**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**WASHINGTON,
      D.C. 20549**




**FORM
      10-Q**




ý
            QUARTERLY
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES
                EXCHANGE ACT OF 1934**For
                the quarterly period ended April 2, 2006**ORo
            TRANSITION
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES
                EXCHANGE ACT OF 1934For
                the transition period from ________________ to
                ________________





Commission
      file number: **000-31031**





**AIRSPAN
      NETWORKS, INC.**


(Exact
      name of registrant as specified in its charter)





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





**561-893-8670**


(Registrant’s
      telephone number, including area code)





**None**


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





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


Yes x    No  ̈





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




Large
      accelerated filer  ̈    Accelerated
      filer x   Non-accelerated
      filer  ̈




Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act).




Yes  ̈    No x





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





Class
            
            Outstanding
                at May 11, 2006Common
                Stock, $.0003 par value per share
            
            40,032,389
                shares











**PART
      1. FINANCIAL INFORMATION**





**Item
      1. Financial Statements**


**AIRSPAN
      NETWORKS INC.**





**CONDENSED
      CONSOLIDATED BALANCE SHEETS**


(in
      thousands except for share and per share data)


**December
                31,**
            
            **April
                2,****2005
                (1)**
            
            **2006****(unaudited)****ASSETS****Current
                Assets**Cash
                and cash equivalents
            
            $
            44,140
            
            $
            23,691Restricted
                cash
            
            
            2,290
            
            
            6,135Short
                term investments
            
            
            6,020
            
            
            8,088Accounts
                receivable, less allowance for doubtful accounts of $3,519 at December
                31,
                2005 and $3,922 at April 2, 2006
            
            
            24,348
            
            
            19,911Unbilled
                accounts receivable
            
            
            273
            
            
            501Inventory
            
            
            16,850
            
            
            22,529Prepaid
                expenses and other current assets
            
            
            3,722
            
            
            8,164Total
                Current Assets
            
            
            97,643
            
            
            89,019Property,
                plant and equipment, net
            
            
            5,268
            
            
            5,612Goodwill
            
            
            10,231
            
            
            10,231Intangible
                assets, net
            
            
            3,865
            
            
            3,590Other
                non-current assets
            
            
            3,445
            
            
            3,447Total
                Assets
            
            $
            120,452
            
            $
            111,899**LIABILITIES
                AND STOCKHOLDERS’ EQUITY****Current
                Liabilities**Accounts
                payable
            
            $
            24,678
            
            $
            18,358Accrued
                taxes
            
            
            1,156
            
            
            648Deferred
                revenue
            
            
            1,514
            
            
            5,608Customer
                advances
            
            
            13,935
            
            
            15,637Other
                accrued expenses
            
            
            13,113
            
            
            12,967Current
                portion of long term debt
            
            
            96
            
            
            -Total
                Current Liabilities
            
            
            54,492
            
            
            53,218**Non
                Current Liabilities**Long
                term debt
            
            
            1,296
            
            
            1,426Accrued
                interest on long term debt
            
            
            53
            
            
            101Total
                non current liabilities
            
            
            1,349
            
            
            1,527**Commitments**
            
            
            —
            
            
            —**Stockholders’
                Equity**Preferred
                stock, $0.0001 par value; 74,200 shares authorized at December 31,
                2005
                and April 2, 2006: 73,000 issued at December 31, 2005 and April 2,
                2006
            
            
            —
            
            
            —Common
                stock, $0.0003 par value; 100,000,000 shares authorized at December
                31,
                2005 and April 2, 2006: 39,768,271 issued at December 31, 2005 and
                40,003,331 issued at April 2, 2006
            
            
            12
            
            
            12Note
                receivable - stockholder
            
            
            (87
            )
            
            (87
            )Additional
                paid in capital
            
            
            267,426
            
            
            268,126Accumulated
                other comprehensive income
            
            
            (130
            )
            
            —Accumulated
                deficit
            
            
            (202,610
            )
            
            (210,897
            )Total
                Stockholders’ Equity
            
            
            64,611
            
            
            57,154Total
                Liabilities and Stockholders’ Equity
            
            $
            120,452
            
            $
            111,899





(1)
            Derived
                from audited financial statements





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




-2-


**AIRSPAN
      NETWORKS INC.**





**CONDENSED
      CONSOLIDATED STATEMENTS OF OPERATIONS**


(in
      thousands except for share and per share data)


**Quarter
                Ended****April
                3, 2005**
            
            **April
                2, 2006****(unaudited)**Revenue
            
            $
            22,218
            
            $
            23,800Cost
                of revenue
            
            
            (15,362
            )
            
            (17,362
            )Gross
                profit
            
            
            6,856
            
            
            6,438Operating
                expenses:Research
                and development
            
            
            4,598
            
            
            6,110Sales
                and marketing
            
            
            2,572
            
            
            4,505Bad
                debt provision
            
            
            316
            
            
            536General
                and administrative
            
            
            2,827
            
            
            3,762Amortization
                of intangibles
            
            
            128
            
            
            275Total
                operating expenses
            
            
            10,441
            
            
            15,188Loss
                from operations
            
            
            (3,585
            )
            
            (8,750
            )Interest
                expense
            
            
            —
            
            
            (12
            )Interest
                and other income
            
            
            676
            
            
            191Loss
                before income taxes
            
            
            (2,909
            )
            
            (8,571
            )Income
                tax charge/(credit)
            
            
            —
            
            
            (284
            )Net
                loss
            
            $
            (2,909
            )
            $
            (8,287
            )Net
                loss per share - basic and diluted
            
            $
            (0.08
            )
            $
            (0.21
            )Weighted
                average shares outstanding- basic and diluted
            
            
            37,880,759
            
            
            39,733,291





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




-3-




**AIRSPAN
      NETWORKS INC.**





**CONDENSED
      CONSOLIDATED STATEMENTS OF CASH FLOWS**


(in
      thousands)


**Year-to-date****April
                3, 2005**
            
            **April
                2, 2006****(unaudited)****CASH
                FLOWS FROM OPERATING ACTIVITIES**Net
                loss
            
            $
            (2,909
            )
            $
            (8,287
            )Adjustments
                to reconcile net loss to net cash used in operating activities:Depreciation
                and amortization
            
            
            535
            
            
            622401K
                plan common stock distribution
            
            
            —
            
            
            20Stock
                compensation
            
            
            —
            
            
            603Change
                in operating assets and liabilities:Decrease in receivables
            
            
            6,140
            
            
            4,437Increase in inventories
            
            
            (640
            )
            
            (5,679
            )Increase in other current assets
            
            
            (1,788
            )
            
            (4,540
            )Decrease in accounts payable
            
            
            (10,958
            )
            
            (6,320
            )Increase in deferred revenue
            
            
            17
            
            
            4,094Increase/(decrease) in customer advances
            
            
            (3,294
            )
            
            1,702Decrease
                in accrued expenses
            
            
            (2,043
            )
            
            (572
            )Decrease
                in long-term accounts receivable
            
            
            8
            
            
            —Increase
                in other non current assets
            
            
            (49
            )
            
            (2
            )Restricted
              cash movement
            
            
            (194
            )
            
            (3,845
            )Net
                cash from/(used in) operating activities
            
            
            (15,175
            )
            
            (17,767
            )**CASH
                FLOWS FROM INVESTING ACTIVITIES**Purchase
                of property and equipment
            
            
            (247
            )
            
            (691
            )Purchase
                of investment securities
            
            
            —
            
            
            (8,961
            )Proceeds
                from sale of investments securities
            
            
            —
            
            
            6,893Net
                cash used in investing activities
            
            
            (247
            )
            
            (2,759
            )**CASH
                FLOWS FROM FINANCING ACTIVITIES**Exercise
                of stock options
            
            
            550
            
            
            77Net
                cash from financing activities
            
            
            550
            
            
            77Decrease
                in cash and cash equivalents
            
            
            (14,872
            )
            
            (20,449
            )Cash
                and cash equivalents, beginning of period
            
            
            66,296
            
            
            44,140Cash
                and cash equivalents, end of period
            
            $
            51,424
            
            $
            23,691**SUPPLEMENTAL
                DISCLOSURES OF CASH FLOW INFORMATION****Taxes
                paid**
            
            $
            —
            
            $
            3





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




-4-


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


**BUSINESS**





We
      are a
      global supplier of Broadband Wireless equipment and other technologies,
      including Voice-over-IP (VoIP) switching that allow communications service
      providers (often referred to as “local exchange carriers,” or simply telephone
      companies), Internet service providers (often referred to as “ISPs”) and other
      telecommunications users, such as utilities and enterprises, to cost-effectively
      deliver high-speed data and voice services using radio frequencies rather than
      wires. We call this transmission method “Broadband Wireless”. The primary market
      for our systems has historically been a subset of the fixed broadband wireless
      access systems market, which is the fixed point-to-multipoint market in radio
      frequencies below 6.0GHz.




