UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549








FORM
10-Q/A








(Mark
one)


x  Quarterly
Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934





For
the quarterly period ended October 3, 2004





OR





 ̈  Transition
Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934





For
the transition period from  to  .





Commission
file number 000-31031








AIRSPAN
NETWORKS INC.


(Exact
name of registrant as specified in its charter)








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





Registrant’s
telephone number, including area code:


561-893-8670








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





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





Number
of shares outstanding of the registrant’s common stock as of April
15, 2005:**38,000,253**










This
amendment on Form 10-Q/A reflects the restatement of the consolidated financial
statements of Airspan Networks Inc., as discussed in Item 2 Managements
Discussion and Analysis and the note "restatement" to the condensed consolidated
financial statements. Management of the Company identified a material weakness
in the Company's internal control over financial reporting, as discussed in Item
4 and have reissued their assessment of the effectiveness of the Company's
internal control over financial reporting.
 
 All of
the information in this Form 10-Q/A is as of November 17, 2004, the filing date
of the original Form 10-Q for the quarter ended October 3, 2004, and has not
been updated for events subsequent to that date other than for the matter
discussed above.
   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,
      2003
      (1)
    
    October
      3,2004(unaudited)ASSETS
    
    
    
    **Restated**Current
      AssetsCash
      and cash equivalents
    
    $
    33,926
    
    $
    51,936Restricted
      cash
    
    
    1,588
    
    
    16,430Accounts
      receivable, less allowance for doubtful accounts of $5,207 at December 31,
      2003 and $3,288 at October 3, 2004
    
    
    12,509
    
    
    12,705Unbilled
      accounts receivable
    
    
    54
    
    
    92Inventory
    
    
    18,215
    
    
    12,462Prepaid
      expenses and other current assets
    
    
    4,570
    
    
    6,756Total
      Current Assets
    
    
    70,862
    
    
    100,381Property,
      plant and equipment, net
    
    
    3,736
    
    
    4,036Goodwill
    
    
    3,136
    
    
    789Intangible
      assets, net
    
    
    4,554
    
    
    2,421Long
      term accounts receivable
    
    
    -
    
    
    305Other
      non-current assets
    
    
    984
    
    
    1,119Total
      Assets
    
    $
    83,272
    
    $
    109,051LIABILITIES
      AND STOCKHOLDERS’ EQUITYCurrent
      LiabilitiesAccounts
      payable
    
    $
    7,751
    
    $
    14,476Accrued
      taxes
    
    
    449
    
    
    462Deferred
      revenue
    
    
    989
    
    
    1,061Customer
      advances
    
    
    15,070
    
    
    18,679Other
      accrued expenses
    
    
    10,000
    
    
    9,424Total
      Current Liabilities
    
    
    34,259
    
    
    44,102Stockholders’
      EquityPreferred
      stock, $0.0001 par value; 0 shares authorized at December 31, 2003 and
      74,200 shares authorized at October 3, 2004: 0 issued at December 31, 2003
      and 73,000 issued at October 3, 2004
    
    
    -
    
    
    -Common
      stock, $0.0003 par value; 50,000,000 shares authorized at December 31,
      2003 and 100,000,000 shares authorized at October 3, 2004: 36,314,410
      issued at December 31, 2003 and 37,393,270 issued at October 3,
      2004
    
    
    11
    
    
    11Note
      receivable - stockholder
    
    
    (130
    )
    
    (87
    )Additional
      paid in capital
    
    
    215,209
    
    
    256,054Treasury
      stock: 834,560 shares held at December 31, 2003 and at October 3,
      2004
    
    
    (797
    )
    
    (797
    )Accumulated
      other comprehensive income
    
    
    1,839
    
    
    576Accumulated
      deficit
    
    
    (167,119
    )
    
    (190,808
    )Total
      Stockholders’ Equity
    
    
    49,013
    
    
    64,949Total
      Liabilities and Stockholders’ Equity
    
    $
    83,272
    
    $
    109,051





(1)
Derived from audited financial statements


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








AIRSPAN
NETWORKS INC.


CONDENSED
CONSOLIDATED STATEMENTS OF INCOME


(in
thousands except for share and per share data)





**Quarter
      Ended**
    ****
    ****
    **Year-to-Date**Sept.
      28,2003
    
    October
      3,2004
    
    Sept.
      28,2003
    
    October
      3,2004**(unaudited)**
    
    
    **(unaudited)****Restated**
    
    
    **Restated**Revenue
    
    $
    6,293
    
    $
    26,452
    
    $
    21,628
    
    $
    57,124Cost
      of revenue
    
    
    (5,656
    )
    
    (18,294
    )
    
    (16,613
    )
    
    (39,169
    )Inventory
      provision
    
    
    -
    
    
    (1,099
    )
    
    (4,398
    )
    
    (1,099
    )Gross
      profit
    
    
    637
    
    
    7,059
    
    
    617
    
    
    16,856Operating
      expenses:Research
      and development
    
    
    3,413
    
    
    4,495
    
    
    10,802
    
    
    14,284Sales
      and marketing
    
    
    2,269
    
    
    2,782
    
    
    7,529
    
    
    8,094Bad
      debt provision
    
    
    -
    
    
    249
    
    
    -
    
    
    549General
      and administrative
    
    
    2,037
    
    
    3,342
    
    
    6,675
    
    
    8,221Amortization
      of intangibles
    
    
    44
    
    
    175
    
    
    131
    
    
    579Restructuring
      provision
    
    
    46
    
    
    16
    
    
    319
    
    
    413Total
      operating expenses
    
    
    7,809
    
    
    11,059
    
    
    25,456
    
    
    32,140Loss
      from operations
    
    
    (7,172
    )
    
    (4,000
    )
    
    (24,839
    )
    
    (15,284
    )Interest
      expense
    
    
    -
    
    
    -
    
    
    (38
    )
    
    -Interest
      and other income
    
    
    385
    
    
    591
    
    
    2,100
    
    
    2,084Loss
      before income taxes
    
    
    (6,787
    )
    
    (3,409
    )
    
    (22,777
    )
    
    (13,200
    )Income
      tax charge
    
    
    -
    
    
    48
    
    
    4
    
    
    50Net
      loss
    
    
    (6,787
    )
    
    (3,457
    )
    
    (22,781
    )
    
    (13,250
    )
 Deemed
      dividend associated with the beneficial conversion of preferred stock
    
    
    -
    
    
    (10,439
    )
    
    -
    
    
    (10,439
    )Net
      loss attributable to common stockholders
    
    $
    (6,787
    )
    $
    (13,896
    )
    $
    (22,781
    )
    $
    (23,689
    )
  Net
      loss attributable to common stockholders  per share - basic and
      diluted
    
    $
    (0.19
    )
    $
    (0.38
    )
    $
    (0.65
    )
    $
    (0.65
    )Weighted
      average shares outstanding- basic and diluted
    
    
    35,144,080
    
    
    36,439,662
    
    
    34,952,376
    
    
    36,169,249

















AIRSPAN
NETWORKS INC.CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


(in
thousands)




Year-to-dateSept.
      28,2003
    
    October
      3,
      2004(unaudited)CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      loss
    
    $
    (22,781
    )
    $
    (13,250
    )Adjustments
      to reconcile net loss to net cash used in operating
      activities:Depreciation
      and amortization
    
    
    2,179
    
    
    1,975Gain on
      settlement of long term debt
    
    
    (125
    )
    
    -Change
      in operating assets and liabilities:Decrease/(increase)
      in receivables
    
    
    2,298
    
    
    (196
    )Decrease in
      inventories
    
    
    6,275
    
    
    9,688Decrease/(increase)
      in other current assets
    
    
    183
    
    
    (3,487
    )(Decrease)/increase
      in accounts payable
    
    
    (1,922
    )
    
    6,725(Decrease)/increase
      in deferred revenue
    
    
    (451
    )
    
    72Increase in
      customer advances
    
    
    -
    
    
    3,609Decrease in
      accrued expenses
    
    
    (677
    )
    
    (439
    )Increase in
      long-term accounts receivable
    
    
    -
    
    
    (305
    )Increase in
      other non current assets
    
    
    (35
    )
    
    (135
    )Net
      cash (used in)/from operating activities
    
    
    (15,056
    )
    
    4,257CASH
      FLOWS FROM INVESTING ACTIVITIESPurchase
      of property and equipment
    
    
    (1,343
    )
    
    (1,855
    )Proceeds
      from the sale of investment securities
    
    
    5,074
    
    
    -Net
      cash from/(used in) investing activities
    
    
    3,731
    
    
    (1,855
    )CASH
      FLOWS FROM FINANCING ACTIVITIESNet
      proceeds from issuance of common stock
    
    
    370
    
    
    373Payment
      of long-term debt
    
    
    (2,375
    )
    
    -Repayment
      of note receivable - stockholder
    
    
    -
    
    
    43Exercise
      of stock options
    
    
    45
    
    
    901Proceeds
      from the sale of Series “A” preferred stock, net of issuance
      costs
    
