**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**








**FORM
      10-Q**








**(Mark
      one)**


x
              
              **Quarterly
                  Report Pursuant to Section 13 or 15(d) of the Securities Exchange
                  Act of
                  1934****For
                  the quarterly period ended July 3, 2005****OR** ̈
              
              **Transition
                  Report Pursuant to Section 13 or 15(d) of the Securities Exchange
                  Act of
                  1934****For
                  the transition period from****_______****to________****.**


**Commission
      file number 000-31031**








**AIRSPAN
      NETWORKS INC.**


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





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








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


**561-893-8670**





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





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


Number
      of shares outstanding of the registrant’s common stock as of August 4, 2005:
      39,365,834 ****














**PART
      1. FINANCIAL INFORMATION**




**Item
      1. Financial Statements**


**AIRSPAN
      NETWORKS INC.**





**CONDENSED
      CONSOLIDATED BALANCE SHEETS**





(in
      thousands except for share and per share data)





**December
                  31,**
                **2004
                  (1)**
              
              **July
                  3, 2005****(unaudited)****ASSETS****Current
                  Assets**Cash
                  and cash equivalents
              
              $
              66,296
              
              $
              45,635Restricted
                  cash
              
              
              1,687
              
              
              1,930Accounts
                  receivable, less allowance for doubtful accounts of $2,814 at December
                  31,
                  2004 and $3,300 at July 3, 2005
              
              
              20,947
              
              
              16,233Unbilled
                  accounts receivable
              
              
              43
              
              
              122Inventory
              
              
              12,834
              
              
              14,294Prepaid
                  expenses and other current assets
              
              
              5,702
              
              
              5,462Total Current Assets
              
              
              107,509
              
              
              83,676Property,
                  plant and equipment, net
              
              
              3,707
              
              
              4,046Goodwill
              
              
              789
              
              
              7,756Intangible
                  assets, net
              
              
              1,672
              
              
              4,127Long-term
                  accounts receivable
              
              
              305
              
              
              —Other
                  non-current assets
              
              
              1,216
              
              
              2,249Total Assets
              
              $
              115,198
              
              $
              101,854**LIABILITIES
                  AND STOCKHOLDERS’ EQUITY****Current
                  Liabilities**Accounts
                  payable
              
              $
              24,615
              
              $
              14,687Accrued
                  taxes
              
              
              653
              
              
              765Deferred
                  revenue
              
              
              627
              
              
              1,358Customer
                  advances
              
              
              4,789
              
              
              3,922Other
                  accrued expenses
              
              
              11,349
              
              
              12,220Total Current Liabilities
              
              
              42,033
              
              
              32,952**Stockholders’
                  Equity**Preferred
                  stock, $0.0001 par value; 74,200 shares authorized at December
                  31, 2004
                  and July 3, 2005: 73,000 issued at December 31, 2004 and July 3,
                  2005
              
              
              —
              
              
              —Common
                  stock, $0.0003 par value; 100,000,000 shares authorized at December
                  31,
                  2004 and July 3, 2005: 37,644,627 issued at December 31, 2004 and
                  39,235,204 issued at July 3, 2005
              
              
              11
              
              
              12Note
                  receivable - stockholder
              
              
              (87
              )
              
              (87
              )Additional
                  paid in capital
              
              
              260,356
              
              
              266,145Accumulated
                  other comprehensive income
              
              
              418
              
              
              —Accumulated
                  deficit
              
              
              (187,533
              )
              
              (197,168
              )Total Stockholders’ Equity
              
              
              73,165
              
              
              68,902Total Liabilities and Stockholders’ Equity
              
              $
              115,198
              
              $
              101,854
  (1)
        Derived from audited financial statements





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













**AIRSPAN
      NETWORKS INC.**





**CONDENSED
      CONSOLIDATED STATEMENTS OF OPERATIONS**





(in
      thousands except for share and per share data)





**Quarter
                  Ended**
              
              **Year-to-Date****July
                  4, 2004**
              
              
              **July
                  3, 2005**
              
              
              **July
                4, 2004**
              
              
              **July
                  3,****2005****(unaudited)**
              
              **(unaudited)**Revenue
              
              $
              18,252
              
              $
              20,309
              
              $
              30,672
              
              $
              42,527Cost
                  of revenue
              
              
              (12,182
              )
              
              (14,887
              )
              
              (20,875
              )
              
              (30,249
              )Gross
                  profit
              
              
              6,070
              
              
              5,422
              
              
              9,797
              
              
              12,278Operating
                  expenses:Research
                  and development
              
              
              4,743
              
              
              5,062
              
              
              9,789
              
              
              9,660Sales
                  and marketing
              
              
              2,752
              
              
              2,675
              
              
              5,312
              
              
              5,247Bad
                  debt provision
              
              
              300
              
              
              179
              
              
              300
              
              
              495General
                  and administrative
              
              
              2,828
              
              
              2,996
              
              
              4,879
              
              
              5,823Amortization
                  of intangibles
              
              
              158
              
              
              128
              
              
              404
              
              
              256Restructuring
                  provision
              
              
              397
              
              
              1,150
              
              
              397
              
              
              1,150Total
                  operating expenses
              
              
              11,178
              
              
              12,190
              
              
              21,081
              
              
              22,631Loss
                  from operations
              
              
              (5,108
              )
              
              (6,768
              )
              
              (11,284
              )
              
              (10,353
              )Interest
                  expense
              
              
              —
              
              
              —
              
              
              —
              
              
              —Interest
                  and other income
              
              
              686
              
              
              47
              
              
              1,493
              
              
              723Loss
                  before income taxes
              
              
              (4,422
              )
              
              (6,721
              )
              
              (9,791
              )
              
              (9,630
              )Income
                  tax credit/(charge)
              
              
              14
              
              
              (5
              )
              
              (2
              )
              
              (5
              )Net
                  loss
              
              $
              (4,408
              )
              $
              (6,726
              )
              $
              (9,793
              )
              $
              (9,635
              )Net
                  loss per share - basic and diluted
              
              $
              (0.12
              )
              $
              (0.17
              )
              $
              (0.27
              )
              $
              (0.25
              )Weighted
                  average shares outstanding- basic and diluted
              
              
              36,174,346
              
              
              38,554,988
              
              
              36,034,043
              
              
              38,217,874




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

















**AIRSPAN
      NETWORKS INC.**





**CONDENSED
      CONSOLIDATED STATEMENTS OF CASH FLOWS**





(in
      thousands)





**Year-to-date****July
                  4, 2004**
              
              **July
                  3, 2005****(unaudited)****CASH
                  FLOWS FROM OPERATING ACTIVITIES**Net
                  loss
              
              $
              (9,793
              )
              $
              (9,635
              )Adjustments
                  to reconcile net loss to net cash used in operating activities:Depreciation and amortization
              
              
              1,337
              
              
              1,077Loss on sale of property, plant and equipment
              
              
              —
              
              
              3Stock compensation
              
              
              —
              
              
              149Change
                  in operating assets and liabilities:Decrease in receivables
              
              
              2,846
              
              
              5,673Decrease/(increase) in inventories
              
              
              4,852
              
              
              (1,088
              )(Increase)/decrease
                  in other current assets
              
              
              (2,889
              )
              
              305Increase/(decrease) in accounts payable
              
              
              1,244
              
              
              (10,097
              )Increase in deferred revenue
              
              
              83
              
              
              711Increase/(decrease) in customer advances
              
              
              14,958
              
              
              (1,253
              )Decrease in accrued expenses
              
              
              (565
              )
              
