**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**




**FORM
      10-K**


**(Mark
      one)**




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




**For
      the fiscal year ended December 31, 2006**




**OR**




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




**For
      the transition period _________________ to _________________**




Commission
      file number **:
      000-31031**




**AIRSPAN
      NETWORKS INC.**


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




Washington
            **75-2743995***(State
                or other jurisdiction of*
              *incorporation
                or organization)*
            *(I.R.S.
                Employer*
              *Identification
                No.)***777
                Yamato Road, Suite 310**
              **Boca
                Raton, FL**
            **33431***(Address
                of principal executive offices)*
            *(Zip
                Code)*




**(561)
      893-8670**


(Registrant’s
      telephone number, including area code)





**Securities
      registered pursuant to Section 12(b) of the Act:**





Title
                of each class
            
            Name
                of each exchange on which registeredCommon
                Stock, $.0003 par value per share
            
            The
                NASDAQ Stock Market LLC





**Securities
      registered pursuant to Section 12(g) of the Act: None**





Indicate
      by check mark if the registrant is a well-known seasoned issuer, as defined
      in
      Rule 405 of the Securities Act.


Yes
o No
x




Indicate
      by check mark if the registrant is not required to file reports pursuant to
      Section 13 or Section 15(d) of the Exchange Act.


Yes
o No
x




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


Yes
x No
o




Indicate
      by check mark if disclosure of delinquent filers pursuant to Item 405 of
      Regulation S-K is not contained herein, and will not be contained, to the best
      of registrant's knowledge, in definitive proxy or information statements
      incorporated by reference in Part III of this Form 10-K or any amendment to
      this
      Form 10-K. o




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




Large
                accelerated filer ̈
            
            Accelerated
                filerx
            
            Non-accelerated
                filer ̈




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




As
      of
      July 2, 2006, the aggregate market value of the registrant’s common stock held
      by non-affiliates of the registrant was $94,351,851 based on the closing sale
      price as reported on the NASDAQ Global Market. This calculation has been
      performed under the assumption that all directors, officers and stockholders
      who
      own more than 10% of the registrant’s outstanding voting securities are
      affiliates of the registrant.





As
      of
      March 12, 2007, the number of shares of the registrant's common stock was
      40,436,820.




**DOCUMENTS
      INCORPORATED BY REFERENCE:**




Part
      III
      incorporates by reference portions of the registrant's definitive proxy
      statement relating to its 2007 Annual Meeting of Shareholders, which definitive
      proxy statement is expected to be filed with the Securities and Exchange
      Commission ("SEC") within 120 days after the registrant's fiscal year ended
      December 31, 2006.









**AIRSPAN
      NETWORKS INC.**




**FORM
      10-K**




**For
      the Year Ended**




**December
      31, 2006**





**TABLE
      OF CONTENTS**




**ITEM**
            
            
            
            **Page
                No.****PART
                I**
            
            11
            
            Business
            
            11A
            
            Risk
                Factors
            
            201B
            
            Unresolved
                Staff Comments
            
            302
            
            Properties
            
            303
            
            Legal
                Proceedings
            
            304
            
            Submission
                of Matters to a Vote of Security Holders
            
            31**PART
                II**
            
            325
            
            Market
                for Registrant’s Common Equity, Related Stockholder Matters and Issuer
                Purchases of Equity Securities
            
            326
            
            Selected
                Financial Data
            
            347
            
            Management’s
                Discussion and Analysis of Financial Condition and Results of Operations
            
            357A
            
            Quantitative
                and Qualitative Disclosures about Market Risk
            
            498
            
            Financial
                Statements and Supplementary Data
            
            F-19
            
            Changes
                in and Disagreements with Accountants on Accounting and Financial
                Disclosure
            
            519A
            
            Controls
                and Procedures
            
            519B
            
            Other
                Information
            
            54**PART
                III**
            
            5410
            
            Directors,
                Executive Officers and Corporate Governance
            
            5411
            
            Executive
                Compensation
            
            5412
            
            Security
                Ownership of Certain Beneficial Owners and Management and Related
                Stockholder Matters
            
            5413
            
            Certain
                Relationships and Related Transactions, and Director
                Independence
            
            5514
            
            Principal
                Accountant Fees and Services
            
            55**PART
                IV**
            
            5615
            
            Exhibits,
                Financial Statement Schedules
            
            56**SIGNATURES**
            
            59




**CAUTIONARY
      STATEMENTS RELEVANT TO FORWARD-LOOKING INFORMATION FOR THE PURPOSE**


**OF** **THE
      SAFE HARBOR PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995**




Some
      of
      the discussion under the captions “Risk Factors”, “Management’s Discussion and
      Analysis of Financial Condition and Results of Operations” and “Business” and
      elsewhere in this Form 10-K may include certain “forward-looking statements”
within the meaning of Section 27A of the Securities Act of 1933, as amended
      and
      Section 21E of the Securities Exchange Act of 1934, as amended, including,
      without limitation, statements with respect to anticipated future operations
      and
      financial performance, growth and acquisition opportunity and other similar
      forecasts and statements of expectation. These statements involve known and
      unknown risks and uncertainties, such as our plans, objectives, expectations
      and
      intentions, and other factors that may cause our, or our industry’s, actual
      results, levels of activity, performance or achievements to be materially
      different from any future results, levels of activity, performance or
      achievements expressed or implied by the forward-looking statements. These
      factors are listed under “Risk Factors” and elsewhere in this Form 10-K.









In
      some
      cases, you can identify forward-looking statements by terminology such as
“expects”, “anticipates”, “intends”, “may”, “should”, “plans”, “believes”,
“seeks”, “estimates” or other comparable terminology.




Although
      we believe that the expectations reflected in these forward-looking statements
      are reasonable, we do not guarantee future results, levels of activity,
      performance or achievements. Our actual results and the timing of certain events
      could differ materially from those anticipated in these forward-looking
      statements. We disclaim any obligation to update or review any forward-looking
      statements based on the occurrence of future events, the receipt of new
      information or otherwise.





As
      used
      in this Annual Report on Form 10-K, the terms "we", "us", "our", "Airspan",
      and
      "the Company" mean Airspan Networks Inc., unless otherwise indicated. AIRSPAN,
      AS.MAX, HiperMAX, MacroMAX, MicroMAX, EasyST, EasyST Wi-Fi, ProST, ProST Wi-Fi,
      Netspan, AS.TONE, iTONE, AS.NET, FlexNET, ViaNET, AS3010, AS3030, AS3030 PTP,
      AS4000, AS4020, AS4030, ASWipLL, WipLL, Sitespan, WipManage, AirspanAccess.
      Netspan and Proximity are trademarks or registered trademarks of Airspan. All
      other trademarks and trade names appearing in this Annual Report are owned
      by
      their respective holders.










**PART
      I**




**ITEM
      1. BUSINESS**




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




Each
      of
      our wireless systems utilizes digital radio technology, which provides either
      wide- or local-area coverage, robust security and resistance to fading. These
      systems can be deployed rapidly and cost effectively, providing an attractive
      alternative or complement to traditional copper wire, cable, or fiber-optic
      communications access networks. Our products also include software tools that
      optimize geographic coverage of our systems and provide ongoing network
      management. To facilitate the deployment and operation of our systems, we also
      offer network installation, training and support services. A more complete
      description of our various wireless access systems is provided below. Our
      broadband wireless systems have been installed by more than 400 network
      operators in more than 100 countries.





Airspan's
      predecessor, Airspan Communications Corporation, was incorporated as a Delaware
      corporation on January 30, 1998. Airspan Networks Inc. was incorporated in
      1999
      as a Washington corporation and at that time merged with Airspan Communications
      Corporation. Our corporate headquarters are located in Boca Raton, Florida.
      Our
      main operations, manufacturing and product development centers are located
      in
      Uxbridge, U.K., Airport City, Israel, and in Espoo, Finland. Our telephone
      number in Boca Raton is (561) 893-8670. Further contact details and the location
      of all of Airspan’s worldwide offices may be found at www.airspan.com .





A
      copy of
      our annual reports on Form 10-K, quarterly reports on Form 10-Q, current
      reports on Form 8-K and amendments to these reports pursuant to Section 13(a)
      or
      15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)
      are available, free of charge, on our Web site, www.airspan.com ,
      as soon
      as reasonably practicable after such material is electronically filed with
      the
      SEC. The information found on our website is not part of this or any other
      report we file with or furnish to the SEC.




**Industry
      Overview**




*General*





The
      industry we serve today is the product of two distinct telecommunications
      markets that have converged over time:




·  the
      market for basic voice connectivity; and




·  the
      market for high-speed broadband data access connectivity.





Our
      first
      products, launched in the mid 1990s while we were still a division of DSC
      Communications Corporation, were designed to provide basic voice
      telecommunications services over the public switched telephone networks
      (“PSTNs”) to homes and enterprises that could not be served by traditional wired
      technologies, most of which were copper based.





The
      growth of the Internet in the same decade, together with the growth in demand
      for high-speed connectivity over telecommunications networks to the Internet,
      led to the widespread deployment of high-speed broadband systems in the same
      networks. Those high-speed connections were initially provided over wired
      networks, also mostly using copper wires. In the late 1990s, more fiber-based
      networks were deployed to provide broadband connectivity, mostly to business
      users. Subscribers who were using wireless technologies for communications
      joined the demand for high-speed data, and wireless voice technologies evolved
      to provide both voice and broadband connections over the same wireless links.





Today,
      broadband connections can be provided with or without voice services by a number
      of competing access technologies. While the communications transport network
      and
      Internet backbone are capable of transporting data at extremely high speeds,
      data can only be delivered from those parts of the network through the access
      portion to the end user as fast as the end-user’s connection to the network will
      permit. Many traditional access connections that use copper wires are inadequate
      to address the rapidly expanding bandwidth requirements. To address these
      requirements a number of alternative solutions have emerged. We have identified
      below both our solutions and those that are perceived, for a variety of
      technological and economic reasons, to have competed most directly with the
      broadband wireless access (“BWA”) solutions we offer.




1




·
            *Wired
                Digital Subscriber Lines.***Broadband
                access is provided today by wired technologies using both copper
                and
                fiber. Copper is used most often in residential broadband access
                systems.





Digital
      subscriber line (“DSL”) technology improves the data transmission rate of
      existing copper networks. DSL transmission rates and service availability,
      however, are limited in all networks by both the quality of the available
      copper, which for many providers is a large percentage of their copper network
      and by the maximum transmission distance (approximately 5 kilometers from the
      subscriber to the service provider’s switching equipment in many instances) of
      wired DSL technology. In many instances, a substantial portion of an operator’s
      copper network is unsuitable for DSL transmission.





Fiber
      technology allows an operator to deliver video, voice and data capabilities
      over
      an optical fiber medium that can deliver very high capacity to end users.
      Because of the high costs associated with its deployment, fiber is used
      primarily for broadband access for businesses. It is most economically deployed
      in urban and suburban environments where business and residents create very
      high
      demand for services over broadband, and end-users can afford the relatively
      high
      tariffs charged by operators to provide fiber-based connectivity. The cost
      of
      deploying fiber access technologies continues to fall, however, and operators
      in
      some developed markets such as the United States have announced plans to deploy
      fiber access networks residentially.





·  *Cable
      Networks.*  Two-way
      cable modems using coaxial cable enable data services to be delivered over
      a
      network originally designed to provide television service to residential
      subscribers. Coaxial cable has greater transmission capacity than copper wires,
      but is often costly to upgrade for two-way data services. The data rate
      available to each subscriber on a cable link decreases as the number of
      subscribers using the link increases. Cable coverage, which is not available
      in
      many countries, may limit the growth of this segment as a broadband access
      medium.





·  *Cellular
      Networks.* Mobile
      wireless networks (“Cellular networks”) are now capable of delivering both voice
      and broadband data connectivity to fixed, nomadic, portable and mobile
      applications. Low-cost cellular networks may provide a competitive data access
      solution in markets where the operator is seeking to offer low-quality voice
      and
      limited data rates at low tariffs. In developed markets, cellular technologies
      now also support the growing demand for high-quality broadband and voice
      communications. Cellular standards such as Evolution-Data Optimized (“EV-DO”),
      developed for Code Division Multiple Access (“CDMA”) based networks, and General
      Packet Radio Service (“GPRS”) and Enhanced Data Rates for Global Evolution
      (“EDGE”) networks employed by GSM” operators, can now provide access terminals
      (mobile devices) with theoretical air interface speeds of more than 2.5 Mb/s
      and
      real speeds of up to 1 Mb/s.





·  *Satellite
      Networks.* For
      a
      variety of technological and economic reasons, we do not believe that satellite
      technologies have presented the most direct competitive challenge to the fixed
      wireless access systems offered by us.





·  *Broadband
      Wireless Access.* BWA
      systems enable high-speed access for data and voice services without requiring
      a
      cabled connection, such as copper wire or fiber, between the subscriber and
      network. A broadband wireless system can be more rapidly and cheaply deployed
      than most wired or cable systems. With properly planned deployment of radio
      equipment to maximize coverage, and the use of technology that resists fading,
      it is possible to provide quality of service over BWA networks that rival that
      of wired systems.




The
      introduction in 2005 of WiMAX (“Worldwide Interoperability for Microwave
      Access”) compliant products created additional deployment opportunities for BWA
      systems. WiMAX is a standards-based technology enabling the delivery of last
      mile wireless broadband access as an alternative to cable and DSL. WiMAX will
      provide fixed, nomadic, portable, and, eventually, mobile wireless broadband
      connectivity without the need for direct line-of-sight to a base station.
      According to the WiMAX Forum, in a typical cell radius deployment of three
      to 10
      kilometers, WiMAX systems can be expected to deliver capacity of up to 40 Mbps
      per channel, for fixed and portable access applications. This is enough
      bandwidth to simultaneously support hundreds of businesses with T-1 speed
      connectivity and thousands of residences with DSL speed connectivity. WiMAX
      therefore becomes a viable alternative to fiber-based networks that would be
      too
      uneconomical to deploy in the area covered by a WiMAX cell. Mobile WiMAX network
      deployments are expected to provide up to 15 Mbps of capacity within a typical
      cell radius deployment of up to three kilometers. These data rates are much
      higher than those offered by the current generation of cellular network
      technologies. It is expected that WiMAX technology will be incorporated in
      notebook computers and personal digital assistants (“PDAs”) by 2008, allowing
      urban areas and cities to become “metro zones” for portable outdoor broadband
      wireless access.





WiMAX
      and
      WiFi (“Wireless Fidelity”) are also expected to coexist in future and to become
      increasingly complementary technologies for their respective applications.
      WiMAX
      typically is not thought of as a replacement for WiFi. Rather, WiMAX complements
      WiFi by extending its reach and providing a "WiFi like” user experience on a
      larger geographical scale. WiFi technology was designed and optimized for Local
      Area Networks (“LAN”), whereas WiMAX was designed and optimized for Metropolitan
      Area Networks (“MANs”). By the end of 2008, it is expected that both 802.16 and
      802.11 will be available in end user devices from laptops to PDAs, as both
      will
      deliver wireless connectivity directly to the end user - at home, in the office
      and on the move.




2





BWA
      technologies have therefore become a viable economic and technological solution
      to existing operators seeking to fill in gaps in their networks where wired
      technologies are incapable of providing broadband access, or for extending
      the
      reach of wired networks where it becomes uneconomical to use wired technologies
      to do so. With both WiMAX and WiFi technologies in its product suite, we believe
      that Airspan is well situated to exploit BWA technologies to compete with other
      broadband access systems.





*The
      Global Need for Broadband Access*




At
      the
      end of September 2006, the number of broadband Internet users was estimated
      to
      be 264 million, up from 205 million at the end of 2005 (source: Point Topic
      Ltd). We believe there has been continued growth in the number of end users
      of
      BWA equipment throughout the world for the last five years. We also believe
      that
      much of the growth in the number of broadband end-users has been generated
      in
      developing countries with a historically limited supply and penetration of
      telecom services, including broadband access. Although mobile operators are
      often selected to satisfy the demand for basic telephony in low tele-density
      regions, we believe BWA systems are often selected in many areas to provide
      the
      broadband access solution due to a superior set of features such as higher
      data
      speeds and availability of frequencies not serviced by traditional cellular
      networks.





Although
      the aggregate number of broadband users increased in the past five years, such
      growth was not matched every year by an increase in purchases of BWA equipment
      by network operators. The high-growth in spending on telecommunications and
      broadband infrastructure in the late 1990s was followed by declines in such
      spending at the start of this decade, and it is only in the past 24 months
      that
      we believe we have seen evidence of renewed growth in spending on new wireless
      broadband infrastructure of the kind we supply. The market for BWA equipment
      comparable to ours has been stimulated by technologies such as WiFi and WiMAX,
      and it is expected to grow from $0.5 billion in 2004 to $2.7 billion in 2009,
      with 50% of the market in 2009 to be derived from WiMAX Certified products
      (source Skylight Research).





*Migration
      of Telecommunications to IP Platforms*





Changes
      in the way that voice and data calls are handled over telecommunications
      networks have also required manufacturers like Airspan to adapt their products.
      Prior to the widespread deployment and use of the Internet, telecommunications
      service providers developed their voice communications networks using circuit
      switched technologies. Circuit switching still dominates the public switched
      telephone network or PSTN. Network resources set up calls over the most
      efficient route. Once a call is created, the call remains on a dedicated
      circuit. Airspan’s earliest AS4000 BWA systems were developed to route traffic
      over the circuit switched networks. The current-generation Proximity and AS4020
      products still do so.





Communication
      over the Internet is dominated by packet switching. Internet data communication
      is handled very differently than circuit switching. With circuit switching,
      all
      packets go directly to the receiver in an orderly fashion, one after another
      on
      a single circuit established by the switches. With packet switching, routers
      determine a path for each packet dynamically, ordering them to use any available
      path to get to the destination. Other packets from other calls use these
      circuits simultaneously, making the most use of each circuit or path, quite
      unlike the circuit switched calls that occupy a single path to the exclusion
      of
      all others. Upon getting to their destination, the individual packets are put
      back into order by a packet assembler. That is because the different routes
      practically ensure that packets will arrive at different times. This approach
      is
      acceptable when calling up a web page or downloading a file, since a tiny delay
      is hardly noticed. But users notice even the smallest delay with voice. Circuit
      switching guarantees the best sounding call because all packets go in order.
      Delays in packet switching for voice cause voice quality to
      deteriorate.





With
      the
      proliferation of the Internet today, more telecommunications traffic is carried
      today by packet than by circuit switched networks. Despite the limitations
      inherent in packet technologies for voice calls, many operators are willing
      to
      use packet technologies to provide voice services.





Airspan
      has kept pace with the changes in underlying network topologies and the growth
      in packet-based services in a number of important respects. First, it acquired
      the technology and know-how to build and deploy packet-based networks when
      it
      acquired the Wireless Internet Protocol Local Loop (“WipLL”) business from
      Marconi in 2002. In 2006, WipLL comprised approximately 24% of Airspan’s
      revenues. Secondly, Airspan co-founded the WiMAX Forum, specifically to develop
      the next generation of packet-based technologies upon which IP-based BWA systems
      will operate. In 2006, WiMAX products and related services comprised
      approximately 36% of Airspan’s revenues. Thirdly, in 2005, Airspan acquired
      Radionet Oy, a Finnish limited liability company (“Radionet”), to give it the
      ability to develop WiFi-based networks alone or in conjunction with its WiMAX
      technologies, so as to be able to provide customers with more than one
      open-standards based technology to provide connectivity. We sell these products
      today under the AS.NET name. And finally, to protect its position as one of
      the
      pioneers of combined voice and data BWA systems, Airspan acquired ArelNet in
      2005 to give it the know-how and technology to be able to sell systems capable
      of carrying voice traffic as well as broadband data over IP-based fixed and
      wireless systems. We sell this technology today under the VoiceMAX
      name.




3




*Global
      Deregulation and the Need for Reliable, Cost-Effective and Rapid Network
      Deployments*




The
      worldwide deregulation of the telecommunications industry in the past 20 years
      created the opportunity for many new competitors, including Competitive Local
      Exchange Carriers (“CLECs”) and Internet Service Providers (“ISPs”), to provide
      local access connections that were historically only offered by a single
      incumbent provider, an Incumbent Local Exchange Carrier (“ILEC”). Even though
      some of the CLECs and ISPs that grew out of deregulation have failed, those
      that
      have survived are now striving to differentiate their service offerings on
      the
      basis of their range of services, quality and reliability, customer service,
      provisioning and pricing.




CLECs
      and
      ISPs have also expanded their focus beyond large business customers to serving
      small and medium-sized businesses, high-end residential and
      small-office/home-office customers as well as providing services outside of
      the
      major urban areas. To serve these markets, CLECs and ISPs require more
      cost-effective network deployment solutions to compensate for lower than average
      customer spending on communications services and larger coverage area
      requirements.





We
      believe broadband wireless can provide these solutions and differentiators.
      The
      introduction of high-capacity WiMAX BWA systems in particular will make it
      possible for CLECs and ISPs to offer combinations of voice, data and video
      services to customers to match the bundled service offerings of their ILEC
      competitors. WiMAX will also give those ISPs and CLECs the ability in many
      instances to by-pass entirely the wired networks of their ILEC competitors,
      eliminating the problems and risks of shared facilities encountered in the
      past
      by such service providers.





Enterprises
      have found that it may be more cost effective or secure to use private BWA
      networks for their own corporate communications networks than to rely on public
      networks; and utilities have been able to create additional sources of revenue
      using BWA equipment linked to their existing transmission and access networks.




In
      the
      developing world many countries have existing networks that are unable to
      provide reliable data, voice and fax services while many others lack the network
      infrastructure to make basic telephone services broadly available. Both ILECs
      and CLECs in these markets need cost-effective, rapidly deployable alternatives
      to traditional copper based networks. Again, we believe that BWA solutions
      can
      provide these alternatives.




*Increased
      Availability of Licensed, Unlicensed (or License Exempt) Spectrum*




With
      the
      growth and spread of the Internet and the related growth for broadband
      connectivity, government competition policy and other political pressures to
      make broadband available in underserved areas has led to the allocation of
      new
      spectrum for broadband wireless, both licensed and unlicensed, in many
      countries. Most of the licensed spectrum has historically been made available
      globally in the 3.5GHz band. More recently, governments have committed to make
      frequency available in the 2.3 - 2.5GHz bands, specifically to support mobile
      services over WiMAX networks. During 2006, 3.5GHz spectrum was licensed for
      the
      first time in several countries, mainly in Europe (for example, in Germany).
      Further, plans are underway for the allocation of additional spectrum at 2.3
      -
      2.5GHz and 3.5GHz in other countries (such as the United Kingdom, in 2007),
      as
      are allocations of other frequencies for broadband wireless applications.
      Frequencies are also being licensed in other sub 6GHz spectrum, particularly
      700MHz in the United States, the 4.9GHz band in the United States and Japan,
      and
      in the 2GHz band in India. Additional spectrum for unlicensed applications
      was
      added in many areas during 2006.




The
      greater availability of license-exempt spectrum has been of particular benefit
      to many smaller carriers and ISPs, where a significant market has developed
      around the deployment of broadband in rural communities using license-exempt
      wireless access systems. Airspan makes WipLL and WiMAX products in a number
      of
      licensed and license-exempt frequencies. The AS.NET product also operates in
      numerous license-exempt frequencies, including 2.4GHz, 5.1GHz, 5.4GHz and
      5.8GHz. We believe the increasing availability of licensed and unlicensed
      spectrum will increase the demand for BWA solutions, including our WipLL, AS.NET
      and AS.MAX products.




4





*Benefits
      of Airspan’s Solutions for Broadband Wireless Access*





Airspan’s
      systems are designed to provide a range of communications services in the 700MHz
      to 6.0GHz frequency bands, in both licensed and unlicensed spectrum allocations.
      The performance characteristics of these frequency bands make them ideal for
      broader market applications for service providers. These bands are less
      sensitive to line-of-sight obstructions and weather conditions than the
      millimeter wave technologies in higher frequencies, even though they offer
      lower
      capacity for data transmission. The availability of our technology at attractive
      prices in these frequencies makes it easier for operators and ISPs to develop
      viable business cases for their services. We therefore believe that our products
      are often more suitable than cellular mobile, cordless or Wireless LAN
      technologies for enabling network operators and ISPs to provide fixed,
      high-speed data and voice services using both licensed and unlicensed radio
      frequencies.





We
      believe our systems deliver these services reliably and cost effectively and
      provide the following benefits:




*Data,
      Voice and Other Services.*  Our
      systems enable operators to offer a wide combination of services to maximize
      their revenues and earnings from their subscriber bases.





Our
      Proximity and AS4020 solutions have provided network operators with combined
      and
      simultaneous optimized delivery of *both* high-speed packet data *and* wire-quality voice services. Our IP-based WiMAX and WipLL solutions give network
      operators and ISPs a relatively low cost high-speed data solution. AS.MAX will
      have sufficient capacity to permit the offering of simultaneous voice, data
      and
      IP TV video connections. Our AS.NET and Airspan branded AS4030 solution provides
      high-speed data rates that can be used for cellular backhaul or corporate or
      public sector high-speed Internet access.





Our
      systems flexibly allocate the available bandwidth to the services required,
      thereby permitting the radio resources and spectrum to be used most efficiently.
      Our systems are designed as modular solutions to enable deployments to be
      expanded as our technologies and customers’ needs evolve. We provide a single
      subscriber unit that delivers the voice or data connection, or a combination
      of
      both, to a subscriber, thus eliminating a need for multiple access devices
      in
      customer premises. During 2006 we supplemented this capability with our AS.MAX
      product line that also supports both voice and data applications using VoIP
      technology with the addition of our VoiceMAX gateway, which delivers quality
      of
      service and “EasyVoice” to supply a seamless point of connection for end users
      of our WiMAX systems.




*Quality
      of Service and Reliability.*  Our
      WiMAX
      and AS40X0 solutions are based on OFDM, OFDMA and DS-CDMA technologies (defined
      below), which allow network operators to offer high-quality data and voice
      services with the same level of reliability that traditional telephone networks
      provide. Our field proven Proximity solution is based on a TDMA (defined below)
      technology that also provides high-quality data and voice services to network
      operators at levels of reliability that are better than many wireline based
      networks. Our WipLL Solution is based on FH-CDMA (defined below) technology,
      which allows operators and ISPs to offer a high-quality data and voice services
      using the VoIP solution. The Airspan branded AS.MAX product line is based on
      the
      IEEE 802.16 standard and will initially use 256 OFDM (defined below) technology
      to provide excellent non line-of-sight characteristics. In the near future
      we
      will add the new 801.26e physical layer, now that our HiperMAX portfolio is
      being deployed in customer networks. All of these solutions provide wide-area
      coverage, security and resistance to fading. In addition, all of our systems
      allow alternative service providers to bypass the incumbent’s network, enabling
      them to monitor on a real-time basis an end-user’s network access connection.
      Our products are successfully deployed and operated in a wide range of demanding
      environments throughout the world.




*Rapid,
      Cost-Effective Deployment.*  Our
      wireless solutions are generally less expensive to deploy than fiber or copper
      wire networks or other high-speed fixed wireless networks. Our systems’ wide
      area coverage requires fewer base stations, allowing faster deployment with
      lower initial capital outlays. A single AS4000, AS4020 or Proximity base station
      can cover up to 70 square miles in an urban setting and as much as 700 square
      miles in a rural setting, on a near line of sight basis. A single WipLL solution
      base station can cover up to 175 square miles. The AS.MAX product line supports
      similar near line-of-sight distances, but also supports non line-of-sight
      operation over 50 square miles, and indoor non line-of-sight over 10 square
      miles. With these ranges and the relative ease and speed of installation of
      our
      base stations, network operators and ISPs can quickly begin generating new
      subscriber revenues over our systems. Our systems allow our customers to rapidly
      add new subscribers, who can be brought online in hours once the basic network
      infrastructure is in place. Network operators and ISPs have the advantage of
      a
      lower up-front infrastructure cost, adding extra network equipment to increase
      capacity only when they have demand from their customers.




*Flexibility
      and Expandability.*  Our
      systems can be easily and quickly configured to meet specific customer
      requirements for capacity and frequency allocations. The modular design of
      our
      systems permits customization and expansion as customer requirements increase.
      The point-to-multipoint design of the Airspan BWA solutions also facilitates
      expansion by permitting multiple subscribers to be connected to a single base
      station. In addition, multiple types of service, including data and voice,
      can
      be delivered over a single radio channel enabling network operators and ISPs
      to
      differentiate and customize their service offerings. Our products use technology
      that allocates bandwidth upon subscriber demand and allows a single base station
      radio to accommodate from 100 to 3,000 subscribers, depending upon the solution
      deployed.




5




*Comprehensive
      Implementation and Support Solutions.*  We
      offer
      our customers a range of software tools that provide system-wide analysis for
      optimizing geographic coverage and identifying and solving potential sources
      of
      interference. Our software tools can also be used to provide service
      qualification and initiate service activation for new customers. The tools
      also
      provide alarm, maintenance and testing functions. In addition, to facilitate
      deployment and operation of our systems, we offer network installation, training
      and support services. Under our contracts, the network operator is generally
      responsible for site preparation and installation of the subscriber terminals.
      We have developed a worldwide network of regional offices and subcontractors
      that allows us to provide local technical and operational support for our
      customers wherever our products are deployed. We also operate a 24-hour
      technical help line providing additional support and troubleshooting for all
      our
      customers.




**Our
      Strategy**




Our
      goal
      is to be the world’s leading provider of broadband wireless access systems to
      local exchange carriers, other network operators and enterprises seeking to
      use
      broadband wireless access systems for their communications. Key elements of
      our
      strategy include the following:




*Capitalize
      on existing deployments of our systems to attract new
      customers.*  Our
      numerous installations with operators and enterprises worldwide serve both
      as
      proof that our technology concept works and as a reference point when we sell
      to
      others. We intend to continue to leverage our existing relationships with
      customers to attempt to become their primary provider of broadband fixed
      wireless access systems. We are particularly focused on expanding our existing
      customer relationships to our customers’ subsidiaries and affiliates worldwide.




*Maintain
      our technology position.*  We
      believe that we have established a strong technology position in the market
      for
      fixed wireless access solutions, and we seek to maintain this position by
      continuing to make substantial investments in research and development and by
      strategic acquisitions. As broadband wireless access standards evolve and access
      solutions are required to provide more portable, nomadic and mobile capabilities
      for end users, we are also making additional investments in developing
      technologies and solutions with these capabilities. Our research and development
      efforts are particularly focused on increasing the speed and capacity of data
      transmission and operational coverage area, while reducing the cost of our
      infrastructure equipment. We are also focused on reducing the installation
      time
      and costs of our subscriber terminals. We are actively involved in the
      development of standards through our membership in or participation with leading
      standards organizations such as the IEEE’s 802.16 group, the WiMAX Forum and
      ETSI (European Telecommunications Standards Institute), and in the development
      of products that meet those standards. We believe our leadership role in WiMAX
      gives us a lead in the development and sale of WiMAX Certified TM compliant products.





We
      also
      expect to continue to seek to acquire new businesses, products and technologies
      to accelerate the development of our products and our time-to-market with new
      advanced products.





*Successfully
      transition from circuit switched to Internet-based technologies and from
      proprietary to open-standard platforms* .
      Prior
      to 2002, all of our systems were designed to operate primarily over circuit
      switched telephone networks. In 2002, with the acquisition of the WipLL
      business, we acquired our first technology that was fully based in the Internet
      protocol. Between 2002 and 2006, we continued to spend on research and
      development for both technologies. In 2006, IP-based technologies comprised
      approximately two thirds of our annual revenues, a substantial increase over
      2005, when approximately one third of revenues came from IP
      products.





With
      the
      introduction of our AS.MAX products and the acquisition of Radionet and ArelNet
      in 2005, we committed ourselves fully to technologies that operate primarily
      using the Internet Protocol. We did so to match the move, explained above,
      of
      most telecommunications service providers to route more and more of their
      traffic and services over the Internet. AS.MAX and AS.NET products also exposed
      us for the first time in 2005 to the risks and opportunities of developing
      and
      selling technologies based on an open standard (see more below in the “Risk
      Factors” section of this report). Our strategy in the future will therefore be
      to continue to manage the transition to open-standard IP-based products while
      maintaining our technological lead in the more challenging environment of open
      standards. In 2006, we took important steps in this regard by being one of
      the
      first suppliers to come to market with an end-to-end WiMAX Forum
      Certified TM fixed
      access solution. We also signed a global reseller agreement in June 2006 with
      Fujitsu Network Communications, Inc, which joined Ericsson and Nortel as
      distributors of our WiMAX systems through their channels and sales
      forces.





*Successfully
      transition from fixed wireless technologies to technologies capable of handling
      fixed, nomadic, portable and mobile access services* .
      Prior
      to 2006, most of the products sold by Airspan delivered BWA services to end
      users that were stationary. At the end of 2006 we made the first deliveries
      of
      the HiperMAX Software Defined Radio WiMAX Base Station, a WiMAX base station
      that is capable of being software defined as either 802.16d fixed or 802.16e
      fixed, portable and mobile in the future, depending on customer needs and
      requirements. Using a software load that we expect to become available later
      in
      2007, the HiperMAX base station will be capable of providing both fixed and
      mobile BWA services to end users, thereby allowing Airspan to compete with
      vendors of other technologies that provide mobility broadband
      services.




6





*Target
      key growth market opportunities globally.*  Our
      current broadband wireless solutions find their strongest competitive advantage
      in areas where there is a growing demand for high-speed data or for combined
      high-speed data and voice services, and where cost considerations make
      traditional solutions impracticable. As a result, in a developed market like
      the
      United States, we focus today on ILECs that are targeting small and medium
      sized
      businesses, small-office/home-office users and high-end consumers as well as
      end
      users in suburban and rural areas. We believe our WipLL and fixed WiMAX products
      are especially attractive to such service providers in these markets. Outside
      of
      the United States, we have targeted CLECs and ILECs in developed economies
      with
      our WipLL and WiMAX solutions. By the end of 2006, WiMAX sales had been made
      to,
      or trials were being conducted by more than 110 customers in more than 50
      countries. In the developing world, we believe our opportunities are generally
      much broader due to the general inadequacy of the existing communications
      infrastructure. In these markets, wireless solutions can be the basis for a
      new
      national telecommunications infrastructure. In the future, as we complete the
      development of WiMAX products that meet the mobile standards set or being
      developed by the WiMAX Forum, we expect to target operators who intend to offer
      WiMAX-based nomadic and mobile broadband access services, in both developed
      and
      developing markets.




*Develop
      and expand our strategic relationships.*  We
      intend
      to develop and expand our strategic relationships with large communications
      equipment manufacturers to help us market our products to network operators
      deploying large-scale turnkey networks. These relationships facilitate broader
      deployments of our systems worldwide, through stronger sales presence and
      additional integration services and support capabilities provided by those
      manufacturers. We also intend to form strategic relationships with
      communications companies situated within certain countries where there are
      competitive advantages to having a local presence. As mentioned above, in June
      2006 we signed a WiMAX reseller agreement with Fujitsu Network Communications,
      Inc. for this purpose.




*Expand
      sales, marketing and customer support presence in key markets.*  We
      are
      constantly in the process of seeking key areas of marketing opportunities.
      Accordingly, we often refocus our direct sales, marketing and customer support
      presence in key markets to drive additional deployments and increase awareness
      of our products among network operators. We intend to continue to hire sales
      and
      marketing personnel in new sales and customer-support offices in key strategic
      markets globally where we have perceived strong demand for our product.




*Expand
      the product range that we have to offer.*  We
      are
      seeking to continue to expand our range and effectiveness of offered BWA
      solutions through both internal growth and acquisition. The 2005 acquisition
      of
      the WiFi-based AS.NET product portfolio was such an example, giving us the
      ability now to pursue opportunities in the growing Hotzone and Municipality
      802.11 WiFi markets.




**Products**




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





*Products
      Based Upon Proprietary Technologies*





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




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




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




7




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





*Products
      Based on WiMAX Standards*





All
      of
      the BWA products we had sold or acquired before 2005 operated according to
      proprietary technologies we or others had developed and patented. The same
      applied to BWA technologies against which we competed. At the end of 2002,
      a
      small group of BWA system and component manufacturers, including Intel
      Corporation and Airspan, formed the WiMAX Forum. The goal of the Forum was
      to
      create global standards to ensure true interoperability between BWA systems.
      The
      founding members believed that interoperability was essential to the future
      growth of the broadband wireless market. By the end of 2005, the Forum members,
      working together with the Institute of Electrical and Electronics Engineers
      (“IEEE”), had established the first three WiMAX standards - the IEEE 802.16a
      standard; the IEEE 802.16-2004 WirelessMAN® Standard for Wireless Metropolitan
      Area Networks (formerly the 802.16d) standard, intended for fixed and some
      nomadic applications; and the 802.16-2005 (formerly the 802.16e) standard,
      intended for mobile and some nomadic/portable applications. The 802.16-2005
      standard will continue to evolve in the future. See the “Item 1A RISK FACTORS”
for a discussion of some of the potential implications for Airspan of the
      introduction of standard-based systems and technologies.





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




*AS.MAX
      Product Portfolio*




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




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




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




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




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




In
      June
      2006, we announced the availability of the AS.MAX MicroMAX base station and
      ProST Wi-Fi access point for deployment in the Public Safety and Municipal
      Wireless markets in the United States. The system is available in the licensed
      4.9GHz band for Public Safety applications and in the unlicensed 5.8GHz band
      for
      Municipal Wireless systems. By combining 802.11 Wi-Fi for access and 802.16
      WiMAX for backhaul in a single integrated package, we provide the benefits
      of
      WiMAX range, capacity and quality of service together with the flexibility
      of
      Wi-Fi in a single package.




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




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




8





*Products
      Based on WiFi Standards*




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





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




*Voice
      Over Internet Protocol Products*




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





*Network
      Management Systems*




Our
      product platforms are supported by network management systems (“NMS”) that
      perform configuration, alarm, test and performance management activities that
      help ensure that the services provided over a network are uninterrupted and
      of
      high quality. All of our NMS are flexible and can be expanded to suit a range
      of
      different networks. They permit network operators to remotely manage a
      geographically dispersed set of network elements. They also all feature
      intuitive graphical user interfaces, and allow remote software upgrades for
      all
      deployed equipment. Our NMS are marketed under the names AS8100 (Sitespan),
      AS8200 (Netspan), AS8300 (AirspanAccess) REM (Remote Element Manager) and
      WipManage.





*Installation
      tools*




Our
      installation tools are designed to assist our customers with installation or
      troubleshooting of customer premises equipment installations in an efficient
      and
      effective manner. Our installation tools include the following:


·
              *AS7020
                  (STMon)*—
a
                  PC-based software application for AS4000 and AS4020 subscriber
                  installations  ·
              *AS7010 (STMeter)*—
a
                self-contained handheld tool for AS4000 and AS4020 subscriber
                installations  ·
              *WipConfig*—
a
                PC or PDA-based software application for WipLL subscriber installations  ·
              *Proximity RIS*—
a
                handheld tool for Proximity subscriber installations




*Radio
      Planning*




Our
      planning and configuration tool, the AS9000 (“AS9000”), is a sophisticated
      software solution that enables operators to plan and deploy our wireless
      systems. This product is based on third-party software customized for use with
      our systems. The main task of the planning tool is to find the optimal location
      and configuration for base station deployment. The system provides a powerful
      prediction engine that can generate coverage maps for multiple scenarios until
      the best-case scenario is found. From these data detailed predictions of service
      availability can be made allowing service providers to accurately target
      markets.




9




Once
      the
      locations of the base stations have been determined, AS9000 can be used to
      compare the way the radio signals fade as they spread out from a base station
      transmitter and the extent of coverage. The four key aspects of the predictive
      tool are the terrain (altitude) databases, clutter (natural terrain features
      and
      man-made obstructions) information, antenna information and system
      configuration, which are used to predict transmission coverage.




**Technology**




As
      of
      March 1, 2007, we had 106 full time employees and contractors engaged in
      research and development located in Uxbridge (U.K.), Airport City (Israel)
      and
      Espoo (Finland). Our wireless technologies have been under continuous
      development since 1992, deliver high performance and are resilient in a very
      wide range of deployment conditions.




*Frequency
      Choice*




We
      recognized early that no single wireless spectrum would be made available for
      BWA services around the world. Consequently, our solutions are designed to
      easily change radio frequency subsystems to match a customer’s specific spectrum
      allocation. We believe our wireless solutions provide our customers with the
      widest choice of radio subsystems in the industry within the 700MHz to 6.0GHz
      bands, encompassing both licensed and unlicensed spectrum.




*Technology
      - Proprietary Product Lines*




Our
      AS4000 and AS4020 products are based on well-established Direct Sequence Code
      Division Multiple Access (“DS-CDMA”) technology that allows multiple users to
      simultaneously share a single radio channel while providing a high degree of
      security between channels and other users.




Our
      WipLL
      product line utilizes Frequency Hopping Code Division Multiple Access
      (“FH-CDMA”), which also provides a high level of immunity to interference and a
      robust performance.




Our
      Proximity product line employs a Time Division Multiple Access (“TDMA”)
      technology that provides a high link budget and robust reliability.




*Technology
      - Open Standard Product Lines*





Today
      we
      sell wireless products based on two standards approved by the IEEE -
      802.16/WiMAX, and 802.11/WiFi.





We
      are
      investing in the development of a line of products known as AS.MAX for the
      WiMAX/IEEE 802.16 market. AS.MAX products are based on an air interface that
      employs OFDM and Orthogonal Frequency Division Multiple Access (“OFDMA”). This
      interface has characteristics that permit broadband wireless signals to
      penetrate objects more effectively than the interfaces used in our earlier
      products, and thereby creates significant opportunity for the installation
      of
      CPE in non-line of sight (“NLOS”) environments. Airspan’s first AS.MAX products
      (MacroMAX and EasyST) became generally available for commercial sale in the
      fourth quarter of 2005 for the 3.5GHz FDD band. By the end of 2006, our AS.MAX
      portfolio comprised the following products:





**Product**
            
            **Description**
            
            **Available
                Frequencies****Base
                Stations**·HiperMAX
            
            HiperMAX
                Base Station is optimized to support the IEEE 802.16e-2005 specification
                for both mobile and for fixed/nomadic WiMAX. Both 256 OFDM and SOFDMA
                PHYs
                are supported within the overall design.
              
              HiperMAX-Micro
                is also available in all of the frequencies listed for HiperMAX.
                HiperMAX-Micro is an all-outdoor Base Station based on the same technology
                as HiperMAX.
            
            3.4-3.5
                GHz TDD, 3.4-3.6 GHz FDD, 3.6-.37 GHz TDD, 4.9-5.0 GHz
                TDD




10


**Product**
            
            **Description**
            
            **Available
                Frequencies**


·MicroMAX
            
            MicroMAX
                base station shares the same system architecture as our tried-and-tested
                WipLL product line. The base station is highly modular in design
                and is
                composed of two main components: the all outdoor Base Station Radios
                (BSR)
                and the indoor Base Station Distribution Unit (BSDU). Each base station
                could contain up to 12 BSRs, depending on the amount of available
                spectrum. Each BSR is connected to the BSDU via a 100BaseT interface
                operating over a Cat5 cable, which carries both data and power.
            
            FDD
                (3.4 - 3.6GHz; 3.6 - 3.8GHz)
              
              TDD
                (3.3 - 3.5GHz; 3.4 - 3.6GHz; 3.6 - 3.8GHz; 4.9 - 5.0GHz; 5.15 - 5.35GHz;
                5.47 - 5.725GHz; 5.725 - 5.875GHz)·MacroMAX
            
            The
                MacroMAX product has been developed for urban, high-density deployment
                situations. MacroMAX architecture utilizes an indoor radio unit,
                with
                external feeders to appropriate mast installed antennae. The use
                of
                separate antennae enables Space Time Coding (STC) and Maximum Radio
                Combining (MRC) techniques to be realized, resulting in increased
                link
                budget.
              
              The
                MacroMAX supports the IEEE802.16-2004 fixed standard and is WiMAX
                Forum
                Certified.
            
            3.4-3.6
                GHz FDD**Subscriber
                Terminals/CPE**·EasyST
            
            The
                EasyST is designed to be installed by the end user. EasyST supports
                different deployment options to optimize performance depending on
                the
                actual location. It can be deployed using the integral 7.5dBi antenna,
                or
                it can be deployed with an external antenna when more gain is
                required.
              