    
    -
    
    
    29,132Purchase
      of treasury stock
    
    
    (392
    )
    
    -Restricted
      cash movement
    
    
    766
    
    
    (14,841
    )Net
      cash (used in)/from financing activities
    
    
    (1,586
    )
    
    15,608(Decrease)/increase
      in cash and cash equivalents
    
    
    (12,911
    )
    
    18,010Cash
      and cash equivalents, beginning of period
    
    
    48,167
    
    
    33,926Cash
      and cash equivalents, end of period
    
    $
    35,256
    
    $
    51,936SUPPLEMENTAL
      DISCLOSURES OF CASH FLOW INFORMATIONInterest
      paid
    
    $
    26
    
    $
    2


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












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 fixed wireless access (“BWA”) equipment that
allows communications service providers (often referred to as “local exchange
carriers,” or simply telephone companies), internet service providers (often
referred to as “ISPs”) and other telecommunications users, such as utilities and
enterprises, to cost effectively deliver high-speed data and voice services
using radio frequencies rather than wires. We call this transmission method
“Wireless Broadband”. The primary market for our systems is a subset of the
fixed wireless access systems market, which is the fixed point-to-multipoint
market in radio frequencies below 6.0GHz. Each of our fixed wireless access
systems utilizes digital wireless techniques, which provide wide area coverage,
security and resistance to fading. Our systems can be deployed rapidly and cost
effectively, providing an attractive alternative or complement to traditional
copper wire, cable, or fiber-optic communications access networks. Our products
also include software tools that optimize geographic coverage of our systems and
provide ongoing network management. To facilitate the deployment and operation
of our systems, we also offer network installation, training and support
services. A more complete description of our various wireless access systems is
provided below. Our BWA systems (the “Airspan BWA Solutions”) have been
installed by more than 200 network operators in more than 70 countries and are
being tested by numerous other service providers.





Our
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 pursuant to a stock purchase agreement, and renamed the business
Airspan Networks (Israel) Limited (“Airspan Israel”). The products and services
produced by Airspan Israel enable operators in licensed and unlicensed wireless
bands to offer high-speed, low cost, wireless broadband connections for data and
voice over IP. We acquired all of the issued and outstanding capital stock and
debt of Marconi WipLL in exchange for $3 million of cash.





In
October 2003, we released 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.





In
December 2003, we completed an agreement with Nortel Networks to acquire the
fixed wireless access business of Nortel Networks known as “Proximity”. The
acquired Proximity products and services provide carrier class circuit switched
voice and data, based on a Time Division Multiple Access (“TDMA”)
technology.





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


This Form
10-Q/A has been restated to reflect a correction of  the Company’s
accounting treatment of its September 13, 2004 sale of 73,000 shares of Series A
Preferred Stock. As described further in “Management’s Discussion and Analysis
of Financial Condition and Results of Operation - Restatement” this Form 10-Q/A
has been amended to reflect a $10.4 million, non cash, embedded beneficial
conversion feature relating to the Series A Preferred Stock.
   Except as
otherwise expressly noted herein, this Form 10-Q/A does not reflect events
occurring after the November 17, 2004 filing of our Quarterly Report
on Form 10-Q for the quarter ended October 3, 2004 in any way, except those
required to reflect the effects of this restatement of our financial statements
for the periods presented or as deemed necessary in connection with the
completion of restated financial statements.
 
 The
remaining Items required by Form 10-Q are not amended hereby and have been
omitted. In order to preserve the nature and character of the disclosures set
forth in such Items as originally filed, except as expressly noted herein, this
report continues to speak as of the date of the original filing, and we have not
updated the disclosures in this report to speak as of a later date.
 
 While
this report primarily relates to the historical periods covered, events may have
taken place since the original filing that might have been reflected in this
report if they had taken place prior to the original filing.


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.
Certain reclassifications have been made for consistent
presentation.





The
condensed consolidated balance sheet at December 31, 2003 has been derived from
the audited financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements.





For
further information, refer to the consolidated financial statements and
footnotes thereto included in the company’s Annual Report on Form 10-K for the
year ended December 31, 2003.





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













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


CONTINGENCIES





Warranty





The
Company provides a limited warranty for periods, usually ranging from twelve to
twenty-four months, to all purchasers of its new equipment. Warranty expense is
accrued at the date revenue is recognized on the sale of equipment and is
recognized as a cost of revenue. The expense is estimated based on analysis of
historic costs and is amortized over the warranty period. Management believes
that the amounts provided for are sufficient for all future warranty costs on
equipment sold through October 3, 2004 but if actual product failure rates,
material usage or service delivery costs differ from estimates, revisions to the
estimated warranty liability would be required.





Information
regarding the changes in the Company’s product warranty liabilities was as
follows for the nine months ended October 3, 2004.





Balance
      at
      beginning
      of
      period
    
    Accrual
      forwarranties
      issued
      during theperiod
    
    Changes
      in accruals related topre-existingwarranties(including
      changes
      in
      estimates)
    
    Settlements
      made
      (in
      cash or in
      kind)
      during theperiod
    
    Balance
      at end
      of
      periodNine
      months ended October 3, 2004Product
      warranty liability
    
    $
    652
    
    $
    837
    
    $
    (260
    )
    $
    (433
    )
    $
    796





Other
guarantees





The
Company had delivered to its landlords and customers bank guarantees aggregating
to $1,435 at December 31, 2003 and $16,411 at October 3, 2004. The foregoing
figures represent the maximum potential amount of future payments the Company
could be required to make under these guarantees. The guarantees secure payment
or performance obligations of the Company under contracts. The Company has
pledged cash to the banks as collateral for the guarantees in the same amounts
as the guarantees. These pledges have been classified as restricted cash. The
Company has not recognized any liability for these guarantees as in management’s
opinion the likelihood of having to make payments under the guarantees is
remote.





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.
Airspan has approved a settlement agreement and related agreements which set
forth the terms of a settlement between Airspan, the Individual Defendants, the
plaintiff class and the vast majority of the other approximately 300 issuer defendants and the
individual defendants currently or formerly associated with those
companies .
Among other provisions, the settlement provides for a release of Airspan and the
individual defendants for the conduct alleged in the action to be wrongful.
Airspan would agree to undertake certain responsibilities, including agreeing to
assign away, not assert, or release certain potential claims Airspan may have
against its underwriters. The
settlement agreement also provides a guaranteed recovery of $1 billion to
plaintiffs for the cases relating to all of the approximately 300 issuers. To
the extent that the underwriter defendants settle all of the cases for at least
$1 billion, no payment will be required under the issuers’ settlement agreement.
To the extent that the underwriter defendants settle for less than $1 billion,
the issuers are required to make up the difference. It is anticipated that any
potential financial obligation of Airspan to plaintiffs pursuant to the terms of
the settlement agreement and related agreements will be covered by existing
insurance. The Company currently is not aware of any material limitations on the
expected recovery of any potential financial obligation to plaintiffs from its
insurance carriers. Its carriers are solvent, and the company is not aware of
any uncertainties as to the legal sufficiency of an insurance claim with respect
to any recovery by plaintiffs. Therefore, we do not expect that the settlement
will involve any payment by Airspan. Airspan has no information as to whether
there are any material limitations on the expected recovery by other issuer
defendants of any potential financial obligation to plaintiffs from the
insurance carriers of those issuer defendants. Assuming there are no such
material limitations, Airspan’s maximum financial obligation to plaintiffs
pursuant to the settlement agreement is less than $3.4 million. The settlement
agreement has been submitted to the Court for approval. Approval by the Court
cannot be assured.  The
Company is unable to determine whether or when a settlement will occur or be
finalized. If the settlement is not approved and Airspan is found liable, we are
unable to estimate the potential damages that might be awarded and whether such
damages would be greater than Airspan’s insurance coverage.









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


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.





STOCK
COMPENSATION





At
October 3, 2004, the Company had three stock option employee compensation plans
and the 2000 Employee Stock Purchase Plan (“ESPP”). The Company accounts for
these plans under the recognition and measurement principles of APB Opinion
No.25 Accounting for Stock issued to Employees, and related interpretations. In
all periods shown the Company has valued stock-based employee compensation using
the intrinsic value method. There was no stock-based compensation cost reflected
in net income in either 2003 or 2004. All options granted under these plans had
an exercise price equal to the market value of the underlying common stock on
the date of grant.





