**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**WASHINGTON,
      D.C. 20549**




**FORM
      10-Q**




x
            
            QUARTERLY
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES
                EXCHANGE ACT OF 1934**For
                the quarterly period ended July 2, 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)





**777
      Yamato Road, Suite 105**


**Boca
      Raton, FL 33431**


(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
                  filer x
              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
 ̈
            Nox





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 August 9, 2006Common
                Stock, $.0003 par value per share
            
            40,281,263
                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)**
              
              
              **July
                  2,**
                **2006****(unaudited)****ASSETS****Current
                  Assets**Cash
                  and cash equivalents
              
              $
              44,140
              
              $
              17,341Restricted
                  cash
              
              
              2,290
              
              
              4,724Short
                  term investments
              
              
              6,020
              
              
              998Accounts
                  receivable, less allowance for doubtful accounts of $3,519 at December
                  31,
                  2005 and $4,596 at July 2, 2006
              
              
              24,348
              
              
              30,263Unbilled
                  accounts receivable
              
              
              273
              
              
              96Inventory
              
              
              16,850
              
              
              21,918Prepaid
                  expenses and other current assets
              
              
              3,722
              
              
              6,949Total Current Assets
              
              
              97,643
              
              
              82,289Property,
                  plant and equipment, net
              
              
              5,268
              
              
              6,223Goodwill
              
              
              10,231
              
              
              10,231Intangible
                  assets, net
              
              
              3,865
              
              
              3,315Other
                  non-current assets
              
              
              3,445
              
              
              3,497Total Assets
              
              $
              120,452
              
              $
              105,555**LIABILITIES
                  AND STOCKHOLDERS’ EQUITY****Current
                  Liabilities**Accounts
                  payable
              
              $
              24,678
              
              $
              25,045Accrued
                  taxes
              
              
              1,156
              
              
              798Deferred
                  revenue
              
              
              1,514
              
              
              5,197Customer
                  advances
              
              
              13,935
              
              
              4,650Other
                  accrued expenses
              
              
              13,113
              
              
              17,654Current
                  portion long term debt
              
              
              96
              
              
              -Total Current Liabilities
              
              
              54,492
              
              
              53,344**Non
                  Current Liabilities**Long
                  term debt
              
              
              1,296
              
              
              1,507Accrued
                  interest on long term debt
              
              
              53
              
              
              118Total
                  Current Liabilities
              
              
              1,349
              
              
              1,625**Stockholders’
                  Equity**Preferred
                  stock, $0.0001 par value; 74,200 shares authorized at December
                  31, 2005
                  and July 2, 2006: 73,000 issued at December 31, 2005 and July 2,
                  2006
              
              
              -
              
              
              -Common
                  stock, $0.0003 par value; 100,000,000 shares authorized at December
                  31,
                  2005 and July 2, 2006: 39,768,271 issued at December 31, 2005 and
39,914,070
                  issued at July 2, 2006
              
              
              12
              
              
              12Note
                  receivable - stockholder
              
              
              (87
              )
              
              (87
              )Additional
                  paid in capital
              
              
              267,426
              
              
              269,232Accumulated
                  other comprehensive income
              
              
              (130
              )
              
              -Accumulated
                  deficit
              
              
              (202,610
              )
              
              (218,571
              )Total Stockholders’ Equity
              
              
              64,611
              
              
              50,586Total Liabilities and Stockholders’ Equity
              
              $
              120,452
              
              $
              105,555




(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****July
                3, 2005**
            
            **July
                2, 2006**
            
            **July
                3, 2005**
            
            **July
                2,**
              **2006****(unaudited)**
            
            **(unaudited)**Revenue
            
            $
            20,309
            
            $
            45,435
            
            $
            42,527
            
            $
            69,235Cost
                of revenue
            
            
            (14,887
            )
            
            (36,710
            )
            
            (30,249
            )
            
            (54,072
            )Gross
                profit
            
            
            5,422
            
            
            8,725
            
            
            12,278
            
            
            15,163Operating
                expenses:Research
                and development
            
            
            5,062
            
            
            6,675
            
            
            9,660
            
            
            12,785Sales
                and marketing
            
            
            2,675
            
            
            5,026
            
            
            5,247
            
            
            9,531Bad
                debt provision
            
            
            179
            
            
            715
            
            
            495
            
            
            1,251General
                and administrative
            
            
            2,996
            
            
            4,320
            
            
            5,823
            
            
            8,082Amortization
                of intangibles
            
            
            128
            
            
            275
            
            
            256
            
            
            550Restructuring
                provision
            
            
            1,150
            
            
            -
            
            
            1,150
            
            
            -Total
                operating expenses
            
            
            12,190
            
            
            17,011
            
            
            22,631
            
            
            32,199Loss
                from operations
            
            
            (6,768
            )
            
            (8,286
            )
            
            (10,353
            )
            
            (17,036
            )Interest
                expense
            
            
            -
            
            
            (72
            )
            
            -
            
            
            (84
            )Interest
                and other income
            
            
            47
            
            
            689
            
            
            723
            
            
            880Loss
                before income taxes
            
            
            (6,721
            )
            
            (7,669
            )
            
            (9,630
            )
            
            (16,240
            )Income
                tax credit/(charge)
            
            
            (5
            )
            
            (5
            )
            
            (5
            )
            
            279Net
                loss
            
            $
            (6,726
            )
            
            (7,674
            )
            $
            (9,635
            )
            
            (15,961
            )Net
                loss per share - basic and diluted
            
            $
            (0.17
            )
            $
            (0.19
            )
            $
            (0.25
            )
            $
            (0.40
            )Weighted
                average shares outstanding- basic and diluted
            
            
            38,554,988
            
            
            39,902,699
            
            
            38,217,874
            
            
            39,817,995





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****July
                  3,**
                **2005**
              
              **July
                  2,**
                **2006****(unaudited)****CASH
                  FLOWS FROM OPERATING ACTIVITIES**Net
                  loss
              
              $
              (9,635
              )
              $
              (15,961
              )Adjustments
                  to reconcile net loss to net cash used in operating activities:Depreciation
                  and amortization
              
              
              1,077
              
              
              1,798Loss
                  on sale of fixed assets
              
              
              3
              
              
              -Accrued
                  interest on long term debt
              
              
              -
              
              
              17Stock
                  compensation
              
              
              149
              
              
              1,258Revaluation
                  of long term debt
              
              
              -
              
              
              81Change
                  in operating assets and liabilities:Decrease/(increase)
                  in receivables
              
              
              5,673
              
              
              (5,915
              )Increase
                  in inventories
              
              
              (1,088
              )
              
              (5,068
              )Decrease/(increase)
                  in other current assets
              
              
              305
              
              
              (2,920
              )(Decrease)/increase
                  in accounts payable
              
              
              (10,097
              )
              
              367Increase
                  in deferred revenue
              
              
              711
              
              
              3,683Decrease
                  in customer advances
              
              
              (1,253
              )
              
              (9,285
              )(Decrease)/increase
                  in accrued expenses
              
              
              (1,953
              )
              
              4,265Decrease
                  in long-term accounts receivable
              
              
              305
              
              
              -Increase
                  in other non current assets
              
              
              (60
              )
              
              (52
              )Restricted
                  cash movement
              
              
              (243
              )
              
              (2,434
              )Net
                  cash used in operating activities
              
              
              (16,106
              )
              
              (30,166
              )**CASH
                  FLOWS FROM INVESTING ACTIVITIES**Purchase
                  of property and equipment
              
              
              (893
              )
              
              (2,203
              )Acquisition
                  of ArelNet (net of cash acquired)
              
              
              (4,242
              )
              
              -Purchase
                  of investment securities
              
              
              -
              
              
              (2,005
              )Proceeds
                  from sale of investment securities
              
              
              -
              
              
              7,027Net
                  cash from/(used in) investing activities
              
              
              (5,135
              )
              
              2,819**CASH
                  FLOWS FROM FINANCING ACTIVITIES**Exercise
                  of stock options
              
              
              580
              
              
              548Net
                  cash from financing activities
              
              
              580
              
              
              548Decrease
                  in cash and cash equivalents
              
              
              (20,661
              )
              
              (26,799
              )Cash
                  and cash equivalents, beginning of period
              
              
              66,296
              
              
              44,140Cash
                  and cash equivalents, end of period
              
              $
              45,635
              
              $
              17,341**SUPPLEMENTAL
                  DISCLOSURES OF CASH FLOW INFORMATION**Taxes
                  Paid
              
              $
              -
              
              $
              3




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-area 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
      initial products were developed and sold originally to provide wireless voice
      connections between network operators and their end customers. Product
      enhancements introduced in 1998 enabled us to offer both voice and data
      connectivity over a single wireless link. We have continued to develop the
      capabilities and features of the original products, and today we sell them
      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.





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




In
      2005,
      we introduced new products based on WiMAX standards and we made further
      acquisitions that have changed the nature of our business and some of the
      systems we sell.





In
      March
      2005, we introduced our first wireless products that operate according to the
      802.16-2004 standard, in a new product line known as “AS.MAX”, a full portfolio
      of WiMAX systems comprising Base Stations and Customer Premise Equipment
      (“CPEs”) based on the 802.16 standard. In March 2006, we announced that two
      products forming part of the AS.MAX family - 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.




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
      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.





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.





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.




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, Airspan provides the benefits of WiMAX
      range, capacity and quality of service together with the flexibility of Wi-Fi
      at
      no extra cost.





