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, 2008





OR





 ̈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 ̈Nox




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




Yes ̈Nox




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.




YesxNo ̈




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. ̈




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




Large accelerated
filer ̈          Accelerated
filer ̈          Non-accelerated
filer ̈          Smaller reporting
companyx




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




As of
July 1, 2008, the aggregate market value of the registrant’s common stock held
by non-affiliates of the registrant was $42,057,251 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 27, 2009, the number of shares of the registrant’s common stock was
59,814,232.




DOCUMENTS
INCORPORATED BY REFERENCE:




Part III
incorporates by reference either (i) portions of the registrant’s definitive
proxy statement relating to its 2009 Annual Meeting of Shareholders, or (ii) an
amendment to this Annual Report on Form 10-K, which definitive proxy statement
or amendment is expected to be filed with the Securities and Exchange
Commission (“SEC”) within 120 days after the registrant’s fiscal year ended
December 31, 2008.









AIRSPAN
NETWORKS INC.




FORM
10-K




For
the Year Ended




December
31, 2008




TABLE OF
CONTENTS




Page No.PART
      I
                                        
                                        1ITEM
      1.
                                        Business
                                        
                                        1ITEM
      1A
                                        Risk
      Factors
                                        
                                        15ITEM
      1B
                                        Unresolved
      Staff Comments
                                        
                                        28ITEM
      2.
                                        Properties
                                        
                                        28ITEM
      3.
                                        Legal
      Proceedings
                                        
                                        28ITEM
      4.
                                        Submission
      of Matters to a Vote of Security Holders
                                        
                                        29PART
      II
                                        
                                        31ITEM
      5.
                                        Market
      For Registrant’s Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity Securities
                                        
                                        31ITEM
      6.
                                        Selected
      Financial Data
                                        
                                        32ITEM
      7.
                                        Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                                        
                                        33ITEM
      7A
                                        Quantitative
      and Qualitative Disclosures About Market Risk
                                        
                                        46ITEM
      8.
                                        Financial
      Statements and Supplementary Data
                                        
                                        48ITEM
      9.
                                        Changes
      In and Disagreements With Accountants On Accounting and Financial
      Disclosure
                                        
                                        48ITEM
      9A(T)
                                        Controls
      and Procedures
                                        
                                        48ITEM
      9B
                                        Other
      Information
                                        
                                        49PART
      III
                                        
                                        50ITEM
      10.
                                        Directors,
      Executive Officers and Corporate Governance
                                        
                                        50ITEM
      11.
                                        Executive
      Compensation
                                        
                                        50ITEM
      12.
                                        Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters
                                        
                                        50ITEM
      13.
                                        Certain
      Relationships and Related Transactions, and Director
      Independence
                                        
                                        51ITEM
      14.
                                        Principal
      Accountant Fees and Services
                                        
                                        51PART
      IV
                                        
                                        52ITEM
      15.
                                        Exhibits
      and Financial Statement Schedules
                                        
                                        52SIGNATURES
                                        
                                        55









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 opportunities 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,
HiperMAX, MacroMAX, MicroMAX, MacroMAXe, MiMAX, EasyST, EasyST-Wi-Fi, ProST,
ProST-Wi-Fi, Netspan, AS.TONE, iTONE, AS.NET, FlexNET, ViaNET, AS3010, AS3030,
AS3030 PTP, AS4000, AS4020, AS4030, 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 on
Form 10-K are owned by their respective holders.









PART
I




ITEM 1.BUSINESS




Airspan
Networks Inc. (“Airspan” or the “Company”) is a global supplier of broadband
wireless equipment supporting the Worldwide Interoperability for Microwave
Access (“WiMAX”) protocol standard, which provides a wide area telecommunication
access network to connect end-users to telecom backbone networks. The WiMAX
standard is established by the WiMAX Forum®, a
self-regulatory, industry standards-setting organization.  While our
main product focus is WiMAX, we utilize other supplemental technologies,
including Wireless Fidelity (“Wi-Fi”) and Voice-over-Internet Protocol (“VoIP”),
which allow communications network operators and service providers to deliver
high-speed data and voice services cost-effectively using wireless
communications rather than wired infrastructure.




Historically,
the primary market for our wireless systems has been fixed (stationary) point to
multi-point applications.  Our development of new technology has
expanded the market to include portable and mobile
applications.  Today, we produce radio base station equipment to
transmit radio signals from a central location to the end-user who is equipped
with a subscriber receiving unit.  Our WiMAX products enable high
speed connectivity due to efficient transmission techniques.  With
product certification according to mobile WiMAX standards, our mobile
applications can be made available directly to end-user devices such as laptops
and personal digital assistants to deliver wireless connectivity - at home, in
the office and on the move.  Our primary target customers continue to
be communications service providers and other network operators that deploy
WiMAX networks in licensed and unlicensed (license-exempt) spectra
worldwide.  These customers include incumbent local exchange carriers
(often referred to as “local exchange carriers”, “ILECs”, or simply telephone
companies), Rural Local Exchange Carriers (“RLECs”), Internet service providers
(often referred to as “ISPs”), Wireless Internet Service providers (often
referred to as “WISPs”), Mobile Virtual Network Operators (often referred to as
“MVNOs”), and Competitive Local Exchange Carriers (“CLECs”).  We also
serve a robust and growing market segment, including participants in the energy
and utility, defense and public safety, and other government
sectors.  This newly-served non-carrier customer base represents a
significant expansion of our traditional addressable market and is served by
both our fixed and mobile WiMAX products.  Our broadband wireless
systems have been installed by more than 500 network operators in more than 100
countries.




Each of
our wireless systems uses digital radio technologies, which provide wide-area or
local-area coverage, robust security and resistance to fading.  Our
systems synchronize available bandwidth with the specific services being
provided, thereby facilitating the most efficient use of radio equipment
resources and spectrum. Our systems are designed as modular solutions enabling
the expansion of existing deployments as technologies and customer needs
evolve.  We provide a wide range of subscriber devices that deliver
voice and data connection, or a combination of both, eliminating the need for
multiple access devices in customer premises.




Our
network management systems provide diagnostic and management tools that allow
our customers to monitor and optimize their installations.  To
facilitate the deployment and operation of our systems, we also offer network
installation (generally through subcontractors), training, radio planning and
support services.




In 2007,
we introduced a portable miniature device (the MiMAX subscriber terminal) that
can be plugged into a standard laptop, enabling WiMAX connectivity to a variety
of devices through a USB port.  Our MiMAX USB received WiMAX
certification by the WiMAX Forum® in the
second quarter of 2008.




Earlier
in 2008, we announced the MacroMAXe mobile-WiMAX base station, developed in
partnership with Fujitsu.  MacroMAXe is an all-in-one base station
offering the range and features typically included in larger base station
equipment. In addition, the MacroMAXe uses sophisticated power amplifier
technology which allows for extremely low power consumption, which improves the
carbon footprint of the network.




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, United Kingdom and Airport City, Israel.  Our
telephone number in Boca Raton is (561) 893-8670.  Further contact
details and the location of all our 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 Web site is not part of this or any
other report we file with or furnish to the SEC.




-1-




Industry
Overview




The
WiMAX Market




WiMAX is
an essential element in achieving the wireless communications industry’s aim of
providing economic broadband access to both fixed and mobile customers over a
wide geographic area. This market is the product of two parts of the
telecommunications markets that have converged over time:




·
            the
      market for fixed location “last mile” access where high speed data, voice,
      and video services are provided to stationary locations from a central
      base station; and




·
            the
      market for fixed, portable or fully mobile access where high-speed
      broadband data access connectivity is available to users across a broader
      geographic coverage range.




Airspan
has designed base station and subscriber equipment which supports both the
802.16d and 802.16e airlink. The
market for fixed broadband equipment has existed for several years, and we have
participated as a supplier to this market since our inception in 1998. Before
2005 and prior to WiMAX standardization, the market reflected operator
deployments of various network architectures, developed to proprietary
specifications by Airspan and other suppliers.




The
introduction of WiMAX compliant products in 2005 created additional deployment
opportunities for broadband wireless systems. WiMAX is a standards-based
technology enabling the delivery of wireless broadband access as an alternative
to cable and digital subscriber line (“DSL”).  WiMAX provides fixed,
nomadic, portable and mobile wireless broadband connectivity without the need
for a direct line-of-sight connection to a base station. According to the WiMAX
Forum®, in a
typical cell radius deployment of three to ten kilometers, WiMAX systems can be
expected to deliver capacity of up to 40 Mbps per channel for fixed and portable
access applications. This is sufficient bandwidth to simultaneously support
hundreds of businesses with T-1 speed connectivity and thousands of residences
with DSL speed connectivity. WiMAX therefore has become a viable alternative to
fiber-based networks that would be too uneconomical to deploy in the area
covered by a WiMAX cell. WiMAX network deployments provide downstream Internet
Protocol (“IP”) services up to 30 Mbps 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. During 2008, we
introduced broadband wireless products that also allow network operators to
provide customers with mobile access solutions as well (the 802.16e
airlink).




Many
carriers envision offering two distinct service types in their network, a fixed
component equivalent to existing wireline services and a mobile component to
address the broadband needs of mobile subscribers. Airspan’s products are
particularly well-designed for carriers who plan to implement either mode of
operation, sometimes referred to as “fixed-mobile convergence” or
“FMC.”




Semiconductor
vendors, including Intel Corporation, also support WiMAX and are promoting its
use worldwide. Similarly, device manufacturers are using WiMAX standards to
develop innovative customer equipment and other end-user devices like PCMCIA
cards and handheld devices (“Mobile Internet Devices”, or “MIDS”). System
integrators are active market participants who work with manufacturers to deploy
WiMAX technology and ensure the high service levels that the market
demands.




Wi-Fi
technology was designed and optimized for Local Area Networks (“LANs”) typically
covering a home, store or office, whereas WiMAX was designed and optimized for
Wide Area Networks (“WANs”). Typically, WiMAX is not considered a replacement
for Wi-Fi. Rather, WiMAX complements Wi-Fi by extending the reach and providing
a “Wi-Fi like” user experience for WiMAX subscribers on a larger geographical
scale. Beginning in 2009 we expect that WiMAX will deliver wireless connectivity
directly to end-user devices that will have built-in WiMAX capability, including
laptops and PDAs.




Broadband
wireless technologies are viable economic and technological solutions for
operators seeking to fill 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.




Market
Drivers




The
Global Need for Broadband Access




The
worldwide market for broadband wireless equipment has been accelerated by the
availability of WiMAX technologies, and is expected to grow from $1.5 billion in
2009 to $5.8 billion in 2013 (source:  Skylight Research). Over the
past five years there has been continued growth in the number of broadband
wireless equipment end-users throughout the world. At the end of September 2008,
the number of broadband Internet users was estimated to be 398 million, up from
328 million at the end of September 2007 (source: Point Topic Ltd).
Additionally, growth in broadband end-users has accelerated in developing
countries, and in rural areas of developed countries, with a historically
limited supply and penetration of telecom services, including broadband access.
Although mobile operators are often chosen to satisfy the demand for basic
telephony in low tele-density regions, broadband wireless systems are often
alternatively selected in many areas to provide broadband access solutions due
to superior features such as higher data speeds, rapidity of deployment and
availability of frequencies not serviced by traditional cellular
networks.




-2-




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
has created the opportunity for many industry participants, including RLECs,
CLECs, ISPs and WISPs, to provide local access connections that were
historically only offered by ILECs. Many of these CLECs and ISPs are now
striving to differentiate their service offerings on the basis of their range of
services, quality and reliability, customer service, provisioning and
pricing.




RLECs,
CLECs, ISPs and WISPs have also expanded their focus beyond large business
customers to serving small and medium-sized businesses, residential and
small-office/home-office customers as well as providing services outside of the
major urban areas. To serve these markets, service providers require more
cost-effective network deployment solutions to compensate for lower than average
customer spending on communications services and larger coverage area
requirements. Wireless solutions allow for network infrastructure that does not
require digging trenches and laying of cables, significantly reducing initial
deployment and ongoing maintenance costs.




We
believe that the introduction of high-capacity WiMAX broadband wireless systems
has made it possible for RLECs, 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 has also given those service providers the ability
in many instances to bypass entirely the wired networks of their ILEC
competitors, eliminating the problems and risks of shared facilities encountered
in the past by such service providers.




Non-Carrier
Market Participants Increasingly Building Their Own Networks




There are
a number of vertical markets that benefit from and enjoy the advantages of
wireless broadband infrastructures. Enterprises have found private broadband
wireless networks can be more cost-effective and secure for their own corporate
communications networks than public networks. In addition, utility companies,
for example, have been able to reduce expenses and create additional sources of
revenue using broadband wireless equipment linked to their existing transmission
and access networks. Lastly, government, defense and public safety agencies
build out wireless broadband networks to enable mobile law enforcement and
emergency response units to access real-time data and communicate vital
information via the network. Inter-connecting remote public safety buildings and
setting up a wireless surveillance camera system are additional applications in
this market.