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





Quarter
      Ended
    
    Year-to-DateSept
      28,
      2003
    
    October
      3,
      2004
    
    Sept.
      28,
      2003
    
    October
      3,
      2004(unaudited)
    
    (unaudited)**Restated**
    
    
    
    
    **Restated**Net
      loss attributable to common stockholders, as
      reported
    
    $
    (6,787
    )
    $
    (13,896
    )
    $
    (22,781
    )
    $
    (23,689
    )Add
      back:Stock-based
      employee compensation cost, net of related tax effects, included in the
      determination of net income as reported
    
    
    -
    
    
    -
    
    
    -
    
    
    -Deduct:Stock-based
      employee compensation cost, net of related tax effects, that would have
      been included in the determination of net income if the fair value method
      had been applied to all awards
    
    
    (575
    )
    
    (556
    )
    
    (1,717
    )
    
    (1,553
    )Pro
      forma net loss attributable to common stockholders
    
    $
    (7,362
    )
    $
    (14,452
    )
    $
    (24,498
    )
    $
    (25,242
    )Net
      loss attributable to common stockholders share - basic and
      diluted
    
    $
    (0.19
    )
    $
    (0.38
    )
    $
    (0.65
    )
    $
    (0.65
    )Pro
      forma net loss attributable
      to common stockholdersper share- basic and diluted
    
    $
    (0.21
    )
    $
    (0.40
    )
    $
    (0.70
    )
    $
    (0.70
    )





ACQUISITIONS





On
December 23, 2003, the Company completed an agreement with Nortel Networks to
acquire the fixed wireless access business of Nortel Networks known as
“Proximity”. As part of the transaction, Airspan acquired Nortel Networks’
inventory relating to Proximity. The initial allocation of the purchase price
was preliminary. During the quarter ended July 4, 2004 the Company revised its
estimates of the fair values allocated to certain assets and liabilities
acquired in the Proximity transaction. Given the availability of more accurate
information on the acquired Proximity inventory, the Company has increased its
valuation of the acquired inventory by $3.9 million. The Company also reduced
acquisition accruals by $0.1 million. The adjustments to the purchase price
allocation gave rise to negative goodwill of $1.7 million which has been
allocated, on a pro rata basis, against purchased long-term assets. All of these
adjustments were made in the second quarter of 2004.













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


The
following table shows the preliminary purchase price allocation along with the
revisions made to this during the quarter ended July 4, 2004. During the quarter
ended October 3, 2004 the Company did not make any changes to its estimates of
the fair values allocated to certain assets and liabilities acquired in the
Proximity transaction.








Calculation
of purchase price:





CashConsideration
    
    Accrued
      costs
    
    Revisions
      to original accruedcosts
    
    TotalInitial
      purchase price
    
    $
    12,850
    
    
    -
    
    
    -
    
    $
    12,850Working
      capital adjustment
    
    
    241
    
    
    -
    
    
    -
    
    
    241Acquisition
      costs
    
    
    -
    
    $
    800
    
    $
    (41
    )
    
    759Total
      purchase price
    
    $
    13,091
    
    $
    800
    
    $
    (41
    )
    $
    13,850











Allocation
      of purchase price
    
    Historicalbook
      value
    
    Preliminary
      purchase price allocation/fair valueadjustments
    
    Revisions
      to preliminary purchase price allocation/fairvalue
      adjustments
    
    Allocation
      of negativegoodwill
    
    Fair
      valueCash
    
    $
    14,946
    
    
    -
    
    
    -
    
    
    -
    
    $
    14,946Inventory
    
    
    -
    
    $
    8,550
    
    $
    3,935
    
    
    -
    
    
    12,485Prepaid
      expenses and other current assets
    
    
    393
    
    
    -
    
    
    -
    
    
    -
    
    
    393Property,
      plant and equipment, net
    
    
    -
    
    
    419
    
    
    -
    
    $
    (159
    )
    
    260Intangible
      assets, net:Patents
    
    
    -
    
    
    1,500
    
    
    -
    
    
    (566
    )
    
    934Customer
      contracts
    
    
    -
    
    
    2,600
    
    
    -
    
    
    (982
    )
    
    1,618Accounts
      payable
    
    
    (8
    )
    
    -
    
    
    -
    
    
    -
    
    
    (8
    )Deferred
      revenue
    
    
    (93
    )
    
    -
    
    
    -
    
    
    -
    
    
    (93
    )Customer
      advances
    
    
    (14,946
    )
    
    -
    
    
    -
    
    
    -
    
    
    (14,946
    )Other
      accrued expenses
    
    
    -
    
    
    (1,822
    )
    
    83
    
    
    -
    
    
    (1,739
    )Goodwill
    
    
    -
    
    
    2,352
    
    
    (4,059
    )
    
    1,707
    
    
    -Total
      purchase price
    
    $
    292
    
    $
    13,599
    
    $
    (41
    )
    
    -
    
    $
    13,850





INVENTORY





Inventory
consists of the following:





December
      31,2003
    
    October
      3,
      2004(unaudited)Purchased
      parts and materials
    
    $
    10,688
    
    $
    4,157Work
      in progress
    
    
    1,084
    
    
    1,043Finished
      goods and consumables
    
    
    6,443
    
    
    7,262$
    18,215
    
    $
    12,462















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


ACCRUED
RESTRUCTURING CHARGES





In
the third quarter of 2002, a restructuring program was initiated to reduce
operating expenses. A charge of $278 was recorded in the quarter. Included in
this charge were costs related to the write off of tradeshow equipment and
severance payments. The total number of employees terminated as part of this
restructuring program was 19 and all severance payments were made by the end of
the second quarter of 2003.





In
the fourth quarter of 2002 the decision was made to completely outsource all our
manufacturing. As a result the Company recorded a $975 restructuring charge for
the closure of our Riverside, Uxbridge facility in 2003. All of this cost
relates to the excess facility. A further $368 was recognized as restructuring
in the income statement in the fourth quarter of 2003 as the Company reassessed
the ability to sublease the Riverside facility.





In
the second quarter of 2003 an additional restructuring program was initiated to
further lower operating expenses. The total cost incurred as part of this
restructuring program was $298 arising from costs associated with facility
closures and severance.





The
costs incurred during the year ended December 31, 2003 included termination
costs for 30 employees. All of these employees had left the Company by December
31, 2003.





During
the first quarter of 2004 the Company revised its original restructuring
programs and initiated a new program to further reduce operating expenses. This
program was completed by the end of the third quarter of 2004. The total cost
incurred for this restructuring program was $0.4 million, recorded as a
restructuring charge, related to termination costs for 21 employees. During the
third quarter of 2004, the Company incurred $0.02 million related to this
program.





In
conjunction with the purchase of the Proximity business the Company implemented
its plan to relocate the Proximity business from Maidenhead, England and
Sunrise, Florida to the Company’s facilities in Uxbridge, England and Boca
Raton, Florida. The Company recorded acquisition-related restructuring charges
of $520, in the fourth quarter of 2003, in connection with the relocation of the
Proximity business. The estimated relocation costs were revised during the
second quarter of 2004 from $520 down to $338. The adjustment formed part of the
revised fair value adjustments of the Proximity acquisition. This relocation
plan is expected to be completed by the end of the fourth quarter of
2004.





Accrued
      atDecember
      31,2003
    
    Paid
      in 2004
    
    Revision
      to preliminary fair value adjustments
    
    Accrued
      at
      October 3,
      2004Office
      relocation and closure - other associated costs
    
    $
    520
    
    $
    (181
    )
    $
    (182
    )
    $
    157





The
restructuring charges and their utilization are summarized as
follows:





Balance
      atbeginning
      of
      period
    
    Restructuringcharge
    
    Accrued
      onacquisition
    
    Utilized
    
    Balance
      at endof
      period(unaudited)
    
    (unaudited)
    
    (unaudited)
    
    (unaudited)
    
    (unaudited)Nine
      months ended October 3, 2004One-time
      termination benefits
    
    $
    -
    
    $
    413
    
    $
    -
    
    $
    (413
    )
    $
    -Contract
      termination costs
    
    
    947
    
    
    -
    
    
    -
    
    
    (235
    )
    
    712Other
      associated costs
    
    
    592
    
    
    -
    
    
    (182
    )
    
    (189
    )
    
    221$
    1,539
    
    $
    413
    
    $
    (182
    )
    $
    (837
    )
    $
    933Year
      ended December 31, 2003One-time
      termination benefits
    
    $
    79
    
    $
    342
    
    $
    -
    
    $
    (421
    )
    $
    -Contract
      termination costs
    
    
    825
    
    
    397
    
    
    -
    
    
    (275
    )
    
    947Other
      associated costs
    
    
    150
    
    
    11
    
    
    520
    
    
    (89
    )
    
    592$
    1,054
    
    $
    750
    
    $
    520
    
    $
    (785
    )
    $
    1,539





All
charges will result in direct cash outlays.





SEGMENTAL
INFORMATION





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













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


An
analysis of revenue by geographical market is given below:





Quarter
      Ended
    
    Year-to-DateSept.
      28,
      2003
    
    October
      3,
      2004
    
    Sept.
      28,
      2003
    
    October
      3,
      2004(unaudited)
    
    (unaudited)USA
    
    $
    312
    
    $
    647
    
    $
    1,016
    
    $
    2,132Asia
    
    
    2,291
    
    
    2,312
    
    
    9,560
    
    
    5,219Europe
    
    
    1,056
    
    
    2,752
    
    
    2,457
    
    
    7,258Africa
      and the Middle East
    
    
    1,537
    
    
    651
    
    
    6,082
    
    
    1,644Latin
      America and Caribbean
    
    
    1,097
    
    
    20,090
    
    
    2,513
    
    
    40,871$
    6,293
    
    $
    26,452
    
    $
    21,628
    
    $
    57,124





COMPREHENSIVE
LOSS





Total
comprehensive loss was $6,560 for the quarter ended September 28, 2003 and
$14,352 for the quarter ended October 3, 2004.