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.





6




**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.




**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 July 2, 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
      six months ended July 2, 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**Six
                months ended July 2, 2006Product
                warranty liability
            
            $
            410
            
            $
            829
            
            $
            (69
            )
            $
            (343
            )
            $
            827





7




*Other
      guarantees*





We
      had
      delivered to our landlords and customers bank guarantees aggregating to $3,119
      at December 31, 2005 and $5,347 at July 2, 2006. The increase in other
      guarantees during the six month period ended July 2, 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 and a bid to supply new equipment. 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. We have pledged cash to the 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 ($4,222 in aggregate) Also included
      in restricted cash is $502 of cash held on behalf of employees to purchase
      Airspan stock under our Employee Share Purchase Plan. Where the guarantees
      have
      maturities greater than one year, the cash pledged as collateral has been
      classified as Other non-current assets ($1,126). 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.




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.




8




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 solutions sold and services provided as well as the
      customers involved.





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.





We
      recognize revenue when all of the following general revenue recognition
      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.




9




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.





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.




10




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 .





**STOCK
      COMPENSATION**




At
      July
      2, 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 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 after four years from the date of grant. At July
      2,
      2006, the Company had reserved a total of 9,532,800 shares of its common stock
      for issuance under the above plans.





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 the fiscal year
      2006 using the modified prospective transition method. Our consolidated
      financial statements as of and for the first quarter 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 six 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 second quarter of fiscal 2006
      was
      $635 and for the first six months of fiscal 2006 was $1,258.




11




The
      following table summarizes share-based compensation expense under SFAS 123(R)
      for the three and six months ended July 2, 2006 and under APB 25 for the three
      and six months ended July 3, 2005, which was allocated as follows (in
      thousands):


Quarter
                Ended
                July
                  3,
                2005
              
              Quarter
                Ended
                July
                  2,
                2006
              
              Six
                  Months
                Ended
                July
                  3,
                2005
              
              Six
                  Months
                Ended
                July
                  2,
                2006Research
                  and development
              
              $
              15
              
              $
              155
              
              $
              23
              
              $
              366Sales
                  and marketing
              
              
              23
              
              
              203
              
              
              33
              
              
              464General
                  and administrative
              
              
              62
              
              
              273
              
              
              100
              
              
              402Stock-based
                  compensation expense included in operating expense
              
              
              100
              
              
              631
              
              
              156
              
              
              1,232Cost
                  of sales
              
              
              -
              
              
              4
              
              
              -
              
              
              26Total
                  stock-based compensation
              
              $
              100
              
              $
              635
              
              $
              156
              
              $
              1,258




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 six 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.





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 second quarter of 2006 and the first six months
      of
      2006, we recognized stock-based compensation costs in net income related to
      these stock option plans of $509 and $1,026 respectively.




12




The
      summary of the changes in stock options outstanding under the Company’s stock
      based compensation plans during
      the six months ended July 2, 2006 is presented below:




**Six
                months ended**
              **July
                2, 2006****Number of**
              **Shares**
            
            **Weighted-**
              **Average**
              **Exercise**
              **Price****Options:**Outstanding
                at beginning of period
            
            
            5,291,679
            
            $
            4.00Granted
            
            
            494,750
            
            $
            6.17Forfeited
            
            
            (122,017
            )
            $
            4.68Exercised
            
            
            (237,976
            )
            $
            2.30Outstanding
                at end of period
            
            
            5,426,436
            
            $
            4.25Exercisable
                at end of period
            
            
            3,447,172
            
            $
            3.82





The
      following table summarizes the ranges of the exercise prices of outstanding
      and
      exercisable options as of July 2, 2006:





**Outstanding
                options**
            
            **Exercisable
                options****Weighted
                average**
            
            
            
            **Weighted
                average****Number**
            
            **Exercise**
              **price**
            
            **Remaining
                contractual life in years**
            
            **Number**
            
            **Exercise**
              **price**Exercise
                Price ranges$0.30-0.49
            
            
            615,135
            
            $
            0.44
            
            
            5.64
            
            
            529,059
            
            $
            0.430.54-1.95
            
            
            577,037
            
            
            1.47
            
            
            5.11
            
            
            574,525
            
            
            1.472.00-2.89
            
            
            629,443
            
            
            2.65
            
            
            5.70
            
            
            542,046
            
            
            2.653.00-4.37
            
            
            662,616
            
            
            4.08
            
            
            7.62
            
            
            364,911
            
            
            4.034.38
            
            
            542,927
            
            
            4.38
            
            
            4.60
            
            
            542,927
            
            
            4.384.55-5.08
            
            
            932,003
            
            
            5.00
            
            
            8.51
            
            
            304,144
            
            
            5.045.14-6.00
            
            
            696,692
            
            
            5.85
            
            
            6.14
            
            
            312,309
            
            
            5.896.10-7.50
            
            
            552,250
            
            
            6.29
            
            
            9.00
            
            
            58,918
            
            
            7.319.60
            
            
            48,333
            
            
            9.60
            
            
            3.95
            
            
            48,333
            
            
            9.6015.00
            
            
            170,000
            
            
            15.00
            
            
            4.08
            
            
            170,000
            
            
            15.00Total
            
            
            5,426,436
            
            $
            4.25
            
            
            6.56
            
            
            3,447,172
            
            $
            3.82




As
      of
      July 2, 2006, the weighted average remaining contractual life of options
      exercisable was 5.55 years and their aggregate intrinsic value was $1,641.
      The
      total intrinsic value of options exercised during the six months ended July
      2,
      2006 was $966. Cash received from stock option exercises for the six months
      ended July 2, 2006 was $548. 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 six months ended July 2, 2006.




13




On
      January 27, 2006, a total of 40,000 restricted shares were granted to employees,
      all of which vest based on the passage of time. A total expense of $26 was
      recorded for the six months ended July 2, 2006 related to the shares. The
      summary of the changes in restricted stock outstanding during six months ended
      July 2, 2006 is presented below:




**Six
                Months Ended**
              **July
                2, 2006****Number of**
              **Shares**
            
            **Weighted-Average**
              **Grant Date
                Fair Value**Nonvested
                balance at beginning of period
            
            
            100,000
            
            $
            4.12Granted
            
            
            40,000
            
            $
            6.15Forfeited
            
            
            (1,750
            )
            $
            4.64Vested
            
            
            -
            
            $
            -Nonvested
                balance at end of period
            
            
            138,250
            
            $
            4.70




As
      of
      July 2, 2006, $4,468 of total unrecognized compensation expense was recorded,
      net of estimated forfeitures, related to stock options that will be recognized
      over the weighted average period of 2.80 years. Also, as of July 2, 2006, there
      was $462 of total unrecognized compensation expense related to restricted stock
      awards that will be recognized over the weighted average period of
      3.03 years. A total of 138,250 nonvested restricted shares are scheduled to
      vest based on passage of time and an additional 118,500 of restricted shares
      will be issued in 2007 if certain performance conditions are
      achieved.





Under
      our
      ESPP, eligible employees may purchase shares of common stock through payroll
      deductions. There were no shares issued under the ESPP during the six months
      ended July 2, 2006.





***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 second quarter of
      fiscal 2005 and the first six 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 second quarter of fiscal 2005 and the first six months of fiscal
      2005 would have changed by the pro forma amounts indicated below (in thousands,
      except per share data):





Quarter
                Ended
              July
                3, 2005
            
            Six
                Months Ended
              July
                3, 2005Net
                loss applicable to common stockholders — as reported
            
            $
            (6,726
            )
            $
            (9,635
            )Deduct:
                Total stock-based employee compensation expense determined under
                fair
                value based method for all awards, net of related tax
                effects
            
            
            (528
            )
            
            (1,093
            )Add:
                Stock-based employee compensation expense included in reported net
                income,
                net of related tax effects
            
            
            96
            
            
            149Net
                loss applicable to common stockholders — pro forma
            
            $
            (7,158
            )
            $
            (10,579
            )Basic
                and diluted net loss per share — as reported
            
            $
            (0.17
            )
            $
            (0.25
            )Basic
                and diluted net loss per share — pro forma
            
            $
            (0.19
            )
            $
            (0.28
            )




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




14




The
      weighted average fair value of each restricted stock share granted under our
      equity compensation plans for the first six months of fiscal 2005 was $4.12
      and
      for the first six months of 2006 was $6.15. 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 six months
      of fiscal 2005 and the first six months of fiscal 2006 was $2.74 and $4.03,
      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 six months of fiscal 2005 and of fiscal 2006:





Six
                Months EndedJuly
                3,
              2005
            
            July
                2,
              2006Expected
                volatility
            
            
            85
            %
            
            77
            %Risk-free
                interest rate
            
            
            3.78
            %
            
            4.64
            %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.





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,**
                2005
              
              **July
                  2,**
                **2006**
                (unaudited)Purchased
                  parts and materials
              
              $
              9,743
              
              $
              10,401Work
                  in progress
              
              
              1,198
              
              
              1,192Finished
                  goods and consumables
              
              
              16,395
              
              
              21,921Inventory
                  provision
              
              
              (10,486
              )
              
              (11,596
              )$
              16,850
              
              $
              21,918




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





15





**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 is up to $2.5
      million, of which $1.5 million remained accrued as at December 31, 2005 and
      $1.4
      million as at July 2, 2006. Included in this accrual 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.
      Currently, the lessor expects us to refurbish the facility, and accordingly,
      we
      have accrued the 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. All cash outflows in connection
      with
      this restructuring are expected to occur by the end of 2007.