Delivering
Broadband Internet to Rural and Developing Markets Supported by Government
Stimulus




Across
the rural United States and in many countries in the developing world service
providers have existing networks that are unable to provide reliable data, voice
and fax services while some countries lack the network infrastructure to make
basic telephone services broadly available. Operators of all sizes in these
markets need cost-effective, rapidly deployable alternatives to traditional
copper based networks. In short, the demand for broadband in rural and
underserved markets is growing rapidly and Airspan continues to target these
markets.




Recently,
governments in various countries have also taken on broadband initiatives to
improve broadband availability to their citizens. For example, Japan has
incorporated a broadband strategy that provides money or tax incentives to
cities to deploy broadband with the hope of completing full broadband coverage
to the entire nation by 2010.




The Obama
Administration in the United States has recently passed a stimulus package which
includes several billion dollars for broadband Internet expansion into rural
areas of the United States.  These government initiatives allow for
added competition and for smaller, local providers to undertake or expand their
broadband initiatives to offer broadband services to a wider customer
base.  WiMAX fits these customers’ needs for cost-effective and quick
broadband deployment.  Airspan has traditionally been a strong
participant in rural US markets and has approximately 30% market share among
WiMAX equipment providers in 3.65 GHz for this market (Source: SkyLight
Research February, 2009).




-3-




Increased
Availability of Licensed and Unlicensed (or License-exempt)
Spectrum




With the
global proliferation of the Internet and the related growth in demand 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.  Historically, most licensed spectrum has been made
available globally in the 3.5 GHz band; however, more recently, governments have
committed to make frequency available in the 2.3 – 2.5 GHz bands, in
support of greater access to broadband provided by WiMAX and enhanced
competition among industry participants.  During 2008, 3.5 GHz
spectrum was licensed for the first time in several countries and the 700 MHz
band in the United States was auctioned to a broad number of
companies.  In addition, plans are underway for the allocation of
additional spectrum at 2.3 – 2.6 GHz in other countries, as are
allocations of other frequencies for broadband wireless
applications.  Frequencies are also being licensed in other sub 6 GHz
spectrums, particularly sub-1 GHz spectrum in European countries, and in the 3.3
GHz band in India.




Additional
frequencies for unlicensed (“lightly licensed”) applications were added recently
in 3.65 GHz in the United States.  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.  We believe the increasing availability of licensed and
unlicensed spectrums will increase the demand for WiMAX solutions.




Our
Strategy




Historically,
our business addressed communications service providers that use fixed,
non-WiMAX wireless infrastructure to deliver services in those parts of their
service areas that are difficult or not cost effective to reach using copper or
fiber. We now offer a comprehensive range of WiMAX solutions to support these
traditional fixed wireless applications as well as the broader market for the
mobile applications that WiMAX is enabling. We are leveraging many years of
experience in complex radio systems design to provide innovative and
cost-effective products for all types of WiMAX users.




We have
transitioned our company over the last four years to focus on WiMAX product
development and sales and marketing. As a result, a substantial majority of our
resources are now dedicated to WiMAX-based products. As the need for broadband
connectivity drives growth in the wireless market and WiMAX enables
communications carriers to offer additional services, we expect the overall
market for broadband wireless equipment to continue to expand.




We plan
to capture as much of this market growth as possible with our WiMAX product line
based on three key strategic differentiators:




·
            First,
      we intend to exploit our early mover advantage as a technology
      leader.




We have
developed a robust portfolio of WiMAX products over the past four years and have
been selected by major carriers to provide their next generation broadband
wireless capability. We are a charter member of the WiMAX Forum®, which
has grown to more than 500 members. The WiMAX Forum®
continues to work together with the Institute of Electrical and Electronics
Engineers, Inc. (“IEEE”) to establish and develop WiMAX standards, including the
IEEE 802.16-2004 standard (the “802.16d standard”) for fixed and nomadic
applications and, more recently, the IEEE 802.16-2005 standard (the “802.16e
standard”) for fixed, mobile, nomadic and portable applications. Compliance with
standards promulgated by the WiMAX Forum® assures
interoperability of products with any other vendor’s WiMAX-certified
products.




·
            Second,
      we will provide a full range of WiMAX products to allow flexible and
      cost-effective deployment, service and delivery options for our
      customers.




Many
carriers focus on radio coverage which allows them to minimize the number of
base station sites that they require. Our product architecture supports high
performance operations using methods, including MIMO transmission techniques,
diversity of radio signal transmission (transmit and receive diversity) and
other extensions of basic radio transmission, to maximize the coverage footprint
from a single base station site. Our customers often test and compare the
coverage capabilities of various equipment suppliers and we focus on
differentiating our performance in this critical benchmark metric. By deploying
superior coverage solutions, operators can reach a broader customer base in
their available radio spectrum with lower capital expenditures. In particular,
our HiperMAX and MacroMAXe base station products have been designed for
customers that require high coverage performance.




Our
MicroMAX base station product provides a smaller, lower cost base station that
enables operators to deploy WiMAX in geographic areas where the population of
potential subscribers is less dense. As a result, the operator can deliver
wireless broadband service to these markets quickly, cost-effectively and with a
minimum commitment of capital while still achieving network economies of
scale.




-4-




Since the
number of target applications for WiMAX is broad, we have recognized that a
single type of subscriber receiving unit will not fit the needs of all end-user
applications. Our strategy is to offer three types of WiMAX subscriber units to
support the large number of additional devices expected to be made available to
consumers as the WiMAX ecosystem expands, including eventually WiMAX enabled
cell phones. Our EasyST is a small unit that can be installed directly by the
end customer in attractive home packaging and easily fits on a desktop. Our
ProST, a subscriber unit designed for outdoor installation, combines superior
radio performance with a number of data networking and powering options. We have
also developed a portable device for laptop applications in a USB form factor
(MiMAX) that works across a wide range of radio frequencies supported by the
mobile WiMAX standard. Furthermore, we provide product packaging that includes
optional integrated Wi-Fi access capability and Voice Service support for the
EasyST and the ProST.




·
            Third,
      we offer products that address the primary radio frequencies being made
      available for broadband wireless access, thereby allowing us to address
      numerous licensed and unlicensed customer
  opportunities.




Carriers
around the world have access to a wide range of different radio spectrum. Many
carriers planning to launch WiMAX networks have different specific radio bands
so the addressable market is broadest for equipment providers with the widest
range of frequencies supported by their equipment. A licensed spectrum is
typically leased from a government agency. Some carriers do not have access to
licensed radio spectrums at all and we provide products that can be used by
these carriers also. We provide products in both licensed and unlicensed, or
license-exempt, frequencies allowing our customers to make the most of the
available spectrum in the areas in which they operate. This broad array of
different frequency solutions is important when serving diverse markets, such as
the rural United States, where our customers and potential customers have access
to different spectrum allocations ranging from 700MHz to 5.8GHz.




Our
strategy is to 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 many of our markets we also sell
through independent agents, resellers and system integrators who target network
operators and other customers. In addition, we also sell our products to OEMs
who may sell our products under their names.




To ensure
that our products can be used in the broadest possible customer base, we have
created versions of the basic products across a wide range of frequencies up to
6 GHz, so that as many operators as possible can deploy WiMAX. We establish
market leadership in this way; for example, currently, Airspan offers the only
FCC-certified WiMAX solution for the 700 MHz frequency band. In addition, the
Company has developed both Frequency Division Duplex (“FDD”) and Time Division
Duplex (“TDD”) variants of the products to meet the specific needs of individual
operators.




Special
Committee




The Board
of Directors of the Company has established a special committee of independent
directors (the “Special Committee”) to consider strategic alternatives for the
Company.  The Special Committee has retained Stephens Inc. as its
financial advisor to assist it in reviewing possible strategic
alternatives.  There can be no assurance that strategic alternatives
will be available or that the Company will elect to consummate any such
alternatives.  The Company does not currently intend to provide
updates or make any further comments until the outcome of the strategic review
process is determined.




Customers




Our
customers are principally network operators, who provide their customers with
fixed, nomadic and portable broadband solutions, as well as backhaul and
bridging solutions. Beginning in 2008, we introduced broadband wireless products
that also allow network operators to provide customers with mobile access
solutions as well.  Our customers today can generally be described as
follows:




·
            Fixed
      and mobile carriers looking to provide high speed triple-play broadband
      services to a wide customer base;




·
            Energy,
      utility and enterprise and data centric carriers where high speed
      connectivity is required between locations with a variety of private
      networking capabilities;




·
            Military,
      defense and public safety network operators providing wireless
      connectivity across a broad range of applications;
  and




·
            Wireless
      ISPs that operate in areas where other carriers choose not to offer
      broadband access services.




We began
shipping our products in 1996. By the end of December 2008, we had shipped to
over 500 customers in more than 100 countries.




Our
contracts with our customers typically provide for delivery of products and
services, including training, radio planning and maintenance provided by
Airspan.  Our contracts sometimes include installation and
commissioning, which are generally provided by subcontractors. In addition, we
generally also agree to provide warranty for the equipment and software for a
limited period of time.




-5-




We
currently derive, and expect to continue to derive, a substantial percentage of
our net sales from fewer than ten customers. In 2008, approximately 55% of our
revenues were derived from our top ten customers, including revenues from Axtel
S.A. de C.V., Mexico (“Axtel”) for approximately 15% of our revenue. This was
the only customer that individually accounted for more than 10% of our 2008
annual revenue. In fiscal 2009, we expect significantly lower revenue from
Axtel.




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.




Products




Our
product offerings are comprised of a range of products based on WiMAX standards
and proprietary wireless technologies as well as VoIP and Wi-Fi products. Where
we refer in this document to “WiMAX products”, we are referring to both WiMAX
Forum CertifiedTM
products (those products that have been certified as meeting the standards
established by the WiMAX Forum®) and
WiMAX compliant products that we believe we have manufactured according to those
standards but which may or may not become WiMAX Forum CertifiedTM
products in the future.




WiMAX
Product Portfolio




We have
developed and continue to develop a line of WiMAX products for the WiMAX/IEEE
802.16 mobile and fixed standards. WiMAX products are based on an air interface
that employs Orthogonal Frequency Division Multiplexing (“OFDM”) and Orthogonal
Frequency Division Multiple Access (“OFDMA”). This interface has characteristics
that permit broadband wireless signals to penetrate objects more effectively
than the airlinks used in our earlier products, and thereby creates significant
opportunity for the installation of customer equipment in non-line-of-sight
(“NLOS”) environments. Airspan’s first WiMAX products became generally available
for commercial sale in the fourth quarter of 2005 for the 3.5 GHz FDD band. As
of March 2009, our WiMAX portfolio was comprised of the following
products:




Product
              
              Description
              
              Available
      FrequenciesBase
      Stations·HiperMAX
              
              HiperMAX
      Base Station is optimized to support both the IEEE 802.16e-2005 and
      802.16d-2004 specification for WiMAX. Both 256 OFDM and scalable OFDMA
      physical layers are supported within the overall design.
              
              3.3
      GHz, 3.4-3.6 GHz TDD/FDD, 3.6-3.8 GHz TDD, 4.9-5.0 GHz
  TDDHiperMAX-Micro
      is an all-outdoor single sector Base Station based on the same technology
      as HiperMAX and is available in all of the same
    frequencies.·MicroMAXd
              
              MicroMAX
      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 16 BSRs, depending on the amount of available
    spectrum.
              
              FDD
      (1.5 GHz; 3.4-3.5 GHz; 3.4-3.6 GHz; 3.6-3.8 GHz) TDD (698-746 MHz;
      1.42-1.52 GHz; 2.5-2.69 GHz; 2.7-2.9 GHz; 3.3-3.5 GHz; 3.4-3.6 GHz;
      3.6-3.8 GHz; 4.9-5.0 GHz; 5.15-5.35 GHz; 5.47-5.725 GHz; 5.725-5.875 GHz;
      5.85-5.95 GHz)·MacroMAXd
              
              The
      MacroMAXd 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.
              
              3.4-3.6
      GHz FDD




-6-




Product
              
              Description
              
              Available
      Frequencies·MacroMAXe
              
              MacroMAXe
      is a highly integrated, all outdoor, mobile WiMAX Base Station. Very small
      in size and incorporating advanced technology components, the Base Station
      requires very low power consumption. These units support the IEEE
      802.16e-2005 platform. Together, multiple units enable mobile users to
      retain connectivity while their session is automatically handed off from
      one base station to another.
              
              TDD
      2.5 GHz, 2.3 GHz, 3.5 GHz, 3.65GHzSubscriber
      Terminals/Customer Equipment·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. 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.  The EasyST overall design
      supports both 256 OFDM (TDD & FDD) and scalable OFDMA (TDD) physical
      layers offering operators a flexible choice of fixed or mobile WiMAX air
      interface, which complements the capabilities of Airspan’s Base
      Stations.
              