              (1,953
              )Decrease in long—term accounts receivable
              
              
              —
              
              
              305Increase in other non current assets
              
              
              (77
              )
              
              (60
              )Net
                  cash from/(used in) operating activities
              
              
              11,996
              
              
              (15,863
              )**CASH
                  FLOWS FROM INVESTING ACTIVITIES**Purchase
                  of property and equipment
              
              
              (1,039
              )
              
              (893
              )Acquisition
                  of ArelNet (net of cash acquired)
              
              
              —
              
              
              (4,242
              )Net
                  cash used in investing activities
              
              
              (1,039
              )
              
              (5,135
              )**CASH
                  FLOWS FROM FINANCING ACTIVITIES**Exercise
                  of stock options
              
              
              794
              
              
              580Restricted
                  cash movement
              
              
              (23,285
              )
              
              (243
              )Net
                  cash from financing activities
              
              
              (22,491
              )
              
              337Increase/(decrease)
                  in cash and cash equivalents
              
              
              (11,534
              )
              
              (20,661
              )Cash
                  and cash equivalents, beginning of period
              
              
              33,926
              
              
              66,296Cash
                  and cash equivalents, end of period
              
              $
              22,392
              
              $
              45,635








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

















**AIRSPAN
      NETWORKS INC.**




**NOTES
      TO THE CONDENSED FINANCIAL STATEMENTS**





**(in
      thousands, except for share and per share data)**








**BUSINESS**





We
      are a
      leading worldwide provider of WiMAX-based and proprietary broadband access
      networks and carrier class voice over internet protocol (VOIP) solutions. Our
      Broadband Wireless Access (“BWA”) equipment allows communications service
      providers (often referred to as “local exchange carriers,” or simply telephone
      companies), internet service providers (often referred to as “ISPs”) and other
      telecommunications users, such as utilities and enterprises, to cost-effectively
      deliver high-speed data and voice services using radio frequencies rather than
      wires. We call this transmission method “Broadband Wireless”. The primary market
      for our systems has historically been a subset of the fixed broadband wireless
      access systems market, which is the point-to-multipoint market in radio
      frequencies below 6.0GHz. That market now encompasses BWA applications that
      are
      nomadic and portable as well as fixed.





Each
      of
      our wireless access systems utilizes digital wireless techniques, which provide
      wide-area coverage, security and resistance to fading. Our systems can be
      deployed rapidly and cost effectively, providing an attractive alternative
      or
      complement to traditional copper wire, cable, or fiber-optic communications
      access networks. Our products also include software tools that optimize
      geographic coverage of our systems and provide ongoing network management.
      To
      facilitate the deployment and operation of our systems, we also offer network
      installation, training and support services. A more complete description of
      our
      various wireless access systems is provided below. Our BWA systems (the “Airspan
      BWA Solutions”) have been installed by more than 300 network operators in more
      than 95 countries and are being tested by numerous other service providers.





Our
      initial products were developed and sold originally to provide wireless voice
      connections between network operators and their end customers. Product
      enhancements introduced in 1998 enabled us to offer both voice and data
      connectivity over a single wireless link. We have continued to develop the
      capabilities and features of the original products, and today we sell them
      to
      operators globally as the AS4000 and AS4020 products, in systems capable of
      delivering high-capacity broadband data with carrier-quality voice connections
      using our proprietary Code Division Multiple Access (“CDMA”) technology.





In
      October 2002, we strengthened our position in the BWA equipment market with
      the
      acquisition of the WipLL (Wireless Internet Protocol in the Local Loop) business
      from Marconi (“Marconi WipLL”) pursuant to a stock purchase agreement, and
      renamed the business Airspan Networks (Israel) Limited (“Airspan Israel”). The
      products and services produced by Airspan Israel enable operators in licensed
      and unlicensed wireless bands to offer high-speed, low cost, wireless broadband
      connections for data and voice over IP using CDMA technology. We acquired all
      of
      the issued and outstanding capital stock and debt of Marconi WipLL in exchange
      for $3 million of cash.





In
      October 2003, we began marketing our AS4030 and AS3030 product range of Airspan
      branded high-end point-to-multipoint and point-to-point products suitable for
      operators wishing to deliver service offerings to medium and large businesses
      and multi-tenant dwellings that require considerable bandwidth for their end
      users. These products, based on 802.16 Orthogonal Frequency Division
      Multiplexing (“OFDM”) technology, can also be used for a wide range of backhaul
      applications, including, for example connecting remote base stations to a
      central office.





In
      December 2003, we acquired the fixed wireless access business of Nortel Networks
      known as “Proximity” under a Purchase and Sale Agreement. The Proximity products
      enable operators to provide carrier class circuit switched voice and data
      services, based on a Time Division Multiple Access (“TDMA”) technology. As part
      of the acquisition, we acquired inventory relating to the Proximity business
      as
      well as existing assets associated with the manufacture, development and support
      of the Proximity product line. We also assumed the product supply obligations
      associated with customer contracts and certain other liabilities and obligations
      along with the workforce of 26 persons directly employed in the Proximity
      business. The final purchase price was $13.1 million.


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







In
      March
      2005, we announced the introduction of a new product line known as “AS.MAX”.
      AS.MAX is a full portfolio of WiMAX systems, Base Stations and Customer Premise
      Equipment (“CPEs”), using OFDM and Orthogonal Frequency Division Multiple Access
      (OFDMA) technology and based on the 802.16 standard. The AS.MAX product range
      is  designed to serve both:







·
              our
                    traditional fixed point-to-multipoint BWA market; and
 ·
                new
                        BWA markets, for nomadic, portable and combined WiMAX and
                        WiFi
                        applications and eventually mobile
                        applications.





During
      the second quarter of 2005, we launched the world’s first self installable WIMAX
      CPE and made our first WiMAX sale in the United States.





In
      June
      2005, we completed our acquisition of all of the outstanding shares of ArelNet
      Limited (“ArelNet”), an Israeli company providing Voice over IP (“VoIP”) network
      infrastructure equipment and solutions, including soft switches and gateways
      supporting major VoIP standards. Under the Purchase Agreement, we acquired
      all
      of the outstanding shares of ArelNet, for a purchase price of $9.5 million,
      comprised of $4.0 million of cash, $4.8 million of the Company's common stock
      (1,001,325 shares), $0.3 million of employee stock options and transaction
      costs
      of approximately $0.4 million.





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








**BASIS
      OF PRESENTATION**





The
      accompanying unaudited condensed consolidated financial statements have been
      prepared in accordance with generally accepted accounting principles for interim
      financial information and with the instructions to Form 10-Q and Article 10
      of
      Regulation S-X. Accordingly, they do not include all of the information and
      footnotes required by generally accepted accounting principles for complete
      financial statements. In the opinion of management, all adjustments considered
      necessary for a fair presentation have been included and are of a normal
      recurring nature. The interim operating results are not necessarily indicative
      of operating results expected in subsequent periods or for the year as a whole.





The
      condensed consolidated balance sheet at December 31, 2004 has been derived
      from
      the audited financial statements at that date included in the Company’s Form
      10-K/A for the year ended December 31, 2004 but does not include all of the
      information and footnotes required by generally accepted accounting principles
      for complete financial statements.





For
      further information, refer to the consolidated financial statements and
      footnotes thereto included in the company’s Annual Report on Form 10-K, as
      amended by Amendment No. 1 on Form 10-K/A for the year ended December 31, 2004.