Each
      of
      our wireless systems utilizes digital radio technology, which provides either
      wide-area or local-area coverage, robust security and resistance to fading.
      These systems can be deployed rapidly and cost effectively, providing an
      attractive alternative or complement to traditional copper wire, cable, or
      fiber-optic communications access networks. Our products also include software
      tools that optimize geographic coverage of our systems and provide ongoing
      network management. To facilitate the deployment and operation of our systems,
      we also offer network installation, training and support services. A more
      complete description of our various wireless access systems is provided below.
      Our broadband wireless systems have been installed by more than 350 network
      operators in more than 100 countries.




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




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




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




In
      December 2003, we acquired the fixed wireless access business of Nortel Networks
      known as “Proximity for $13.1 million in cash.. The Proximity products enable
      operators to provide carrier class circuit switched voice and data services
      using Time Division Multiple Access (“TDMA”) technology. We acquired inventory
      relating to the Proximity business as well as existing assets associated with
      the manufacture, development and support of the Proximity product line. We
      also
      assumed the product supply obligations associated with customer contracts and
      certain other liabilities and obligations along with the workforce then directly
      employed in the Proximity business.





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




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





In
      March
      2005, we introduced our first wireless products that operate according to the
      802.16-2004 standard, in a new product line known as “AS.MAX”, a full portfolio
      of WiMAX systems comprising Base Stations and Customer Premise Equipment
      (“CPEs”) based on the 802.16 standard. In March 2006, we announced that two
      products forming part of the AS.MAX family - the MacroMAX base station and
      the
      EasyST CPE - had been certified in the 3.5GHZ band by the WiMAX Forum as meeting
      the standards required by the IEEE for interoperability.




-5-


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


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




·
            our
                traditional fixed point-to-multipoint broadband wireless access (“BWA”)
                market; and




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




In
      June
      2005, we acquired all of the outstanding shares of capital stock of ArelNet
      Ltd
      (“ArelNet”). ArelNet is a pioneer in VoIP network infrastructure equipment and
      solutions, including soft switches and gateways supporting all major VoIP
      standards. ArelNet has extensive experience worldwide, having installed network
      equipment with a capacity exceeding two billion minutes per year. The final
      purchase price of $9.1 million included $4.0 million of cash, $4.7 million
      for
      shares in Airspan and $0.3 million in Airspan options. The ArelNet product
      portfolio (“AS.TONE”) gives us the ability to sell VoIP products on a
      stand-alone basis or in combination with AS.MAX or Radionet products to
      operators wishing to offer voice services over their IP-based
      networks.





In
      November 2005 we acquired Radionet Oy, a Finnish limited liability company
      (“Radionet”). Established in 2000, Radionet is a leading provider of municipal
      wireless Hotzones, community networks, mobile broadband solutions for industrial
      applications, such as ports, mines and public transport, and link solutions
      for
      wireless backhaul and enterprises. Radionet’s environmentally-robust product
      portfolio, operating in unlicensed frequency bands using IEEE 802.11 a/b/g
      WiFi
      standards, delivers high performance connectivity with built-in bandwidth
      management and advanced security features. The Radionet product architecture
      includes network and subscriber management capabilities and Radionet’s patented
“MageIP”TM technology allows roaming within Hotzones, offering seamless mobility
      between access points and subnets in a wireless network. The acquisition added
      to our product portfolio wireless products that operate according to the IEEE
      802.11 standard for wireless local area networks (also known as WiFi). Radionet
      products are now being sold under the “AS.NET” name. Our AS.MAX and AS.NET
      products constitute our first entry into the market of open-standard systems,
      in
      which products that operate according to the same standards are interoperable.
      AS.MAX and AS.NET support nomadic and portable users in addition to our
      traditional fixed broadband access users. AS.NET systems also have the ability
      to support mobile users today.




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





**BASIS
      OF PRESENTATION**





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





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





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




*Reclassifications*




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




-6-


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





**CONTINGENCIES**





*Warranty*





We
      provide a limited warranty for periods, usually ranging from twelve to
      twenty-four months, to all purchasers of our new equipment. Warranty expense
      is
      accrued at the date revenue is recognized on the sale of equipment and is
      recognized as a cost of revenue. The expense is estimated based on analysis
      of
      historic costs and other relevant factors. Management believes that the amounts
      provided for are sufficient for all future warranty costs on equipment sold
      through April 2, 2006 but if actual product failure rates, material usage or
      service delivery costs differ from estimates, revisions to the estimated
      warranty liability would be required.





Information
      regarding the changes in our product warranty liabilities was as follows for
      the
      three months ended April 2, 2006.





**Balance
                at beginning of period**
            
            **Accrual
                for warranties issued during the period**
            
            **Changes
                in accruals related to pre-existing warranties (including changes
                in
                estimates)**
            
            **Settlements
                made (in cash or in kind) during the period**
            
            **Balance
                at end of period**Three
                months ended April 2 2006Product
                warranty liability
            
            $
            410
            
            $
            318
            
            $
            12
            
            $
            (196
            )
            $
            544





*Other
      guarantees*





We
      had
      delivered to our landlords and customers bank guarantees aggregating to $3,119
      at December 31, 2005 and $5,722 at April 2, 2006. The increase in other
      guarantees during the quarter occurred primarily as a result of new guarantees
      being issued to two of our key customers - Yozan and Axtel - to support the
      performance under our contracts with these customers and a bid to supply new
      equipment. We are also contractually required to issue an additional bank
      guarantee in the amount of $1,097 to Yozan to secure performance under the
      contract. The foregoing figures represent the maximum potential amount of future
      payments we could be required to make under these guarantees. The guarantees
      secure our payment or performance obligations under contracts. We have pledged
      cash to the banks as collateral for the guarantees in the same amounts as the
      guarantees. Where the cash has been pledged for guarantees that expire in less
      than one year, we have classified these pledges as restricted cash ($4,650
      in
      aggregate). Where the guarantees have maturities greater than one year, the
      cash
      pledged as collateral has been classified as Other non-current assets ($1,056)
      (see further the section on **Liquidity
      and Capital Resources** below
      for an explanation of restricted cash). We have not recognized any liability
      for
      these guarantees as in management’s opinion the likelihood of having to make
      payments under the guarantees is remote. These guarantees will all expire before
      the end of 2010, with the majority expiring by the first quarter of 2007.