              FDD
      (3.4-3.6 GHz;
                3.6-3.8
      GHz) TDD
                (700
      MHz, 1.5 GHz; 3.3-3.5 GHz; 3.4-3.6 GHz; 3.6-3.8 GHz; 4.9-5.0 GHz;
      5.725-5.875 GHz)·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 line-of-sight and NLOS propagation
      environments.  The ProST-WiFi is a unique combination terminal
      that integrates WiMAX with an outdoor Wi-Fi access point to create instant
      public hotspots or outdoor Wi-Fi Metro-Zone nodes.  The ProST
      design supports both 256 OFDM (TDD & FDD) and scalable OFDMA (TDD)
      physical layers offering operators a flexible choice of fixed or mobile
      WiMAX air interface, which complements the capabilities of Airspan’s Base
      Stations.
              
              FDD
      (3.4-3.6 GHz; 3.6-3.8 GHz)
                TDD
      (700 MHz, 1.5 GHz; 3.3-3.5 GHz; 3.4-3.6 GHz; 4.9-5.0 GHz; 5.15-5.35 GHz;
      5.47-5.725 GHz; 5.8 GHz; 5.85-5.95 GHz)·MiMAX
      USB
              
              MiMAX
      USB is a WiMAX Certified mobile device which provides quad-band operation.
      Pluggable into any USB port, this device offers high-speed connectivity to
      laptops, personal computers and a number of other portable devices. With a
      plug-and-play feature, this device allows for quick, easy and affordable
      connectivity to any mobile WiMAX network, enabling true roaming and
      mobility. MiMAX devices support the full Mobile WiMAX Wave 2 Certification
      Profiles including Interoperable MIMO and Beam Forming techniques as
      defined by the IEEE802.16 standard.
              
              2.3-2.4
      GHz TDD, 2.496-2.69 GHz TDD, 3.3-3.8 GHz TDD, 4.9-5.8 GHz
    TDD




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 WiMAX portfolio, we
are working closely with key technology partners. These include:




·
            Intel
      Corporation — Application Specific Integrated Circuits for customer
      equipment;




·
            picoChip
      Designs Limited — High performance parallel processors for SDR base
      stations;




·
            SEQUANS
      Communications — Systems on a Chip for integrated Micro base stations;
      and




-7-




·
            Starent
      Networks — Access Service Network (“ASN”) enabling roaming on mobile WiMAX
      networks.




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.




Wi-Fi
Product Portfolio




Airspan’s
AS.Net products are based on the IEEE 802.11a/b/g standards. Airspan believes
that a combination of WiMAX and Wi-Fi technologies can provide flexible
combinations of wireless-based broadband connectivity solutions in enterprise
and carrier networks.




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.  Today we sell them as the
AS4000 and AS4020 products, in systems capable of delivering high-capacity
broadband data with carrier-quality voice connections to operators
globally.




In
October 2002, we strengthened our position in the broadband wireless equipment
market with the acquisition of the WipLL business from Marconi, which we renamed
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 OFDM technology, can also be used for a wide
range of backhaul applications, for example, connecting remote base stations to
a central office.




In
December 2003, we acquired Proximity, whose products enable operators to provide
carrier class circuit switched voice and data services using Time Division
Multiple Access technology.




Voice
over Internet Protocol (“VoIP”) Products




In June
2005, we acquired all of the outstanding shares of capital stock of ArelNet Ltd
of Israel (“ArelNet”), a pioneer in VoIP network infrastructure equipment and
solutions, including soft switches and gateways supporting all major VoIP
standards. The ArelNet product portfolio (“AS.TONE”) gives us the ability to
sell VoIP products on a stand-alone basis or in combination with our WiMAX
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 manage remotely a
geographically dispersed set of network elements. They also all feature
intuitive graphical user interfaces, and allow remote maintenance for all
deployed equipment. Our NMS have been marketed under the names Netspan, REM
(Remote Element Manager) and WipManage.




Research
and Development




As of
March 1, 2009, we had 103 full time employees and contractors engaged in
research and development located in Uxbridge, United Kingdom, Airport City,
Israel and elsewhere. Our wireless technologies have been under continuous
development since 1992, deliver high performance and are resilient in a very
wide range of deployment conditions.




Intellectual
Property




We rely
on a combination of patent, trademark, copyright and 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 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.




-8-




During
the development of our products, we have generated a significant patent
portfolio. As of March 1, 2009, our development efforts have resulted in over 30
separate U.S. patents granted (some with various foreign counterparts), with a
further three currently pending U.S. applications. In connection with our
acquisition of Radionet Oy, Ltd of Finland (“Radionet”) in November 2005, we
acquired two U.S. patents. For these technologies we do not pay significant
royalties to any other companies. To improve system performance and reduce
costs, we have developed custom integrated circuits that incorporate much of our
intellectual property, and which are the key elements of our wireless
solutions.




In
connection with our acquisition of the Proximity business from Nortel Networks
(“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.




United
States 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.




United
States trademark registrations are for a term of ten years and are renewable
every ten 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.




Extensive
Testing and Integration Facilities




The
performance and coverage area of a broadband wireless 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 broadband wireless system is predominantly dependent on the
environment in which the broadband wireless 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.




The
Company has extensive lab-based Integration and Test facilities at the research
and development facilities in Uxbridge, United Kingdom and in Airport City,
Israel.  Lab-based testing is insufficient to fully test the systems
that we design.  Therefore we operate live multi-cell WiMAX test
networks in and around the town of Stratford-upon-Avon, United Kingdom, and in
the vicinity of Airport City, Israel. These systems permit us to empirically
investigate radio transmission and reception and interference behavior for
existing and emerging products in a real-world environment.




Sales,
Marketing and Customer Service




We sell
our systems and solutions through our direct sales force and through independent
agents, resellers and OEM partners. Our direct sales force targets network
operators, ISPs and enterprises in both developed and developing markets. In
markets 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.




Our
marketing efforts are focused on network operators and ISPs that provide voice
and data or data-only communications services to their customers. 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, 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 and commissioning. This enables us to
efficiently manage fluctuations in volume of installation work.




As of
March 1, 2009, we had 72 full time employees and contractors dedicated to sales,
marketing and customer service.




-9-




Manufacturing




We
subcontract all of our manufacturing to third party subcontract manufacturing
service providers. These providers offer full service manufacturing solutions,
including assembly, integration, test, prototyping and new product introduction.
The following is an overview of where our products are
manufactured.




·
            WiMAX
      masthead infrastructure, WiMAX baseband infrastructure, AS.NET products,
      customer premise equipment and the smaller WiMAX base stations are
      manufactured by:




Flextronics
in various locations.




Syntech
Technologies in the United Kingdom.




ASUS
(Asian ODB sub-contractors).




A.L.
Electronics in Israel.




· WipLL
base stations and customer premise equipment are manufactured by Racamtech
Limited in Israel.
  Our
agreements with these manufacturing subcontractors are all non-exclusive and may
be terminated by either party generally with six months’ notice without
significant penalty. Other than component liability as a consequence of
authorized forecasts provided by Airspan, 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.




All
products are routed to customers via one of our two third party logistics
partners, Agility Logistics Ltd. in the United Kingdom and Flying Cargo in
Israel.




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. See “Item 1A. RISK FACTORS — Our
dependence on key suppliers may result in product delivery delays if they do not
have components in stock or terminate their non-exclusive arrangements with us”
and “ITEM 1A. RISK FACTORS — Our dependence on contract manufacturers may
result in a material adverse effect on our business if they are unable to fill
our orders on a timely basis or if they terminate their non-exclusive agreements
with us.”




Backlog




Our
backlog at December 31, 2008 and 2007 was $10.3 million and $27.6 million,
respectively. Subject to the fulfillment by our customers of their contractual
obligations, including payments, we anticipate that substantially all of the
year-end 2008 backlog will be filled in 2009.  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 our products 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 digital
subscriber line 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 suppliers develop 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.




-10-




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, and in terms of products and services
offered. With respect to the broadband fixed wireless solutions we offer today,
we believe we compete directly with Alcatel-Lucent, Alvarion, Aperto Networks,
Cisco Networks, Huawei, Motorola, Nokia Siemens, Redline Communications,
Samsung, and ZTE Corporation, and with a number of smaller privately-held
companies. Several large OEM suppliers of wireless access equipment, including
Samsung, Alcatel-Lucent, and Nokia Siemens, are offering WiMAX products and
pursuing advanced WiMAX development programs. In certain cases, these OEM
suppliers are partnering with specialized WiMAX equipment vendors, such as
Airspan, for critical elements of their product programs. Although the large
suppliers represent significant potential competition to smaller, WiMAX-focused
participants, certain of these specialized WiMAX companies, including Airspan,
have significantly differentiated their market and technology positions by
leveraging OEM relationships. Airspan believes that its strategic and commercial
OEM relationships with Fujitsu, Ericsson, Gilat, and Nortel have provided the
Company with technical and market advantages that create meaningful
differentiation both with respect to large OEM competitors and with respect to
those smaller WiMAX participants that have not achieved similar strategic
collaborations. We expect to face competition from these and other suppliers
that introduce and develop products that comply with mobile WiMAX
standards.




Competing
Technologies




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. Below we have
identified those solutions that are perceived, for a variety of technological
and economic reasons, to have competed most directly with the broadband wireless
solutions we offer. As a rule of thumb, rural areas have fewer copper and wired
infrastructures in existence. For this reason, we believe we have a particular
competitive edge in rural and developing markets.




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 voice communications and lower data-rate
connections.




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.




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.




-11-




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.




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.




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.”




In 2008,
our revenue continued the decline that had started in 2007. Our total revenues
decreased from $95.0 million in the year ended December 31, 2007 to
$70.4 million during the year ended December 31, 2008.




Should
the global economic conditions deteriorate further, we may experience further
revenue declines.  We also incurred significant charges related to
restructuring and impairment of goodwill as we continue to undertake activities
to streamline our business.  See Item 7, "Management's Discussion
and Analysis of Financial Condition and Results of Operations," for further
discussion.




Employees




As of
March 1, 2009, we had a total of 207 employees, including contract personnel, of
which 43 were based in the United Kingdom, 84 were based in Israel, 30 were
based in the United States and 50 were based in 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 of the Registrant




The
names, ages and positions of our executive officers and directors as of March
10, 2009 are listed below along with their business experience during the past
five years.




Name
              
              Age
              
              TitleMatthew
      J. Desch
              
              51
              
              Chairman
      of the Board of DirectorsEric
      D. Stonestrom
              
              47
              
              President
      and Chief Executive Officer, DirectorDavid
      Brant
              
              45
              
              Senior
      Vice President and Chief Financial OfficerHenrik
      Smith-Petersen
              
              45
              
              President,
      Global Business DevelopmentArthur
      Levine
              
              51
              
              Vice
      President, Finance and ControllerPaul
      Senior
              
              44
              
              Senior
      Vice President and Chief Technology OfficerUzi
      Shalev
              
              51
              
              Chief
      Operating OfficerPadraig
      Byrne
              
              42
              
              Senior
      Vice President and Chief Marketing OfficerJulianne
      M. Biagini
              
              46
              
              DirectorBandel
      L. Carano
              
              47
              
              DirectorMichael
      T. Flynn
              
              60
              
              DirectorFrederick
      R. Fromm
              
              59
              
              DirectorGuillermo
      Heredia
              
              67
              
              DirectorThomas
      S. Huseby
              
              61
              
              DirectorDavid
      A. Twyver
              
              62
              
              Director




-12-




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.




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 (“DSC”), a
provider of telecommunications equipment and services, 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 AS.NET
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, in
February 2001 became President, Asia Pacific, and in February 2009 became
President, Global Business Development. 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 an 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.




Paul
Senior joined Airspan in January of 1998 and has served as Head of
Airspan’s Radio Planning Team, Director of Customer Services, Senior Director of
Operations and Sales, Asia Pacific, as Vice President, Marketing and Product
Management and since May 2007 as Airspan’s Senior Vice President and Chief
Technology Officer. Mr. Senior is an industry veteran, with over 22 years
experience in the radio telecommunication industry. Mr. Senior started his
career at GEC Telecoms and worked in research at Plessey Research, Nortel’s BNR,
Alcatel and DSC Communications. In late 2002, Mr. Senior participated in the
creation of today’s WiMAX Forum®, alongside other industry visionaries. Mr.
Senior is very active within the WiMAX Forum® and is one of its most vocal
evangelists. Mr. Senior is a Charter Board member of the WiMAX
Forum®.




Uzi Shalev
is Airspan’s Chief Operating Officer.  Prior to being appointed Chief
Operating Officer in August of 2008, Mr. Shalev was Vice President and General
Manager of Airspan Israel.  Mr. Shalev joined Marconi in January 2001
as Vice President of Engineering and was appointed as Vice President and General
Manager of Airspan Israel at the acquisition in 2002. Prior to joining the
Company, he served as Senior Vice President Engineering with RADVision,
developing Voice and Video over IP products. From 1985 until 1993, Mr. Shalev
worked in various projects in the Israel Aircraft Industries. He has 23 years of
experience in telecommunications and wireless products, in managerial and
technical roles. Mr. Shalev holds a BSc. degree in Mathematics and Computer
Science from the Hebrew University of Jerusalem.