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








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





**CONTINGENCIES**







*Warranty*





The
      Company provides a limited warranty for periods, usually ranging from twelve
      to
      twenty-four months, to all purchasers of its new equipment. Warranty expense
      is
      accrued at the date revenue is recognized on the sale of equipment and is
      recognized as a cost of revenue. The expense is estimated based on analysis
      of
      historic costs and is amortized over the warranty period. Management believes
      that the amounts provided for are sufficient for all future warranty costs
      on
      equipment sold through July 3, 2005 but if actual product failure rates,
      material usage or service delivery costs differ from estimates, revisions to
      the
      estimated warranty liability would be required.





Information
      regarding the changes in the Company’s product warranty liabilities was as
      follows for the six months ended July 3, 2005.


**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 3, 2005Product
                  warranty liability
              
              $
              604
              
              $
              192
              
              $
              (99
              )
              $
              (227
              )
              $
              470




*Other
      guarantees*





The
      Company had delivered to its landlords and customers bank guarantees aggregating
      to $1,502 at December 31, 2004 and $1,503 at July 3, 2005. The foregoing figures
      represent the maximum potential amount of future payments the Company could
      be
      required to make under these guarantees. The guarantees secure payment or
      performance obligations of the Company under contracts. The Company has pledged
      cash to the banks as collateral for the guarantees in the same amounts as the
      guarantees. These pledges have been classified as restricted cash. The Company
      has not recognized any liability for these guarantees as in management’s opinion
      the likelihood of having to make payments under the guarantees is remote. These
      guarantees will all expire before the end of 2010 with the majority expiring
      in
      the fourth quarter of 2010.




*Legal
      claims*







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




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




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







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




Except
      as
      set forth above, the Company is not currently subject to any other material
      legal proceedings. The Company may from time to time become a party to various
      other legal proceedings arising in the ordinary course of its
      business.









**REVENUE
      RECOGNITION**





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


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





**STOCK
      COMPENSATION**





At
      July
      3, 2005, the Company had three stock option employee compensation plans, the
      2004 omnibus equity compensation plan and the 2000 Employee Stock Purchase
      Plan
      (“ESPP”). The Company accounts for these plans under the recognition and
      measurement principles of APB Opinion No.25 Accounting for Stock Issued to
      Employees, and related interpretations. In all periods shown, the Company has
      valued stock-based employee compensation using the intrinsic value method.
      All
      options granted under these plans had an exercise price equal to the market
      value of the underlying common stock on the date of grant. There was no
      stock-based compensation cost reflected in net income in 2004 and 2005 related
      to these stock option plans. Awards under the 2004 omnibus equity compensation
      plan may be made to Participants in the form of (i) Incentive Stock Options;
      (ii) Nonqualified Stock Options; (iii) Stock Appreciation Rights; (iv)
      Restricted Stock; (v) Deferred Stock; (vi) Stock Awards; (vii) Performance
      Shares; (viii) Other Stock-Based Awards; and (ix) other forms of equity-based
      compensation as may be provided and are permissible under this Plan and the
      law.
      The Company recognized a charge of $137 in the first six months of 2005 relating
      to the issuance of 200,000 shares of restricted stock awarded in January 2005
      under the 2004 omnibus equity compensation plan. The restricted stock vests
      over
      a four-year period from January 28, 2005. In addition, 100,000 shares of the
      200,000 shares have performance conditions relating to 2005 annual earnings
      and
      shipment targets.





During
      2005 the Company commenced contributions to a 401(K) pension plan (the “401(K)
      Plan”) for its U.S. employees. Pursuant to the 401(K) Plan the Company will
      match contributions made by a participating employee up to the lower of (i)
      6%
      of such employee’s gross salary or (ii) the annual plan maximum, which is $8 per
      employee in 2005. The Company’s contributions are made quarterly in the form of
      shares of the Company’s common stock by using the closing price of the Company’s
      common stock as reported on the Nasdaq National Market on the last business
      day
      of each calendar quarter. During the second quarter of 2005, the Company issued
      2,118 shares under the 401(k) Plan at $5.55 per share. The aggregate value
      of
      the Company’s contribution ($12) was recorded as a stock compensation expense in
      the second quarter 2005.





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





**Quarter
                  Ended**
              
              **Year-to-Date****July
                  4, 2004**
              
              **July
                  3, 2005**
              
              **July
                  4, 2004**
              
              **July
                  3, 2005****(unaudited)**
              
              **(unaudited)**Net
                  loss, as reported
              
              $
              (4,408
              )
              $
              (6,726
              )
              $
              (9,793
              )
              $
              (9,635
              )Add
                  back:Stock-based
                  employee compensation cost included in the determination of net
                  loss as
                  reported
              
              
              —
              
              
              96
              
              
              —
              
              
              149Deduct:Stock-based
                  employee compensation cost that would have been included in the
                  determination of net loss if the fair value method had been applied
                  to all
                  awards
              
              
              (496
              )
              
              (528
              )
              
              (997
              )
              
              (1,093
              )Pro
                  forma net loss
              
              $
              (4,904
              )
              $
              (7,158
              )
              $
              (10,790
              )
              $
              (10,579
              )Net
                  loss per share - basic and diluted
              
              $
              (0.12
              )
              $
              (0.17
              )
              $
              (0.27
              )
              $
              (0.25
              )Pro
                  forma net loss per share - basic and diluted
              
              $
              (0.14
              )
              $
              (0.19
              )
              $
              (0.30
              )
              $
              (0.28
              )




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




**ACQUISITIONS**





On
      June
      16, 2005, the Company consummated its acquisition of all of the outstanding
      shares of capital stock of ArelNet. This business combination has been accounted
      for under the purchase method and the results of operations of ArelNet from
      June
      16, 2005 to July 3, 2005 are included in the consolidated statement of
      operations of the Company. ArelNet. is a pioneer in VoIP network infrastructure
      equipment and solutions, including soft switches and gateways supporting all
      major VoIP standards. ArelNet has extensive experience worldwide, having
      installed network equipment with a capacity exceeding two billion minutes per
      year.




ArelNet
      was acquired to enable the Company to develop carrier grade voice telephony
      using switching and gateway technologies in the Company’s WiMAX data platforms
      for a purchase price of $9.5 million, comprised of $4.0 million of cash,
      1,001,325 shares of the Company’s common stock valued at $4.8 million, employee
      stock options to purchase 100,000 shares of the Company’s common stock valued at
      $0.3 million and $0.4 million of direct acquisition costs. Of the total purchase
      price $0.5 million was deposited in escrow with an escrow agent to secure the
      sellers’ representations and warranties under the purchase agreement. These
      funds will remain in escrow until June 16, 2006, unless sooner released to
      us in
      payment of indemnification claims. The options issued to ArelNet employees
      were
      valued in accordance with FASB Statement No. 123, “Accounting for Stock-Based
      Compensation” and measured at fair value using a Black-Scholes option-pricing
      model. In accordance with EITF 99-12 –“ Determination of the Measurement Date
      for the Market Price of Acquirer Securities Issued in a Purchase Business
      Combination” and FASB Statement No. 141, “Business Combinations”, the 1,001,325
      shares issued in connection with the transaction were valued based on market
      prices on the three days before the measurement date of June 16,
      2005.




The
      Company is in the process of evaluating the net assets acquired and expects
      to
      finalize the purchase price allocation within the next quarter. The Company
      has
      engaged an independent third party to assist in the valuation of intangible
      assets and the valuation of these separately identified intangible assets used
      in this report is based on the independent third party’s initial report. The
      allocation of the purchase price at the end of the second quarter 2005 is
      therefore preliminary.