The
      restructuring charges and their utilization are summarized as follows:


**Balance
                  at**
                **beginning
                  of**
                **Period**
                **(unaudited)**
              
              **Restructuring**
                **Charge**
                **(unaudited)**
              
              **Utilized**
                **(unaudited)**
              
              **Balance**
                **at
                  end of**
                **period**
                **(unaudited)**Three
                  months ended July 2, 2006Contract
                  termination costs
              
              $
              1,358
              
              
              —
              
              $
              (78
              )
              $
              1,280Other
                  associated costs
              
              
              47
              
              
              —
              
              
              (3
              )
              
              44$
              1,405
              
              
              —
              
              $
              (81
              )
              $
              1,324Six
                  months ended July 2, 2006Contract
                  termination costs
              
              $
              1,436
              
              
              —
              
              $
              (156
              )
              $
              1,280Other
                  associated costs
              
              
              50
              
              
              —
              
              
              (6
              )
              
              44$
              1,486
              
              
              —
              
              $
              (162
              )
              $
              1,324Year
                  ended December 31, 2005
              
              
              **(audited**)****
              
              
              
              
              
              
              
              
              **(audited)**Contract
                  termination costs
              
              $
              599
              
              $
              1,150
              
              $
              (313
              )
              $
              1,436Other
                  associated costs
              
              
              61
              
              
              —
              
              
              (11
              )
              
              50$
              660
              
              $
              1,150
              
              $
              (324
              )
              $
              1,486





All
      charges will result in direct cash outlays.




16





**GEOGRAPHIC
      INFORMATION**





As
      a
      developer and supplier of fixed 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****July
                3,**
              **2005**
            
            **July
                2,**
              **2006**
            
            **July
                3,**
              **2005**
            
            **July
                2,**
              **2006****(unaudited)**
            
            **(unaudited)**USA
                and Canada
            
            $
            2,183
            
            $
            1,950
            
            $
            3,382
            
            $
            3,877Asia
            
            
            3,613
            
            
            21,711
            
            
            5,382
            
            
            24,314Europe
            
            
            1,229
            
            
            10,165
            
            
            3,446
            
            
            14,410Africa
                and the Middle East
            
            
            1,745
            
            
            566
            
            
            3,159
            
            
            1,505Mexico,
                Latin America and Caribbean
            
            
            11,539
            
            
            11,043
            
            
            27,158
            
            
            25,129$
            20,309
            
            $
            45,435
            
            $
            42,527
            
            $
            69,235





**COMPREHENSIVE
      LOSS**





Total
      comprehensive loss was $6,726 for the quarter ended July 3, 2005 and $7,674
      for
      the quarter ended July 2, 2006 comprising:




**Quarter
                End**
            
            **Year-to-Date****July
                3,**
              **2005**
            
            **July
                2,**
              **2006**
            
            **July
                3,**
              **2005**
            
            **July
                2,**
              **2006****(unaudited)**
            
            **(unaudited)**Net
                loss
            
            $
            (6,726
            )
            $
            (7,674
            )
            $
            (9,635
            )
            $
            (15,961
            )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
            
            $
            (6,726
            )
            $
            (7,674
            )
            $
            (10,053
            )
            $
            (15,831
            )





**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
      A
      Preferred stock are not included in the calculation of diluted net loss per
      share as they are antidilutive.





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


**Quarter
                  End**
              
              **Year-to-Date****July
                  3,**
                **2005**
              
              **July
                  2,**
                **2006**
              
              **July
                  3,**
                **2005**
              
              **July
                  2,**
                **2006**Numerator:Net
                  loss attributable to common stockholders
              
              $
              (6,726
              )
              $
              (7,674
              )
              $
              (9,635
              )
              $
              (15,961
              )Denominator:Weighted
                  average common shares outstanding basic and diluted
              
              
              38,554,988
              
              
              39,902,699
              
              
              38,317,874
              
              
              39,817,995Net
                  loss attributable to common stockholders per share- basic and diluted
              
              $
              (0.17
              )
              $
              (0.19
              )
              $
              (0.25
              )
              $
              (0.40
              )
 
 17




**SUBSEQUENT
      EVENTS**





*Preferred
      Stock Purchase Agreement*





On
      July
      28, 2006, we entered into a Preferred Stock Purchase Agreement (the "Purchase
      Agreement") with Oak Investment Partners XI, Limited Partnership
      (“Oak”).





The
      Purchase Agreement provides for the sale by us to Oak of up to 200,690 shares
      of
      a newly designated Series B Preferred Stock (the “Series B Preferred Stock”) in
      exchange for $29 million in cash and Oak’s transfer to us of all shares of
      Airspan Networks Inc. (“the Company”) Series A Preferred Stock owned by Oak on
      the closing date of the transaction. Oak is currently the sole registered holder
      of the Company's Series A Preferred Stock, which was issued to Oak in September
      2004 . The
      number of shares of Series B Preferred Stock to be sold to Oak will be
      determined as follows:





·
            Oak
                will receive 100,000 shares of Series B Preferred Stock in exchange
                for
                Oak’s $29 million cash investment (the “Cash Shares”);
                and




·
            Oak
                will receive 1.379 shares of Series B Preferred Stock in exchange
                for each
                share of Series A Preferred Stock transferred to the Company (the
                “Exchange Shares”). (Assuming Oak transfers to the Company all 73,000
                shares of Series A Preferred Stock held by Oak as of the date hereof,
                Oak
                will receive 100,690 shares of Series B Preferred
                Stock).




Oak
      has
      agreed to convert into common stock any shares of Series A Preferred Stock
      it
      elects to transfer to third parties prior to the closing of the Purchase
      Agreement (the “Closing”).




Each
      share of Series B Preferred Stock will initially be:




·
            convertible
                into 100 shares of the our Common Stock,




·
            entitled
                to 81 votes on all matters submitted to a vote of the holders of
                the our
                Common Stock,




·
            entitled
                to participate in dividends declared with respect to the common stock
                as
                if the Series A Preferred Stock was converted into the common stock;
                and




·
            entitled
                to a liquidation preference equal to $290 per share upon the occurrence
                of
                certain events.




See
      the
      Section below entitled “ *Series
      B Preferred Stock* ”
for
      more information regarding the rights, designations and privileges of the Series
      B Preferred Stock.




Our
      Board
      of Directors has determined that the consummation of the transactions
      contemplated by the Purchase Agreement is in the best interest of the Company.
      Nonetheless, the Closing is subject to numerous, material conditions and
      uncertainties, including: the approval of the transactions contemplated by
      the
      Purchase Agreement by a majority of the holders of our Common Stock that vote
      (excluding any shares held by Oak or its affiliates), the non-occurrence of
      any
      change to the business, financial condition or operations of the Company that
      is
      or could have a material adverse effect on the Company’s condition (financial or
      other), business, properties or results of operations, the NASDAQ shall have
      explicitly or implicitly indicated that they will not object to the transactions
      contemplated by the Purchase Agreement and other customary conditions and all
      waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976
      shall have expired. We intend to organize a meeting of our shareholders in
      the
      near future for the purpose of seeking the required shareholder
      approvals.





Until
      the
      proposed Closing, we have agreed to operate our business in the usual and
      ordinary course of business consistent with past practice and to refrain from
      taking certain actions, without Oak’s consent. Such actions generally include,
      but are not limited to, creating or increasing debt instruments or bank lines
      for more than $10 million in the aggregate, engaging in transactions with
      affiliates that are not at arms-length or are outside the ordinary course of
      business, acquiring or selling any material assets outside of the ordinary
      course of business, selling all or substantially all of the assets of the
      Company or participating in a transaction involving a change in control and,
      with certain exceptions, adopting any plan of complete or partial liquidation,
      dissolution, merger, consolidation, restructuring or recapitalization. Prior
      to
      the proposed Closing, we have also agreed, subject to certain exceptions, not
      to
      solicit or participate in negotiations with any third parties relating to the
      offer or sale of more than $4 million of equity or equity-linked securities
      of
      the Company to a third party other than Oak.




18




The
      Purchase Agreement may be terminated by us and Oak at any time by mutual
      agreement. The Purchase Agreement may also be terminated by either us or Oak
      (i)
      in the event our shareholders do not approve the transactions contemplated
      by
      the Purchase Agreement or (ii) if the Closing does not close on or before
      October 31, 2006 (provided that the right to terminate the Purchase Agreement
      will not be available to any party whose failure to fulfill any obligation
      under
      the Purchase Agreement has been the primary cause of the failure of the
      transactions contemplated by this Agreement to occur on or before such date).
      The Purchase Agreement may also be terminated by Oak if, among other things,
      we
      breach certain of our covenants under the Agreement or suffer a material adverse
      effect with respect to, its condition (financial or other), business, properties
      or results of operations. In the event that we or Oak terminate the Purchase
      Agreement based on our receipt of a proposal that is more favorable to our
      shareholders, we will be required to pay Oak liquidated damages in the amount
      of
      $1.3 million.