Components
of Comprehensive Loss








Quarter
      Ended
    
    Year-to-DateSept.
      28,
      2003
    
    October
      3,
      2004
    
    Sept.
      28,
      2003
    
    October
      3,
      2004(unaudited)
    
    (unaudited)**Restated**
    ****
    ****
    ****
    ****
    ****
    **Restated**Net
      loss attributable to common stockholders
    
    $
    (6,787
    )
    $
    (13,896
    )
    $
    (22,781
    )
    $
    (23,689
    )Other
      comprehensive income / (loss):Movement
      in the fair value of cash flow hedges-
      unrealized (loss)/gain on foreign currency cash flow
hedges
    
    
    494
    
    
    53
    
    
    895
    
    
    282-
      reclassification of adjustment for gains realized in net
      income
    
    
    (267
    )
    
    (509
    )
    
    (1,356
    )
    
    (1,545
    )Comprehensive
      loss
    
    $
    (6,560
    )
    $
    (14,352
    )
    $
    (23,242
    )
    $
    (24,952
    )








NET
LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS PER SHARE





Net
loss attributable
to common stockholdersper share is computed using the weighted average
number of shares of common stock outstanding less the number of shares subject
to repurchase and retained by the Company as treasury stock. 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 attributable
to common stockholders per share for the periods
indicated.





Quarter
      Ended
    
    Year-to-DateSept.
      28,
      2003
    
    October
      3,
      2004
    
    Sept.
      28,
      2003
    
    October
      3,
      2004(unaudited)
    
    (unaudited)Numerator:
    
    
    
    **Restated**
    
    
    
    **Restated**Net
      loss attributable to common stockholders
    
    $
    (6,787
    )
    $
    (13,896
    )
    $
    (22,781
    )
    $
    (23,689
    )Denominator:Weighted
      average common shares outstanding basic and diluted
    
    
    35,144,080
    
    
    36,439,662
    
    
    34,952,376
    
    
    36,169,249Net
      loss attributable to common stockholders per share- basic and
      diluted
    
    $
    (0.19
    )
    $
    (0.38
    )
    $
    (0.65
    )
    $
    (0.65
    )













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


In
2000, the Company adopted the 2000 Employee Stock Purchase Plan (“ESPP”), which
is intended to qualify as an employee stock purchase plan under Section 423 of
the Internal Revenue Code of 1986. As of October 3, 2004, there were 1,825,577
shares of common stock reserved for issuance under the ESPP. On August 1, 2004
the Company issued 211,754 shares at $1.76 per share to employees participating
in the ESPP.





During
the nine months ended October 3, 2004, 867,106 options granted pursuant to the
1998 and 2001 stock option plans were exercised at an average exercise price of
$1.02.





On
September 13, 2004, the Company consummated the private sale of 73,000 shares of
Series A Preferred Stock to Oak Investment Partners XI Limited Partnership
(“Oak”) for aggregate gross proceeds of $29.2 million (net proceeds $29.1
million after legal fees) pursuant to the terms of a Preferred Stock Purchase
Agreement (the “Purchase Agreement”). The Purchase Agreement was amended
effective September 23, 2004. Pursuant to the Purchase Agreement, Oak purchased
73,000 shares of Series A Preferred Stock, which are convertible into 7,300,000
shares of common stock, for $400 per share of preferred stock or $4 per share of
common stock equivalent. The per common stock equivalent price was established
at a discount of approximately 10% off the trailing 10 day volume weighted
average closing price for the common stock on September 9, 2004.




The fair
value of the common stock on the commitment date was $5.43 per ordinary share.
Each preferred share, purchased for $400.00, was convertible into 100 common
shares, implying a common stock equivalent value (conversion price) on the
commitment date of $4.00 per share. The intrinsic value of beneficial conversion
feature of the 73,000 preferred shares on the commitment date was $10.4
million.





Asa result
of the discount to fair market value at the commitment date, the Company
recognized the intrinsic value of the embedded beneficial conversion feature
relating to the issuance of the Preferred Stock of $10.4 million as a deemed
dividend to preferred stockholders. The Preferred Stock was immediately
convertible to common stock on the date of issue and, as a result, the embedded
beneficial conversion feature was immediately debited to Accumulated deficit
in the third quarter 2004 reflected as a "deemed dividend to preferred
stockholders associated with beneficial conversion of preferred stock” and
credited to “Additional paid in capital”.
 Pursuant
to the Articles, holders of the Series A Preferred Stock may convert the stock
into shares of the Company’s common stock at any time at
the rate of 100 shares of common stock for each share of Series A Preferred
Stock (the “Conversion Rate”). Holders of the Series A Preferred Stock are
entitled to participate in dividends declared with respect to the common stock
as if the Series A Preferred Stock was converted into the common stock. To the
extent that the holders
of the Series A Preferred Stock do not participate fully with other 
Company stockholders with respect to dividends paid, the Conversion
Rate may be appropriately adjusted upon the occurrence of any of the following
events: (i) the Company’s payment of common stock
dividends and distributions, (ii) common stock splits, subdivisions or
combinations and (iii) reclassification, reorganization, change or conversion
of the common stock. To the extent that the holders of the Series A Preferred
Stock do not participate fully with other Company
stockholders with respect to dividends paid, the Conversion Rate may be
appropriately adjusted upon the occurrence of any of the following
events: (i) the Company’s payment of common stock dividends and distributions,
(ii) common stock splits, subdivisions or combinations
and (iii) reclassification, reorganization, change or conversion of the common
stock.


The
Series A Preferred Stock is identified as ranking senior and prior to the common
stock and all other classes or series of capital stock with respect to payments
upon liquidation. Upon any liquidation of the Company, certain mergers,
reorganizations and/or consolidations of the Company into or with another
corporation or any transaction or series of related transactions in which a
person, entity or group acquires 50% or more of the combined voting power of the
Company’s then outstanding securities (a “Liquidation”), holders are entitled to
receive prior and in preference to any distribution to holders of the Company’s
common stock, the greater of the amount they invested plus all accumulated or
accrued and unpaid dividends thereon or the amount they would receive in such
transaction if they converted the preferred stock into common stock.





Pursuant
to the Company’s Articles of Incorporation, holders of the Series A Preferred
Stock are entitled to vote on matters presented to the holders of common stock
as if the Series A Preferred Stock was converted into the common stock. However,
the Company, Oak and each subsequent holder of the Series A Preferred Stock
(collectively, the “Parties”) have agreed that the holders of the Series A
Preferred Stock will only vote on matters presented to the holders of common
stock as if the Series A Preferred Stock was converted into the common stock at
the rate of 1 share of Series A Preferred Stock to 86 shares of common stock
(the “Voting Conversion Rate”). The Parties have agreed that the holders of the
Series A Preferred Stock shall abstain from voting with respect to any remaining
votes to which the holders of the Series A Preferred Stock may be entitled under
the Articles. The Parties have further agreed that the Voting Conversion Rate
will be adjusted from time to time in the same manner and under the same
circumstances as the Conversion Rate is adjusted pursuant to the Articles.


**RESTATEMENT**
 
 This Form
10-Q/A and the restated condensed consolidated financial statements included
herein reflect a correction of the Company’s accounting and disclosure treatment
of its September 13, 2004 issuance of 73,000 shares of Series A Preferred Stock
and a restatement of the Company's third quarter earnings per share. This Form
10-Q/A amends the Company’s previously filed Form 10-Q for the period ended
October 3, 2004 to reflect a $10.4 million, non cash, deemed dividend from the
embedded beneficial conversion feature relating to the Series A Preferred Stock.
In accordance with EITF 00-27 Application of Issue No. 98-5 to Certain
Convertible Instruments and EITF 98-5 Accounting for Convertible Securities with
Beneficial Conversion Features or Contingently Adjustable Conversion Ratios, the
Company has accounted for the embedded beneficial conversion as a deemed
dividend to the preferred stockholders of $10.4 million and a credit to
additional paid in capital. The deemed dividend is included in the net loss
attributable to common stockholders and the per share amounts
accordingly.
 
 **
 
 **
 *The
effect on the Condensed Consolidated Balance Sheets*
 
 As a
result of the restatement as at October 3, 2004, additional paid in capital
increased from the previously reported $245.6 million to $256.1 million and the
accumulated deficit increased from the previously reported $180.4 million to
$190.8 million as a result of the deemed dividend to the preferred stockholders
of $10.4 million.
 