              EasyST
                can also be deployed with the optional EasyST-WiFi unit thus providing
                combined WiMAX and Wi-Fi functionality in the same unit.
              
              When
                combined with the EasyWiFi base, the EasyST creates a unique combined
                WiMAX / Wi-Fi terminal that can be an instant Public Hotspot or Indoor
                Metro-Zone Wi-Fi node.
              
              EasyST
                can also be deployed with an optional VoIP unit, which provides two
                RJ-11
                ports for telephony connectivity.
              
              The
                EasyST is WiMAX Forum Certified.
            
            FDD
                (3.5GHz; 3.6 - 3.8GHz)
              
              TDD
                (3.3 - 3.5GHz; 3.4 - 3.6GHz; 3.6 - 3.8GHz; 4.9 -
                5.0GHz)·ProST
            
            The
                ProST and ProST-WiFi are designed for rapid and simple external
                deployment, to be fitted by trained personnel in less than one hour.
                The
                unit is ideal when a specific service-level agreement needs to be
                guaranteed. The ProST ensures high service availability at enhanced
                ranges, operating in both LOS and NLOS propagation
                environments.
              
              The
                ProST-WiFi is a unique combo terminal that integrates WiMAX with
                an
                Outdoor Wi-Fi Access Point to create instant Public Hotspots or outdoors
                Wi-Fi Metro-Zone nodes.
              
              The
                ProST and ProST-WiFi are designed to support a range of service
                interfaces, via different Indoor Units:
              
              ·1-4
                Port Hub or Switch
              ·1-4
                Port Switch with VLAN Tagging / Port Switching
              ·Wi-Fi
                802.11b/g Access Point
              ·1-4
                Line VoIP RAG
              ·E1/T1
                plus IP
              
              The
                ProST is WiMAX Forum Certified.
            
            FDD
                (3.5GHz; 3.6 - 3.8GHz)
              
              TDD
                (3.3 - 3.5GHz; 3.4 - 3.6GHz; 4.9 - 5.0GHz; 5.15 - 5.35GHz; 5.47 -
                5.725GHz; 5..8GHz)




11




MacroMAX,
      MicroMAX, EasyST & ProST are all WiMAX certified for the 3.4-3.6GHz FDD
      band. Further development is now underway to introduce new base station and
      subscriber terminal variants, to develop a wide portfolio of frequency bands
      and
      to enhance some of these products to support the 802.16 mobile
      standard.





Through
      our participation in the WiMAX Forum, we contribute to the development of the
      IEEE 802.16 standards and WiMAX Forum technical activities. As a part of our
      development of the AS.MAX portfolio, we are working closely with key technology
      partners. These include:




·  Intel
      -
      Application Specific Integrated Circuits (“ASICs”) for CPE
      equipment




·  picoChip
      - High performance parallel processors for SDR base stations




·  Sequans
      -
      Systems on a Chip (“SOCs”) for integrated Micro base stations





We
      are
      also investing in the development of technologies and techniques that will
      provide further performance benefits. These include the development of
      multi-channel radio transceivers and smart antenna technology.





Airspan’s
      AS.Net products are based on the IEEE 802.11a/b/g standards. Through our
      membership in the WiFi Alliance, a global, non-profit industry trade association
      devoted to the growth of wireless Local Area Networks (WLAN), Airspan
      participates with more than 200 companies in delivering interoperable WiFi
      solutions and ensuring a positive user experience through the Alliance’s WiFi
      CERTIFIED TM program.
      Airspan's membership in the WiFi Alliance and its acquisition of Radionet
      reiterate Airspan's belief that a combination of WiMAX and WiFi technologies
      will provide the most flexible combination of wireless-based broadband
      connectivity solutions in enterprise and carrier networks.





*iTone
      Acquisition*





During
      2005 Airspan completed its acquisition of ArelNet and the iTone VoIP and soft
      switch product lines. In 2006, we completed the integration of iTone technology
      with WiMAX products to create our VoiceMAX product, which enables customers
      to
      provide carrier class voice support on the AS.MAX platforms.





*Intellectual
      Property*




We
      rely
      on a combination of patent, trademark, copyright, trade secret law and
      confidentiality or license agreements to protect our proprietary rights in
      products, services, know-how and information. Intellectual property laws afford
      limited protection. Certain rights in processing equipment and software held
      by
      us and our subsidiaries provide us with a competitive advantage, even though
      not
      all of these rights are protected under intellectual property laws. It may
      be
      possible for a third party to copy our products and services or otherwise obtain
      and use our proprietary information without our permission.





During
      the development of our DS-CDMA, FH-CDMA and 802.16/WiMAX systems (AS4000,
      AS4020, WipLL and AS.MAX) we have generated a significant patent portfolio.
      As
      of March 1, 2007, our development efforts have resulted in 30 separate U.S.
      patents granted (together with various foreign counterparts), with a further
      five pending U.S. applications. In connection with our acquisition of the
      Radionet business, we acquired one patent. For these technologies we do not
      pay
      significant royalties to any other companies. To improve system performance
      and
      reduce costs, we have developed software and custom integrated circuits that
      incorporate much of our IP, and which are the key elements of our wireless
      solutions.




12




In
      connection with our acquisition of the Proximity business from Nortel, Nortel
      assigned to us all of its rights, title and interest in the Proximity trademarks
      and service marks and certain of its copyrights used exclusively with the
      Proximity products. In addition, Nortel has granted us a non-exclusive,
      world-wide license to use its U.S. patents that relate to the Proximity products
      for the term of the patents. Nortel has also granted us a non-exclusive
      worldwide license to use certain of its copyrights, which were not assigned
      to
      us and its trade secrets relating to the Proximity products. The copyright
      and
      trade secrets licenses are perpetual.





U.S.
      patents are currently granted for a term of 20 years from the date a patent
      application is filed. Our U.S. patents have in the past given us competitive
      advantages in the marketplace, including a number of patents for wireless
      transmission techniques and antenna technologies.





U.S.
      trademark registrations are for a term of 10 years and are renewable every
      10
      years as long as the trademarks are used in the regular course of trade. We
      register our trademarks in a number of other countries where we do business.
      We
      maintain a portfolio of trademarks representing substantial goodwill in our
      businesses.





*Extensive
      testing and integration facilities*




The
      performance and coverage area of a BWA system is dependent on a number of
      factors including: the strength of the radio signal transmitted, the sensitivity
      of the radio receiving apparatus, the radio frequency used and the clutter
      (natural terrain features and man-made obstructions). The ability of an operator
      to use a BWA system is predominantly dependent on the environment in which
      the
      BWA system is deployed and base stations and customer premise equipment are
      installed. Our process of radio planning considers these important factors
      to
      maximize performance, coverage and availability.




We
      continue to operate live multi-cell test networks that provide always-on
      high-speed Internet access and voice services to a number of volunteer
      end-users. Airspan maintains WiMAX and AS4020 test networks in and around the
      town of Stratford upon-Avon, U.K., and a WipLL test network in the vicinity
      of
      Airport City, Israel. In addition to providing valuable long-term system
      reliability, availability and other performance data, these unique networks
      permit us to empirically investigate radio transmission and reception and
      interference behavior for existing and emerging products.




*Research
      and development expenditures*




We
      incur
      research and development expenditures in an effort to reduce manufacturing
      costs, develop new products or product enhancements and to maintain the
      functionality of existing products as customers request new features or as
      integrated components need to be replaced. During the years ended December
      31,
      2006, 2005 and 2004, we spent $24.8 million, $21.2 million, and $18.8 million,
      respectively, on research and development of our products.





**Customers**




We
      believe our existing customers are principally comprised of network operators,
      looking to provide their customers with fixed, nomadic and portable broadband
      access solutions, as well as backhaul and bridging solutions. Within the next
      18
      months, we expect to introduce broadband wireless products that will also allow
      network operators to provide customers with mobile access solutions as well.
      Our
      customers today can be generally described as follows:




· CLECs
      and
      ILECs that operate in areas of relatively low tele-density or in areas where
      the
      installation of copper or fiber lines or coaxial cables is cost prohibitive,
      or
      where their existing telecommunications infrastructure equipment cannot
      effectively deliver broadband data connectivity;




· cable
      TV
      operators, who use BWA systems to extend the reach of their networks, and/or
      who
      offer telephone services in addition to their basic TV services;




· ISPs
      that
      operate in areas where other carriers cannot offer broadband access services;





· operators
      of WiFi-based Hotzones and networks, such as municipalities; and





· enterprises
      that operate private, closed loop networks.




13




We
      began
      shipping our products in 1996. By the end of December 2006, we had shipped
      to
      over 400 customers in more than 100 countries. Our customers today include
      large
      fixed wireless access carriers such as Axtel S.A. de C.V., Mexico (“Axtel”).
      Axtel has more than 800,000 subscribers and operates the world’s largest
      broadband fixed wireless network that is not based on mobile technology.




We
      currently derive, and expect to continue to derive, a substantial percentage
      of
      our net sales from fewer than ten customers. In 2006, 72% of our revenues were
      derived from our top ten customers, including revenues from Axtel, our largest
      customer, accounting for approximately 26% of our revenues and Yozan Inc
      (“Yozan”), accounting for approximately 19% of revenues. They were the only
      customers that individually accounted for more than 10% of our 2006 annual
      revenue. It is possible that in fiscal 2007, Axtel and Yozan may together
      account for more than 25% of our annual revenue. No single customer is expected
      to account for more than 25% of our projected annual revenue in 2007. Our
      business relationships with Axtel and Yozan are summarized below.




Our
      contracts with our customers typically provide for delivery of product and
      services, including installation and commissioning, training and maintenance.
      In
      addition, we generally also agree to provide warranty for the equipment and
      software for a limited period of time.




Our
      contracts are generally non-exclusive and may contain provisions allowing our
      customers to terminate the agreement without significant penalties. Our
      contracts also may specify the achievement of shipment, delivery and service
      commitments. We are generally able to meet these commitments or negotiate
      extensions with our customers.




Our
      largest customer in 2006 was Axtel. As a result of the acquisition of the
      Proximity business from Nortel Networks, Airspan assumed the right and
      obligation to supply Proximity products and services to Axtel pursuant to
      agreements (the “Axtel Agreement”) signed between Nortel Networks and Axtel. The
      Axtel Agreement was amended in April and December, 2004. Under our existing
      agreements with Axtel, Axtel was committed to purchase a minimum of $38 million
      of product from us during the period from January 1, 2005 until December 31,
      2006. In 2005, Axtel’s purchases exceeded that amount, as a result of which no
      further purchase commitments currently exist by agreement between the companies.
      Axtel may continue to place orders for products for as long as the agreements
      remain in place and effective.




The
      Axtel
      Agreement contains terms and conditions typical for supply and support
      agreements of this type, including the requirements for Axtel to make certain
      cash down-payments with orders placed and for lead times for delivery of
      products. We have agreed to provide technical assistance and support services
      related to the products used in Axtel’s network, including emergency recovery
      and remote technical assistance, as well as other services at agreed upon
      prices. The Axtel Agreement gives Axtel a non-exclusive and perpetual license
      to
      use the Proximity software, subject to certain events of default, and a
      one-year, limited warranty with respect to the delivered products. The Axtel
      agreements may be terminated by either party in the event of the other party’s
      failure to cure a breach of any term or condition of the agreement. The Axtel
      Agreement states that either party may terminate the agreement in the event
      the
      other party encounters various forms of financial difficulty, insolvency or
      bankruptcy and where the other party has materially failed to perform any term
      under the Agreement that has not been cured within 30 days of notification.





During
      2005, Yozan and Airspan concluded two contracts for the supply of WiMAX
      equipment for a total value of $42.9M. Deliveries of equipment under the supply
      contracts commenced in the fourth quarter of 2005. In a Memorandum of
      Understanding (MOU) signed in September, 2006, we agreed with Yozan that the
      amount of the original supply agreement would be reduced from $42.9 million
      to
      approximately $28 million. As of the end of 2006, approximately $22.6 million
      of
      equipment had been delivered to Yozan, most of which had been accepted by Yozan.
      Yozan has made payments totaling $19.3 million for this equipment. The MOU
      requires delivery of 2,000 MicroMAX-SDR Base Stations and 20,000 subscriber
      terminals, but the final composition of products to be delivered may change
      under the agreement. The parties agreed to use reasonable efforts to complete
      deliveries by the end of 2006, but delays have now extended the delivery
      schedule into 2007. Scheduling of the remaining deliveries is still under
      discussion. The remaining commitment at December 31, 2006 under the MOU is
      approximately 500 base stations. Yozan has the right to terminate our supply
      agreement if we fail to comply with the terms and conditions of the agreement
      and such breach is not cured.





Revenue
      from support services under two agreements covering the equipment delivered
      under the supply contracts from Yozan has been recognized through the end of
      2006 for a total of approximately $1.2 million and under the agreement currently
      in place additional service revenue of $1.5 million is expected to be recognized
      in 2007. In addition, Yozan has agreed to provide funding of $7.4 million toward
      our development of a WiMAX USB CPE device. As of December 31, 2006, we had
      received $3.5 million in funding from Yozan, which was included in revenue
      of
      the fourth quarter of 2006; the balance of $3.9 million is expected to be
      recognized in revenue during 2007.




**Sales,
        Marketing and Customer Service**
  We
        sell
        our systems and solutions through our direct sales force, independent agents,
        resellers and original equipment manufacturer (“OEM”) partners. Our direct sales
        force targets network operators, ISPs and enterprises in both developed and
        developing markets. In
        markets where we do not have a direct sales presence, we also sell through
        independent agents, resellers and system integrators who target network
        operators and other customers. We also sell our products to OEMs who may
        sell
        our products under their names.


14




Our
      marketing efforts are focused on network operators and ISPs that provide voice
      and data or data-only communications services to their customers, and on
      enterprises. Through our marketing activities we provide technical and strategic
      sales support including in-depth product presentations, network design and
      analysis, bid preparation, contract negotiation and support, technical manuals,
      sales tools, pricing, marketing communications, marketing research, trademark
      administration and other support functions.




A
      high
      level of ongoing service and support is critical to our objective of developing
      long-term customer relationships. To facilitate the deployment of our systems,
      we offer our customers a wide range of implementation and support services
      including spectrum planning and optimization, installation, commissioning,
      post-sales support, training, helpline and a variety of other support services.




Our
      subcontractors, who have the expertise and ability to professionally install
      our
      products, perform most major installations. This enables us to efficiently
      manage fluctuations in volume of installation work.




As
      of
      March 1, 2007, we had 108 full time employees and contractors dedicated to
      sales, marketing and customer service.




**Manufacturing**




We
      subcontract all of our manufacturing to subcontractors, who provide full service
      manufacturing solutions, including assembly, systems integration and test
      procedures. Except as noted below, our finished products are shipped directly
      from the manufacturing subcontractor to customers.




We
      currently outsource the manufacturing of our AS4000, AS4020, Proximity CPE
      and
      the large-size WiMAX base station products directly to a global subcontract
      manufacturer, Solectron Corporation (“Solectron”). In addition to providing full
      service manufacturing solutions, Solectron provides a range of manufacturing
      services including prototyping, and new product introduction.




At
      the
      end of 2006, Solectron relocated the manufacture of our AS4000 and AS4020 CPE
      and base station products from Scotland to Guadalajara, Mexico. Solectron also
      makes our Proximity CPE products in Mexico. Finished AS4000, AS4020 and WiMAX
      products are stored, prior to dispatch to end customers, at our third-party
      logistics provider based in the U.K.. Proximity products are generally shipped
      directly from the manufacturing sites to our customers. In the event that they
      are not shipped directly they are stored, prior to dispatch, at our third-party
      logistics provider.





Manufacture
      of our Proximity base station products is outsourced to Syntech Technologies,
      U.K.





Manufacture
      of our WipLL products is outsourced to an Israeli manufacturing subcontractor
      named Racamtech Limited, which is part of the CAM Group (“CAM”), based in
      Israel.





Manufacture
      of our WiMAX CPE and small WiMAX base station products is outsourced directly
      to
      a global subcontract manufacturer, Flextronics Corporation (“Flextronics”).
      Flextronics currently manufactures this product in Israel.





Manufacture
      of our ASNET product portfolio was outsourced during 2006 to two subcontract
      manufacturers, based in Finland. Elcoteq Network Corporation (“Elcoteq”)
      manufactures the printed circuit board assemblies. Laukamo Elecctromec OY
      (“Laukamo”) performs the final configuration and box assembly functions. The
      products were then stored, prior to dispatch to end customers, at our
      third-party logistics provider based in the Finland. We are in the process
      in
      moving the production of the ASNET products to Syntech Technologies,
      U.K.




A
      third
      party based in Canada manufactures our Airspan branded AS3030 and AS4030
      products pursuant to a three year contract that ends in September, 2007. In
      September 2007, the contract will automatically renew for a further term of
      one
      year unless either party gives written notice to terminate at least 30 days
      prior to the end of the term then in effect.




Our
      agreements with these manufacturing subcontractors are all non-exclusive and
      may, except as noted above, be terminated by either party with six months notice
      without significant penalty. Other than agreeing to purchase the materials
      we
      request in the forecasts we regularly provide, we do not have any agreements
      with our manufacturing subcontractors to purchase any minimum volumes. Our
      manufacturing support activities consist primarily of prototype development,
      new
      product introduction, materials planning and procurement and quality control.




15




Some
      of
      the key components of our products are purchased from single vendors for which
      alternative sources are generally not readily available in the short to medium
      term. If these vendors fail to supply us with components because they do not
      have them in stock when we need them, if they reduce or eliminate their
      manufacturing capacity for these components or if they enter into exclusive
      relationships with other parties which prevents them from selling to us, we
      could experience and have experienced significant delays in shipping our
      products while we seek other sources. During the third quarter of 2004, as
      a
      result of a temporary shortage of components, we experienced temporary
      difficulty manufacturing enough Proximity products to meet existing orders
      in a
      timely manner. See “Item 1A. RISK FACTORS — Our
      dependence on key suppliers and contract manufacturers may result in product
      delivery delays if they do not have components in stock or terminate their
      non-exclusive arrangements with us.”





**Backlog**





Our
      backlog at December 31, 2006 and 2005 under commitments from Axtel, Yozan and
      DBD was $14.2 million and $51.4 million, respectively. The decrease was
      primarily related to Yozan. We did not have additional material backlog at
      the
      end of 2006 or 2005. We anticipate that substantially all of the 2006 backlog
      will be filled in 2007. We believe that backlog is not necessarily a reliable
      indicator of our future sales as our customers generally do not make significant
      firm commitments to purchase product more than a quarter in
      advance.





**Competition**




We
      compete in a relatively new, rapidly evolving and highly competitive and
      fragmented market. We compete with companies that are producing access systems
      for fixed and mobile wireless networks, cellular networks, wired DSL networks,
      cable networks and occasionally fiber optic cable and satellite networks. We
      also compete with companies that have VoIP switching solutions.




We
      believe the primary competitive challenges our business faces
      include:




·
            competing
                with established, traditional wired network equipment providers and
                their
                wired solutions,





·
            encountering
                competition as more suppliersdevelop
                and introduce products that comply with mobile and fixed WiMAX
                standards;





·
            competing
                with the growth of cellular mobile networks that are capable of providing
                broadband access at high speeds; and




·
            convincing
                service providers that our solutions are superior to competing wired
                and
                wireless solutions that may be offered by substantially larger
                companies.




We
      face,
      or believe that we will face, competition from various other providers of
      wireless communications products and services and, while we believe our industry
      to be competitive, we do not believe there is a single dominant
      competitor.  Competitors vary in size and scope, in terms of products and
      services offered. With respect to the broadband fixed wireless solutions we
      offer today, we believe we compete directly with Alvarion, Huawei, Motorola,
      SR
      Telecom, Siemens, Terabeam, ZTE, and with a number of smaller privately-held
      companies. We also believe we compete indirectly with a number of large
      telecommunication equipment suppliers such as Samsung and Alcatel. We expect
      to
      face competition from these and other suppliers that introduce and develop
      products that comply with mobile WiMAX standards.




We
      believe we encounter, and may increasingly encounter, competition from competing
      wireless technologies such as cellular technology.





Mobile
      wireless networks are now capable of delivering both voice and broadband data
      connectivity to fixed, nomadic, portable and mobile applications. Low-cost
      cellular networks may provide a competitive solution in markets where the
      operator is seeking to offer low-quality voice and limited data rates at a
      low
      cost. In developed markets, cellular technologies now also support the growing
      demand for high-quality broadband and voice communications. Cellular standards
      such as EV-DO, GPRS and EDGE can now provide access terminals (mobile devices)
      with air interface speeds of more than 2.5 Mb/s.




16





In
      addition, our technology competes with other high-speed solutions, such as
      wired
      DSL, cable networks, and occasionally fiber optic cable and satellite
      technologies. The performance and coverage area of our wireless systems are
      dependent on some factors that are outside of our control, including features
      of
      the environment in which the systems are deployed such as the amount of clutter
      (natural terrain features and man-made obstructions) and the radio frequency
      available. Any inability to overcome these obstacles may make our technology
      less competitive in comparison with other technologies and make other
      technologies less expensive or more suitable. Our business may also compete
      in
      the future with products and services based on other wireless technologies
      and
      other technologies that have yet to be developed.




Many
      of
      our competitors are substantially larger than we are and have significantly
      greater financial, sales and marketing, technical, manufacturing and other
      resources and more established distribution channels. These competitors may
      be
      able to respond more rapidly to new or emerging technologies and changes in
      customer requirements or to devote greater resources to the development,
      promotion, sale and financing of their products than we can. Furthermore, some
      of our competitors may make strategic acquisitions or establish cooperative
      relationships among themselves. See “Item 1A. RISK FACTORS — An inability to
      overcome competition from alternative communications systems could adversely
      affect our results of operations.”




**Employees**




As
      of
      March 1 2007, we had a total of 292 full-time employees, including contract
      personnel, of which 92 were based in the U.K., 96 were based in Israel, 30
      were
      based in the United States and 16 were based in Finland and 58 in all other
      locations. No employees are presently represented by a labor union. We have
      not
      experienced any work stoppages and consider our relations with our employees
      to
      be good.




**Executive
      Officers and Directors**




The
      names, ages and positions of our executive officers and directors as of March
      14, 2007 are listed below along with their business experience during the past
      five years.




**Name**
            
            **Age**
            
            **Title**Matthew
                J. Desch
            
            49
            
            Chairman
                of the Board of DirectorsEric
                D. Stonestrom
            
            45
            
            President
                and Chief Executive Officer, DirectorDavid
                Brant
            
            43
            
            Senior
                Vice President and Chief Financial OfficerHenrik
                Smith-Petersen
            
            43
            
            President,
                Asia PacificArthur
                Levine
            
            49
            
            Vice
                President, Finance and ControllerAlastair
                Westgarth
            
            43
            
            Senior
                Vice President and Chief Technology Officer (1)Julianne
                M. Biagini
            
            44
            
            DirectorBandel
                L. Carano
            
            43
            
            DirectorFrederick
                R. Fromm
            
            57
            
            DirectorMichael
                T. Flynn
            
            58
            
            DirectorGuillermo
                Heredia
            
            65
            
            DirectorThomas
                S. Huseby
            
            59
            
            DirectorDavid
                A. Twyver
            
            60
            
            Director





(1)
      Resigned from the Company effective March 23, 2007




**Matthew
      J. Desch** became
      Chairman of the Board of Directors of Airspan on July 1, 2000. Since September
      2006, Mr. Desch has served as Chairman and Chief Executive Officer of Iridium
      Satellite LLC, a global supplier of mobile satellite communications services.
      Prior to joining Iridium, Mr. Desch served as the Chief Executive Officer of
      Telcordia Technologies, a private communications software and services supplier
      from July 2002 until October 2005. He is currently a member of the board of
      directors of Starent Networks. From 1987 through May 2000, Mr. Desch served
      in a
      variety of management positions with Nortel Networks, a global supplier of
      networking solutions and services. From 1996 through 2000, he served as
      Executive Vice President and President of Nortel's Wireless Networks division,
      responsible for Nortel's global wireless infrastructure business. Mr. Desch
      has
      a B.S. from Ohio State University and an M.B.A. from the University of
      Chicago.




17




**Eric
      D. Stonestrom** joined
      Airspan as Executive Vice President and Chief Operating Officer in January
      1998.
      In May 1998, he was named President and Chief Executive Officer, as well as
      a
      member of the Board of Directors. From 1995 to January 1998, Mr. Stonestrom
      was
      employed by DSC Communications Corporation, a provider of telecommunications
      equipment and services (“DSC”), as a Vice President of operating divisions,
      including the Airspan product line. From 1984 until 1995, Mr. Stonestrom worked
      at telecommunications corporations Bell Laboratories and AT&T in a variety
      of positions. He received B.S., M.S. and M. Eng. degrees in 1982, 1983 and
      1984,
      respectively, from the College of Engineering at the University of California
      at
      Berkeley.




**David
      Brant** joined
      Airspan in January 1998 as Finance Director. He became Senior Vice President
      and
      Chief Financial Officer in January 2007. Between July 2000 and December 2005
      Mr.
      Brant served as Vice President Finance and Controller. In December 2005 the
      Company transferred its Finance function to the United States, and he assumed
      an
      operating role leading the Company's ASNet division, broadening his experience
      across the operational functions of the Company. From 1990 to 1998, Mr. Brant
      was employed by DSC in various financial roles, the last post as Director of
      European Accounting. He received a B.A. in Mathematical Economics in 1984 from
      Essex University and is a Fellow of the Association of Chartered Certified
      Accountants.




**Henrik
      Smith-Petersen** joined
      Airspan in February 1998 as Senior Director in Sales. He became Regional Vice
      President for Asia Pacific in April 2000 and in February 2001 became President,
      Asia Pacific. Prior to joining Airspan, from July 1997 he was with DSC as
      Director of Business Development. In DSC he gained extensive experience
      developing new business and partnerships worldwide in the wireless
      telecommunication market. Before joining DSC, he worked for four years for
      AT&T’s Network Systems Group in Italy, where he developed AT&T’s
      operation systems business and later became Key Account Manager for Italtel,
      AT&T’s local partner in Milan, developing the Telecom Italia business. He
      received his B.Sc. in Business Economics degree from Copenhagen School of
      Economics in Denmark in 1990, and a M.B.A. from SDA BOCCONI University in Milan
      in 1992.




**Arthur
      Levine** joined
      Airspan in October 2005 as Director of Finance and, in January 2006, he was
      named Airspan’s Vice President, Finance and Controller. From February 2003 to
      March 2005, Mr. Levine was Director of Finance of DentaQuest Ventures, Inc.,
      a
      privately held third party administrator and insurer of dental benefits. From
      September 1995 to February 2003, at Scitex Corporation Ltd., a publicly-traded
      manufacturer of digital printing equipment, Mr. Levine served in various
      financial roles, the last of which was Vice President and Corporate Controller.
      Mr. Levine worked at Ernst & Young from 1984 to 1995. He holds a B.S. degree
      from the Wharton School of the University of Pennsylvania and is a Certified
      Public Accountant.




**Alastair
      Westgarth** joined
      Airspan in July 2006 as Senior Vice President and Chief Technology Officer
      and
      will leave the Company on March 23, 2007.  Prior
      to
      joining Airspan, he served from October 2005 to July 2006 as Senior Vice
      President of Product Line Management at InnerWireless, Inc., which develops
      and
      deploys in-building broadband wireless distribution systems plus indoor location
      positioning platforms. Prior to his employment with InnerWireless, Mr. Westgarth
      served as President and CEO of Navini Networks, a provider of portable broadband
      wireless access solutions. He also served as an executive team member at Nortel
      Networks and First Broadcasting.




**Julianne
      M. Biagini**  has
      served as a director of Airspan since August 2006. Ms. Biagini has been employed
      by Endwave Corporation, a supplier of RF subsystems for millimeterwave,
      broadband wireless access systems, since 1994, and is currently an Executive
      Vice President. Ms. Biagini also served for five years as Chief Financial
      Officer of Endwave from May 2001 through April 2006. From 1992 until 1994,
      Ms.
      Biagini was the manager of Accounting and Tax at Exponent, Inc., an engineering
      and scientific consulting firm. Prior to 1992, Ms. Biagini worked at KPMG as
      a
      tax specialist. Ms. Biagini serves as a member of the Board of Directors of
      the
      American Electronics Association and is chairperson of the Silicon
      Valley/Northern California Council. Ms. Biagini is a Certified Public Accountant
      with a B.S. in business administration from San Jose State University and an
      M.B.A. from Santa Clara University.




**Bandel
      L. Carano** joined
      the Board of Directors of Airspan in September 2006. Mr. Carano, who was a
      member of the company’s Board of Directors from January 1998 to February 2001,
      has been a general partner of Oak Investment Partners, a multi-stage venture
      capital firm, since 1987. Mr. Carano also serves on the Investment Advisory
      Board of the Stanford Engineering Venture Fund, the Board of Directors of
      Wireless Facilities, Inc., FiberTower Corporation, the Supervisory Board of
      Tele
      Atlas N.V. and the Board of Directors of numerous private companies, including
      Trapeze Networks, MobiTV, Tensilica and Visto Corporation. Mr. Carano holds
      a
      B.S. and an M.S. in Electrical Engineering from Stanford University.




**Michael
      T. Flynn** has
      served as a director of Airspan since July 2001. From June 1994 until March
      31,
      2004, Mr. Flynn served as an officer of ALLTEL Corporation, an integrated
      telecommunications provider of wireless, local telephone, long-distance,
      competitive local exchange, Internet and high-speed data services. From May
      2003
      until April 2004, he held the position of Assistant to the Chief Executive
      Officer. From April 1997 to May 2003, Mr. Flynn served as Group President of
      Communications at ALLTEL. From June 1994 to April 1997, Mr. Flynn was President
      of the Telephone Group of ALLTEL. Since January 2004, Mr. Flynn has served
      on
      the Board of Directors, the Audit Committee and the Compensation Committee
      of
      WebEx Communications, a publicly-traded company providing real time web
      collaboration and conferencing services. He also serves as a member of the
      Board
      of Directors of several private companies including: Calix, a leading provider
      of next generation, integrated voice, data and video, loop and transport access
      technology; and GENBAND a provider of access and trunking media gateway
      solutions for VoIP and signaling applications. Mr. Flynn earned his B.S. degree
      in Industrial Engineering from Texas A&M University in 1970. He attended the
      Dartmouth Institute in 1986 and the Harvard Advanced Management Program in
      1988.




18




**Frederick
      R. Fromm** joined
      the Airspan Board of Directors in June 2006. Mr. Fromm has served for more
      than
      30 years in the telecommunications industry, where he has held a variety of
      senior executive positions with a broad range of companies. Since January 2006,
      Mr. Fromm has served as the Chairman of the Board and Chief Executive Officer
      of
      nexVortex, Inc., a privately-held business-grade VoIP services provider. From
      July 2004 until September 2005, Mr. Fromm served as the President and Chief
      Executive Officer and as a director of Mobeon AB, a Swedish based telecom
      software manufacturer and supplier of specialized messaging software components
      to tier-one telecom network equipment vendors. From May 2003 to February 2004,
      Mr. Fromm was President and Chief Executive Officer and a director of Gluon
      Networks, Inc., a private telecommunications equipment company. From July 2000
      to October 2001, he was President, and from November 2001 to October 2002 he
      was
      also a director and Chief Executive Officer of Oplink Communications, Inc.,
      an
      optical components company that completed its initial public offering during
      Mr.
      Fromm’s tenure with the Company. Between June 2001 and July 2006, Mr. Fromm
      served as a director of Wave Wireless Corporation, a public wireless telecom
      equipment company. Mr. Fromm received B.S. and M.S. degrees in Engineering
      from
      the University of Wisconsin-Milwaukee and an M.B.A. from Florida Atlantic
      University.




**Guillermo
      Heredia** joined
      the Board of Directors of Airspan in January 2001. Since September 2005, Mr
      Heredia has served as President and CEO of AeroLineas MesoAmericanas, a new
      low
      cost airline carrier operating within Mexico. From 1999 to 2005, Mr. Heredia
      served as the managing partner of Consultores en Inversiones Aeronauticas,
      a provider of consulting services to airline operators and investors. Mr.
      Heredia has served in the senior management of three major Mexican corporations:
      as President and Chief Operating Officer of Aeromexico from 1989 to 1992, as
      President and Chief Operating Officer of Grupo Iusacell, Mexico’s number two
      wireless carrier from 1992 to 1994, and as President and Chief Executive Officer
      of Previnter, a joint venture of AIG, Bank Boston and Bank of Nova Scotia from
      1995 to 1999. Mr. Heredia currently serves as a member of the Board of Directors
      for W L Comunicaciones, a private telecommunications company involved in
      developing a wide band fiber optic network in Mexico City and throughout Mexico
      and for Jalisco Tequilana Internacional, a private distiller and distributor
      of
      Tequila. Mr. Heredia holds a degree in Mechanical Engineering from the
      Universidad de las Americas and in Business Administration from Universidad
      Iberoamericana.




**Thomas
      S. Huseby** has
      served as a Director of Airspan since January 1998, serving as Chairman of
      the
      Board from January 1998 until July 2000. Since August 1997, Mr. Huseby has
      served as the Managing Partner of SeaPoint Ventures, a venture capital fund
      focused on communications infrastructure. Mr. Huseby has also served as an
      advisor to Oak Investment Partners since August 1997. Prior to his employment
      with SeaPoint Ventures, from 1994 to 1997, Mr. Huseby was the Chairman and
      Chief
      Executive Officer of Metawave Communications, a previously public corporation
      which manufactured cellular infrastructure equipment. Previously he was
      President and Chief Executive Officer of Innova Corporation, a previously public
      manufacturer of millimeter wave radios.   Mr. Huseby is currently
      Chairman of the Board of Hubspan, a private integration solutions provider,
      Qpass, Inc., a private corporation which offers software that facilitates the
      sale of digital content for wireless carriers, MobileLime, a private company
      that allows
      consumers to make purchases through any mobile phone at participating
      merchants, Telecom
      Transport Management, Inc., a privately held company providing comprehensive
      backhaul transport solutions for wireless carriers in the United States, and
      SnapIn Software, Inc., a privately held company that develops handset-based
      wireless customer care and diagnostic products for mobile network operators.
      He
      is also a  board member of the following privately held corporations:
      Kineto Wireless, Mojix, Trumba and Wireless Services Corporation. Mr. Huseby
      has
      a Bachelor's degree in Economics and a B.S.I.E. from Columbia University and
      an
      M.B.A. from Stanford University.




**David
      A. Twyver** joined
      the Board of Directors of Airspan in May 1999. Mr. Twyver served as the
      President and Chief Executive Officer of Ensemble Communications Inc., a
      supplier of LMDS wireless equipment, from January 2000 until September, 2002.
      From 1996 to 1997, Mr. Twyver served as Chief Executive Officer of Teledesic
      Corporation, a satellite telecommunications company. From 1974 to 1996, Mr.
      Twyver served in several management positions at Nortel Networks Limited, a
      leading global supplier of data and telephone network solutions and services,
      most recently as president of Nortel Wireless Networks from 1993 to 1996. Mr.
      Twyver served as a director of Metawave Communications, Inc, a manufacturer
      of
      cellular infrastructure equipment, from March 1998 until February 2003 and
      as a
      member of Metawave Communications, Inc.’s Audit Committee from June 2000 until
      February 2003. Mr. Twyver also served as Chairman of the Board of Directors
      of
      Ensemble from January 2002 until December 2003 and as a director until April
      2004. He received his B.S. in Mathematics and Physics from the University of
      Saskatchewan.




19




**ITEM
      1A. RISK FACTORS**




*In
      addition to other information in this Form 10-K, the following risk factors
      should be carefully considered in evaluating the Company and its business.*




**If
      we continue to incur substantial losses and negative operating cash flows,
      we
      may not succeed in achieving or maintaining profitability in the future.**





We
      have
      incurred net losses and negative cash flows since we became an independent
      company, and as of December 31, 2006, we had an accumulated deficit of $241.0
      million. We anticipate that we will continue to experience negative cash flows
      over the next 12 months. Our operating losses have been due in part to the
      commitment of significant resources to our research and development and sales
      and marketing organizations. We expect to continue to devote resources to these
      areas and, as a result, we will need to continue increasing our quarterly
      revenues to achieve and maintain profitability. We cannot be certain that we
      will achieve sufficient revenues for profitability. If we do achieve
      profitability, we cannot be certain that we can sustain or increase
      profitability on a quarterly or annual basis in the future. Continuous cash
      outflows can lead to the need for new financing, which may not be available
      on
      favorable terms, or at all.




**Any
      reduction in expenditures by communications service providers could have a
      negative impact on our results of operations.**





We
      believe telecommunications carriers and service providers continue to spend
      less
      annually on capital investments and network expansions than they did at the
      end
      of the prior decade. Service providers have operated at reduced capital spending
      levels for a number of years, and there is no indication that they will increase
      spending to earlier levels in the foreseeable future. Any further decline in
      their capital spending may reduce our sales, increase the need for inventory
      write-offs and could result in downward pressure on the price of our products,
      all of which would have a material adverse effect on our results of operations
      and stock price.





**Since
      a significant percentage of our expenses are fixed and do not vary with
      revenues, our quarterly operating results are volatile and difficult to predict,
      and our stock price could decline.**





We
      believe that period-to-period comparisons of our operating results are not
      necessarily meaningful. Since our customers are not typically required to
      purchase a specific number of our products in any given quarter, we may not
      be
      able to accurately forecast our quarterly revenues. Revenues are further
      affected if major deployments of our products do not occur in any particular
      quarter as we anticipate and/or our customers delay shipments or payments due
      to
      their inability to obtain licenses or for other reasons. As a result, our
      quarterly operating results have fluctuated in the past and will likely vary
      in
      the future. This could cause the market price of our common stock to decline.
      Other factors that may affect our quarterly operating results and our stock
      price include the loss of a major customer, our ability to react quickly to
      new
      competing technologies, products and services which may cause us to lose our
      customers, or if our suppliers and manufacturers are not able to fulfill our
      orders as a result of a shortage of key components that leads to a delay in
      shipping our products. We incur expenses in significant part based on our
      expectations of future revenue, and we expect our operating expense, in
      particular salaries and lease payments, to be relatively fixed in the short
      run.
      Accordingly, any decline in revenue for a particular quarter could have an
      immediate negative effect on results for that quarter, possibly resulting in
      a
      change in financial estimates or investment recommendations by securities
      analysts, which could result in a fall in our stock price. The results of any
      one quarter should not be relied upon as an indication of future performance.





**If
      we are not able to implement a program to reduce product costs over time,
      introduce new products or increase sales volume to respond to declines in the
      average selling prices of our products, our gross margin may decline.**





We
      expect
      the average selling prices of our products to decline due to a number of
      factors, including competitive pricing pressures, rapid technological change,
      industry standardization and volume sales discounts. Accordingly, to maintain
      or
      increase our gross margin, we must develop and introduce new products or product
      enhancements with higher gross margins and implement product cost reductions.
      If
      our average selling prices continue to decline and we are not able to maintain
      or increase our gross margin, our results of operations could be harmed.





**Our
      industry is subject to change as a result of emerging new technologies and
      industry standards.**





The
      market for BWA equipment has historically been characterized by rapid
      technological developments and evolving industry standards. Our future success
      will therefore depend on our ability to adapt to these new standards and to
      successfully introduce new technologies that meet customer preferences.
      Accordingly, our success selling certain types of BWA equipment in one year
      should not be considered indicative of our future sales efforts.





Although
      we have been marketing BWA equipment for many years, our experience marketing
      and supplying WiMAX equipment has only been developed since August 2005.
      Although our AS.MAX products have performed to date in accordance with our
      expectations, the AS.MAX products are still relatively new products and their
      future commercial success is not yet certain. Some of our competitors have
      developed and are currently marketing WiMAX equipment. Although we believe
      our
      AS.MAX products compare favorably to the existing competitive products in terms
      of price, performance, features and ease of use, we do not have enough
      information at this time to determine if our potential customers will share
      our
      perceptions.




20





If
      WiMAX
      becomes or is regarded as likely to become a principal standard for the BWA
      industry, we face the risk that our non-WiMAX products will become obsolete.
      In
      such event, we anticipate that our results of operations would be materially
      adversely affected unless increasing sales of AS.MAX products compensate for
      the
      decline in sales of non-WiMAX products. For example, sales of our proprietary
      products declined significantly in 2006 and are expected to continue to decline.
      In the course of committing to research and development, enhancing our existing
      products and developing the AS.MAX product line, we have made projections and
      assumptions about the potential demand for our various product lines. If our
      projections or assumptions are incorrect for any reason, and our product lines
      do not sell as projected, our results of operations will be materially adversely
      affected.





**Since
      we incur most of our operating expenses and a portion of our cost of goods
      sold
      in foreign currencies, fluctuations in the values of foreign currencies could
      have a negative impact on our profitability.**





Although
      87% of our sales in 2006 and a majority of our cost of goods sold were
      denominated in U.S. dollars, we incur most
      of
      our operating expenses and a portion of our cost of goods in
      British pounds and, to a lesser extent, New Israeli Shekels and euros. In 2006,
      approximately 24% of our combined operating expenses and cost of sales were
      denominated in British pounds. We expect these percentages to fluctuate over
      time. Fluctuations in the value of foreign currencies could have a negative
      impact on the profitability of our global operations and our business and our
      currency hedging activities may not limit these risks. The value of foreign
      currencies may also make our products more expensive than local products.





**We
      operate in highly dynamic and volatile industries characterized by rapidly
      changing technologies, evolving industry standards, frequent new product
      introductions and short product life cycles.**





The
      markets for our products have been characterized by rapidly changing
      technologies, evolving industry standards, frequent new product introductions
      and short product life cycles. Our success depends, in substantial part, on
      the
      timely and successful introduction of high quality new products and upgrades,
      as
      well as cost reductions on current products to address the operational speed,
      bandwidth, efficiency and cost requirements of our customers. With the adoption
      by the wireless broadband industry of the IEEE 802.16 and ETSI HiperMAN wireless
      MAN standards, our success will also depend on our ability to comply with these
      and other emerging industry standards, to operate with products of other
      suppliers.





With
      the
      acquisition of our new AS.TONE and AS.NET product portfolios, we are moving
      more
      and more of our products to IP (Internet Protocol) based operating systems.
      The
      development of new, technologically advanced IP-optimized networking solutions
      and software products is a complex and uncertain process requiring high levels
      of innovation, as well as the anticipation of technological and market trends.
      Our commitment to develop and refine our IP based operating systems may result
      in our expenses growing at a faster rate than our revenues, particularly since
      the initial investment to bring a new or enhanced product to market may be
      high.
      We may not be successful in targeting new market opportunities, in developing
      and commercializing new products in a timely manner or in achieving market
      acceptance for our new products.





The
      success of new or enhanced products depends on a number of other factors,
      including the timely introduction of those products, market acceptance of new
      technologies and industry standards, the perceived quality and robustness of
      new
      or enhanced products, competing product offerings, the pricing and marketing
      of
      our products and the availability of funding for those networks. Products and
      technologies developed by our competitors or by us may render certain of our
      products obsolete. If we fail to respond in a timely and effective manner to
      unanticipated changes in one or more of the technologies affecting
      telecommunications and data networking or our new products or product
      enhancements fail to achieve market acceptance, our ability to compete
      effectively in our industry, and our sales, market share and customer
      relationships could be materially and adversely affected.





In
      addition, unanticipated changes in market demand for products based on a
      specific technology, particularly lower than anticipated demand for IP-optimized
      networking solutions in either broadband wireless applications or on a
      stand-alone basis, could have a material adverse effect on our business, results
      of operations and financial condition if we fail to respond to those changes
      in
      a timely and effective manner.