Calculation
      of purchase price:


**Total**Cash
                consideration
            
            $
            4,000Shares
                issued
            
            
            4,752Options
                granted
            
            
            309Direct
                acquisition costs
            
            
            450Total
                purchase price
            
            $
            9,511








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




The
      following table shows the preliminary purchase price allocation.





**Allocation
                of purchase price**
            
            **Historical****book
                value**
            
            **Purchase
                price allocation/fair value****adjustments**
            
            **Fair
                value**Cash
            
            $
            18
            
            
            —
            
            $
            18Accounts
                receivable
            
            
            1,507
            
            $
            (548
            )
            
            959Inventory
            
            
            1,161
            
            
            (789
            )
            
            372Prepaid
                expenses and other current assets
            
            
            581
            
            
            (19
            )
            
            562Property,
                plant and equipment, net
            
            
            110
            
            
            161
            
            
            271Other
                long term assets
            
            
            1,037
            
            
            (64
            )
            
            973Intangible
                assets, net:Core
                developed technology
            
            
            —
            
            
            2,440
            
            
            2,440Other
                technology
            
            
            —
            
            
            65
            
            
            65Customer
                relationships
            
            
            —
            
            
            45
            
            
            45Backlog
            
            
            —
            
            
            160
            
            
            160Accounts
                payable
            
            
            (169
            )
            
            —
            
            
            (169
            )Deferred
                revenue
            
            
            (1,510
            )
            
            1,490
            
            
            (20
            )Customer
                advances
            
            
            —
            
            
            (386
            )
            
            (386
            )Accrued
                taxes
            
            
            (225
            )
            
            —
            
            
            (225
            )Other
                accrued expenses
            
            
            (2,228
            )
            
            (293
            )
            
            (2,521
            )Goodwill
            
            
            —
            
            
            6,967
            
            
            6,967Total
                purchase price
            
            $
            282
            
            $
            9,229
            
            $
            9,511








All
      intangible assets acquired, other than goodwill, as preliminarily identified
      by
      the independent third party, are subject to amortization over the periods shown
      in the table below:


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










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





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


**Year-to-Date****July
                    4,****2004**
                
                **July
                    3,****2005**Revenue
                
                $
                32,345
                
                $
                44,358Net
                    loss
                
                $
                (10,133
                )
                $
                (10,172
                )Net
                    Loss per share- basic and diluted
                
                $
                (0.27
                )
                $
                (0.26
                )Weighted
                    average shares outstanding- basic and diluted
                
                
                37,035,368
                
                
                39,319,199





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





**INVENTORY**





Inventory
      consists of the following:


**December
                    31, 2004**
                
                **July
                    3, 2005****(unaudited)**Purchased
                    parts and materials
                
                $
                4,419
                
                $
                5,163Work
                    in progress
                
                
                1,214
                
                
                1,190Finished
                    goods and consumables
                
                
                7,201
                
                
                7,941$
                12,834
                
                $
                14,294




**ACCRUED
      RESTRUCTURING CHARGES**





In
      the
      fourth quarter of 2002 the decision was made to completely outsource all our
      manufacturing. As a result the Company recorded a $975 restructuring charge
      for
      the closure of its Riverside, Uxbridge facility in 2003. All of this cost
      relates to the excess facility. A further $368 was recognized as restructuring
      in the income statement in the fourth quarter of 2003 as the Company reassessed
      the ability to sublease the Riverside facility. During the second quarter of
      2005 the Company recognized an additional restructuring charge of $1,150 for
      additional costs related to certain facility charges in respect of buildings
      in
      the UK. The total amount expected to be incurred as a result of the closure
      of
      the Riverside facility is up to $2,493 of which $1,648 remains accrued as at
      the
      end of July 3, 2005. All cash outflows in connection with this restructuring
      are
      expected to occur by the end of 2007.





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





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


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





The
      restructuring charges and their utilization are summarized as follows:





**Balance
                  at beginning of period**
              
              **Restructuring
                  charge**
              
              **Accrued
                  on acquisition**
              
              **Utilized**
              
              **Balance
                  at end of period****(unaudited)**
              
              **(unaudited**
              
              **(unaudited)**
              
              **(unaudited)**
              
              **(unaudited)**Three
                  months ended July 3, 2005Contract
                  termination costs
              
              $
              521
              
              $
              1,150
              
              
              —
              
              $
              (79
              )
              $
              1,592Other
                  associated costs
              
              
              59
              
              
              —
              
              
              —
              
              
              (3
              )
              
              56$
              580
              
              $
              1,150
              
              $
              —
              
              $
              (82
              )
              $
              1,648Six
                  months ended July 3, 2005Contract
                  termination costs
              
              $
              599
              
              $
              1,150
              
              
              —
              
              $
              (157
              )
              $
              1,592Other
                  associated costs
              
              
              61
              
              
              —
              
              
              —
              
              
              (5
              )
              
              56$
              660
              
              $
              1,150
              
              $
              —
              
              $
              (162
              )
              $
              1,648Year
                  ended December 31, 2004One-time
                  termination benefits
              
              
              —
              
              $
              413
              
              
              —
              
              $
              (413
              )
              
              —Contract
                  termination costs
              
              $
              947
              
              
              —
              
              
              —
              
              
              (348
              )
              $
              599Other
                  associated costs
              
              
              592
              
              
              —
              
              $
              (339
              )
              
              (192
              )
              
              61$
              1,539
              
              $
              413
              
              $
              (339
              )
              $
              (953
              )
              $
              660





All
      charges will result in direct cash outlays.








**SEGMENTAL
      INFORMATION**








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





An
      analysis of revenue by geographical market is given below:








**Quarter
                Ended**
            
            **Year-to-Date****July
                4, 2004**
            
            **July
                3, 2005**
            
            **July
                4,**
              **2004**
            
            **July
                3,**
              **2005****(unaudited)**
            
            **(unaudited)**USA
                and Canada
            
            $
            1,029
            
            $
            2,183
            
            $
            1,204
            
            $
            3,382Asia
            
            
            1,820
            
            
            3,613
            
            
            2,908
            
            
            5,382Europe
            
            
            2,146
            
            
            1,229
            
            
            4,527
            
            
            3,446Africa
                and the Middle East
            
            
            265
            
            
            1,745
            
            
            960
            
            
            3,159Latin
                America and Caribbean
            
            
            12,992
            
            
            11,539
            
            
            21,073
            
            
            27,158$
            18,252
            
            $
            20,309
            
            $
            30,672
            
            $
            42,527





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





**COMPREHENSIVE
      LOSS**








Total
      comprehensive loss was $4,997 for the quarter ended July 4, 2004 and $6,726
      for
      the quarter ended July 3, 2005 comprising:








**Quarter
                Ended**
            
            **Year-to-Date****July
                4, 2004**
            
            **July
                3, 2005**
            
            **July
                4,**
              **2004**
            
            **July
                3,**
              **2005****(unaudited)**
            
            **(unaudited)**Net
                loss
            
            $
            (4,408
            )
            $
            (6,726
            )
            $
            (9,793
            )
            $
            (9,635
            )Other
                comprehensive income/(loss):Movement
                in the fair value of cash flow hedges-
                unrealized gain on foreign currency cash flow hedges
            
            
            (15
            )
            