*Series
      B Preferred Stock*





Conversion
      Rights





Holders
      of the Series B Preferred Stock may convert the stock into shares of the our
      Common Stock at any time at the rate of 100 shares of Common Stock for each
      share of Series B Preferred Stock (the “Conversion Rate”). After 24 months, the
      Series B Preferred Stock will automatically convert into shares of our Common
      Stock at the Conversion Rate if the Common Stock trades above $9.00 per share
      for 30 consecutive days. The Conversion Rate will be adjusted upon the
      occurrence of any of the following events: (i) our payment of Common Stock
      dividends or distributions, (ii) Common Stock splits, subdivisions or
      combinations and (iii) reclassification, reorganization, change or conversion
      of
      the Common Stock.





The
      Conversion Rate will also be subject to anti-dilution adjustments pursuant
      to a
      broad-based weighted average formula for certain issuances of equity securities
      by us below $2.90 per share. The Conversion Rate will not adjust due to
      issuances in connection with merger and acquisition activity, if any, the
      payment of dividends or certain fees to the holders of Series B Preferred Stock,
      or the issuance of up to 5 million of securities as part of our existing equity
      compensation plans.





Voting
      Rights





Oak
      is
      already a significant beneficial holder of our common stock. Assuming the
      Purchase Agreement is consummated in accordance with its terms, Oak’s ability to
      directly or indirectly influence the affairs of the Company is expected to
      increase.




Each
      share of Series B Preferred Stock will initially be entitled to 81 votes on
      all
      matters submitted to a vote of the holders of our Common Stock. This voting
      rate
      will adjust upon our payment of Common Stock dividends and distributions, (ii)
      Common Stock splits, subdivisions or combinations, and (iii) reclassification,
      reorganization, change or conversion of the Common Stock. The voting rate will
      not adjust due to the issuance of equity securities by the Company below $2.90
      per share.





As
      long
      as Oak is a majority holder of the Series B Preferred Stock and the beneficial
      holder of at least 15% of the Company’s common stock, Oak will be entitled to
      elect one member to our Board of Directors.





Dividends





Holders
      of the Series B Preferred Stock are entitled to participate in dividends
      declared with respect to the Common Stock as if the Series B Preferred Stock
      was
      converted into the Common Stock.




19




Redemption
      Rights





We
      have
      the right, after 5 years, to buy back the Series B Preferred Stock at a price
      of
      $3.625 per common share equivalent.





Liquidation





The
      Series B Preferred Stock is identified as ranking senior and prior to the Common
      Stock and all other classes or series of capital stock with respect to payments
      upon liquidation.





Upon
      any
      liquidation of the Company, certain mergers, reorganizations and/or
      consolidations of the Company into or with another corporation, the sale by
      the
      Company of all or substantially all of its 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 the Company’s then outstanding securities (a
“Liquidation”), holders are entitled to receive prior and in preference to any
      distribution to holders of the Company's Common Stock, the greater of the amount
      they invested plus all accumulated or accrued and unpaid dividends thereon
      or
      the amount they would receive in such transaction if they converted the Series
      B
      Preferred stock into Common Stock.





Restrictive
      Covenants





So
      long
      as the Series B Preferred Stock is outstanding, pursuant to the Agreement,
      we
      will refrain from taking certain actions without the approval of the holders
      of
      a majority of the then outstanding Series B Preferred Stock voting separately
      as
      a class (the “Series B Vote”). Among other things, we have agreed, with certain
      exceptions, to refrain from (either directly or indirectly by merger,
      consolidation or reclassification):





·
            adversely
                changing the rights, preferences or privileges of the Series B Preferred
                Stock or any holder thereof;





·
            issuing
                any equity security that is senior to or pari passu with the Series
                B
                Preferred Stock with respect to voting rights, dividends, liquidation
                preference or conversion right. Notwithstanding the above,**we
                may, without obtaining the Series B Vote, authorize and issue Common
                Stock
                or any series of preferred stock with equal voting rights and dividend
                rights to the Series B Preferred Stock as long as such Common Stock
                and/or
                preferred stock is junior in liquidation preference to the Series
                B
                Preferred Stock;





·
            creating
                any new debt instrument or increasing any existing debt obligation,
                excluding trade payables and capital lease lines, if thereafter our
                aggregate indebtedness entered into after the Closing exceeds
                $10,000,000.





The
      description of the foregoing rights, preferences and privileges of the Series
      B
      Preferred Stock is qualified in its entirety by the form of Articles of
      Amendment to the Articles of Incorporation filed as an exhibit to the Purchase
      Agreement, which was filed as Exhibit 4.1 to a Current Report on Form 8-K filed
      by the Company on July 31, 2006.





*Lockup
      Agreement*





Pursuant
      to the Purchase Agreement, the holders of the Series B Preferred Stock have
      agreed to a lockup with respect to all of the Cash Shares and certain of the
      Exchange Shares (and the underlying common stock). The lockup with respect
      to
      33,333.3 of the Cash Shares will expire on each of the ninth month, the twelfth
      month and the fifteenth month after Closing. The lock up with respect to 25,712
      of the Exchange Shares will expire on December 31, 2006. The remainder of the
      Exchange 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 us in connection with the Purchase Agreement
      is materially untrue and such breach has or will result in at least a 20%
      decline in the value of Oak’s investment in the Company or (ii) upon an event of
      Liquidation.





*Registration
      Rights*





We
      have
      agreed, upon certain terms and conditions, to register the resale of the shares
      underlying the Series B Preferred Stock with the Securities and Exchange
      Commission (the “SEC”).




20




If
      a
      registration statement with respect to the resale of such shares has not been
      declared effective by the SEC prior to the expiration of the lock-up period
      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 Oak
      not
      to exceed $30 million.





This
      description of the Purchase Agreement does not purport to be complete and is
      qualified in its entirety by the terms and conditions of the Purchase Agreement.




*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.





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.





21




**RECENT
      ACCOUNTING PRONOUNCEMENT**





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.




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)****OUR
      POTENTIAL INABILITY TO SECURE $29 MILLION OF CASH BY OCTOBER 31, 2006 PURSUANT
      TO THE PURCHASE AGREEMENT; (VIII) THE POSSIBILITY THAT YOZAN WILL NOT RECOMMIT
      TO PURCHASES OF EQUIPMENT IN THE QUANTITIES ANTICIPATED;****(IX)
      OUR INABILITY TO CANCEL CERTAIN COMPONENT ORDERS AND/OR TO USE OR SELL ANY
      EXCESS INVENTORY WE ACCUMULATE AS A RESULT OF THE YOZAN CONTRACT AMENDMENT
      AND
      (X) 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.****




**COMPARISON
      OF THE QUARTER ENDED JULY 2, 2006 TO THE QUARTER ENDED JULY  3, 2005**





Revenue





Revenue
      totaled $45.4 million for the quarter ended July 2, 2006 representing a 124%
      increase from the $20.3 million reported for the quarter ended July 3, 2005,
      and
      a 91% increase over the first quarter of 2006. The increase in revenues was
      primarily attributable to increases in sales of our WiMAX and WipLL products,
      and to sales of our AS.Tone and AS.NET product lines that were acquired in
      June
      and November 2005, respectively. Revenue increases generated from these products
      were partially offset by relative declines in sales of our Proximity and
      AS4000/4020 products. Despite our recent success generating quarter over quarter
      increases in WiMAX-related revenue and our growing base of WiMAX customers,
      the
      Company is unable to predict at this time if its WiMAX related revenue will
      continue to increase at historical rates.





Geographically,
      48% of our revenue was derived from customers in Asia, 25% from Mexico and
      Latin
      America and 22% from Europe. Customers in the United States and Canada, and
      Africa and the Middle East accounted for 4% and 1% of revenues, respectively.





In
      the
      second quarter of 2006, we recognized $16.8 million of revenue for WiMAX
      equipment we delivered over the first two quarters of 2006 under a supply
      agreement with Yozan. However, we have agreed with Yozan to amend the terms
      of
      the supply agreement, which had provided for us to supply Yozan with $42.9
      million of equipment by June 30, 2006. Under the amendment, approximately $16.8
      million of equipment already delivered against cash payments of the same amount
      are deemed accepted; approximately 40% of the remaining deliveries will be
      delayed and are subject to revised payment and other terms; and the balance
      of
      the remaining deliveries are subject to mutually satisfactory renegotiation
      and
      may be cancelled. We have not yet reached a definitive agreement with Yozan
      regarding the previously ordered not yet delivered equipment. See also “Cost of
      Revenue” below.




23




WiMAX
        is
        gaining broad market acceptance and we are seeing the results of a strong
        product portfolio. Since the beginning of 2006 we have seen growth in the
        number
        of our WiMAX customers. During the second quarter, we recorded revenue of
        approximately $6.7 million on sales of WiMAX equipment to a single European
        operator, and during the quarter more than 31 operators purchased WiMAX
        equipment from us, eight of which placed orders in excess of $250,000.




In
      June
      2006 we announced that mmwave Technologies, an Airspan system integrator, and
      SOGETEL had deployed Airspan’s AS.MAX WiMAX products in Central Quebec, Canada.
      SOGETEL, an independent telecommunications firm that operates more than 25,500
      telephone business and residential access lines in Quebec, -has indicated that
      it intends deploy Airspan’s MicroMAX-SOC base stations and EasyST and ProST
      customer premise devices in 28 communities over a five month period. The
      network, which is expected to include approximately $750,000 of Airspan
      equipment, was designed by SOGETEL to offer broadband Internet access primarily
      to rural residential subscribers where traditional wired broadband technologies
      are not financially viable.