**The
      adoption of open standards in the broadband wireless communications industry
      could result in increased competition.**





Prior
      to
      the adoption of the WiMAX standards, we sold products that operated on our
      own,
      proprietary operating technologies. We anticipate that we and other BWA
      equipment suppliers will increasingly sell products that are WiMAX Forum
      Certified or that meet WiMAX standards. With the adoption of WiMAX as the new
      industry standard for broadband wireless communications, many of those
      proprietary technologies will no longer be used in Airspan products. As a
      result, as we bring WiMAX-based systems to market, we may face increased
      competition from a number of other manufacturers who are no longer restricted
      by
      our intellectual property rights from building competing products. To remain
      competitive, we believe we must continue to invest significant resources in
      research and development, sales and marketing and customer support for WiMAX.
      We
      cannot be certain that we will have sufficient resources to make these
      investments or that we will be able to make the technological advances necessary
      to remain competitive. In developing products that conform to defined
      wireless-industry standards, we recognize that, by diminishing product
      differentiation, standardization may lower the barriers to entry by other
      manufacturers in the markets in which we seek to sell our products. If companies
      with greater resources than us choose to manufacture any standards-based
      products to compete with us, this may cause competition to be based on criteria
      such as the relative size, resources, marketing skills and financial incentives
      provided by our competitors, where we may be weaker than if competition is
      based
      on product differentiation alone. If we are unable to maintain our position
      as a
      technology leader in this market of open standards and broader competition,
      we
      may suffer reductions in revenues and margins and loss of market share, revenues
      and operating margins, which could result in reduced stock prices.




21





**If
      we are not able to implement a program to conform our products to industry
      standards or to successfully market and sell our standards-based products,
      our
      revenues may decline.**





We
      have
      developed and continue to develop certain of our products in accordance with
      existing, emerging and anticipated wireless-industry standards. In particular,
      we develop our AS.MAX wireless products and product features to conform to
      IEEE
      802.16-2004 and IEEE 802.16e standards. If our products fail to comply with
      these standards, we may not be able to sell them. Industry standards are subject
      to change from time to time by their regulatory bodies. If, as a result of
      any
      changes, the products we have developed fail to meet industry standards, as
      revised, we may not be able to sell such products.





Our
      future success depends in part on the successful adoption by our customers
      of
      products that meet these industry standards. If the wireless broadband market
      does not adopt these standards or if our customers are unable to successfully
      deploy products based on these standards, we will not be successful selling
      these products.





In
      developing products that conform to defined wireless-industry standards, we
      recognize that, by diminishing product differentiation, standardization may
      lower the barriers to entry by other manufacturers in the markets in which
      we
      seek to sell our products. If companies with greater resources than us choose
      to
      manufacture any standards-based products to compete with us, this may cause
      competition to be based on criteria such as the relative size, resources,
      marketing skills and financial incentives provided by our competitors, where
      we
      may be weaker than if competition is based on product differentiation
      alone.





**Competition
      from larger, better-capitalized or emerging competitors could result in price
      reductions, reduced gross margins and loss of or inhibited growth of market
      share.**





We
      compete in a relatively new, rapidly evolving and highly competitive and
      fragmented market. We now compete with companies that are producing both mobile
      and fixed wireless communications systems, wired DSL, cable networks, fiber
      optic cable and occasionally satellite technologies and other new entrants
      to
      this industry, as well as traditional communications companies.





Competitors
      vary in size and scope, in terms of products and services offered. With respect
      to the fixed broadband wireless solutions we offer today to serve in licensed
      and unlicensed frequencies, we believe we compete directly with Siemens,
      Alcatel, Motorola, Alvarion, Terabeam and SR Telecom, with a number of smaller
      privately-held companies and with the divisions of a number of institutional
      telecommunication equipment companies. We also believe we compete indirectly
      with a number of large telecommunication equipment suppliers such as Alcatel
      and
      Harris.





Many
      of
      our competitors are substantially larger than we are and have significantly
      greater financial, sales and marketing, technical, manufacturing and other
      resources and more established distribution channels. These competitors may
      be
      able to respond more rapidly to new or emerging technologies such as WiMAX
      and
      changes in customer requirements, or to devote greater resources to the
      development, promotion, sale and financing of their products than we can.
      Furthermore, some of our competitors have made or may make strategic
      acquisitions or establish cooperative relationships among themselves or with
      third parties to increase their ability to gain customer market share rapidly.
      These competitors may enter our existing or future markets with systems that
      may
      be less expensive, provide higher performance or contain additional features.
      In
      addition, large companies are sometimes reluctant to base an important line
      of
      business on equipment purchased from a smaller vendor such as Airspan. Larger
      companies may also decide to wait to see how a new technology develops before
      committing any significant resources to deploying equipment from a particular
      supplier.





We
      expect
      our competitors to continue to improve the performance of their current products
      and to introduce new products or new technologies that may supplant or provide
      lower-cost alternatives to our systems. This or other factors may result in
      changes in the market valuations of our competitors, which have been volatile
      recently, and could cause our stock price to fall. To remain competitive, we
      must continue to invest significant resources in research and development,
      sales
      and marketing and customer support. We cannot be certain that we will have
      sufficient resources to make these investments or that we will be able to make
      the technological advances necessary to remain competitive.




22





**An
      inability to overcome competition from alternative communication systems could
      adversely affect our results of operations.**





We
      believe we encounter, and may increasingly encounter, competition from competing
      wireless technologies such as cellular technology. Cellular networks are now
      capable of delivering both voice and broadband data connectivity to fixed,
      mobile, nomadic and portable applications. These technologies, such as 1XRTT
      and
      EVDO, have the ability to provide for multiple voice channels and rate data
      services at transmission rates of 512Kbps on the uplink and 2.4 Mbps on the
      down
      link. Their data rates speeds continue to improve as they are modified. In
      addition, our technology competes with other high-speed solutions, such as
      wired
      DSL, cable networks, fiber optic cable and occasionally satellite technologies.
      The performance and coverage area of our wireless systems are dependent on
      certain factors that are outside of our control, including features of the
      environment in which the systems are deployed, such as the amount of clutter
      (natural terrain features and man-made obstructions) and the radio frequency
      available. Any inability to overcome these obstacles may make our technology
      less competitive in comparison with other technologies and make other
      technologies less expensive or more suitable. Our business may also compete
      in
      the future with products and services based on other wireless technologies
      and
      other technologies that have yet to be developed.





**We
      currently depend on a few key customers for substantially all of our sales.
      A
      loss of one or more of those customers could cause a significant decrease in
      our
      net revenue.**





We
      currently derive, and expect to continue to derive, a substantial percentage
      of
      our net sales from fewer than ten customers. In fiscal 2006, 72% of our revenue
      was derived from our top ten customers. In fiscal 2006, Axtel and Yozan
      accounted for approximately 26% and 19% of our annual revenue, respectively.
      They were the only customers that individually accounted for more than 10%
      of
      our 2006 revenue. It is possible that in fiscal 2007, Axtel and Yozan may
      together account for more than 25% of our annual revenue. No single customer
      is
      expected to account for more than 25% of our projected annual revenue in 2007.
      We believe that there are certain economies of scale inherent in our industry.
      Accordingly, the loss of Axtel or Yozan as a customer or the loss of any large
      percentage of our customer contracts could negatively impact our gross profit
      margins, our profitability and efforts to preserve cash resources.





Axtel
      has
      the right to terminate the Axtel supply agreement if we fail to comply with
      the
      terms and conditions of the agreement and if such breach is not cured. For
      instance, if we fail to meet delivery schedules or if we fail to deliver
      products and services that meet the contract specifications, Axtel may claim
      we
      breached the agreement. Even if such failures are solely attributable to the
      acts or failures to act of third parties, Axtel may have the right to terminate
      the agreement. Additionally, Axtel itself has a limited operating history having
      only commenced operations in 1999, and is subject to its own competitive
      pressures and operating constraints in the Mexican economy. If Axtel should
      fail
      for any reason, or fail to have access to debt and equity markets for liquidity,
      it may not be able to continue to make purchases at the same levels as prior
      years.





Yozan
      also has the right to terminate our supply agreement if we fail to comply with
      the terms and conditions of the agreement and such breach is not cured. For
      instance, if we fail to meet delivery schedules or if we fail to deliver
      products and services that meet the contract specifications, Yozan may claim
      we
      breached the agreement. Yozan is subject to its own competitive pressures and
      operating constraints in the Japanese economy. If Yozan should fail for any
      reason, or fail to have access to debt and equity markets for liquidity, it
      may
      not be able to make the purchases that we have forecast commitments under our
      supply agreement.





The
      amount of revenue we derive from a specific customer is likely to vary from
      period to period, and a major customer in one period may not produce significant
      additional revenue in a subsequent period. We anticipate that our operating
      results will continue to depend on sales to a small number of key customers
      in
      the foreseeable future. In general, our contracts with our customers involve
      major deployments that require several months to fulfill, so our results may
      depend on the same major customers for consecutive quarters. Once a contract
      is
      fulfilled, we cannot assure you that the customer will continue to purchase
      upgrades or services from us, or possibly new products. It is necessary,
      therefore, for us to continually seek new customers in order to increase our
      revenue. To the extent that any major customer terminates its relationship
      with
      us, our revenues could decline significantly.





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





We
      face
      the risk that Yozan will materially delay or seek to cancel equipment orders.
      In
      a Memorandum of Understanding (MOU) signed on September 8, 2006, we agreed
      with
      Yozan that the amount of the original supply agreement would be reduced from
      $42.9 million to approximately $28 million. As of the end of 2006, approximately
      $22.6 million of equipment had been delivered to Yozan, most of which had been
      accepted by Yozan. Yozan has made payments totaling $19.3 million for this
      equipment. The MOU requires delivery of 2,000 MicroMAX-SDR Base Stations and
      20,000 subscriber terminals, but the final composition of products to be
      delivered may change under the agreement. The parties agreed to use reasonable
      efforts to complete deliveries by the end of 2006, but delays have now extended
      the delivery schedule into 2007. Scheduling of the remaining deliveries is
      still
      under discussion.




23





In
      the
      second quarter of 2006, we took a $4.4 million charge related to excess
      inventory reflecting our estimate of the most probable amount of excess
      inventories and purchase commitments (net of amounts that are cancelable),
      based
      on the amount we expected to deliver to Yozan under the amended supply contract.
      Since then, as a result of our ability to cancel or reduce some inventory
      purchase commitments with our contract manufacturers, and to obtain some more
      favorable payment and delivery terms for some of the inventories that are still
      to be delivered under orders we placed originally to fulfill the Yozan supply
      agreements, we revised our estimates of the most probable amount of excess
      inventories and purchase commitments. Accordingly, we reduced the amount of
      the
      accrued excess commitment by approximately $1.3 million in the third quarter
      of
      2006. As a result of the reduction in the third quarter and purchases made
      under
      these commitments in the second half of 2006, the remaining accrual at December
      31, 2006 is approximately $1.5 million. The remaining accrual could increase,
      however, if Yozan does not fully honor its amended purchase
      commitments.





**Our
      customer contracts vary widely in terms and duration, with many of our customers
      executing only short-term purchase orders, and our customer contracts allow
      our
      customers to terminate without significant penalties.**





Our
      contracts and purchase orders are separately negotiated with each of our
      customers and the terms vary widely. A majority of our customers may only
      execute short-term purchase orders for a single or a few systems at one time
      instead of long-term contracts for large-scale deployment of our systems. These
      contracts and purchase orders do not ensure that they will purchase any
      additional products beyond that specifically listed in the order.





Moreover,
      since we often believe that these purchase orders may represent the early
      portion of longer-term customer programs, we often expend significant financial,
      personnel and operational resources to fulfill these orders. If our customers
      fail to purchase additional products to fulfill their programs as we hope,
      we
      may be unable to recover the costs we incur and our margins could suffer.





In
      addition, our general framework contracts are generally non-exclusive and
      contain provisions allowing our customers to terminate the agreement without
      significant penalties. Our contracts also may specify the achievement of
      shipment, delivery and installation commitments. If we fail to meet these
      commitments or negotiate extensions in a timely manner, our customers may choose
      to terminate their contracts with us or impose monetary penalties.




**Changes
      in telecommunications regulation or delays in receiving licenses could adversely
      affect many of our customers and may lead to lower sales.**





Many
      of
      our customers are subject to extensive regulation as communications service
      providers. Changes in legislation or regulation that adversely affect those
      existing and potential customers could lead them to delay, reduce or cancel
      expenditures on communications access systems, which actions would harm our
      business. In the past, we have suffered the postponement of anticipated customer
      orders because of regulatory issues. The resolution of those issues can be
      lengthy and the outcome can be unpredictable. We have also received orders
      in
      the past from customers that were contingent upon their receipt of licenses
      from
      regulators, the timing of which was uncertain. The receipt of licenses by our
      customers may occur a year or more after they initially seek those licenses,
      or
      even after they place orders with us.





At
      present there are few laws or regulations that specifically address our business
      of providing communications access equipment. However, future regulation may
      include access or settlement charges or tariffs that could impose economic
      burdens on our customers and us. We are unable to predict the impact, if any,
      that future legislation, judicial decisions or regulations will have on our
      business.





**Our
      sales cycle is typically long and unpredictable, making it difficult to
      accurately predict inventory requirements, forecast revenues and control
      expenses.**





Typically
      our sales cycle can range from one month to two years and varies by customer.
      The length of the sales cycle with a particular customer may be influenced
      by a
      number of factors.





Before
      we
      receive orders, our customers typically test and evaluate our products for
      a
      period that can range from a month to more than a year. In addition, the
      emerging and evolving nature of the communication access market may cause
      prospective customers to delay their purchase decisions as they evaluate new
      and/or competing technologies or, wait for new products or technologies to
      come
      to market. As the average order size for our products increases, our customers’
processes for approving purchases may become more complex, leading to a longer
      sales cycle. We expect that our sales cycle will continue to be long and
      unpredictable. Accordingly, it is difficult for us to anticipate the quarter
      in
      which particular sales may occur, to determine product shipment schedules and
      to
      provide our manufacturers and suppliers with accurate lead-time to ensure that
      they have sufficient inventory on hand to meet our orders. Therefore, our sales
      cycle impairs our ability to forecast revenues and control
      expenses.




24





**We
      make estimates relating to customer demand and errors in our estimates may
      have
      negative effects on our inventory levels, revenues and results of
      operations.**





We
      have historically been required to place firm orders or binding forecasts for
      products and components with our suppliers. These commitments to our suppliers
      may be placed up to six months prior to the anticipated delivery date based
      on
      the aggregate of our existing customer purchase commitments and our forecast
      of
      our customer future demands. Our sales process requires us to make multiple
      forecast assumptions relating to expected customer demand, each of which may
      introduce error into our estimates, causing excess inventory to accumulate
      or a
      lack of product supply when needed. If we overestimate customer demand, we
      may
      allocate resources to manufacturing products that we may not be able to sell
      when we expect or at all. As a result, we would have excess inventory, which
      would harm our financial results. Conversely, if we underestimate customer
      demand or if insufficient manufacturing capacity were available, we may lose
      revenue opportunities and market share and may damage our customer
      relationships.





**Our
      international sales may be difficult and costly as a result of the political,
      economic and regulatory risks in those regions.**





Sales
      to
      customers based outside the U.S. have historically accounted for a substantial
      majority of our revenues. In 2006, our international sales (sales to customers
      located outside the U.S. which includes a small percentage of U.S. customers
      where the final destination of the equipment is outside of the U.S.) accounted
      for approximately 92% of our total revenue, with sales to customers in South
      and
      Central America and the Caribbean, including Mexico, accounting for 40% of
      total
      revenue, and sales to customers in Europe, Asia and Africa accounting for
      approximately 18%, 30% and 4%, respectively, of total revenue. In many
      international markets, long-standing relationships between potential customers
      and their local suppliers and protective regulations, including local content
      requirements and type approvals, create barriers to entry. In addition, pursuing
      international opportunities may require significant investments for an extended
      period before returns on such investments, if any, are realized and such
      investments may result in expenses growing at a faster rate than revenues.
      The
      following risks inherent in international business could reduce the
      international demand for our products, decrease the prices at which we can
      sell
      our products internationally or disrupt our international operations, which
      could adversely affect our operations:





·
            the
                imposition of tariffs, duties, price controls or other restrictions
                on
                foreign currencies or trade barriers imposed by foreign countries;





·
            import
                or export controls, including licensing or product-certification
                requirements;





·
            unexpected
                changes in government policies or regulatory requirements in the
                Unites
                States or in foreign governments and delays in receiving licenses
                to
                operate;





·
            political
                instability and acts of war or
                terrorism;





·
            economic
                instability, including the impact of economic recessions;





·
            difficulty
                in staffing and managing geographically diverse operations, including
                our
                reluctance to staff and manage foreign operations as a result of
                political
                unrest even though we have business opportunities in a country;





·
            any
                limitation on our ability to enforce intellectual property rights
                or
                agreements in regions where the judicial legal systems may be less
                developed or less protective of intellectual property or contractual
                rights;





·
            capital
                and exchange control programs;





·
            challenges
                caused by distance, language and cultural
                differences;





·
            fluctuations
                in currency exchange rates;





·
            labor
                unrest;





·
            restrictions
                on the repatriation of cash;





·
            the
                nationalization of local industry; and





·
            potentially
                adverse tax consequences.





**We
      may not be able to expand our sales and distribution capabilities, including
      establishing relationships with distributors and major system integrators and
      telecommunications equipment OEMs, which would harm our ability to generate
      revenue.**





We
      believe that our future success, particularly with respect to WiMAX, will depend
      upon our ability to expand our direct and indirect sales operations, including
      establishing relationships with distributors and major system integrators and
      telecommunications equipment OEMs. We cannot be certain that we will be
      successful in maintaining or expanding OEM agreements with major suppliers
      such
      as Nortel, Fujitsu and L.M. Ericsson.




25





**Our
      operations in Israel may be disrupted by political and military tensions in
      Israel and the Middle East.**




We
      conduct various activities related to the WipLL, WiMAX and AS.TONE products
      in
      Israel, including: research and development; design; raw material procurement;
      and manufacturing through manufacturing subcontractors based in Israel. Our
      operations could be negatively affected by the political and military tensions
      in Israel and the Middle East.





Israel
      has been involved in a number of armed conflicts with its neighbors since 1948
      and a state of hostility, varying in degree and intensity, has led to security
      and economic problems in Israel. Since September 2000, a continuous armed
      conflict with the Palestinian Authority has been taking place. Conditions in
      Israel could, in the future, disrupt the development, manufacture and/or
      distribution of our products.





**Our
      dependence on key suppliers and contract manufacturers may result in product
      delivery delays if they do not have components in stock or terminate their
      non-exclusive arrangements with us.**





Some
      of
      the key components of our products are purchased from single vendors, including
      printed circuit board assemblies, application specific integrated circuits
      and
      radio frequency filters, for which alternative sources are generally not readily
      available in the short to medium term. If our vendors fail to supply us with
      components because they fail to remain in business, fail to meet our quality
      or
      production requirements, do not have the components in stock when we need them,
      if the supply of the components in the market is limited, or if our vendors
      reduce or eliminate their manufacturing capacity for these components or enter
      into exclusive relationships with other parties which prevent them from selling
      to us, we could experience significant delays in shipping our products while
      we
      seek other supply sources, which may result in our customers claiming damages
      for delays. At times we have been forced to purchase these components from
      distributors instead of from the manufacturers, which has significantly
      increased our costs. During the second quarter of 2005, as a result of a
      temporary shortage of components, we experienced temporary difficulty
      manufacturing enough products to meet certain existing orders in a timely
      manner. We do not have long-term contracts with all of our suppliers. Instead,
      we execute purchase orders approximately three to six months in advance of
      when
      we believe we may need the components. These purchase orders are non-exclusive,
      and we are generally not required to purchase any minimum volume of components
      from any of these suppliers. In those instances in which we do not have a
      long-term contract with a supplier, the supplier may terminate our relationship
      upon six months’ prior notice.





In
      addition, we generally outsource our manufacturing processes to subcontractors
      all of whom rely on our forecasts of future orders to make purchasing and
      manufacturing decisions. We provide them with forecasts on a regular basis.
      If a
      forecast turns out to be inaccurate, it may lead either to excess inventory
      that
      would increase our costs or a shortage of components that would delay shipments
      of our systems. Our contracts with our major manufacturing subcontractors are
      non-exclusive and most contracts may be terminated with six months notice by
      either party without significant penalty. Other than agreeing to purchase the
      materials we request in the forecasts, we do not have any agreements with them
      to purchase any minimum volume.





**If
      we lose Eric Stonestrom or any of our other executive officers, we may encounter
      difficulty replacing their expertise, which could impair our ability to
      implement our business plan successfully.**





We
      believe that our ability to implement our business strategy and our future
      success depends on the continued employment of our senior management team,
      in
      particular our president and chief executive officer, Eric Stonestrom. Our
      senior management team, who have extensive experience in our industry and are
      vital to maintaining some of our major customer relationships, may be difficult
      to replace. The loss of the technical knowledge and management and industry
      expertise of these key employees could make it difficult for us to execute
      our
      business plan effectively, could result in delays in new products being
      developed, lost customers and diversion of resources while we seek replacements.





**We
      may not have adequate protection for our intellectual property, which may make
      it easier for others to misappropriate our technology and enable our competitors
      to sell competing products at lower prices and harm our business.**





Our
      success has historically relied in part on proprietary technology. We have
      used
      a combination of patent, copyright, trademark and trade secret laws and
      contractual restrictions on disclosure to protect our intellectual property
      rights associated with our products other than AS.MAX. Despite our efforts
      to
      protect our proprietary rights, we cannot be certain that the steps we have
      taken will prevent misappropriation of our technology, and we may not be able
      to
      detect unauthorized use or take appropriate steps to enforce our intellectual
      property rights. The laws of some foreign countries, particularly in Asia,
      do
      not protect our proprietary rights to the same extent as the laws of the U.S.
      and the U.K., and we may encounter substantial infringement problems in those
      countries. In addition, we do not file for patent protection in every country
      where we conduct business. In instances where we have licensed intellectual
      property from third parties, we may have limited rights to institute actions
      against third parties for infringement of the licensed intellectual property
      or
      to defend any suit that challenges the validity of the licensed intellectual
      property. If we fail to adequately protect our intellectual property rights,
      or
      fail to do so under applicable law, it would be easier for our competitors
      to
      copy our products and sell competing products at lower prices, which would
      harm
      our business.




26





**Our
      products may infringe on the intellectual property rights of third parties,
      which may result in lawsuits that could be costly to defend and prohibit us
      from
      selling our products.**





Third
      parties could assert exclusive patent, copyright, trademark and other
      intellectual property infringement claims against the technologies that are
      important to us. If any inquiry from a third party relating to patents or
      trademarks leads to a proceeding against us and we are unable to defend
      ourselves successfully, our ability to sell our products may be adversely
      affected and our business would be harmed. In addition, third parties may assert
      claims, or initiate litigation against us, or our manufacturers, suppliers
      or
      customers with respect to existing or future products, trademarks or other
      proprietary rights. Any claims against us, or customers that we indemnify
      against intellectual property claims, with or without merit, may:





·
            be
                time-consuming, costly to defend and harm our reputation;





·
            divert
                management’s attention and resources;





·
            cause
                delays in the delivery of our products;





·
            require
                the payment of monetary damages;





·
            result
                in an injunction, which would prohibit us from using these technologies
                and require us to stop shipping our systems until they could be
                redesigned, if possible; and





·
            require
                us to enter into license or royalty agreements, which may not be
                available
                on acceptable terms or require payment of substantial sums.





**A
      material defect in our products that either delays the commencement of services
      or affects customer networks could seriously harm our credibility and our
      business, and we may not have sufficient insurance to cover any potential
      liability.**





Fixed
      wireless devices are highly complex and frequently contain undetected software
      or hardware errors when first introduced or as new versions are released. We
      have detected and are likely to continue to detect errors and product defects
      in
      connection with new product releases and product upgrades. In the past, some
      of
      our products have contained defects that delayed the commencement of service
      by
      our customers.





If
      our
      hardware or software contains undetected errors, we could
      experience:




·
            delayed
                or lost revenues and reduced market share due to adverse customer
                reactions;





·
            higher
                costs and expenses due to the need to provide additional products
                and
                services to a customer at a reduced charge or at no charge;





·
            claims
                for substantial damages against us, regardless of our responsibility
                for
                any failure, which may lead to increased insurance costs;





·
            negative
                publicity regarding us and our products, which could adversely affect
                our
                ability to attract new customers; and





·
            diversion
                of management and development time and resources.





Our
      general liability insurance coverage may not continue to be available on
      reasonable terms or in sufficient amounts to cover one or more large claims
      or
      our insurer may disclaim coverage as to any future claim. The successful
      assertion of any large claim against us could adversely affect our business.





**We
      have made, and may continue to make, strategic acquisitions or enter into joint
      ventures. If we are not successful in operating or integrating these
      acquisitions or joint ventures, our business, results of operations and
      financial condition may be materially and adversely
      affected.**





In
      the
      past, we have acquired companies that we believed would enhance the expansion
      of
      our business and products. We may make selective opportunistic acquisitions
      of
      companies or businesses with resources and product or service offerings capable
      of providing us with additional product and/or market strengths. Acquisitions
      involve significant risks and uncertainties, including:





27





·
            the
                industry may develop in a different direction than anticipated and
                the
                technologies we acquire may not prove to be those we
                need;





·
            the
                future valuations of acquired businesses may decrease from the market
                price we paid for these
                acquisitions;





·
            the
                revenues of acquired businesses may not offset increased operating
                expenses associated with these
                acquisitions;





·
            potential
                difficulties in integrating new products, software, businesses and
                operations in an efficient and effective
                manner;





·
            our
                customers or customers of the acquired businesses may defer purchase
                decisions as they evaluate the impact of the acquisitions on our
                future
                product strategy;





·
            potential
                loss of key employees of the acquired
                businesses;





·
            diversion
                of the attention of our senior management from the operation of our
                daily
                business;





·
            entering
                new markets in which we have limited experience and where competitors
                may
                have a stronger market presence;





·
            the
                potential adverse effect on our cash position as a result of all
                or a
                portion of an acquisition purchase price being paid in
                cash;





·
            potential
                issuance of securities that are superior to the rights of holders
                of our
                common stock, or that would dilute our shareholders’ percentage
                ownership;





·
            potential
                assumption and/or incurrence of liabilities and the increased risk
                of
                costly and time-consuming litigation, including stockholder lawsuits;
                and





·
            the
                potential assumption of significant amounts of debt.





Our
      inability to successfully operate and integrate newly acquired businesses in
      a
      timely manner could have a material adverse effect on our ability to take
      advantage of further growth in demand for IP-optimized network solutions, if
      any, and other advances in technologies and ultimately our results of operations
      and/or financial condition.





Acquisitions
      are inherently risky, and no assurance can be given that our previous or future
      acquisitions will be successful and will not materially adversely affect our
      business, operating results, or financial condition. Failure to manage and
      successfully integrate acquisitions could materially harm our business and
      operating results.





**Our
      use of the Credit Facility from Silicon Valley Bank presents certain
      risks.**





On
      August
      1, 2006, we and our wholly-owned subsidiary, Airspan Communications Limited,
      entered into a Loan and Security Agreement (the "Loan and Security Agreement")
      with Silicon Valley Bank ("SVB"), with respect to a revolving credit line.
      For
      the two year term of the credit line, we may, subject to certain adjustments,
      borrow up to the lesser of (i) $10,000,000 and (ii) 80% of eligible accounts
      receivable. We are currently using the credit line, and we expect to continue
      to
      use it in 2007. Although we believe the credit facility will increase our
      financial resources and financial flexibility, our use of the credit facility
      does present certain risks. Our ability to borrow under the credit facility
      is a
      function of, among other things, our base of eligible accounts receivable and
      the rate at which advances are made against eligible receivables (the "Advance
      Rate"). If the amount or quality of our accounts receivable deteriorates or
      the
      Advance Rate is adjusted downward, our ability to borrow under the credit
      facility will be directly, negatively affected. If there is a downward
      adjustment in the borrowing base at a time when we are unable to, within three
      business days, repay SVB the amount by which the borrowing base has been
      decreased, we will likely be in default under the Loan and Security Agreement.
      In addition, the credit facility requires us to satisfy certain financial
      covenants. As a result, we cannot provide any assurances that we will be able
      to
      borrow under the Loan and Security Agreement at a time when we most need money
      to fund working capital or other needs. The credit facility also contains
      various provisions that restrict our use of cash and operating flexibility.
      These provisions could have important consequences for us, including (i) causing
      us to use a portion of our cash flow from operations for debt repayment and/or
      service rather than other perceived needs, (ii) precluding us from incurring
      additional debt financing for future working capital or capital expenditures
      and
      (iii) impacting our ability to take advantage of significant, perceived business
      opportunities, such as acquisition opportunities or to react to market
      conditions. Our failure to meet financial and other covenants could give rise
      to
      a default under the Loan and Security Agreement. In the event of an uncured
      default, the Loan and Security Agreement provides that all amounts owed to
      SVB
      are immediately due and payable and that SVB has the right to enforce its
      security interest in our assets.


28





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





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





**If
      our stock price falls below $1.00 per share, our common stock may be de-listed
      from the NASDAQ Global Market.**





The
      National Association of Securities Dealers, Inc. has established certain
      standards for the continued listing of a security on the NASDAQ Global Market.
      These standards require, among other things, that the minimum bid price for
      a
      listed security be at least $1.00 per share. Under NASDAQ’s listing maintenance
      standards, if the closing bid price of our common stock remains below $1.00
      per
      share for 30 consecutive trading days, NASDAQ will issue a deficiency notice
      to
      us. If the closing bid price subsequently does not reach $1.00 per share or
      higher for a minimum of ten consecutive trading days during the 180 calendar
      days following the issuance of the deficiency notice from NASDAQ, NASDAQ may
      de-list our common stock from trading on the NASDAQ Global Market.





If
      our
      common stock is to be de-listed from the NASDAQ Global Market, we may apply
      to
      have our common stock listed on the NASDAQ Capital Market. In the event that
      such application is accepted, of which there can be no assurance, we anticipate
      the change in listings may result in a reduction in some or all of the
      following, each of which could have a material adverse effect on our investors:




·
            the
                liquidity of our common stock;




·
            the
                market price of our common stock;




·
            the
                number of institutional investors that will consider investing in
                our
                common stock;




·
            the
                number of investors in general that will consider investing in our
                common
                stock;




·
            the
                number of market makers in our common stock;




·
            the
                availability of information concerning the trading prices and volume
                of
                our common stock;




·
            the
                number of broker-dealers willing to execute trades in shares of our
                common
                stock; and




·
            our
                ability to obtain financing for the continuation of our operations.




Should
      our application to the NASDAQ Capital Market be rejected or if we fail to
      continue to satisfy the NASDAQ Capital Market’s continued listing requirements,
      our common stock could be delisted entirely or relegated to trading on the
      over-the-counter-market.




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





As
      of the
      date of this report, it is our understanding that Oak Investment Partners XI,
      Limited Partnership (“Oak”) owns all of the outstanding shares of the Company’s
      Series B Preferred Stock (the “Series B Shares”). Based upon our capitalization
      as of March 12, 2007, the Series B Shares are initially convertible into a
      total
      of approximately 33% of our common stock (assuming conversion of the Series
      B
      Shares, but without giving effect to the exercise or conversion of any other
      outstanding options, warrants or convertible securities) and, upon such
      conversion, would represent approximately 29% of the voting power
      outstanding.




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




29





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




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




**ITEM
      1B. UNRESOLVED STAFF COMMENTS**




None.




**ITEM
      2. PROPERTIES**




Our
      corporate headquarters are located in Boca Raton, Florida. This office consists
      of approximately 5,400 square feet of space leased pursuant to a lease that
      will
      expire in March 2011.




Our
      primary locations of operations and product development are in Uxbridge in
      the
      United Kingdom and in Airport City in Israel. In Uxbridge, we lease two
      facilities of approximately 17,000 and 12,000 square feet. These leases expire
      in 2010. In Israel we lease two facilities of approximately 13,800 and 10,300
      square feet. The leases for the Israeli facilities expire in July 2008 and
      December 2007, respectively.





**ITEM
      3. LEGAL PROCEEDINGS**





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





This
      action is being coordinated with approximately three hundred other nearly
      identical actions filed against other companies. On July 15, 2002, the Company
      moved to dismiss all claims against it and the Individual Defendants. On October
      9, 2002, the Court dismissed the Individual Defendants from the case without
      prejudice based upon Stipulations of Dismissal filed by the Plaintiffs and
      the
      Individual Defendants. This dismissal disposed of the Section 15 and 20(a)
      control person claims without prejudice, since these claims were asserted only
      against the Individual Defendants. On February 19, 2003, the Court dismissed
      the
      Section 10(b) claim against us, but allowed the Section 11 claim to proceed.
      On
      October 13, 2004, the Court certified a class in six of the approximately 300
      other nearly identical actions (the “focus cases”). In her Opinion, Judge
      Scheindlin noted that the decision is intended to provide strong guidance to
      all
      parties regarding class certification in the remaining cases. Judge Scheindlin
      determined that the class period for Section 11 claims is the period between
      the
      IPO and the date that unregistered shares entered the market. Judge Scheindlin
      also ruled that a proper class representative of a Section 11 class must (1)
      have purchased shares during the appropriate class period; and (2) have either
      sold the shares at a price below the offering price or held the shares until
      the
      time of suit. In two of the six cases, the class representatives did not meet
      the above criteria and therefore, the Section 11 cases were not certified.
      The
      Underwriter Defendants appealed the decision and the Second Circuit vacated
      the
      district court’s decision granting class certification in those six cases on
      December 5, 2006. Plaintiffs have not yet moved to certify a class in the
      Airspan case.




30





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.
      It is unclear what impact the Second Circuit’s decision vacating class
      certification in the six focus cases will have on the settlement, which has
      not
      yet been finally approved by the Court. On December 14, 2006, Judge Scheindlin
      held a hearing. Plaintiffs informed the Court that they planned to file a
      petition for rehearing and rehearing en banc. The Court stayed all proceedings,
      including a decision on final approval of the settlement and any amendments
      of
      the complaints, pending the Second Circuit’s decision on Plaintiffs’ petition
      for rehearing. Plaintiffs filed the petition for rehearing and rehearing en
      banc
      on January 5, 2007.





Among
      other provisions, the settlement, if it receives final approval by the Court,
      provides for a release of Airspan and the individual defendants for the conduct
      alleged in the action to be wrongful. Airspan would agree to undertake certain
      responsibilities, including agreeing to assign away, not assert, or release
      certain potential claims Airspan may have against its underwriters. The
      settlement agreement also provides a guaranteed recovery of $1 billion to
      Plaintiffs for the cases relating to all of the approximately 300 issuers.
      To
      the extent that the underwriter defendants settle all of the cases for at least
      $1 billion, no payment will be required under the issuers’ settlement agreement.
      To the extent that the underwriter defendants settle for less than $1 billion,
      the issuers are required to make up the difference. On April 20, 2006, JPMorgan
      Chase and the Plaintiffs reached a preliminary agreement to settle for $425
      million. The JPMorgan Chase preliminary agreement has not yet been approved
      by
      the Court. In an amendment to the issuers’ settlement agreement, the issuers’
insurers agreed that the JPMorgan preliminary agreement, if approved, would
      offset the insurers’ obligation to cover the remainder of Plaintiffs’ guaranteed
      $1 billion recovery by 50% of the value of the JP Morgan settlement, or $212.5
      million. Therefore, if the JP Morgan preliminary agreement to settle is
      preliminarily and then finally approved by the Court, then the maximum amount
      that the issuers’ insurers will be potentially liable for is $787.5 million.
      However, future settlements with other underwriters would further reduce that
      liability. It is unclear what impact the Second Circuit’s decision vacating
      class certification in the focus cases will have on the JP Morgan preliminary
      agreement.





It
      is
      anticipated that any potential financial obligation of Airspan to Plaintiffs
      pursuant to the terms of the issuers’ settlement agreement and related
      agreements will be covered by existing insurance. The Company currently is
      not
      aware of any material limitations on the expected recovery of any potential
      financial obligation to Plaintiffs from its insurance carriers. Its carriers
      are
      solvent, and the company is not aware of any uncertainties as to the legal
      sufficiency of an insurance claim with respect to any recovery by Plaintiffs.
      Therefore, we do not expect that the settlement will involve any payment by
      Airspan. If material limitations on the expected recovery of any potential
      financial obligation to the Plaintiffs from Airspan’s insurance carriers should
      arise, Airspan’s maximum financial obligation to Plaintiffs pursuant to the
      settlement agreement would be less than $3.4 million. However, if the JPMorgan
      Chase preliminary agreement is preliminarily and then finally approved,
      Airspan’s maximum financial obligation to the Plaintiffs pursuant to the
      settlement agreement would be approximately $2.7 million.





There
      is
      no assurance that the court will grant final approval to the issuers’
settlement. If the settlement agreement is not approved and Airspan is found
      liable, we are unable to estimate or predict the potential damages that might
      be
      awarded, whether such damages would be greater than Airspan’s insurance
      coverage, and whether such damages would have a material impact on our results
      of operations or financial condition in any future period.





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





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




None


31




**PART
      II**




**ITEM
      5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
      PURCHASES OF EQUITY SECURITIES**




Our
      common stock is traded on the NASDAQ Global Market under the symbol “AIRN”. The
      price range per share, reflected in the table below, is the highest and lowest
      sale price for our stock as reported by the NASDAQ Global Market during each
      quarter of the last two fiscal years.





**High**
            
            **Low****2006**Fourth
                quarter
            
            $
            3.90
            
            $
            2.61Third
                quarter
            
            
            3.17
            
            
            1.76Second
                quarter
            
            
            6.77
            
            
            2.42First
                quarter
            
            
            6.75
            
            
            5.39**2005**Fourth
                quarter
            
            $
            6.21
            
            $
            4.51Third
                quarter
            
            
            5.84
            
            
            4.53Second
                quarter
            
            
            6.02
            
            
            4.24First
                quarter
            
            
            5.54
            
            
            3.97





At
      March
      12, 2007 the price per share of our common stock was $3.81 and, based upon
      the
      number of record holders, we believe we had approximately 11,453 beneficial
      shareholders at that date.




**DIVIDENDS**




We
      have
      never paid any dividends on our common stock, and we do not anticipate paying
      cash dividends on our common stock in the foreseeable future. Pursuant to
      Washington law, we are prohibited from paying dividends or otherwise
      distributing funds to our shareholders, except out of legally available funds.
      The declaration and payment of dividends on our common stock and the amount
      thereof will be dependent upon our results of operations, financial condition,
      cash requirements, future prospects and other factors deemed relevant by the
      Board of Directors. No assurance can be given that we will pay any dividends
      on
      our common stock in the future.





In
      the
      third quarter 2006, we recognized a non-cash charge of $9.2 million for a deemed
      dividend to preferred stockholders associated with the beneficial
      conversion feature of the preferred stock issued in the third quarter 2004,
      comprised of $8.3 million related to the Series B Preferred Stock issued in
      respect of Oak’s exchange of its Series A Preferred Stock and $0.9 million
      related to the Series B Preferred Stock issued in respect of Oak’s cash
      investment.




**PERFORMANCE
      GRAPH**





The
      following graph compares the cumulative 5-year total return provided
      shareholders on Airspan Networks Inc.'s common stock relative to the cumulative
      total returns of the NASDAQ Composite index and the NASDAQ Telecommunications
      index. An investment of $100 (with reinvestment of all dividends) is assumed
      to
      have been made in our common stock and in each of the indexes on December 31,
      2001 and its relative performance is tracked through December 31, 2006.


32









**12/01**
            
            **12/02**
            
            **12/03**
            
            **12/04**
            
            **12/05**
            
            **12/06****Airspan
                Networks Inc.**
            
            
            **100.00**
            
            
            **34.04**
            
            
            **122.81**
            
            
            **190.53**
            
            
            **199.65**
            
            
            **129.82****NASDAQ
                Composite**
            
            
            **100.00**
            
            
            **69.66**
            
            
            **99.71**
            
            
            **113.79**
            
            
            **114.47**
            
            
            **124.20****NASDAQ
                Telecommunications**
            
            
            **100.00**
            
            
            **61.62**
            
            
            **110.79**
            
            
            **106.16**
            
            
            **100.63**
            
            
            **127.11**




*The
      stock price performance included in this graph is not necessarily indicative
      of
      future stock price performance.*




**RELATED
      SHAREHOLDER MATTERS**





**Recent
      Sales of Unregistered Securities**




Effective
      as of September 10, 2004, the Company entered into a Preferred Stock Purchase
      Agreement with Oak Investment Partners XI Limited Partnership ("Oak") pursuant
      to which the Company sold 73,000 shares of Series A Preferred Stock to Oak
      for
      $29,200,000. These shares of Series A Preferred Stock were initially convertible
      into 7.3 million shares of common stock. The transaction closed on September
      13,
      2004. The shares of Series A Preferred Stock were issued pursuant to the
      exemption from registration provided by Section 4(2) of the Securities Act
      of
      1933, as amended.


33





On
      September 25, 2006, the Company consummated the private sale (the "Private
      Placement") of 200,690 shares of Series B Preferred Stock (the "Shares") to
      Oak.
      Oak received 100,000 of the Shares in exchange for a $29
      million cash investment and 100,690 of the Shares in exchange for Oak's transfer
      to the Company of all 73,000 shares of Series A Preferred Stock held by Oak
      prior to the closing of the Private Placement, or 1.379 of the Shares for each
      share of Series A Preferred Stock transferred by Oak to the Company. The
      transaction closed on September 25, 2006. The shares of Series B Preferred
      Stock
      were issued pursuant to the exemption from registration provided by Section
      4(2)
      of the Securities Act of 1933, as amended. The Series B Preferred Stock is
      convertible into common stock at an initial conversion price of
      $2.90.





**ITEM
      6. SELECTED FINANCIAL DATA**




The
      following selected financial data should be read together with our consolidated
      financial statements and related notes and “Management’s Discussion and Analysis
      of Financial Condition and Results of Operations” included elsewhere in this
      report. The consolidated statement of operations data and balance sheet data
      for
      the years ended December 31, 2002 through 2006 are derived from our audited
      consolidated financial statements, which have been audited by the independent
      registered public accounting firms of Ernst & Young LLP for the fiscal years
      ended December 31, 2002 through 2004 and Grant Thornton LLP for the fiscal
      years
      ended December 31, 2005 and 2006 (in thousands, except for per share amounts).