*Legal
      claims*




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




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




-7-


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




Airspan
      has approved a settlement agreement and related agreements which set forth
      the
      terms of a settlement between Airspan, the Individual Defendants, the plaintiff
      class and the vast majority of the other approximately 300 issuer defendants
      and
      the individual defendants currently or formerly associated with those companies.
      Among other provisions, the settlement provides for a release of Airspan and
      the
      individual defendants for the conduct alleged in the action to be wrongful.
      Airspan would agree to undertake certain responsibilities, including agreeing
      to
      assign away, not assert, or release certain potential claims Airspan may have
      against its underwriters. The settlement agreement also provides a guaranteed
      recovery of $1 billion to plaintiffs for the cases relating to all of the
      approximately 300 issuers. To the extent that the underwriter defendants settle
      all of the cases for at least $1 billion, no payment will be required under
      the
      issuers’ settlement agreement. To the extent that the underwriter defendants
      settle for less than $1 billion, the issuers are required to make up the
      difference. On
      April
      20, 2006, JPMorgan Chase and the plaintiffs reached a preliminary agreement
      for
      a settlement for $425 million. The JPMorgan Chase settlement has not yet been
      approved by the Court. However, if it is finally approved, then the maximum
      amount that the issuers’ insurers will be potentially liable for is $575
      million.  It
      is
      anticipated that any potential financial obligation of Airspan to plaintiffs
      pursuant to the terms of the settlement agreement and related agreements will
      be
      covered by existing insurance. The Company currently is not aware of any
      material limitations on the expected recovery of any potential financial
      obligation to plaintiffs from its insurance carriers. Its carriers are solvent,
      and the company is not aware of any uncertainties as to the legal sufficiency
      of
      an insurance claim with respect to any recovery by plaintiffs. Therefore, we
      do
      not expect that the settlement will involve any payment by Airspan. If material
      limitations on the expected recovery of any potential financial obligation
      to
      the plaintiffs from Airspan’s insurance carriers should arise, Airspan’s maximum
      financial obligation to plaintiffs pursuant to the settlement agreement would
      be
      less than $3.4 million. However,
      if the JPMorgan Chase settlement is finally approved, Airspan’s maximum
      financial obligation to the plaintiffs pursuant to the settlement agreement
      would be less than $2 million. On
      February 15, 2005, the Court granted preliminary approval of the settlement
      agreement, subject to certain modifications consistent with its opinion. Those
      modifications have been made. On March 20, 2006, the Underwriter Defendants
      submitted objections to the settlement to the Court. The Court held a hearing
      regarding those and other objections to the settlement at a fairness hearing
      on
      March 24, 2006, but has not yet issued a ruling. There is no assurance that
      the
      court will grant final approval to the settlement. If the settlement agreement
      is not approved and Airspan is found liable, we are unable to estimate or
      predict the potential damages that might be awarded, whether such damages would
      be greater than Airspan’s insurance coverage, and whether such damages would
      have a material impact on our results of operations or financial condition
      in
      any future period.




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




**REVENUE
      RECOGNITION**





We
      recognize revenue when all of the following conditions are met:




·
            an
                arrangement exists with the customer;




·
            delivery
                has occurred or services have been rendered;




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




·
            collection
                of the receivable is reasonably assured.





Management
      must apply significant estimates and judgment in determining how to apply the
      current accounting standards and interpretations related to revenue recognition.
      If these estimates are significantly different from actual results, our revenue
      could be impacted.





There
      were no acquisitions or material changes in the mix of products or services
      sold
      in the first quarter of 2006 that would have required us to make any changes
      to
      our revenue recognition policy.




-8-




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




At
      April
      2, 2006, we had three stock option plans, the 2004 Omnibus Equity Compensation
      plan and the 2000 Employee Stock Purchase Plan (“ESPP”). Awards under the 2004
      Omnibus Equity Compensation Plan may be made to participants in the form
      Incentive Stock Options, Nonqualified Stock Options, Stock Appreciation Rights,
      Restricted Stock, Deferred Stock, Stock Awards, Performance Shares, Other
      Stock-Based Awards and others forms of equity based compensation as may be
      provided and are permissible under this Plan and the law. Employee stock options
      granted under all the plans generally vest over a four-year period and expire
      on
      the tenth anniversary of their issuance. Restricted stock is common stock that
      is subject to a risk of forfeiture or other restrictions that will lapse upon
      satisfaction of specified performance conditions or the passage of time. Awards
      of restricted stock that vest only by the passage of time will vest fully four
      years after the date of grant. At April 2, 2006, the Company had 2,507,256
      shares of its common stock available for future awards under the stock option
      plans and 1,694,947 shares available for future issuance under the ESPP.





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





We
      adopted SFAS 123(R) as of January 1, 2006, the first day of the fiscal year
      2006 using the modified prospective transition method. Our consolidated
      financial statements as of and for the first quarter of fiscal 2006 reflect
      the
      impact of SFAS 123(R). The consolidated financial statements for prior periods
      have not been restated to reflect, and do not include, the impact of SFAS
      123(R). The adoption of this statement has resulted in higher reported operating
      expenses for the first quarter of 2006 and will result in higher reported
      operating expenses in our future financial statements. Share-based compensation
      expense recognized under SFAS 123(R) for the first quarter of fiscal 2006 was
      $623.





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




**Quarter
                Ended**
            
            **Quarter
                Ended****April
                3,**
            
            **April
                2,****2005**
            
            **2006**Research
                and development
            
            $
            8
            
            $
            261Sales
                and marketing
            
            
            10
            
            
            211General
                and administrative
            
            
            38
            
            
            129Stock-based
                compensation expense included in operating expense
            
            
            56
            
            
            601Cost
                of sales
            
            
            —
            
            
            22Total
                stock-based compensation
            
            $
            56
            
            $
            623




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




-9-


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




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





All
      options granted under the stock option plans had an exercise price equal to
      the
      market value of the underlying common stock on the date of grant. There was
      no
      stock-based compensation cost reflected in net income in 2005 related to these
      stock option plans. In the first quarter of 2006, we recognized stock-based
      compensation costs in net income related to these stock option plans of
      $517.




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




**Quarter
                Ended**
              **April
                2, 2006****Number of**
              **Shares**
            
            **Weighted-Average**
              **Exercise
                Price****Options:**Outstanding
                at beginning of period
            
            
            5,291,679
            
            $
            4.00Granted
            
            
            443,000
            
            $
            6.15Forfeited
            
            
            (27,855
            )
            $
            4.08Exercised
            
            
            (195,060
            )
            $
            2.11Outstanding
                at end of period
            
            
            5,511,764
            
            $
            4.24Exercisable
                at end of period
            
            
            3,270,419
            
            $
            3.86





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




**Outstanding
                options**
            
            **Exercisable
                options****Weighted
                average**
            
            **Weighted
                average****Remaining****Exercise**
            
            **contractual
                life in**
            
            
            
            **Exercise****Exercise
                Price ranges**
            
            **Number**
            
            **price**
            
            **years**
            
            **Number**
            
            **price**$0.30-0.49
            
            
            635,733
            
            $
            0.44
            
            
            5.90
            
            
            468,282
            
            $
            0.430.54-1.95
            
            
            580,881
            
            
            1.46
            
            
            5.36
            
            
            574,646
            
            
            1.472.00-2.89
            
            
            629,443
            
            
            2.65
            
            
            5.95
            
            
            526,675
            
            
            2.653.00-4.37
            
            
            672,928
            
            
            4.07
            
            
            7.84
            
            
            328,643
            
            
            4.014.375-4.58
            
            
            569,280
            
            
            4.38
            
            
            5.04
            
            
            543,577
            
            
            4.384.59-5.08
            
            
            948,074
            
            
            5.01
            
            
            8.79
            
            
            244,592
            
            
            5.065.14-6.00
            
            
            743,779
            
            
            5.81
            
            
            6.51
            
            
            307,629
            
            
            5.886.10-7.50
            
            
            513,313
            
            
            5.28
            
            
            9.19
            
            
            58,042
            
            
            7.739.60
            
            
            48,333
            
            
            9.60
            
            
            4.20
            
            
            48,333
            
            
            9.6015.00
            
            
            170,000
            
            
            15.00
            
            
            4.33
            
            
            170,000
            
            
            15.00Total
            
            
            5,511,764
            
            $
            4.24
            
            
            6.82
            
            
            3,270,419
            
            $
            3.86






-10-


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


As
      of
      April 2, 2006, the weighted average remaining contractual life of options
      exercisable was 5.68 years and their aggregate intrinsic value was $11,032.
      The
      total intrinsic value of options exercised during the quarter ended April 2,
      2006 was $844. Cash received from stock option exercises for the quarter
      ended April 2, 2006 was $77. Because the Company maintained a full valuation
      allowance on its deferred tax assets, the Company did not recognize any tax
      benefit related to stock based compensation expense
      for the quarter ended April 2, 2006.