WipLL
      sales continued to show strength in the second quarter, particularly in India
      and Colombia. We had another record quarter, marking the 12th sequential quarter
      of growth for this product. During the second quarter, we commenced WipLL
      deliveries to Tulip India. We also received significant expansion orders from
      Verytel in Colombia.




Proximity
      revenues of $7.7 million were approximately 17% of the total Company’s revenue,
      mainly comprised of sales to Axtel. Axtel continued to take shipments of
      Proximity in Mexico, but at lower volumes than the second quarter of 2005.
      The
      decline in Proximity revenues is believed to be primarily a function of Axtel’s
      consideration of WiMAX technology for its network. In the second quarter of
      2006, Axtel placed new Proximity orders for deliveries which are anticipated
      to
      be made throughout the third and fourth quarters of 2006. It is our
      understanding that Axtel’s number of lines in service continues to grow. At June
      30, 2006, Axtel reported 696,968 lines, compared to 529,653 for the same period
      in 2005 and approximately 648,000 at the end of the first quarter of 2006.
      Most
      of these lines operate using Proximity equipment. Proximity sales are expected
      to remain at this level through the rest of the year.





We
      had
      our second full quarter of AS.NET shipments and delivered products to more
      than
      30 customers worldwide. Our customers in Europe continued to show strong
      interest for these leading-edge 802.11 products.





The
      compact MicroMAX-SOC was shipped for the first time in the quarter and orders
      for more than 300 MicroMAX-SOC base stations were received. Revenue for this
      product in the quarter was not material, but is expected to grow rapidly in
      the
      second half of the year.





We
        now
        expect full year revenues will be in the range of $120-$130 million. Growth
        beyond this level remains challenging due to the slowing 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.





Cost
      of
      Revenue





Cost
      of
      revenue increased 147% to $36.7 million in the quarter ended July 2, 2006 from
      $14.9 million in the quarter ended July 3, 2005. The gross profit for the second
      quarter of 2006 was $8.7 million (19% of revenue) compared to a gross profit
      of
      $5.4 million (27% of revenue) for the second quarter of 2005 and as compared
      to
      a gross profit for the first quarter of 2006 of $6.4 million (27% of revenue).
      The decrease in gross profit as a percentage of revenue in the second quarter
      of
      2006 as compared to the first quarter of 2006 and the second quarter of 2005
      is
      primarily attributable to a provision of approximately $4.4 million related
      to
      Yozan. This charge reflects our estimate 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.
      It
      is possible that the amount of the charge could ultimately be as high as
      approximately $11 million if Yozan does not fully resume purchases at the levels
      anticipated, which would include fulfillment of the scaled-down contract of
      $28
      million.




24




The
      charge described above reduced our gross profit margin in the second quarter
      by
      approximately 10 percentage points. Profit margins reflected the changing mix
      in
      the products we delivered, particularly the decrease in Proximity sales and
      the
      increases in WiMAX, WipLL and ASNET revenues. Gross margins continued to be
      affected by costs associated with the introduction of new WiMAX products to
      the
      market, the costs associated with the implementation of a number of new WiMAX
      contracts, and higher warranty provisions required as the result of new product
      introductions.





Research
      and Development Expenses





Research
      and development expenses increased 32% to $6.7 million in the quarter ended
      July
      2, 2006 from $5.1 million in the quarter ended July 3, 2005 and 9% from the
      $6.1
      million incurred in the first quarter 2006. The year-over-year increase was
      due
      primarily to the increased investment in our WiMAX development plans and the
      inclusion in the second quarter 2006 of a full quarter of costs associated
      with
      ArelNet and Radionet research and development staff, which became part of our
      consolidated operations in June 2005 and November 2005 respectively. Through
      our
      ArelNet and Radionet acquisitions, we added 30 and 11 engineers, respectively,
      at the time of each acquisition. The development of our WiMAX products required
      a significant increase in our number of employees over the last year. By July
      2,
      2006, 77 of our 110 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. The Company anticipates that its customers
      will
      increasingly demand WiMAX products that support both fixed and mobile
      links.  Accordingly, although the Company has already introduced a suite of
      WiMAX products that ** supports
      fixed link *s* **,** the
      Company intends to continue to invest in the further development and enhancement
      of WiMAX products, in particular products that will support both fixed and
      mobile connectivity.





Sales
      and
      Marketing Expenses





Sales
      and
      marketing expenses increased 88% to $5.0 million in the quarter ended July
      2,
      2006 from $2.7 million in the quarter ended July 3, 2005. Sales and marketing
      expenses for the second quarter 2006 increased 12% relative to the $4.5 million
      of sales and marketing expenses incurred in the first quarter of 2006. The
      increases were attributable to increased sales agents commissions based on
      higher sales, as well as an increase in headcount and additional travel related
      costs.





Bad
      Debt
      Provision





In
      the
      second quarter 2006, we recorded bad debt provisions of $0.7 million relating
      to
      customer accounts for which management has determined that full recovery was
      unlikely. We recorded bad debt provisions of $0.2 million in the corresponding
      quarter of 2005.





General
      and Administrative Expenses




General
      and administrative expenses increased 44% to $4.3 million in the quarter ended
      July 2, 2006 from $3.0 million in the quarter ended July 3, 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 and compliance with the Sarbanes Oxley Act of 2002, foreign
      exchange losses arising from the revaluation of accounts payable and accounts
      receivable balances, an increase in facility costs through acquisitions in
      Israel and Finland, and an increase in travel costs.





Amortization
      of Intangibles





We
      recorded amortization of intangibles expense of $0.3 million in the second
      quarter 2006 compared with amortization of intangibles expense of $0.1 million
      for the second quarter 2005. The increase in amortization expense is a result
      of
      our acquisition of intangible assets in connection with the ArelNet and Radionet
      acquisitions in June and November 2005, respectively. During the second quarter
      2005, we acquired all of the outstanding equity of ArelNet and identified four
      intangible assets with a total value of $2.7 million. These assets will be
      amortized over their expected lives of up to five years. 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.




25




Restructuring





In
      the
      second quarter of 2005, we recorded a restructuring provision of $1.2 million
      relating to certain facility charges in respect of buildings in the UK. There
      was no corresponding charge in the first half of 2006.




Record
        revenues were achieved due to the delivery of new WiMAX products to a wide
        range
        of customers. These activities drove higher product and operational costs
        in the
        quarter. While we are encouraged by our market success, there are expense
        trends
        we need to reverse to achieve profitability. Accordingly, we intend to institute
        a company-wide restructuring program, the goal of which will be to reduce
        operating expenses. The cost reduction will be accomplished primarily as
        a
        result of reduction in worldwide headcount, targeted at approximately 25%.
        We
        estimate that this will result in a restructuring charge in the third quarter
        in
        the range of $1.5-$3.0 million. Once the program is completed, we project
        we
        will be able to realize annual cost savings of between $8-$10 million relative
        to our existing cost structure. 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.


Interest
      Expense and Interest and Other Income





At
      July
      2, 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 $1.6 million. In the second quarter 2006, we accrued interest on the
      Tekes Loans of $0.07 million. Interest and other income was $0.7 million for
      the
      quarter ended July 2, 2006, up from $0.05 million for the quarter ended July
      3,
      2005. The increase was due to a foreign exchange gain of $0.5 million recorded
      in the second quarter of 2006 as compared to a foreign exchange loss of $0.3
      million recorded in the comparable period of 2005. The foreign exchange gains
      are primarily a result of the translation of our British pound sterling cash
      balances.




Income
      Taxes





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.





Net
      Loss
      Attributable to Common Stockholders





For
      the
      reasons described above, we incurred a net loss attributable to common
      stockholders of $7.7 million, or $(0.19) per share, in the quarter ended July
      2,
      2006, compared to a net loss attributable to common stockholders of $6.7
      million, or $(0.17) per share, for the quarter ended July 3, 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 second 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 July 2, 2006 and July 3, 2005, respectively. Stock-based compensation
      expense is expected to be approximately $2.2 to $2.6 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 second
      quarter of fiscal 2006 was $0.1 million higher than the proforma amount
      determined under the fair value-based method and disclosed in accordance with
      SFAS 123 for the comparable prior year period. This small increase was primarily
      due to the amortization of previously unvested awards over the original vesting
      periods and higher fair value amounts attributed to the more recent awards.
      There were no modifications to existing awards or acceleration of vesting
      periods during fiscal 2005 or the second quarter of fiscal 2006. There was
      no
      significant change in our compensation strategy as a result of the
      implementation of FAS 123(R).




26




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




**COMPARISON
      OF THE SIX MONTHS ENDED JULY 2, 2006 TO THE SIX MONTHS ENDED JULY 3, 2005**





Revenue





Revenue
      totaled $69.2 million for the six months ended July 2, 2006 representing a
      63%
      increase from the $42.5 million reported for the six months ended July 3, 2005.





The
      increase in revenues was primarily attributable to increases in sales of our
      WiMAX and WipLL products, and to sales of our AS.Tone and AS.NET product lines
      that were acquired in June and November 2005 respectively. Revenue generated
      from these increased sales and product introductions was partially offset by
      declines in sales of our Proximity product.