**Year**
            
            **Year**
            
            **Year**
            
            **Year**
            
            **Year****ended**
            
            **ended**
            
            **ended**
            
            **ended**
            
            **ended****December
                31,**
            
            **December
                31,**
            
            **December
                31,**
            
            **December
                31,**
            
            **December
                31,****2002
                (1)**
            
            **2003
                (2)**
            
            **2004**
            
            **2005
                (3)(4)**
            
            **2006**(**in
                thousands)****Consolidated
                Statements of Operations Data:**Revenue
            
            $
            25,930
            
            $
            30,651
            
            $
            94,647
            
            $
            110,966
            
            $
            127,812Cost
                of revenue
            
            
            21,242
            
            
            27,691
            
            
            67,243
            
            
            79,467
            
            
            94,948Gross
                profit
            
            
            4,688
            
            
            2,960
            
            
            27,404
            
            
            31,499
            
            
            32,864Research
                and development
            
            
            13,642
            
            
            14,395
            
            
            18,794
            
            
            21,157
            
            
            24,797Sales
                and marketing, including bad debts
            
            
            13,821
            
            
            11,335
            
            
            11,562
            
            
            12,579
            
            
            19,460General
                and administrative
            
            
            8,969
            
            
            8,741
            
            
            11,042
            
            
            12,682
            
            
            16,039Amortization
                of intangibles
            
            
            44
            
            
            172
            
            
            723
            
            
            942
            
            
            1,060Restructuring
                provisions
            
            
            1,420
            
            
            750
            
            
            413
            
            
            1,150
            
            
            2,183Total
                operating expenses
            
            
            37,896
            
            
            35,393
            
            
            42,534
            
            
            48,510
            
            
            63,539Loss
                from operations
            
            
            -33,208
            
            
            -32,433
            
            
            -15,130
            
            
            -17,011
            
            
            -30,675Interest
                and other income, net
            
            
            2,208
            
            
            2,983
            
            
            3,217
            
            
            1,388
            
            
            1,227Loss
                before income taxes
            
            
            -31,000
            
            
            -29,450
            
            
            -11,913
            
            
            -15,623
            
            
            -29,448Income
                taxes (charge)/credit
            
            
            2,862
            
            
            -5
            
            
            1,938
            
            
            546
            
            
            246Net
                loss
            
            
            -28,138
            
            
            -29,455
            
            
            -9,975
            
            
            -15,077
            
            
            -29,202Deemed
                dividend associated with beneficial conversion of preferred stock
            
            
            -
            
            
            -
            
            
            -10,439
            
            
            -
            
            
            (9,179
            )Net
                loss attributable to common stockholders
            
            $
            -28,138
            
            $
            -29,455
            
            $
            -20,414
            
            $
            -15,077
            
            $
            -38,381Net
                loss attributable to common stockholders per share - basic and
                diluted
            
            $
            (0.80
            )
            $
            (0.84
            )
            $
            (0.56
            )
            $
            (0.39
            )
            $
            (0.96
            )Shares
                used to compute net loss attributable to common stockholders per
                share-basic and diluted
            
            
            35,258,645
            
            
            35,073,315
            
            
            36,441,932
            
            
            38,736,939
            
            
            40,026,411  34




**December
                31,**
            
            **December
                31,**
            
            **December
                31,**
            
            **December
                31,**
            
            **December
                31,****2002
                (1)**
            
            **2003
                (2)**
            
            **2004**
            
            **2005
                (3)(4)**
            
            **2006****Consolidated
                Balance Sheet Data:**
            
            **(in
                thousands)**Cash,
                cash equivalents and short-terminvestments
            
            $
            53,241
            
            $
            33,926
            
            $
            66,296
            
            $
            53,495
            
            $
            27,234Working
                capital
            
            
            71,647
            
            
            36,603
            
            
            65,476
            
            
            44,196
            
            
            47,422Total
                assets
            
            
            97,861
            
            
            83,272
            
            
            115,198
            
            
            120,452
            
            
            110,554Long-term
                debt
            
            
            -
            
            
            -
            
            
            -
            
            
            1,349
            
            
            1,707Stockholders'
                equity
            
            
            78,100
            
            
            49,013
            
            
            73,165
            
            
            64,611
            
            
            67,702




(1)
            On
                October 4, 2002 we acquired Airspan Israel and, accordingly, the
                Consolidated Statements of Operations for the years ended December
                31,
                2002-2006 include the results of operations of Airspan Israel from
                October
                4, 2002 to December 31, 2006 and the Consolidated Balance Sheets
                of
                December 31, 2002-2006 include the consolidated accounts of Airspan
                Israel.





(2)
            On
                December 23, 2003 we acquired the fixed wireless access business
                of Nortel
                Networks (“Proximity”) and, accordingly, the Consolidated Statements of
                Operations for the years ended December 31, 2003-2006 include the
                results
                of operations of Proximity from December 23, 2003 up to December
                31, 2006
                and the Consolidated Balance Sheets of December 31, 2003-2006 include
                the
                assets and liabilities related to Proximity.





(3)
            On
                June 16, 2005 we acquired ArelNet Ltd of Israel and, accordingly,
                the
                Consolidated Statements of Operations for the years ended December
                31,
                2005-2006 include the results of operations of ArelNet Ltd from June
                16,
                2005 up to December 31, 2006 and the Consolidated Balance Sheets
                of
                December 31, 2005-2006 include the consolidated accounts of ArelNet
                Ltd.





(4)
            On
                November 9, 2005, we acquired Radionet Oy, Ltd of Finland and,
                accordingly, the Consolidated Statements of Operations for the years
                ended
                December 31, 2005-2006 include the results of operations of Radionet
                Oy,
                Ltd from November 9, 2005 up to December 31, 2006 and the Consolidated
                Balance Sheets of December 31, 2005-2006 include the consolidated
                accounts
                of Radionet Oy, Ltd.




**ITEM
      7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS**





*The
      following discussion and analysis should be read in conjunction with our
      consolidated financial statements and the related notes included elsewhere
      in
      this report. See "Item 1A. RISK FACTORS" for further discussion of the most
      significant risks that affect our business, financial condition, results of
      operations and/or cash flows.*





**Overview**





Since
      1998 we have evolved from being the supplier of one line of broadband wireless
      access (“BWA”) equipment that utilized our proprietary technology to a supplier
      of a highly diversified suite of BWA equipment, including certain equipment
      that
      has been developed to conform with WiMAX and the WiFi standards. The
      diversification of our product portfolio has been the product of both internal
      research and development and targeted acquisitions. See "Item 1. BUSINESS -
      Business Overview."





As
      a
      result of the migration of telecommunications to platforms that operate using
      the Internet protocol, we expect that our BWA equipment designed to handle
      communications over the Internet will become increasingly important to us.
      Due
      to the projected popularity of technologies such as WiMAX and WiFi, we also
      anticipate that our AS.MAX and AS.NET products will become increasingly
      important to us. See "Item 1. BUSINESS - Migration of Telecommunications to
      IP
      Platforms", "- The Global Need for Broadband Access" and "- Industry Overview
      -
      General." Our AS.MAX and AS.NET products are designed to be inter-operable
      with
      any other equipment that is WiMAX or WiFi Certified, respectively. Accordingly,
      we believe these relatively new products will face certain opportunities and
      risks that our proprietary products did not encounter. See "Item 1. BUSINESS
      -
      The Global Need for Broadband Access", "Item 1A. RISK FACTORS - Our industry
      is
      subject to change as a result of emerging new technologies and industry
      standards" and "We operate in highly dynamic and volatile industries characterized
      by rapidly changing technologies, evolving industry standards, frequent new
      product introductions and short product life cycles."


35





The
      market for BWA equipment has been characterized by rapid technological
      developments and evolving industry standards. Our future success will therefore
      depend on our ability to adapt to these new standards and to successfully
      introduce new technologies that meet customer preferences. We anticipate that
      we
      will need to continue to devote considerable resources to research and
      development to maintain and/or improve upon our competitive position. See "Item
      1A. RISK FACTORS - Our industry is subject to change as a result of emerging
      new
      technologies and industry standards" and "We operate in highly dynamic and
      volatile industries characterized
      by rapidly changing technologies, evolving industry standards, frequent new
      product introductions and short product life cycles."





Since
      July 1, 2003, we have acquired three suppliers of BWA equipment. We intend
      to
      continue our strategy of expanding our business through, among other things,
      acquisitions of other businesses and technologies and joint ventures.
      Accordingly, we anticipate our future results of operation and financial
      condition may be directly or indirectly materially affected by our acquisition
      and joint venture effort. Acquisitions are inherently risky and our future
      growth may depend on our ability to successfully acquire, operate and integrate
      new businesses into our company. See "Item 1. BUSINESS - Business Overview"
      and
      "Item 1A. RISK FACTORS - We have made, and may continue to make, strategic
      acquisitions...."





Our
      revenue has increased from $94.6 million in 2004 and $111.0 million in 2005
      to
      $127.8 million in 2006. We have incurred net losses attributable to common
      stockholders of $20.4 million, $15.1 million and $38.4 million in 2004, 2005
      and
      2006, respectively. Since becoming an independent company, we have generated
      significant net losses and negative cash flow. We expect our cash flow to be
      negative in 2007, but we also expect that our net losses will decline relative
      to 2006. We had an accumulated deficit of $241.0 million as of December 31,
      2006.




We
      generate revenue from sales of our systems and from services related to
      implementation and support activities. Revenue from services in 2006 continued
      to be under 10% of our total revenue. See “Critical Accounting Policies and
      Estimates” below for a discussion of our revenue recognition
      policies.




Customer
      service contracts are generally of a short to medium term in nature, mostly
      for
      days and weeks, with a small number extending beyond a year. With larger
      customers, we may agree in specific contracts to provide technical support
      and
      repair and maintenance services for longer periods, such as in the case of
      the
      agreement with Yozan, where we have agreed to provide such services for a period
      of eight years. Otherwise, service contracts are typically sold separately
      from
      sales of our systems and typically provide services other than what is included
      in the basic warranty.





We
      sell
      our products primarily through our direct sales force and, to a lesser extent,
      through distribution channels. We also sell through independent agents and
      resellers in markets where we do not have a direct sales presence and to OEMs,
      who may sell our products under their name. Our sales cycle is typically long
      and unpredictable and typically varies from one month to two years, often
      involving extensive testing and evaluation by prospective customers, which
      makes
      it difficult for us to anticipate the quarter in which particular sales may
      occur.




Our
      top
      ten customers accounted for 72%, 71% and 82% of our total revenue in 2006,
      2005
      and 2004, respectively.




We
      expect
      to continue to derive a substantial percentage of our revenue from fewer than
      ten customers. In
      the
      years ended December 31, 2006 and December 31, 2005, Axtel represented
      approximately 26% and 56%, respectively, of our revenue. In
      the
      years ended December 31, 2006 and December 31, 2005, Yozan represented
      approximately 19% and 0%, respectively, of our revenue. We anticipate that
      our
      dependence on our ten largest customers will continue in 2007, primarily due
      to
      our projected sales of ASMAX and Proximity solutions to Axtel, although we
      expect sales to Axtel to continue to decline as a percentage of revenues. See
      "Item 1A. RISK FACTORS - We currently depend on a few key
      customers....".




Our
      non-U.S. sales accounted for 92%, 93% and 97% of our total revenue in 2006,
      2005
      and 2004, respectively. The following table identifies the percentage of our
      revenue by customer geographic region in the periods identified.




36





**Percentage
                of Revenue****Years
                ended December 31,****Geographic
                Area**
            
            **2004**
            
            **2005**
            
            **2006**United
                States
            
            
            3.2
            
            
            7.0
            
            
            7.7Asia
                Pacific
            
            
            8.5
            
            
            10.3
            
            
            30.2Europe
            
            
            11.8
            
            
            12.9
            
            
            18.7Africa
                and Middle East
            
            
            2.0
            
            
            4.7
            
            
            3.6South
                and Central America and the Caribbean
            
            
            74.5
            
            
            65.1
            
            
            39.8Total
            
            
            100.0
            %
            
            100.0
            %
            
            100.0
            %





While
      we
      expect that sales to Axtel will still comprise a large percentage of our
      revenues for 2007, we anticipate that the percentage of our sales to Axtel
      and
      Yozan will continue to decrease in 2007 and it is not expected that either
      one
      will exceed 25%. It is expected that our sales to Europe and the Asia Pacific
      region will continue to increase.





For
      further information on our business and geographic segments, see Note 12 to
      the
      Consolidated Financial Statements.





Cost
      of
      revenue consists of component and material costs, direct labor costs, warranty
      costs, royalties, overhead related to manufacture of our products and customer
      support costs. Our gross margin is affected by changes in our product mix both
      because our gross margin on base stations and related equipment is higher than
      the gross margin on subscriber terminals, and because our different product
      lines generate different margins. In addition, our gross margin is affected
      by
      changes in the average selling price of our systems, volume discounts granted
      to
      significant customers and the proportion of total revenue from the sale of
      software, which typically carries a higher gross margin than hardware. We expect
      the average selling prices of our products to decline and we intend to continue
      to implement product cost reductions and develop and introduce new products
      or
      product enhancements in an effort to maintain or increase our gross margins.
      Further, we expect to derive an increasing proportion of our revenue from the
      sale of our integrated systems through distribution channels. Revenue derived
      from these sales channels typically carries a lower gross margin than direct
      sales.





Research
      and development expenses consist primarily of salaries and related costs for
      personnel and expenses for design, development, testing facilities and equipment
      depreciation. These expenses also include costs associated with product
      development efforts, including consulting fees and prototyping costs from
      initial product concept to manufacture and production as well as sub-contracted
      development work. We expect to continue to make substantial investments in
      research and development.





Sales
      and
      marketing expenses consist of salaries and related costs for personnel, sales
      commissions, consulting and agent’s fees and expenses for advertising, travel,
      technical assistance, trade shows, and promotional and demonstration materials.
      We expect to continue to incur substantial expenditures related to sales and
      marketing activities including costs associated with the recruitment of
      additional sales and marketing personnel and the expansion of our distribution
      channels.





General
      and administrative expenses consist primarily of salaries and related expenses
      for our personnel, audit, professional and consulting fees and facilities costs.





To
      date
      inflation has not had a material impact on the Company's business.





**Critical
      Accounting Policies and Estimates**





The
      discussion and analysis of our financial condition and results of operations
      is
      based upon our Consolidated Financial Statements, which have been prepared
      in
      accordance with accounting principles generally accepted in the United States.
      The preparation of these financial statements requires us to make estimates
      and
      assumptions that affect the reported amounts of assets and liabilities, the
      disclosure of contingent liabilities at the date of the financial statements
      and
      the reported amounts of revenues and expenses during the reporting period.
      On an
      on-going basis, we evaluate the effectiveness of our estimates and judgments,
      including those related to: revenue recognition; allowance for doubtful
      accounts, inventory reserves; warranty reserve; restructuring costs; purchase
      accounting, valuation of goodwill and other intangibles; income taxes;
      derivative instruments; and legal proceedings. With the adoption of FASB
      Statement No. 123R, *Share-Based
      Payment* ("SFAS
      123R") in the first quarter of 2006, equity compensation involved critical
      accounting policies and estimates.





We
      base
      our estimates and judgments on historical experience and on various other
      factors that we believe to be reasonable under the circumstances, the results
      of
      which form the basis for making judgments about the carrying values of assets
      and liabilities that are not readily apparent from other sources. Actual results
      may differ from these estimates under different assumptions or conditions and
      may change as future events occur.




37





We
      believe the following critical accounting policies are dependant on significant
      judgments and estimates used in the preparation of our consolidated financial
      statements.




*Revenue
      recognition*




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




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





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





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





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





·
            persuasive
                evidence of an arrangement with a customer exists;





·
            delivery
                has occurred or services have been rendered;





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





·
            collection
                of the receivable is reasonably
                assured.





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





The
      following are our specific revenue recognition policies:





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





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




*Extended
        Payment Terms* :
        We
        provide extended payment terms to certain customers. For these customers,
        the
        agreement is considered to have a price that is fixed or determinable if
        the
        Company has the intent and ability to fully collect from the customer under
        these terms without making additional concessions.  We assess our ability
        to collect without further concessions by considering the Company’s history of
        successfully collecting from the customer under the original payment
        terms.  Alternatively, or in addition, we consider the current and expected
        creditworthiness of the customer and the payment terms in relation to the
        expected useful and technological life of the product.  If it is expected,
        at the outset of the arrangement, that concessions will be required in the
        future in order to collect, the agreement is not considered to have a price
        that
        is fixed or determinable.  In such cases, revenue for delivered products is
        generally deferred until the fees become legally due and payable. In certain
        cases where there have previously been collection issues, revenue is recognized
        as cash is collected. Therefore, estimates and judgment in this area can
        impact
        the timing of revenue recognition.


38





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





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





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





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




*Allowance
      for doubtful accounts*




We
      are
      required to assess the collectibility of our accounts receivable balances.
      A
      considerable amount of judgment is required in assessing the ultimate
      realization of these receivables including, but not limited to, the current
      creditworthiness of each customer. Significant changes in required reserves
      have
      been recorded in recent periods to reflect our current judgment, and changes
      may
      occur in the future due to the market environment. Should we consider it
      necessary to increase the level of reserves required for a particular customer
      or customers, then additional charges will be recorded in the
      future.




39





*Inventory
      reserves*




We
      value
      inventory at the lower of cost or market value. As a result, we exercise
      judgment as to the level of provisions required for excess and obsolete
      inventory. These judgments are based on our assumptions about future demand
      and
      market conditions. During recent periods we have made provisions against
      inventory reflecting the decline in our expectations of the demand for certain
      of our products. Should we decide in the future that actual market conditions
      have become less favorable, or should our assumptions change due to market
      conditions, additional inventory provisions may be required.




*Warranty
      reserves*




Typically
      our products are covered by a warranty for periods ranging from one to two
      years. In a limited number of cases, warranties extend beyond two years. We
      accrue a warranty reserve for estimated costs to provide warranty services.
      Our
      estimate of costs required to fulfill our warranty obligations is based on
      historical experience and expectation of future conditions, as well as
      back-to-back warranty coverage that we have with our contract manufacturers.
      To
      the extent we experience increased warranty claim activity, increased costs
      or
      our assessment of future conditions change, our warranty accrual will increase,
      which will result in decreased gross profit.




*Restructuring
      costs*




During
      2004, 2005 and 2006 we recorded restructuring charges arising from our
      cost-reduction programs and established reserves which include estimates
      pertaining to employee termination costs, the loss on subletting excess
      facilities, and the write down of assets to be disposed of as part of the
      restructuring. When providing for restructuring charges we make estimates as
      to
      the expected costs to be incurred. Estimates of future income from sub-letting
      excess facilities are made that offset expected future costs. Although we do
      not
      anticipate significant changes, the actual costs may differ from the amount
      of
      the reserves.




*Purchase
      accounting*




In
      connection with acquisitions, we assess the fair value of assets acquired and
      liabilities assumed. Items such as accounts receivable, inventories, fixed
      assets, intangible assets and accrued liabilities require a high degree of
      judgment involving assumptions and estimates including future cash flows and
      discount rates. In certain situations, where we deem necessary, we may use
      third
      parties to assist us with such valuations. We used the purchase method of
      accounting for our acquisitions, for which adjustments are made to the initial
      purchase price allocation for up to a year from the acquisition date. The
      purchase price allocation for the Arelnet acquisition was finalized in 2005,
      and
      amounts recorded for the Radionet acquisition were finalized in 2006. See Note
      2
      to the Consolidated Financial Statements for further information.





*Valuation
      of goodwill and other intangible assets*





In
      accordance with Statement of Financial Accounting Standards No. 142, *Goodwill
      and Other Intangible Assets* ( “SFAS
      No.
      142”), and
      Statement of Financial Accounting Standards No. 144, *Accounting
      for the Impairment or Disposal of Long-Lived Assets* , (“SFAS
      No. 144”) ,
      we
      performed our annual goodwill impairment review and the review of long-lived
      assets for impairment during the fourth quarter of 2006. The result of these
      reviews determined that no impairment of goodwill or other intangible or
      long-lived assets needed to be recorded during the year ended December 31,
      2006.
      In these reviews, we may make various assumptions regarding estimated future
      cash flows and other factors to determine the fair value of goodwill and other
      intangible and long-lived assets. If these estimates or related assumptions
      change in the future, we may be required to record an impairment charge that
      would adversely affect our results.




*Income
      taxes*




Research
      and development tax credits: During 2004, 2005 and 2006, we recorded tax credits
      relating to research and development expenditures in the United Kingdom for
      the
      amount we expect to realize. See Note 3 to the Consolidated Financial Statements
      for further information. The Inland Revenue has the right to audit claims made
      for research and development tax credits and, until the authorities have
      approved the claims, there is potential uncertainty as to whether the final
      claim will be accepted. It is therefore possible that we may ultimately realize
      more or less than the amount of credit that has been accrued in the financial
      statements at December 31, 2006.




Deferred
      taxes: We record a valuation allowance to reduce our deferred tax assets. As
      at
      December 31, 2006, we recorded a 100% valuation allowance, effectively writing
      down our deferred tax assets to zero. We consider our future taxable income
      and
      prudent tax planning strategies to determine whether our valuation allowance
      is
      appropriate. The main factors we consider are our cumulative losses in recent
      years, our net loss for the current period and our future earnings potential
      determined through the use of internal forecasts.




40





Other
      taxes: We are subject to local taxes in each country that we have a permanent
      establishment or other taxable presence. We make estimates of our potential
      liability to tax in these jurisdictions, which estimates are subject to
      examination by the local tax authorities.





*Derivative
      instruments*




We
      are
      subject to fluctuations in the exchange rates of certain currencies to the
      U.S.
      dollar, particularly U.K. pounds sterling and New Israeli Shekels. From time
      to
      time, we have entered into forward exchange contracts as a cash flow hedge
      of a
      portion of our pounds sterling operating expenses, primarily salary and facility
      lease expenses. We make assumptions with respect to the amount and timing of
      entering into these contracts and the number of periods that we hedge, and
      we
      consider the value of our foreign currency obligations and the forecasted
      exchange rate. Should the spot rate at the maturity of the contract be more
      favorable than the forward rate, we would incur an economic loss on that
      particular contract since we would pay more for the foreign currency than we
      would have without the contract. (See "ITEM 7A. QUANTITATIVE AND QUALITATIVE
      DISCLOSURES ABOUT MARKET RISK").





*Legal
      proceedings*




We
      are
      subject to class action complaints related to alleged false and misleading
      information in the Registration Statement and Prospectus used in July 19, 2000
      (See “ ITEM 3. LEGAL
      PROCEEDINGS ”),
      and
      we may also face litigation for labor and other matters. We are required to
      assess the likelihood of adverse judgments or outcomes to these matters as
      well
      as potential ranges of probable losses. A determination of the amount of
      reserves required, if any, for these contingencies are made after careful
      analysis of each individual issue. The required reserves may change in the
      future due to changes in circumstances within each case.





*New
        accounting pronouncements*


Prior
      to
      January 1, 2006, we accounted for awards issued under these plans under the
      recognition and measurement principles of Accounting Principles Board (“APB”)
      Opinion No. 25, “Accounting for Stock Issued to Employees”, and related
      interpretations. In all periods shown prior to January 1, 2006, we valued
      stock-based employee compensation using the intrinsic value method. In December
      2004, the Financial Accounting Standards Board (“FASB”) issued Statement No.
      123R, Share-Based Payment (“SFAS 123R”). This Statement eliminates the use of
      the intrinsic value method described in APB Opinion No. 25, and requires an
      entity to measure the cost of employee services received in exchange for an
      award of equity instruments based on the grant-date fair value of the award.
      That cost will be recognized over the period during which an employee is
      required to provide service in exchange for the award. We adopted SFAS 123R
      as
      of January 1, 2006, using the modified prospective transition method. Our
      consolidated financial statements for 2006 reflect the impact of SFAS 123R.
      The
      consolidated financial statements for prior periods have not been restated
      to
      reflect, and do not include, the impact of SFAS 123R. The adoption of this
      statement has resulted in higher reported operating expenses for 2006 and will
      result in higher reported operating expenses in our future financial statements.
      Share-based compensation expense recognized under SFAS 123R for 2006 was $2.5
      million.





The
      following table summarizes share-based compensation expense under SFAS 123R
      for
      the year ended December 31, 2006




Research
                and development
            
            $
            688Sales
                and marketing
            
            
            818General
                and administrative
            
            
            971Stock-based
                compensation expense included in operating expense
            
            
            2,477Cost
                of sales
            
            
            34Total
                stock-based compensation
            
            $
            2,511





In
      June
      2006, the Financial Accounting Standards Board (“FASB”) issued FASB
      Interpretation Number 48 (“FIN 48”), “Accounting for Uncertainty in Income Taxes
      - an interpretation of FASB Statement No. 109.” The interpretation contains a
      two step approach to recognizing and measuring uncertain tax positions accounted
      for in accordance with SFAS No. 109. The first step is to evaluate the tax
      position for recognition by determining if the weight of available evidence
      indicates it is more likely than not that the position will be sustained on
      audit, including resolution of related appeals or litigation processes, if
      any.
      The second step is to measure the tax benefit as the largest amount which is
      more than 50% likely of being realized upon ultimate settlement. The
      interpretation is effective for us in the first quarter of 2007. The Company
      has
      assessed the impact of the adoption of FIN 48, and it does not expect that
      FIN
      48 will have a material impact on its financial position or results of
      operations.




41





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





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





**Results
      of Operations**





The
      following table provides operating data as a percentage of revenue for the
      periods presented.




**Years
                ended December 31,****2004**
            
            **2005**
            
            **2006****%**
            
            **%**
            
            **%**Revenue
            
            
            100.0
            %
            
            100.0
            %
            
            100.0
            %Cost
                of revenue
            
            
            71.0
            %
            
            71.6
            %
            
            74.3
            %Gross
                profit
            
            
            29.0
            %
            
            28.4
            %
            
            25.7
            %Operating
                expenses:Research
                and development
            
            
            19.9
            %
            
            19.1
            %
            
            19.4
            %Sales
                and marketing
            
            
            11.6
            %
            
            10.3
            %
            
            13.5
            %Bad
                debt
            
            
            0.6
            %
            
            1.0
            %
            
            1.8
            %General
                and administrative
            
            
            11.7
            %
            
            11.4
            %
            
            12.6
            %Amortization
                of intangibles
            
            
            0.8
            %
            
            0.8
            %
            
            0.8
            %Restructuring
                provision
            
            
            0.4
            %
            
            1.0
            %
            
            1.7
            %Total
                operating expenses
            
            
            45.0
            %
            
            43.7
            %
            
            49.7
            %Loss
                from operations
            
            
            -16.0
            %
            
            -15.3
            %
            
            -24.0
            %Interest
                and other income, net
            
            
            3.5
            %
            
            1.3
            %
            
            1.0
            %Income
                taxes
            
            
            2.0
            %
            
            -0.5
            %
            
            0.2
            %Net
                loss
            
            
            -10.5
            %
            
            -13.6
            %
            
            -22.9
            %Deemed
                dividend associated with beneficial conversionof
                preferred stock
            
            
            -11.0
            %
            
            0.0
            %
            
            -7.2
            %Net
                loss attributable common stockholders
            
            
            -21.6
            %
            
            -13.6
            %
            
            -30.0
            %




**Restructuring**




We
      have
      initiated six restructuring programs over the last five years to reduce our
      operating expenses. The first of these was initiated in the third quarter of
      2002. 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. A total of 19 employees were terminated as part of this program and
      all severance payments were made by the end of the second quarter of 2003.




42




In
      the
      second quarter of 2003, an additional restructuring program was initiated to
      further lower operating expenses. The cost incurred as part of this program
      was
      $0.3 million arising from costs associated with facility closures and severance.
      A total of 30 employees were terminated as part of this program and all
      severance payments were made by December 31, 2003.




During
      the first quarter of 2004 we revised our 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 related to termination costs for
      21
      employees. All of these employees had left the Company by December 31,
      2004.




In
      conjunction with the purchase of the Proximity business in 2003 the Company
      implemented its plan to relocate the Proximity business from Maidenhead, England
      and Sunrise, Florida to the Company’s facilities in Uxbridge, England and Boca
      Raton, Florida, respectively. 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 accrued relocation
      costs were reduced during 2004 to $0.2 million. The adjustment formed part
      of
      the revised fair value adjustments of the Proximity acquisition. This relocation
      plan was completed by December 31, 2004.




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




In
      the
      third quarter of 2006, the Company commenced a company-wide restructuring
      program to reduce operating expenses. In 2006, the Company recorded
      restructuring charges of $2.2 million, to reflect the total cost of this
      restructuring program. The cost reduction will be accomplished primarily as
      a
      result of reductions in worldwide headcount. The restructuring resulted in
      direct cash outlays in the third and fourth quarters of 2006, and the Company
      expects to incur $0.4 million of cash outlays in the first quarter of 2007
      related to amounts accrued in 2006. Once the program is completed, the Company
      projects it will be able to realize annual cost savings of approximately $7-8
      million relative to the cost structure that existed at the end of the second
      quarter of 2006. Despite the Company’s efforts to prepare reliable projections,
      it recognizes that forecasts may prove to be imprecise due to unforeseen events,
      including unanticipated expenses or difficulties associated with reducing its
      workforce, requiring retained staff members to assume additional
      responsibilities and/or reorganizing its operations to more cost efficiently
      produce a given level of product revenue.





The
      restructuring charges and their utilization are summarized as
      follows:




**Balance
                at**
            
            
            
            **Accrued**
            
            
            
            **Balance
                at****Beginning**
            
            **Restructuring**
            
            **on**
            
            
            
            **End**All
                amounts in thousands of U.S.$'s
            
            **of
                Period**
            
            **Charge**
            
            **Acquisition**
            
            **Utilized**
            
            **of
                Period****Year
                ended December 31, 2006**One
                time termination benefits
            
            $
            -
            
            $
            2,183
            
            $
            -
            
            $
            (1,808
            )
            $
            375Contract
                termination costs
            
            
            1,436
            
            
            163
            
            
            -
            
            
            (162
            )
            
            1,437Other
                associated costs
            
            
            50
            
            
            
            
            
            -
            
            
            
            
            
            50$
            1,486
            
            $
            2,346
            
            $
            -
            
            $
            (1,970
            )
            $
            1,862**Year
                ended December 31, 2005**One
                time termination benefits
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            -Contract
                termination costs
            
            
            599
            
            
            1,150
            
            
            -
            
            
            (313
            )
            
            1,436Other
                associated costs
            
            
            61
            
            
            -
            
            
            -
            
            
            (11
            )
            
            50$
            660
            
            $
            1,150
            
            $
            -
            
            $
            (324
            )
            $
            1,486**Year
                ended December 31, 2004**One
                time termination benefits
            
            $
            -
            
            $
            413
            
            $
            -
            
            $
            (413
            )
            $
            -Contract
                termination costs
            
            
            947
            
            
            -
            
            
            -
            
            
            (348
            )
            
            599Other
                associated costs
            
            
            592
            
            
            -
            
            
            (339
            )
            
            (192
            )
            
            61$
            1,539
            
            $
            413
            
            $
            (339
            )
            $
            (953
            )
            $
            660




43





**Comparison
      of the Year Ended December 31, 2006 to the Year Ended December 31,
      2005**





*Revenue*





Revenue
      increased 15% from $111.0 million for the year ended December 31, 2005 to $127.8
      million for the year ended December 31, 2006. The $16.8 million increase in
      revenue is primarily attributable to:




·
            the
                first full year of sales of our WiMAX and AS.NET products, which
                accounted
                for approximately 38% of 2006 revenues. In 2006 we made deliveries
                of
                WiMAX systems to more than 110 customers in more than
                50 countries; and




·
            the
                continued growth in sales of our WipLL products, which comprised
                approximately 25% of revenues in 2006.




Growth
      in
      revenues from WiMAX, WipLL and AS.NET products more than offset significant
      declines in sales of Proximity and ASX products. The growth in 2006 was
      attributable to a number of important contracts signed or fulfilled in 2006.
      They included deliveries of WiMAX products to Yozan in Japan, Deutsche Breitband
      Dienste in Germany, Pipex Wireless in the United Kingdom, MetroMAX in Samara,
      Russia, and SOGETEL in Canada. Tulip IT continued to deploy its WipLL network
      in
      India. Other customers like Last Mile Broadband in Ireland purchased both WipLL
      and WiMAX products for their networks.




In
      2006
      we were less reliant on Axtel, as expected, and our Proximity product line
      as
      our major source of revenues. Axtel comprised approximately 26% of revenues,
      down substantially from 57% in 2005. While we project that a significant amount
      of our revenues in 2007 will come from a limited number of customers, we do
      not
      currently expect any one customer to account for more than 30% of the total
      in
      2007. See “Item 1A. RISK
      FACTORS —
We
      currently depend on a few key customers....”





Geographically,
      in 2006, approximately 30% of our revenue was derived from customers in Asia,
      40% from customers in Mexico, Latin America and the Caribbean, and 18% from
      customers in Europe. Customers in the United States and Canada, and Africa
      and
      the Middle East accounted for approximately 8% and 4% of revenues,
      respectively.





*Cost
      of Revenue and Inventory Provision*





Cost
      of
      revenue increased 19% from $79.5 million in the year ended December 31, 2005
      to
      $94.9 million in the year ended December 31, 2006. This increase was due
      primarily to the increase in revenue. As a percentage of revenue, our cost
      of
      revenue was 71.6% in 2005 and 74.3% in 2006.





Cost
      of
      revenue for fiscal 2006 included inventory provisions of $5.1 million, of which
      $3.1 million related to a net charge under the Yozan contract. This charge
      for
      Yozan reflects our estimate of the probable amount of excess inventories and
      purchase commitments (net of amounts that are cancellable), based on the
      expected deliveries to Yozan under the amended supply contract. Cost of revenue
      in 2005 included inventory provisions of $1.1 million, of which $0.5 million
      represented a write-off in the fourth quarter of 2005 in connection with
      inventory shortages that were identified in the physical inventory count at
      our
      Israeli subsidiary.





Gross
      margin was 26%% for the 2006 fiscal year versus 28% in 2005. During 2006, the
      gross margins from the increased sales of higher-margin WipLL, WiMAX and AS.NET
      products were adversely offset by the Yozan inventory provision described above.
      Gross margins were also adversely affected in 2006 by increased freight and
      warranty expenses, which grew as a result of the change in mix of products
      sold.
      A decline in sales of Proximity, most of which is delivered at the production
      site to customers, and which has very low warranty costs given the maturity
      and
      stability of the platform, was offset by increased sales of WipLL and WiMAX
      products, which were shipped in 2006 from the United Kingdom and Israel to
      all
      parts of the world. We also incurred higher warranty expenses on the new WiMAX
      product line, because the product has not yet achieved the stability of other
      more mature products we sell. We do expect to see an improvement, however,
      in
      warranty costs with the proposed move by the end of the second half of 2007
      of
      WiMAX manufacturing from the United Kingdom to Mexico, where we expect to
      receive more favorable back-to-back warranty terms from our contract
      manufacturer, as well as a reduction from the product becoming more
      mature.


44





*Research
      and Development Expenses*





Research
      and development expenses increased 17% from $21.2 million in
      the
      year ended December 31, 2005 to $24.8
      million in the year ended December 31, 2006. The increase was primarily due
      to
      the additional research and development expenses we incurred in connection
      with
      the introduction of our new WiMAX products, and to costs incurred by ArelNet
      and
      Radionet, which were acquired in June 2005 and November 2005, respectively.
      In
      2007, we expect to continue to incur significant research and development costs
      related to our WiMAX development, particularly as we introduce new WiMAX
      products that meet the 802.16e WiMAX mobility standard. We expect to offset
      some
      of the increase by reducing or eliminating development spending on our non-WiMAX
      product lines. We expect research and development administrative expenses to
      decrease slightly in 2007.





*Sales
      and Marketing Expenses*





Sales
      and
      marketing expenses increased 50% from $11.5 million in the year ended December
      31, 2005 to $17.2 million in the year ended December 31, 2006. The increase
      in
      sales and marketing expenses is related to product marketing, commissions,
      trade
      shows and travel, largely attributable to introduction of our new WiMAX
      products. We expect sales and marketing expenses to decrease in
      2007.





*Bad
      Debt Expense*





During
      2005 and 2006, we wrote down receivables by $1.1 million and $2.3 million,
      respectively. The increase in write downs in 2006 were due primarily to our
      concerns with our ability to collect payments from certain customers in South
      and Central America.





*General
      and Administrative Expenses*





General
      and administrative expenses increased 26% from $12.7 million in the year ended
      December 31, 2005 to $16.0 million in the year ended December 31, 2006. The
      increase in general and administrative expenses was primarily the result of
      additional payroll costs arising from our acquisitions of ArelNet and Radionet,
      and to additional fees incurred in connection with our audit and compliance
      with
      requirements of the Sarbanes-Oxley Act. We expect general and administrative
      expenses to remain at approximately the same level in 2007.





*Amortization
      of Intangibles*





Amortization
      of intangibles expense increased 13% from $0.9 million in the year ended
      December 31, 2005 to $1.1 million in the year ended December 31, 2006. The
      increase resulted from the full-year charge for the amortization of intangibles
      acquired from ArelNet and Radionet in 2005.





*Restructuring
      Provision*





During
      the second quarter of 2005, the Company recorded an additional restructuring
      charge of $1.2 million for costs related to certain facility charges in respect
      of buildings in the U.K. In the third quarter of 2006, the Company commenced
      a
      company-wide restructuring program to reduce operating expenses. As a result,
      in
      2006 the Company recorded restructuring charges of $2.2 million, to reflect
      the
      total cost of this restructuring program. The cost reduction will be
      accomplished primarily as a result of reduction in worldwide headcount.





For
      more
      information regarding our restructuring programs, see “Restructuring” above.





*Interest
      Income/Expense and Other Income, Net*





Interest
      income/expense and other income, which decreased 12% from $1.4 million in the
      year ended December 31, 2005 to $1.2 million for the year ended December 31,
      2006, consisted of gains and losses on foreign currency cash balances and
      foreign exchange hedging contracts and interest earned on cash deposits with
      financial institutions, offset by interest paid and accrued on loans to the
      Company from TEKES Finland and Silicon Valley Bank. Higher interest rates earned
      on our investments were offset by increased interest expense on our debt and
      lower average cash balances.


45





*Income
      Taxes*




A
      net
      income tax credit of $0.2 million was recorded in the year ended December 31,
      2006, compared to a credit of $0.5 million recorded in the year ended December
      31, 2005. This tax credit was obtained from the U.K. tax authorities in lieu
      of
      carrying forward tax losses related to certain qualifying research and
      development costs. The tax credit recorded in 2005 and 2006 was partially offset
      by $21 thousand and $63 thousand, respectively, of tax charges relating to
      certain of our foreign branches and subsidiaries. As of 2005, we are no longer
      eligible to receive tax credits from the U.K. taxing authorities in lieu of
      our
      carry-forward of tax losses. No other income tax benefit has been recorded
      for
      the tax losses generated because we have incurred operating losses since
      inception.




*Deemed
      Dividend to Preferred Stockholders Associated With Beneficial Conversion of
      Preferred Stock*





In
      the
      third quarter 2006, we recognized a non-cash charge of $9.2 million for a deemed
      dividend to preferred stockholders associated with the beneficial conversion
      feature of the preferred stock issued in the third quarter 2004, comprised
      of
      $8.3 million related to the Series B Preferred Stock issued in respect of Oak’s
      exchange of its Series A Preferred Stock and $0.9 million related to the Series
      B Preferred Stock issued in respect of Oak’s cash investment. There was no
      similar expense in 2005.





*Net
      Loss Attributable to Common Stockholders*





For
      the
      reasons described above, our net loss before taxes increased 88% from $15.6
      million in 2005 to $29.4 million in 2006, and our net loss attributable to
      common stockholders increased 154% from $15.1 million in 2005 to $38.4 million
      in 2006.




**Comparison
      of the Year Ended December 31, 2005 to the Year Ended December 31,
      2004**





*Revenue*




Revenue
      increased 17% from $94.6 million for the year ended December 31, 2004 to $111.0
      million for the year ended December 31, 2005. The $16.4 million increase in
      revenue is primarily attributable to the:




·
            introduction
                of our WiMAX products; and




·
            more
                than 100% increase in sales of our WipLL products.




Sales
      of
      our WiMAX and WipLL products constituted 4.5% and 23%, respectively, of our
      revenue during fiscal 2005.




*Cost
      of Revenue and Inventory Provision*




Cost
      of
      revenue increased 18% from $67.2 million in the year ended December 31, 2004
      to
      $79.5 million in the year ended December 31, 2005. This increase was due
      primarily to the increase in revenue. As a percentage of revenue, our cost
      of
      revenue was 71.0% in 2004 and 71.6% in 2005. Cost of revenue for fiscal 2005
      includes an approximate $0.5 million write-off in the fourth quarter of 2005
      in
      connection with inventory shortages that were identified in the physical
      inventory count at our Israeli subsidiary. Cost of revenue for fiscal 2004
      included a $1.1 million write-off of inventory, primarily due to a reduction
      in
      demand for AS4000 equipment.





Gross
      margin was 28% in 2005 versus 29% for the 2004 fiscal year. During 2005, our
      increased sale of higher margin products, including our new WiMAX products
      and
      our WipLL products, was offset by the reduction in the selling prices of our
      Proximity products and the write-off of approximately $0.5 million of
      inventory.




*Research
      and Development Expenses*




Research
      and development expenses increased 13% from $18.8 million in the year ended
      December 31, 2004 to $21.2 million in the year ended December 31, 2005. The
      increase was primarily due to the additional research and development expenses
      we incurred in connection with the introduction of our new WiMAX products and
      costs incurred by ArelNet, which was acquired during 2005.





*Sales
      and Marketing Expenses*





Sales
      and
      marketing expenses increased 4% from $11.0 million in the year ended December
      31, 2004 to $11.5 million in the year ended December 31, 2005. The increase
      in
      sales and marketing expenses is primarily attributable to the payment of sales
      commissions in connection with our increased product sales.


46





*Bad
      Debt Expense*





During
      2004 and 2005, we wrote down receivables by $0.5 million and $1.1 million,
      respectively, primarily due to our concerns with certain customers in Asia
      and
      Africa.





*General
      and Administrative Expenses*





General
      and administrative expenses increased 15% from $11.0 million in the year ended
      December 31, 2004 to $12.7 million in the year ended December 31, 2005. The
      increase in general and administrative expenses was primarily the result of
      payroll costs in connection with our acquisition of ArelNet and Radionet and
      additional fees incurred in connection with our change in independent
      auditors.





*Amortization
      of Intangibles*





Amortization
      of intangibles expense increased approximately 30% from $0.7 million in the
      year
      ended December 31, 2004 to $0.9 million in the year ended December 31, 2005.
      The
      increase resulted from the amortization of intangibles acquired from ArelNet
      and
      Radionet in 2005.





*Restructuring
      Provision*





During
      2004, we implemented an expense reduction program. We charged $0.4 million
      during 2004 to restructuring expense related to employee termination costs.
      During the second quarter of 2005, the Company recorded an additional
      restructuring charge of $1.2 million for costs related to certain facility
      charges in respect of buildings in the U.K.. For more information regarding
      our
      restructuring programs, see the section above entitled “Restructuring”.





*Interest
      and Other Income Net*





Interest
      and other income net, which decreased 56% from $3.2 million for the year ended
      December 31, 2004 to $1.4 million in the year ended December 31, 2005, consisted
      of gains and losses on foreign currency cash balances and foreign exchange
      hedging contracts and interest earned on cash deposits with financial
      institutions. The decrease in 2005 was primarily due to exchange rate gains
      realized in 2004.





*Income
      Taxes*




An
      income
      tax credit of $0.5 million was recorded in the year ended December 31, 2005.
      This tax credit was obtained from the U.K. tax authorities in lieu of carrying
      forward tax losses related to research and development costs. We surrendered
      a
      total of $2.4 million of tax losses in the United Kingdom as a result.
      In 2004, we surrendered $8.7 million of tax losses in exchange for a $2.1
      million tax benefit. The tax credit recorded in 2005 was partially offset by
      $21
      thousand of tax charges relating to certain of our foreign branches and
      subsidiaries. In 2004, the income tax credit obtained was partially offset
      by
      $156 thousand of tax charges relating to one of our foreign branches and certain
      franchise taxes relating to the U.S. operations of Airspan. As of 2005, we
      are
      no longer eligible to receive tax credits from the U.K. taxing authorities
      in
      lieu of our carry-forward of tax losses and, accordingly, no other income tax
      benefit has been recorded for the tax losses generated because we have incurred
      operating losses since inception.




*Deemed
      Dividend to Preferred Stockholders Associated With Beneficial Conversion of
      Preferred Stock*





In
      the
      third quarter of 2004, we recognized a non cash charge of $10.4 million as
      a
      deemed dividend to preferred stockholders associated with the beneficial
      conversion feature of the preferred stock issued in the quarter. The full
      intrinsic value of the embedded beneficial conversion feature of $10.4 million
      was recognized on issuance since the preferred stock was immediately
      convertible to common stock on the commitment date. There was no charge in
      the
      year ended December 31, 2005.




*Net
      Loss Attributable to Common Stockholders*





For
      the
      reasons described above, our net loss before taxes increased 31% from $11.9
      million in 2004 to $15.6 million in 2005 and our net loss attributable to common
      stockholders decreased 26% from $20.4 million in 2004 to $15.1 million in
      2005.




47





**Liquidity
      and Capital Resources**




As
      of
      December 31, 2006, we had cash and cash equivalents totaling $15.9 million,
      short-term investments totaling $10.2 million and $1.1 million of restricted
      cash in current assets. In addition, we had restricted cash of $1.2 million
      in
      other non-current assets. $2.2 million is held as collateral for performance
      guarantees on customer contracts and with landlords, of which $1.2 million
      is
      for guarantees with maturities in excess of one year. $0.1 million of the
      restricted cash is for payments made by employees under our Employee Share
      Purchase Plan. All short-term investments are of investment grade quality and
      are not subject to significant market risk . We
      have
      no material capital commitments.




Since
      inception, we have financed our operations through private sales of convertible
      preferred stock, an initial public offering of common stock, which we completed
      on July 25, 2000, and a secured bank line of credit.