On
      January 27, 2006, a total of 40,000 restricted shares were granted to employees,
      all of which vest based on time. A total expense of $10 was recorded for the
      quarter related to the shares. The summary of the changes in restricted stock
      outstanding during the quarter ended April 2, 2006 is presented below:




**Quarter
                Ended****April
                2, 2006****Weighted-Average****Number of**
            
            
            **Grant Date****Shares**
            
            
            **Fair Value**Nonvested
                balance at beginning of period
            
            
            100,000
            
            $
            4.12Granted
            
            
            40,000
            
            $
            6.15Forfeited
            
            
            —
            
            $
            —Vested
            
            
            —
            
            $
            —Nonvested
                balance at end of period
            
            
            140,000
            
            $
            4.70


As
      of
      April 2, 2006, the Company had $5,122 of total unrecognized compensation
      expense, net of estimated forfeitures, related to stock options that will be
      recognized over the weighted average period of 2.98 years. Also, as of April
      2,
      2006, the Company had $460 of total unrecognized compensation expense related
      to
      restricted stock awards that will be recognized over the weighted average period
      of 3.5 years. A total of 140,000 nonvested restricted shares will vest
      based on passage of time and an additional 120,000 will be issued in 2007 if
      certain performance conditions are achieved.





Under
      our
      ESPP, eligible employees may purchase shares of common stock through payroll
      deductions. There were no shares issued under the ESPP during the quarter ended
      April 2, 2006. During the quarter, 2,978 shares were deposited into U.S.
      employee’s 401K retirement plans.





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





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




**Quarter
                Ended**
              **April
                3, 2005**Net
                loss applicable to common stockholders — as reported
            
            $
            (2,909
            )Deduct:
                Total stock-based employee compensation expense determined under
                fair
                value based method for all awards, net of related tax
                effects
            
            
            (568
            )Add:
                Stock-based employee compensation expense included in reported net
                income,
                net of related tax effects
            
            
            56Net
                loss applicable to common stockholders — pro forma
            
            $
            (3,421
            )Basic
                and diluted net loss per share — as reported
            
            $
            (0.08
            )Basic
                and diluted net loss per share — pro forma
            
            $
            (0.09
            )






-11-


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


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





The
      weighted average fair value of each restricted stock share granted under our
      equity compensation plans for the first quarter of fiscal 2005 was $4.12 and
      for
      the first quarter of 2006 was $6.15. The fair value of each restricted stock
      award is estimated on the date of grant using the intrinsic value
      method.





The
      weighted average fair value of each option granted for the first quarter of
      fiscal 2005 and the first quarter of fiscal 2006 was $2.65 and $4.00,
      respectively. The fair value of each option award is estimated on the date
      of
      grant using the Black-Scholes Option Pricing Model, with the following weighted
      average assumptions for the first quarter of fiscal 2005 and the first quarter
      of fiscal 2006:




**Quarter
                Ended****April
                3,**
            
            **April
                2,****2005**
            
            **2006**Expected
                volatility
            
            
            86
            %
            
            75
            %Risk-free
                interest rate
            
            
            3.73
            %
            
            4.62
            %Expected
                life (years)
            
            
            4
            
            
            5Expected
                dividend yield
            
            
            0
            %
            
            0
            %





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





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





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


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


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





As
      share-based compensation expense recognized in the consolidated statement of
      operations for the first quarter of fiscal 2006 is based on awards ultimately
      expected to vest, it has been reduced for estimated forfeitures. Forfeitures
      were estimated based on our historical experience.





*Assumptions
      for option-based awards under SFAS 123*





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




-12-




**AIRSPAN
      NETWORKS INC.**





**NOTES
      TO THE CONDENSED FINANCIAL STATEMENTS**


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





**INVENTORY**





Inventory
      consists of the following:




**December
                31,**
            
            
            **April
                2,****2005**
            
            
            **2006****(unaudited)**Purchased
                parts and materials
            
            $
            9,743
            
            $
            8,477Work
                in progress
            
            
            1,198
            
            
            1,262Finished
                goods and consumables
            
            
            16,395
            
            
            22,671Inventory
                provision
            
            
            (10,486
            )
            
            (9,881
            )$
            16,850
            
            $
            22,529





**ACCRUED
      RESTRUCTURING CHARGES**





In
      the
      fourth quarter of 2002, the decision was made to completely outsource all of
      our
      manufacturing. As a result, the Company recorded a $1.0 million restructuring
      charge for the closure of its Riverside, Uxbridge facility in 2003. All of
      this
      cost relates to the excess facility. A further $0.4 million was recognized
      as
      restructuring in the income statement in the fourth quarter of 2003 as the
      Company reassessed the ability to sublease the Riverside facility. During the
      second quarter of 2005, the Company recognized an additional restructuring
      charge of $1.2 million for additional costs expected to be incurred related
      to
      certain facility charges in respect of buildings in the UK. The total amount
      expected to be incurred as a result of the closure of the Riverside facility
      is
      up to $2.5 million, of which $1.5 million remained accrued as at December 31,
      2005 and $1.4 million as at April 2, 2006. Included in this accrual is the
      estimated cost to repair “dilapidations” at our Riverside facility. The final
      cost of these dilapidations will depend on the lessor’s intended use for this
      facility. Currently, the lessor expects us to refurbish the facility, and
      accordingly, we have accrued the total cost of this refurbishment. However,
      if
      the lessor should subsequently decide to demolish the building and completely
      rebuild on this site, our costs will be materially lower. All cash outflows
      in
      connection with this restructuring are expected to occur by the end of 2007.





The
      restructuring charges and their utilization are summarized as follows:




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





All
      charges will result in direct cash outlays.





**GEOGRAPHIC
      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, Israel and Finland, with additional
      revenue generated from sales of original equipment manufacturer’s (OEM)
      products.




-13-


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


An
      analysis of revenue by geographical market is given below:




**Quarter
                Ended****April
                3,**
            
            
            **April
                2,****2005**
            
            
            **2006****(unaudited)**USA
                and Canada
            
            $
            1,199
            
            $
            1,927Asia
            
            
            1,769
            
            
            2,603Europe
            
            
            2,217
            
            
            4,245Africa
                and the Middle East
            
            
            1,414
            
            
            939Latin
                America and Caribbean
            
            
            15,619
            
            
            14,086$
            22,218
            
            $
            23,800


**COMPREHENSIVE
      LOSS**





Total
      comprehensive loss was $3,327 for the quarter ended April 3, 2005 and $8,287
      for
      the quarter ended April 2, 2006 comprising:




**Quarter
                Ended****April
                3,**
            
            
            **April
                2,****2005**
            
            
            **2006****(unaudited)**Net
                loss attributable to common stockholders
            
            $
            (2,909
            )
            $
            (8,287
            )Other
                comprehensive loss:Movement
                in the fair value of cash flow hedges-
                reclassification of adjustment for gains realized in net
                loss
            
            
            (418
            )
            
            —Comprehensive
                loss
            
            $
            (3,327
            )
            $
            (8,287
            )





**NET
      LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS PER SHARE**





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





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




**Quarter
                Ended****April
                3,**
            
            **April
                2,****2005**
            
            **2006****(unaudited)**Numerator:Net
                loss attributable to common stockholders
            
            $
            (2,909
            )
            $
            (8,287
            )Denominator:Weighted
                average common shares outstanding basic and diluted
            