            —
            
            
            229
            
            
            —-
                reclassification of adjustment for gains realized in net
                loss
            
            
            (574
            )
            
            —
            
            
            (1,036
            )
            
            (418
            )Comprehensive
                loss
            
            $
            (4,997
            )
            $
            (6,726
            )
            $
            (10,600
            )
            $
            (10,053
            )











**NET
      LOSS PER SHARE**








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





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





**Quarter
                Ended**
            
            **Year-to-Date****July
                4, 2004**
            
            **July
                3, 2005**
            
            **July
                4,**
              **2004**
            
            **July
                3,**
              **2005****(unaudited)**
            
            **(unaudited)**Numerator:Net
                loss
            
            $
            (4,408
            )
            $
            (6,726
            )
            $
            (9,793
            )
            $
            (9,635
            )Denominator:Weighted
                average common shares outstanding basic and diluted
            
            
            36,174,346
            
            
            38,554,988
            
            
            36,034,043
            
            
            38,317,874Net
                loss per share- basic and diluted
            
            $
            (0.12
            )
            $
            (0.17
            )
            $
            (0.27
            )
            $
            (0.25
            )





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





In
      2000,
      the Company adopted the 2000 Employee Stock Purchase Plan (“ESPP”), which
      qualifies as an employee stock purchase plan under Section 423 of the Internal
      Revenue Code of 1986. As of July 3, 2005, there were 1,825,577 shares of common
      stock reserved for issuance under the ESPP. On August 1, 2005 the Company issued
      130,630 shares at $3.72 per share to employees participating in the
      ESPP.





During
      the six months ended July 3, 2005, 387,135 options granted pursuant to the
      1998
      and 2003 stock option plans were exercised at an average exercise price of
      $1.50. Also during this period, under the 2004 omnibus equity compensation,
      200,000 shares of Restricted Stock were issued to employees and 2,118 shares
      were deposited into U.S. employee’s 401K pension plans.





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













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





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





**COMPARISON
      OF THE QUARTER ENDED JULY 3, 2005 TO THE QUARTER ENDED JULY 4, 2004**





Revenue





Revenue
      totaled $20.3 million for the quarter ended July 3, 2005 representing an 11%
      increase from the $18.3 million reported for the quarter ended July 4, 2004.
      The
      increase in revenues was primarily attributable to an increase in sales of
      our
      WipLL products. Revenue for the second quarter of 2005 was 9% lower than revenue
      recorded for the first quarter of 2005, primarily due to lower sales of our
      Proximity product to Axtel, our largest customer. A shortage of a component
      used
      to make some Proximity products negatively impacted the revenues in the second
      quarter 2005 by preventing the Company from fulfilling all the Proximity orders
      it had expected to deliver in the quarter. A new supplier of this component
      has
      been sourced and the Company delivered the delayed products in the third quarter
      2005. During the second quarter 2005, revenue was derived from 128 customers
      in
      65 countries. Geographically, 56% of our revenue was derived from customers
      in
      Latin America and the Caribbean, 18% from Asia and 11% from North America.
      African and Middle Eastern customers and European customers accounted for 9%
      and
      6% of revenues, respectively.





Cost
      of
      Revenue





Cost
      of
      revenue increased 22% to $14.9 million in the quarter ended July 3, 2005 from
      $12.2 million in the quarter ended July 4, 2004. All of the increase is
      attributable to the increase in revenue. The gross profit for the second quarter
      of 2005 was $5.4 million (27% of revenue) compared to a gross profit of $6.1
      million (33% of revenue) for the second quarter 2004 and compared to a gross
      profit for the first quarter 2005 of $6.9 million (31% of revenue). The decrease
      in gross profit in the second quarter 2005 as compared to the second quarter
      2004 was due primarily to increased manufacturing costs, most of which are
      attributable to the transition to a new Proximity subscriber terminal and higher
      product pricing demanded by one of our suppliers. The manufacture of that
      product was shifted to another, more cost efficient supplier during the quarter.





Research
      and Development Expenses


Research
        and development expenses increased 7% to $5.1 million in the quarter ended
        July
        3, 2005 from $4.7 million in the quarter ended July 4, 2004. The increase
        in expenses was due to our increased investment in our WiMAX development
        plans.
        We expect to begin commercial WiMAX deployments in the second half of 2005.









Sales
      and
      Marketing Expenses





Sales
      and
      marketing expenses remained relatively constant between the second quarter
      of
      2004 and 2005 with $2.8 million for the second quarter of 2004 and $2.7 million
      for the second quarter of 2005.





Bad
      Debt
      Provision





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





General
      and Administrative Expenses





General
      and administrative expenses increased 6% to $3.0 million in the quarter ended
      July 3, 2005 from $2.8 million in the quarter ended July 4, 2004. The
      increase is primarily due to an increase in audit, legal and professional
      expenditures, including costs related to activities to facilitate compliance
      with the Sarbanes Oxley Act of 2002 and legal and accounting costs incurred
      in
      the pursuit of certain acquisition opportunities.





Amortization
      of Intangibles





We
      recorded amortization of intangibles expense of $0.1 million in the second
      quarter 2005 compared with amortization of intangibles expense of $0.2 million
      for the second quarter 2004. The reduction in amortization expense is a result
      of the reduction in the value attributed to the intangibles acquired as part
      of
      the Proximity purchase in the fourth quarter of 2003. The adjustments to the
      purchase price allocation in both the second and fourth quarter of 2004 were
      primarily a result of the increased value attributed to the acquired Proximity
      inventory. These intangibles are expected to be fully amortized by the end
      of
      2008. During the second quarter 2005, we acquired all of the outstanding equity
      of ArelNet and identified 4 intangible assets with a total value of $2.7
      million. These assets will be amortized over their expected lives of up to
      five
      years.





Restructuring





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





Interest
      Expense and Interest and Other Income





We
      had no
      interest expense in the second quarter of 2005 or the second quarter of 2004.
      Interest and other income decreased to $0.05 million for the quarter ended
      July
      3, 2005 from $0.7 million for the quarter ended July 4, 2004. The decrease
      was
      due primarily to a foreign exchange loss of $0.3 million recorded in the second
      quarter of 2005 as compared to a foreign exchange gain of $0.6 million recorded
      in the comparable period of 2004. Interest income increased to $0.4 million
      in
      the second quarter of 2005 compared to $0.1 million in the second quarter of
      2004 as a result of higher interest rates on higher average cash balances.
      The
      foreign exchange loss in the second quarter 2005 is primarily the result of
      the
      revaluation of certain monetary sterling assets. The foreign exchange gains
      in
      2004 are primarily a result of our settlement of certain currency hedging
      contracts entered into by the Company to protect itself against a strengthening
      of the British pound against the US dollar.





Income
      Taxes





We
      did
      not have a material income tax charge in either the second quarter of 2005
      or
      2004 primarily due to our current loss making position and losses carried
      forward. We are subject to US franchise taxes resulting from business activities
      performed within certain states in the United States of America.








Net
      Loss





Our
      net
      loss of $6.7 million, or $0.17 per share, in the quarter ended July 3, 2005
      compares to a net loss of $4.4 million, or $0.12 per share, for the quarter
      ended July 4, 2004, an increase of $2.3 million, or 53%. Comparing the second
      quarters of 2005 and 2004, the decrease in gross profit of $0.6 million added
      to
      higher operating expenses of $1.0 million and lower net interest and other
      income of $0.6 million.