In
      the
      initial public offering, we issued 6,325,000 shares of common stock for
      approximately $86 million in cash (net of
      underwriting discounts, commission and other expenses). In our most recent
      private sale of convertible preferred stock, which we closed in September 2006,
      we raised approximately $28.7 million (net of expenses) through the issuance
      of
      Series B preferred stock to Oak Investment Partners XI, Limited Partnership.
      We
      have used the proceeds of the sale of all securities for working capital and
      other general corporate purposes.





On
      August
      1, 2006, we entered into the Loan and Security Agreement with Silicon Valley
      Bank ("SVB"), with respect to a revolving credit line. For the two year term
      of
      the credit line, we may, subject to certain adjustments, borrow up to the lesser
      of (i) $10,000,000 and (ii) 80% of eligible accounts receivable. A certain
      portion of the credit available to us under the credit facility may also be
      utilized to issue letters of credit through, or enter into foreign exchange
      contracts with, SVB. We have issued $4.2 million of letters of credit under
      the
      facility, which were still outstanding at December 31, 2006. We also borrowed
      $2.5 million in the third quarter, all of which was repaid by December 31,
      2006.
      We intend to draw down this facility in the first half of 2007. See Note 17
      to
      the Notes to the Financial Statements.





Until
      we
      are able to generate positive cash flow from operations, if ever, we intend
      to
      use our existing cash resources and the Loan and Security Agreement, if
      available, together with, depending on market conditions and opportunities,
      the
      net proceeds of equity financings to finance our operations. We currently
      believe we will have sufficient cash resources to finance our operations for
      at
      least the next twelve months.




For
      the
      year ended December 31, 2006, we used $51.5 million cash in operating activities
      compared with $7.2 million for the year ended December 31, 2005. The operating
      cash outflow for fiscal 2006 was primarily a result of our net loss of $29.2
      million (excluding the beneficial conversion feature of the preferred shares
      of
      $28.7 million), increases in receivables, inventories and current assets of
      $7.2
      million, $6.8 million and $2.2 million, respectively, and decreases in accounts
      payable and customer advances of $8.7 million and $12.3 million, respectively.
      The cash outflow was partially offset by $3.8 million of depreciation and
      amortization, $2.5 million of stock compensation, increases in deferred revenue
      of $5.1 million and other accrued expenses of $2.6 million.




The
      net
      cash used in investing activities for the year ended December 31, 2006 was
      $7.3
      million, comprised of $3.1 million for capital equipment purchases and $4.2
      million, net for the acquisition and sale of investment securities.




Our
      net
      cash provided by financing activities for the year ended December 31, 2006
      was
      $30.6 million. During 2006, we generated $28.7 million (net of expenses) from
      the issuance of preferred stock, $0.7 million upon the exercise of stock options
      and $0.3 million from the issuance of common stock under our Employee Share
      Purchase Plan (“ESPP”). We also increased the amount of restricted cash by $0.9
      million. Restricted cash increases when we issue guarantees 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.





On
      November 9, 2005, we completed the acquisition of Radionet. As part of the
      acquisition, we assumed outstanding loans (the “Tekes Loans”) borrowed by
      Radionet from the Finnish Funding Agency for Technology and Innovation
      (“Tekes”). Tekes is the primary public funding organization for research and
      development in Finland. At December 31, 2006, the outstanding principal and
      accrued interest payable on the Tekes Loans was $1.7 million. The Tekes Loans
      are recorded in long-term debt and current portion of long-term debt in our
      consolidated balance sheets. We have issued a guarantee to Tekes for the
      repayment of the Tekes Loans. The guarantee covers the loan principal and
      interest. See Note 17 to the Consolidated Financial Statements for further
      information on these loans.


48





*Summary
      of Contractual Obligations*





The
      impact that our contractual obligations as of December 31, 2006 are expected
      to
      have on our liquidity and cash flow in future periods is as follows:





**Payments
                    Due by Period**All
                    amounts in thousands of U.S.$'s
                
                **Total**
                
                **2007**
                
                **2008-2009**
                
                **2010-2011**Long-term
                    debt (including interest)
                
                $
                1,554
                
                $
                -
                
                $
                969
                
                $
                585Operating
                    lease obligations
                
                
                5,507
                
                
                2,252
                
                
                2,823
                
                
                432Purchase
                    obligations (1)
                
                
                26,225
                
                
                26,225
                
                
                -
                
                
                -$
                33,286
                
                $
                28,477
                
                $
                3,792
                
                $
                1,017




(1)  As
      of
      December 31, 2006, the Company had commitments with its main subcontract
      manufacturers under various purchase order and forecast
      arrangements.




The
      Company has bank guarantees with its landlords and customers totaling $2.2
      million at December 31, 2006. 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.
      This pledged cash has been classified as restricted cash. There were no off
      balance sheet guarantees as of December 31, 2006.





We
      have
      no material commitments other than the TEKES Loans, borrowings under the SVB
      Loan and Security Agreement, operating leases, supplier purchase commitments
      and
      forward exchange contracts mentioned herein. See “ITEM 7A” and “Note 11 in Notes
      to the Financial Statements”.





*Off-Balance
      Sheet Arrangements*





As
      of
      December 31, 2006, we are not using off-balance sheet
      arrangements.





**ITEM
      7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
      RISK**




*Interest
      Rate Risk*




The
      Company’s earnings are affected by changes in interest rates. As of December 31,
      2005 and 2006 we had cash and cash equivalents, restricted cash and short-term
      investments of $51.5 million and $27.2 million, respectively. Of these amounts,
      in 2006, $4.0 million related to investments with a purchase to maturity date
      between 90 days and 148 days. In addition, we have included in short-term
      investments auction rate securities for a total of $6.3 million. Auction rate
      securities are long-term variable rate bonds tied to short-term interest rates
      that are reset through a “Dutch auction” process which occurs every 7 - 35 days.
      The holder can participate in the auction and liquidate the auction rate
      securities to prospective buyers through their broker/dealer. Substantially
      all
      of the remaining amounts as of both December 31, 2005 and December 31, 2006,
      consisted of highly liquid investments with purchase to maturity terms of less
      than 90 days. These investments are exposed to interest rate risk, but a
      hypothetical increase or decrease in market interest rates by two percentage
      points from December 31, 2006 rates would cause the fair market value of these
      short-term investments to change by an insignificant amount. Due to the short
      duration of these investments, a short-term increase in interest rates would
      not
      have a material effect on our financial condition or results of operations.
      Declines in interest rates over time would, however, reduce our net interest
      income. Due to the uncertainty of the specific actions that would be taken
      to
      mitigate this, and their possible effects, the sensitivity analysis does not
      take into account any such action.




*Foreign
      Currency Exchange Rate Risk*




The
      following table shows our revenue by currency as a percentage of our total
      revenue for the periods presented




**Year
                ended**
              **December
                31,**
              **2004**
            
            **Year
                ended**
              **December
                31,**
              **2005**
            
            **Year
                ended**
              **December
                31,**
              **2006**U.S.
                Dollars
            
            
            96.1
            %
            
            94.4
            %
            
            86.9
            %Euros
            
            
            2.8
            
            
            2.9
            
            
            10.4Australian
                Dollars
            
            
            0.9
            
            
            2.5
            
            
            2.7Other
            
            
            0.2
            
            
            0.2
            
            
            -100.0
            %
            
            100.0
            %
            
            100.0
            %




49




Total
      euro denominated sales for the periods presented were:




**All
                figures in thousands**
            
            **Year
                ended**
              **December
                31,**
              **2004**
            
            **Year
                ended**
              **December
                31,**
              **2005**
            
            **Year
                ended**
              **December
                31,**
              **2006**Euros
            
            €
            2,163
            
            €
            2,596
            
            €
            10,552Average
                exchange rate of $1U.S. = €
            
            
            0.8043
            
            
            0.8136
            
            
            0.79678U.S.$
                equivalent
            
            $
            2,689
            
            $
            3,191
            
            $
            13,243If
                the average exchange rates used had been higher or lower by 10% they
                would
                have decreased or increased the total euro denominated sale value
                by
            
            $
            244
            
            $
            290
            
            $
            1,192




Total
      Australian dollar denominated sales for the periods presented were:




**All
                figures in thousands**
            
            **Year
                ended**
              **December
                31,**
              **2004**
            
            **Year
                ended**
              **December
                31,**
              **2005**
            
            **Year
                ended**
              **December
                31,**
              **2006**Australian
                dollars
            
            Aus$
            1,169
            
            Aus$
            3,594
            
            Aus$
            4,554Average
                exchange rate of $1U.S. = Australian dollar
            
            
            1.3625
            
            
            1.3174
            
            
            1.32774U.S.
                $ equivalent
            
            $
            858
            
            $
            2,728
            
            $
            3,430If
                the average exchange rates used had been higher or lower by 10% they
                would
                have decreased or increased the total euro denominated sale value
                by
            
            $
            78
            
            $
            248
            
            $
            309




We
      expect
      the proportions of sales in euro and Australian dollars to fluctuate over time.
      The Company’s sensitivity analysis for changes in foreign currency exchange
      rates does not factor in changes in sales volumes.




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




To
      manage
      our pound foreign currency risk we have, at various times in 2004 through 2006,
      forecast our likely net spending on operating expenses in non U.S. dollars
      and,
      based on these forecasts, we have entered into forward exchange contracts to
      cover a percentage of the projected exposure. At December 31, 2006 we had no
      forward exchange contracts outstanding.




The
      aggregate amount of forward contracts of pounds sterling that matured during
      the
      year ended December 31, 2006 was 3 million pounds sterling, and we paid
      operating expenses in local currency of approximately 21 million pounds sterling
      over the same period. The effectiveness of the contracts as hedges was
      approximately 100%. If during 2006 the average exchange rates had been higher
      or
      lower by 10%, the pound-sterling denominated operating expenses would have
      decreased or increased by $3.8 million.




During
      the year ended December 31, 2006 we paid operating expenses in New Israeli
      Shekels of 95.3 million New Israeli Shekels. None of these expenses have been
      hedged. If the average exchange rates had been higher or lower by 10%, the
      New
      Israeli Shekel operating expenses would have decreased or increased by $3.2
      million for the year ended December 31, 2006.




For
      the
      years ended December 31, 2006 and 2005 we incurred the majority of our cost
      of
      revenue in U.S. dollars.




*Equity
      Price Risk*




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




*Commodity
      Price Risk*




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


50





**ITEM
      8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA**




Financial
      Statements and Supplementary Data are included on pages F-1 to
      F-39.




**ITEM
      9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
      DISCLOSURE**




None




**ITEM
      9A. CONTROLS AND PROCEDURES**





*Evaluation
      of Disclosure Controls and Procedures*




As
      of the
      end of the period covered by this annual report, an evaluation was performed
      under the supervision and with the participation of our management, including
      our Chief Executive Officer and Chief Financial Officer, of the effectiveness
      of
      the design and operation of our disclosure controls and procedures (as defined
      in Section 13a-15(e) and 15d-15(e) of the Exchange Act. Based on that
      evaluation, our Chief Executive Officer and Chief Financial Officer concluded
      that as of such date the Company’s internal control over financial reporting was
      effective.




*Management's
      Annual Report on Internal Control over Financial Reporting*




Our
      management is responsible for establishing and maintaining adequate internal
      control over our financial reporting as defined in Rules 13a-15(f) and 15d-15(f)
      under the Exchange Act. Our internal control system is a process 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.




Our
      management assessed the effectiveness of our internal control over financial
      reporting as of December 31, 2006. In making this assessment, we used the
      criteria set forth by the Committee of Sponsoring Organizations of the Treadway
      Commission in Internal Control-Integrated Framework. Based upon this assessment,
      our management concluded that our internal control over financial reporting
      was
      effective as of December 31, 2006.




Our
      independent registered public accounting firm, Grant Thornton LLP, audited
      the
      consolidated financial statements included in this report and issued an
      attestation report on management's assessment of our internal control over
      financial reporting, which is included herein.




*Changes
      in Internal Control Over Financial Reporting*




During
      the fourth quarter of 2006, there were changes in internal control that have
      materially affected, or are materially likely to affect, our internal control
      over financial reporting.




Following
      the performance of a physical inventory count at our Israeli subsidiary as
      of
      December 31, 2005, significant differences were identified between the count
      and
      the inventory subledger. The differences were for the most part due to inventory
      movements that had not been recorded or were recorded incorrectly. We also
      identified at our Israeli subsidiary insufficient segregation of duties in
      the
      Logistics department, inadequate security access controls and failure to perform
      effective and timely reviews of reconciliations by individuals with appropriate
      levels of experience, which contributed to the delay in the differences being
      detected.




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




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




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




51




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




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




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




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




·
            a
                change of freight forwarders;




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




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




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




In
      relation to these changes in internal controls, during the fourth quarter of
      2006, management completed its testing to validate the effectiveness of its
      remedial measures related to the recording of Inventory transactions at its
      Israeli subsidiary, and concluded that controls related to the remediation
      of
      the material weakness previously disclosed in the 2005 Annual Report on Form
      10-K were designed, in place and operating effectively for a sufficient period
      of time for management to determine that the material weaknesses were remediated
      as of December 31, 2006.




Except
      as
      noted above, there have been no significant changes in our internal control
      over
      financial reporting during our fiscal year ended December 31, 2006 that have
      materially affected, or are reasonably likely to materially affect, our internal
      control over financial reporting.





*Inherent
      Limitations on Effectiveness of Controls*





Our
      management does not expect that our disclosure controls and procedures or our
      internal control over financial reporting are or will be capable of preventing
      or detecting all errors and all fraud. Any control system, no matter how well
      designed and operated, can provide only reasonable, not absolute, assurance
      that
      the control system's objectives will be met. The design of a control system
      must
      reflect the fact that there are resource constraints and the benefits of
      controls must be considered relative to their costs. Further, because of the
      inherent limitations in all control systems, no evaluation of controls can
      provide absolute assurance that misstatements due to error or fraud will not
      occur or that all control issues and instances of fraud, if any, within the
      company have been detected. These inherent limitations include the realities
      that judgments in decision-making can be faulty and that breakdowns can occur
      because of simple error or mistake. Controls can also be circumvented by the
      individual acts of some persons, by collusion of two or more people, or by
      management override of the controls. The design of any system of controls is
      based in part on certain assumptions about the likelihood of future events,
      and
      there can be no assurance that any design will succeed in achieving its stated
      goals under all potential future conditions.


52




*Attestation
      Report of the Registered Public Accounting Firms*





**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**




Board
      of
      Directors and Shareholders of


Airspan
      Networks, Inc.




We
      have
      audited management’s assessment, included in the accompanying Management’s
      Report on Internal Control Over Financial Reporting, that Airspan Networks,
      Inc.
      and subsidiaries maintained effective internal control over financial reporting
      as of December 31, 2006, based on criteria established in Internal
      Control—Integrated Framework issued by the Committee of Sponsoring Organizations
      of the Treadway Commission (the COSO criteria). Airspan Networks, Inc. and
      subsidiaries’ management is responsible for maintaining effective internal
      control over financial reporting and for its assessment of the effectiveness
      of
      internal control over financial reporting. Our responsibility is to express
      an
      opinion on management’s assessment and an opinion on the effectiveness of the
      company’s internal control over financial reporting based on our audit.




We
      conducted our audit in accordance with the standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audit to obtain reasonable assurance about whether effective
      internal control over financial reporting was maintained in all material
      respects. Our audit included obtaining an understanding of internal control
      over
      financial reporting, evaluating management’s assessment, testing and evaluating
      the design and operating effectiveness of internal control, and performing
      such
      other procedures as we considered necessary in the circumstances. We believe
      that our audit provides a reasonable basis for our opinion.




A
      company’s internal control over financial reporting is a process 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. A company’s internal control over
      financial reporting includes those policies and procedures that (1) pertain
      to the maintenance of records that, in reasonable detail, accurately and fairly
      reflect the transactions and dispositions of the assets of the company;
      (2) provide reasonable assurance that transactions are recorded as
      necessary to permit preparation of financial statements in accordance with
      generally accepted accounting principles, and that receipts and expenditures
      of
      the company are being made only in accordance with authorizations of management
      and directors of the company; and (3) provide reasonable assurance
      regarding prevention or timely detection of unauthorized acquisition, use,
      or
      disposition of the company’s assets that could have a material effect on the
      financial statements.




Because
      of its inherent limitations, internal control over financial reporting may
      not
      prevent or detect misstatements. Also, projections of any evaluation of
      effectiveness to future periods are subject to the risk that controls may become
      inadequate because of changes in conditions, or that the degree of compliance
      with the policies or procedures may deteriorate.




In
      our
      opinion, management’s assessment that Airspan Networks, Inc. and subsidiaries
      maintained effective internal control over financial reporting as of
      December 31, 2006, is fairly stated, in all material respects, based on the
      COSO criteria. Also, in our opinion, Airspan Networks, Inc. and subsidiaries
      maintained, in all material respects, effective internal control over financial
      reporting as of December 31, 2006, based on the COSO criteria.




We
      also
      have audited, in accordance with the standards of the Public Company Accounting
      Oversight Board (United States), the consolidated balance sheets of Airspan
      Networks, Inc. and subsidiaries as of December 31, 2006 and 2005, and the
      related consolidated statements of operations, shareholders’ equity, and cash
      flows for each of the two years then ended and our report dated March 9,
      2007 expressed an unqualified opinion on those consolidated financial
      statements.




/s/
                GRANT THORNTON LLP




Miami,
      Florida


March 9,
      2007




53





**ITEM
      9B. OTHER INFORMATION**




None.





**PART
      III**





Except
      where otherwise noted, the information required by Items 10 through 14 is
      incorporated by reference from our definitive Proxy Statement, with the
      exception of the executive officers and directors section of Item 10. We will
      file our definitive Proxy Statement within 120 days after the end of our fiscal
      year ended December 31, 2006.





**ITEM
      10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE**





The
      information regarding the names, ages and business experience of our executive
      officers and directors required by this Item is furnished in Part I of this
      Annual Report on Form 10-K under the caption “Executive Officers and Directors”.
      All other information required by this Item is incorporated into this Annual
      Report on Form 10-K by reference to our definitive proxy statement to be filed
      within 120 days after the end of our fiscal year ended December 31,
      2006.





**Code
      of Ethics**





We
      maintain a code of business conduct (the “Code”) that applies to our Directors,
      Chief Executive Officer, Chief Financial Officer and Controller, as well as
      to
      all of our other employees. This Code, a copy of which is available on our
      web
      site at www.airspan.com ,
      addresses, among other things: (i) honest and ethical conduct, including the
      ethical handling of actual or apparent conflicts of interest between personal
      and professional relationships; (ii) compliance with applicable governmental
      laws, rules, and regulations; (iii) the prompt internal reporting of violations
      of the Code to an appropriate person or persons identified in the Code; (iv)
      accountability for adherence to the Code; and (v) full, fair, accurate, timely
      and understandable disclosure in reports and documents that we file with or
      submit to the Commission and in other public communications we make. In the
      event we ever waive compliance by our Directors, our Chief Executive Officer,
      Chief Financial Officer, or Controller with the Code, we will disclose the
      waiver on our website at the web address provided above. (The URL above is
      intended to be an inactive textual reference only. It is not intended to be
      an
      active hyperlink to our website. The information on our website, which might
      be
      accessible through a hyperlink resulting from this URL, is not and is not to
      be
      part of this report and is not incorporated herein by reference).





**ITEM
      11. EXECUTIVE COMPENSATION**




The
      information required by this Item is incorporated into this Annual Report on
      Form 10-K by reference to our definitive proxy statement to be filed within
      120
      days after the end of our fiscal year ended December 31, 2006.




**ITEM
      12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
      STOCKHOLDER MATTERS**




The
      information required by this Item and Item 403 of Regulation S-K is incorporated
      by reference into this Annual Report on Form 10-K to our definitive proxy
      statement to be filed within 120 days after the end of our fiscal year ended
      December 31, 2006.





**Securities
      Authorized for Issuance Under Equity Compensation Plans as of December 31,
      2006**




The
      following table sets forth information as of December 31, 2006 with respect
      to
      compensation plans under which our equity securities are authorized for
      issuance.





**Number
                of securities****to
                be issued upon****exercise
                of outstanding****options,
                warrants****and
                rights**
            
            **Weighted-average****exercise
                price of****outstanding****options,
                warrants****and
                rights**
            
            **Number
                of securities****remaining
                available****for
                future issuance under****equity
                compensation****plans**Equity
                compensation plans approved by security holders(1)
            
            
            4,970,375
            
            $
            4.23
            
            
            2,294,254Equity
                compensation plans not approved by security holders(2)
            
            
            599,634
            
            $
            3.02
            
            
            -**Total**
            
            
            5,570,009
            
            $
            4.10
            
            
            2,294,254




(1)
      In
      1998 and 2000, the Company's shareholders approved the 1998 Employee Stock
      Option Plan and the 2000 Employee Stock Purchase Plan, respectively. In 2004,
      the Company's shareholders approved the Omnibus Equity Compensation Plan.


54





(2)
      Issued pursuant to the Company's 2001 Supplemental Stock Option Plan (the "2001
      Plan") and the Company's 2003 Supplemental Stock Option Plan (the "2003 Plan").




*The
      2001 Supplemental Stock Option Plan*




The
      2001
      Plan provides for the grant to our non-officer employees and consultants of
      non-statutory stock options. The 2001 Plan provides for the grant of options
      for
      up to 901,465 shares of common stock, all of which options have been granted
      as
      of the date hereof. The Compensation Committee of our Board of Directors
      administers the 2001 Plan. The Compensation Committee determines the terms
      of
      options granted under the 2001 Plan, including the number of shares subject
      to
      the option, exercise price, term, and exercisability. The exercise price may
      be
      equal to, more than or less than 100% of fair market value on the date the
      option is granted, as determined by the Compensation Committee. The Compensation
      Committee has the authority to amend or terminate the 2001 Plan, provided that
      shareholder approval shall be required if such approval is necessary to comply
      with any tax or regulatory requirement. If not terminated earlier, the 2001
      Plan
      will terminate February 7, 2011.




*The
      2003 Supplemental Stock Option Plan*




The
      2003
      Plan provides for the grant to our non-officer employees, new hires, and
      consultants of non-statutory stock options. The 2003 Plan provides for the
      grant
      of options for up to 241,500 shares of common stock, all of which options have
      been granted as of the date hereof. The Compensation Committee of our Board
      of
      Directors administers the 2003 Plan. The Compensation Committee determines
      the
      terms of options granted under the 2003 Plan, including the number of shares
      subject to the option, exercise price, term, and exercisability. The exercise
      price may be equal to, more than or less than 100% of fair market value on
      the
      date the option is granted, as determined by the Compensation Committee. The
      Compensation Committee has the authority to amend or terminate the 2003 Plan,
      provided that shareholder approval shall be required if such approval is
      necessary to comply with any tax or regulatory requirement. If not terminated
      earlier, the 2003 Plan will terminate September 1, 2013.




**ITEM
      13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
      INDEPENDENCE**




The
      information required by this Item is incorporated into this Annual Report on
      Form 10-K by reference to our definitive proxy statement to be filed within
      120
      days after the end of our fiscal year ended December 31, 2006.





**ITEM
      14. PRINCIPAL ACCOUNTANT FEES AND SERVICES**




The
      information required by this Item is incorporated into this Annual Report on
      Form 10-K by reference to our definitive proxy statement to be filed within
      120
      days after the end of our fiscal year ended December 31, 2006.




55




**PART
      IV**




**ITEM
      15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES**




(a)  The
      following documents are filed as part of this report:




(1)  Financial
      Statements




**Page**Report
                of Independent Registered Public Accounting Firms
            F-1Consolidated
                Balance Sheets as of December 31, 2005 and 2006
            F-3Consolidated
                Statements of Operations for the years ended December 31, 2004, 2005
                and
                2006
            F-4Consolidated
                Statements of Changes in Stockholders' Equity for the years ended
                December
                31, 2004, 2005 and 2006
            F-5Consolidated
                Statements of Cash Flows for the years ended December 31, 2004, 2005
                and
                2006
            F-6Notes
                to the Financial Statements
            F-7




(2)  Financial
      Statement Schedules




Schedule
                II — Valuation and Qualifying Accounts for the years ended December 31,
                2004, 2005 and 2006
            II-1




(3)  Exhibits




Exhibit
              Number
            
            Description
                of Exhibit3.1
            
            Second
                Amended and Restated Articles of Incorporation of Airspan
                (1)3.2
            
            Articles
                of Amendment to the Articles of Incorporation of Airspan
                (2)3.3
            
            Articles
                of Amendment to the Articles of Incorporation of Airspan
                (3)3.4
            
            Amended
                and Restated Bylaws of Airspan *4.1
            
            Form
                of Airspan's common stock certificate (4)4.2
            
            Preferred
                Stock Purchase Agreement, dated July 28, 2006, among Airspan and
                Oak
                Investment Partners XI, Limited Partnership, including exhibits thereto
                (5)10.1
            
            1998
                Stock Option and Restricted Stock Plan (6)10.2
            
            Amended
                and Restated 2000 Employee Stock Purchase Plan (1)10.3
            
            Omnibus
                Equity Compensation Plan (1)10.3
            
            2001
                Supplemental Stock Option Plan (7)10.4
            
            2003
                Supplemental Stock Option Plan (8)10.5
            
            Written
                Summary of Airspan's Non-Employee Director Compensation Plan
                (9)






56






10.6
            
            Airspan
                Code of Business Conduct (10)10.7
            
            Employment
                Agreement with Eric Stonestrom (11), (12)10.8
            
            Employment
                Agreement with Jonathan Paget (11), (12)10.9
            
            Employment
                Agreement with Peter Aronstam, as amended (7), (11), (13)10.10
            
            Employment
                Agreement with Henrik Smith-Petersen (11), (13)10.11
            
            Employment
                Agreement between Airspan and Alastair Westgarth (11),
                (14)10.12
            
            Employment
                Agreement with Arthur Levine (10) (11)10.13
            
            Employment
                and Relocation Agreement with David Brant (11) *10.14
            
            Technical
                Assistance Support Services Agreement for FWA Equipment, dated as
                of
                February 14, 2003, by and between Nortel Networks U.K. Limited and
                Axtel,
                S.A. de C.V. (15)**10.15
            
            Preferred
                Stock Purchase Agreement, dated as of September 10, 2004 among Airspan
                and
                Oak Investment Partners XI, Limited Partnership (16)10.16
            
            Amendment
                No. 1 to Preferred Stock Purchase Agreement (17)10.17
            
            Purchase
                and License Agreement, dated as of December 28, 2004, by and among
                Airspan
                Communications Limited and Axtel, S.A. de C.V. (18)**10.18
            
            Amendment
                Agreement No. 3 to FWA TASS dated as of December 28, 2004 between
                Airspan
                Communications Limited and Axtel, S.A. de C.V. (19)**10.19
            
            Purchase
                Contract, dated April 14, 2005, by and between Yozan Incorporated
                ("Yozan") and Airspan Communications Limited ("Airspan Ltd.") (10),
                (20)10.20
            
            Supplement
                to Purchase Contract, dated August 15, 2005, by and between Yozan
                and
                Airspan Ltd. (10), (20)10.21
            
            2ndPurchase Contract, dated September 13, 2005, by and between Yozan
                and
                Airspan Ltd. (10), (20)10.22
            
            Amendment
                of 1stand 2ndPurchase Contracts, dated October 6, 2005, by and between Yozan and
                Airspan Ltd. (10), (20)10.23
            
            Amendment
                of 2ndPurchase Contracts, dated February 25, 2006, by and between Yozan
                and
                Airspan Ltd. (10), (20)10.24
            
            Memorandum
                of Understandings, dated February 25, 2006, by and between Yozan
                and
                Airspan Ltd. (10), (20)10.25
            
            Memorandum
                of Understandings, dated June 23, 2006, by and between Yozan and
                Airspan
                Ltd. (21), (22)10.26
            
            Loan
                and Security Agreement, dated as of August 1, 2006, by and among,
                Silicon
                Valley Bank, Airspan Networks Inc., and Airspan Communications Limited,
                including exhibits thereto (23)






57






10.27
            
            Memorandum
                of Understandings, dated September 8, 2006, by and between Yozan
                and
                Airspan Ltd. (24) (25)21
            
            Subsidiaries
                of registrant*23.1
            
            Consent
                of Grant Thornton LLP, Independent Registered Public Accounting Firm
                *23.2
            
            Consent
                of Ernst & Young LLP, Independent Registered Public Accounting Firm
                *31.1
            
            Certification
                of the Chief Executive Officer pursuant to Section 302 of the
                Sarbanes-Oxley Act of 2002*31.2
            
            Certification
                of the Chief Financial Officer pursuant to Section 302 of the
                Sarbanes-Oxley Act of 2002*32.1
            
            Certification
                of the Chief Executive Officer pursuant to section 906 of the
                Sarbanes-Oxley Act of 2002***32.2
            
            Certification
                of the Chief Financial Officer pursuant to section 906 of the
                Sarbanes-Oxley Act of 2002***




*
            Filed
                herewith





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




1
            
            Incorporated
                by reference to Airspan's Form 10-Q for the quarter ended April 4,
                20042
            
            Incorporated
                by reference to Airspan's report on Form 8-K filed on September 15,
                20043
            
            Incorporated
                by reference to Airspan's report on Form 8-K filed on September 26,
                20064
            
            Incorporated
                by reference to Airspan's Registration Statement on Form S-1 (333-34514)
                filed April 11, 20005
            
            Incorporated
                by reference to Airspan's report on Form 8-K filed on August 1,
                20066
            
            Incorporated
                by reference to Airspan's Registration Statement on Form S-1/A (333-34514)
                filed May 26, 20007
            
            Incorporated
                by reference to Airspan's Form 10-K for the year ended December 31,
                20008
            
            Incorporated
                by reference to Airspan's Form 10-K for the year ended December 31,
                20039
            
            Incorporated
                by reference to Airspan's report on Form 8-K filed on July 31,
                200610
            
            Incorporated
                by reference to the Company's Form 10-K for the year ended December
                31,
                200511
            
            Management
                Agreement or Compensatory Plan or Arrangement12
            
            Incorporated
                by reference to Airspan's Registration Statement on Form S-1/A (333-34514)
                filed June 22, 200013
            
            Incorporated
                by reference to Airspan's Form 10-K for the year ended December 31,
                200214
            
            Incorporated
                by reference to Airspan's Form 10-Q for the quarter ended July 2,
                200615
            
            Incorporated
                by reference by Airspan's report on Form 8-K/A filed on July 6,
                200416
            
            Incorporated
                by reference to Airspan's report on Form 8-K filed on September 13,
                200417
            
            Incorporated
                by reference to Airspan's report on Form 8-K filed on September 27,
                200418
            
            Incorporated
                by reference to Airspan's report on Form 8-K filed on June 9,
                200519
            
            Incorporated
                by reference to Airspan's Form 10-K for the year ended December 31,
                200420
            
            Portions
                of this document have been omitted and were filed separately with
                the SEC
                on March 30, 2006 pursuant to a request for confidential treatment,
                which
                was granted






58






21
            
            Portions
                of this document have been omitted and were filed separately with
                the SEC
                on June 29, 2006 pursuant to a request for confidential treatment,
                which
                was granted22
            
            Incorporated
                by reference to Airspan's report on Form 8-K filed on June 29,
                200623
            
            Incorporated
                by reference to Airspan's report on Form 8-K filed on August 7,
                200624
            
            Portions
                of this document have been omitted and were filed separately with
                the SEC
                on September 21, 2006 pursuant to a request for confidential treatment,
                which was granted25
            
            Incorporated
                by reference to Airspan's report on Form 8-K filed on September 21,
                2006




**SIGNATURES**




Pursuant
      to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
      1934, the registrant has duly caused this report to be signed on its behalf
      by
      the undersigned, thereunto duly authorized.


Airspan
                Networks Inc.By:
            /s/ Eric
                D. StonestromEric
                D. Stonestrom,Date:
                March 16, 2007
            President
                and Chief Executive Officer




The
      undersigned directors and officers of Airspan Networks Inc. hereby constitute
      and appoint Eric D. Stonestrom and David Brant and each of them with full power
      to act without the other and with full power and substitution and
      resubstitution, our true and lawful attorneys-in-fact with full power to execute
      in our name and behalf in the capacities indicated below this Annual Report
      on
      Form 10-K for the year ended December 31, 2006 and any and all amendments
      thereto and to file the same, with all exhibits thereto and other documents
      in
      connection therewith, with the Securities and Exchange Commission and hereby
      ratify and confirm all that such attorneys-in-fact, or any of them, or their
      substitutes shall lawfully do or cause to be done by virtue hereof.




Pursuant
      to the requirements of the Securities Exchange Act of 1934, this report has
      been
      signed below by the following persons on behalf of Airspan, in the capacities
      and dates indicated.




59





**Signature**
            
            **Title**
            
            **Dated**/s/
                Eric D. Stonestrom
            
            Chief
                Executive Officer and Director,
            
            March
                16, 2007Eric
                D. Stonestrom
            
            (principal
                executive officer)/s/
                David Brant
            
            Chief
                Financial Officer and Senior Vice President, Finance
            
            March
                16, 2007David
                Brant
            
            (principalfinancial
                and accounting Officer)/s/
                Matthew J. Desch
            
            Chairman
                of the Board of Directors
            
            March
                16, 2007Matthew
                J. Desch/s/
                Julianne Biagini
            
            Director
            
            March
                16, 2007Julianne
                Biagini/s/
                Bandel Carano
            
            Director
            
            March
                16, 2007Bandel
                Carano/s/
                Frederick Fromm
            
            Director
            
            March
                16, 2007Frederick
                Fromm/s/
                Michael T. Flynn
            
            Director
            
            March
                16, 2007Michael
                T. Flynn/s/
                Guillermo Heredia
            
            Director
            
            March
                16, 2007Guillermo
                Heredia/s/
                Thomas S. Huseby
            
            Director
            
            March
                16, 2007Thomas
                S. Huseby/s/
                David Twyver
            
            Director
            
            March
                16, 2007David
                Twyver




60


**REPORT
        OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**
  The
        Board
        of Directors and Shareholders of
 Airspan
        Networks, Inc.
  We
        have
        audited the accompanying consolidated balance sheets of Airspan Networks,
        Inc.
        and subsidiaries as of December 31, 2006 and 2005, and the related
        consolidated statements of operations, shareholders’ equity and cash flows for
        each of the two years then ended. These financial statements are the
        responsibility of the Company’s management. Our responsibility is to express an
        opinion on these consolidated financial statements based on our audits.
  We
        conducted our audits in accordance with auditing standards of the Public
        Company
        Accounting Oversight Board (United States). Those standards require that
        we plan
        and perform the audit to obtain reasonable assurance about whether the financial
        statements are free of material misstatement. An audit includes examining,
        on a
        test basis, evidence supporting the amounts and disclosures in the financial
        statements. An audit also includes assessing the accounting principles used
        and
        significant estimates made by management, as well as evaluating the overall
        financial statement presentation. We believe that our audits provide a
        reasonable basis for our opinion.
  In
        our
        opinion, the financial statements referred to above present fairly, in all
        material respects, the consolidated financial position of Airspan Networks,
        Inc.
        and subsidiaries as of December 31, 2006 and 2005, and the consolidated
        results of their operations and their consolidated cash flows for each of
        the
        two years then ended in conformity with accounting principles generally accepted
        in the United States of America.
 
 Our
        audit
        was conducted for the purpose of forming an opinion on the basic financial
        statements taken as a whole. Schedule II is presented for purposes of additional
        analysis and is not a required part of the basic financial statements. Such
        information has been subjected to the auditing procedures applied in the
        audit
        of the basic financial statements and, in our opinion, is fairly stated in
        all
        material respects in relation to the basic financial statements taken as
        a
        whole.
  As
        discussed in Note 1 to the consolidated financial statements, the Company
        adopted Statement of Financial Accounting Standard 123 (R) “Share-Based
        Payment” on a prospective basis on January 1, 2006.
  We
        also
        have audited, in accordance with the standards of the Public Company Accounting
        Oversight Board (United States), the effectiveness of Airspan Networks, Inc.
        and
        subsidiaries’ internal control over financial reporting as of December 31,
        2006, based on criteria established in Internal Control—Integrated Framework
        issued by the Committee of Sponsoring Organization of the Treadway Commission
        (COSO) and our report dated March 9, 2007 expressed an unqualified opinion
        thereon.
   /s/
                    GRANT THORNTON LLP
  Miami,
        Florida
 March 9,
        2007
  F-1
  Report
        of
        Independent Registered Public Accounting Firm
 
 To
        the
        Board of Directors and Stockholders of Airspan Networks Inc.
 
 We
        have
        audited the consolidated statements of operations, changes in stockholders’
equity, and cash flows of Airspan Networks Inc. and subsidiaries for the
        year
        ended December 31, 2004. Our audit also included the financial statement
        schedule listed in the Index at Item 15(a) for the year ended December 31,
        2004.
        These consolidated financial statements and schedule are the responsibility
        of
        the Company’s management. Our responsibility is to express an opinion on these
        consolidated financial statements and schedule based on our audit.
 
 We
        conducted our audit in accordance with the standards of the Public Company
        Accounting Oversight Board (United States). Those standards require that
        we plan
        and perform the audit to obtain reasonable assurance about whether the financial
        statements are free of material misstatement. An audit includes examining,
        on a
        test basis, evidence supporting the amounts and disclosures in the financial
        statements. An audit also includes assessing the accounting principles used
        and
        significant estimates made by management, as well as evaluating the overall
        financial statement presentation. We believe that our audit provides a
        reasonable basis for our opinion.
  In
        our
        opinion, the consolidated financial statements referred to above present
        fairly,
        in all material respects, the consolidated results of operations and
        consolidated cash flows of Airspan Networks Inc. and subsidiaries for the
        year
        ended December 31, 2004, in conformity with U.S. generally accepted accounting
        principles. Also, in our opinion, the related financial statement schedule,
        when
        considered in relation to the basic financial statements taken as a whole,
        presents fairly in all material respects the information set forth therein
        for
        the year ended December 31, 2004.
 