            
            37,880,759
            
            
            39,733,291Net
                loss attributable to common stockholders per share- basic and
                diluted
            
            $
            (0.08
            )
            $
            (0.21
            )






-14-





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





**THE
      FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE COMPANY’S ANNUAL
      REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2005, AS WELL AS THE
      FINANCIAL STATEMENTS AND NOTES THERETO. EXCEPT FOR HISTORICAL MATTERS CONTAINED
      HEREIN, STATEMENTS MADE IN THIS QUARTERLY REPORT ON FORM 10-Q ARE
      FORWARD-LOOKING AND ARE MADE PURSUANT TO THE SAFE HARBOR PROVISIONS OF THE
      PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. WITHOUT LIMITING THE
      GENERALITY OF THE FOREGOING, WORDS SUCH AS “MAY”, “WILL”, “TO”, “PLAN”,
“EXPECT”, “BELIEVE”, “ANTICIPATE”, “INTEND”, “COULD”, “WOULD”, “ESTIMATE”, OR
“CONTINUE” OR THE NEGATIVE OTHER VARIATIONS THEREOF OR COMPARABLE TERMINOLOGY
      ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. INVESTORS AND OTHERS ARE
      CAUTIONED THAT A VARIETY OF FACTORS, INCLUDING CERTAIN RISKS, MAY AFFECT OUR
      BUSINESS AND CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE SET FORTH
      IN
      THE FORWARD-LOOKING STATEMENTS. THESE RISK FACTORS INCLUDE, WITHOUT LIMITATION,
      (I) A SLOWDOWN OF EXPENDITURES BY COMMUNICATION SERVICE PROVIDERS; (II)
      INCREASED COMPETITION FROM ALTERNATIVE COMMUNICATION SYSTEMS; (III) THE FAILURE
      OF OUR EXISTING OR PROSPECTIVE CUSTOMERS TO PURCHASE PRODUCTS AS PROJECTED;
      (IV)
      OUR INABILITY TO SUCCESSFULLY IMPLEMENT COST REDUCTION OR CONTAINMENT PROGRAMS;
      (V) A LOSS OF ANY OF OUR KEY CUSTOMERS; (VI) OUR ABILITY TO RETAIN AXTEL, S.A.
      DE CV (“AXTEL”) AND YOZAN INC. (“YOZAN”) AS OUR LARGEST CUSTOMERS; AND (VII)
      POSSIBLE INFRINGEMENT OF THIRD PARTY TECHNOLOGIES WHICH MAY RESULT IN LAWSUITS
      THAT COULD BE COSTLY TO DEFEND AND PROHIBIT US FROM SELLING OUR PRODUCTS. THE
      COMPANY IS ALSO SUBJECT TO THE RISKS AND UNCERTAINTIES DESCRIBED IN ITS FILINGS
      WITH THE SECURITIES AND EXCHANGE COMMISSION, INCLUDING ITS ANNUAL REPORT ON
      FORM
      10-K FOR THE YEAR ENDED DECEMBER 31, 2005.**





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





Revenue





Revenue
      totaled $23.8 million for the quarter ended April 2, 2006 representing a 7%
      increase from the $22.2 million reported for the quarter ended April 3, 2005.
      The increase in revenues was primarily attributable to an increase in sales
      of
      our WiMAX and WipLL products and the introduction
      of our AS.Tone and AS.NET products in 2005 .
      Revenue
      generated from these increased sales and product introductions was partially
      offset by declines in sales of our Proximity products.





More
      specifically, in the quarter, we shipped more than $5.5 million to Yozan for
      Japan’s first WiMAX network. All revenues related to the Yozan supply agreement
      have been deferred pending customer acceptance on a portion of the equipment
      deliveries and establishment of fair values in accordance with generally
      accepted accounting principles for the recently-announced 16eUSB WiMAX device
      development agreement. More than $5 million of WiMAX orders were received from
      a
      Western European operator for immediate roll-out, and more than $1 million
      of
      product was delivered and revenues booked in the first quarter. The balance
      is
      expected to be delivered by the end of June 2006. Nordic LAN & WAN, an
      existing WipLL customer, placed an order for a WiMAX network in Finland. Several
      significant orders were placed by large operators in Latin America, North
      America and Asia for the new MicroMAX-SOC product, which is a low-cost,
      high-performance WiMAX base station packaged in the WipLL form factor. In total,
      more than 30 operators purchased WiMAX products in the quarter.





WipLL
      sales continued to show strength in the first quarter, particularly in North
      America, where we experienced more than 50% growth year over year through sales
      by our seven systems integrators. During the quarter, we signed a $10 million
      expansion contract with Tulip India. We also received significant expansion
      orders from existing WipLL customers in Colombia and Eastern Europe. Axtel
      continued to take shipments of Proximity, but at lower volumes than the first
      quarter of 2005, and also placed new orders running into the third quarter,
      as
      lines in service at the end of the first quarter of 2006 exceeded 648,000,
      up
      from 490,000 at the end of the same period in 2005. We had our first full
      quarter of AS.NET shipments, and delivered products to more than 30 customers
      worldwide. Customers in European and North American customers showed strong
      interest for these leading-edge 802.11 products.





Revenue
      for the first quarter of 2006 was 37% lower than revenue recorded for the fourth
      quarter of 2005, primarily due to reduced sales of our Proximity product to
      Axtel, our largest customer in 2005. We do not foresee a return to levels of
      Proximity sales we recorded in 2004 and 2005. During the first quarter 2006,
      revenue was derived from 179 customers in 84 countries. Geographically, 58%
      of
      our revenue was derived from customers in Latin America, 18% from Europe and
      11%
      from Asia. Customers in North America and Africa and the Middle East accounted
      for 9% and 4% of revenues, respectively.





Cost
      of
      Revenue





Cost
      of
      revenue increased 13% to $17.4 million in the quarter ended April 2, 2006 from
      $15.4 million in the quarter ended April 3, 2005. The gross profit for the
      first
      quarter of 2006 was $6.4 million (27% of revenue) compared to a gross profit
      of
      $6.9 million (31% of revenue) for the first quarter of 2005 and compared to
      a
      gross profit for the fourth quarter of 2005 of $10.1 million (27% of revenue).
      The decrease in gross profit in the first quarter 2006 as compared to the first
      quarter 2005 was due to a number of factors, including lower margins on our
      Proximity products, the costs associated with the introduction of new WiMAX
      products to the market, the costs associated with the implementation of a number
      of new WiMAX contracts, and higher warranty provisions required as the result
      of
      new product introductions. These factors contributing to the decrease in gross
      profit were partially offset by above-average margins from our new AS.NET and
      AS.TONE products.




-15-





Research
      and Development Expenses





Research
      and development expenses increased 33% to $6.1 million in the quarter ended
      April 2, 2006 from $4.6 million in the quarter ended April 3, 2005. The expenses
      for the first quarter 2006 did not vary significantly from research and
      development expenses of $6.1 million incurred in the fourth quarter 2005. The
      year-over-year increase was due primarily to the increased investment in our
      WiMAX development plans and the inclusion in the first quarter 2006 of a full
      quarter of costs associated with ArelNet and Radionet research and development
      staff which became part of our consolidated operations in June 2005 and November
      2005. Through our ArelNet and Radionet acquisitions, we added 30 and 11
      engineers respectively. The development of our WiMAX products required a
      significant increase in our number of employees over the last year. By April
      2,
      2006, 45 of our 55 engineers in the United Kingdom and Israel were devoted
      to
      WiMAX projects, including some engineers who had been working previously on
      Proximity and AS.TONE products.