Other
      Comprehensive Loss





Other
      comprehensive loss for the quarter ended July 3, 2005 from the monthly
      settlement of certain currency hedging contracts together with the
      reclassification of their realized gains to net loss was $0.0 million. These
      forward exchange contracts were used to hedge our UK expenses through to July
      2005. Other comprehensive loss for the quarter ended July 4, 2004 was $0.6
      million.








**COMPARISON
      OF THE SIX MONTHS ENDED JULY 3, 2005 TO THE SIX MONTHS ENDED JULY 4, 2004**





Revenue





Revenue
      totaled $42.5 million for the six months ended July 3, 2005 representing a
      39%
      increase from the $30.7 million reported for the six months ended July 4, 2004.
      The increase in revenues was primarily attributable to an increase in sales
      of
      our WipLL and Proximity products. A shortage of a component used to make some
      Proximity products negatively impacted the revenues in the first six months
      of
      2005 by preventing the Company from fulfilling all the Proximity orders it
      had
      expected to deliver in the second quarter of 2005. A new supplier of
      this
      component has been sourced and the Company delivered the delayed products in
      the
      third quarter 2005. During the first six months of 2005, revenue was derived
      from 177 customers in 71 countries. Geographically, 64% of our revenue was
      derived from customers in Latin America and the Caribbean, 13% from Asia and
      8%
      from North America. African and Middle Eastern customers and European customers
      accounted for 7% and 8% of revenues, respectively.





Cost
      of
      Revenue





Cost
      of
      revenue increased 45% to $30.2 million in the six months ended July 3, 2005
      from
      $20.9 million in the six months ended July 4, 2004. All of the increase is
      attributable to the increase in revenue. The gross profit for the first six
      months of 2005 was $12.3 million (29% of revenue) compared to a gross profit
      of
      $9.8 million (32% of revenue) for the first six months of 2004. The increase
      in
      gross profit in the first six months of 2005 as compared to the first six months
      of 2004 was due primarily to increased revenue. This was partially offset by
      increased manufacturing costs, most of which are attributable to the transition
      to a new Proximity subscriber terminal and higher product pricing demanded
      by
      one of our suppliers. The manufacture of that product was shifted to another,
      more cost efficient supplier during the second quarter of 2005.





Research
      and Development Expenses





Research
      and development expenses decreased 1% to $9.7 million in the six months ended
      July 3, 2005 from $9.8 million in the six months ended July 4, 2004. The
      decrease in expenses was due to the effect of cost reduction exercises in 2004
      partially offset by our increased investment in our WiMAX development plans.
      We
      expect to begin commercial WiMAX deployments in the second half of 2005.





Sales
      and
      Marketing Expenses





Sales
      and
      marketing expenses remained broadly constant at $5.3 million for the first
      six
      months of 2004 and $5.2 million for the first six months of 2005.





Bad
      Debt
      Provision





In
      the
      first six months of 2005, we recorded bad debt provisions of $0.5 million
      relating to customer accounts for which management has determined that full
      recovery was unlikely. We recorded  bad
      debt
      provisions of $0.3 million in the corresponding period of 2004.







General
      and Administrative Expenses





General
      and administrative expenses increased 19% to $5.8 million in the six months
      ended July 3, 2005 from $4.9 million in the six months ended July 4, 2004.
      The
      increase is primarily due to an increase in audit, legal and professional
      expenditures, including costs related to activities to facilitate compliance
      with the Sarbanes Oxley Act of 2002 and legal and accounting costs incurred
      in
      the pursuit of certain acquisition opportunities.





Amortization
      of Intangibles





We
      recorded amortization of intangibles expense of $0.3 million in the first six
      months of 2005 compared with amortization of intangibles expense of $0.4 million
      for the first six months of 2004. The reduction in amortization expense is
      a
      result of the reduction in the value attributed to the intangibles acquired
      as
      part of the Proximity purchase in the fourth quarter of 2003. The adjustments
      to
      the purchase price allocation in both the second and fourth quarter of 2004
      were
      primarily a result of the increased value attributed to the acquired Proximity
      inventory. These intangibles are expected to be fully amortized by the end
      of
      2008. In June 2005, we acquired all of the outstanding equity of ArelNet and
      identified 4 intangible assets with a total value of $2.7 million. These assets
      will be amortized over their expected lives of up to five years.





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. We
      recorded a restructuring provision of $0.4 million in the corresponding period
      of 2004 related to a headcount and cost reduction program.





Interest
      Expense and Interest and Other Income





We
      had no
      interest expense in the first six months of 2005 or the first six months of
      2004. Interest and other income decreased to $0.7 million for the six months
      ended July 3, 2005 from $1.5 million for the six months ended July 4, 2004.
      The
      decrease was due primarily to lower foreign exchange gains of $0.1 million
      recorded in the first six months of 2005 as compared to foreign exchange gains
      of $1.3 million recorded in the comparable period of 2004. Interest income
      increased to $0.7 million in the first six months of 2005 compared to $0.2
      million in the first six months of 2004 as a result of higher interest rates
      on
      higher average cash balances. The foreign exchange gains are primarily a result
      of our settlement of certain currency hedging contracts entered into by the
      Company to protect itself against a strengthening of the British pound against
      the US dollar.





Income
      Taxes





We
      did
      not have a material income tax charge in either the first six months of 2005
      or
      2004 primarily due to our current loss making position and losses carried
      forward. We are subject to US franchise taxes resulting from business activities
      performed within certain states in the United States of America.





Net
      Loss





Our
      net
      loss of $9.6 million, or $0.25 per share, in the six months ended July 3, 2005
      compares to a net loss of $9.8 million, or $0.27 per share, for the six months
      ended July 4, 2004, a decrease of $0.2 million, or 2%. Comparing the first
      six
      months of 2005 and 2004, the increase in gross profit of $2.5 million was offset
      by higher operating expenses of $1.6 million and lower net interest and other
      income of $0.8 million.










Other
      Comprehensive Loss





Other
      comprehensive loss for the six months ended July 3, 2005 arose from the monthly
      settlement of certain currency hedging contracts together with the
      reclassification of their realized gains to net income of $0.4 million. These
      forward exchange contracts were used to hedge our UK expenses through to July
      2005. Other comprehensive income for the six months ended July 4, 2004 was
      $0.1
      million.








**Critical
      accounting policies -revenue recognition**





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





**Restructuring**





In
      the
      fourth quarter of 2002 the decision was made to completely outsource all our
      manufacturing. As a result we recorded a $975,000 restructuring charge for
      the
      closure of our Riverside, Uxbridge facility in 2003. All of this cost related
      to
      the excess facility. A further $368,000 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 $1,150,000 for additional costs related
      to
      certain facility charges in respect of buildings in the UK. The total amount
      expected to be incurred as a result of the closure of the Riverside facility
      is
      $2,493,000 of which $1,648,000 remains accrued as at the end of July 3, 2005.
      All cash outflows in connection with this restructuring are expected to occur
      by
      the end of 2007.





During
      the first quarter of 2004 we initiated a new program to further reduce operating
      expenses. This program was completed by the end of the third quarter of 2004.
      The total cost incurred for this restructuring program was $413,000, recorded
      as
      a restructuring charge, related to termination costs for 21 employees. All
      of
      these employees had left the Company by December 31, 2004.