 
 Ernst
        & Young LLP
 
 London,
        England
 April
        27,
        2005
  F-2
  **AIRSPAN
                  NETWORKS INC.****CONSOLIDATED
                  BALANCE SHEETS****(in
                  thousands, except for share
                  data)**
  **December
                  31,**
              
              **December
                  31,****2005**
              
              **2006****ASSETS**Current
                  assets:Cash
                  and cash equivalents
              
              $
              44,140
              
              $
              15,890Restricted
                  cash
              
              
              2,003
              
              
              1,111Short-term
                  investments
              
              
              6,020
              
              
              10,233Accounts
                  receivable, less allowance for doubtful accounts of$3,519
                  and $5,489, at 2005 and 2006, respectively
              
              
              24,348
              
              
              31,063Unbilled
                  accounts receivable
              
              
              273
              
              
              711Inventory
              
              
              16,850
              
              
              23,624Prepaid
                  expenses and other current assets
              
              
              3,722
              
              
              5,935Total
                  current assets
              
              
              97,356
              
              
              88,567Property,
                  plant and equipment, net
              
              
              5,268
              
              
              5,705Goodwill
              
              
              10,231
              
              
              10,231Intangible
                  assets, net
              
              
              3,865
              
              
              2,806Other
                  non-current assets
              
              
              3,732
              
              
              3,245**Total
                  assets**
              
              
              120,452
              
              
              110,554**LIABILITIES
                  AND STOCKHOLDERS' EQUITY**Current
                  liabilities:Accounts
                  payable
              
              $
              24,678
              
              $
              15,940Accrued
                  taxes
              
              
              1,156
              
              
              687Deferred
                  revenue
              
              
              1,514
              
              
              6,656Customer
                  advances
              
              
              13,935
              
              
              1,665Other
                  accrued expenses
              
              
              13,113
              
              
              16,197Current
                  portion of long-term debt
              
              
              96
              
              
              -Total
                  current liabilities
              
              
              54,492
              
              
              41,145Long-term
                  debt
              
              
              1,296
              
              
              1,554Accrued
                  interest on long-term debt
              
              
              53
              
              
              153**Total
                  liabilities**
              
              
              55,841
              
              
              42,852**Commitments
                  (Note 11)****Stockholders'
                  equity**Preferred
                  stock, $0.0001 par value; 74,200 Series A preferred sharesauthorized
                  at December 31, 2005 and 2006; nil and 250,000 Series Bshares
                  authorized at December 31, 2005 and 2006, respectively;73,000
                  Series A preferred shares issued at December 31, 2005 andnil
                  in 2006, respectively; nil and 200,690 Series B preferred sharesissued
                  at December 31, 2005 and 2006, respectively
              
              
              -
              
              
              -Common
                  stock, $0.0003 par value; 100,000,000 shares authorizedat
                  December 31, 2005 and 2006; 39,668,271 and 40,380,910 issued
                  atDecember
                  31, 2005 and 2006, respectively
              
              
              12
              
              
              12Note
                  receivable - stockholder
              
              
              (87
              )
              
              (87
              )Additional
                  paid-in capital
              
              
              267,426
              
              
              308,768Accumulated
                  other comprehensive income
              
              
              (130
              )
              
              -Accumulated
                  deficit
              
              
              (202,610
              )
              
              (240,991
              )**Total
                  stockholders' equity**
              
              
              64,611
              
              
              67,702**Total
                  liabilities and stockholders' equity**
              
              $
              120,452
              
              $
              110,554
  *The
          accompanying notes are an integral part of these financial
          statements*
  F-3
 
 **AIRSPAN
                  NETWORKS INC.****CONSOLIDATED
                  STATEMENTS OF OPERATIONS****(in
                  thousands, except for share and per share
                  data)**
  **Years
                  ended December 31,****2004**
              
              **2005**
              
              **2006**Revenue
              
              $
              94,647
              
              $
              110,966
              
              $
              127,812Cost
                  of revenue
              
              
              (67,243
              )
              
              (79,467
              )
              
              (94,948
              )Gross
                  profit
              
              
              27,404
              
              
              31,499
              
              
              32,864Operating
                  expenses:Research
                  and development
              
              
              18,794
              
              
              21,157
              
              
              24,797Sales
                  and marketing
              
              
              11,013
              
              
              11,464
              
              
              17,203Bad
                  debt
              
              
              549
              
              
              1,115
              
              
              2,257General
                  and administrative
              
              
              11,042
              
              
              12,682
              
              
              16,039Amortization
                  of intangibles
              
              
              723
              
              
              942
              
              
              1,060Restructuring
              
              
              413
              
              
              1,150
              
              
              2,183Total
                  operating expenses
              
              
              42,534
              
              
              48,510
              
              
              63,539Loss
                  from operations
              
              
              (15,130
              )
              
              (17,011
              )
              
              (30,675
              )Interest
                  expense
              
              
              -
              
              
              (9
              )
              
              (362
              )Interest
                  and other income
              
              
              3,217
              
              
              1,397
              
              
              1,589Loss
                  before income taxes
              
              
              (11,913
              )
              
              (15,623
              )
              
              (29,448
              )Income
                  tax credits
              
              
              1,938
              
              
              546
              
              
              246Net
                  loss
              
              
              (9,975
              )
              
              (15,077
              )
              
              (29,202
              )Deemed
                  dividend associated with beneficial conversionof
                  preferred stock
              
              
              (10,439
              )
              
              -
              
              
              (9,179
              )Net
                  loss attributable to common stockholders
              
              $
              (20,414
              )
              $
              (15,077
              )
              $
              (38,381
              )Net
                  loss per share attributable to commonstockholders
                  - basic and diluted
              
              $
              (0.56
              )
              $
              (0.39
              )
              $
              (0.96
              )Weighted
                  average shares outstanding - basic and diluted
              
              
              36,441,932
              
              
              38,736,939
              
              
              40,026,411
  *The
          accompanying notes are an integral part of these financial
          statements*
  F-4
 
 **CONSOLIDATED
                  STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY****(in
                  thousands, except for share
                  data)**
  **Preferred
                  Stock**
              
              **Common
                  Stock****Additional**
              
              
              
              **Note**
              
              **Other****Par**
              
              
              
              **Par**
              
              **Paid-In**
              
              **Treasury**
              
              **Receivable**
              
              **Comprehensive**
              
              **Accumulated****Shares**
              
              **Value**
              
              **Shares**
              
              **Value**
              
              **Capital**
              
              **Stock**
              
              **Stockholder**
              
              **Income**
              
              **Deficit**
              
              **Total****Balance
                  at January 1, 2004**
              
              
              -
              
              
              -
              
              
              35,479,851
              
              $
              11
              
              $
              215,209
              
              $
              (797
              )
              $
              (130
              )
              $
              1,839
              
              $
              (167,119
              )
              $
              49,013Comprehensive
                  loss:Net
                  loss
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (9,975
              )
              
              (9,975
              )Other
                  comprehensive income:Movement
                  in the fair value of cash flow hedges:Unrealized
                  gains on foreign currency cash flow hedges
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              590Less:
                  reclassification of adjustment for gains realized in net
                  income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (2,011
              )(1,421
              )
              
              
              
              
              (1,421
              )Comprehensive
                  loss
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (11,396
              )Decrease
                  in notes receivable
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              43
              
              
              
              
              
              
              
              
              43Issuance
                  of Series A preferred shares
              
              
              73,000
              
              
              
              
              
              
              
              
              
              
              
              29,132
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              29,132Deemed
                  dividend associated with beneficial conversion of preferred
                  stock
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              10,439
              
              
              
              
              
              
              
              
              
              
              
              (10,439
              )
              
              -Issuance
                  of common stock - employee share purchase plan
              
              
              
              
              
              
              
              
              211,754
              
              
              
              
              
              373
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              373Exercise
                  of stock options
              
              
              
              
              
              
              
              
              1,118,462
              
              
              
              
              
              1,577
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              1,577Sale
                  of treasury stock
              
              
              
              
              
              
              
              
              834,560
              
              
              
              
              
              3,626
              
              
              797
              
              
              
              
              
              
              
              
              
              
              
              4,423**Balance
                  at December 31, 2004**
              
              
              73,000
              
              
              -
              
              
              37,644,627
              
              $
              11
              
              $
              260,356
              
              $
              -
              
              $
              (87
              )
              $
              418
              
              $
              (187,533
              )
              $
              73,165Comprehensive
                  loss:Net
                  loss
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (15,077
              )
              
              (15,077
              )Other
                  comprehensive income:Movement
                  in the fair value of cash flow hedges:Unrealized
                  losses on foreign currency cash flow hedges
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (130
              )Less:
                      reclassification of adjustment for gains realized in net
                      income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (418
              )(548
              )
              
              
              
              
              (548
              )Comprehensive
                  loss
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (15,625
              )Issuance
                  of common stock - employee share purchase plan
              
              
              
              
              
              
              
              
              130,630
              
              
              
              
              
              485
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              485Exercise
                  of stock options
              
              
              
              
              
              
              
              
              883,390
              
              
              
              
              
              1,332
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              1,332Issuance
                  of common stock - ArelNet acquisition
              
              
              
              
              
              
              
              
              1,001,325
              
              
              1
              
              
              4,751
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              4,752Stock
                  compensation from the issuance of stock options -ArelNet
                  acquisition
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              309
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              309Issuance
                  of common stock - 401K plan
              
              
              
              
              
              
              
              
              8,299
              
              
              
              
              
              45
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              45Restricted
                  stock compensation
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              148
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              148**Balance
                  at December 31, 2005**
              
              
              73,000
              
              
              -
              
              
              39,668,271
              
              $
              12
              
              $
              267,426
              
              $
              -
              
              $
              (87
              )
              $
              (130
              )
              $
              (202,610
              )
              $
              64,611Comprehensive
                  loss:Net
                  loss
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (29,202
              )
              
              (29,202
              )Other
                  comprehensive income:Movement
                  in the fair value of cash flow hedges:Realized
                  losses on foreign currency cash flow hedges
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              130
              
              
              
              
              
              130Comprehensive
                  loss
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (29,072
              )Exchange
                  of Series A preferred shares
              
              
              (73,000
              )
              
              
              
              
              
              
              
              
              
              
              (21,827
              )
              
              
              
              
              
              
              
              
              
              
              
              
              
              (21,827
              )Issuance
                  of Series B preferred shares
              
              
              200,690
              
              
              
              
              
              
              
              
              
              
              
              50,501
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              50,501Deemed
                  dividend associated with beneficial conversion of preferred
                  stock
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              9,179
              
              
              
              
              
              
              
              
              
              
              
              (9,179
              )
              
              -Issuance
                  of common stock - employee share purchase plan
              
              
              
              
              
              
              
              
              208,102
              
              
              
              
              
              332
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              332Exercise
                  of stock options
              
              
              
              
              
              
              
              
              453,304
              
              
              
              
              
              657
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              657Issuance
                  of common stock - 401K plan
              
              
              
              
              26,541
              
              
              
              
              
              66
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              66Issuance
                  of restricted stock
              
              
              
              
              
              
              
              
              24,692Stock
                  compensation expense
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              2,434
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              2,434**Balance
                  at December 31, 2006**
              
              
              200,690
              
              
              -
              
              
              40,380,910
              
              $
              12
              
              $
              308,768
              
              $
              -
              
              $
              (87
              )
              $
              -
              
              $
              (240,991
              )
              $
              67,702
  *The
          accompanying notes are an integral part of these financial
          statements*
  F-5
 
 **AIRSPAN
                  NETWORKS INC.****CONSOLIDATED
                  STATEMENTS OF CASH FLOWS****(in
                  thousands)**
  **For
                  the Years Ending December 31,****2004**
              
              **2005**
              
              **2006****Cash
                  flows from operating activities**Net
                  loss
              
              $
              (9,975
              )
              $
              (15,077
              )
              $
              (29,202
              )Adjustments
                  to reconcile net loss to net cash used inoperating
                  activities:Depreciation
                  and amortization
              
              
              2,546
              
              
              2,817
              
              
              3,789Loss
                  on sale of property, plant and equipment
              
              
              136
              
              
              57
              
              
              88Accrued
                  interest on long-term debt
              
              
              -
              
              
              -
              
              
              262Non-cash
                  stock compensation
              
              
              -
              
              
              193
              
              
              2,511Changes
                  in operating assets and liabilities:Increase
                  in receivables
              
              
              (8,743
              )
              
              (1,816
              )
              
              (7,153
              )Decrease/(increase)
                  in inventories
              
              
              10,077
              
              
              (3,440
              )
              
              (6,774
              )Decrease/(increase)
                  in other current assets
              
              
              (2,541
              )
              
              1,869
              
              
              (2,213
              )Increase/(decrease)
                  in accounts payables
              
              
              16,864
              
              
              (411
              )
              
              (8,738
              )Increase/(decrease)
                  in deferred revenue
              
              
              (362
              )
              
              867
              
              
              5,142Increase/(decrease)
                  in customer advances
              
              
              (10,280
              )
              
              8,760
              
              
              (12,270
              )Increase/(decrease)
                  in other accrued expenses
              
              
              1,583
              
              
              (854
              )
              
              2,615Decrease
                  in other operating assets
              
              
              (233
              )
              
              (211
              )
              
              1,379Net
                  cash used in operating activities
              
              
              (928
              )
              
              (7,246
              )
              
              (50,564
              )**Cash
                  flows from investing activities**Purchase
                  of property, plant and equipment
              
              
              (2,151
              )
              
              (3,114
              )
              
              (3,136
              )Purchase
                  of investment securities
              
              
              -
              
              
              (16,669
              )
              
              (31,640
              )Proceeds
                  from sale of investment securities
              
              
              -
              
              
              10,649
              
              
              27,427Cost
                  of acquisition, net of cash acquired
              
              
              -
              
              
              (5,945
              )
              
              -Net
                  cash used in investing activities
              
              
              (2,151
              )
              
              (15,079
              )
              
              (7,349
              )**Cash
                  flows from financing activities**Net
                  proceeds from issuance of common stock
              
              
              373
              
              
              485
              
              
              -Net
                  proceeds from issuance of preferred stock
              
              
              29,132
              
              
              -
              
              
              28,674Borrowings
                  under line of credit
              
              
              -
              
              
              -
              
              
              2,500Repayment
                  of borrowings under line of credit
              
              
              -
              
              
              -
              
              
              (2,500
              )Sale
                  of treasury stock
              
              
              4,423
              
              
              -
              
              
              -Proceeds
                  from the exercise of stock options
              
              
              1,577
              
              
              1,332
              
              
              657Issuance
                  of common stock under employee share purchase plan
              
              
              -
              
              
              -
              
              
              332Decrease
                  in notes receivable from stockholder
              
              
              43
              
              
              -
              
              
              -Restricted
                  cash movement, net
              
              
              (99
              )
              
              (1,648
              )
              
              -Net
                  cash provided by financing activities
              
              
              35,449
              
              
              169
              
              
              29,663Increase/(decrease)
                  in cash and cash equivalents
              
              
              32,370
              
              
              (22,156
              )
              
              (28,250
              )**Cash
                  and cash equivalents, beginning of period**
              
              
              33,926
              
              
              66,296
              
              
              44,140**Cash
                  and cash equivalents, end of period**
              
              $
              66,296
              
              $
              44,140
              
              $
              15,890**Supplemental
                  disclosures of cash flow information**Interest
                  paid
              
              $
              -
              
              $
              -
              
              $
              24Income
                  taxes paid
              
              $
              23
              
              $
              20
              
              $
              21**Non-cash
                  investing and financing activities**Issuance
                  of stock related to acquisitions
              
              $
              -
              
              $
              5,061
              
              $
              -
 
 *The
          accompanying notes are an integral part of these financial
          statements*
  F-6
 AIRSPAN
              NETWORKS INC.
 NOTES
              TO
              THE FINANCIAL STATEMENTS - (Continued)
 (in
              thousands, except for share and per share data)
 **1.
        THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**
 
 *Business*
  The
        Company is a global supplier of broadband fixed wireless access equipment
        and
        other technologies, including VoIP switching, that allows communications
        service
        providers, Internet service providers 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. The Company’s systems are
        based on a number of digital wireless technologies that can be deployed rapidly
        and cost effectively, providing an alternative or complement to traditional
        cellular, copper wire, cable, or fiber-optic communications access networks.
        The
        primary market for our systems has historically been a subset of the fixed
        broadband wireless access systems market, which is the fixed point-to-multipoint
        market in radio frequencies below 6.0GHz. The Company’s products also include
        software tools that optimize geographic coverage and provide ongoing network
        management. To facilitate the deployment and operation of its systems, the
        Company also offers network installation, training and support services.
        The
        Company’s main operations are in Uxbridge, United Kingdom, and Airport City,
        Israel, with corporate headquarters in Boca Raton, Florida.
  *Principles
        of consolidation*
  The
        consolidated financial statements include the accounts of the Company and
        its
        subsidiaries, all of which are wholly owned. All significant inter-company
        transactions and balances are eliminated on consolidation.
  *Use
        of estimates*
  The
        preparation of financial statements in conformity with generally accepted
        accounting principles requires management to make estimates and assumptions
        that
        affect the amounts reported in the financial statements and accompanying
        notes.
        Actual results could differ from those estimates.
  *Cash
        and cash equivalents*
  The
        Company considers all highly liquid investments with a maturity of three
        months
        or less when purchased to be cash equivalents. Cash and cash equivalents
        are all
        maintained in either bank accounts or investments that are of investment
        grade
        quality and are not subject to significant market risk.
  *Short-term
        investments*
 
 The
        Company accounts for its investments in marketable securities using Statement
        of
        Financial Accounting Standard No. 115, “Accounting for Certain Investments in
        Debt and Equity Securities” (“SFAS 115”).
  Debt
        securities with original maturities greater than three months and with current
        maturities less than one year are considered short-term investments. They
        are of
        investment grade quality and are not subject to significant market risk.
        Short-term investments are classified as held-to-maturity when the Company
        has
        the positive intent and ability to hold the securities to maturity and are
        stated at amortized cost.
 
 Short-term
        investments include auction rate securities of $6.3 million at December 31,
        2006. Auction rate securities are long-term variable rate bonds tied to
        short-term interest rates that are reset through a “Dutch auction” process which
        occurs every 7 - 35 days. The holder can participate in the auction and
        liquidate the auction rate securities to prospective buyers through their
        broker/dealer. We consider them to be current assets based on the availability
        of these assets to fund current operations. There were no such securities
        at the
        end of 2005.
 
 *Accounts
        receivable and long term accounts receivable*
  Accounts
        receivable and long term accounts receivable represent receivables from
        customers in the ordinary course of business. These are recorded at the invoiced
        amount and do not bear interest. Receivables are recorded net of the allowance
        for doubtful accounts in the accompanying consolidated balance sheets. The
        Company evaluates the collectibility of its accounts receivable based on
        a
        combination of factors. The Company regularly analyzes its customer accounts
        overdue more than 90 days, and when it becomes aware of a specific customer’s
        inability to meet its financial obligations, the Company records a specific
        reserve to reduce the related receivable to the amount it reasonably believes
        to
        be collectible. When collection efforts cease, the account and related reserve
        are written off. If circumstances related to specific customers change, the
        Company’s estimates of the recoverability of receivables are adjusted. At
        December 31, 2006 and 2005, the allowance for doubtful accounts was $5.5
        million
        and $3.5 million, respectively.
  F-7
 AIRSPAN
          NETWORKS INC.
 NOTES
          TO
          THE FINANCIAL STATEMENTS - (Continued)
 (in
          thousands, except for share and per share data)
  *Fair
        value of financial instruments*
  The
        financial instruments of the Company consist mainly of cash and cash
        equivalents, restricted cash, short-term investments, accounts receivable,
        long
        term accounts receivable, accounts payable, long-term debt and foreign currency
        forward contracts. The estimated fair values approximate amounts at which
        these
        financial instruments could be exchanged in a current transaction between
        willing parties. Therefore, fair values are based on estimates using present
        value and other techniques, which are significantly affected by assumptions
        used
        concerning the amount and timing of, estimated future cash flows and discount
        rates, which reflect varying degrees of risk. Accordingly, although the carrying
        amount of all financial instruments approximates fair value at December 31,
        2006
        and 2005, they are not necessarily indicative of the amounts that the Company
        could realize in a current market exchange in the future.
  *Derivative
        financial instruments and hedging activities*
  The
        Company enters into forward and option contracts to manage its exposure to
        fluctuations in foreign exchange rates. The Company does not hold any derivative
        instruments for trading purposes. As part of the Company’s risk management
        policy the Company assesses its foreign currency risk on each transaction
        on a
        case-by-case basis. The Company will only enter into forward and option
        contracts after taking into account the size of the transaction, expected
        volatility of the currency and prevailing foreign currency exchange rates.
  Our
        foreign exchange option contracts are designated as hedging the exposure
        to
        changes in the fair value of a recognized asset and the gain or loss is
        recognized in income in the period of change, together with the offsetting
        loss
        or gain on the hedged item attributable to the risk being hedged. There were
        no
        outstanding option contracts at December 31, 2006.
  Our
        foreign exchange forward contracts are designated as hedging the exposure
        to
        variable cash flows of a forecasted transaction. The foreign exchange contracts
        are re-valued at the end of each period using current market exchange
        rates.  Effectiveness
        will be measured by comparing the changes in fair value of the hedge against
        the
        change in the expense being hedged arising from U.S. dollars to U.K. pound
        sterling currency fluctuations since the date of inception. There is no portion
        of the hedging instruments that have been excluded from the assessment of
        effectiveness. The effective portion of the derivatives gain or loss is
        initially reported as a component of other comprehensive income and subsequently
        reclassified into income when the forecast transaction affects earnings.
        Any
        ineffective portion of the derivatives gain or loss is reported in interest
        and
        other income as it arises. In the years 2004, 2005 and 2006 there were no
        ineffective portions. Our cash flow hedges are being used to manage our pound
        sterling foreign currency risk, primarily on our U.K.-based employee salaries,
        facility costs and other U.K. expenses. Our U.K. salaries and expenses are
        accounted for each month and reclassification into earnings from comprehensive
        income will therefore occur every month.
 
 We
        use
        two types of forward contracts to hedge our pound sterling risk:
  ·
              straight
                  forward contracts that lock in exchange rates for a specific date
                  in the
                  future; and
 ·
              “Forward
                  Extra Plus” contracts that lock in exchange rates only if certain exchange
                  rates are reached over the period of the
                  contract.
  At
        December 31, 2006 there were no forward contracts outstanding.
  During
        2006, 2005 and 2004, the Company recorded, after reclassification of amounts
        into net income, net unrealized losses in other comprehensive income of $nil,
        $130, and $1,421, respectively, related to derivatives that were designated
        as
        cash flow hedging instruments. The tax effects of comprehensive income or
        loss
        were not considered material for the years ended December 31, 2006, 2005
        and
        2004. The change in other comprehensive income of $130 was
        attributable to the settlement during 2006 of forward contracts outstanding
        at
        December 31, 2005.
  F-8
 
 AIRSPAN
        NETWORKS INC.
 NOTES
        TO
        THE FINANCIAL STATEMENTS - (Continued)
 (in
        thousands, except for share and per share data)
  Realized
        gains and losses arising from fair value and cash flow hedges are reported
        in
        interest and other income. Unrealized gains and losses are shown in other
        comprehensive income with the other side of the transaction shown in prepayments
        for gains and accruals for losses. Changes in unrealized gains and losses
        are
        shown in the cash flow statement as adjustments to reconcile net loss to
        net
        cash used in operating activities within either other current assets or other
        accrued expenses, depending on whether the movements relate to gains or
        losses.
  The
        total
        straight forward and “Forward Extra Plus” contracts of pounds sterling that
        matured during the year ended December 31, 2006, was 3 million pounds
        sterling. The effectiveness of the contracts as hedges was approximately
        100%.
  The
        fair
        value of foreign exchange forward and options contracts are determined using
        published rates.
  *Inventories*
  Inventories
        are stated at the lower of cost or market value. Cost includes all costs
        incurred in bringing each product to its present location and condition,
        as
        follows:
  Raw
        materials, consumables and finished goods — average cost
  Work
        in
        progress— cost of direct materials, labor and allocated manufacturing overhead
 
 *Property,
        plant and equipment*
  Property
        plant and equipment are stated at cost. Depreciation is provided on all tangible
        fixed assets at rates calculated to write off the cost, less estimated residual
        value, based on prices prevailing at the date of acquisition of each asset
        evenly over its expected useful life, as follows:
  Leasehold
        improvements — over the minimum lease term
  Plant,
        machinery and equipment — over 2 to 5 years
  Furniture
        and fixtures — over 4 to 5 years
  *Identifiable
        intangible assets*
  Only
        intangible assets purchased are capitalized. The company does not capitalize
        internally generated intangible assets or goodwill. Intangible assets other
        than
        goodwill are amortized using the straight-line method over their estimated
        period of benefit, ranging from one to five years. The Company periodically
        evaluates the recoverability of intangible assets and takes into account
        events
        or circumstances that warrant revised estimates of useful lives or that indicate
        that impairment exists. All of the Company’s intangible assets other than
        goodwill are subject to amortization. At least annually, the Company tests
        its
        identified intangible assets for impairment. In addition, the Company also
        tests
        such intangible assets for impairment whenever events or changes in
        circumstances indicate that the carrying value of identified intangible assets
        may not be recoverable. No impairment expense was recognized in 2006, 2005
        or
        2004.
  *Goodwill
        arising on business combinations*
  Under
        Statement of Financial Accounting Standards 142, “Goodwill and Other Intangible
        Assets,” goodwill is not amortized, but is instead tested for impairment at
        least annually. In addition, the Company also tests its goodwill for impairment
        whenever events or changes in circumstances indicate that the carrying value
        of
        goodwill may not be recoverable. No impairment expense was recognized in
        2006,
        2005 or 2004.
  *Impairment
        of long-lived assets*
  In
        accordance with Statement of Financial Accounting Standards No. 144, “Accounting
        for the Impairment or Disposal of Long-Lived Assets,” the Company reviews its
        long-lived assets for impairment when events or changes in circumstances
        indicate that the carrying value of such assets may not be recoverable. This
        review consists of a comparison of the carrying value of the asset with the
        asset’s expected future undiscounted cash flows. Estimates of expected future
        cash flows represent management’s best estimate based on reasonable and
        supportable assumptions and projections. If the expected future cash flows
        exceed the carrying value of the asset, no impairment is recognized. If the
        carrying value of the asset exceeds the expected future cash flows, impairment
        exists and is determined by the excess of the carrying value over the fair
        value
        of the asset. Any impairment provisions recognized are permanent and may
        not be
        restored in the future. No impairment expense was recognized in 2006, 2005
        or
        2004.
  F-9
 
 AIRSPAN
        NETWORKS INC.
 NOTES
        TO
        THE FINANCIAL STATEMENTS - (Continued)
 (in
        thousands, except for share and per share data)
  *Other
        non-current assets*
  Other
        non-current assets represent the value of accumulated Israel severance pay
        funds
        and bank guarantees issued to landlords.  Under Israel’s Severance Pay Law,
        Israel employees are entitled to one month of the employee's current
        salary, multiplied by the number of years of employment.  The Company’s
        liability for these employees is fully provided by monthly deposits with
        severance pay funds and by an accrual.  The value of these funds is
        recorded in other non-current assets in the Company’s balance sheet and the
        liability is recorded in other accrued expenses. The deposited funds include
        earnings accumulated up to the balance sheet date. The deposited funds may
        be
        withdrawn only upon the fulfillment of the obligation pursuant to Israel's
        Severance Pay Law or labor agreements.
  Israel
        severance pay expenses for the years ended December 31, 2004, 2005 and 2006,
        were $260, $333 and $484, respectively.
  *Restricted
        cash*
  Restricted
        cash consists of cash pledged as collateral to secure the guarantees described
        in Note 11 and cash held on behalf of employees to purchase Airspan stock
        under
        our Employee Share Purchase Plan.
  **Years
                  ended December 31,****2005**
              
              **2006**Bank
                  guarantees - with Customers
              
              $
              1,787
              
              $
              999Employee
                  cash held under the Employee Share Purchase Plan
              
              
              216
              
              
              112Total
              
              $
              2,003
              
              $
              1,111
 
 *Research
        and development*
  All
        research and development expenditures are charged to research and development
        expense in the period incurred.
  *Revenue
        recognition*
  Our
        material revenue streams are the result of a range of activities. Management
        must use significant judgment in determining how to apply the current accounting
        standards and interpretations. Our revenues may fluctuate from period to
        period
        based on the mix of products sold and services provided as well as the customers
        involved.
 
 Our
        revenue recognition policy reflects the fact that our revenue streams are
        primarily derived from (i) sales of hardware and software that do not require
        significant customization and (ii) services rendered (e.g. extended warranty,
        product maintenance, radio planning, consulting services, etc).
 
 In
        any
        one arrangement, we sometimes generate revenue from more than one of these
        revenue streams. In those instances, there is an added level of complexity
        in
        determining the appropriate method of revenue recognition (See the Section
        below
        entitled - “Revenue Arrangements that include Multiple Elements”).
 
 Management
        must apply significant judgment in determining how to apply the current
        accounting standards and interpretations related to revenue
        recognition.
  F-10
 AIRSPAN
          NETWORKS INC.
 NOTES
          TO
          THE FINANCIAL STATEMENTS - (Continued)
 (in
          thousands, except for share and per share data)
 Subject
        to the more specific revenue recognition policies discussed below, we recognize
        revenue when all of the following conditions are met:
 
 ·  persuasive
        evidence of an arrangement with a customer exists;
  ·  delivery
        has occurred or services have been rendered;
  ·  the
        price
        for the product or service is fixed or determinable; and
  ·  collection
        of the receivable is reasonably assured.
 
 For
        new
        products, if we can reasonably and reliably estimate the amount of warranty
        obligations, we recognize revenue on sales of such products that otherwise
        meet
        the criteria for revenue recognition. For the new WiMAX products introduced
        in
        2005 and 2006, we believe we have the ability to reasonably and reliably
        estimate the amount of warranty obligations and we have, therefore, recognized
        revenue on sales of such products.
 
 The
        following are our specific revenue recognition policies:
 
 *Delivery
        of Hardware:*
 
 Delivery
        of hardware is considered to have occurred upon shipment provided that risk
        of
        loss and title in certain jurisdictions has been transferred to the customer.
        For arrangements where the criteria for revenue recognition have not been
        met
        because legal title or risk of loss on products did not transfer to the buyer
        until final payment had been received or where delivery had not occurred,
        revenue is deferred to a later period when title or risk of loss passes either
        on delivery or on receipt of payment from the customer.
 
 *Assessment
        of Creditworthiness:*
 
 We
        are
        required to assess the creditworthiness of our customers. We use judgment
        in
        assessing their creditworthiness, and the criteria by which each judgment
        is
        made may change in future periods and, therefore, may change future revenue
        recognition. The collectibility of receivables is critical in determining
        whether revenue should be recognized. We will defer revenue if we are uncertain
        as to whether we will be able to collect the receivable. As a result, our
        judgment regarding customer credit quality could significantly impact the
        timing
        and amount of revenue recognition.
  *Extended
          Payment Terms:*
 
 We
          provide extended payment terms to certain customers. For these customers,
          the
          agreement is considered to have a price that is fixed or determinable if
          the
          Company has the intent and ability to fully collect from the customer under
          these terms without making additional concessions.  We assess our ability
          to collect without further concessions by considering the Company’s history of
          successfully collecting from the customer under the original payment
          terms.  Alternatively, or in addition, we consider the current and expected
          creditworthiness of the customer and the payment terms in relation to the
          expected useful and technological life of the product.  If it is expected,
          at the outset of the arrangement, that concessions will be required in
          the
          future in order to collect, the agreement is not considered to have a price
          that
          is fixed or determinable.  In such cases, revenue for delivered products is
          generally deferred until the fees become legally due and payable. In certain
          cases where there have previously been collection issues, revenue is recognized
          as cash is collected. Therefore, estimates and judgment in this area can
          impact
          the timing of revenue recognition.
 *Product
        Revenue:*
 
 Revenue
        from product sales, including sales to distributors and resellers, is generally
        recognized at the time the product is delivered to the customer. Revenue
        is
        deferred when customer acceptance is required, rights of return exist,
        collection of the receivable becomes less than assured or other significant
        obligations remain that are essential to the functionality of the delivered
        products. Revenue is then recognized when these conditions have been satisfied.
        The estimated cost of any post-sale obligations, including basic product
        warranties, is accrued at the time revenue is recognized based on a number
        of
        factors, which include historical experience and known conditions that may
        impact future warranty costs. Revenue from sales to resellers and distributors
        is generally recognized only when the resellers are creditworthy in their
        own
        right or have an identified creditworthy end customer for our products and
        services.
 
 F-11
 AIRSPAN
          NETWORKS INC.
 NOTES
          TO
          THE FINANCIAL STATEMENTS - (Continued)
 (in
          thousands, except for share and per share data)
  *Service
          Revenue:*
 Revenue
        from time-and-material service contracts is recognized once the services
        have
        been performed. Revenue from service contracts pursuant to which we provide
        services over a period of time is recognized ratably over the given contract
        period. Revenue is recognized on fixed-price service contracts when the services
        have been completed.
 
 *Revenue
        Arrangements that include Multiple Elements:*
 
 In
        certain cases, we enter into agreements with customers whereby we are obligated
        to deliver multiple products and/or multiple services (multiple elements).
        In
        these transactions, we allocate the total revenue to be earned under the
        arrangement among the various elements based on their relative fair value.
        Revenue for these transactions is recognized on each element when the revenue
        recognition criteria have been met for that element. Revenue is recognized
        for
        delivered products and services only if: (i) the above Product Revenue or
        Service Revenue criteria is met; (ii) undelivered products or services are
        not
        essential to the functionality of the delivered elements, (iii) payment for
        the
        delivered products or services is not contingent upon delivery of the remaining
        products or services; and (iv) the fair value for each of the undelivered
        elements is known. If objective and reliable evidence of fair value exists
        for
        all units of accounting in the contract, revenue is allocated to each unit
        of
        accounting or element based on relative fair values. In situations where
        there
        is objective and reliable evidence of fair value for all undelivered elements,
        but not for delivered elements, the residual method is used to allocate the
        contract consideration. Under the residual method, the amount of revenue
        allocated to delivered elements equals the total arrangement consideration
        less
        the aggregate fair value of any undelivered elements. Each unit of accounting
        is
        then accounted for under the applicable revenue recognition guidance. If
        fair
        value does not exist for any undelivered element, revenue is not recognized
        until the earlier of the time that (i) the undelivered element is delivered
        or
        (ii) fair value of the undelivered element exists, unless the undelivered
        element is a service, in which case revenue is recognized as the service
        is
        performed once the service is the only undelivered element. Our determination
        of
        whether deliverables within a multiple element arrangement can be treated
        separately for revenue recognition purposes involves significant estimates
        and
        judgment, such as whether fair value can be established on undelivered
        obligations and/or whether delivered elements have stand-alone value to the
        customer. Changes to our assessment of the accounting units in an arrangement
        and/or our ability to establish fair values could significantly change the
        timing of revenue recognition. Our assessment of which revenue recognition
        guidance is appropriate to account for a deliverable also can involve
        significant judgment .
 
 *Contract
        Accounting:*
 
 When
        the
        Company performs a specific development type contract for a customer subject
        to
        contract accounting under Statement of Position 81-1, “Contract Accounting”
(“SOP 81-1”), we may adopt the percentage-of-completion method or the
        completed-contract method to recognize revenues under the contract.
        Alternatively, where contracts under which separate units of output are
        produced, where progress can be measured on the basis of units of work
        completed, output is used to measure results directly and is generally the
        best
        measure of progress toward completion in circumstances in which a reliable
        measure of output can be established and the agreement contains milestones
        at
        which non-refundable payments will be made by the customer.
  *Contingencies*
  *Guarantees*
  FASB
        Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for
        Guarantees, Including Indirect Guarantees of Indebtedness of Others” (“FIN 45”)
        elaborates on the existing disclosure requirements for most guarantees,
        including loan guarantees such as standby letters of credit. It also clarifies
        that at the time a company issues a guarantee, the company must recognize
        an
        initial liability for the fair value, or market value of the obligations
        it
        assumes under the guarantee and must disclose that information in its interim
        and annual financial statements. The provisions related to recognizing a
        liability at inception of the guarantee for the fair value of the guarantor’s
        obligations do not apply to product warranties or to guarantees accounted
        for as
        derivatives. We did not believe any accruals were required at December 31,
        2006
        under FIN 45.
  *Warranty*
  The
        Company provides a limited warranty for periods, usually ranging from 12
        to 24
        months, to all purchasers of its new equipment. Warranty expense is accrued
        as
        of the date revenue is recognized on the sale of equipment and is recognized
        as
        a cost of revenue. The expense is estimated based on analysis of historic
        costs
        and other relevant factors and is amortized over the warranty period. Management
        believes that the amounts provided for are sufficient for all future warranty
        cost on equipment sold through December 31, 2006 but if actual product failure
        rates, material usage or service delivery costs differ from estimates, revisions
        to the estimated warranty liability would be required.
  F-12
 
 AIRSPAN
        NETWORKS INC.
 NOTES
        TO
        THE FINANCIAL STATEMENTS - (Continued)
 (in
        thousands, except for share and per share data)
  Information
        regarding the changes in the Company’s product warranty liabilities is as
        follows for the years ended December 31, 2006, 2005 and 2004.
  **Balance
                  at beginning of period**
              
              **Acquired****on****Acquisition**
              
              **Accrual
                  for warranties issued during the period**
              
              **Accruals
                  related to pre-exising warranties (including changes in
                  estimates)**
              
              **Settlements
                  made (in cash or in kind) during the period**
              
              **Balance
                  at end of period**Product
                  warranty liability year ended
                December
                  31, 2006
              
              $
              410
              
              
              -
              
              
              1,190
              
              
              284
              
              
              (899
              )
              $
              985Product
                  warranty liability year ended
                December
                  31, 2005
              
              $
              604
              
              
              134
              
              
              582
              
              
              (482
              )
              
              (428
              )
              $
              410Product
                  warranty liability year ended
                December
                  31, 2004
              
              $
              652
              
              
              -
              
              
              1,003
              
              
              (299
              )
              
              (752
              )
              $
              604
 
 *Other
        guarantees*
  The
        Company had delivered to its landlords and customers bank guarantees aggregating
        to $6,434 at December 31, 2006 and $3,119 at December 31, 2005. The foregoing
        figures represent the maximum potential amount of future payments the Company
        could be required to make under these guarantees. The guarantees secure payment
        or performance obligations of the Company under contracts. The Company has
        pledged cash to the banks as collateral for $2,190 of the guarantees. These
        pledges have been classified as restricted cash. $4,244 of the guarantees
        has
        been issued under the line of credit provided by Silicon Valley Bank, which
        does
        not require any related pledge of cash collateral. The Company has not
        recognized any liability for these guarantees as in management’s opinion the
        likelihood of having to make payments under the guarantees is remote. These
        guarantees will all expire before the end of 2009 with the majority expiring
        in
        2007.
 
 In
        addition to the guarantees mentioned above, the Company has issued a guarantee
        to Tekes, the main public funding organization for research and development
        in
        Finland, for the repayment of loans taken out by its fully consolidated
        subsidiary, Radionet. These loans total $1,707 at December 31, 2006, which
        includes $153 of accrued interest, and are recorded in long-term debt. This
        guarantee expires only when Radionet has fulfilled all its obligations to
        Tekes.
 
 *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 former 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.
  F-13
 AIRSPAN
          NETWORKS INC.
 NOTES
          TO
          THE FINANCIAL STATEMENTS - (Continued)
 (in
          thousands, except for share and per share data)
 This
        action is being coordinated with approximately three hundred other nearly
        identical actions filed against other companies. On July 15, 2002, the Company
        moved to dismiss all claims against it and the Individual Defendants. On
        October
        9, 2002, the Court dismissed the Individual Defendants from the case without
        prejudice based upon Stipulations of Dismissal filed by the Plaintiffs and
        the
        Individual Defendants. This dismissal disposed of the Section 15 and 20(a)
        control person claims without prejudice, since these claims were asserted
        only
        against the Individual Defendants. On February 19, 2003, the Court dismissed
        the
        Section 10(b) claim against us, but allowed the Section 11 claim to proceed.
        On
        October 13, 2004, the Court certified a class in six of the approximately
        300
        other nearly identical actions (the “focus cases”). In her Opinion, Judge
        Scheindlin noted that the decision is intended to provide strong guidance
        to all
        parties regarding class certification in the remaining cases. Judge Scheindlin
        determined that the class period for Section 11 claims is the period between
        the
        IPO and the date that unregistered shares entered the market. Judge Scheindlin
        also ruled that a proper class representative of a Section 11 class must
        (1)
        have purchased shares during the appropriate class period; and (2) have either
        sold the shares at a price below the offering price or held the shares until
        the
        time of suit. In two of the six cases, the class representatives did not
        meet
        the above criteria and therefore, the Section 11 cases were not certified.
        The
        Underwriter Defendants appealed the decision and the Second Circuit vacated
        the
        district court’s decision granting class certification in those six cases on
        December 5, 2006. Plaintiffs have not yet moved to certify a class in the
        Airspan case.
  Airspan
        has approved a settlement agreement and related agreements which set forth
        the
        terms of a settlement between Airspan, the Individual Defendants, the Plaintiff
        class and the vast majority of the other approximately 300 issuer defendants
        and
        the individual defendants currently or formerly associated with those companies.
        It is unclear what impact the Second Circuit’s decision vacating class
        certification in the six focus cases will have on the settlement, which has
        not
        yet been finally approved by the Court. On December 14, 2006, Judge Scheindlin
        held a hearing. Plaintiffs informed the Court that they planned to file a
        petition for rehearing and rehearing en banc. The Court stayed all proceedings,
        including a decision on final approval of the settlement and any amendments
        of
        the complaints, pending the Second Circuit’s decision on Plaintiffs’ petition
        for rehearing. Plaintiffs filed the petition for rehearing and rehearing
        en banc
        on January 5, 2007.
 
 Among
        other provisions, the settlement, if it receives final approval by the Court,
        provides for a release of Airspan and the individual defendants for the conduct
        alleged in the action to be wrongful. Airspan would agree to undertake certain
        responsibilities, including agreeing to assign away, not assert, or release
        certain potential claims Airspan may have against its underwriters. The
        settlement agreement also provides a guaranteed recovery of $1 billion to
        Plaintiffs for the cases relating to all of the approximately 300 issuers.
        To
        the extent that the underwriter defendants settle all of the cases for at
        least
        $1 billion, no payment will be required under the issuers’ settlement agreement.
        To the extent that the underwriter defendants settle for less than $1 billion,
        the issuers are required to make up the difference. On April 20, 2006, JPMorgan
        Chase and the Plaintiffs reached a preliminary agreement to settle for $425
        million. The JPMorgan Chase preliminary agreement has not yet been approved
        by
        the Court. In an amendment to the issuers’ settlement agreement, the issuers’
insurers agreed that the JPMorgan preliminary agreement, if approved, would
        offset the insurers’ obligation to cover the remainder of Plaintiffs’ guaranteed
        $1 billion recovery by 50% of the value of the JP Morgan settlement, or $212.5
        million. Therefore, if the JP Morgan preliminary agreement to settle is
        preliminarily and then finally approved by the Court, then the maximum amount
        that the issuers’ insurers will be potentially liable for is $787.5 million.
        However, future settlements with other underwriters would further reduce
        that
        liability. It is unclear what impact the Second Circuit’s decision vacating
        class certification in the focus cases will have on the JP Morgan preliminary
        agreement.
 
 It
        is
        anticipated that any potential financial obligation of Airspan to Plaintiffs
        pursuant to the terms of the issuers’ settlement agreement and related
        agreements will be covered by existing insurance. The Company currently is
        not
        aware of any material limitations on the expected recovery of any potential
        financial obligation to Plaintiffs from its insurance carriers. Its carriers
        are
        solvent, and the company is not aware of any uncertainties as to the legal
        sufficiency of an insurance claim with respect to any recovery by Plaintiffs.
        Therefore, we do not expect that the settlement will involve any payment
        by
        Airspan. If material limitations on the expected recovery of any potential
        financial obligation to the Plaintiffs from Airspan’s insurance carriers should
        arise, Airspan’s maximum financial obligation to Plaintiffs pursuant to the
        settlement agreement would be less than $3.4 million. However, if the JPMorgan
        Chase preliminary agreement is preliminarily and then finally approved,
        Airspan’s maximum financial obligation to the Plaintiffs pursuant to the
        settlement agreement would be approximately $2.7 million.
 
 There
        is
        no assurance that the court will grant final approval to the issuers’
settlement. If the settlement agreement is not approved and Airspan is found
        liable, we are unable to estimate or predict the potential damages that might
        be
        awarded, whether such damages would be greater than Airspan’s insurance
        coverage, and whether such damages would have a material impact on our results
        of operations or financial condition in any future period.
 
 Except
        as
        set forth above, we are not currently subject to any other material legal
        proceedings. We may from time to time become a party to various other legal
        proceedings arising in the ordinary course of our business.
  F-14
 AIRSPAN
          NETWORKS INC.
 NOTES
          TO
          THE FINANCIAL STATEMENTS - (Continued)
 (in
          thousands, except for share and per share data)
  *Shipping
        and handling costs*
  Shipping
        and handling costs are included within cost of sales.
 
 *Foreign
        currency transactions*
  The
        functional currency of all companies in the group is the U.S. dollar.
        Transactions in currencies other than U.S. dollars are converted at the monthly
        average exchange rate in effect on the date of the transactions.
  Monetary
        assets and liabilities denominated in currencies other than U.S. dollars
        are
        translated into U.S. dollars at the rate of exchange on the balance sheet
        date.
        Transactional gains and losses arising from transactions not denominated
        in U.S.
        dollars are recognized in the consolidated statement of operations as other
        income or expense. The net value of exchange gains and losses during the
        year
        ended December 31, 2006 was $0.4 million  of
        which
        $0.1 million related to the reclassification of our forward exchange contracts
        gains from other comprehensive income into part of net loss. The net value
        of
        exchange gains and losses during the year ended December 31, 2005 was $0.1
        million of which $0.4 million related to the reclassification of gains on
        our
        forward exchange contracts from part of other comprehensive income into part
        of
        net loss.
  *Interest
        and other income*
 
 The
        components of interest and other income for the last three years are shown
        in
        the table below:
 
 **Years
                  ended December 31,****2004**
              
              **2005**
              
              **2006**Interest
                  income from cash and investments
              
              $
              670
              
              $
              1,447
              
              $
              1,200Foreign
                  exchange gains and losses
              
              
              2,562
              
              
              17
              
              
              439Other
              
              
              (15
              )
              
              (67
              )
              
              (50
              )Total
              
              $
              3,217
              
              $
              1,397
              
              $
              1,589
 
 *Advertising
        costs*
  Advertising
        costs are expensed at the time the promotion is held or the advertisement
        is
        first aired.
 
 *Comprehensive
        Income*
  The
        Company reports comprehensive income or loss in accordance with the provisions
        of Statement of Financial Accounting Standards No. 130 “Reporting Comprehensive
        Income” (“SFAS No. 130”). SFAS No. 130 establishes standards for reporting
        comprehensive income and its components in financial statements. Comprehensive
        income or loss, as defined, includes all changes in equity (net assets) during
        a
        period from non-owner sources. Tax effects of other comprehensive income
        or loss
        are not considered material for any period. The Company’s only source of other
        comprehensive income is from its foreign exchange forward
        contracts.
  *Defined
        contribution plan expense.*
  The
        Company contributes to defined contribution plans for all eligible employees.
        The Company recorded expenses of $1,230, $1,523 and $2,086 in 2004, 2005
        and
        2006, respectively. Employer contributions are accrued as earned by the
        employees.
 
 *Concentration
        of credit risk*
  Financial
        instruments, which potentially subject Airspan to concentration of credit
        risk,
        consist primarily of cash and cash equivalents, short-term investments and
        accounts receivable. Airspan places its cash and cash equivalents and short-term
        investments only in highly rated financial instruments.
  F-15
 AIRSPAN
          NETWORKS INC.
 NOTES
          TO
          THE FINANCIAL STATEMENTS - (Continued)
 (in
          thousands, except for share and per share data)
 Airspan’s
        accounts receivable are derived from sales of its products, and approximately
        97%, 93% and 92% of product sales were to non-U.S. customers for the year
        ended
        December 31, 2004, 2005 and 2006, respectively. One customer in Germany
        accounted for $4.8 million of our account receivable balance at December
        31,
        2006 and $0.1 million at December 31, 2005. Airspan generally requires payment
        in advance or payment security in the form of an irrevocable letter of credit
        for the full amount of significant sales to be in place at the time of shipment,
        except in cases where credit risk is considered to be acceptable.  Airspan’s
        top three customers accounted for 75% of revenue in 2004, 62% of revenue
        in 2005
        and 53% of revenue in 2006.
 
 *Stock
        based compensation*
  Prior
        to
        January 1, 2006, we accounted for awards issued under these plans under the
        recognition and measurement principles of Accounting Principles Board (“APB”)
        Opinion No. 25, “Accounting for Stock Issued to Employees”, and related
        interpretations. In all periods shown prior to January 1, 2006, we valued
        stock-based employee compensation using the intrinsic value method. In December
        2004, the Financial Accounting Standards Board (“FASB”) issued Statement No.
        123R, Share-Based Payment (“SFAS 123R”). This Statement eliminates the use of
        the intrinsic value method described in APB Opinion No. 25, and requires
        an
        entity to measure the cost of employee services received in exchange for
        an
        award of equity instruments based on the grant-date fair value of the award.
        That cost will be recognized over the period during which an employee is
        required to provide service in exchange for the award.
 
 We
        adopted SFAS 123R as of January 1, 2006, using the modified prospective
        transition method. Our consolidated financial statements for 2006 reflect
        the
        impact of SFAS 123R. The consolidated financial statements for prior periods
        have not been restated to reflect, and do not include, the impact of SFAS
        123R.
        The adoption of this statement has resulted in higher reported operating
        expenses for 2006 and will result in higher reported operating expenses in
        our
        future financial statements. Share-based compensation expense recognized
        under
        SFAS 123R for 2006 was $2.5 million.
 