-13-




Padraig
Byrne joined Airspan in February 2008, as Senior Vice President and Chief
Marketing Officer.  Mr. Byrne served as Director of Business
Development of AT&T from April 2000 to February 2002, with global
responsibility for developing and managing international and domestic alliance
efforts.  In addition, Mr. Byrne played a significant role in the spin
off of AT&T Wireless from AT&T.  Following AT&T Wireless’
divestiture of its broadband wireless division, Mr. Byrne served as the Director
of Strategic Sales of Netro Corporation, a telecommunications company, from
February 2002 to July 2003, where he was in charge of business development and
strategic sales.  Subsequent to Netro’s merger with SR Telecom, a
Canadian broadband wireless company, Mr. Byrne was the Vice President of SR
Telecom from July 2003 to November 2006 and was in charge of Europe, Middle East
and Africa sales.  From February 2007 until joining the Company, Mr.
Byrne served as the Vice President of Sales and Marketing of PureWave Networks,
Inc., an advanced antenna beamforming technology company in Silicon
Valley.  Mr. Byrne brings extensive sales, business development,
strategy, channel management and revenue generation experience to the
Company.  Mr. Byrne spent ten years as a United States diplomat
working abroad for the United States Foreign Service and holds a B.A. from the
University of San Francisco.




Julianne M.
Biagini has served as a director of Airspan since August 2006. Ms.
Biagini was employed by Crossbow Technology, Inc. in 2008, as their
Chief Financial Officer.  Crossbow is a private company focused on the
wireless sensor industry.  From 1994 through 2007, she served in a
number of executive positions at Endwave Corporation, a supplier of RF
subsystems for millimeterwave, broadband wireless access
systems.  During her tenure, 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 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 Kratos Defense and Security Solutions, Inc., the Board of Directors
of FiberTower Corporation, the Supervisory Board of Tele Atlas N.V. and the
Board of Directors of numerous private companies. 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.




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.




-14-




Guillermo
Heredia joined the Board of Directors of Airspan in January 2001. Since
September 2005, Mr. Heredia has served as President and Chief Executive Officer
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, LLC, a venture
capital fund focused on communications infrastructure. Mr. Huseby has also
served as an advisor to Oak Investment Partners since August 1997, with the
title of “Venture Partner”, and from 2007 as a strategic partner to Hunt
Ventures and Voyager Capital. 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 three
privately held companies: Ontela Inc. that provides a platform that brings image
services to mobile phone handsets; SnapIn Software, Inc. that develops
handset-based wireless customer care and diagnostic products for mobile network
operators; and Zumobi Inc. that allows innovative mobile access, retrieval and
sharing of web-based content. He is also a board member of the following
privately held corporations: Hubspan; Kineto Wireless; Modiv Media; Mojix;
Trumba; and SinglePoint. 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.




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.




We
may continue to incur substantial losses and negative operating cash flows and
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, 2008, we had an accumulated deficit of $326
million.  We anticipate that we will continue to experience negative
cash flows and net losses at least through 2009.  Our operating losses
have been due in part to the commitment of significant resources to our research
and development and sales and marketing departments.  Although we have
made reductions in operating expenses, we expect to continue to devote resources
to these areas and, as a result, we will need to increase substantially our
quarterly revenues or further decrease our operating expenses 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.




-15-




Financial
markets worldwide are currently in the midst of an unprecedented crisis which
has had, and may continue to have, a material adverse effect on us and our
customers and suppliers.  The financial crisis has been affecting both
debt and equity financial markets, which has substantially limited the amount of
financing available to all companies, including ourselves.  It is
impossible to predict how long this crisis will last or how it will be resolved
or the extent of its continuing impact.




We
intend to delist from the NASDAQ Global Market and deregister our common stock
under the Securities Exchange Act of 1934 which could negatively affect the
liquidity and trading prices of our common stock.




On March
31, 2009, the Company announced that it would voluntarily delist its common
stock from the NASDAQ Global Market by filing a Form 25 with the Securities and
Exchange Commission on April 10, 2009.  Therefore, effective
April 20, 2009, our common stock will be delisted from the NASDAQ Global
Market.  After that date, our common stock will be quoted in the
over-the-counter market in the “Pink Sheets,” a centralized electronic quotation
service for over-the-counter securities.  The Company expects its
common stock will continue to trade in the Pink Sheets, so long as market makers
demonstrate an interest in trading in the Company’s common stock.  The
Company will provide its new ticker symbol for trading on the Pink Sheets as
soon as it becomes available.  The Company can give no assurance that
its common stock will continue to be actively traded on the Pink Sheets or on
any other quotation medium.




Following
such delisting, we intend to deregister our common stock under the Exchange Act
and become a non-reporting company under the Exchange Act.  On or
about April 20, 2009, the Company will file with the SEC a Form 15, Notice
of Termination of Registration and Suspension of Duty to File, to terminate its
reporting obligations under the Exchange Act.  When the Form 15 has
been filed, our obligation to file reports, and other information under the
Exchange Act, such as Forms 10-K, 10-Q and 8-K will be suspended.  The
deregistration of the Company’s common stock under the Exchange Act will become
effective 90 days after the date on which the Form 15 was filed.  The
Company is eligible to deregister under the Exchange Act because its common
stock was held of record by fewer than 300 persons. Delisting and deregistration
of the Company's common stock could negatively affect the liquidity and trading
prices of our common stock.




If
we are unable to develop and successfully sell WiMAX certified mobile products
in a timely fashion, our business will be materially adversely
affected.




Certification
for mobile WiMAX products based on the 802.16e standard became available in
2008, and carriers began to deploy this standard soon thereafter.  If
our mobile WiMAX products are not certified, if our products do not operate with
the products of other suppliers or if the development of those products is
otherwise delayed, there would be a material adverse affect on our
business.  We would be at a significant disadvantage in the
marketplace if we are not able to launch certified mobile WiMAX
products.  Even if our products are available and certified, we cannot
provide any assurance that we will be able to sell our products or to develop
relationships with system integrators and OEMs in order to sell our
products.




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




Our
products are sold to telecommunications carriers and service
providers.  A decline in their capital spending may reduce our sales,
increase the need for inventory write-offs and increase our losses and our
requirements for additional working capital, which may not be readily available
to us.  This 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.  Further, the number of carriers and
service providers that are our potential customers may not grow or may decline
as a result of, among other things, the substantial capital requirements needed
to establish networks and the limited number of licenses granted in each
country.




Since
our revenues may vary from quarter to quarter and a significant percentage of
our expenses are fixed and do not vary with revenues, our quarterly operating
results are volatile and difficult to predict, which may negatively affect our
stock price.




Our
quarterly operating results have fluctuated in the past and will likely vary in
the future for a variety of reasons, many of which are outside of our control,
including the following:




·
            changes
      in the mix of our products sold, including the growth of sales of our
      WiMAX products offset by further declines in sales of our legacy
      products;




·
            fluctuations
      in the size and timing of orders, as our customers are not typically
      required to purchase a specific number of our products in any given
      quarter;




·
            the
      budget cycles of our customers and the timing of purchases by our
      customers and end-users of our
products;




·
            the
      size and timing of major deployments of our
  products;




-16-




·
            delays
      in shipments or payment due to our customers inability to obtain licenses
      or for other reasons;




·
            the
      loss of a major customer;




·
            the
      adoption of new standards in our
industry;




·
            the
      fulfillment of criteria necessary for us to recognize
    revenue;




·
            the
      development of competing technology, products or services, which may cause
      us to lose customers;




·
            our
      ability to attract and retain technical and other
  talent;




·
            the
      inability of our suppliers or manufacturers to fulfill our orders as a
      result of a shortage of key
components;




·
            mergers
      or acquisitions by us, our customers or our
  competitors;




·
            general
      economic conditions worldwide and in the United States, including the
      effects of the current global financial crisis;
  and




·
            some
      degree of seasonality in which the first calendar quarter generally has
      lower sales than the final quarter of the preceding
  year.




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.  Because of the fluctuations we have
experienced in our quarterly results, we do not consider quarter-to-quarter
comparisons of our results of operations to be necessarily meaningful, and you
should not rely on results in any particular quarter or quarters 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.  In addition, as carriers deploy systems
using mobile WiMAX standards, our competitors may offer their products at
relatively low prices in an effort to achieve early market
acceptance.  Accordingly, we may experience downward pricing pressure
on our mobile WiMAX products, which would have an adverse affect on our
margins.




Our
operating performance is also dependent on our ability to continue to realize
cost savings and drive profitable growth.  If these initiatives are not met
within the time frame we expect, our cash flow could be impacted. Our suppliers
may require us to pay cash in advance or obtain letters of credit as a condition
to selling us their products and services. Any of these risks and uncertainties
could have a material adverse effect on our financial position, results of
operations or cash flow.




If
we are unable to compensate for declining sales of obsolescent products with
sales of new WiMAX products, our revenues will continue to decline.




As
certain of our current products become obsolete, growth in sales of our new
WiMAX products will be needed to compensate for this decline in revenues. As
WiMAX is now regarded as a principal standard for the broadband wireless
industry, we are facing the risk of obsolescence of our non-WiMAX products. As a
result, we expect our sales to continue to be materially adversely affected
until increasing sales of WiMAX products compensate for the decline in sales of
non-WiMAX products. While our WiMAX sales have been increasing, those increases
have not yet been sufficient to offset the decline in sales of our non-WiMAX
products. In the course of committing to research and development, enhancing our
existing products and developing the WiMAX 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.




-17-




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
91% and 82% of our sales in 2008 and 2007, respectively, were denominated in
U.S. dollars, and a majority of our cost of goods sold were denominated in U.S.
dollars, we incur a large part of our operating expenses and a portion of our
cost of goods in British pounds and New Israeli Shekels.  In the years
ended December 31, 2008 and 2007, approximately 24% and 30%, respectively, of
our combined operating expenses and cost of goods sold were denominated in
British pounds.  In the years ended December 31, 2008 and 2007,
approximately 15% and 11%, respectively, of our combined operating expenses and
cost of goods sold were denominated in New Israeli Shekels.  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 currency fluctuations against
the U.S. dollar may also affect the competitiveness of our pricing compared to
local products because we typically bill in U.S. dollars.




Rapid
technological changes and evolving industry standards, frequent new product
introductions and short product life cycles may adversely affect our results of
operations.




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 and to operate with
products of other suppliers.




With our
WiMAX products, we are focused on delivering IP based operating
systems.  The development of new, technologically advanced
IP-optimized networking solutions and 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.  As a result, we may expend research and development and
other resources on projections that do not result in significant
sales.




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.




The
adoption of open standards in the broadband wireless communications industry has
resulted in increased competition.




With the
adoption of WiMAX as the new industry standard for Broadband Wireless Access
(“BWA”) and the setting of standards by the WiMAX Forum®, our focus is
increasingly on selling WiMAX products, and on introducing mobile WiMAX
products, that are WiMAX Forum® certified or that meet WiMAX
standards.  We anticipate that other BWA equipment suppliers will also
increasingly sell products that are WiMAX Forum® certified or that meet WiMAX
standards.  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 WiMAX Forum® 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 manufacture any
standards-based products to compete with us, their relative size, resources,
marketing skills and financial incentives may prove to be more important to
customers than product differentiation alone.  Standardization is also
likely to result in lower average selling prices.  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.




-18-




If
we are not able to implement a program to conform our products to industry
standards, 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 developed our WiMAX 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.  In addition, our competitors may attempt to
influence the adoption of standards that are not compatible with our products,
and we may not have the resources or ability to influence such adoption
ourselves.  If, as a result of any changes, the products we have
developed fail to meet or are delayed in meeting then-applicable industry
standards, we may not be able to sell such products.




Our
future success also depends in part on the acceptance by our customers of
products that meet these industry standards.  If the WiMAX Forum® 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 addition, potential customers may delay orders in
anticipation of the introduction of new products that are designed to comply
with anticipated future standards.




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




We
compete in a relatively new, rapidly evolving, 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, certain satellite technologies and other new entrants to this
industry, as well as traditional communications companies.  The recent
adoption of WiMAX standards and the expected increased capital spending on WiMAX
applications is likely to result in new competitors entering the markets in
which we sell our products.  Competitors vary in size and resources
and in products and services offered.  With respect to the broadband
fixed wireless solutions we offer today, we believe we compete directly with
Alcatel-Lucent, Alvarion, Aperto Networks, Cisco Networks, Huawei, Motorola,
Nokia Siemens, Redline Communications and ZTE Corporation, and with a number of
smaller privately-held companies.  In addition, some of the entities
to which we currently sell our products may develop the capacity to manufacture
their own products.




Many of
our competitors are substantially larger than we are and have significantly
greater financial, sales and marketing, technical, manufacturing and other
resources as well as more established distribution channels and greater name
recognition.  These competitors may be able to respond more rapidly to
new or emerging technologies such as mobile WiMAX and changes in customer
requirements than we can and can devote greater resources to attempting to
influence the composition of future WiMAX standards.  They may also be
able 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 customers are sometimes reluctant to
base an important line of business on equipment purchased from a smaller vendor
such as us.  In addition, both larger and smaller communications
service providers 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 believe this tendency to “wait and see” with
respect to new technology is already affecting the market place, resulting in
increased customer caution on WiMAX purchases.




