Class Vote, the Aggregate Shareholder Vote and the Disinterested
      Shareholder Vote was obtained at the Special Meeting.





With
      respect to the Series A Vote, all 73,000 shares of Series A Preferred Stock
      outstanding as of the record date voted in favor of the Private Placement.





With
      respect to the Aggregate Shareholder Vote, (i) 23,469,870 votes were cast for
      the Private Placement, (ii) 1,547,892 votes were cast against the Private
      Placement and (iii) 68,582 shares abstained from voting with respect to the
      Private Placement. No votes were withheld nor were there any broker non-votes
      with respect to such proposal.





With
      respect to the Disinterested Shareholder Vote, (i) 17,191,870 votes were cast
      by
      disinterested shareholders in favor of the Private Placement, (ii) 1,547,892
      votes were cast by disinterested shareholders against the Private Placement
      and
      (iii) 68,582 shares held by disinterested shareholders abstained from voting
      with respect to the Private Placement.





Following
      the Company’s receipt of the Series
      A
      Class Vote, the Aggregate Shareholder Vote and the Disinterested Shareholder
      Vote at
      the
      Special Meeting, the Company closed the Private Placement on September 25,
      2006
      pursuant to the terms of the Purchase Agreement.


41


**Item
      5. OTHER INFORMATION**





None





**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
            Articles
                of Amendment to the Articles of Incorporation (3)3.4
            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 (1)10.3
            Airspan
                Omnibus Equity Compensation Plan (1)10.4
            2001
                Supplemental Stock Option Plan (5)10.5
            2003
                Supplemental Stock Option Plan (6)10.6
            Employment
                Agreement with Eric Stonestrom (4), (7)10.7
            Employment
                Agreement with Peter Aronstam, as amended (7), (8)10.8
            Employment
                Agreement with Henrik Smith-Petersen (7), (8)10.9
            Employment
                Agreement with Arthur Levine (7), (9)10.10
            Employment
                Agreement with Alastair Westgarth (7), (10)10.11
            Compromise
                Agreement, dated as of June 8, 2006, by and between Airspan Communications
                Ltd. and Jonathan Paget (7), (11)10.12
            Purchase
                and License Agreement, dated as of December 28, 2004, by and between
                Airspan Communications Limited and Axtel S.A. de C.V. ** (12)10.13
            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. (13)**10.14
            Amendment
                Agreement No. 3 to FWA TASS, dated as of December 28, 2004, between
                Airspan Communications Limited and Axtel S.A. de C.V. (14) **10.15
            Purchase
                Contract, dated April 14, 2005, by and between Yozan Incorporated
                and
                Airspan Communications Limited (9)(15)10.16
            Supplement
                to Purchase Contract, dated August 15, 2005, by and between Yozan
                Incorporated and Airspan Communications Limited (9)(15)10.17
            2ndPurchase Contract, dated September 13, 2005, by and between Yozan
                Incorporated and Airspan Communications Limited (9)(16)10.18
            Amendment
                of 1stand
                2ndPurchase Contracts, dated October 6, 2005, by and between Yozan
                Incorporated and Airspan Communications Limited (9)(15)10.19
            Amendment
                of 2ndPurchase Contracts, dated February 25, 2006, by and between Yozan
                Incorporated and Airspan Communications Limited (9)(15)10.20
            Memorandum
                of Understandings, dated February 25, 2006, by and between Yozan
                Incorporated and Airspan Communications Limited (9)(15)10.21
            Airspan
                Code of Business Conduct (9)10.22
            Memorandum
                of Understandings, dated June 23, 2006, by and between Yozan Incorporated
                and Airspan Communications Limited (16)10.23
            Preferred
                Stock Purchase Agreement, dated July 28, 2006 among Airspan Networks,
                Inc.
                and Oak Investment Partners XI, Limited Partnership (17)10.24
            Loan
                and Security Agreement dated August 1, 2006 among Silicon Valley
                Bank,
                Airspan Networks Inc and Airspan Communications Ltd
                (18)10.25
            Written
                Summary of the Company’s Non-Employee Director Compensation Plan
                (19)10.26
            Memorandum
                of Understanding, dated September 8, 2006, by and between Yozan
                Incorporated and Airspan Communications Limited (20)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






42




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 the Company’s report on Form 8-K filed on September 26,
                2006.4
            Incorporated
                by Reference to Airspan’s Registration Statement on Form S-1 (333-34514)
                filed July 18, 20005
            Incorporated
                by Reference to the Company’s Form 10-K for the year ended December 31,
                2000.6
            Incorporated
                by reference to the Company’s Form 10-K for the year ended December 31,
                2003.7
            Management
                Agreement or Compensatory Plan or Arrangement8
            Incorporated
                by reference to the Company’s Form 10-K for the year ended December 31,
                20029
            Incorporated
                by reference to the Company’s Form 10-K for the year ended December 31,
                2005.10
            Incorporated
                by reference to the Company’s Form 10-Q for the quarter ended July 2,
                2006.11
            Incorporated
                by reference to the Company’s report on Form 8-K filed on July 25,
                2006.12
            Incorporated
                by reference to the Company’s report on Form 8-K filed on June 9,
                2005.13.
            Incorporated
                by reference by the Company’s report on Form 8-K/A filed on July 6, 2004.14
            Incorporated
                by reference to the Company’s Form 10-K for the year ended December 31,
                2004.15
            Portions
                of this document have been omitted and were filed separately with
                the SEC
                on March 30, 2006 pursuant to a request for confidential
                treatment.16
            Incorporated
                by reference to the Company’s report on filed on June 29, 2006. Portions
                of this document have been omitted and were filed separately with
                the SEC
                on June 29, 2006.17
            Incorporated
                by reference to the Company’s report on Form 8-K filed on August 1, 2006.18
            Incorporated
                by reference to the Company’s report on Form 8-K filed on August 7,
                2006.19
            Incorporated
                by reference to the Company’s report on Form 8-K filed on July 31, 200620
            Incorporated
                by reference to the Company’s report on Form 8-K filed on September 21,
                2006. Portions of this document have been omitted and were filed
                separately with the SEC on September 21, 2006 pursuant to a request
                for
                confidential treatment.




**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.


**AIRSPAN
                NETWORKS, INC.**Date: November
                13, 2006
            By:
            /s/ PETER
                ARONSTAMName: 
Peter
              AronstamTitle: 
                Chief Financial Officer






43