 The
        following table summarizes share-based compensation expense under SFAS 123R
        for
        the year ended December 31, 2006:
  Research
                  and development
              
              $
              688Sales
                  and marketing
              
              
              818General
                  and administrative
              
              
              971Stock-based
                  compensation expense included in operating expense
              
              
              2,477Cost
                  of sales
              
              
              34Total
                  stock-based compensation
              
              $
              2,511
 
 SFAS
        123R
        requires companies to estimate the fair value of share-based awards on the
        date
        of grant using an option-pricing model. The value of the portion of the award
        that is ultimately expected to vest is recognized as an expense in our
        consolidated statement of operations over the requisite service periods.
        Share-based compensation expense recognized in our consolidated statement
        of
        operations for 2006 includes compensation expense for share-based awards
        granted
        (i) prior to, but not yet vested as of December 31, 2005, based on the grant
        date fair value estimated in accordance with the provisions of SFAS 123,
        “Accounting for Stock Based Compensation”, and (ii) subsequent to December 31,
        2005, based on the grant date fair value estimated in accordance with the
        provisions of SFAS 123R. Compensation expense for all share-based awards
        is
        recognized using the straight-line single-option method. Because share-based
        compensation expense is based on awards that are ultimately expected to vest,
        share-based compensation expense has been reduced to account for estimated
        forfeitures. SFAS 123R requires forfeitures to be estimated at the time of
        grant
        and revised, if necessary, in subsequent periods if actual forfeitures differ
        from those estimates. In the Company’s pro forma information required under SFAS
        123 for periods prior to fiscal 2006, the Company accounted for forfeitures
        as
        they occurred.
  To
        calculate option-based compensation under SFAS 123R, we used the Black-Scholes
        option-pricing model, which we had previously used for valuation of option-based
        awards for the pro forma information required under SFAS 123 for periods
        prior
        to fiscal 2006. Our determination of fair value of option-based awards on
        the
        date of grant using the Black-Scholes model is affected by our stock price,
        as
        well as assumptions regarding a number of subjective variables. These variables
        include, but are not limited to, our expected stock price volatility over
        the
        term of the awards, and actual and projected employee stock option exercise
        behaviors.
  F-16
 AIRSPAN
          NETWORKS INC.
 NOTES
          TO
          THE FINANCIAL STATEMENTS - (Continued)
 (in
          thousands, except for share and per share data)
  Pro
            Forma
            Share-Based Compensation under SFAS 123 for 2004 and 2005:
 Had
          (i) compensation expense for our stock option plans been determined based
          on the Black-Scholes valuation method and (ii) the fair value at the grant
          date
          for awards in 2004 and 2005 been determined consistent with the provisions
          of
          SFAS 123, as amended by SFAS 148, “Accounting for Stock Based
          Compensation-Transition and Disclosure,” our net loss and net loss per share for
          2005 would have changed by the pro forma amounts indicated below (in thousands,
          except per share data):
 
 **Year
                    Ended**
                
                **Year
                    Ended****December
                    31, 2004**
                
                **December
                    31, 2005**Net
                    loss applicable to common stockholders - as reported
                
                $
                (20,414
                )
                $
                (15,077
                )Deduct:
                    Total stock-based employee compensation expense determined under
                    fairvalue
                    based method for all awards, net of related tax effects
                
                
                (2,149
                )
                
                (2,341
                )Add:
                    Stock-based compensation expense included in reported net income,
                    net
                    ofrelated
                    tax effects
                
                
                
                
                
                192Net
                    loss attributable to common stockholders - pro forma
                
                $
                (22,563
                )
                $
                (17,226
                )Basic
                    and diluted net loss per share - as reported
                
                $
                (0.56
                )
                $
                (0.39
                )Basic
                    and diluted net loss per share - pro forma
                
                $
                (0.62
                )
                $
                (0.44
                )
 
 Fair
          Value and Assumptions Used to Calculate Fair Value under SFAS 123R and
          SFAS
          123 :
 
 The
          weighted average fair value of each restricted stock share granted under
          our
          equity compensation plans for 2005 and 2006 was $4.12 and $5.23, respectively.
          No restricted stock shares were awarded in 2004. The fair value of each
          restricted stock award is estimated on the date of grant using the intrinsic
          value method.
 
 The
          weighted average fair value of each option granted during 2004, 2005 and
          2006
          was $5.03, $3.16 and $2.66 ,
          respectively. The fair value of each option award is estimated on the date
          of
          grant using the Black-Scholes Option Pricing Model, using the following
          weighted
          average assumptions for 2004, 2005 and 2006:
  **Years
                    Ended December 31,****2004**
                
                **2005**
                
                **2006**Risk-free
                    interest rate
                
                
                3.83
                %
                
                4.06
                %
                
                4.68
                %Expected
                    average years until exercised
                
                
                4
                
                
                5
                
                
                5Expected
                    dividend yield
                
                
                -
                
                
                -
                
                
                -Expected
                    volatility
                
                
                92
                %
                
                86
                %
                
                85
                %
 
 Assumptions
          for Option-Based Awards under SFAS 123R :
 
 The
          expected volatility is determined based on historical price changes of
          our
          common stock over a period of time which approximates the expected option
          term.
 
 The
          risk-free interest rate assumption is based upon observed interest rates
          appropriate for the term of our stock options.
  The
          expected term of options is estimated based on our historical data regarding
          exercise behavior.
 
 The
          dividend yield assumption is based on our history and expectation of no
          dividend
          payouts.
  F-17
 AIRSPAN
            NETWORKS INC.
 NOTES
            TO
            THE FINANCIAL STATEMENTS - (Continued)
 (in
            thousands, except for share and per share data)
 As
          share-based compensation expense recognized in the consolidated statement
          of
          operations is based on awards ultimately expected to vest, it has been
          reduced
          for estimated forfeitures. Forfeitures were estimated based on our historical
          experience.
 
 Assumptions
          for option-based awards under SFAS 123 :
 
 Prior
          to
          2006, we used historical volatility of our stock price in determining expected
          volatility. The risk-free interest rate was based upon assumption of interest
          rates appropriate for the term of our employee stock options. The dividend
          yield
          assumption was based on our history and expectation of dividend payouts.
          Forfeitures prior to 2006 were accounted for as they occurred.
 
 *Electronic
          Equipment Waste Obligations*
 
 In
          June
          2005, the FASB issued FSP No. 143-1, “Accounting for Electronic Equipment Waste
          Obligations” (“FSP 143-1”). FSP 143-1 provides guidance on how commercial users
          and producers of electronic equipment should recognize and measure asset
          retirement obligations associated with the European Union (“EU”) Directive
          2002/96/EC on Waste Electrical and Electronic Equipment. FSP 143-1 is
          effective as of the later of Airspan’s fiscal quarter ended October 2, 2005
          or the date of the adoption of the law by the applicable EU-member country.
          In
          the third quarter of 2005, Airspan adopted FSP 143-1 with respect to those
          EU-member countries that had adopted the directive into country specific
          laws by
          the end of the third quarter. The adoption of the FSP 143-1 did not have
          a
          material impact on Airspan’s 2006 results of operations and financial condition.
          Due to the fact that certain EU-member countries have not yet enacted
          country-specific laws, Airspan cannot yet estimate the impact of applying
          this
          guidance in future periods.
 
 *Segment
          reporting*
  During
          the periods, the Company operated as a single segment - the development
          and
          supply of broadband wireless equipment and technologies.
 
 *Reclassification*
 
 Certain
          prior year amounts have been reclassified to be consistent with the current
          year
          presentation.
 
 *New* *Accounting Pronouncements*
  In
          June
          2006, FASB issued FASB Interpretation Number 48 (FIN 48), “Accounting for
          Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109.” The
          interpretation contains a two step approach to recognizing and measuring
          uncertain tax positions accounted for in accordance with SFAS No 109. The
          first
          step is to evaluate the tax position for recognition by determining if
          the
          weight of available evidence indicates it is more likely than not that
          the
          position will be sustained on audit, including resolution of related appeals
          or
          litigation processes, if any. The second step is to measure the tax benefit
          as
          the largest amount which is more than 50% likely of being realized upon
          ultimate
          settlement. The interpretation will be effective for the Company in the
          first
          quarter of 2007. The Company has assessed the impact the adoption of FIN
          48, and
          it does not expect that FIN 48 will have a significant impact on its financial
          position or results of operations.
  In
          September 2006, the SEC issued Staff Accounting Bulletin No. 108 (“SAB No.
          108”). SAB 108 provides guidance on the consideration of prior year
          misstatements in quantifying current year misstatements for the purpose
          of a
          materiality assessment. The staff of the SEC (the “Staff”) believes registrants
          must quantify the impact of correcting all misstatements, including both
          carryover and reversing effects of prior year misstatements, on a company’s
          current year consolidated financial statements. The Staff prescribes two
          approaches to assessing the materiality of misstatements: the “rollover”
approach, which quantifies misstatements based on the amount of error
          originating in the current year income statement and the “iron curtain
          approach,” which quantifies misstatements based on the effects of correcting the
          cumulative effect existing in the balance sheet at the end of the current
          year.
          If under either approach, misstatements are deemed material, a company
          is
          required to adjust its financial statements, including correcting prior
          year
          financial statements, even if such correction was, and continues to be,
          immaterial to the prior year financial statements. Correcting prior year
          financial statements for immaterial errors would not require a company
          to amend
          previously filed reports, and such corrections may be made the next time
          the
          company files its prior year statements. The Company has adopted SAB No.
          108 in
          2006, which did not have a significant impact on its financial position
          or
          results of operations.
 
 In
          September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS
          No. 157”), which defines fair value of certain assets and liabilities,
          establishes a framework for measuring fair value, and expands disclosures
          about
          fair value measurements. This statement does not require any new fair value
          measurements, but may change current practice for certain entities. This
          statement is effective for financial statements issued for fiscal years
          beginning after November 15, 2007, and interim periods within those years.
          We
          are currently assessing the impact of SFAS No. 157 on our consolidated
          financial
          statements.
  F-18
 AIRSPAN
            NETWORKS INC.
 NOTES
            TO
            THE FINANCIAL STATEMENTS - (Continued)
 (in
            thousands, except for share and per share data)
 **2.
          ACQUISITIONS**
  On
          June
          16, 2005, the Company consummated its acquisition of all of the outstanding
          shares of capital stock of ArelNet Ltd (“ArelNet”). This business combination
          has been accounted for under the purchase method and the results of operations
          of ArelNet from June 16, 2005 to December 31, 2005 are included in the
          consolidated statement of operations of the Company. ArelNet is a pioneer
          in
          VoIP network infrastructure equipment and solutions, including soft switches
          and
          gateways supporting all major VoIP standards. ArelNet has extensive experience
          worldwide, having installed network equipment with a capacity exceeding
          two
          billion minutes per year.
 
 ArelNet
          was acquired primarily to enable the Company to develop carrier grade voice
          telephony using switching and gateway technologies in the Company’s WiMAX data
          platforms. The purchase price of $9.4 million was made up of $4.0 million
          of
          cash, 1,001,325 shares of the Company’s common stock valued at $4.8 million,
          employee stock options to purchase 100,000 shares of the Company’s common stock
          valued at $0.3 million and $0.4 million of direct acquisition costs. Of
          the
          total purchase price, $0.5 million was deposited in escrow with an escrow
          agent
          to secure the sellers’ representations and warranties under the purchase
          agreement. These funds have been released from escrow. The options issued
          to
          ArelNet employees were valued in accordance with FASB Statement No. 123,
          “Accounting for Stock-Based Compensation” and measured at fair value using a
          Black-Scholes option-pricing model. In accordance with the FASB Emerging
          Issues
          Task Force (EITF) issue No . 99-12
          -“Determination of the Measurement Date for the Market Price of Acquirer
          Securities Issued in a Purchase Business Combination” and FASB Statement No.
          141, “Business Combinations”, the 1,001,325 shares issued in connection with the
          transaction were valued based on market prices on the three days before
          the
          measurement date of June 16, 2005.
  The
          preliminary purchase price allocation made in the second quarter of 2005
          (the
“Preliminary Allocation”) was finalized in the third quarter of 2005. The
          Company engaged an independent third party to assist in the valuation of
          intangible assets.
  Calculation
          of purchase price:
  Cash
                    consideration
                
                $
                4,000Fair
                    value of shares issued
                
                
                4,752Fair
                    value of options granted
                
                
                309Direct
                    acquisition costs
                
                
                379Total
                    purchase price
                
                $
                9,440
 
 The
          following table shows the historical book value and the purchase price
          allocation.
  **Purchase****Price****Allocation/****Historical**
                
                **Fair
                    Value****Book
                    Value**
                
                **Adjustments**
                
                **Fair
                    Value**Allocation
                    of purchase price - ArelNet:Cash
                
                $
                18
                
                $
                -
                
                $
                18Accounts
                    receivable
                
                
                1,507
                
                
                (590
                )
                
                917Inventory
                
                
                1,161
                
                
                (789
                )
                
                372Prepaid
                    expenses and other current assets
                
                
                581
                
                
                (19
                )
                
                562Property,
                    plant and equipment, net
                
                
                110
                
                
                161
                
                
                271Other
                    long-term assets
                
                
                1,037
                
                
                (64
                )
                
                973Intangible
                    assets, net:Core
                    developed technology
                
                
                -
                
                
                2,440
                
                
                2,440Other
                    technology
                
                
                -
                
                
                65
                
                
                65Customer
                    relationships
                
                
                -
                
                
                45
                
                
                45Backlog
                
                
                -
                
                
                160
                
                
                160Accounts
                    payable
                
                
                (169
                )
                
                -
                
                
                (169
                )Deferred
                    revenue
                
                
                (1,510
                )
                
                1,490
                
                
                (20
                )Customer
                    advances
                
                
                -
                
                
                (386
                )
                
                (386
                )Accrued
                    taxes
                
                
                (225
                )
                
                -
                
                
                (225
                )Other
                    accrued expenses
                
                
                (2,228
                )
                
                (366
                )
                
                (2,594
                )Goodwill
                
                
                -
                
                
                7,011
                
                
                7,011Total
                    purchase price
                
                $
                282
                
                $
                9,158
                
                $
                9,440
  F-19
 
 AIRSPAN
              NETWORKS INC.
 NOTES
              TO
              THE FINANCIAL STATEMENTS - (Continued)
 (in
              thousands, except for share and per share data)
 All
          intangible assets acquired, other than goodwill, are subject to amortization
          over the periods shown in the table below:
 
 **Value**
                
                **Life
                    in Years**Core
                    developed technology
                
                $
                2,440
                
                
                5.0Other
                    technology
                
                
                65
                
                
                5.0Customer
                    relationships
                
                
                45
                
                
                3.0Backlog
                
                
                160
                
                
                0.5Total
                    intangible assets and weighted averageamortization
                    period
                
                $
                2,710
                
                
                4.7
 
 The
          unaudited pro forma revenue and net loss of the Company for the periods
          indicated, as if the ArelNet acquisition had occurred as of January 1,
          2004 and
          January 1, 2005, respectively, are shown in the following table.
 
 **December
                    31,****2004**
                
                **2005**Revenue
                
                $
                98,579
                
                $
                112,797Net
                    loss
                
                $
                (20,670
                )
                $
                (15,614
                )Net
                    loss per share - basic and diluted
                
                $
                (0.55
                )
                $
                (0.40
                )Weighted
                    average shares outstanding -basic
                    and diluted
                
                
                37,443,257
                
                
                39,154,158
 
 There
          were no extraordinary items or cumulative effect of accounting changes
          included
          in the pro forma results of operations. The unaudited pro forma results
          above
          have been prepared for comparative purposes only and do not purport to
          be
          indicative of the results of operations which actually would have resulted
          had
          the acquisition occurred at January 1, 2004 or 2005, nor are they necessarily
          indicative of future operating results.
 
 On
          November 9, 2005 the Company completed its acquisition of Radionet Oy,
          Ltd. of
          Finland (“Radionet”) in exchange for up to $1.88 million of cash. The Company
          evaluated the assets and liabilities acquired, in particular its accounts
          receivable, inventory and accrued expenses, and engaged an independent
          third
          party to assist in the valuation of intangible assets. The Company finalized
          the
          purchase price allocation in the second quarter of 2006.
 
 Calculation
          of purchase price:
 
 **Purchase****Price**Consideration
                    paid
                
                $
                1,875Direct
                    acquisition costs
                
                
                159Total
                    purchase price
                
                $
                2,034
 
 F-20
 
 AIRSPAN
              NETWORKS INC.
 NOTES
              TO
              THE FINANCIAL STATEMENTS - (Continued)
 (in
              thousands, except for share and per share data)
 The
          following table shows the historical book value and the purchase price
          allocation.
 
 **Purchase****Price****Allocation/****Historical**
                
                **Fair
                    Value****Book
                    Value**
                
                **Adjustments**
                
                **Fair
                    Value**Allocation
                    of purchase price - RadionetCash
                
                $
                450
                
                $
                -
                
                $
                450Accounts
                    receivable
                
                
                502
                
                
                (139
                )
                
                363Inventory
                
                
                302
                
                
                (98
                )
                
                204Prepaid
                    expenses and other current assets
                
                
                120
                
                
                (15
                )
                
                105Property,
                    plant and equipment, net
                
                
                129
                
                
                (21
                )
                
                108Intangible
                    assets, net:Core
                    developed technology
                
                
                -
                
                
                319
                
                
                319Customer
                    relationships
                
                
                -
                
                
                105
                
                
                105Accounts
                    payable
                
                
                (305
                )
                
                -
                
                
                (305
                )Other
                    accrued expenses
                
                
                (226
                )
                
                (50
                )
                
                (276
                )Long-term
                    debt
                
                
                (1,392
                )
                
                -
                
                
                (1,392
                )Interest
                    on long-term debt
                
                
                -
                
                
                (79
                )
                
                (79
                )Goodwill
                
                
                2,454
                
                
                (22
                )
                
                2,432Total
                    purchase price
                
                $
                2,034
                
                $
                -
                
                $
                2,034
 
 All
          intangible assets acquired, other than goodwill, are subject to amortization
          over the periods shown in the table below:
 
 **Value**
                
                **Life
                    in Years**Core
                    developed technology
                
                $
                319
                
                
                6.0Customer
                    relationships
                
                
                105
                
                
                5.0Total
                    intangible assets and weighted averageamortization
                    period
                
                $
                424
                
                
                5.7
 
 The
          unaudited pro forma revenue and net loss of the Company for the periods
          indicated, as if the Radionet acquisition had occurred as of January 1,
          2004 and
          January 1, 2005, respectively, are shown in the following table.
 
 **For
                    the years ended****December
                    31,****2004**
                
                **2005**Revenue
                
                $
                97,331
                
                $
                112,858Net
                    loss
                
                $
                (22,545
                )
                $
                (16,997
                )Net
                    loss per share - basic and diluted
                
                $
                (0.62
                )
                $
                (0.44
                )Weighted
                    average shares outstanding -basic
                    and diluted
                
                
                36,441,932
                
                
                38,736,939
 
 F-21
 AIRSPAN
            NETWORKS INC.
 NOTES
            TO
            THE FINANCIAL STATEMENTS - (Continued)
 (in
            thousands, except for share and per share data)
 **3.
          TAXATION**
 The
            income tax benefit of $246 in the year ended December 31, 2006 and $546
            in the
            year ended December 31, 2005 related to tax credits of $876 accrued in
            respect
            of additional research and development expenditure in the U.K. in the
            period
            January 1, 2004 to December 31, 2004, offset by tax charges relating
            to local
            country income taxes. In exchange for the tax credits the Company surrendered
            $3,650 of taxable losses in the U.K. equated to $1,095 of deferred tax
            assets.
            In the year ended December 31, 2004 the benefit of $1,938 related to
            $2,094 of
            tax credits accrued in respect of research and development expenditure
            in the
            U.K. over the period January 1, 2002 to December 31, 2004, for which
            the Company
            forfeited $8,725 of taxable losses equated to $2,617 of deferred tax
            asset,
            offset by tax charges relating to local state and country income and
            franchise
            taxes of $156.
  The
          loss
          before tax was $29,448 for the year ended December 31, 2006 of which $4,045
          was
          attributable to domestic U.S. operations. The loss was $15,623 for the
          year
          ended December 31, 2005 of which $1,892 was attributable to domestic U.S.
          operations. The loss for the year ended December 31, 2004 attributable
          to
          domestic operations was $3,925 out of a total loss before tax of
          $11,913 . The
          Company did not record an income tax benefit for the remainder of the tax
          losses
          generated in any of the territories in which it operates because it has
          experienced operating losses since inception. At December 31, 2006 the
          Company
          had the following net operating loss carry-forwards:
 
 **Net
                    Operating Loss****Country**
                
                **Carryforwards**
                
                **Expiry
                    Terms**UK
                
                $
                139,200
                
                
                Does
                    not expireUS
                
                
                23,100
                
                
                Expires
                    in 15 to 20 yearsAustralia
                
                
                3,600
                
                
                Does
                    not expireIsrael
                
                
                43,100
                
                
                Does
                    not expireFinland
                
                
                11,200
                
                
                Expires
                    in 4 to 10 yearsOther
                
                
                3,300
                
                
                Expires
                    in 1 to 5 years
  Significant
          components of the Company’s deferred tax assets are as follows:
 
 **For
                    the years ended December 31,****2005**
                
                **2006**Net
                    operating loss carryforwards
                
                $
                50,388
                
                $
                61,336Fixed
                    assets
                
                
                3,330
                
                
                4,282Accruals
                    and reserves
                
                
                1,801
                
                
                2,128Stock
                    compensation
                
                
                -
                
                
                72755,519
                
                
                68,473Valuation
                    allowance
                
                
                (55,519
                )
                
                (68,473
                )$
                -
                
                $
                -
  The
          following is a reconciliation of income taxes, calculated at the effective
          U.S.
          federal income tax rate, to the income tax benefit (provision) included
          in the
          accompanying consolidated statements of operation for each of the three
          years:
 
 **For
                    the years ending December 31,****2004**
                
                **2005**
                
                **2006**Income
                    tax benefit at U.S. rates
                
                $
                4,051
                
                $
                5,937
                
                $
                10,012Difference
                    between U.S. rate and rates applicableto
                    subsidiaries in other jurisdictions
                
                
                (753
                )
                
                (1,390
                )
                
                (1,250
                )Surrender
                    of taxable losses - UK R&D tax credits
                
                
                (2,618
                )
                
                (708
                )
                
                (386
                )Expenditures
                    not deductible for tax purposes
                
                
                (83
                )
                
                (242
                )
                
                (110
                )Other
                
                
                1,427
                
                
                377
                
                
                1,386Valuation
                    allowance on tax benefits
                
                
                (2,180
                )
                
                (3,995
                )
                
                (9,715
                )UK
                    R&D tax credits
                
                
                2,094
                
                
                567
                
                
                309Income
                    tax benefit
                
                $
                1,938
                
                $
                546
                
                $
                246
 
 F-22
 
 AIRSPAN
              NETWORKS INC.
 NOTES
              TO
              THE FINANCIAL STATEMENTS - (Continued)
 (in
              thousands, except for share and per share data)
 Since
          the
          Company’s utilization of these deferred tax assets is dependent on future
          profits, a valuation allowance equal to the net deferred tax assets has
          been
          provided following the criteria under SFAS 109 as it is considered more
          likely
          than not that such assets will not be realized.
  **4.
          PROPERTY, PLANT AND EQUIPMENT**
 
 **December
                    31,****2005**
                
                **2006**Plant,
                    machinery and equipment
                
                $
                16,864
                
                $
                19,409Furniture
                    and fixtures
                
                
                737
                
                
                869Leasehold
                    improvements
                
                
                3,547
                
                
                3,66521,148
                
                
                23,943Accumulated
                    depreciation
                
                
                (15,880
                )
                
                (18,238
                )$
                5,268
                
                $
                5,705
 
 Depreciation
          expense totaled $1,806, $1,876 and $2,729 for the years ended December
          31, 2004,
          2005 and 2006, respectively.
 
 **5.
          GOODWILL AND INTANGIBLES**
  The
            Company performed its annual impairment review during the fourth quarter
            of 2005
            and 2006. The Company determined that it has only one operating segment
            and that
            its reporting unit for the purposes of evaluating goodwill is the entire
            company. The market capitalization of the Company, which was deemed the
            best
            measure of fair value, exceeded the book value as of the review dates and
            therefore no impairment of goodwill was recorded during the years ended
            December
            31, 2004, 2005 and 2006.
  **December
                      31,****2005**
                  
                  **2006****Goodwill**
                  
                  $
                  10,231
                  
                  $
                  10,231
 
 **Weighted****December
                    31, 2005**
                
                **December
                    31, 2006**
                
                **Average****Gross**
                
                
                
                **Net**
                
                **Gross**
                
                
                
                **Net**
                
                **Amortization****Carrying**
                
                **Accumulated**
                
                **Book**
                
                **Carrying**
                
                **Accumulated**
                
                **Book**
                
                **Period
                    in****Intangibles**
                
                **Amount**
                
                **Amortization**
                
                **Value**
                
                **Amount**
                
                **Amortization**
                
                **Value**
                
                **Years**Customer
                    contracts
                
                $
                1,390
                
                $
                (595
                )
                $
                795
                
                $
                1,390
                
                $
                (849
                )
                $
                541
                
                
                2.12Patent/developed
                    technology
                
                
                4,355
                
                
                (1,285
                )
                
                3,070
                
                
                4,355
                
                
                (2,090
                )
                
                2,265
                
                
                2.82$
                5,745
                
                $
                (1,880
                )
                $
                3,865
                
                $
                5,745
                
                $
                (2,939
                )
                $
                2,806
                
                
                2.65
  Goodwill
          from business combinations represents the difference between the fair value
          of
          the identified net assets purchased and the purchase price. For each acquisition
          a detailed review is undertaken by management, which has primary responsibility,
          to estimate the fair values and remaining economic life for all material
          intangible assets. In addition to this review, independent experts may
          be used
          to estimate the fair value and remaining economic life of intangible assets.
          During 2006, 2005 and 2004 there were no unamortized intangible assets
          other
          than goodwill.
  F-23
 AIRSPAN
            NETWORKS INC.
 NOTES
            TO
            THE FINANCIAL STATEMENTS - (Continued)
 (in
            thousands, except for share and per share data)
 The
          estimated amortization expense for intangibles over the next five years
          is as
          follows:
  **For
                    the Years Ending December 31,**2007
                
                $
                9362008
                
                
                9282009
                
                
                5752010
                
                
                322Thereafter
                
                
                45
   Amortization
          of intangible assets amounted to $723, $941 and $1,060 for the years ended
          December 31, 2004, 2005 and 2006, respectively.
  **6.
          SHORT-TERM INVESTMENTS**
  There
          were $6,271 of auction rate securities at December 31, 2006.
 
 The
          following is a summary of held-to-maturity securities:
 
 **Amortized**
                
                **Unrealized**
                
                **Unrealized**
                
                **Estimated****Cost**
                
                **Gains**
                
                **Losses**
                
                **Fair
                    Value****December
                    31, 2005:**U.S.
                    Government Securities
                
                $
                5,511
                
                $
                -
                
                $
                (17
                )
                $
                5,494U.S.
                    Corporate Bonds
                
                
                509
                
                
                -
                
                
                (1
                )
                
                508$
                6,020
                
                $
                -
                
                $
                (18
                )
                $
                6,002**December
                    31, 2006:**U.S.
                    Corporate Bonds
                
                
                3,962
                
                
                2
                
                
                -
                
                
                3,964
 
 The
          above
          short-term investments had maturities at December 31, 2006 of more than
          90 days
          and less than one year.
 
 **7.
          INVENTORY**
  Inventory
          consists of the following:
 
 **December
                    31,****2005**
                
                **2006**Purchased
                    parts and materials
                
                $
                9,743
                
                $
                14,826Work
                    in progress
                
                
                1,198
                
                
                1,329Finished
                    goods and consumables
                
                
                16,395
                
                
                21,413Inventory
                    provision
                
                
                (10,486
                )
                
                (13,944
                )$
                16,850
                
                $
                23,624
  **8.
          ACCOUNTS RECEIVABLE**
  Accounts
          receivable consists of:
  **December
                    31,****2005**
                
                **2006**Amounts
                    due within one year
                
                $
                27,867
                
                $
                36,552Allowance
                    for doubtful accounts
                
                
                (3,519
                )
                
                (5,489
                )$
                24,348
                
                $
                31,063
 The
            Axtel
            Agreement contains terms and conditions typical for supply and support
            agreements of this type, including the requirements for Axtel to make
            certain
            cash down-payments with orders placed and for lead times for delivery
            of
            products. We have agreed to provide technical assistance and support
            services
            related to the products used in Axtel’s network, including emergency recovery
            and remote technical assistance, as well as other services at agreed
            upon
            prices. The Axtel Agreement gives Axtel a non-exclusive and perpetual
            license to
            use the Proximity software, subject to certain events of default, and
            a
            one-year, limited warranty with respect to the delivered products. The
            Axtel
            agreements may be terminated by either party in the event of the other
            party’s
            failure to cure a breach of any term or condition of the agreement. The
            Axtel
            Agreement states that either party may terminate the agreement in the
            event the
            other party encounters various forms of financial difficulty, insolvency
            or
            bankruptcy and where the other party has materially failed to perform
            any term
            under the Agreement that has not been cured within 30 days of notification.
 
 During
            2005, Yozan and Airspan concluded two contracts for the supply of WiMAX
            equipment for a total value of $42.9M. Deliveries of equipment under
            the supply
            contracts commenced in the fourth quarter of 2005. In a Memorandum of
            Understanding (MOU) signed in September, 2006, we agreed with Yozan that
            the
            amount of the original supply agreement would be reduced from $42.9 million
            to
            approximately $28 million. As of the end of 2006, approximately $22.6
            million of
            equipment had been delivered to Yozan, most of which had been accepted
            by Yozan.
            Yozan has made payments totaling $19.3 million for this equipment. The
            MOU
            requires delivery of 2,000 MicroMAX-SDR Base Stations and 20,000 subscriber
            terminals, but the final composition of products to be delivered may
            change
            under the agreement. The parties agreed to use reasonable efforts to
            complete
            deliveries by the end of 2006, but delays have now extended the delivery
            schedule into 2007. Scheduling of the remaining deliveries is still under
            discussion. The remaining commitment at December 31, 2006 under the MOU
            is
            approximately 500 base stations. Yozan has the right to terminate our
            supply
            agreement if we fail to comply with the terms and conditions of the agreement
            and such breach is not cured.
 
 Revenue
            from support services under two agreements covering the equipment delivered
            under the supply contracts from Yozan has been recognized through the
            end of
            2006 for a total of approximately $1.2 million and under the agreement
            currently
            in place additional service revenue of $1.5 million is expected to be
            recognized
            in 2007. In addition, Yozan has agreed to provide funding of $7.4 million
            toward
            our development of a WiMAX USB CPE device. As of December 31, 2006, we
            had
            received $3.5 million in funding from Yozan, which was included in revenue
            of
            the fourth quarter of 2006; the balance of $3.9 million is expected to
            be
            recognized in revenue during 2007.
 F-24
 
 AIRSPAN
              NETWORKS INC.
 NOTES
              TO
              THE FINANCIAL STATEMENTS - (Continued)
 (in
              thousands, except for share and per share data)
 **9.
          OTHER ACCRUED EXPENSES**
  **December
                    31,****2005**
                
                **2006**Warranty
                
                $
                410
                
                $
                985Restructuring
                
                
                1,486
                
                
                1,862Accrued
                    Israeli severance pay
                
                
                2,520
                
                
                2,301Other
                
                
                8,697
                
                
                11,049$
                13,113
                
                $
                16,197
  **10.
          ACCRUED RESTRUCTURING CHARGES**
  The
          Company has initiated several restructuring programs over the last four
          years to
          reduce operating expenses. The first of these was initiated in the third
          quarter
          of 2002, which resulted in a charge of $278. Included in this charge were
          costs
          related to the write off of tradeshow equipment and severance payments.
          A total
          of 19 employees were terminated as part of this program and all severance
          payments were made by the end of the second quarter of 2003.
 
 In
          the
          second quarter of 2003, an additional restructuring program was initiated
          to
          further lower operating expenses. The cost incurred as part of this program
          was
          $298 arising from costs associated with facility closures and severance.
          A total
          of 30 employees were terminated as part of this program and all severance
          payments were made by December 31, 2003.
 
 During
          the first quarter of 2004 we revised our 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 $413 related to termination costs for 21
          employees. All of these employees had left the Company by December 31,
          2004.
 
 In
          conjunction with the purchase of the Proximity business in 2003 the Company
          implemented its plan to relocate the Proximity business from Maidenhead,
          England
          and Sunrise, Florida to the Company’s facilities in Uxbridge, England and Boca
          Raton, Florida. The Company recorded acquisition-related restructuring
          charges
          of $520, in the fourth quarter of 2003, in connection with the relocation
          of the
          Proximity business. The accrued relocation costs were reduced during 2004
          to
          $181. The adjustment formed part of the revised fair value adjustments
          of the
          Proximity acquisition. This relocation plan was completed by December 31,
          2004.
 
 In
          the
          fourth quarter of 2002 the decision was made to completely outsource all
          our
          manufacturing. As a result the Company recorded a $975 restructuring charge
          for
          the closure of its Riverside, Uxbridge facility in 2003. All of this cost
          relates to the excess facility. A further $368 was recognized as restructuring
          in the income statement in the fourth quarter of 2003 as the Company reassessed
          the ability to sublease the Riverside facility. During the second quarter
          of
          2005, the Company recognized an additional restructuring charge of $1,150
          for
          additional costs expected to be incurred related to certain facility charges
          in
          respect of buildings in the U.K. The total amount expected to be incurred
          as a
          result of the closure of the Riverside facility is $1,487 as at December
          31,
          2006. All cash outflows in connection with this restructuring are expected
          to
          occur by the end of 2007.
  In
          the
          third quarter of 2006, the Company commenced a company-wide restructuring
          program to reduce operating expenses. In 2006, the Company recorded
          restructuring charges of $2.2 million, to reflect the total cost of this
          restructuring program. The cost reduction will be accomplished primarily
          as a
          result of reduction in worldwide headcount. The restructuring resulted
          in direct
          cash outlays in the third and fourth quarters of 2006 and will result in
          further
          cash outlays in the first quarter of 2007.
  F-25
 AIRSPAN
            NETWORKS INC.
 NOTES
            TO
            THE FINANCIAL STATEMENTS - (Continued)
 (in
            thousands, except for share and per share data)
 All
          charges have or will result in direct cash outlays. The restructuring charges
          and their utilization are summarized as follows:
 
 **Balance
                    at**
                
                
                
                **Accrued**
                
                
                
                **Balance
                    at****Beginning**
                
                **Restructuring**
                
                **on**
                
                
                
                **End****of
                    Period**
                
                **Charge**
                
                **Acquisition**
                
                **Utilized**
                
                **of
                    Period****Year
                    ended December 31, 2006**One-time
                    termination benefits
                
                $
                -
                
                $
                2,183
                
                $
                -
                
                $
                (1,808
                )
                $
                375Contract
                    termination costs
                
                
                1,436
                
                
                163
                
                
                -
                
                
                (162
                )
                
                1,437Other
                    associated costs
                
                
                50
                
                
                -
                
                
                -
                
                
                
                
                
                50$
                1,486
                
                $
                2,346
                
                $
                -
                
                $
                (1,970
                )
                $
                1,862**Year
                    ended December 31, 2005**One-time
                    termination benefits
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -Contract
                    termination costs
                
                
                599
                
                
                1,150
                
                
                -
                
                
                (313
                )
                
                1,436Other
                    associated costs
                
                
                61
                
                
                -
                
                
                -
                
                
                (11
                )
                
                50$
                660
                
                $
                1,150
                
                $
                -
                
                $
                (324
                )
                $
                1,486**Year
                    ended December 31, 2004**One-time
                    termination benefits
                
                $
                -
                
                $
                413
                
                $
                -
                
                $
                (413
                )
                $
                -Contract
                    termination costs
                
                
                947
                
                
                -
                
                
                -
                
                
                (348
                )
                
                599Other
                    associated costs
                
                
                592
                
                
                -
                
                
                (339
                )
                
                (192
                )
                
                61$
                1,539
                
                $
                413
                
                $
                (339
                )
                $
                (953
                )
                $
                660
  **11.
          COMMITMENTS**
  The
          Company had capital commitments of $260 and $188 for the acquisition of
          property, plant and equipment at December 31, 2006 and 2005, respectively.
          As of
          December 31, 2006, the Company had commitments with its main subcontract
          manufacturers under various purchase orders and forecast arrangements,
          for a
          value of $26,225 and $37,256 at December 31, 2006 and 2005, respectively.
          All
          capital commitments and commitments with sub contract manufacturers existing
          at
          December 31, 2006 are expected to be completed during 2007.
  The
          Company has entered into various operating lease agreements, primarily
          for
          office space, warehouse space and vehicles. Rent expense was $1,965 for
          the year
          ended December 31, 2004, $1,774 for the year ended December 31, 2005, and
          $2,121
          for the year ended December 31, 2006.
  Future
          minimum lease payments for assets under non-cancelable operating lease
          agreements with original terms of more than one year as of December 31,
          2006 are
          as follows:
 
 **Amounts
                    Due**2007
                
                $
                2,2522008
                
                
                1,7572009
                
                
                1,0662010
                
                
                3472011
                
                
                85$
                5,507
  The
          Company had bank guarantees with its landlords and customers totaling $3.1
          million at December 31, 2005 and $2.2 million at December 31, 2006. The
          guarantees secure payment or performance obligations of the Company under
          contracts. The Company has pledged cash to the banks as collateral for
          guarantees aggregating $2.2, of which $1.0 million is recorded as restricted
          cash in current assets and $1.2 million is recorded as other non-current
          assets.
          In the case of other guarantees aggregating $4.2 million, the Company has
          issued
          the guarantees under the line of credit provided by Silicon Valley
          Bank.
  F-26
 AIRSPAN
            NETWORKS INC.
 NOTES
            TO
            THE FINANCIAL STATEMENTS - (Continued)
 (in
            thousands, except for share and per share data)
 In
          addition to the guarantees mentioned above, the Company has issued a guarantee
          to Tekes, the main public funding organization for research and development
          in
          Finland. Tekes made loans to Radionet and this guarantee covers the repayment
          of
          the loan principal and interest. These loans total $1,707 (including accrued
          interest) at December 31, 2006, are recorded in long term debt and are
          described
          more fully in Note 17. This guarantee expires only when all loan and interest
          repayments have been made.
  *Guarantor
          Arrangements*
 
 In
          November 2002, FASB issued FIN 45 which elaborates on the disclosures to
          be made
          by a guarantor in its interim and annual financial statements about its
          obligations under certain guarantees that it has issued. It also requires
          that a
          guarantor recognize, at the inception of certain types of guarantees, a
          liability for the fair value of those guarantees. The initial recognition
          and
          measurement provisions of FIN 45 are applicable on a prospective basis
          for
          guarantees issued or modified after December 31, 2002.
 
 The
          following is a summary of the Company’s agreements in effect as of December 31,
          2006 that it has determined are within the scope of FIN 45.
 
 As
          permitted under Washington law, pursuant to the Company’s certificate of
          incorporation, by-laws and agreements with all of its current directors,
          the
          Company is obligated to indemnify its officers and directors for certain
          events
          or occurrences while the officer or director is, or was, serving at its
          request
          in such capacity. The maximum potential amount of future payments the Company
          could be required to make under these indemnification obligations is not
          capped.
          In its recent history, the Company has not incurred material costs to defend
          lawsuits or settle claims related to these indemnification obligations.
          As a
          result, the Company believes the estimated fair value of these indemnification
          obligations is immaterial.
 
 As
          is
          customary in the telecommunications equipment industry, the supply agreements
          that the Company enters into in the ordinary course of its business in
          connection with the sale and distribution of its products contain
          indemnification provisions. Pursuant to these agreements, the Company
          indemnifies, holds harmless, and agrees to reimburse the indemnified party
          for
          all or a portion of the losses suffered or incurred by the indemnified
          party, in
          connection with any patent or any copyright or other intellectual property
          infringement claim by any third party with respect to its products. The
          terms of
          these indemnification obligations vary. The maximum potential amount of
          future
          payments the Company could be required to make under these indemnification
          obligations is not capped. In its recent history, the Company has not incurred
          costs to defend lawsuits or settle claims related to these indemnification
          obligations. As a result, it believes the estimated fair value of these
          obligations is immaterial.
 
 **12.
          GEOGRAPHICAL INFORMATION**
  As
          a
          developer and supplier of broadband wireless equipment and other technologies,
          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.
          In 2006, the majority of the Company’s revenue was generated from products
          manufactured in the United Kingdom, Mexico, Israel and Finland, with additional
          revenue generated from sales of an original equipment manufacturer’s ("OEM")
          products.
  An
          analysis of revenue by geographical market is given below:
 
 **Years
                    ended December 31,****2004**
                
                **2005**
                
                **2006**United
                    States
                
                $
                3,027
                
                $
                7,722
                
                $
                9,778Asia
                    Pacific:Japan
                
                
                559
                
                
                1,409
                
                
                24,860Asia
                    Pacific, excluding Japan
                
                
                7,523
                
                
                9,980
                
                
                13,755Europe
                
                
                11,191
                
                
                14,273
                
                
                23,945Africa
                    and Middle East
                
                
                1,859
                
                
                5,242
                
                
                4,609South
                    and Central America and the Caribbean:Mexico
                
                
                66,317
                
                
                62,792
                
                
                33,597South
                    and Central America and the Caribbean,excluding
                    Mexico
                
                
                4,171
                
                
                9,548
                
                
                17,268$
                94,647
                
                $
                110,966
                
                $
                127,812
 
 F-27
 
 AIRSPAN
              NETWORKS INC.
 NOTES
              TO
              THE FINANCIAL STATEMENTS - (Continued)
 (in
              thousands, except for share and per share data)
 Revenues
          are attributed to countries based on the destination of the equipments
          and
          services supplied.
 
 In
          2006,
          the Company received 78% of goods for resale from four suppliers - Racamtech
          Limited, Flextronics Limited, Solectron International Distribution Inc.
          and
          Solectron Scotland Ltd. In 2005, the Company received 73% of goods for
          resale
          from Racamtech Limited, Solectron International Distribution Inc. and Solectron
          Scotland Ltd. In 2004, the Company received 73% of goods for resale from
          two
          suppliers, Solectron International Distribution Inc and Solectron Scotland
          Ltd.
 
 During
          the year ended December 31, 2006, net loss before income tax was $29,448.
          The
          net loss before income taxes that related to operations in the United States
          was
          $4,045 and that from foreign operations was $25,403. During the same period
          the
          net loss was $38,381, of which a net loss of $25,157 arose from foreign
          operations.
 
 During
          the year ended December 31, 2004 the Company had one customer whose revenue
          accounted for 70% of the year’s total. For the year ended December 31, 2005 the
          Company had one customer whose revenue was greater than 10% of the year’s total
          and such customer’s revenue accounted for 56% of the year’s total. For the year
          ended December 31, 2006 the Company had two customers whose revenue was
          greater
          than 10% of the year’s total and such customer revenues accounted for 26% and
          19% of the year’s total.
 
 **For
                    the Years ended December 31,****Long
                    lived assets by geographic region**
                
                **2005**
                
                **2006****Property,
                    plant and equipment, net:**United
                    States
                
                $
                181
                
                $
                190United
                    Kingdom and Ireland
                
                
                3,067
                
                
                3,307Israel
                
                
                1,823
                
                
                2,024Other
                
                
                197
                
                
                184$
                5,268
                
                $
                5,705**Goodwill
                    and intangible assets, net:**United
                    States
                
                $
                789
                
                $
                789United
                    Kingdom and Ireland
                
                
                382
                
                
                254Mexico
                
                
                656
                
                
                437Israel
                
                
                9,426
                
                
                8,788Finland
                
                
                2,843
                
                
                2,769$
                14,096
                
                $
                13,037**Other
                    non-current assets and long-term receivables:**United
                    Kingdom and Ireland
                
                $
                -
                
                $
                1,192Israel
                
                
                2,400
                
                
                2,053$
                2,400
                
                $
                3,245**Total
                    long-lived assets**
                
                $
                21,764
                
                $
                21,987**Total
                    assets, net:**United
                    States
                
                $
                36,977
                
                $
                19,875United
                    Kingdom and Ireland
                
                
                46,044
                
                
                56,797Mexico
                
                
                6,318
                
                
                2,047Israel
                
                
                25,403
                
                
                24,618Finland
                
                
                3,815
                
                
                4,735Other
                
                
                1,895
                
                
                2,482$
                120,452
                
                $
                110,554
  F-28
 AIRSPAN
            NETWORKS INC.
 NOTES
            TO
            THE FINANCIAL STATEMENTS - (Continued)
 (in
            thousands, except for share and per share data)
 **13.
          STOCK OPTIONS AND COMMON STOCK**
  At
          December 31, 2006, we had three stock option plans (the 1998 Plan, the
          2001
          Plan, and the 2003 Plan), the 2004 Omnibus Equity Compensation Plan, and
          the
          2000 Employee Stock Purchase Plan (“ESPP”). Awards under the 2004 Omnibus Equity
          Compensation Plan may be made to participants in the form of Incentive
          Stock
          Options, Nonqualified Stock Options, Stock Appreciation Rights, Restricted
          Stock, Deferred Stock, Stock Awards, Performance Shares, Other Stock-Based
          Awards and other forms of equity based compensation as may be provided
          and are
          permissible under this Plan and the law. Employee stock options granted
          under
          all of the plans generally vest over a four-year period and expire on the
          tenth
          anniversary of their issuance. Restricted stock is common stock that is
          subject
          to a risk of forfeiture or other restrictions that will lapse upon satisfaction
          of specified performance conditions and/or the passage of time. Awards
          of
          restricted stock that vest only by the passage of time will generally fully
          vest
          after four years from the date of grant. At December 31, 2006, the Company
          had
          reserved a total of 9,351,108 shares of its common stock for issuance under
          the
          above plans.
 