 *The
effect on the Condensed Consolidated Statements of Income*
 
 For the
three months ended October 3, 2004 net loss attributable to common stockholders
increased by $10.4 million (or $0.29 per share), for the deemed dividend to the
preferred stockholders, from $3.5 million as previously reported (or $0.09 per
share) to $13.9 million (or $0.38 per share). For the nine months ended October
3, 2004 net loss attributable to common stockholders increased by $10.4 million
(or $0.28 per share), for the deemed dividend to the preferred stockholders,
from $13.3 million as previously reported (or $0.37 per share) to $23.7 million
(or $0.65 per share).
  The
impact of the restatement for the three month and nine month period ending
October 3, 2004 is summarized as follows:
 
 **Impact
      Summary**As
      originally reported
    
    As
      restated
    
    Change(In
      thousands, except for per share data)Quarter
      ended October 3, 2004Additional
      paid in capital
    
    $
    245,615
    
    $
    256,054
    
    $
    10,439Accumulated
      deficit
    
    
    (180,369
    )
    
    (190,808
    )
    
    (10,439
    )Deemed
      dividend associated with beneficial conversion of preferred
      stock
    
    
    —
    
    
    (10,439
    )
    
    (10,439
    )Net
      loss attributable to common stockholders
    
    
    (3,457
    )
    
    (13,896
    )
    
    (10,439
    )Net
      loss attributable to common stockholders per share
    
    $
    (0.09
    )
    $
    (0.38
    )
    $
    (0.29
    )Nine
      months ended October 3, 2004Additional
      paid in capital
    
    $
    245,615
    
    $
    256,054
    
    $
    10,439Accumulated
      deficit
    
    
    (180,369
    )
    
    (190,808
    )
    
    (10,439
    )Deemed
      dividend associated with beneficial conversion of preferred
      stock
    
    
    —
    
    
    (10,439
    )
    
    (10,439
    )Net
      loss attributable to common stockholders
    
    
    (13,250
    )
    
    (23,689
    )
    
    (10,439
    )Net
      loss attributable to common stockholders per share
    
    $
    (0.37
    )
    $
    (0.65
    )
    $
    (0.28
    )
 
 SUBSEQUENT
EVENT





On
November 9, 2004, the Company sold 834,560 shares of its common Stock in
accordance with a prospectus it filed with the Securities and Exchange
Commission on October 12, 2004. Net proceeds to the Company were $5.30 per
share, or $4.4 million in total. The shares were being held as treasury stock,
having originally been acquired under a share buy back program implemented by
the Company in 2002. Using Oppenheimer & Co. Inc, whom the Company had
engaged to serve as its exclusive solicitation agent for the sale, the Company
sold the shares through a series of block trades to a group of institutional
investors.















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, 2003, 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/A ARE
FORWARD-LOOKING AND ARE MADE PURSUANT TO THE SAFE HARBOR PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. WITHOUT LIMITING THE
GENERALITY OF THE FOREGOING, WORDS SUCH AS “MAY”, “WILL”, “TO”, “PLAN”,
“EXPECT”, “BELIEVE”, “ANTICIPATE”, “INTEND”, “COULD”, “WOULD”, “ESTIMATE”, OR
“CONTINUE” OR THE NEGATIVE OTHER VARIATIONS THEREOF OR COMPARABLE TERMINOLOGY
ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. INVESTORS AND OTHERS ARE
CAUTIONED THAT A VARIETY OF FACTORS, INCLUDING CERTAIN RISKS, MAY AFFECT OUR
BUSINESS AND CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE SET FORTH IN
THE FORWARD-LOOKING STATEMENTS. THESE RISK FACTORS INCLUDE, WITHOUT LIMITATION,
(I) A SLOWDOWN OF EXPENDITURES BY COMMUNICATION SERVICE PROVIDERS; (II)
INCREASED COMPETITION FROM ALTERNATIVE COMMUNICATION SYSTEMS; (III) THE FAILURE
OF OUR EXISTING OR PROSPECTIVE CUSTOMERS TO PURCHASE PRODUCTS AS PROJECTED; (IV)
OUR INABILITY TO SUCCESSFULLY IMPLEMENT COST REDUCTION OR CONTAINMENT PROGRAMS;
(V) A LOSS OF ANY OF OUR KEY CUSTOMERS; (VI) OUR ABILITY TO RETAIN AXTEL, S.A.
DE CV (“AXTEL”) AS OUR LARGEST CUSTOMER; AND (VII) OUR ABILITY TO CONTINUE TO
SELL THE PROXIMITY INVENTORY ON TERMS AND CONDITIONS COMPARABLE TO THOSE
CURRENTLY UTILIZED. THE COMPANY IS ALSO SUBJECT TO THE RISKS AND UNCERTAINTIES
DESCRIBED IN ITS FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION, INCLUDING
ITS ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31,
2003.





Restatement


This Form
10-Q/A and the restated condensed consolidated financial statements included
herein reflect a correction of the Company’s accounting and disclosure treatment
of its September 13, 2004 issuance of 73,000 shares of Series A Preferred Stock
and a restatement of the Company's third quarter earnings per share. This Form
10-Q/A amends the Company’s previously filed Form 10-Q for the period ended
October 3, 2004 to reflect a $10.4 million, non cash, deemed dividend from the
embedded beneficial conversion feature relating to the Series A Preferred
Stock.
 
 In
accordance with EITF 00-27 Application of Issue No. 98-5 to Certain Convertible
Instruments and EITF 98-5 Accounting for Convertible Securities with Beneficial
Conversion Features or Contingently Adjustable Conversion Ratios, the Company
has accounted for the embedded beneficial conversion as a deemed dividend to the
preferred stockholders of $10.4 million and a credit to additional paid in
capital. The deemed dividend is included in the net loss attributable to common
stockholders and the per share amounts accordingly.
 
 As a
result of the correction of the Company’s accounting and disclosure treatment of
the issuance of the Series A Preferred Stock, the Company has amended the
following Items and sections of its Form 10-Q, among others:
 
 ·
    Financial
      Statements, including the Company’s restated Condensed Consolidated
      Balance Sheets of October 3, 2004, Condensed Consolidated Statement of
      Income for the period ended October 3, 2004, and including the following
      revised Notes to the Financial Statements:
 ·
    Business
 ·
    Stock
      Compensation
 ·
    Net
      Loss Attributable to Common Stockholders’ Per
Share
 ·
    Restatement
 ·
    Item
      2. Managements Discussion and Analysis of Financial Condition and Results
      of Operations
 ·
    Item
      4. Controls and Procedures
 
 Except as
otherwise expressly noted herein, this Form 10-Q/A does not reflect events
occurring after the November 17, 2004 filing of our Quarterly  Report on
Form 10-Q for the quarter ended October 3, 2004 in any way, except those
required to reflect the effects of this restatement of our financial  statements
for the periods presented or as deemed necessary in connection with the
completion of restated financial statements.
  The
remaining Items required by Form 10-Q are not amended hereby and have been
omitted. In order to preserve the nature and character of the  disclosures
set forth in such Items as originally filed, except as expressly noted herein,
this report continues to speak as of the date of the original
filing,  and we
have not updated the disclosures in this report to speak as of a later
date.
  While
this report primarily relates to the historical periods covered, events may have
taken place since the original filing that might have been reflected in this
report if they had taken place prior to the original filing.


*The
effect on the Condensed Consolidated Balance Sheets*
 
 As a
result of the restatement as at October 3, 2004, additional paid in capital
increased from the previously reported $245.6 million to $256.1 million and the
accumulated deficit increased from the previously reported $180.4 million to
$190.8 million as a result of the deemed dividend to the preferred stockholders
of $10.4 million.
 
 *The
effect on the Condensed Consolidated Statements of Income*
 
 For the
three months ended October 3, 2004 net loss attributable to common stockholders
increased by $10.4 million (or $0.29 per share), for the deemed dividend to the
preferred stockholders, from $3.5 million as previously reported (or $0.09 per
share) to $13.9 million (or $0.38 per share). For the nine months ended October
3, 2004 net loss attributable to common stockholders increased by $10.4 million
(or $0.28 per share), for the deemed dividend to the preferred stockholders,
from $13.3 million as previously reported (or $0.37 per share) to $23.7 million
(or $0.65 per share).
  