Sales
      and
      Marketing Expenses





Sales
      and
      marketing expenses increased 75% to $4.5 million in the quarter ended April
      2,
      2006 from $2.6 million in the quarter ended April 3, 2005. Sales and marketing
      expenses for the first quarter 2006 increased 34% relative to the $3.4 million
      of sales and marketing expenses incurred in the fourth quarter of 2005. The
      increases were attributable primarily to increased attendance at trade shows,
      as
      well as an increase in headcount and additional travel related costs.





Bad
      Debt
      Provision





In
      the
      first quarter 2006, 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
      quarter of 2005.





General
      and Administrative Expenses




General
      and administrative expenses increased 33% to $3.8 million in the quarter ended
      April 2, 2006 from $2.8 million in the quarter ended April 3, 2005. The increase
      in these expenses is primarily due to an increase in audit, legal and
      professional expenditures, including an increase in costs related to internal
      control improvements, compliance with the Sarbanes Oxley Act of 2002 and costs
      associated with the completion of the 2005 year-end audit during the first
      quarter of 2006.





Amortization
      of Intangibles





We
      recorded amortization of intangibles expense of $0.3 million in the first
      quarter 2006 compared with amortization of intangibles expense of $0.1 million
      for the first quarter 2005. The increase in amortization expense is a result
      of
      our acquisition of intangible assets in connection with the ArelNet and Radionet
      acquisitions in June and November 2005, respectively. During the second quarter
      2005, we acquired all of the outstanding equity of ArelNet and identified four
      intangible assets with a total value of $2.7 million. These assets will be
      amortized over their expected lives of up to five years. We acquired all of
      the
      outstanding equity of Radionet in November 2005 and identified two intangible
      assets with a total value of $0.4 million. These assets will be amortized over
      their expected lives of up to six years.





Interest
      Expense and Interest and Other Income





We
      had
      interest expense in the first quarter of 2006 of $12 thousand related to our
      assumption of two outstanding loans borrowed by Radionet from the Finnish
      Funding Agency for Technology and Innovation, (the “Tekes Loans”) compared to no
      interest expense for the first quarter of 2005. At April 2, 2006, the
      outstanding principal and accrued interest payable on the Tekes Loans was $1,426
      million. Interest and other income decreased to $0.2 million for the quarter
      ended April 2, 2006 from $0.7 million for the quarter ended April 3, 2005.
      The
      decrease was due primarily to a lower foreign exchange gain of $0.2 million
      recorded in the first quarter of 2006 as compared to a foreign exchange gain
      of
      $0.4 million recorded in the comparable period of 2005. These lower foreign
      exchange gains were partially offset by higher interest income of $0.4 million
      in the first quarter of 2006 as compared to interest income of $0.3 million
      in
      the first quarter of 2005. The increase in interest income primarily resulted
      from higher interest rates earned on lower average cash balances. The foreign
      exchange gains are primarily a result of our settlement of certain currency
      hedging contracts we entered into to protect ourselves against a strengthening
      of the British pound against the US dollar.




-16-





Income
      Taxes





An
      income
      tax credit of $0.3 million was recorded in the quarter ended April 2, 2006,
      related to losses we incurred in 2004. This tax credit was obtained from the
      U.K
      tax authorities in lieu of carrying forward tax losses related to research
      and
      development costs. We are no longer eligible to receive tax credits from the
      U.K. taxing authorities in lieu of our carry-forward of tax losses and therefore
      do not expect any further credits.. There was no income tax credit in the
      corresponding quarter in 2005. We are subject to US franchise taxes resulting
      from business activities performed within certain states in the United States
      of
      America and income taxes in certain tax jurisdictions in which we do not have
      carryforward losses.





Net
      Loss
      Attributable to Common Stockholders





For
      the
      reasons described above, we incurred a net loss attributable to common
      stockholders of $8.3 million, or $(0.21) per share, in the quarter ended April
      2, 2006, compared to a net loss attributable to common stockholders of $2.9
      million, or $(0.08) per share, for the quarter ended April 3, 2005.





Other
      Comprehensive Loss





Other
      comprehensive loss for the quarter ended April 3, 2005 was $0.4 million from
      the
      unrealized loss on hedging contracts related to our UK expenses. Other
      comprehensive loss for the quarter ended April 2, 2006 was $0.0 million since
      the unrealized loss at April 2 was charged against income (see Item 3 for
      further discussion).





Share-Based
      Compensation





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





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





We
      have
      elected to continue to use the straight-line single-option method. Stock-based
      compensation expense was $0.6 million and $0.1 million during the three months
      ended April 2, 2006 and April 3, 2005, respectively. Stock-based compensation
      expense is expected to be approximately $2.5 to $2.7 million for the full year
      2006. This estimate is affected by assumptions regarding a number of complex
      and
      subjective variables.





Stock-based
      compensation expense recognized in the results of operations during the first
      quarter of fiscal 2006 was less than $0.1 million higher than the proforma
      amount determined under the fair value-based method and disclosed in accordance
      with SFAS 123 for the comparable prior year period. This small increase was
      primarily due to the amortization of previously unvested awards over the
      original vesting periods and higher fair value amounts attributed to the more
      recent awards. There were no modifications to existing awards or acceleration
      of
      vesting periods during fiscal 2005 or the first quarter of fiscal 2006. There
      was no significant change in our compensation strategy as a result of the
      implementation of FAS 123(R).





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




**Liquidity
      and Capital Resources**





Since
      inception, we have financed our operations primarily through private sales
      of
      convertible preferred stock, which have totaled $146.5 million (net of
      transaction expenses) and an initial public offering of common stock, which
      we
      completed on July 25, 2000. In the initial public offering, we issued 6,325,000
      shares of common stock for approximately $86 million in cash (net of
      underwriting discounts, commissions and other expenses). In our September 2004
      private sale of convertible preferred stock, we raised $29.2 million through
      the
      issuance of Series A preferred stock to Oak Investment Partners XI, Limited
      Partnership. 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.




-17-





As
      of
      April 2, 2006, we had cash and cash equivalents of $23.7 million, short term
      investments of $8.1 million and $6.1 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. In the quarter, we
      reclassified $1.1 million of cash and cash equivalents as restricted cash
      because it will be pledged as collateral for a bank guarantee that we will
      be
      required to issue to Yozan. We also reclassified as Other non-current assets
      $1.1 million of cash that had previously been classified as cash and other
      cash
      equivalents, because it had been pledged as collateral with respect to bank
      guarantees that have a final maturity greater than one year. We do not have
      a
      line of credit or similar borrowing facility, nor do we have any material
      capital commitments. We may from time to time seek to obtain lines of credit
      and
      other borrowing facilities as we determine advisable.





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 may also from time to time seek to take advantage of favorable trends in
      equity markets to raise additional capital. We believe we have sufficient cash
      resources to finance operations for at least the next twelve months.





For
      the
      three months ended April 2, 2006, we used $17.8 million of cash in operating
      activities compared with a cash outflow of $15.2 million for the three months
      ended April 3, 2005. The operating cash outflow for the first three months
      of
      2006 was primarily a result of:





·
            the
                net loss of $8.3 million;


·
            a
                decrease in accounts payable of $6.3 million, primarily reflecting
                payments for inventories we had acquired for fourth quarter
                deliveries;


·
            a
                $5.7 million increase in inventories, reflecting the build-up in
                anticipation of large shipments in the second quarter and larger
                amount of
                deferred revenue; and ·
            an
                increase in prepaid expenses and other current assets of $4.5 million,
                arising mainly from VAT tax refunds in the U.K. not yet received
                as of the
                end of the quarter. ·
            an
              increase in restricted cash held as collateral for
              customers





The
      cash
      outflow was partially offset by:




·
            a
                decrease in accounts receivable of $4.4
                million;


·
            an
                increase in deferred revenue of $4.1 million;
                and ·
            an
                increase in customer advances of $1.7
                million;





Days
      sales outstanding increased to 57 days at the end of the first quarter 2006
      from
      55 at the end of the fourth quarter 2005, and compared to 59 days at the end
      of
      the first quarter 2005. Inventory turns were 3.1 at the end of the first quarter
      of 2006, compared with 6.6 for the fourth quarter 2005 and 4.6 turns for the
      first quarter of 2005. The reduction in turns is attributable to the inclusion
      of the cost related to deferred Yozan revenues in inventory, and the build
      up of
      inventories in anticipation of very high product deliveries forecast in the
      second quarter of 2006.