 On
          February 1, 1998, the Board of Directors authorized the establishment of
          a
          non-qualified employee stock options plan (“the 1998 Plan”) whereby the Company
          may grant employees stock options to purchase up to 2,791,667 shares of
          common
          stock. Under subsequent amendments to the 1998 Plan the Board of Directors
          approved an increase in the number of shares of common stock reserved under
          the
          1998 Plan from 2,791,667 to 4,591,667 in May 2000 and from 4,591,667 to
          6,091,667 in February 2001. The 1998 Plan provides for the grant to our
          employees (including officers and employee directors) of “incentive stock
          options” within the meaning of Section 422 of the Internal Revenue Code of 1986
          and for the grant of non-statutory stock options to our employees, officers,
          directors, and consultants.
  On
          February 7, 2001, the Board of Director s
          authorized the establishment of the 2001 supplemental stock option plan (“the 2001 Plan”). This
          is a non-qualified employee stock options plan whereby the Company may
          grant
          employees stock options to purchase up to 901,465 shares of common stock.
          Option
          grants under the 2001 Plan are limited to non-officer employees and
          consultants.
  On
          September 1, 2003, the Board of Directors authorized the establishment
          of the
          2003 supplemental stock option plan (“the 2003 Plan”). This is a non-qualified
          employee stock options plan whereby the Company may grant stock options
          to
          purchase up to 241,500 shares of common stock. Option grants under the
          2003 Plan
          are limited to non-officer employees, new hires and consultants.
  On
          January 30, 2004 the Board of Directors authorized the establishment of
          the 2004
          Omnibus Equity Compensation Plan (“the 2004 Plan”). The 2004 plan is designed
          for the benefit of the directors, executives and key employees of the Company
          (i) to attract and retain for the Company personnel of exceptional ability;
          (ii)
          to motivate such personnel through added incentives to make a maximum
          contribution to greater profitability; (iii) to develop and maintain a
          highly
          competent management team; and (iv) to be competitive with other companies
          with
          respect to executive compensation. Awards under the 2004 plan may be made
          to
          Participants in the form of (i) Incentive Stock Options; (ii) Nonqualified
          Stock
          Options; (iii) Stock Appreciation Rights; (iv) Restricted Stock; (v) Deferred
          Stock; (vi) Stock Awards; (vii) Performance Shares; (viii) Other Stock-Based
          Awards; and (ix) other forms of equity-based compensation as may be provided
          and
          are permissible under the 2004 Plan and the law. The number of shares reserved
          under this plan is 5,000,000.
  Under
          the
          1998, 2001, 2003 and 2004 Plans, the Compensation Committee of the Board
          of
          Directors is authorized to establish the terms of stock options. Under
          the 1998
          Plan, the exercise price of all incentive stock options must be at least
          equal
          to the fair market value of our common stock on the date of the grant and
          the
          exercise price of all non-statutory options may be equal to, more than,
          or less
          than 100% of the fair market value of our common stock on the date of the
          grant.
          Under the 2001, 2003 and 2004 Plans, the exercise price of each option
          may be
          equal to, more than, or less than 100% of fair market value of our common
          stock
          on the date of the grant. Employee stock options granted under all the
          plans
          generally vest over a four-year period and expire on the tenth anniversary
          of
          their issuance. The total number of options granted to employees under
          the Plans
          was 616,450 in 2004, 1,108,500 in 2005 and 1,232,246 in 2006.
  F-29
 AIRSPAN
            NETWORKS INC.
 NOTES
            TO
            THE FINANCIAL STATEMENTS - (Continued)
 (in
            thousands, except for share and per share data)
 Under
          the
          Plans described above, the Company also granted non-qualified common stock
          options to directors under various discrete option agreements. The number
          of
          non-qualified options granted to directors was 125,000, 120,000 and 150,000
          in
          2004, 2005 and 2006, respectively.
  The
          Company has a full recourse note receivable from a director relating to
          the
          exercise of stock options in the amount of $87 outstanding at December
          31, 2005
          and 2006. Such options may be exercised for the issuance of restricted
          stock to
          the extent such options are not vested. Restrictions on such stock would
          lapse
          over the same four-year vesting schedule as the underlying option. In the
          event
          of termination, the Company has a repurchase right determined at the original
          exercise price.
  At
          December 31, 2006 the Company had reserved 2,294,254 of its Common Stock
          for
          purchase upon exercise of options to be granted in the future.
  F-30
  AIRSPAN
          NETWORKS INC.
 NOTES
          TO
          THE FINANCIAL STATEMENTS - (Continued)
 (in
          thousands, except for share and per share data)
  The
          following table sets forth the activity for all common stock
          options:
 
 **Weighted****Average****Number
                    of**
                
                **Exercise****Shares**
                
                **Price**Outstanding,
                    January 1, 2004
                
                
                5,490,947
                
                $
                2.74Granted
                
                
                741,450
                
                
                5.03Forfeited
                
                
                (119,315
                )
                
                3.43Exercised
                
                
                (1,118,462
                )
                
                1.40Outstanding,
                    December 31, 2004
                
                
                4,994,620
                
                $
                3.37Granted
                
                
                1,228,500
                
                
                4.77Forfeited
                
                
                (48,051
                )
                
                3.47Exercised
                
                
                (883,390
                )
                
                1.51Outstanding,
                    December 31, 2005
                
                
                5,291,679
                
                $
                4.00Granted
                
                
                1,181,650
                
                
                3.98Forfeited
                
                
                (450,016
                )
                
                5.30Exercised
                
                
                (453,304
                )
                
                1.45Outstanding,
                    December 31, 2006
                
                
                5,570,009
                
                $
                4.10Exercisable,
                    December 31, 2006
                
                
                3,527,002
                
                $
                3.93
  The
          following table sets forth stock options outstanding at December 31, 2006:
  **Outstanding
                    Options**
                
                **Options
                    Exercisable****Weighted**
                
                **Remaining**
                
                
                
                **Weighted****Number
                    of**
                
                **Average**
                
                **Contractual**
                
                **Number
                    of**
                
                **Average****Outstanding**
                
                **Exercise**
                
                **Life
                      in**
                
                **Exercisable**
                
                **Exercise****Exercise
                    Price Ranges**
                
                **Options**
                
                **Price**
                
                **Years**
                
                **Options**
                
                **Price**$0.30
                      - 1.04
                
                
                604,474
                
                $
                0.54
                
                
                4.34
                
                
                604,345
                
                $
                0.541.09 - 1.95
                
                
                565,475
                
                
                1.86
                
                
                3.13
                
                
                365,475
                
                
                1.852.00 - 2.80
                
                
                625,296
                
                
                2.35
                
                
                8.28
                
                
                218,895
                
                
                2.242.81
                    - 3.60
                
                
                573,953
                
                
                3.02
                
                
                2.20
                
                
                483,883
                
                
                3.023.84 - 4.38
                
                
                1,040,157
                
                
                4.28
                
                
                5.40
                
                
                832,026
                
                
                4.324.55 - 5.08
                
                
                796,775
                
                
                5.00
                
                
                7.19
                
                
                394,630
                
                
                5.025.14 - 6.00
                
                
                677,864
                
                
                5.86
                
                
                5.36
                
                
                364,790
                
                
                5.856.01 - 7.50
                
                
                484,350
                
                
                6.30
                
                
                7.46
                
                
                61,292
                
                
                7.269.60 - 9.60
                
                
                48,332
                
                
                9.60
                
                
                2.83
                
                
                48,333
                
                
                9.6015.00 - 15.00
                
                
                153,333
                
                
                15.00
                
                
                3.12
                
                
                153,333
                
                
                15.005,570,009
                
                
                4.10
                
                
                5.39
                
                
                3,527,002
                
                
                3.93
 
 As
          of
          December 31, 2006, the weighted average remaining contractual life of options
          exercisable was 4.52 years and their aggregate intrinsic value was $3,234.
          The
          total intrinsic value of options exercised during 2006 was $1,443. Cash
          received
          from stock option exercises for the year ended December 31, 2006 was $657.
          Because we maintained a full valuation allowance on our U.S. deferred tax
          assets, we did not recognize any tax benefit related to stock based compensation
          expense for the year ended December 31, 2006.
 
 F-31
 AIRSPAN
            NETWORKS INC.
 NOTES
            TO
            THE FINANCIAL STATEMENTS - (Continued)
 (in
            thousands, except for share and per share data)
 The
          Company also issued 100,000 and 50,596 shares of restricted stock to employees
          in 2005 and 2006, respectively. The restriction on this stock is lifted
          primarily on the basis of 25% after 18 months from grant, 25% after 30
          months
          from grant, and 50% after 48 months from grant.  A
          total
          expense of $148 and $106 was recorded related to these shares for the years
          ended December 31, 2005 and 2006, respectively. The summary of the changes
          in
          restricted stock outstanding during the year ended December 31, 2006 is
          presented below:
  Weighted-Number
                    of
                
                Average
                    GrantShares
                
                Date
                    Fair ValueNonvested
                    balance at beginning of period
                
                
                100,000
                
                
                4.12Granted
                
                
                50,596
                
                
                5.23Forfeited
                
                
                (20,312
                )
                
                4.85Vested
                
                
                (24,692
                )
                
                4.12Nonvested
                    balance at end of period
                
                
                105,592
                
                
                4.51
  As
          of
          December 31, 2006, there was $4,295 of unrecognized compensation expense,
          net of
          estimated forfeitures, related to stock options that will be recognized
          over the
          weighted average period of 2.52 years. Also, as of December 31, 2006, there
          was
          $310 of unrecognized compensation expense related to restricted stock awards
          that will be recognized over the weighted average period of 2.56 years.
          A
          total of 105,592 nonvested restricted shares are scheduled to vest based
          on
          passage of time.
  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. On January 30, 2004 the Board of Directors
          authorized an increase to 3,000,000 shares from 1,000,000 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.
          On
          August 1, 2005, the Company issued 130,630 shares at $3.715 per share to
          employees participating in the ESPP. On August 1, 2006, the Company issued
          208,102 shares at $1.598 per share to employees participating in the ESPP.
          As of
          December 31, 2006, there were 1,486,845 shares of common stock reserved
          for
          issuance under the ESPP. Further offerings shall commence on each subsequent
          August 1 and shall last for a period of one year, and the final offering
          under
          this Plan shall commence on August 1, 2008 and terminate on July 31,
          2009.
  The
          following table summarizes the total number of shares of common stock that
          were
          reserved for issuance as of December 31, 2006:
 
 **Number****of****Plans**
                
                **Shares**2000
                    Employee Stock Purchase Plan
                
                
                1,486,8451998,
                    2001, 2003, and 2004 Stock Options Plans -Options
                    to be granted
                
                
                2,294,254Options
                    outstanding
                
                
                5,570,009Total
                
                
                9,351,108
 
 On
          November 9, 2004, the Company sold 834,560 shares of its common stock in
          accordance with a prospectus it filed with the SEC 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.
  F-32
 AIRSPAN
            NETWORKS INC.
 NOTES
            TO
            THE FINANCIAL STATEMENTS - (Continued)
 (in
            thousands, except for share and per share data)
 **14.
          NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS PER SHARE**
  Net
          loss
          attributable to common stockholders per share is computed using the weighted
          average number of shares of common stock outstanding less the number of
          shares
          subject to repurchase.
  The
          following table sets forth the computation of basic and diluted net loss
          per
          share for the periods indicated:
 
 **Years
                    Ended December 31,****2004**
                
                **2005**
                
                **2006**Numerator:Net
                    loss
                
                $
                (9,975
                )
                $
                (15,077
                )
                $
                (29,202
                )Deemed
                    dividend associated with beneficial converson of preferred
                    stock
                
                
                (10,439
                )
                
                -
                
                
                (9,179
                )Net
                    loss attributable to common stockholders
                
                $
                (20,414
                )
                $
                (15,077
                )
                $
                (38,381
                )Denominator
                    - basic and diluted:Weighted
                    average common shares outstanding
                
                
                36,441,932
                
                
                37,736,939
                
                
                40,026,411Net
                    loss attributable to common stockholders per share - basic and
                    diluted
                
                $
                (0.56
                )
                $
                (0.39
                )
                $
                (0.96
                )
  There
          were, (i) 4,994,620 stock options outstanding at December 31, 2004, 5,291,679
          options outstanding at December 31, 2005 and 5,570,009 stock options outstanding
          at December 31, 2006 that were excluded from the computation of diluted
          net loss
          per share as their effect was antidilutive. If the Company had reported
          net
          income, the calculation of these per share amounts would have included
          the
          dilutive effect of these common stock equivalents using the treasury stock
          method for stock options. The convertible preferred stock referred to in
          Note 15
          was also excluded from the computation of diluted net loss per share as
          its
          effect was antidilutive. 100,000 and 105,592 nonvested shares of restricted
          stock were excluded from the computation of diluted net loss per share
          at
          December 31, 2005 and December 31, 2006, respectively, as their effect
          was
          antidilutive.
 
 **15.
          CONVERTIBLE PREFERRED STOCK**
 
 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 the beneficial
          conversion feature of the 73,000 preferred shares on the commitment date
          was
          $10.4 million.
 
 As
          a
          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”.
  F-33
 AIRSPAN
            NETWORKS INC.
 NOTES
            TO
            THE FINANCIAL STATEMENTS - (Continued)
 (in
            thousands, except for share and per share data)
 On
          September 25, 2006 (the “Closing Date”), in accordance with the terms of that
          certain Preferred Stock Purchase Agreement (the “Series B Purchase Agreement”),
          dated July 28, 2006, by and between the Company and Oak, the Company issued
          200,690 shares (the “Shares”) of Series B Preferred Stock to Oak in exchange for
          $29 million of cash and Oak’s transfer to the Company of all 73,000 shares of
          Series A Preferred Stock held by Oak prior to the closing of the transaction.
  The
          73,000 shares of Series A Preferred Stock transferred to Oak at closing
          represented all of the issued and outstanding Series A Preferred Stock
          and,
          accordingly, as of the date of this report, there are no shares of Series
          A
          Preferred Stock issued and outstanding.
 
 Based
          upon the Company’s capitalization as of the Closing Date, the Shares are
          initially convertible into a total of approximately 33% of the Company’s Common
          Stock (assuming conversion of the Shares, but without giving effect to
          the
          exercise or conversion of any other outstanding options, warrants or convertible
          securities) and, as of the Closing Date, represent approximately 29% of
          the
          voting power outstanding.
 
 The
          transactions contemplated by the Series B Purchase Agreement were approved
          of by
          the holders of a majority of the Company’s Common Stock that voted at the
          Special Meeting of the Company’s shareholders (excluding shares held by Oak and
          its affiliates) in September 2006.
 
 Pursuant
          to the Series B Purchase Agreement, the holders of the Series B Preferred
          Stock
          agreed to a lockup with respect to 125,172 of the Shares (and the underlying
          common stock). The lockup with respect to approximately 33,333.3 of the
          Shares
          (initially convertible into approximately 3,333,333 shares of the Company’s
          Common Stock) expires on each of the ninth month, the twelfth month and
          the
          fifteenth month after the Closing Date. The lock up with respect to 25,172
          of
          the Shares (initially convertible into 2,517,200 shares of Common Stock)
          expired
          on December 31, 2006. The remainder of the Shares will not be subject to
          a
          lockup.
 
 The
          lockup arrangements may expire earlier than indicated above (i) if any
          representation or warranty made by the Company in connection with the Series
          B
          Purchase Agreement is materially untrue and such breach has or will result
          in at
          least a 20% decline in the value of the Purchaser’s investment in the Company,
          or (ii) upon an event of Liquidation (as defined below).
 
 The
          Company has agreed, upon certain terms and conditions, to register the
          resale of
          the shares of Common Stock underlying the Series B Preferred Stock with
          the SEC.
          If a registration statement with respect to the resale of such shares has
          not
          been declared effective by the SEC prior to the 9-month anniversary of
          the
          closing of the Series B Purchase Agreement or if declared effective, ceases
          to
          be effective as to the shares at any time thereafter for longer than 30
          days at
          any one time or 60 days during any one year, the Company may be required
          to pay
          certain liquidated damages to the Purchaser not to exceed $30 million.
          On
          February 15, 2007, a registration statement with respect to the sale of
          the
          shares was declared effective by the SEC. We believe that the liquidated
          damages
          are a contingent liability. However, since such liability is not perceived
          to be
          probable at this time, we have made no expense accrual for it.
 
 In
          the
          third quarter 2006, the Company recognized a non cash charge of $9.2 million
          for
          a deemed dividend to preferred stockholders and other related costs associated
          with the issuance of Shares. $8.3 million of this charge was related to
          the
          shares of Series B Preferred Stock issued to Oak in exchange of its Series
          A
          Preferred Stock and $0.9 million of this charge was related to the shares
          of
          Series B Preferred Stock issued in respect of Oak’s cash investment. $8.3
          million of the charge was calculated by multiplying the closing price of
          the
          Company’s common stock on the NASDAQ on September 25, 2006, the date of the
          closing of the Private Placement ($2.99), by 2,769,000, the number of additional
          common shares that were issuable upon conversion of the 100,690 shares
          issued to
          Oak in exchange for the 73,000 shares of Series A Preferred Stock.
 
 In
          addition, the issuance of the 100,000 shares of Series B Preferred Stock
          in
          respect of Oak’s cash investment with a conversion price of $2.90 compared to
          the closing price of $2.99 represents a beneficial conversion and resulted
          in an
          additional deemed dividend of $0.9 million on the 10,000,000 common shares
          that
          are potentially issuable. Total deemed dividend is $9,179.
 
 Holders
          of the Series B 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 B Preferred Stock (the “Conversion Rate”). After 24 months,
          the Series B Preferred Stock will automatically convert into shares of
          the
          Company’s Common Stock at the Conversion Rate if the Common Stock trades above
          $9.00 per share for 30 consecutive days. The Conversion Rate will be adjusted
          upon the occurrence of any of the following events: (i) the Company’s payment of
          Common Stock dividends or distributions, (ii) Common Stock splits, subdivisions
          or combinations and (iii) reclassification, reorganization, change or conversion
          of the Common Stock.
  F-34
 AIRSPAN
            NETWORKS INC.
 NOTES
            TO
            THE FINANCIAL STATEMENTS - (Continued)
 (in
            thousands, except for share and per share data)
 The
          Conversion Rate will also be subject to anti-dilution adjustments pursuant
          to a
          broad-based weighted average formula for certain issuances of equity securities
          by the Company below $2.90. The Conversion Rate will not adjust due to
          issuances
          in connection with merger and acquisition activity, if any, the payment
          of
          dividends or certain fees to the holders of Series B Preferred Stock, or
          the
          issuance of up to 5 million of securities as part of the Company’s existing
          equity compensation plans.
 
 Each
          share of Series B Preferred Stock will initially be entitled to 81 votes
          on all
          matters submitted to a vote of the holders of the Company’s Common Stock. This
          voting rate will adjust upon (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 voting rate will not adjust due to the issuance of equity securities
          by the Company below $2.90 per share.
 
 As
          long
          as Oak is a majority holder of the Series B Preferred Stock and the beneficial
          holder of at least 15% of the Company’s common stock, the Purchaser will be
          entitled to elect one member to the Company’s Board of Directors.
  Holders
          of the Series B Preferred Stock are entitled to participate in dividends
          declared with respect to the Common Stock as if the Series B Preferred
          Stock was
          converted into the Common Stock.
  The
          Company has the right, after 5 years, to buy back the Series B Preferred
          Stock,
          in whole or in 15% increments, at a price of $362.50 per share of Series
          B
          Preferred Stock. The Company may exercise its redemption right up to five
          (5)
          separate times.
  The
          Articles of Amendment do not provide any restriction on the repurchase
          or
          redemption of shares of the Company’s capital stock by the Company while there
          is any arrearage in the payment of dividends or sinking fund
          installments.
  The
          Series B Preferred Stock is identified as ranking senior and prior to the
          Common
          Stock and all other classes or series of capital stock with respect to
          payments
          upon liquidation. Upon any Liquidation, holders are entitled to receive
          prior
          and in preference to any distribution to holders of the Company's Common
          Stock,
          the greater of (i) $2.90 per share of Series B Preferred Stock (the “Original
          Issue Price”) plus all accumulated or accrued and unpaid dividends thereon or
          (ii) the amount they would receive in such transaction if they converted
          the
          Series B Preferred Stock into Common Stock.
  The
          Original Issue Price will be appropriately adjusted for any combinations,
          divisions, or similar recapitalizations with respect to the Series B Preferred
          Stock.
  So
          long
          as the Series B Preferred Stock is outstanding, pursuant to the Articles
          of
          Amendment, the Company has agreed to refrain from taking certain actions
          without
          the approval of the Company’s holders of a majority of the then outstanding
          Series B Preferred Stock voting separately as a class (the “Series B Vote”). The
          Company has agreed, with certain exceptions, to refrain from (either directly
          or
          indirectly by merger, consolidation or reclassification):
 ·
                  amending
                      the Articles of Incorporation, Bylaws or other governing documents
                      so as
                      to increase the number of authorized shares of the Company’s Preferred
                      Stock. The above consent right does not apply to the Company’s unilateral
                      amendment of the Articles of Incorporation to authorize additional
                      shares
                      of Series B Preferred Stock solely for the purpose of issuing
                      such shares
                      in satisfaction of the payment of Non-Registration Fees.
 
 ·
                  adversely
                      changing the rights, preferences or privileges of the Series
                      B Preferred
                      Stock or any holder thereof. The above consent right does not
                      apply to the
                      Company’s authorization or issuance of additional shares of Common
                      Stock
                      or the creation of any series of preferred stock (or issuance
                      of shares
                      under any such series) that is junior in dividends, liquidation
                      preference, redemption, conversion and payment rights and otherwise
                      to the
                      Series B Preferred Stock. The above consent right also does
                      not apply to
                      the authorization, designation or issuance of to authorize
                      additional
                      shares of Series B Preferred Stock solely for the purpose of
                      issuing such
                      shares in satisfaction of the payment of Non-Registration Fees.
  ·
                  issuing
                      any equity security that is senior to or pari passu with the
                      Series B
                      Preferred Stock with respect to voting rights, dividends, liquidation
                      preference or conversion right. Notwithstanding the foregoing
                      consent
                      right, the Company may, without obtaining the Series B Vote,
                      authorize and
                      issue Common Stock or any series of preferred stock with equal
                      voting
                      rights and dividend rights to the Series B Preferred Stock
                      as long as such
                      Common Stock and/or preferred stock is junior in liquidation
                      preference to
                      the Series B Preferred Stock. The Company may also, without
                      obtaining the
                      Series B Vote, issue additional shares of Series B Preferred
                      Stock solely
                      for the purpose of issuing such shares in satisfaction of the
                      payment of
                      Non-Registration Fees.
 
 F-35
 
 AIRSPAN
                NETWORKS INC.
 NOTES
                TO
                THE FINANCIAL STATEMENTS - (Continued)
 (in
                thousands, except for share and per share data)
 ·
                  authorizing,
                      offering, selling or issuing any shares of Series A Preferred
                      Stock.
 
 ·
                  creating
                      any new debt instrument or bank line or increasing any existing
                      debt
                      obligation or bank line, excluding trade payables and capital
                      lease lines,
                      if thereafter the Company’s aggregate indebtedness pursuant to such
                      instruments, lines or arrangements entered into after the Closing
                      exceeds
                      $10,000,000 in the aggregate; and
 
 ·
                  declaring
                      or paying any dividends or other distributions with respect
                      to any capital
                      stock of the Corporation, other than dividends on Common Stock
                      paid in
                      Common Stock with respect to any capital stock of the Corporation
                      and
                      certain purchases or redemptions of securities by the
                      Company.
  F-36
 
 AIRSPAN
            NETWORKS INC.
 NOTES
            TO
            THE FINANCIAL STATEMENTS - (Continued)
 (in
            thousands, except for share and per share data)
 **16.
          RELATED PARTY TRANSACTIONS**
  On
          April
          27, 1999, Mr. Stonestrom, the Company’s President and Chief Executive Officer,
          incurred $130 of indebtedness to the Company in connection with the purchase
          of
          500,000 shares of the Company’s common stock. During the year 2004, Mr
          Stonestrom repaid $43 leaving indebtedness at December 31, 2006 of $87.
          No
          interest is due on the debt.
 
 **17.
          LONG-TERM DEBT**
 
 Long-term
          debt consists of:
 
 **December
                    31,****2005**
                
                **2006**Finnish
                    Funding Agency for Technology and Innovation ("Tekes")
                
                $
                1,445
                
                $
                1,707Less
                    current portion
                
                
                (96
                )
                
                -Less
                    accrued interest on long-term debt
                
                
                (53
                )
                
                (153
                )$
                1,296
                
                $
                1,554
 
 On
          November 9, 2005 the Company completed its acquisition of Radionet Oy,
          Ltd. The
          Company assumed from Radionet four loans with Tekes, the main public funding
          organization for research and development in Finland. These loans are to
          be
          repaid over the next five years in varying amounts through five annual
          installments made in December of each year. These loans all accrue interest
          at
          3% per annum, payable annually once repayment of the loan principal has
          commenced.
 
 Long
          term
          debt maturities at December 31, 2006 are as follows:
 
 2007
                
                $
                -2008
                
                
                4062009
                
                
                5632010
                
                
                5472011
                
                
                38$
                1,554
 
 **18.
          REVOLVING LINE OF CREDIT**
 
 On
          August
          1, 2006, we entered into the Loan and Security Agreement with Silicon Valley
          Bank ("SVB"), with respect to a revolving credit line. For the two year
          term of
          the credit line, we may, subject to certain adjustments, borrow up to the
          lesser
          of (i) $10,000,000 and (ii) 80% of eligible accounts receivable. A certain
          portion of the credit available to us under the credit facility may also
          be
          utilized to issue letters of credit through, or enter into foreign exchange
          contracts with, SVB. We have issued $4.2 million of letters of credit under
          the
          facility, which were still outstanding at December 31, 2006. We also borrowed
          $2.5 million in the third quarter, all of which was repaid by December
          31,
          2006.
 
 To
          secure
          our obligations under the Loan and Security Agreement, we have granted
          SVB a
          security interest in all of our assets and have established lockbox account
          for
          the collection of our receivables at a financial institution affiliated
          with
          SVB.
 
 Advances
          under the Loan and Security Agreement bear interest at SVB's prime rate
          plus a
          percentage ranging from 0.25% to 1.5%, depending on certain financial and
          collateral tests. We have also paid or agreed to pay SVB (i) a one-time
          commitment fee of $90,000; (ii) an unused facility fee in the amount of
          0.375%
          per year; (iii) 1% per year on the face amount of any issued letter of
          credit;
          and (iv) an early termination fee of 1% or 0.5% of the principal amount
          of the
          credit line if the facility is terminated by us within the first or second
          year,
          respectively. SVB has retained the right, upon limited notice, to make
          reasonable adjustments to the definition of eligible receivables. SVB has
          also
          reserved its right to modify the rate (the "Advance Rate") at which advances
          are
          made against eligible receivables if the Bank determines, after an audit,
          that
          there are events, contingencies or risks that adversely affect our assets.
  F-37
 AIRSPAN
            NETWORKS INC.
 NOTES
            TO
            THE FINANCIAL STATEMENTS - (Continued)
 (in
            thousands, except for share and per share data)
 Pursuant
          to the Loan and Security Agreement, we must maintain a certain tangible
          net
          worth and liquidity coverage. Our tangible net worth (which is a measure
          of
          total assets minus total liabilities minus any amounts attributable to
          goodwill,
          intangible items and obligations owing to us from its officers and other
          affiliates) must be at least the sum of $27,000,000 plus 50% of quarterly
          net
          income, plus 50% of proceeds of any sale of stock by us, plus 50% of any
          subordinated debt incurred by us. We must also maintain a liquidity coverage
          ratio that ranges from month to month between 1.5:1 to 1.75:1. The liquidity
          coverage ratio is the ratio of (A) the sum of unrestricted cash and cash
          equivalents maintained at SVB, plus 50% of unrestricted cash and cash
          equivalents in the United Kingdom over which SVB has a fixed or floating
          charge,
          plus 80% of eligible accounts, minus the funded debt (which is the debt
          that the
          Company owes to SVB and certain other creditors) to (B) the funded debt.
 
 The
          Loan
          and Security Agreement provides that, with the exception of certain permitted
          indebtedness and liens, we may not incur additional indebtedness or liens.
          Permitted indebtedness is defined to include unsecured trade debt and currency
          hedges incurred in the ordinary course of business, subordinated debt incurred
          on terms acceptable to SVB, and capitalized lease and purchase money
          indebtedness not exceeding $1,000,000 in any fiscal year. Permitted Liens
          are
          defined to include, among other things, certain liens for taxes or assessments,
          purchase money liens on property not exceeding $1,000,000, non-exclusive
          licenses of intellectual property incurred in the ordinary course of business,
          and certain liens incurred in the ordinary course of business. The Loan
          and
          Security Agreement further provides that we may not convey, sell, transfer
          or
          otherwise dispose of property except for inventory in the ordinary course
          of
          business and other similar dispositions. In addition, the Loan and Security
          Agreement limits our right to enter into a merger or acquisition, or make
          investments in other entities.
 
 **19.
          QUARTERLY FINANCIAL DATA (UNAUDITED)**
 
 The
          following table represents the Company’s consolidated results for each of the
          most recent eight quarters up to and including the quarter ending December
          31,
          2006. The information for each of these quarters is unaudited and has been
          prepared on the same basis as our audited consolidated financial statements.
          In
          the opinion of management, all necessary material adjustments have been
          included
          to present fairly the unaudited quarterly results when read in conjunction
          with
          the Company’s audited financial statements and related notes.
 
 **Quarter
                    Ended****Apr.
                    3,**
                
                **Jul.
                    3,**
                
                **Oct.
                    2,**
                
                **Dec.
                    31,**
                
                **Apr.
                    2,**
                
                **Jul.
                    2,**
                
                **Oct.
                    1,**
                
                **Dec.
                    31,****2005**
                
                **2005**
                
                **2005**
                
                **2005**
                
                **2006**
                
                **2006**
                
                **2006**
                
                **2006**($
                    in thousands, except per share data)Consolidated
                    statements of operations data:Revenue
                
                $
                22,218
                
                $
                20,309
                
                $
                30,545
                
                $
                37,894
                
                $
                23,800
                
                $
                45,435
                
                $
                27,303
                
                $
                31,274Cost
                    of revenue (1)
                
                
                15,362
                
                
                14,887
                
                
                21,462
                
                
                27,756
                
                
                17,362
                
                
                36,710
                
                
                20,047
                
                
                20,829Gross
                    profit
                
                
                6,856
                
                
                5,422
                
                
                9,083
                
                
                10,138
                
                
                6,438
                
                
                8,725
                
                
                7,256
                
                
                10,445Operating
                    expenses:Research
                    and development
                
                
                4,598
                
                
                5,062
                
                
                5,398
                
                
                6,099
                
                
                6,110
                
                
                6,675
                
                
                6,065
                
                
                5,947Sales
                    and marketing
                
                
                2,572
                
                
                2,675
                
                
                2,858
                
                
                3,359
                
                
                4,505
                
                
                5,026
                
                
                4,051
                
                
                3,621Bad
                    debt reserve
                
                
                316
                
                
                179
                
                
                307
                
                
                313
                
                
                536
                
                
                715
                
                
                297
                
                
                709General
                    and administrative
                
                
                2,827
                
                
                2,996
                
                
                3,223
                
                
                3,636
                
                
                3,762
                
                
                4,320
                
                
                4,072
                
                
                3,885Amortization
                    of intangibles
                
                
                128
                
                
                128
                
                
                337
                
                
                349
                
                
                275
                
                
                275
                
                
                276
                
                
                234Restructuring
                    provision
                
                
                -
                
                
                1,150
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                1,528
                
                
                655Total
                    operating expenses
                
                
                10,441
                
                
                12,190
                
                
                12,123
                
                
                13,756
                
                
                15,188
                
                
                17,011
                
                
                16,289
                
                
                15,051Loss
                    from operations
                
                
                (3,585
                )
                
                (6,768
                )
                
                (3,040
                )
                
                (3,618
                )
                
                (8,750
                )
                
                (8,286
                )
                
                (9,033
                )
                
                (4,606
                )Other
                    income/(expense):Interest
                    expense
                
                
                -
                
                
                -
                
                
                -
                
                
                (9
                )
                
                (12
                )
                
                (72
                )
                
                (78
                )
                
                (200
                )Interest
                    and other income
                
                
                676
                
                
                47
                
                
                345
                
                
                329
                
                
                191
                
                
                689
                
                
                5
                
                
                704Loss
                    before income taxes
                
                
                (2,909
                )
                
                (6,721
                )
                
                (2,695
                )
                
                (3,298
                )
                
                (8,571
                )
                
                (7,669
                )
                
                (9,106
                )
                
                (4,102
                )Income
                    tax (charge)/credit
                
                
                -
                
                
                (5
                )
                
                567
                
                
                (16
                )
                
                284
                
                
                (5
                )
                
                (17
                )
                
                (16
                )Net
                    loss
                
                
                (2,909
                )
                
                (6,726
                )
                
                (2,128
                )
                
                (3,314
                )
                
                (8,287
                )
                
                (7,674
                )
                
                (9,123
                )
                
                (4,118
                )Deemed
                    dividend associated withbeneficial
                    conversion of preferred stock
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                (9,179
                )
                
                -Net
                    loss attributable to common stockholders
                
                $
                (2,909
                )
                $
                (6,726
                )
                $
                (2,128
                )
                $
                (3,314
                )
                $
                (8,287
                )
                $
                (7,674
                )
                $
                (18,302
                )
                $
                (4,118
                )Net
                    loss attributable to commonstockholdersper
                      share - basic and diluted
                
                $
                -0.08
                
                $
                -0.17
                
                $
                -0.05
                
                $
                -0.08
                
                $
                -0.21
                
                $
                -0.19
                
                $
                -0.46
                
                $
                -0.10
  F-38
 **Financial
          Statement Schedules**
 
 **Schedule
                    II****Airspan
                    Networks Inc.****Valuation
                    and Qualifying Accounts****Additions**
                
                **Deductions****Balance
                    at**
                
                **Charged**
                
                **Written**
                
                
                
                **Charge**
                
                **Balance****beginning**
                
                **to**
                
                **back
                    to**
                
                **Credit
                    to**
                
                **against**
                
                **at
                    end of****of
                    period**
                
                **expense**
                
                **provision**
                
                **expense**
                
                **provision**
                
                **period****(in
                    thousands of U.S. dollars)****Allowance
                    for doubtful debts:**Year
                    ended December 31, 2006
                
                $
                3,519
                
                $
                2,917
                
                $
                63
                
                $
                (660
                )
                $
                (350
                )
                $
                5,489Year
                    ended December 31, 2005
                
                
                2,814
                
                
                1,462
                
                
                223
                
                
                (347
                )
                
                (633
                )
                
                3,519Year
                    ended December 31, 2004
                
                
                5,207
                
                
                985
                
                
                -
                
                
                (436
                )
                
                (2,942
                )
                
                2,814**Allowance
                    for deferred tax assets:**Year
                    ended December 31, 2006
                
                $
                55,519
                
                $
                8,762
                
                $
                4,379
                
                $
                (110
                )
                $
                (77
                )
                $
                68,473Year
                    ended December 31, 2005
                
                
                48,769
                
                
                4,546
                
                
                2,755
                
                
                (410
                )
                
                (141
                )
                
                55,519Year
                    ended December 31, 2004
                
                
                46,589
                
                
                3,775
                
                
                -
                
                
                (1,071
                )
                
                (524
                )
                
                48,769




F-39




**Exhibit
      Index**




Exhibit
              Number
            
            Description
                of Exhibit3.1
            
            Second
                Amended and Restated Articles of Incorporation of Airspan
                (1)3.2
            
            Articles
                of Amendment to the Articles of Incorporation of Airspan
                (2)3.3
            
            Articles
                of Amendment to the Articles of Incorporation of Airspan
                (3)3.4
            
            Amended
                and Restated Bylaws of Airspan *4.1
            
            Form
                of Airspan's common stock certificate (4)4.2
            
            Preferred
                Stock Purchase Agreement, dated July 28, 2006, among Airspan and
                Oak
                Investment Partners XI, Limited Partnership, including exhibits thereto
                (5)10.1
            
            1998
                Stock Option and Restricted Stock Plan (6)10.2
            
            Amended
                and Restated 2000 Employee Stock Purchase Plan (1)10.3
            
            Omnibus
                Equity Compensation Plan (1)10.3
            
            2001
                Supplemental Stock Option Plan (7)10.4
            
            2003
                Supplemental Stock Option Plan (8)10.5
            
            Written
                Summary of Airspan's Non-Employee Director Compensation Plan
                (9)













10.6
            
            Airspan
                Code of Business Conduct (10)10.7
            
            Employment
                Agreement with Eric Stonestrom (11), (12)10.8
            
            Employment
                Agreement with Jonathan Paget (11), (12)10.9
            
            Employment
                Agreement with Peter Aronstam, as amended (7), (11), (13)10.10
            
            Employment
                Agreement with Henrik Smith-Petersen (11), (13)10.11
            
            Employment
                Agreement between Airspan and Alastair Westgarth (11),
                (14)10.12
            
            Employment
                Agreement with Arthur Levine (10) (11)10.13
            
            Employment
                and Relocation Agreement with David Brant (11) *10.14
            
            Technical
                Assistance Support Services Agreement for FWA Equipment, dated as
                of
                February 14, 2003, by and between Nortel Networks U.K. Limited and
                Axtel,
                S.A. de C.V. (15)**10.15
            
            Preferred
                Stock Purchase Agreement, dated as of September 10, 2004 among Airspan
                and
                Oak Investment Partners XI, Limited Partnership (16)10.16
            
            Amendment
                No. 1 to Preferred Stock Purchase Agreement (17)10.17
            
            Purchase
                and License Agreement, dated as of December 28, 2004, by and among
                Airspan
                Communications Limited and Axtel, S.A. de C.V. (18)**10.18
            
            Amendment
                Agreement No. 3 to FWA TASS dated as of December 28, 2004 between
                Airspan
                Communications Limited and Axtel, S.A. de C.V. (19)**10.19
            
            Purchase
                Contract, dated April 14, 2005, by and between Yozan Incorporated
                ("Yozan") and Airspan Communications Limited ("Airspan Ltd.") (10),
                (20)10.20
            
            Supplement
                to Purchase Contract, dated August 15, 2005, by and between Yozan
                and
                Airspan Ltd. (10), (20)10.21
            
            2ndPurchase Contract, dated September 13, 2005, by and between Yozan
                and
                Airspan Ltd. (10), (20)10.22
            
            Amendment
                of 1stand 2ndPurchase Contracts, dated October 6, 2005, by and between Yozan and
                Airspan Ltd. (10), (20)10.23
            
            Amendment
                of 2ndPurchase Contracts, dated February 25, 2006, by and between Yozan
                and
                Airspan Ltd. (10), (20)10.24
            
            Memorandum
                of Understandings, dated February 25, 2006, by and between Yozan
                and
                Airspan Ltd. (10), (20)10.25
            
            Memorandum
                of Understandings, dated June 23, 2006, by and between Yozan and
                Airspan
                Ltd. (21), (22)10.26
            
            Loan
                and Security Agreement, dated as of August 1, 2006, by and among,
                Silicon
                Valley Bank, Airspan Networks Inc., and Airspan Communications Limited,
                including exhibits thereto (23)













10.27
            
            Memorandum
                of Understandings, dated September 8, 2006, by and between Yozan
                and
                Airspan Ltd. (24) (25)21
            
            Subsidiaries
                of registrant*23.1
            
            Consent
                of Grant Thornton LLP, Independent Registered Public Accounting Firm
                *23.2
            
            Consent
                of Ernst & Young LLP, Independent Registered Public Accounting Firm
                *31.1
            
            Certification
                of the Chief Executive Officer pursuant to Section 302 of the
                Sarbanes-Oxley Act of 2002*31.2
            
            Certification
                of the Chief Financial Officer pursuant to Section 302 of the
                Sarbanes-Oxley Act of 2002*32.1
            
            Certification
                of the Chief Executive Officer pursuant to section 906 of the
                Sarbanes-Oxley Act of 2002***32.2
            
            Certification
                of the Chief Financial Officer pursuant to section 906 of the
                Sarbanes-Oxley Act of 2002***




*
            Filed
                herewith





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




1
            
            Incorporated
                by reference to Airspan's Form 10-Q for the quarter ended April 4,
                20042
            
            Incorporated
                by reference to Airspan's report on Form 8-K filed on September 15,
                20043
            
            Incorporated
                by reference to Airspan's report on Form 8-K filed on September 26,
                20064
            
            Incorporated
                by reference to Airspan's Registration Statement on Form S-1 (333-34514)
                filed April 11, 20005
            
            Incorporated
                by reference to Airspan's report on Form 8-K filed on August 1,
                20066
            
            Incorporated
                by reference to Airspan's Registration Statement on Form S-1/A (333-34514)
                filed May 26, 20007
            
            Incorporated
                by reference to Airspan's Form 10-K for the year ended December 31,
                20008
            
            Incorporated
                by reference to Airspan's Form 10-K for the year ended December 31,
                20039
            
            Incorporated
                by reference to Airspan's report on Form 8-K filed on July 31,
                200610
            
            Incorporated
                by reference to the Company's Form 10-K for the year ended December
                31,
                200511
            
            Management
                Agreement or Compensatory Plan or Arrangement12
            
            Incorporated
                by reference to Airspan's Registration Statement on Form S-1/A (333-34514)
                filed June 22, 200013
            
            Incorporated
                by reference to Airspan's Form 10-K for the year ended December 31,
                200214
            
            Incorporated
                by reference to Airspan's Form 10-Q for the quarter ended July 2,
                200615
            
            Incorporated
                by reference by Airspan's report on Form 8-K/A filed on July 6,
                200416
            
            Incorporated
                by reference to Airspan's report on Form 8-K filed on September 13,
                200417
            
            Incorporated
                by reference to Airspan's report on Form 8-K filed on September 27,
                200418
            
            Incorporated
                by reference to Airspan's report on Form 8-K filed on June 9,
                200519
            
            Incorporated
                by reference to Airspan's Form 10-K for the year ended December 31,
                200420
            
            Portions
                of this document have been omitted and were filed separately with
                the SEC
                on March 30, 2006 pursuant to a request for confidential treatment,
                which
                was granted













21
            
            Portions
                of this document have been omitted and were filed separately with
                the SEC
                on June 29, 2006 pursuant to a request for confidential treatment,
                which
                was granted22
            
            Incorporated
                by reference to Airspan's report on Form 8-K filed on June 29,
                200623
            
            Incorporated
                by reference to Airspan's report on Form 8-K filed on August 7,
                200624
            
            Portions
                of this document have been omitted and were filed separately with
                the SEC
                on September 21, 2006 pursuant to a request for confidential treatment,
                which was granted25
            
            Incorporated
                by reference to Airspan's report on Form 8-K filed on September 21,
                2006