  
 The
impact of the restatement for the three month and nine month period ended
October 3, 2004 is summarized as follows:
 
 **Impact
      Summary**As
      originally reported
    
    As
      restated
    
    Change(In
      thousands, except for per share data)Quarter
      ended October 3, 2004Additional
      paid in capital
    
    $
    245,615
    
    $
    256,054
    
    $
    10,439Accumulated
      deficit
    
    
    (180,369
    )
    
    (190,808
    )
    
    (10,439
    )Deemed
      dividend associated with beneficial conversion of preferred
      stock
    
    
    -
    
    
    (10,439
    )
    
    (10,439
    )Net
      loss attributable to common stockholders
    
    
    (3,457
    )
    
    (13,896
    )
    
    (10,439
    )Net
      loss attributable to common stockholders per share
    
    $
    (0.09
    )
    $
    (0.38
    )
    $
    (0.29
    )Nine
      months ended October 3, 2004Additional
      paid in capital
    
    $
    245,615
    
    $
    256,054
    
    $
    10,439Accumulated
      deficit
    
    
    (180,369
    )
    
    (190,808
    )
    
    (10,439
    )Deemed
      dividend associated with beneficial conversion of preferred
      stock
    
    
    -
    
    
    (10,439
    )
    
    (10,439
    )Net
      loss attributable to common stockholders
    
    
    (13,250
    )
    
    (23,689
    )
    
    (10,439
    )Net
      loss attributable to common stockholders per share
    
    $
    (0.37
    )
    $
    (0.65
    )
    $
    (0.28
    )


COMPARISON
OF THE QUARTER ENDED OCTOBER 3, 2004 TO THE QUARTER ENDED SEPTEMBER 28,
2003





Revenue





Revenue
totaled $26.5 million for the quarter ended October 3, 2004 representing a 320%
increase from the $6.3 million reported for the comparable 2003 quarter. The
increase in revenues was primarily attributable to the Proximity acquisition in
the fourth quarter of 2004. In addition, revenue for the third quarter of 2004
was 45% higher than revenue recorded for the second quarter of 2004. During the
quarter, revenue was derived from 120 customers in 60 countries. The increase in
revenue from the second quarter of 2004 is primarily the result of a more than
50% increase in revenues attributable to Axtel, our largest customer. In
addition, during the third quarter of 2004, we recorded sales to five additional
Proximity customers. Geographically, 76% of our revenues were derived from
customers in Latin America and the Caribbean, 10% from Europe and 9% from Asia.
Africa and Middle Eastern customers and North American customers accounted for
3% and 2% of revenues, respectively. In the third quarter 2004, sales to
customers in Latin America and Caribbean increased by $19.0 million compared to
the third quarter of 2003, primarily as a result of the acquisition of the
Proximity business. During the third quarter of 2004, as a result of a temporary
shortage of components, we experienced difficulty manufacturing enough Proximity
products to meet existing orders in a timely manner. By the end of the third
quarter of 2004, we had reestablished a reliable supply of components and
substantially reduced the overdue order backlog. We expect to completely
eliminate the overdue order backlog before year end.





Cost
of Revenue





Cost
of revenue increased 223% to $18.3 million in the quarter ended October 3, 2004
from $5.7 million in the quarter ended September 28, 2003 as a result of the
increase in revenue. Included in the third quarter 2004 gross profit was the
effect of an inventory provision of $1.1 million relating to excess and obsolete
inventory of our AS4000 product line. There was no comparable charge in the
third quarter of 2003. The gross profit for the third quarter of 2004 was $7.1
million (27% of revenue) compared to a gross profit of $0.6 million (10% of
revenue) for the third quarter 2003 and compared to a gross profit for the
second quarter 2004 of $6.1 million (33% of revenue). The increase in the amount
of gross margin in the third quarter 2004 compared to the third quarter 2003 was
due primarily to increased revenues and comparable amounts of period costs being
spread over a larger quarterly revenue base. The increase was partly offset by
the third quarter 2004 inventory provision and increased costs related to
expediting and management of the component shortages of our Proximity products.















Research
and Development Expenses





Research
and development expenses increased 32% to $4.5 million in the quarter ended
October 3, 2004 from $3.4 million in the quarter ended September 28, 2003. The
increase arose from the purchase of the Proximity business in the fourth quarter
of 2003, which was partially offset by expense reductions arising from headcount
and expense reduction programs. During the third quarter of 2004 we received the
first sample WiMAX chips from Intel for our new WiMAX customer premise equipment
and we announced a strategic partnership with picoChip in the UK to develop and
market the first fully upgradeable reference designs for WiMAX base stations. We
expect to begin commercial WiMAX deployments in the second half of
2005.





Sales
and Marketing Expenses





Sales
and marketing expenses increased 23% to $2.8 million in the third quarter 2004
from $2.3 million in the third quarter 2003 primarily as a result of an
increased level of revenue and changes in sales focus, commission and trade
shows across the regions of the Company.





Bad
Debt Provision





In
the third quarter 2004, we recorded a bad debt provision of $0.2 million
relating to customer accounts for which management has determined that full
recovery was unlikely. No provisions were made for bad debts in the
corresponding quarter of 2003.





General
and Administrative Expenses





General
and administrative expenses increased 64% to $3.3 million in the quarter ended
October 3, 2004 from $2.0 million in the quarter ended September 28, 2003. The
increase is primarily due to an increase in legal and professional expenditures,
including costs related to activities to facilitate compliance with the Sarbanes
Oxley Act 2002 ($0.6 million for the third quarter 2004), an increase in the
foreign exchange rate of certain sterling denominated charges, legal and
accounting costs incurred in the pursuit of certain acquisition opportunities
and additional expense incurred as a result of the increase in business activity
over the corresponding period of 2003.





Amortization
of Intangibles





We
recorded an expense of $0.18 million in the third quarter 2004 compared with an
expense of $0.04 million for the third quarter 2003. The increase in
amortization expense relates to intangibles acquired as part of the Proximity
purchase in the fourth quarter of 2003. These intangibles are expected to be
fully amortized by the end of 2008.





Restructuring
Provision





During
the third quarter 2004, we reduced certain operating expenses in accordance with
a revised restructuring program that was initiated in the first quarter 2004 and
completed in the third quarter 2004. We recorded a restructuring charge during
the third quarter 2004 of $0.02 million. The total cost incurred as part of this
restructuring program was $0.4 million related to termination costs associated
with employees. We recorded a restructuring provision of $0.05 million in the
third quarter 2003.





Interest
Expense and Interest and Other Income





Interest
expense was $0.0 million in the third quarter of 2004 and third quarter of 2003
as a result of the settlement of all of our long-term debt in the second quarter
of 2003. Interest and other income increased to $0.6 million for the quarter
ended October 3, 2004 from $0.4 million in the quarter ended September 28, 2003.
The increase was due primarily to higher foreign exchange gains of $0.5 million
recorded in the third quarter of 2004 as compared to the $0.3 million recorded
in the comparable period of 2003. Interest income was $0.1 million in both the
third quarter of 2004 and 2003. The foreign exchange gains in 2004 and 2003 are
primarily a result of our liquidation of certain currency hedging contracts
entered into by the Company to protect itself against a strengthening of the
British Pound against the US Dollar.




Income
Taxes





We
did not have a material income tax charge in either the third quarter of 2004 or
2003 primarily due to our current loss making position and losses brought
forward. We are subject, from time to time, to US franchise taxes resulting from
business activities performed within certain States in the United States of
America.













Deemed
Dividend to Preferred Stock Associated With Beneficial Conversion of Preferred
Stock.

In the
third quarter 2004, we recognized a non cash charge of $10.4 million as a deemed
dividend to preferred stockholders associated with the beneficial conversion
feature to the preferred stock issued in the quarter. The full intrinsic value
of the embedded beneficial conversion feature of $10.4 million was charged on
issuance as the Preferred Stock was immediately convertible to common stock on
the date of issue. There was no charge in the third quarter 2003.

Net Loss
Attributable to Common Stockholders

Our net
loss attributable to common stock holders of $13.9 million, or $0.38 per share,
in the quarter ended October 3, 2004 compares to a net loss of $6.8 million, or
$0.19 per share, in the quarter ended September 28, 2003, an increase of 105%.
The increase in gross profit of $6.4 million and increase in interest and other
income of $0.2 million was offset by higher operating expenses of $3.3 million
and deemed dividend to preferred stockholders of $10.4 million.





Other
Comprehensive Loss / Income





Other
comprehensive loss for the quarter ended October 3, 2004 arose from the
liquidation of certain currency hedging contracts together with the
reclassification of their realized gains to net income of $0.5 million. This was
partially offset by an increase in fair value of our existing forward foreign
exchange contracts, on retranslation, of $0.05 million. These forward exchange
contracts are used to hedge our UK expenses through to March 2005. Other
comprehensive income for the quarter ended September 28, 2003 was $0.2
million.








COMPARISON
OF THE NINE MONTS ENDED OCTOBER 3, 2004 TO THE NINE MONTHS ENDED SEPTEMBER 28,
2003





Revenue





Revenue
totaled $57.1 million for the nine months ended October 3, 2004, representing a
164% increase from the $21.6 million reported for the comparable 2003 period.
The increase in revenues was primarily attributable to the Proximity acquisition
in the fourth quarter of 2003. During the nine month period, revenue was derived
from over 170 customers in over 70 countries. Geographically, 72% of our
revenues were derived from customers in Latin America and the Caribbean, 13%
from Europe and 9% from Asia. North American customers and Africa and Middle
Eastern customers each accounted for 3% of revenues. In the nine months ended
October 3, 2004, sales to customers in Latin America and the Caribbean increased
by $38.4 million compared to the corresponding 2003 period, primarily as a
result of the acquisition of the Proximity business. During the third quarter of
2004, as a result of a temporary shortage of components, we experienced
difficulty manufacturing enough Proximity products to meet existing orders in a
timely manner. By the end of the third quarter of 2004, we had reestablished a
reliable supply of components and substantially reduced the overdue order
backlog. We expect to completely eliminate the overdue order backlog before year
end.