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 and other factors could
result in lower revenues or a loss of market share, which could cause our stock
price to fall.




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




We
already face, and may increasingly encounter, competition from competing
wireless technologies, such as cellular technology, that are constantly
improving.  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 512 Kbps 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.  Our products compete with alternative communications
systems on the basis of reliability, price and functionality.  For
example, 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.  Depending on specific customer needs, 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, including LTE (Third Generation Partnership Project: Long
Term Evolution) an OFDM cellular technology, and other technologies that have
yet to be developed.




-19-




We
currently depend on a few key customers for a substantial percentage 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 2008,
approximately 55% of our revenues were derived from our top ten customers,
including approximately 15% of our revenues from Axtel. Axtel was the only
customer that individually accounted for 10% or more of our 2008 annual revenue.
In fiscal 2009, we expect lower revenue from Axtel.  We believe that
there are certain economies of scale inherent in our
business.  Accordingly, if we are unable to replace the revenue
previously generated by Axtel and other significant customers, our gross profit
margins, profitability and efforts to preserve cash resources could be
negatively affected.




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 relatively small number
of key customers in the foreseeable future.  In general, our contracts
with our larger customers often involve major deployments that require several
months to fulfill, so our results may depend on the same major customers for
consecutive quarters.  We cannot assure you that, once a contract is
fulfilled, the customer will purchase new products or services from
us.  We must, therefore, continually seek new customers in order to
increase our revenue, and there can be no assurance that we will be successful
in doing so.




Many
of our customers execute short-term purchase orders or contracts that allow our
customers to terminate the agreement 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
execute only short-term purchase orders for a single system or a small number of
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
our customers will purchase any additional products beyond those 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, we may
be unable to recover the costs we incur and our margins could
suffer.




In
addition, our typical contracts are generally non-exclusive and contain
provisions allowing our customers to terminate the agreement without significant
penalties.  Our contracts also may require certain shipment, delivery
and installation commitments on our part.  If we fail to meet these
commitments, our customer contracts typically permit the customer to terminate
the contract or impose monetary penalties on us.




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, including with respect to the availability of radio frequencies for
two-way broadband communications.  Each country has different
regulations and regulatory processes for wireless communications equipment and
for the uses of radio frequencies.  Some of our products operate in
license-exempt bands, while others operate in licensed bands in different
jurisdictions.  In addition, changes in laws or regulations that
adversely affect 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, anticipated customer orders
have been postponed because of regulatory issues in various
countries.  The resolution of those issues can be lengthy and the
outcome can be unpredictable.  Some of the orders we receive from
customers are contingent upon their receipt of licenses from regulators, the
timing of which can often be uncertain.  Depending on the
jurisdiction, the receipt of licenses by our customers may occur, if at all, a
year or more after they initially seek those licenses.




-20-




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
in the countries in which we do business 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.




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, including the commitment of
significant cash and other resources associated with the purchase, lengthy
testing and evaluations, and regulatory and licensing requirements on the part
of the customer.  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.  We expect that
our sales cycles will continue to be long and unpredictable, and, as the average
order size for our products increases, our customers’ processes for approving
purchases may become more complex and lead to an even longer sales
cycle.  For example, we have found that the length of our sales cycle
has increased as an increasing percentage of our revenues comes from WiMAX
products.  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 recognize
and forecast revenues and control expenses.




In
addition, particularly with our WiMAX products, we may enter into contracts that
involve multiple deliveries of different elements over more than one
quarter.  The requirements in these contracts can affect the timing of
revenue recognition under generally accepted accounting principles
(“GAAP”).  These requirements may include customer acceptance,
guarantees of coverage, guarantees of certification or delivery of products not
yet available.  GAAP may preclude us from recognizing revenue under
such contracts until these requirements have been met.




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 to ensure that we are able to meet
our customers’ demands.  These commitments to our suppliers may be
placed up to six months prior to the anticipated delivery date based on our
existing customer purchase commitments and our forecasts of future customer
demand.  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 have sometimes had excess
inventory, which has increased our net losses.  For example, in the
second quarter of 2007 we recorded an inventory write down of $5.9 million as a
result of reduced demand for our non-WiMAX revenues.  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 United States have historically accounted for a
substantial majority of our revenues.  In the year ended 2008 and
2007, our international sales (sales to customers located outside the United
States which includes a small percentage of United States customers where the
final destination of the equipment is outside of the U.S.) accounted for
approximately 82% and 91%, respectively, of our total revenue. In 2008, 45% of
our revenue was derived from customers in North and South America, 44% from
customers in Europe, Africa and the Middle East, with Asia accounting for 11% of
revenues. 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;




-21-




·
            unexpected
      changes in government policies or regulatory requirements in the United
      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 establish or expand our relationships with 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
increasingly depend upon our ability to establish and expand our relationships
with major system integrators and telecommunications equipment OEMs. Some of our
products are sold to and through system integrators for integration into their
systems, rather than directly to carriers. As a result, the level of our sales
depends on the success, quality and market acceptance of the products of these
system integrators and OEMs, as well as their sales and marketing efforts, all
of which are not within our control. Adverse events affecting these system
integrators and OEMs, such as financial difficulties or technical problems with
their products could have a material adverse effect on our results of
operations. In addition, the termination of any existing or future relationships
with systems integrators or OEMs could result in our selling fewer products.
Furthermore, systems integrators and OEMs may choose to integrate, market and
sell the products of our competitors or to use competing technologies instead of
or in addition to our products. If we are not able to establish and expand
relationships with system integrators and OEMs to market and sell our products
over competing products and technologies, there may be a material adverse effect
on our ability to generate revenue.




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




We
conduct various activities related to our 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 may result in product delivery delays if they do not
have components in stock or terminate their 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,
radio frequency filters and power amplifiers, 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, or 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.  Delays in shipping could result in our customers claiming
damages, increased costs, and damage to our reputation and loss of future
business.  At times we have been forced to purchase components from
distributors instead of from manufacturers, which has significantly increased
our costs.  During the second quarter of 2007, as a result of a
temporary shortage of a component, we had difficulty manufacturing enough WiMAX
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.  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 may not
be able to replace, or may experience increased costs if we are required to
replace, an existing supplier.




-22-




Our
dependence on contract manufacturers may result in a material adverse effect on
our business if they are unable to fill our orders on a timely basis or if they
terminate their non-exclusive agreements with us.




We
generally outsource the manufacturing of our products to
subcontractors.  These contract manufacturers have limited
manufacturing capacity, and we cannot be sure that they will at all times have
the capacity that we require to fill our customers’ orders.  In
addition, our reliance on contract manufacturers subjects us to a number of
other risks, including risks related to limited control of delivery schedules,
manufacturing yields and production costs, and quality assurance and
control.  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.  The process of replacing
any of our contract manufacturers would likely take at least six months, and any
related delay could cause a material interruption in our ability to deliver
products to our customers.




We rely
on our forecasts of future orders to make purchasing and manufacturing decisions
and provide our contract manufacturers with orders well in advance of the time
that we expect to sell those products.  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.




If
we lose Eric Stonestrom, our President and Chief Executive Officer, 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, could result in lost customers and
could cause a 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 our WiMAX products. 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 United States and the United Kingdom, 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 some countries where
we do file for patent protection, we may choose not to maintain patent
protection. In addition, we may not file for or maintain patent protection in a
country from which we derive significant revenue. 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 protect adequately 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.




-23-




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 us, our products or the
technologies that are important to us. If any inquiry from a third party
relating to patents, copyrights 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.




The
status of intellectual property directed to or covering WiMAX technology is
currently unclear and developing. It is difficult to determine what parties, if
any, hold patents or other rights with respect to intellectual property that is
used in WiMAX products, including ours. In addition, Mobile WiMAX technology is
a new technology with greater uncertainty regarding the status of relevant
intellectual property and could involve greater patent licensing issues and more
potential for intellectual property disputes than fixed WiMAX technology. A
September 2006 patent survey commissioned by the WiMAX Forum® suggests that
there are more than 1,550 existing patents that may be deemed to cover some
portion of WiMAX technology.  We believe that the number of patents
that may be deemed to cover WiMAX technology is increasing. We cannot be certain
that holders of some of these patents or other patent holders will not assert
claims against us in the future, including claims relating to mobile WiMAX
products. From time to time, we have received, and expect to continue to
receive, correspondence from various other parties offering licenses to patents
or providing notice of claims of infringement, misappropriation or misuse of
other parties’ proprietary rights. Some of these claims may lead to
litigation.




For
example, we and other WiMAX manufacturers have received letters/communications
from Wi-LAN Inc. (“Wi-LAN”) offering licenses of various Wi-LAN patents and
contending that products complying with 802.11 and 802.16 standards are covered
by certain patents allegedly owned by Wi-LAN.  We, in consultation
with our patent counsel, have been reviewing Wi-LAN’s allegations and have had
extensive correspondence with Wi-LAN regarding those
allegations.  Wi-LAN continues to allege that its patents cover
certain of the Company’s products, and has offered to negotiate a license with
the Company with respect to the patents in question.  Even if we were
to prevail in any litigation related to this matter, the associated costs could
deplete our financial resources, and our management’s attention and resources
could be diverted.  Alternatively, as is discussed above, we may be
required to seek a license to use certain technology from Wi-LAN.  We
cannot be certain that Wi-LAN would provide such a license or, if it did, what
the economic or other terms of the license would be.  Such a license
could require us to make significant payments with respect to past and/or future
sales of our products, and such payments might significantly reduce the margins
on sales of our products.  The Company is in discussions with Wi-LAN
regarding a possible resolution of this matter.  However, there can be
no assurance as to the ultimate outcome of this matter.




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
      warranty costs and other 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;




·
            diversion
      of research and development resources to fix errors in the
      field;




-24-




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




·
            increased
      insurance costs; 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.  In
addition, our products are often integrated with other network
components.  Incompatibilities between our products and these
components could result in material harm to the service provider or its
subscribers.  These problems could adversely affect our cash position
or our reputation and competitive position.




We
have made, and may, subject to adequate financial resources, 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, and we may, subject to adequate financial resources,
do so in the future.  Acquisitions involve significant risks and
uncertainties, including:




·
            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, personnel, technology, software,
      businesses and operations in an efficient and effective
      manner;




·
            significant
      write-offs;




·
            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 stockholders’ 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.




Our
use of the credit facility from Silicon Valley Bank presents certain
risks.




Effective
March 25, 2009, we and our wholly-owned subsidiary, Airspan Communications
Limited, entered into an amendment and restatement of our August 1, 2006
Loan and Security Agreement, as amended (as so amended and restated, the
“Amended and Restated Loan and Security Agreement”) with Silicon Valley Bank
(“SVB”), with respect to a revolving credit line.  See the “Liquidity
and Capital Resources” section of ITEM 7 for further details.




-25-




We are
currently drawing on the credit line, and we expect to continue to use it in
2009.  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 inventory and the rate at which advances are made against
eligible receivables and inventory (the “Advance Rate”).  If the
amount or quality of our accounts receivable or inventory deteriorates or the
Advance Rate or eligibility criteria are adjusted adversely by SVB, our ability
to borrow under the credit facility will be directly, negatively
affected.  If there is an adverse 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 Amended and Restated Loan and Security Agreement.  In
addition, the credit facility requires us to satisfy certain financial
covenants, including the maintenance of a minimum Tangible Net Worth and a
minimum Adjusted Quick Ratio (as defined in the Amended and Restated Loan and
Security Agreement).  As of December 31, 2008, the minimum tangible
net worth requirement under our agreement with SVB was $30 million and the
Company’s actual tangible net worth was $25.8 million.  As such, the
Company was not in compliance with the tangible net worth covenant at December
31, 2008.  This default has been waived effective March 25, 2009
pursuant to the Amended and Restated Loan and Security Agreement.  The
amended required minimum tangible net worth at March 31, 2009 is $18.0 million,
June 30, 2009 is $14.0 million, September 30, 2009 is $13.0 million and December
31, 2009, and thereafter $12.0 million, subject to certain adjustments based on
positive earnings and equity issuances.  In addition, the Company is
required to maintain an Adjusted Quick Ratio (quick assets to current
liabilities minus deferred revenue and Israeli severance liability) of at least
1.00 to 1.00 as of the last day of each month.  There is no assurance
the Company will be able to meet these covenants in future quarters as required
by the Amended and Restated Loan and Security Agreement.  In the event
the Company is unable to meet these tests in the future, we would plan to seek
an amendment or waiver of the covenants.  There can be no assurance
that any such waiver or amendment would be granted.  In such event, we
may be required to repay any or all of our existing borrowings and we cannot
provide any assurance that we will be able to borrow under the Amended and
Restated 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 Amended and
Restated Loan and Security Agreement.  In the event of an uncured
default, the Amended and Restated 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.




The
holders of our Series B preferred stock are entitled to a liquidation preference
of $290.00 per share of Series B preferred stock on any liquidation or sale
of our Company before holders of our common stock receive any cash or other
distribution (in such a liquidation or sale).