The
      increase in WiMAX sales resulted from the recognition in the second quarter
      of
      $16.8 million of revenues for WiMAX equipment we have delivered in 2006 to
      Yozan. As we announced prior to the quarter end, we have agreed with Yozan
      to
      amend the terms of our supply contract, which had provided for Airspan to supply
      Yozan with $42.9 million of WIMAX equipment by the end of the second quarter.
      Under the amendment, approximately $16.8 million of equipment already delivered
      against cash payments of the same amount are deemed accepted, for which we
      have
      recognized revenue; approximately 40% of the remaining deliveries will be
      delayed and are subject to revised payment and other terms; and the balance
      of
      the remaining deliveries are subject to mutually satisfactory renegotiation
      and
      may be cancelled. We have not yet reached a definitive agreement with Yozan
      regarding the previously ordered not yet delivered equipment. See also “Cost of
      Revenue” below.





During
      the first half of 2006, we also recorded significant WiMAX revenues from a
      customer 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 30
      operators purchased WiMAX products in the quarter.





WipLL
      sales grew in the first half, the result primarily of strong growth from
      customers in India and Colombia.





Axtel
      continued to take shipments of Proximity in Mexico, but at lower volumes than
      the first half of 2005. Axtel continues to place new orders for deliveries
      running into the third and fourth quarters of the year, as its lines in service
      at the end of the second quarter of 2006 continued to grow. At June 30, 2006,
      Axtel reported 696,968 lines, compared to 529,653 for the same period in 2005
      and approximately 648,000 at the end of the first quarter of 2006.





We
      had
      our first full half year of AS.NET shipments and delivered products to more
      than
      40 customers worldwide. Customers in Europe continued to show strong interest
      for these leading-edge 802.11 products.




Cost
      of
      Revenue





Cost
      of
      revenue increased 79% to $54.1 million in the six months ended July 2, 2006
      from
      $30.2 million in the six months ended July 3, 2005. Gross Profits for the first
      half of 2006 were $15.2 million or 22% of revenues, compared to $12.3 million
      or
      29% of revenues for the first half of 2005. The decrease in gross profit as
      a
      percentage of revenue in the second quarter of 2006 as compared to the first
      quarter of 2006 and the second quarter of 2005 is primarily attributable to
      a
      provision of approximately $4.4 million related to Yozan. This charge reflects
      our estimate 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. It is possible that
      the
      amount of the charge could ultimately be as high as approximately $11 million
      if
      Yozan does not fully resume purchases at the levels anticipated, which would
      include fulfillment of the scaled-down contract of $28 million.




27




The
      charge described above reduced our gross profit margin for the first six months
      of the year by approximately 6 percentage points. Profit margins reflected
      the
      changing mix in the products we delivered, particularly the decrease in
      Proximity sales and the increases in WiMAX, WipLL and ASNET revenues. Gross
      margins continued to be affected by costs associated with the introduction
      of
      new WiMAX products to the market, the costs associated with the implementation
      of a number of new WiMAX contracts, and higher warranty provisions required
      as
      the result of new product introductions.





Research
      and Development Expenses





Research
      and development expenses increased 32% to $12.8 million in the six months ended
      July 2, 2006 from $9.7 million in the six months ended July 3, 2005. The
      year-over-year increase was due primarily to the increased investment in our
      WiMAX development plans and the inclusion in the first half of 2006 of a two
      full quarters of costs associated with ArelNet and Radionet research and
      development staff, which became part of our consolidated operations in June
      2005
      and November 2005 respectively. Through our ArelNet and Radionet acquisitions,
      we added 30 and 11 engineers respectively. The development of our WiMAX products
      required a significant increase in our number of employees over the last year.
      By July 2, 2006, 77 of our 110 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. The Company anticipates that
      its
      customers will increasingly demand WiMAX products that support both fixed and
      mobile links.  Accordingly, although the Company has already introduced a
      suite of WiMAX products that ** supports
      fixed link *s* **,** the
      Company intends to continue to invest in the further development and enhancement
      of WiMAX products, in particular products that will support both fixed and
      mobile connectivity.





Sales
      and
      Marketing Expenses





Sales
      and
      marketing expenses increased to $9.5 million for the first six months of 2006,
      up from and $5.2 million for the first six 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 six months of 2006, we recorded bad debt provisions of $1.3 million
      relating to customer accounts for which management has determined that full
      recovery was unlikely. We recorded bad debt provisions of $0.5 million in the
      corresponding period of 2005.





General
      and Administrative Expenses





General
      and administrative expenses increased 39% to $8.1 million in the six months
      ended July 2, 2006 from $5.8 million in the six months ended July 3, 2005.
      The
      increase is due to an increase in audit, legal and professional expenditures,
      including costs related to activities to facilitate compliance with the Sarbanes
      Oxley Act of 2002 and 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 $0.6 million in the first six
      months of 2006 compared with amortization of intangibles expense of $0.3 million
      for the first six months of 2005. The increase in amortization expense is a
      result of 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.





28





Restructuring





In
      the
      first six months of 2005, we recorded a restructuring provision of $1.2 million
      relating to certain facility charges in respect of buildings in the UK. There
      was no corresponding charge in the first half of 2006.




Record
        revenues were achieved due to the delivery of new WiMAX products to a wide
        range
        of customers. These activities drove higher product and operational costs
        in the
        quarter. While we are encouraged by our market success, there are expense
        trends
        we need to reverse to achieve profitability. Accordingly, we intend to institute
        a company-wide restructuring program, the goal of which will be to reduce
        operating expenses. The cost reduction will be accomplished primarily as
        a
        result of reduction in worldwide headcount, targeted at approximately 25%.
        We
        estimate that this will result in a restructuring charge in the third quarter
        in
        the range of $1.5-$3.0 million. Once the program is completed, we project
        we
        will be able to realize annual cost savings of between $8-$10 million relative
        to our existing cost structure. 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.





Interest
      Expense and Interest and Other Income





We
      had
      interest expense in the first half of 2006 of $0.1 million compared to no
      interest expense for the first half of 2005. The 2006 expense related to our
      assumption of two outstanding loans borrowed by Radionet from the Finnish
      Funding Agency for Technology and Innovation, (the “Tekes Loans”) and a
      one off interest charge related to previously paid tax credits. Interest and
      other income was $0.9 million for the six months ended July 2, 2006 compared
      to
      $0.7 million for the six months ended July 3, 2005. The increase was driven
      by
      foreign exchange gains on sterling cash balances. Interest income remained
      constant as lower cash balances were offset by increasing interest rates.





Income
      Taxes





An
      income
      tax credit of $0.3 million was recorded in the first half 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. There was no income tax credit in the
      corresponding quarter in 2005. 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.




Net
      Loss





For
      the
      reasons described above, our net loss of $16.0 million, or $0.40 per share,
      in
      the six months ended July 2, 2006 compares to a net loss of $9.6 million, or
      $0.25 per share, for the six months ended July 3, 2005, an increase of $6.4
      million, or 66%. Comparing the first six months of 2006 and 2005, the increase
      in gross profit of $2.9 million and the tax credit of $0.3 million was more
      than
      offset by operating expenses that were $9.6 million higher than in the prior
      year.





Other
      Comprehensive Loss





There
      was
      no other comprehensive loss for the six months ended July 2, 2006 as our
      currency hedging contracts have not been accounted for as hedges in 2006. Other
      comprehensive income for the six months ended July 3, 2005 was $0.4 million
      (see
      OTHER COMPREHENSIVE LOSS above for further discussion).




**Liquidity
      and Capital Resources**





Since
      inception, we have financed our operations primarily through private sales
      of
      convertible preferred stock, which have totaled $146.5 million (net of
      transaction expenses) and an initial public offering of common stock, which
      we
      completed on July 25, 2000. In the initial public offering, we issued 6,325,000
      shares of common stock for approximately $86 million in cash (net of
      underwriting discounts, 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. We have used the proceeds of the sales of securities to
      finance acquisitions, for working capital and for other general corporate
      purposes




29




As
      of
      July 2, 2006, we had cash and cash equivalents of $17.3 million, short term
      investments of $1.0 million, $4.7 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 second
      quarter, we did not have a line of credit or similar borrowing facility, nor
      did
      we have any material capital commitments.





We
      recently determined that it would be advisable for the Company to secure
      additional capital resources. Accordingly, on July 28, 2006, we entered into
      a
      preferred stock purchase agreement with Oak pursuant to which we seek to raise
      an additional $29 million of proceeds through the issuance of our Series B
      Preferred Stock to Oak. See the Section above entitled “Subsequent Event -
      Preferred Stock Purchase Agreement” for more information regarding the proposed
      transaction, including the numerous material conditions and uncertainties.





In
      addition, on August 1, 2006, we entered into a loan and security agreement
      with
      Silicon Valley Bank (“SVB”), with respect to a two-year 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 “Subsequent Event - SVB Credit Line”
for more information regarding the loan and security agreement.





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.  Assuming the Company secures an additional
      $29 million of proceeds in connection with sale of Series B Preferred Stock,
      the
      Company anticipates it 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.  The Company also anticipates
      that the net proceeds from the sale of the Series B Preferred Stock will enable
      it to more actively explore perceived acquisition opportunities that may be
      identified in the future, including more substantial  acquisition
      targets.





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
      six months ended July 2, 2006, we used $30.2 million of cash for operating
      activities, compared with a cash outflow of $16.1 million for the six months
      ended July 3, 2005. The operating cash outflow for the first half of 2006 was
      primarily a result of:





·
            the
                net loss of $16.0 million;


·
            an
                increase in accounts receivable of $5.9 million, reflecting higher
                sales
                in the quarter and longer payment
                terms;


·
            an
                increase in inventories of $5.1 million, reflecting the introduction
                of
                WiMAX into our portfolio and the significant increase in order
                volume;


·
            a
                decrease in customer advances of $9.3 million, reflecting revenues
                recorded for sales to Yozan in the quarter, from whom we had received
                advances in prior periods;






30




·
            an
                increase in other current assets of $2.9 million;
                and


·
            an
                increase in cash held as collateral for customers of $2.4
                million.