Cost
of Revenue





Cost
of revenue increased 136% to $39.2 million in the nine months ended October 3,
2004 from $16.6 million in the nine months ended September 28, 2003 as a result
of the increase in revenue. During the first three quarters of 2004, an
inventory provision of $1.1 million was recorded compared to a $4.4 million
provision recorded in the corresponding period of 2003. The gross profit for the
first nine months of 2004 was $16.9 million (30% of revenue) compared to a gross
profit of $0.6 million (3% of revenue) for the first nine months of 2003. The
increase in the amount of gross margin was due primarily to the increase in
sales volume and comparable amounts of period costs being spread over a larger
quarterly revenue base along with lower inventory provisions.





Research
and Development Expenses





Research
and development expenses increased 32% to $14.3 million in the nine months ended
October 3, 2004 from $10.8 million in the nine months ended September 28, 2003.
The increase is mainly due to the costs associated with the acquisition of
personnel in connection with the Proximity business in the fourth quarter of
2003, which was partially offset by savings arising from headcount and expense
reduction programs. During the period we have allocated more of our research and
development resources to our new WiMAX product development form our other
established product lines of AS4020 and WipLL, as development of these products
is substantially complete.















Sales
and Marketing Expenses





Sales
and marketing expenses increased 8% to $8.1 million for the first nine months of
2004 compared to $7.5 million for the corresponding 2003 period. The increase is
primarily as a result of an increased level of revenue and changes in sales
focus, commission and trade shows across the regions of the Company..





Bad
Debt Provision





In
the first nine months of 2004, we recorded a bad debt provision of $0.5 million.
This provision related to customer accounts for which management determined that
full recovery was unlikely. No provisions were made for bad debts in the
corresponding 2003 period.





General
and Administrative Expenses





General
and administrative expenses increased 23% to $8.2 million in the nine months
ended October 3, 2004 from $6.7 million in the nine months ended September 28,
2003. The increase is primarily due to an increase in legal and professional
expenditures, including costs related to activities to facilitate compliance
with the Sarbanes Oxley Act 2002, an increase in the foreign exchange rate of
certain sterling denominated charges, legal and accounting costs incurred in the
pursuit of certain acquisition opportunities and additional expense incurred in
connection with the purchase of the Proximity business in the fourth quarter of
2003, partially offset by expense and headcount reduction programs.





Amortization
of Intangibles





We
recorded an expense of $0.6 million in the first nine months of 2004 compared
with an expense of $0.1 million for the corresponding 2003 period. The increase
in amortization expense relates to intangibles acquired as part of the Proximity
purchase in the fourth quarter of 2003.





Restructuring
Provision





During
the first nine months of 2004 we reduced certain operating expenses in
accordance with a revised restructuring program that was initiated in the first
quarter 2004 and completed in the third quarter of 2004. We recorded a
restructuring charge during the nine-month period of 2004 of $0.4 million,
relating to termination costs associated with employees. We recorded a
restructuring provision of $0.3 million in the first nine months of
2003.





Interest
Expense and Interest and Other Income





Interest
expense was $0.0 million in the first nine months of 2004 and the first nine
months of 2003 as a result of the settlement of all of our long-term debt in the
second quarter of 2003. Interest and other income remained constant at $2.1
million for both the first nine months of 2003 and 2004. Interest income in the
first nine months of 2003 was $0.5 million, $0.1 million higher than the $0.4
million recorded for the first nine months of 2004. Foreign exchange gains for
the first nine months of 2003 were $1.6 million compared with $1.7 million for
the first nine months of 2004. The foreign exchange gains in 2004 and 2003 are
primarily attributable to our liquidation of certain currency hedging contracts
entered into by the Company to protect itself against a strengthening of the
British Pound against the US Dollar.




Income
Taxes





We
did not have a material income tax charge in either the first nine months of
2004 or 2003 primarily due to our current loss-making position and losses
brought forward. We are subject, from time to time, to US franchise taxes
resulting from business activities performed within certain States of
America.





Deemed
Dividend to Preferred Stock Associated With Beneficial Conversion of Preferred
Stock.
 
 In the
third quarter 2004, we recognized a non cash charge of $10.4 million as a deemed
dividend to preferred stockholders associated with the beneficial conversion
feature to the preferred stock issued in the quarter. The full intrinsic value
of the embedded beneficial conversion feature of $10.4 million was charged on
issuance as the Preferred Stock was immediately convertible to common stock on
the date of issue. There was no charge in the nine months ended September 28,
2003.
 
 Net Loss
Attributable to Common Stockholders
 
 Our net
loss attributable to common stock holders of $23.7 million, or $0.65 per share,
in the nine months ended October 3, 2004 compares to a net loss of $22.8
million, or $0.65 per share, in the nine months ended September 28, 2003, an
increase of 4%. The increase in gross profit of $16.2 million was offset by
higher operating expenses of $6.7 million and a deemed dividend to preferred
stockholders of $10.4 million.







Other
Comprehensive Loss





Other
comprehensive loss for the nine months ended October 3, 2004 arose from the
liquidation of certain currency hedging contracts together with the
reclassification of their realized gains to net income of $1.5 million. This was
partially offset by an increase in fair value of our existing forward foreign
exchange contracts, on retranslation, of $0.3 million. These forward exchange
contracts are used to hedge our UK expenses through to March 2005. Other
comprehensive loss for the nine months ended September 28, 2003 was $0.5
million.





Restructuring





In
the third quarter of 2002, a restructuring program was initiated to reduce
operating expenses. A charge of $0.3 million was recorded in the quarter.
Included in this charge were costs related to the write off of tradeshow
equipment and severance payments. The total number of employees terminated as
part of this restructuring program was 19 and all severance payments were made
by the end of the second quarter of 2003.





In
the fourth quarter of 2002 the decision was made to completely outsource all our
manufacturing. As a result we recorded a $1.0 million restructuring charge for
the closure of our Riverside, Uxbridge facility in 2003. All of this cost
relates to the excess facility. A further $368 was recognized as restructuring
in the income statement in the fourth quarter of 2003 as the Company reassessed
the ability to sublease the Riverside facility.





In
the second quarter of 2003 an additional restructuring program was initiated to
further lower operating expenses. The total cost incurred as part of this
restructuring program was $0.3 million arising from costs associated with
facility closures and severance.





The
costs incurred during the year ended December 31, 2003 included termination
costs for 30 employees. All of these employees had left the Company by December
31, 2003.





During
the first quarter of 2004 the Company revised its original restructuring
programs and initiated a new program to further reduce operating expenses. This
program was completed by the end of the third quarter of 2004. The total cost
incurred for this restructuring program was $0.4 million, recorded as a
restructuring charge, related to termination costs for 21 employees. During the
third quarter of 2004, the Company incurred $0.02 million related to this
program.





In
conjunction with the purchase of the Proximity business the Company implemented
its plan to relocate the Proximity business from Maidenhead, England and
Sunrise, Florida to the Company’s facilities in Uxbridge, England and Boca
Raton, Florida. The Company recorded acquisition-related restructuring charges
of $0.5 million in the fourth quarter of 2003 in connection with the relocation
of the Proximity business. The estimated relocation costs were revised during
the second quarter of 2004 from $0.5 million down to $0.3 million. The
adjustment formed part of the revised fair value adjustments of the Proximity
acquisition. This relocation plan is expected to be completed by the end of the
fourth quarter of 2004.





Accrued
      atDecember
      31,2003
    
    Paid
      in 2004
    
    Revision
      to preliminary fair value adjustments
    
    Accrued
      at
      October 3,
      2004Office
      relocation and closure - other associated costs
    
    $
    520
    
    $
    (181
    )
    $
    (182
    )
    $
    157





The
restructuring charges and their utilization are summarized as
follows:





Balance
      atbeginning
      of
      period
    
    Restructuringcharge
    
    Accrued
      onacquisition
    
    Utilized
    
    Balance
      at endof
      period(unaudited)
    
    (unaudited)
    
    (unaudited)
    
    (unaudited)
    
    (unaudited)Nine
      months ended October 3, 2004One-time
      termination benefits
    
    $
    —
    
    $
    413
    
    $
    —
    
    $
    (413
    )
    $
    —Contract
      termination costs
    
    
    947
    
    
    —
    
    
    —
    
    
    (235
    )
    
    712Other
      associated costs
    
    
    592
    
    
    —
    
    
    (182
    )
    
    (189
    )
    
    221$
    1,539
    
    $
    413
    
    $
    (182
    )
    $
    (837
    )
    $
    933Year
      ended December 31, 2003One-time
      termination benefits
    
    $
    79
    
    $
    342
    
    $
    —
    
    $
    (421
    )
    $
    —Contract
      termination costs
    
    
    825
    
    
    397
    
    
    —
    
    
    (275
    )
    
    947Other
      associated costs
    
    
    150
    
    
    11
    
    
    520
    
    
    (89
    )
    
    592$
    1,054
    
    $
    750
    
    $
    520
    
    $
    (785
    )
    $
    1,539












All
charges will result in direct cash outlays.