There are
currently outstanding 200,690 shares of our Series B preferred
stock.  The holders of our Series B preferred stock are entitled to a
liquidation preference of $290.00 per share of Series B preferred stock on
voluntary or involuntary liquidation of our Company before any payment of cash
or distribution of other property may be made to the holders of our common
stock, or any other class or series of stock subordinate in liquidation
preference to the Series B preferred stock.  However, if the holders
of the Series B preferred stock would receive a greater return in a liquidation
by converting their shares of Series B preferred stock into common stock, then
the Series B preferred stock will be deemed to be automatically converted into
common stock immediately before the effectiveness of the
liquidation.  For this purpose a “liquidation” is deemed to include
the following transactions unless our stockholders approve a proposal that such
transaction shall not be treated as a liquidation:  (i) any
liquidation, dissolution, or winding-up of our affairs, or (ii) unless, at our
request, the holders of at least a majority of the Series B preferred stock then
outstanding determine otherwise, (a) the merger, reorganization or consolidation
of us into or with another entity, unless, as a result of such transaction the
holders of our outstanding securities immediately preceding such merger,
reorganization or consolidation own (in approximately the same proportions,
relative to each other, as immediately before such transaction) at least a
majority of the voting securities of the surviving or resulting entity or the
direct or indirect parent of such entity, (b) the sale, transfer or lease of all
or substantially all of our assets, (c) the sale, transfer or lease (but not
including a transfer or lease by pledge or mortgage to a bona fide lender), of
all or substantially all the assets of any of our subsidiaries the assets of
which constitute all or substantially all of our assets and the assets of such
subsidiaries, taken as a whole, or the liquidation, dissolution or winding-up of
such of our subsidiaries the assets of which constitute all or substantially all
of our assets and the assets of such subsidiaries taken as a whole, or (d) any
transaction or series of related transactions in which securities of the Company
representing 50% or more of the combined voting power of the Company’s then
outstanding voting securities are acquired by any person, entity or
group.




-26-




Therefore,
upon any liquidation of our Company, certain mergers, reorganizations and/or
consolidations of us 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 preferred stock (as appropriately adjusted for any combinations,
divisions, or similar recapitalizations affecting the Series B preferred stock
after issuance).




For
example, if we were to be acquired in a merger, acquisition, consolidation or
sale of assets, the holders of the Series B preferred stock would be
entitled to receive $290.00 per share of Series B preferred stock in the
acquisition transaction unless they (i) determined to convert their shares into
common stock or (ii) the Series B stockholders approve a proposal that the
acquisition transaction not be treated as a liquidation.  There are
currently 200,690 shares of Series B preferred stock outstanding.  As
a result, the holders of the Series B preferred stock would be entitled to
receive $58.2 million before the holders of common stock receive any amounts in
such a transaction (assuming no conversion of Series B preferred stock
prior to the transaction).  This could result in the holders of the
Series B preferred stock receiving substantially more, on a common share
equivalent basis, than holders of our common stock in such a
transaction.




We
have a significant stockholder whose interests may conflict with our other
stockholders.




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 our Series B
preferred stock.  Based upon our capitalization as of December 31,
2008, the shares of Series B preferred stock are initially convertible into a
total of approximately 27% of our common stock (without giving effect to the
exercise or conversion of any other outstanding options, warrants or convertible
securities) and represent approximately 23% 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 stockholders 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 15% of the total issued and
outstanding shares of our common stock, Oak will be entitled to elect one member
of our Board of Directors.  Mr. Bandel L. Carano, one of our
directors, has been designated by Oak as Oak’s appointee to the
Board.




So long
as the Series B preferred stock is outstanding, we have agreed to refrain from
taking certain actions without the approval of the holders of a majority of the
then outstanding Series B preferred stock voting separately as a
class.  The 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 us, certain mergers, reorganizations and/or
consolidations of us 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 preferred stock (as appropriately adjusted for any combinations,
divisions, or similar recapitalizations affecting the Series B preferred stock
after issuance).




We
may need additional capital in future periods and our ability to access capital
on acceptable terms could decrease significantly and may adversely affect our
results of operations and/or business prospects.




We
recognize that our need for capital in future periods may increase 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 or seek new capital which may be available only on terms
that may not be acceptable to the Company, especially in light of current
adverse economic conditions. If we are compelled to adopt measures to conserve
cash resources due to the lack of availability of capital, such measures may
adversely affect our results of operations and the short-term and/or long-term
prospects for our business.




-27-




Current adverse economic conditions
could negatively impact our business.




Our
operations are affected by local, national and worldwide economic conditions,
including, but not limited to, perceived and actual economic conditions,
recessions, deflation, exchange rates, interest rates, taxation policies and the
availability of credit.  The consequences of a prolonged recession may
include a lower level of economic activity and uncertainty regarding capital and
commodity markets.  A lower level of economic activity may adversely
affect our revenues and future growth, as well as the future growth of the WiMAX
market upon which our business is substantially dependent.  In
addition, deflation resulting in a decline of prices could reduce our
revenues.  The current instability in the financial markets, as a
result of recession or otherwise, may also affect the cost of capital and our
ability to raise capital.




Current
economic conditions may be exacerbated by insufficient financial sector
liquidity which may impact our customers’ ability to pay timely for our
products, increase customer bankruptcies and may lead to increased bad debts. In
addition, our suppliers (including our key suppliers) could experience credit or
other financial difficulties that could result in delays in their ability to
supply us with necessary goods and services.




There can
be no assurance that the current economic slowdown or further deterioration of
economic conditions in the United States as well as internationally will
not have a material adverse effect on our business, financial condition, results
of operations and cash flows.




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 8,600 and 10,300
square feet. The lease for the 8,600 square foot facility expired in July 2008
and continues to be leased on a month to month basis. The lease for the 10,300
square foot facility continues until the end of April 2009. We will move into a
new facility in June 2009 when we combine our Israel locations into one office
that will contain approximately 35,500 square feet.




ITEM
3.  LEGAL
PROCEEDINGS




Beginning
in July 2001, the Company and certain current and former officers and directors,
including its CEO and Chairman of the Board (the “Individual Defendants”) were
named as defendants in a class action complaint alleging violations of the
federal securities laws in the United States District Court for the Southern
District of New York.  A Consolidated Amended Complaint, which is now
the operative complaint, was filed on April 19, 2002.





The
purported class action alleges violations of Sections 11 and 15 of the
Securities Act of 1933 (the “1933 Act”) and Sections 10(b) and 20(a) of the
Exchange Act and Rule 10b-5 promulgated thereunder.  The essence of
the complaint is that defendants issued and sold the Company’s common stock
pursuant to the Registration Statement for the July 20, 2000 Initial Public
Offering (“IPO”) without disclosing to investors that certain underwriters in
the offering had solicited and received excessive and undisclosed commissions
from certain investors.  The complaint also alleges that the
Registration Statement for the IPO failed to disclose that the underwriters
allocated Company shares in the IPO to customers in exchange for the customers’
promises to purchase additional shares in the aftermarket at pre-determined
prices above the IPO price, thereby maintaining, distorting and/or inflating the
market price for the shares in the aftermarket.  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.  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 the
Company, but denied the motion to dismiss the Section 11 claim.  On
October 13, 2004, the Court certified a class in six of the approximately 309
other nearly identical actions that are part of the consolidated
litigation.  These six cases are the class certification “focus
cases.”  The plaintiffs selected these six cases, which do not include
Airspan.  On December 5, 2006, the Second Circuit Court of Appeals
vacated an order by the district court granting class certification in the six
focus cases.  On April 6, 2007, the Second Circuit denied a petition
for rehearing filed by plaintiffs, but noted that Plaintiffs could ask the
District Court to certify more narrow classes than those that were
rejected.




-28-




Prior to
the Second Circuit’s December 5, 2006 ruling, the majority of the issuers,
including the Company, and their insurers, had submitted a settlement agreement
to the Court for approval.  In light of the Second Circuit opinion,
the parties agreed that the settlement could not be approved.  On June
25, 2007, the district court approved a stipulation filed by the plaintiffs and
the issuers which terminated the proposed settlement.  On August 14, 2007,
the plaintiffs filed amended complaints in the six focus cases.  The
amended complaints include a number of changes, such as changes to the
definition of the purported class of investors, and the elimination of the
Individual Defendants as defendants.  The six focus case issuers and
the underwriters named as defendants in the focus cases filed motions to dismiss
the amended complaints against them on November 14, 2007.  On
September 27, 2007, the plaintiffs filed a motion for class certification in the
six focus cases.  On March 26, 2008, the district court dismissed the
Section 11 claims of those members of the putative classes in the focus cases
who sold their securities for a price in excess of the initial offering price
and those who purchased outside the previously certified class
period.  With respect to all the other claims, the motions to dismiss
were denied.  On October 10, 2008, at the request of plaintiffs,
plaintiffs’ motion for class certification was withdrawn, without
prejudice.




The
parties in the approximately 300 coordinated class actions, including Airspan,
the underwriter defendants in the Airspan class action, and the plaintiffs in
the Airspan class action, have reached an agreement in principle under which the
insurers for the issuer defendants in the coordinated cases will make the
settlement payment on behalf of the issuers, including the
Company.  The settlement is subject to approval by the parties,
termination by the parties under certain circumstances, and Court
approval.  There is no assurance that the settlement will be concluded
or that the Court will approve the settlement.




Due to
the inherent uncertainties of litigation, we cannot accurately predict the
outcome of this matter. If the settlement is not concluded and approved, the
litigation continues, and Airspan is found liable, the Company is unable to
estimate or predict the potential damages that might be awarded, whether such
damages would be greater than our insurance coverage, and whether such damages
would have a material impact on our results of operations or financial condition
in any future period.





On
October 9, 2007, a purported Airspan stockholder filed a complaint for
violation of Section 16(b) of the Exchange Act, which prohibits short-swing
trading, against the Company’s initial public offering underwriters. The
complaint, Vanessa Simmonds v. Credit Suisse Group, et al., Case
No. C07-01638, filed in the District Court for the Western District of
Washington, seeks the recovery of short-swing profits. The Company was
named as a nominal defendant. No recovery was sought from the
Company.  On March 12, 2009, the Court dismissed the action against
the Company with prejudice.




From time
to time, the Company receives and reviews offers from third parties with respect
to licensing their patents and other intellectual property in connection with
the manufacture of our WiMAX and other products.  There can be no
assurance that disputes will not arise with such third parties if no agreement
can be reached regarding the licensing of such patents or intellectual
property.




For
example, we and other WiMAX manufacturers have received letters/communications
from Wi-LAN offering licenses of various Wi-LAN patents and contending that
products complying with 802.11 and 802.16 standards are covered by certain
patents allegedly owned by Wi-LAN.  The Company, in consultation with
its patent counsel, has been reviewing Wi-LAN’s allegations and has had
extensive correspondence with Wi-LAN regarding those
allegations.  Wi-LAN continues to allege that its patents cover
certain of the Company’s products, and has offered to negotiate a license with
the Company with respect to the patents in question.  The Company is
in discussions with Wi-LAN regarding a possible resolution of this
matter.  However, there can be no assurance as to the ultimate outcome
of this matter.




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




A Special
Meeting of Shareholders (the “Special Meeting”) was held at Airspan’s offices in
Boca Raton, Florida, on December 16, 2008 for the following
purposes:




·
            To
      consider and vote upon a proposal to approve an amendment to the Company’s
      Second Amended and Restated Articles of Incorporation, as amended,
      effecting a reverse stock split of the Company’s common stock at a ratio
      to be determined by the Company’s Board of Directors within a range of
      one-for-five shares to one-for-fifteen
shares;




-29-




·
            To
      consider and vote upon a proposal to approve an amendment and restatement
      of the Company’s 2000 Employee Stock Purchase Plan (the “ESPP”) to
      increase the number of shares of common stock reserved for issuance
      thereunder and to allow for nine additional separate offering periods, the
      final offering period to commence on August 16, 2017 and terminate on
      August 15, 2018; and




·
            To
      consider and vote upon a proposal to approve a stock option exchange
      program under which eligible employees (including executive officers but
      excluding non-employee members of the Company’s Board of Directors) will
      be offered the opportunity to exchange their eligible options to purchase
      shares of common stock outstanding under the Company’s equity compensation
      plans for a smaller number of new options at a lower exercise
      price.




The
number of outstanding shares of the Company’s common stock and Series B
preferred stock as of October 28, 2008, the record date for the Special
Meeting, was 59,472,165 and 200,690, respectively. 48,206,727 shares of common
stock and 200,690 shares of Series B preferred stock were represented in person
or by proxy at the Special Meeting.




Pursuant
to the Company’s Second Amended and Restated Articles of Incorporation, as
amended, shareholders are entitled to one vote for each share of common stock
and 81 votes for each share of Series B preferred stock.