The
      net
      cash used in investing activities for the three months ended April 2, 2006
      was
      $2.8 million, comprised of $2.1 million, net for the acquisition and sales
      of
      investment securities and $0.7 million for capital equipment
      purchases.





Our
      net
      cash inflow from financing activities for the three months ended April 2, 2006
      was $0.1 million from the exercise of stock options.





We
      have
      no material commitments other than obligations on operating leases, repayment
      of
      principal and interest owed on the Tekes loans, foreign exchange contracts
      mentioned below  and
      purchase commitments to our manufacturing subcontractors as at April 2, 2006.
      These purchase commitments totaled $39.6 million at April 2, 2006 and $17.4
      million at April 3, 2005.





We
      have
      explored and may in the future explore and pursue other perceived opportunities
      to acquire wireless access and related businesses. We may seek to acquire such
      businesses through a variety of different legal structures and may utilize
      cash,
      common stock, preferred stock, other securities or some combination thereof
      to
      finance the acquisition. In connection with such activities, we are subject
      to a
      variety of risks, a number of which are described further in the Company’s Form
      10-K for the fiscal year ended December 31, 2005. 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.




-18-




**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 April 2,
      2006 and December 31, 2005, we had cash, cash equivalents, short term
      investments and restricted cash of $37.9 million and $52.5 million,
      respectively. These amounts consisted of highly liquid investments, with more
      than 75% having 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 April 2, 2006
      rates would cause the fair market value of these short-term investments to
      change by an insignificant amount. Due to the short duration of these
      investments, a short-term increase in interest rates would not have a material
      effect on our financial condition or results of operations. Declines in interest
      rates over time would, however, reduce our interest income. Due to the
      uncertainty of the specific actions that would be taken to mitigate this, and
      their possible effects, the sensitivity analysis does not take into account
      any
      such action.





Foreign
      Currency Exchange Rate Risk





For
      the
      three months ended April 2, 2006, 85% of our sales were denominated in U.S.
      dollars, 12% were denominated in euro and 3% were denominated in
      Australian dollars. Comparatively, for the three months ended April 3,
      2005, 96% of our sales were denominated in U.S. dollars, 2% were
      denominated in euro and 2% were denominated in Australian dollars. Our
      total euro denominated sales for the three months ended April 2, 2006 were
      $2.8 million, which were recorded at an average exchange rate of $1US =
€0.8355. Our total Australian dollar denominated sales for the three months
      ended April 2, 2006 were $0.7 million, which were recorded at an average
      exchange rate of $1US = AUS$1.3443. If the average exchange rates used had
      been
      higher or lower during the three month period ended April 2, 2006 by 10%, they
      would have decreased or increased the total Australian dollar and
      euro-denominated sales value by a total of $0.3 million. We expect the
      proportions of sales in euro and Australian dollars to fluctuate over time.
      The
      Company’s sensitivity analysis for changes in foreign currency exchange rates
      does not take into account changes in sales volumes.





For
      the
      three months ended April 2, 2006, we incurred the majority of our cost of
      revenue in US dollars.





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





During
      the three months ended April 2, 2006, we paid expenses in local currency of
      approximately 5.0 million pounds sterling, at an average rate of $1US = 0.5762
      pounds sterling. During the three months ended April 2, 2006, we paid expenses
      in local currency of approximately 26.1 million Israeli Shekels, at an average
      rate of $1US = 4.6697 Shekels. If the expenses in pounds sterling had not been
      hedged and the average exchange rates for pounds sterling and Israeli Shekels
      had been higher or lower for the three month period ended April 2, 2006 by
      10%,
      the total pounds sterling and Israeli Shekel denominated operating expenses
      would have decreased or increased by $1.0 million and $0.6 million
      respectively.





To
      manage
      our pound foreign currency risk we have, at various times from 2003 through
      to
      the end of the first quarter 2006, forecast our likely net spending in non
      US
      dollars and, based on these forecasts, we have entered into forward exchange
      contracts to cover a percentage of the projected exposure. We assess the
      exposure of the Company to certain currencies on a quarterly basis and we obtain
      inputs from various financial institutions relating to forecast currency
      exchange rates. Based on that assessment and forecast exchange rates, we 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 current forward exchange contracts
      hedge a percentage of our UK pound sterling expenditure until June 2006. At
      April 2, 2006 we had outstanding three forward exchange contracts aggregating
      3.0 million pounds sterling. These contracts were valued at April 2, 2006 at
      a
      $0.1million loss. This unrealized loss has been recorded in interest and other
      income.




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





In
      all
      periods up to and including December 31, 2005, the effectiveness of the
      contracts as hedges was approximately 100%. Accordingly, in those periods,
      the
      unrealized gains and losses on the contracts were recorded to Other
      Comprehensive Income in our financial statements. We were unable to provide
      contemporaneous documentation of the effectiveness of hedges entered into during
      the first quarter of 2006 in accordance with the requirements of Statement
      of
      Financial Accounting Standards No. 133 - Accounting for Derivative Instruments
      and Hedging Activities. Under this Statement, an entity that elects to apply
      hedge accounting is required to establish at the inception of each hedge the
      method it will use for assessing the effectiveness of the hedging derivative
      and
      the measurement approach for determining the ineffective aspect of the hedge.
      Those methods must be consistent with the entity’s approach to managing risk.
      Due to the fact that the Company had not assessed the effectiveness of the
      hedges in accordance with the Statement as of the date of their execution,
      the
      unrealized loss at April 2, 2006 was charged against the result of the quarter.
      Despite the charge to earnings, we believe the forward contract is still
      providing the economic hedge for which it was intended. We may return to hedge
      accounting as we enter into new contracts.




-19-





We
      have
      from time to time entered into fair value currency hedging contracts that lock
      in minimum exchange rates for payments due to us under some of our sales
      contracts where those payments are to be made in currencies other than US
      dollars. There were no fair value currency hedge contracts outstanding at April
      2, 2006 or during the first quarter 2006. We will continue to monitor our
      foreign currency exposures and may modify hedging strategies, as we deem
      prudent.





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




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




Equity
      Price Risk





We
      do not
      own any equity investments, other than the shares of our subsidiaries. As a
      result, we do not currently have any direct equity price risk.





Commodity
      Price





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





**Item
      4. CONTROLS AND PROCEDURES**





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





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.





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





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





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




-20-





Our
      independent registered public accounting firm, Grant Thornton LLP, audited
      the
      consolidated financial statements included in our Annual Report on Form 10-K
      and
      issued an attestation report on management’s assessment of our internal control
      over financial reporting, agreeing with management’s finding of a material
      weakness in controls.





To
      address the Company’s material weakness relating to the recording of inventory
      at the Israeli subsidiary, toward the end of the first quarter of 2006, we
      implemented a number of remediation measures to address this finding of material
      weakness. Our remediation plan includes:




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




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




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




·
            We
                have recruited a new Logistics Manager and we are in the process
                of
                recruiting additional staff in the Logistics department; this will
                enable
                us to reorganize responsibilities and improve the level of segregation
                of
                duties




·
            moving
                inventory management to a managed
                warehouse;




·
            a
                change of freight forwarders; and




·
            implementing
                other controls, including physical segregation of
                inventories.




We
      believe that these steps will be sufficient to remediate the material weaknesses
      relating to our recording of inventory transactions at the Israeli subsidiary.
      However, the inventory count at the end of the first quarter resulted in a
      significant number of adjustments to our inventory subledger. It is therefore
      too soon to confirm the effectiveness of these enhanced internal controls,
      which
      were implemented toward the end of the first quarter. Accordingly, we will
      continue to monitor the effectiveness of these processes, procedures and
      controls and will make any further changes management determines are
      appropriate .