Liquidity
and Capital Resources





Between
inception and July 2000, we financed our operations primarily through private
sales of convertible preferred stock, which totaled $117.3 million (net of
transaction expenses). On July 25, 2000, we completed an initial public offering
of common stock for approximately $86.0 million in cash (net of underwriting
discounts, commission and other expenses). In the third quarter 2004, we
consummated the private sale of 73,000 shares of Series A Preferred Stock to Oak
Investment Partners XI, Limited Partnership (“Oak”) for an aggregate of $29.1
million in cash (net of legal fees) to continue to invest for ongoing
growth.





As
of October 3, 2004, we had cash and cash equivalents totaling $51.9 million and
$16.4 million of restricted cash that is held as collateral for landlords and
customers and contributions from employees in respect of the Employee Share
Purchase Plan. We do not have a line of credit or similar borrowing facility,
nor do we have any material capital commitments. Our total cash and cash
equivalents, including restricted cash, at the end of the third quarter 2004 was
$21.1 million greater than at the end of the second quarter 2004.





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





For
the nine months ended October 3, 2004, we generated $4.3 million of cash from
operating activities compared with a use of $15.1 million for the nine months
ended September 28, 2003. The cash inflow from operations for the first nine
months of 2004 was primarily a result of a decrease in inventory levels ($9.7
million), a net increase in accounts payable ($6.7 million) attributable to
increased revenue and a net increase in customer advance payments ($3.6 million)
in connection with customer contract payments. The cash inflow was partially
offset by a net loss of $13.3 million and a $3.5 million increase in other
current assets primarily related to amounts due from our contract manufacturer
for inventories purchased by them from Airspan. Days sales outstanding decreased
to 40 days at the end of the third quarter 2004 from 45 at the end of the second
quarter 2004 and compared to 169 days at the end of the third quarter 2003.
Inventory turns were 5.9 at the end of the third quarter of 2004, compared with
2.8 for the second quarter 2004 and 2.0 for the third quarter of
2003.





The
net cash used in investing activities for the nine months ending October 3, 2004
was $1.9 million, all of which related to capital purchases. Net cash generated
from investing activities in the nine months ending September 28, 2003 was $3.7
million. Proceeds from the sale of $5.1 million in short term investments in the
first nine months of 2003 were partially offset by $1.3 million of capital
equipment purchases.





Our
net cash inflow from financing activities for the nine months ended October 3,
2004 was $15.6 million compared with an outflow of $1.6 million for the nine
months ended September 28, 2003. During the third quarter 2004, we generated
$29.1 million by selling 73,000 shares of Series A Preferred Stock to Oak. In
addition to the proceeds received from Oak upon the sale of the preferred stock,
we received $0.9 million on exercise of stock options and $0.4 million as
proceeds from the sale of common stock under the ESPP. These inflows were
partially offset by a $14.8 million increase in restricted cash. Restricted cash
increases when the Company issues a guarantee secured by cash collateral or
additional contributions are collected from employees under the ESPP and
decreases whenever such a guarantee is cancelled or shares are actually
purchased under the ESPP.





Our
contracts with our customer Axtel require the Company to provide bank guarantees
for any payments made by Axtel in advance of product deliveries if such payments
exceed $10 million. The Company is required by the issuing bank to place with
them cash deposits as collateral. The value of these guarantees and restricted
cash at the end of the third quarter 2004 was approximately $13.5 million. It is
expected that by the end of the fourth quarter of 2004 these guarantees will be
reduced to zero.





We
have no material commitments other than obligations on operating leases, the
forward exchange contracts mentioned below and purchase commitments to our
manufacturing subcontractors. As a result of the increase in customer orders, we
have increased our purchase commitments to our main manufacturing
subcontractors. These purchase commitments totaled $8.2 million at December 31,
2003 and at October 3, 2004 were $38.4 million.





Subsequent
to the close of the third quarter 2004, on November 9, 2004 we sold 834,560
share of common stock that we had previously repurchased from the market in a
share buy back program implemented in 2002. We received net proceeds of $4.4
million in connection with the sale.




We
have explored and may in the future explore and pursue other perceived
opportunities to acquire fixed wireless access 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, 2003. There can be no assurances that our efforts to acquire other
businesses will be successful.





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












**Item
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 Airspan’s management,
including the Chief Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of Airspan’s disclosure controls and
procedures (as defined in Section 13a-15(e) and 15d-15(e) of the Securities
Exchange Act of 1934, as amended).
 
 This
evaluation included the Company’ Proximity business acquired from Nortel
Networks on December 23, 2003. Prior to acquisition, the Proximity business
operated as a division within Nortel Networks.
 
 Since the
acquisition of Proximity, the Company has focused on integrating the disclosure
controls and procedures of the Proximity business with the Company’s disclosure
controls and procedures. The Company performed additional procedures to
substantiate the financial information related to the Proximity business
included in this report.
  Based on
that evaluation, the Chief Executive Officer and Chief Financial Officer
concluded that as of such date, our disclosure controls and procedures were (1)
not sufficiently designed to ensure that material information relating to
Airspan, including our consolidated subsidiaries, was made known to them by
others within those entities, particularly in the period in which this report
was being prepared and (2) not effective, in that they did not provide
reasonable assurance that information required to be disclosed by us in the
reports that we file or submit under the Exchange Act is recorded, processed,
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 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.
  Management
has restated the Company’s Quarterly Report on Form 10-Q for the period ending
October 3, 2004 and the Company’s Annual Report on Form 10-K for the year ending
December 31, 2004 as a result of the deficiency which management has concluded
was a material weakness at the end of the third quarter in 2004. Management has
concluded that Company did not maintain effective controls over the financial
reporting at October 3, 2004 because the Company omitted to account in its
consolidated financial statements for a $10.4 million, non-cash deemed dividend
from the embedded beneficial conversion feature associated with the issuance of
a Series A Preferred Stock on September 13, 2004. This resulted in the
misstatement of the net loss attributable to common stockholders, net loss per
share and a misclassification within stockholders’ equity at October 3,
2004.
 **
 *Remediation
Steps to Address Material Weakness*
 
 To
address the Company’s material weakness relating to the accounting and
disclosure for complex and non-standard Stockholders’ equity transactions, the
Company is in the process of enhancing its internal control processes in order
to be able to comprehensively review the accounting and disclosure implications
of such transactions.


Part
II OTHER INFORMATION





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)3.2
    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 (2)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 (6),
      (7)10.6
    2001 Supplemental Stock Option Plan (6)10.7
    Employment Agreement with Henrik Smith-Petersen (5),
      (7)10.8
    Employment Agreement with David Brant (5), (7)10.9
    2003 Supplemental Stock Option Plan (3)10.10
    Purchase and License Agreement, dated as of March 20, 2003,
      as amended on September 15, 2003 by and between Nortel Networks de Mexico,
      S.A. de C.V. and Axtel S.A. de C.V. (8)**10.11
    Product Supply Agreement, dated as of December 23, 2003, as
      amended on September 15, 2003 by and between Airspan Networks, Inc. and
      Nortel Networks Limited (1)**10.12
    Airspan Omnibus Equity Compensation Plan (1)10.13
    Amendment Agreement No. 1 to Purchase and License Agreement,
      dated September 15, 2003 among Nortel Networks Limited, Nortel Networks de
      Mexico, S.A. de C.V. and Axtel, S.A. de C.V.(9)10.14
    Assignment and Assumption Agreement dated December 23, 2003
      among Nortel Networks Limited and certain of its subsidiaries, the Company
      and Airspan Communications Limited (8)10.15
    Amendment Agreement No. 2 to FWA PLA and FWA TASS dated as
      of April 20, 2004 between the Company and Axtel, S.A. de C.V. (10)**10.16
    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. (11)**10.17
    Preferred Stock Purchase Agreement, dated as of September
      10, 2004 among Airspan Networks, Inc. and Oak Investment Partners XI,
      Limited Partnership (12)10.18
    Amendment to Preferred Stock Purchase Agreement (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*
*      Provided
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.















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 to the Company’s report on Form 8-K filed on June 1, 2004.9
    Incorporated
      by reference by the Company’s report on Form 8-K/A filed on July 22, 2004.10.
    Incorporated
      by reference by the Company’s report on Form 8-K/A filed on August 10,
      2004.11.
    Incorporated
      by reference by the Company’s report on Form 8-K/A filed on July 6, 2004.12
    Incorporated
      by reference to the Company’s report on Form 8-K filed on September 13,
      2004.13
    Incorporated
      by reference to the Company’s report on Form 8-K filed on September 27,
      2004.











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.


April
27, 2005


AIRSPAN
      NETWORKS INC.By:
    /s/
      PETER ARONSTAMPeter
      AronstamSenior
      Vice President and Chief Financial
Officer