With
respect to the proposal to approve an amendment to the Company’s Second Amended
and Restated Articles of Incorporation, as amended, effecting a reverse stock
split of the Company’s common stock at a ratio to be determined by the Company’s
Board of Directors within a range of one-for-five shares to one-for-fifteen
shares, (i) 60,695,135 votes were cast for such proposal, (ii) 3,593,244 votes
were cast against such proposal and (iii), 174,238 shares abstained from voting
on such proposal.  No votes were withheld and there were no broker
non-votes with respect to such proposal.  All outstanding shares of
Series B preferred stock voted in favor of such proposal. Accordingly, the
proposal to approve an amendment to the Company’s Second Amended and Restated
Articles of Incorporation, as amended, effecting a reverse stock split of the
Company’s common stock at a ratio to be determined by the Company’s Board of
Directors within a range of one-for-five shares to one-for-fifteen shares was
approved by the stockholders.




With
respect to the proposal to approve an amendment and restatement of the ESPP to
increase the number of shares of common stock reserved for issuance thereunder
and to allow for nine additional separate offering periods, (i) 41,289,499 votes
were cast for such proposal, (ii) 4,158,814 votes were cast against such
proposal and (iii) 113,960 shares abstained from voting on such
proposal.  No votes were withheld and there were 18,900,344 broker
non-votes with respect to such proposal.  All outstanding shares of
Series B preferred stock voted in favor of such proposal. Accordingly, the
proposal to approve an amendment and restatement of the ESPP to increase the
number of shares of common stock reserved for issuance thereunder and to allow
for nine additional separate offering periods was approved by the
stockholders.




With
respect to the proposal to approve a stock option exchange program under which
eligible employees (including executive officers but excluding non-employee
members of the Company’s Board of Directors) will be offered the opportunity to
exchange their eligible options to purchase shares of common stock outstanding
under the Company’s equity compensation plans for a smaller number of new
options at a lower exercise price, (i) 23,214,199 votes were cast for such
proposal, (ii) 22,259,450 votes were cast against such proposal and (iii) 88,624
shares abstained from voting on such proposal.  No votes were withheld
and there were 18,900,344 broker non-votes with respect to such
proposal.  All outstanding shares of Series B preferred stock voted in
favor of such proposal. Accordingly, the proposal to approve the stock option
exchange program was approved by the stockholders.




-30-




PART
II




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




Our
common stock is currently 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 closing sale price for our common stock as reported by the NASDAQ
Global Market during each quarter of the last two fiscal years.




High
                
                
                Low2008Fourth
      quarter
                
                $
                0.39
                
                
                $
                0.08Third
      quarter
                
                
                0.75
                
                
                
                0.29Second
      quarter
                
                
                1.12
                
                
                
                0.65First
      quarter
                
                
                1.71
                
                
                
                0.902007Fourth
      quarter
                
                $
                2.77
                
                
                $
                1.57Third
      quarter
                
                
                3.73
                
                
                
                2.01Second
      quarter
                
                
                4.05
                
                
                
                3.15First
      quarter
                
                
                5.03
                
                
                
                3.51




At March
27, 2009, the closing sale price per share of our common stock was $0.20 and,
based upon the number of record holders, we believe we had approximately 9,500
beneficial stockholders on that date.




On March
31, 2009, the Company announced that it would voluntarily delist its common
stock from the NASDAQ Global Market by filing a Form 25 with the Securities and
Exchange Commission on April 10, 2009.  Therefore, effective
April 20, 2009, our common stock will be delisted from the NASDAQ Global
Market.  After that date, our common stock will be quoted in the
over-the-counter market in the “Pink Sheets,” a centralized electronic quotation
service for over-the-counter securities.  The Company expects its
common stock will continue to trade in the Pink Sheets, so long as market makers
demonstrate an interest in trading in the Company’s common stock.  The
Company will provide its new ticker symbol for trading on the Pink Sheets as
soon as it becomes available.  The Company can give no assurance that
its common stock will continue to be actively traded on the Pink Sheets or on
any other quotation medium.




Following
such delisting, we intend to deregister our common stock under the Exchange Act
and become a non-reporting company under the Exchange Act.  On or
about April 20, 2009, the Company will file with the SEC a Form 15, Notice
of Termination of Registration and Suspension of Duty to File, to terminate its
reporting obligations under the Exchange Act.  When the Form 15 has
been filed, our obligation to file reports, and other information under the
Exchange Act, such as Forms 10-K, 10-Q and 8-K will be suspended.  The
deregistration of the Company’s common stock under the Exchange Act will become
effective 90 days after the date on which the Form 15 was filed.  The
Company is eligible to deregister under the Exchange Act because its common
stock was held of record by fewer than 300 persons.




DIVIDENDS




We have
never declared or paid cash dividends on our common stock. We currently plan to
retain any earnings to finance the growth of our business rather than to pay
cash dividends on our common stock. Payments of cash dividends on our common
stock and Series B preferred stock in the future will depend on our financial
condition, results of operations, and capital requirements as well as other
factors deemed relevant by our Board of Directors. Our current debt agreement
with SVB prohibits us from paying dividends on our common stock and Series B
preferred stock without the consent of our lenders.  Our Series B
preferred stock also prohibits us from paying dividends on common stock without
the consent of at least a majority of the shares of Series B preferred
stock.




In 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 of 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.




In 2007,
we recognized a non-cash charge of $4.7 million for a deemed dividend to our
Series B preferred stockholders as a result of the issuance of 17,250,000 shares
of common stock in a public offering.  As the sale price of these
shares to the underwriters on a per share basis was less than $2.90 per share,
there was an anti-dilution adjustment to the number of shares of common stock
issuable on conversion of the Series B preferred stock.




-31-




ITEM
6.  SELECTED FINANCIAL
DATA




The
following selected consolidated financial data should be read together with our
Consolidated Financial Statements and related notes and “Item 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS” included elsewhere in this report.




Year
      ended
                  December
                  31,
                  2008
              
              
              Year
      ended
                  December
                  31,
                  2007
              
              
              Year
      ended
                  December
                  31,
                  2006
              
              
              Year
      ended
                  December
                  31,
                  2005
      (1) (2)
              
              
              Year
      ended
                  December
                  31,
                  2004(in
      thousands, except for share and per share data)Consolidated
      Statements of Operations Data:Revenue
              
              $
              70,351
              
              
              $
              94,970
              
              
              $
              127,812
              
              
              $
              110,966
              
              
              $
              94,647Cost
      of revenue
              
              
              49,076
              
              
              
              70,134
              
              
              
              94,948
              
              
              
              79,467
              
              
              
              67,243Gross
      profit
              
              
              21,275
              
              
              
              24,836
              
              
              
              32,864
              
              
              
              31,499
              
              
              
              27,404Research
      and development
              
              
              24,136
              
              
              
              24,596
              
              
              
              24,797
              
              
              
              21,157
              
              
              
              18,794Sales
      and marketing
              
              
              15,180
              
              
              
              14,240
              
              
              
              17,203
              
              
              
              11,464
              
              
              
              11,013Bad
      debts
              
              
              4,178
              
              
              
              1,835
              
              
              
              2,257
              
              
              
              1,115
              
              
              
              549General
      and administrative
              
              
              14,411
              
              
              
              15,199
              
              
              
              15,753
              
              
              
              12,777
              
              
              
              11,004Amortization
      of intangibles
              
              
              929
              
              
              
              936
              
              
              
              1,060
              
              
              
              942
              
              
              
              723Impairment
      of goodwill
              
              
              10,231
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Restructuring
      provisions
              
              
              1,908
              
              
              
              (689
              )
              
              
              2,183
              
              
              
              1,150
              
              
              
              413Total
      operating expenses
              
              
              70,973
              
              
              
              56,117
              
              
              
              63,253
              
              
              
              48,605
              
              
              
              42,496Loss
      from operations
              
              
              (49,698
              )
              
              
              (31,281
              )
              
              
              (30,389
              )
              
              
              (17,106
              )
              
              
              (15,092
              )Interest
      and other income (expense), net
              
              
              (580
              )
              
              
              913
              
              
              
              941
              
              
              
              1,483
              
              
              
              3,179Loss
      before income taxes
              
              
              (50,278
              )
              
              
              (30,368
              )
              
              
              (29,448
              )
              
              
              (15,623
              )
              
              
              (11,913
              )Income
      taxes benefit/(provision)
              
              
              500
              
              
              
              (94
              )
              
              
              246
              
              
              
              546
              
              
              
              1,938Net
      loss
              
              
              (49,778
              )
              
              
              (30,462
              )
              
              
              (29,202
              )
              
              
              (15,077
              )
              
              
              (9,975
              )Deemed
      dividend associated with beneficial conversion of preferred
      stock
              
              
              -
              
              
              
              (4,670
              )
              
              
              (9,179
              )
              
              
              -
              
              
              
              (10,439
              )Net
      loss attributable to common stockholders
              
              $
              (49,778
              )
              
              $
              (35,132
              )
              
              $
              (38,381
              )
              
              $
              (15,077
              )
              
              $
              (20,414
              )Net
      loss attributable to common stockholders per share - basic and
      diluted
              
              $
              (0.84
              )
              
              $
              (0.77
              )
              
              $
              (0.96
              )
              
              $
              (0.39
              )
              
              $
              (0.56
              )Shares
      used to compute net loss attributable to common stockholders per
      share-basic and diluted
              
              
              58,945,401
              
              
              
              45,387,386
              
              
              
              40,026,411
              
              
              
              38,736,939
              
              
              
              36,441,932




December
                  31,
                  2008
              
              
              December
                  31,
                  2007
              
              
              December
                  31,
                  2006
              
              
              December
                  31,
                  2005
      (1)
      (2)
              
              
              December
                  31,
                  2004(in
      thousands)Consolidated
      Balance Sheet Data:Cash,
      cash equivalents and short-term investments
              
              $
              22,548
              
              
              $
              36,712
              
              
              $
              27,234
              
              
              $
              53,495
              
              
              $
              66,296Working
      capital
              
              
              19,922
              
              
              
              54,105
              
              
              
              47,422
              
              
              
              44,196
              
              
              
              65,476Total
      assets
              
              
              69,911
              
              
              
              114,021
              
              
              
              110,554
              
              
              
              120,452
              
              
              
              115,198Long-term
      debt
              
              
              1,374
              
              
              
              1,978
              
              
              
              1,707
              
              
              
              1,349
              
              
              
              -Stockholders’
      equity
              
              
              26,771
              
              
              
              73,525
              
              
              
              67,702
              
              
              
              64,611
              
              
              
              73,165







(1)  On
June 16, 2005, we acquired ArelNet.


(2)  On
November 9, 2005, we acquired Radionet.




-32-




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




We are a
global supplier of broadband wireless equipment supporting the WiMAX protocol
standard, which provides a wide area telecommunication access network to connect
end users to telecom backbone networks. Our primary target customers are
communications service providers and other network operators that deploy WiMAX
networks in licensed and unlicensed (license exempt) spectrums
worldwide.




Historically,
our business addressed communications service providers that used fixed,
non-WiMAX wireless infrastructure to deliver services in those parts of their
service areas that are difficult or not cost effective to reach using copper or
fiber. We now offer a comprehensive range of WiMAX solutions to support these
traditional fixed wireless applications as well as the broader market for the
mobile applications that WiMAX is expected to enable.  We are
leveraging many years of experience in complex radio systems design to provide
innovative and cost effective products for all types of WiMAX
users.




We have
transitioned our company over the last four years to focus on WiMAX product
development and sales and marketing.  As a result, a majority of our
resources are dedicated to WiMAX-based products and we are dependent on the
acceptance of WiMAX solutions in the marketplace.




Since
July 1, 2003, we have acquired three suppliers of BWA
equipment.  Depending on the opportunities available, we may continue
to expand 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
efforts.  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” and “Item 1A. RISK FACTORS -
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.”




Our
revenues were $70.4 million in 2008, a decrease from $95.0 million in 2007 and
$127.8 million in 2006.  The decrease in 2008 reflected the
significant decrease in sales of legacy products.  We have incurred
net losses attributable to common stockholders of $49.8 million, $35.1 million
and $38.4 million in 2008, 2007 and 2006, respectively.  Since
becoming an independent company, we have generated significant net losses and
negative cash flow.  We expect to continue to have negative cash flows
and net losses at least for most of 2009.  We had an accumulated
deficit of $325.9 million as of December 31, 2008.




Our
revenue from the last three years, shown below, details the transition from our
legacy products to our WiMAX businesses, which has caused significant shifts in
our revenue stream and fluctuations in revenues as the relative contribution of
our WiMAX business increases.  In addition, the sales cycle for new
WiMAX customers is somewhat longer than for our legacy business, resulting in
longer periods before revenues can be recognized from new WiMAX
customers.