The
      cash
      outflow was partially offset by:


·
            an
                increase in deferred revenue of $3.7 million;
                and


·
            an
                increase in accrued expenses of $4.3
                million.




Days
          sales outstanding decreased to 50 days at the end of the second quarter
          2006
          from 57 at the end of the first quarter 2006, and as compared to 67 days
          at the
          end of the second quarter 2005. The decrease from the first quarter 2006
          to the
          second quarter 2006 is mainly the result of improved collections, offset
          in part
          by some longer payment terms we have given to our WiMAX OEM resellers.
          Inventory
          turns were 6.7 at the end of the second quarter of 2006, compared with
          3.1 for
          the first quarter 2006 and as compared to 4.2 turns for the second quarter
          of
          2005. The improvement in inventory turns is primarily attributable to our
          recognition of revenues related to the Yozan shipments in the second quarter
          2006, together with the charge we took in the quarter for obsolete and
          excess
          inventories. Inventory turns will therefore probably be lower in the third
          quarter of 2006.


The
      net
      cash provided by investing activities for the six months ended July 2, 2006
      was
      $2.8 million. The investing cash inflow for the first half of 2006 resulted
      from
      our receipt of $5.0 million, net from the acquisition and sales of investment
      securities, partially offset by our use of $2.2 million for capital equipment
      purchases.





Our
      net
      cash inflow from financing activities for the six months ended July 2, 2006
      was
      $0.5 million generated upon the exercise of stock options.





As
      of
      July 2, 2006, our material commitments consisted of obligations on operating
      leases, repayment of principal and interest owed on the Tekes loans, foreign
      exchange contracts mentioned below and purchase commitments to our
      manufacturing subcontractors. These purchase commitments totaled $30.9 million
      at July 2, 2006 and $24.1 million at July 3, 2005. See the Section below
      entitled “Subsequent Event - Yozan” for more information regarding our Yozan
      purchase commitments..





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. There can be no assurances
      that our efforts to acquire other businesses will be successful.





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.





**Subsequent
      Events**





*Yozan*





On
      June
      29, 2006 we issued a press release announcing that we had agreed to amend our
      supply contract with Yozan. We stated in the press release that the amendment
      could have an impact on our liquidity, because management anticipated that
      as a
      result of the amendment, inventory levels could rise to reflect components
      already ordered from subcontractors to satisfy the original supply contract,
      and
      that the suppliers of that inventory would have to be paid before we are able
      to
      find alternative uses for the inventory. Based on its preliminary estimates
      of
      the impact of the amendment on our liquidity, management stated that it expected
      to seek additional working capital of approximately $10 million to bolster
      liquidity while we carry larger than anticipated inventory balances. Since
      the
      amendment of the supply contract, we have developed various estimates and
      projections regarding the impact of the supply contract amendment upon our
      operations and assets. See “Comparison of the Quarter....- Revenue” and “-Cost of
      Revenue” and “Comparison of the Six Months ...-Revenue” and “-Cost of Revenue” for
      a discussion of certain of such estimates and projections.





31




*Preferred
      Stock Purchase Agreement*





On
      July
      28, 2006, we entered into a Preferred Stock Purchase Agreement with Oak. The
      Purchase Agreement provides for the sale by us to Oak of up to 200,690 shares
      of
      newly designated Series B Preferred Stock. See “Subsequent Events - Preferred
      Stock Purchase Agreement” of the Financial Notes for a more information
      regarding the Purchase Agreement and the Series B Preferred Stock.





*Credit
      Facility*




On
      August
      1, 2006, the Company and its wholly owned subsidiary, Airspan Communications
      Limited, entered into the Loan and Security Agreement with SVB. 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. See “Subsequent Events - Credit Facility” of the Financial Notes for
      a more information regarding the Credit Facility.





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





Interest
      Rate Risk





The
      Company’s earnings are affected by changes in interest rates. As of July 2, 2006
      and December 31, 2005, we had cash, cash equivalents, short term investments
      and
      restricted cash of $23.1 million and $52.5 million, respectively. These amounts
      consisted on July 2, 2006 of $16.1 million of highly liquid investments, with
      more than 75% having purchase to maturity terms of less than 90 days, and $1
      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
      July
      2, 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
      three months ended July 2, 2006, 79% of our sales were denominated in U.S.
      dollars, 19% were denominated in euro and 2% were denominated in Australian
      dollars. Comparatively, for the three months ended July 3, 2005, 95% of our
      sales were denominated in U.S. dollars, 2% were denominated in euro and 2%
      were
      denominated in Australian dollars. Our total euro denominated sales for the
      three months ended July 2, 2006 were $8.5 million, which were recorded at an
      average exchange rate of $1US = €0.7785. Our total Australian dollar denominated
      sales for the three months ended July 2, 2006 were $0.8 million, which were
      recorded at an average exchange rate of $1US = AUS$1.3308. If the average
      exchange rates used had been higher or lower during the three month period
      ended
      July 2, 2006 by 10%, they would have decreased or increased the total Australian
      dollar and euro-denominated sales value by a total of $0.8 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
      three months ended July 2, 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.




32




During
      the three months ended July 2, 2006, we paid expenses in local currency of
      approximately 5.0 million pounds sterling, at an average rate of $1US = 0.5448
      pounds sterling. During the three months ended July 2, 2006, we paid expenses
      in
      local currency of approximately 19.1 million Israeli Shekels, at an average
      rate
      of $1US = 4.6095 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 three month period ended July 2, 2006 by 10%, the total
      pounds sterling and Israeli Shekel denominated operating expenses would have
      decreased or increased by $1.0 million and $0.5 million
      respectively.





To
      manage
      our pound foreign currency risk we have, at various times from 2003 through
      to
      the end of the second 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 July
      2,
      2006 we had no outstanding forward exchange contracts.




The
      aggregate amount of forward contracts of pounds sterling that matured during
      the
      quarter ended July 2, 2006 was 3.0 million pounds sterling, and we paid expenses
      in local currency of approximately 5.0 million pounds sterling over the same
      period. If during the second quarter 2006 the average exchange rates had been
      higher or lower by 10%, the pound-sterling denominated operating expenses would
      have decreased or increased by $0.4 million.





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 July
      2, 2006 or during the second 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 July 2, 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.




33




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.





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 the first and second quarters of 2006, we
      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;




34




·
            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 to subcontractors are now made from the managed
                warehouse, resulting in improved internal control;
                and




·
            a
                change of freight forwarders.




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 second quarter was completed in less than half the
      time that the previous quarter’s count required and with better controls. The
      number of line items with differences between the subledger and the count was
      lower in the second quarter count although still not low enough to enable us
      to
      find that the material weakness had been cured. We are continuing to improve
      processes that will reduce the number of such differences going forward. It
      is
      therefore too soon to confirm the effectiveness of these enhanced internal
      controls. We will continue to monitor the effectiveness of these processes,
      procedures and controls and will make any further changes management determines
      are appropriate.




The
      acquisition of ArelNet in June 2005 represented a material change in internal
      control over financial reporting in 2005. The acquired ArelNet businesses
      utilizes separate information and accounting systems and processes and
      accordingly, its internal controls over financial reporting as of July 2, 2006
      are excluded from this assessment of the Company’s internal control over
      financial reporting, in accordance with the guidance from the Division of
      Corporation Finance and Office of the Chief Accountant of the Commission
      contained in the release captioned Frequently Asked Questions (revised October
      6, 2004). Management intends to complete its assessment of the effectiveness
      of
      internal controls over financial reporting for the acquired ArelNet business
      by
      the end of 2006.





Except
      as
      described above, there have been no significant changes in Airspan’s internal
      controls over financial reporting that occurred during Airspan’s second fiscal
      quarter of 2006 that have materially affected or are reasonably likely to
      materially affect, Airspan’s internal control over financial
      reporting.





35




**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.




36




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 recently entered into with SVB presents certain
      risks.**





Although
        the Company believes the credit facility will increase the Company’s financial
        resources and financial flexibility, the Company’s use of the credit facility
        does present certain risks. The Company’s ability to borrow under the credit
        facility is a function of, among other things, the Company’s base of eligible
        accounts receivable and the Advance Rate. If the amount or quality of the
        Company’s accounts receivable deteriorates or the Advance Rate is adjusted
        downward, the Company’s 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 the Company is unable to, within three business
        days, repay SVB the amount by which the borrowing base has been decreased,
        the
        Company 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, the Company cannot provide any assurances
        that
        it will be able to borrow under the Loan and Security Agreement at a time
        when
        it most needs money to fund working capital or other needs. As noted above,
        the
        credit facility also contains various provisions that restrict the Company’s use
        of cash and operating flexibility. These provisions could have important
        consequences for the Company, including (i) causing the Company to use a
        portion
        of its cash flow from operations for debt repayment and/or service rather
        than
        other perceived needs, (ii) precluding the Company from incurring additional
        debt financing for future working capital or capital expenditures and (iii)
        impacting the Company’s ability to take advantage of significant, perceived
        business opportunities, such as acquisition opportunities or to react to
        market
        conditions. The Company’s 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 the Company’s assets.