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





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




-21-




**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 (the “Underwriter Defendants”) of our July 2000
      initial public offering. A Consolidated Amended Complaint, which is now the
      operative complaint, was filed on April 19, 2002. The complaint alleges
      violations of Sections 11 and 15 of the Securities Act of 1933 and Sections
      10(b) and 20(a) of the Securities Exchange Act of 1934 for issuing a
      Registration Statement and Prospectus that contained materially false and
      misleading information and failed to disclose material information. In
      particular, Plaintiffs allege that the underwriter-defendants agreed to allocate
      stock in our initial public offering to certain investors in exchange for
      excessive and undisclosed commissions and agreements by those investors to
      make
      additional purchases of stock in the aftermarket at pre-determined prices.
      The
      action seeks damages in an unspecified amount.




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




Airspan
      has approved a settlement agreement and related agreements which set forth
      the
      terms of a settlement between Airspan, the Individual Defendants, the plaintiff
      class and the vast majority of the other approximately 300 issuer defendants
      and
      the individual defendants currently or formerly associated with those companies.
      Among other provisions, the settlement provides for a release of Airspan and
      the
      individual defendants for the conduct alleged in the action to be wrongful.
      Airspan would agree to undertake certain responsibilities, including agreeing
      to
      assign away, not assert, or release certain potential claims Airspan may have
      against its underwriters. The settlement agreement also provides a guaranteed
      recovery of $1 billion to plaintiffs for the cases relating to all of the
      approximately 300 issuers. To the extent that the Underwriter Defendants settle
      all of the cases for at least $1 billion, no payment will be required under
      the
      issuers’ settlement agreement. To the extent that the Underwriter Defendants
      settle for less than $1 billion, the issuers are required to make up the
      difference. On
      April
      20, 2006, JPMorgan Chase, one of the Underwriter Defendants, and the plaintiffs
      reached a preliminary agreement for a settlement for $425 million (“JPMorgan
      Chase Settlement”). The JPMorgan Chase Settlement has not yet been approved by
      the Court. However, if it is finally approved, then the maximum amount that
      the
      issuers’ insurers will be potentially liable for is $575 million.  It
      is
      anticipated that any potential financial obligation of Airspan to plaintiffs
      pursuant to the terms of the settlement agreement and related agreements will
      be
      covered by existing insurance. The Company currently is not aware of any
      material limitations on the expected recovery of any potential financial
      obligation to plaintiffs from its insurance carriers. Our carriers are solvent,
      and the company is not aware of any uncertainties as to the legal sufficiency
      of
      an insurance claim with respect to any recovery by plaintiffs. Therefore, we
      do
      not expect that the settlement will involve any payment by Airspan. If material
      limitations on the expected recovery of any potential financial obligation
      to
      the plaintiffs from Airspan’s insurance carriers should arise, Airspan’s maximum
      financial obligation to plaintiffs pursuant to the settlement agreement would
      be
      less than $3.4 million. However,
      if the JPMorgan Chase Settlement is finally approved, Airspan’s maximum
      financial obligation to the plaintiffs pursuant to the settlement agreement
      would be less than $2 million. On
      February 15, 2005, the Court granted preliminary approval of the settlement
      agreement, subject to certain modifications consistent with its opinion. Those
      modifications have been made. On March 20, 2006, the Underwriter Defendants
      submitted objections to the settlement to the Court. The Court held a hearing
      regarding those and other objections to the settlement at a fairness hearing
      on
      March 24, 2006, but has not yet issued a ruling. There is no assurance that
      the
      court will grant final approval to the settlement. If the settlement agreement
      is not approved and Airspan is found liable, we are unable to estimate or
      predict the potential damages that might be awarded, whether such damages would
      be greater than Airspan’s insurance coverage, and whether such damages would
      have a material impact on our results of operations or financial condition
      in
      any future period.




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




-22-




**Item
      1A. Risk Factors**





There
      have been no material changes in our risk factors from those disclosed in our
      Annual Report on Form 10-K for the fiscal year ended December 31,
      2005.





**Item
      3. DEFAULTS UPON SENIOR SECURITIES**





None





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





None





**Item
      5. OTHER INFORMATION**





None




-23-


**Item
      6. EXHIBITS**


3.1
            Amended
                and Restated Articles of Incorporation of Airspan (1)3.2
            Articles
                of Amendment to the Articles of Incorporation (2)3.3
            Amended
                and Restated Bylaws of Airspan (3)4.1
            Form
                of Airspan’s common stock certificate (4)10.1
            1998
                Stock Option and Restricted Stock Plan (4)10.2
            2000
                Employee Stock Purchase Plan, as amended (4)10.3
            Employment
                Agreement with Eric Stonestrom (4), (5)10.4
            Employment
                Agreement with Jonathan Paget (4), (5)10.5
            Employment
                Agreement with Peter Aronstam, as amended (5), (7)10.6
            2001
                Supplemental Stock Option Plan (6)10.7
            Employment
                Agreement with Henrik Smith-Petersen (5), (7)10.8
            Employment
                Agreement with Arthur Levine (5)10.9
            2003
                Supplemental Stock Option Plan (3)10.10
            Airspan
                Omnibus Equity Compensation Plan (1)10.11
            Purchase
                and License Agreement, dated as of December 28, 2004, by and between
                Airspan Communications Limited and Axtel S.A. de C.V. ** (12)10.12
            Technical
                Assistance Support Services Agreement for FWA Equipment, dated as
                of
                February 14, 2003, by and between Nortel Networks UK Limited and
                Axtel,
                S.A. de C.V. (8)**10.13
            Preferred
                Stock Purchase Agreement, dated as of September 10, 2004 among Airspan
                Networks, Inc. and Oak Investment Partners XI, Limited Partnership
                (9)10.14
            Amendment
                to Preferred Stock Purchase Agreement (10)10.15
            Amendment
                Agreement No. 3 to FWA TASS, dated as of December 28, 2004, between
                Airspan Communications Limited and Axtel S.A. de C.V. (11) **10.16
            Purchase
                Contract, dated April 14, 2005, by and between Yozan Incorporated
                and
                Airspan Communications Limited (13)(14)10.17
            Supplement
                to Purchase Contract, dated August 15, 2005, by and between Yozan
                Incorporated and Airspan Communications Limited
                (13)(14)10.18
            2ndPurchase
                Contract, dated September 13, 2005, by and between Yozan Incorporated
                and
                Airspan Communications Limited (13)(14)10.19
            Amendment
                of 1stand
                2ndPurchase
                Contracts, dated October 6, 2005, by and between Yozan Incorporated
                and
                Airspan Communications Limited (13)(14)10.20
            Amendment
                of 2ndPurchase
                Contracts, dated February 25, 2006, by and between Yozan Incorporated
                and
                Airspan Communications Limited (13)(14)10.21
            Memorandum
                of Understandings, dated February 25, 2006, by and between Yozan
                Incorporated and Airspan Communications Limited
                (13)(14)10.22
            Airspan
                Code of Business Conduct (13)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
            Incorporated
                by reference to the Company’s Form 10-K for the year ended December 31,
                2004.12
            Incorporated
                by reference to the Company’s report on Form 8-K filed on June 9,
                2005.13
            Incorporated
                by reference to the Company’s Form 10-K for the year ended December 31,
                2005.14
            Portions
                of this document have been omitted and were filed separately with
                the SEC
                on March 30, 2006 pursuant to a request for confidential
                treatment.






-24-




**SIGNATURES**




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




**AIRSPAN
              NETWORKS, INC.**Date: May
              12,
              2006
            By:
            /s/ PETER
              ARONSTAMName:  
                Peter Aronstam
              Title:    
                Chief Financial Officer






-25-