In
      conjunction with the purchase of the Proximity business in 2003, the Company
      implemented its plan to relocate the Proximity business from Maidenhead, England
      and Sunrise, Florida to the Company’s facilities in Uxbridge, England and Boca
      Raton, Florida. The Company recorded acquisition-related restructuring charges
      of $520,000, in the fourth quarter of 2003, in connection with the relocation
      of
      the Proximity business. The estimated relocation costs were reduced during
      2004
      to $181,000. The adjustment formed part of the revised fair value adjustments
      of
      the Proximity acquisition. This relocation plan was completed by December 31,
      2004.







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


**Balance
                  at beginning of period**
              
              **Restructuring
                  charge**
              
              **Accrued
                  on acquisition**
              
              **Utilized**
              
              **Balance
                  at end of period****(unaudited)**
              
              **(unaudited)**
              
              **(unaudited)**
              
              **(unaudited)**
              
              **(unaudited)**Three
                  months ended July 3, 2005Contract
                  termination costs
              
              $
              521
              
              $
              1,150
              
              
              —
              
              $
              (79
              )
              $
              1,592Other
                  associated costs
              
              
              59
              
              
              —
              
              
              —
              
              
              (3
              )
              
              56$
              580
              
              $
              1,150
              
              $
              —
              
              $
              (82
              )
              $
              1,648Six
                  months ended July 3, 2005Contract
                  termination costs
              
              $
              599
              
              $
              1,150
              
              
              —
              
              $
              (157
              )
              $
              1,592Other
                  associated costs
              
              
              61
              
              
              —
              
              
              —
              
              
              (5
              )
              
              56$
              660
              
              $
              1,150
              
              $
              —
              
              $
              (162
              )
              $
              1,648Year
                  ended December 31, 2004One-time
                  termination benefits
              
              
              —
              
              $
              413
              
              
              —
              
              $
              (413
              )
              
              —Contract
                  termination costs
              
              $
              947
              
              
              —
              
              
              —
              
              
              (348
              )
              $
              599Other
                  associated costs
              
              
              592
              
              
              —
              
              $
              (339
              )
              
              (192
              )
              
              61$
              1,539
              
              $
              413
              
              $
              (339
              )
              $
              (953
              )
              $
              660








All
      charges will result in direct cash outlays.





**Liquidity
      and Capital Resources**





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





As
      of
      July 3, 2005, we had cash and cash equivalents of $45.6 million and $1.9 million
      of restricted cash. Restricted cash is held as collateral for landlords and
      customers and contributions from employees in respect of the Employee Share
      Purchase Plan. We do not have a line of credit or similar borrowing facility,
      nor do we have any material capital commitments.





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





For
      the
      six months ended July 3, 2005, we used $15.9 million of cash in operating
      activities compared with a cash inflow of $12.0 million for the six months
      ended
      July 4, 2004. The operating cash outflow for the first half of 2005 was
      primarily a result of a decrease in accounts payable, customer advances and
      accrued expenses of $10.1 million, $1.3 million, $2.0 million respectively,
      the
      net loss of $9.6 million, and an increase in inventories of $1.1 million. The
      cash outflow was partially offset by a decrease in accounts receivables of
      $5.7
      million. The cash inflow from operations for the first six months of 2004 was
      primarily a result of our net increase in customer advance payments of
      approximately $15.0 million in connection with contract payments made by a
      customer in Latin America and the Caribbean in addition to a decrease in
      inventory levels ($4.9 million) and a decrease in accounts receivable ($2.8
      million). The cash inflow was partially offset by a net loss of $9.8 million
      and
      a $2.9 million increase in other current assets primarily related to amounts
      due
      from our contract manufacturer for inventories purchased from Airspan. Days
      sales outstanding increased to 67 days at the end of the second quarter 2005
      from 49 at the end of the fourth quarter 2004, and compared to 45 days at the
      end of the second quarter 2004. Inventory turns were 4.2 at the end of the
      second quarter of 2005, compared with 8.4 for the fourth quarter 2004 and 2.8
      turns for the second quarter of 2004.





The
      net
      cash used in investing activities for the first six months of 2005 was $5.1
      million, comprised of $0.9 million for capital purchases and $4.2 million for
      the acquisition of ArelNet. For the same period in 2004 capital purchases were
      $1.0 million.





Our
      net
      cash inflow from financing activities for the six months ended July 3, 2005
      was
      $0.3 million compared with an outflow of $22.5 million for the six months ended
      July 4, 2004. During the first six months of 2005, we generated $0.6 million
      upon the exercises of stock options. This inflow was partially offset by a
      $0.2
      million increase in restricted cash. Restricted cash increases when the Company
      issues a guarantee secured by cash collateral or additional contributions are
      collected from employees under the ESPP and decreases whenever such a guarantee
      is cancelled or shares are actually purchased under the ESPP. For the comparable
      period of 2004 we generated $0.8 million upon the exercise of stock options
      but
      this was more than offset by a $23.3 million increase in restricted
      cash.





We
      have
      no material commitments other than obligations on operating leases and purchase
      commitments to our manufacturing subcontractors as at July 3, 2005. These
      purchase commitments totaled $21.1 million at December 31, 2004 and at July
      3,
      2005 totaled $24.1 million.





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





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







**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 3, 2005
      and December 31, 2004, we had cash, cash equivalents and restricted cash of
      $47.6 million and $68.0 million, respectively. Substantially all of these
      amounts consisted of highly liquid investments with purchase to maturity terms
      of less than 90 days. These investments are exposed to interest rate risk,
      but a
      hypothetical increase or decrease in market interest rates by two percentage
      points from July 3, 2005 rates would cause the fair market value of these
      short-term investments to change by an insignificant amount. Due to the short
      duration of these investments, a short-term increase in interest rates would
      not
      have a material effect on our financial condition or results of operations.
      Declines in interest rates over time would, however, reduce our interest income.
      Due to the uncertainty of the specific actions that would be taken to mitigate
      this, and their possible effects, the sensitivity analysis does not take into
      account any such action.








Foreign
      Currency Exchange Rate Risk





For
      the
      six 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. Comparatively, for the six months ended July 4,
      2004, 96% of our sales were denominated in US dollars, 3% were
      denominated in euro, and 1% was denominated in Australian dollars. Our
      total euro denominated sales for the six months ended July 3, 2005 were
      $1.0 million, which were recorded at an average exchange rate of $1US
      =
€0.7714. Our total Australian dollar denominated sales for the six months ended
      July 3, 2005 were $0.9 million,  which were recorded at an average
      exchange rate of $1US = AUS$1.289. If the average exchange rates used had been
      higher or lower during the six month period ended July 3, 2005 by 10%, they
      would have decreased or increased the total Australian dollar and
      euro-denominated sales value by $0.2 million. We expect the proportions of
      sales
      in euro and Australian dollars to fluctuate over time. The Company’s sensitivity
      analysis for changes in foreign currency exchange rates does not take into
      account changes in sales volumes.





We
      have
      from time to time entered into fair value currency hedging contracts that lock
      in minimum exchange rates for payments due to us under some of our sales
      contracts where those payments are to be made in currencies other than US
      dollars. We do not enter into any currency hedging activities for speculative
      purposes. The costs of these contracts are included under interest and other
      income in our financial statements. There were no fair value currency hedge
      contracts outstanding at July 3, 2005. We will continue to monitor our foreign
      currency exposures and may modify hedging strategies, as we deem prudent.