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




On
      June
      29, 2006, we announced an amendment to the terms of a supply agreement, which
      had provided for us to supply Yozan with $42.9 million of equipment by June
      30,
      2006. Under the amendment, approximately $16.8 million of equipment already
      delivered against cash payments of the same amount are deemed accepted; approximately
      40% of the remaining deliveries will be delayed and are subject to revised
      payment and other terms; and the balance of the remaining deliveries are subject
      to mutually satisfactory renegotiation and may be cancelled. Yozan and we have
      not yet reached a definitive agreement with respect to previously ordered but
      not yet delivered equipment. We face the risk that Yozan will materially delay
      or cancel future equipment orders. Accordingly, in the second quarter of 2006,
      we incurred a $4.4 million inventory expense provision. This charge reflects
      our
      estimate of the most probable amount of excess inventories and purchase
      commitments (net of amounts that are cancelable), based on the amount we expect
      to deliver to Yozan under the amended supply contract. It is possible that
      the
      amount of the charge will increase in the future if either, Yozan does not
      fully
      resume purchases at the levels anticipated under the amended supply contracts
      or
      our estimates regarding our ability to cancel certain component orders and/or
      to
      use or sell any excess inventory prove to be inaccurate.





**The
      Company’s projected demand for capital in future periods may change quickly and
      may adversely affect the Company’s results of operations and/or prospects**





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




37




**Item
      3. DEFAULTS UPON SENIOR SECURITIES**





None





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





The
      Annual Meeting of Shareholders (the “Annual Meeting”) was held at Airspan’s
      offices in Boca Raton, Florida, on May 24, 2006 for the following purposes:





·
            To
                elect seven members to Airspan’s Board of Directors to hold office until
                the next Annual Meeting of Shareholders or until their successors
                are duly
                elected and qualified; and




·
            To
                consider and vote upon a proposal to approve of and ratify the selection
                of Grant Thornton, LLP as the Company's independent auditors for
                the
                fiscal year ending December 31,
                2006.




The
      number of outstanding shares of the Company’s Common Stock and Series A
      Preferred Stock as of March 30, 2006, the record date for the Annual Meeting,
      was 39,863,331 and
      73,000, respectively. 36,358,364
      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 Articles of Incorporation, shareholders
      are entitled to one vote for each share of Common Stock and 86 votes for each
      share of Series A Preferred Stock.





The
      following directors were elected at the Annual Meeting: (i) Matthew J. Desch,
      (ii) Eric D. Stonestrom, (iii) Thomas S. Huseby, (iv) David A. Twyver, (v)
      Guillermo Heredia, (vi) Michael T. Flynn and (vii) Randall E.
      Curran.





The
      following table sets forth the number of votes cast for, against, or withheld
      for each director nominee, as well as the number of abstentions and broker
      non-votes as to each such director nominee:





Director
                Nominee
            Votes
                Cast
              For
            Votes
                Cast
              Against
            Votes
                Withheld
            Abstentions
            Broker
              Non-VotesMatthew
                J. Desch
            41,498,722
            -
            1,137,642
            -
            -Eric
                D. Stonestrom
            42,181,896
            -
            454,468
            -
            -Randall
                E. Curran
            42,206,400
            -
            429,964
            -
            -Michael
                T. Flynn
            42,207,080
            -
            429,284
            -
            -Guillermo
                Heredia
            42,198,150
            -
            438,214
            -
            -Thomas
                S. Huseby
            41,879,981
            -
            756,383
            -
            -David
                A. Twyver
            42,204,680
            
            431,684





With
      respect to the proposal to approve of and ratify the selection of Grant
      Thornton, LLP as the Company’s independent auditors for the fiscal year ending
      December 31, 2006: (i) 42,563,866 votes were cast for such proposal, (ii) 30,548
      votes were cast against such proposal and (iii) 41,950 shares abstained from
      voting on such proposal. No votes were withheld nor were there any broker
      non-votes with respect to such proposal. Accordingly, the proposal to approve
      of
      and ratify Grant Thornton, LLP as the Company’s independent auditors for the
      fiscal year ending December 31, 2006, was approved by the
      shareholders.




38




**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
            Amended
                and Restated Bylaws of Airspan (3)4.1
            Form
                of Airspan’s common stock certificate (4)10.1
            1998
                Stock Option and Restricted Stock Plan (4)10.2
            2000
                Employee Stock Purchase Plan, as amended (4)10.3
            Employment
                Agreement with Eric Stonestrom (4), (5)10.4
            Employment
                Agreement with Jonathan Paget (4), (5)10.5
            Employment
                Agreement with Peter Aronstam, as amended (5), (7)10.6
            2001
                Supplemental Stock Option Plan (6)10.7
            Employment
                Agreement with Henrik Smith-Petersen (5), (7)10.8
            Employment
                Agreement with Arthur Levine (5)10.9
            2003
                Supplemental Stock Option Plan (3)10.10
            Airspan
                Omnibus Equity Compensation Plan (1)10.11
            Purchase
                and License Agreement, dated as of December 28, 2004, by and between
                Airspan Communications Limited and Axtel S.A. de C.V. ** (12)10.12
            Technical
                Assistance Support Services Agreement for FWA Equipment, dated as
                of
                February 14, 2003, by and between Nortel Networks UK Limited and
                Axtel,
                S.A. de C.V. (8)**10.13
            Preferred
                Stock Purchase Agreement, dated as of September 10, 2004 among Airspan
                Networks, Inc. and Oak Investment Partners XI, Limited Partnership
                (9)10.14
            Amendment
                to Preferred Stock Purchase Agreement (10)10.15
            Amendment
                Agreement No. 3 to FWA TASS, dated as of December 28, 2004, between
                Airspan Communications Limited and Axtel S.A. de C.V. (11) **10.16
            Purchase
                Contract, dated April 14, 2005, by and between Yozan Incorporated
                and
                Airspan Communications Limited (13)(14)10.17
            Supplement
                to Purchase Contract, dated August 15, 2005, by and between Yozan
                Incorporated and Airspan Communications Limited
                (13)(14)10.18
            2nd
                Purchase Contract, dated September 13, 2005, by and between Yozan
                Incorporated and Airspan Communications Limited
                (13)(14)10.19
            Amendment
                of 1stand
                2nd Purchase Contracts, dated October 6, 2005, by and between Yozan
                Incorporated and Airspan Communications Limited
                (13)(14)10.20
            Amendment
                of 2nd Purchase Contracts, dated February 25, 2006, by and between
                Yozan
                Incorporated and Airspan Communications Limited
                (13)(14)10.21
            Memorandum
                of Understandings, dated February 25, 2006, by and between Yozan
                Incorporated and Airspan Communications Limited
                (13)(14)10.22
            Airspan
                Code of Business Conduct (13)10.23
            Memorandum
                of Understandings, dated June 23, 2006, by and between Yozan Incorporated
                and Airspan Communications Limited (15)10.24
            Preferred
                Stock Purchase Agreement, dated July 28, 2006 among Airspan Networks,
                Inc.
                and Oak Investment Partners XI, Limited Partnership (16)10.25
            Loan
                and Security Agreement dated August 1, 2006 among Silicon Valley
                Bank,
                Airspan Networks Inc and Airspan Communications Ltd
                (17)10.26
            Employment
                Agreement with Alastair Westgarth* (5)10.27
            Compromise
                Agreement, dated as of June 8, 2006, by and between Airspan Communications
                Ltd. and Jonathan Paget (5), (18)10.28
            Written
                Summary of the Company’s Non-Employee Director Compensation Plan
                (19)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***




39





*
            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




1
            Incorporated
                by reference to Airspan’s Form 10-Q for the quarter ended April 4, 2004.2
            Incorporated
                by reference to the Company’s report on Form 8-K filed on September 15,
                2004.3
            Incorporated
                by reference to Airspan’s Form 10-K for the year ended December 31, 2003.4
            Incorporated
                by Reference to Airspan’s Registration Statement on Form S-1 (333-34514)
                filed July 18, 20005
            Management
                Agreement or Compensatory Plan or Arrangement6
            Incorporated
                by Reference to Airspan’s Form 10-K for the year ended December 31, 20007
            Incorporated
                by Reference to Airspan’s Form 10-K for the year ended December 31, 20028.
            Incorporated
                by reference by the Company’s report on Form 8-K/A filed on July 6, 2004.9
            Incorporated
                by reference to the Company’s report on Form 8-K filed on September 13,
                2004.10
            Incorporated
                by reference to the Company’s report on Form 8-K filed on September 27,
                2004.11
            Incorporated
                by reference to the Company’s Form 10-K for the year ended December 31,
                2004.12
            Incorporated
                by reference to the Company’s report on Form 8-K filed on June 9,
                2005.13
            Incorporated
                by reference to the Company’s Form 10-K for the year ended December 31,
                2005.14
            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.15
            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, 2006.16
            Incorporated
                by reference to the Company’s report on Form 8-K filed on July 31, 2006.17
            Incorporated
                by reference to the Company’s report on Form 8-K filed on
                August 7,2006.18
            Incorporated
                by reference to the Company’s report on Form 8-K filed on July 25, 200619
            Incorporated
                by reference to the Company’s report on Form 8-K filed on July 31, 2006




40


**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: August
                11, 2006
            By:
            /s/ PETER
                ARONSTAMName:  
                Peter Aronstam
              Title:    
                Chief Financial Officer




41