We
      have
      also entered from time to time into cash flow currency hedges to hedge our
      expected sterling expenditure. We assess the exposure of the Company to certain
      currencies on a quarterly basis and we obtain inputs from various financial
      institutions relating to forecast currency exchange rates. Based on that
      assessment and forecast exchange rates, we enter into currency hedges to hedge
      our expected exposure to those currencies for periods up to twelve months.
      The
      amounts we hedge are not expected to exceed forecasted expenditures in those
      periods. Our operating results are affected by movement in foreign currency
      exchange rates, particularly the rate between U.S. dollars and U.K. pounds
      sterling and the rate between U.S. dollars and Israeli shekels. This is because
      most of our operating expenses, which may fluctuate over time, are incurred
      in
      pounds sterling and Israeli shekels. During the six months ended July 3, 2005,
      we paid expenses in local currency of approximately 4.9 million pounds sterling,
      at an average rate of $1US = 0.5298 pounds sterling. During the six months
      ended
      July 3, 2005, we paid expenses in local currency of approximately 17.8 million
      Israeli shekels, at an average rate of $1US = 4.3536 shekels. If the expenses
      in
      pounds sterling had not been hedged and the average exchange rates for U.K.
      pounds sterling and Israeli shekels had been higher or lower for the six month
      period ended July 3, 2005 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.





We
      expect
      the proportions of operating expenses paid in pounds sterling and Israeli
      shekels to fluctuate over time. We had no outstanding forward exchange contracts
      at July 3, 2005.








Equity
      Price Risk





We
      do not
      own any equity investments, other than in 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**





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








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





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





Based
      on
      that evaluation, the Chief Executive Officer and Chief Financial Officer
      concluded that as of such date, our disclosure controls and procedures were
      (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,
      and summarized in accordance with 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
      the following paragraph.





Subsequent
      to July 3, 2005 we became aware of a material weakness in our internal control
      over financial reporting. The Public Company Accounting Oversight Board's
      Auditing Standard No. 2 defines a material weakness as a significant deficiency,
      or a combination of significant deficiencies, that results in there being a
      more
      than remote likelihood that a material misstatement of the annual or interim
      financial statements will not be prevented or detected. Our processes and
      procedures relating to the appropriate accounting treatment for the recognition
      of revenue under certain types of extended payment arrangements in our sales
      contracts did not operate effectively. Specifically two second quarter 2005
      customer contracts with extended payment terms, involving revenue of
      approximately $1 million, were not accounted for in accordance with generally
      accepted accounting principles in our initial closing of our consolidated
      financial information for the quarter ended July 3, 2005. We identified these
      contracts to our independent registered public accounting firm and following
      our
      independent registered public accounting firms’ quarterly review procedures, the
      correct accounting for the contracts in question was subsequently determined
      and
      applied, prior to the public release of our financial information for the second
      quarter of 2005 and, in accordance with that accounting, the related revenue
      was
      deferred.





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





To
      address the Company's material weakness relating to revenue recognition
      accounting under sales contracts with extended payment terms, the Company is
      in
      the process of enhancing its internal control processes and procedures in order
      to be able to comprehensively review the accounting and disclosure implications
      of such transactions.





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





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





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




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




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




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




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




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





**Part
      II OTHER INFORMATION**






**Item
      1. LEGAL PROCEEDINGS**






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







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










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







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







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




Not
      Applicable




**Item
      3. DEFAULTS UPON SENIOR SECURITIES**




None




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




The
      Annual Meeting of Shareholders (the Annual Meeting) was held at Airspan’s
      offices in Boca Raton, Florida, on June 22, 2005, for the following purposes:





·
            To
                elect eight 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;









·
            To
                consider and vote upon a proposal to approve of and ratify the selection
                of Ernst & Young, LLP as the Company's independent auditors for the
                fiscal year ending December 31, 2005;
                and




·
            To
                approve an amendment to Section 11 of the Company’s Articles of Amendment
                to its Articles of Incorporation setting forth the rights, preferences
                and
                privileges of the Series A Preferred Stock (the “Certificate of
                Designation”) to modify the voting rights of the holders of the Series A
                Preferred Stock.




The
      number of outstanding shares of the Company’s Common Stock and Series A
      Preferred Stock as of April 27, 2005, the record date for the Annual Meeting,
      was 38,001,454
      and 73,000, respectively. 29,270,738
      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 100 votes for each
      share of Series A Preferred Stock. However, the sole holder of the Series A
      Preferred Stock entered into an agreement with the Company pursuant to which
      it
      agreed that it would not vote, and would take such action as is deemed
      reasonably necessary to evidence its abstention from voting with respect to,
      14
      votes per each of its shares of Series A Preferred Stock.





The
      following directors were elected at the Annual Meeting: (i) Matthew J. Desch,
      (ii) Eric D. Stonestrom, (iii) H. Berry Cash, (iv) Thomas S. Huseby, (v) David
      A. Twyver, (vi) Guillermo Heredia, (vii) Michael T. Flynn and (viii) 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
            34,646,980
            —
            1,923,758
            —
            —Eric
                D. Stonestrom
            36,524,410
            —
            46,328
            —
            —H.
                Berry Cash
            36,486,950
            —
            83,787
            —
            —Thomas
                S. Huseby
            35,095,023
            —
            1,475,715
            —
            —David
                A. Twyver
            36,448,328
            —
            122,410
            —
            —Guillermo
                Heredia
            36,492,754
            —
            77,983
            —
            —Michael
                T. Flynn
            36,464,518
            —
            106,220
            —
            —Randall
                E. Curran
            36,475,570
            —
            95,168
            —
            —





With
      respect to the proposal to approve of and ratify the selection of Ernst &
      Young, LLP as the Company’s independent auditors for the fiscal year ending
      December 31, 2005: (i) 36,519,062 votes were cast for such proposal and, (ii)
      42,321 votes were cast against such proposal and (iii) 9,354 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 Ernst & Young, LLP as the Company’s independent auditors for the
      fiscal year ending December 31, 2005, was approved by the
      shareholders.





With
      respect to the proposal to amend the Company’s Articles of Incorporation: (i)
      21,247,569 votes were cast for such proposal and, (ii) 728,530 votes were cast
      against such proposal, (iii) 52,924 shares abstained from voting on such
      proposal and (iv) there were 14,541,715 broker non-votes with respect to such
      proposal. No votes were withheld with respect to such proposal. Accordingly,
      the
      proposal to amend the Articles of Incorporation was approved by the
      shareholders.





**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 David Brant (5), (7)10.9
            2003
                Supplemental Stock Option Plan (3)10.10
            Airspan
                Omnibus Equity Compensation Plan (1)10.11
            Purchase
                and License Agreement, dated as of December 28, 2004, by and between
                Airspan Communications Limited and Axtel S.A. de C.V. (11) (13)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) (12)31.1
            Certification
                of the Chief Executive Officer pursuant to Section 302 of the
                Sarbanes-Oxley Act of 2002*31.2
            Certification
                of the Chief Financial Officer pursuant to Section 302 of the
                Sarbanes-Oxley Act of 2002*32.1
            Certification
                of the Chief Executive Officer pursuant to section 906 of the
                Sarbanes-Oxley Act of 2002***32.2
            Certification
                of the Chief Financial Officer pursuant to section 906 of the
                Sarbanes-Oxley Act of 2002***








*     
      Filed herewith





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





***
      Furnished herewith





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
            Portions
                of this document have been omitted and were filed separately with
                the SEC
                on March 16, 2005 pursuant to a request for confidential treatment.12
            Incorporated
                by reference to the Company’s Form 10-K for the year ended December 31,
                2004.13
            Incorporated
                by reference to the Company’s report on Form 8-K filed on June 9,
                2005.














**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.








August
      12, 2005




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