-33-




Consolidated
statement of operations data:





Year
      ended
                  December
      31,
                  2008
              
              
              Year
      ended
                  December
      31,
                  2007
              
              
              Year
      ended
                  December
      31,
                  2006($
      in thousands except share and per share data)Revenue
      – WiMAX
              
              $
              50,256
              
              
              $
              64,277
              
              
              $
              45,753Revenue
      - Non-WiMAX
              
              
              20,095
              
              
              
              30,693
              
              
              
              82,059Total
      Revenue
              
              
              70,351
              
              
              
              94,970
              
              
              
              127,812Cost
      of revenue
              
              
              (49,076
              )
              
              
              (70,134
              )
              
              
              (94,948
              )Gross
      profit
              
              
              21,275
              
              
              
              24,836
              
              
              
              32,864Margin
              
              
              30
              %
              
              
              26
              %
              
              
              26
              %Total
      operating expenses
              
              
              70,973
              
              
              
              56,117
              
              
              
              63,253Loss
      from operations
              
              
              (49,698
              )
              
              
              (31,281
              )
              
              
              (30,389
              )Net
      interest and other income (expense)
              
              
              (580
              )
              
              
              913
              
              
              
              941Loss
      before income taxes
              
              
              (50,278
              )
              
              
              (30,368
              )
              
              
              (29,448
              )Income
      tax benefit/(provision)
              
              
              500
              
              
              
              (94
              )
              
              
              246Net
      loss before deemed dividend
              
              
              (49,778
              )
              
              
              (30,462
              )
              
              
              (29,202
              )Deemed
      dividend associated with preferred stock
              
              
              -
              
              
              
              (4,670
              )
              
              
              (9,179
              )Net
      loss attributable to common stockholders
              
              $
              (49,778
              )
              
              $
              (35,132
              )
              
              $
              (38,381
              )Net
      loss attributable to common stockholders per share - basic and
      diluted
              
              $
              (0.84
              )
              
              $
              (0.77
              )
              
              $
              (0.96
              )Weighted
      average shares outstanding – basic and diluted
              
              
              58,945,401
              
              
              
              45,387,386
              
              
              
              40,026,411




We
generate revenue primarily from sales of our systems and from services related
to support activities. Revenue from services in 2008 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. 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 approximately 55%, 63% and 72% of our total revenue
in 2008, 2007 and 2006, respectively.  In the year ended December 31,
2008, Axtel accounted for 15% of our revenues, and in 2007, Axtel, Yozan
Incorporated (“Yozan”) and Deutsche Breitband Dienste GmbH represented
approximately 15%, 12% and 10% of our revenues, respectively.We had no other greater
than 10% customers in either 2008 or 2007.




We
anticipate that our dependence on our ten largest customers will
continue.  In 2009, we expect significantly lower revenue from
Axtel.




Our
non-U.S. sales accounted for 82%, 91% and 92% of our total revenue in 2008, 2007
and 2006, respectively. The following table identifies the percentage of our
revenue by customer geographic region in the periods identified.




-34-




Percentage
      of RevenueYears
      ended December 31,Geographic
      Area
                      
                      2008
                      
                      
                      2007
                      
                      
                      2006United
      States
                      
                      
                      18
                      %
                      
                      
                      9
                      %
                      
                      
                      8
                      %Asia
      Pacific
                      
                      
                      12
                      %
                      
                      
                      21
                      %
                      
                      
                      30
                      %Europe
                      
                      
                      25
                      %
                      
                      
                      29
                      %
                      
                      
                      19
                      %Africa
      and Middle East
                      
                      
                      20
                      %
                      
                      
                      10
                      %
                      
                      
                      3
                      %South
      and Central America and the Caribbean
                      
                      
                      25
                      %
                      
                      
                      31
                      %
                      
                      
                      40
                      %Total
                      
                      
                      100
                      %
                      
                      
                      100
                      %
                      
                      
                      100
                      %




For
further information on our business and geographic segments, see Note 16 to the
Consolidated Financial Statements included elsewhere in this
report.




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 and volume discounts granted
to significant customers.  We expect the average selling prices of our
existing products to continue 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
may 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.




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; however, we
are exposed to exchange rates as discussed further below.




Recent
Events




In 2008,
our revenue continued the decline that had started in 2007. Our total revenues
decreased from $95.0 million in the year ended December 31, 2007 to
$70.4 million during the year ended December 31,
2008.  Should the global economic conditions deteriorate further, we
may experience further revenue declines.  We also incurred significant
charges related to restructuring and impairment of goodwill as we continue to
undertake activities to streamline our business.




During
the year ended December 31, 2008, many customers have been more cautious
about committing to orders and we are continuing to experience significant
competition. We are working closely with our key suppliers to streamline the
manufacturing process.  We have recently completed the consolidation
of our supply chain management to one location and we are striving to reduce
other supply chain related costs in order to become more
competitive.  We have reduced our global headcount to just over 200,
compared with almost 300 in March 2008.




-35-




We
believe these actions were necessary in order to align our costs with our
revised demand projections.  We expect to continue to incur operating
losses during fiscal year 2009 if our revenues continue to decline, which may be
accelerated by the current economic crisis, resulting in less demand for our
products.  In the event that revenues and product demand fall short of
our current expectations, we may need to take further actions to reduce
operating costs.




Effective
March 25, 2009, the Company and its wholly-owned subsidiary, Airspan
Communications Limited, entered into the Amended and Restated Loan and Security
Agreement with SVB.  The Company was not in compliance with the
minimum tangible net worth covenant contained in our agreement with SVB at
December 31, 2008, however, pursuant to the Amended and Restated Loan and
Security Agreement, this default has been waived.  The amended minimum
tangible net worth requirement at March 31, 2009, June 30, 2009,
September 30, 2009 and December 31, 2009 and thereafter is $18,000,000,
$14,000,000, $13,000,000 and $12,000,000, respectively, subject to certain
adjustments based on positive earnings and equity
issuances.  Effective March 25, 2009, amounts payable under the
Amended and Restated Loan and Security Agreement bear interest at SVB’s prime
rate plus 4.0% subject to a minimum rate of 8.0% per annum.  In
February 2009, we repaid $7.4 million under our agreement with SVB as we were no
longer eligible to borrow against inventory, as the Company’s worldwide cash and
investments did not exceed $20 million and the Company’s cash and investments
maintained at SVB and its affiliates did not exceed $15 million.




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 U.S. GAAP. 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; legal proceedings; and stock
compensation.




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.




We
believe the following critical accounting policies are dependent 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.  Our
revenues may fluctuate from period to period based on the mix of products sold
and services provided as well as the customers involved and the complexity of
contractual terms.




Our
revenue recognition policy reflects the fact that our revenue streams are
primarily derived from (i) sales of hardware 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 revenue stream. In
those instances, there is an added level of complexity in determining the
appropriate method of revenue recognition.  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.




-36-


The
following are our specific revenue recognition policies:




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 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 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.




Applicability of Statement of
Position 97-2, Software Revenue Recognition, (and Subsequent Modifications) “SOP
97-2”:Since inception, Airspan has accounted for the sale of products
principally under Staff Accounting Bulletin No. 104 and Emerging Issues Task
Force 00-21. Software related to the products has been considered incidental to
the product offering as a whole. In the future, we anticipate that some of our
products may include software that is not considered incidental to our products.
In those cases, we will account for those arrangements under the provisions of
SOP 97-2.




Contract Accounting: When the
Company performs a specific development type contract for a customer subject to
contract accounting under Statement of Position 81-1, Accounting for Performance
of Certain Construction-Type Contracts, 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 collectability 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 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.




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.


-37-




Restructuring
costs




During
2006 and 2008, we recorded restructuring charges arising from our cost-reduction
programs and established reserves which include estimates pertaining to employee
termination costs, the loss on 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 Radionet acquisition was
finalized in 2006.




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”), we are required to assess the carrying value of
goodwill annually or whenever circumstances indicate that a decline in value may
have occurred.  We performed the annual goodwill impairment review as
of December 31, 2008 and recorded an impairment charge.  See “-Results
of Operations”.




In
accordance with Statement of Financial Accounting Standards No. 144, “Accounting for 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.  In addition, at
least annually, the Company tests its identified intangible assets for
impairment.  The impairment of goodwill in the fourth quarter of 2008
was considered to be a trigger event for the review of other long-lived assets.
The other intangibles and long-lived assets were determined not to be impaired,
based on the gross cash flows related to those assets.




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 additional impairment charge that would
adversely affect our results.




Income
taxes




We
account for income taxes in accordance with Statement of Financial Accounting
Standards No. 109, Accounting for Income Taxes
(“SFAS No. 109”), as clarified by Financial Accounting Standards Board
Interpretation No. 48, Accounting for Uncertainty in Income
Taxes (“FIN 48”). Under this method, deferred income taxes are
determined based on the estimated future tax effects of differences between the
financial statement and tax basis of assets and liabilities given the provisions
of enacted tax laws. Deferred income tax provisions and benefits are based on
changes to the assets or liabilities from year to year. In providing for
deferred taxes, we consider tax regulations of the jurisdictions in which we
operate, estimates of future taxable income, and available tax planning
strategies. If tax regulations, operating results or the ability to implement
tax-planning strategies vary, adjustments to the carrying value of deferred tax
assets and liabilities may be required. Valuation allowances are recorded
related to deferred tax assets based on the “more likely than not” criteria of
SFAS No. 109.




FIN 48
requires that we recognize the financial statement benefit of a tax position
only after determining that the relevant tax authority would more likely than
not sustain the position following an audit. For tax positions meeting the “more
likely than not” threshold, the amount recognized in the financial statements is
the largest benefit that has a greater than 50% likelihood of being realized
upon ultimate settlement with the relevant tax authority.




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”).


-38-




Legal
proceedings




We are
subject to class action complaints related to alleged false and misleading
information in the Registration Statement and Prospectus used in connection with
our initial public offering in July 2000 and we may also face litigation for
labor, intellectual property, contract and other matters (see “Item 3. LEGAL
PROCEEDINGS”). 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 is made after careful analysis of each individual issue. The
required reserves may change in the future due to changes in circumstances
within each case.




Stock
Compensation




We value
stock-based employee compensation under Statement of Financial Accounting
Standards No. 123R, Share-Based Payment (“SFAS
No. 123R”), which requires that we 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.  The application of SFAS No. 123R involves significant
judgment, including expected term, volatility and forfeiture rate.




Results
of Operations




Our
operations are affected by local, national and worldwide economic conditions,
including, but not limited to, perceived and actual economic conditions,
recessions, deflation, exchange rates, interest rates, taxation policies and the
availability of credit.  The consequences of a prolonged recession may
include a lower level of economic activity and uncertainty regarding capital and
commodity markets.  A lower level of economic activity may adversely
affect our revenues and future growth, as well as the future growth of the WiMAX
market upon which our business is substantially dependent.  In
addition, deflation resulting in a decline of prices could reduce our
revenues.  The current instability in the financial markets, as a
result of recession or otherwise, may also affect the cost of capital and our
ability to raise capital.




Current
economic conditions may be exacerbated by insufficient financial sector
liquidity which may impact our customers’ ability to pay timely for our
products, increase customer bankruptcies and may lead to increased bad debts. In
addition, our suppliers (including our key suppliers) could experience credit or
other financial difficulties that could result in delays in their ability to
supply us with necessary goods and services.




There can
be no assurance that the current economic slowdown or further deterioration of
economic conditions in the United States as well as internationally will
not have a material adverse effect on our business, financial condition, results
of operations and cash flows.





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




Years
      ended December 31,2008
              
              
              2007
              
              
              2006%
              
              
              %
              
              
              %Revenue
              
              
              100.0
              
              
              
              100.0
              
              
              
              100.0Cost
      of revenue
              
              
              69.8
              
              
              
              73.8
              
              
              
              74.3Gross
      profit
              
              
              30.2
              
              
              
              26.2
              
              
              
              25.7Operating
      expenses:Research
      and development
              
              
              34.3
              
              
              
              25.9
              
              
              
              19.4Sales
      and marketing
              
              
              21.6
              
              
              
              15.0
              
              
              
              13.5Bad
      debt
              
              
              5.9
              
              
              
              1.9
              
              
              
              1.8General
      and administrative
              
              
              20.5
              
              
              
              16.0
              
              
              
              12.3Amortization
      of intangibles
              
              
              1.3
              
              
              
              1.0
              
              
              
              0.8Impairment
      of intangibles
              
              
              14.5
              
              
              
              -
              
              
              
              -Restructuring
      provision
              
              
              2.7
              
              
              
              -0.7
              
              
              
              1.7Total
      operating expenses
              
              
              100.9
              
              
              
              59.1
              
              
              
              49.5Loss
      from operations
              
              
              -70.6
              
              
              
              -32.9
              
              
              
              -23.8Interest
      and other income (expense), net
              
              
              -0.8
              
              
              
              1.0
              
              
              
              0.7Income
      taxes
              
              
              0.7
              
              
              
              -0.1
              
              
              
              0.2Net
      loss before deemed dividend
              
              
              -70.8
              
              
              
              -32.1
              
              
              
              -22.8Deemed
      dividend associated with issuance of preferred stock
              
              
              0
              
              
              
              -4.9
              
              
              
              -7.2Net
      loss attributable to common stockholders
              
              
              -70.8
              
              
              
              -37.0
              
              
              
              -30.0


-39-




Comparison
of the Year Ended December 31, 2008 to the Year Ended December 31,
2007




Revenue




Revenue
decreased 26% from $95.0 million for the year ended December 31, 2007 to $70.4
million for the year ended December 31, 2008.  The $24.6 million
decrease in revenue is primarily attributable to the continued decline in sales
of our non-WiMAX products (WipLL, Proximity and other legacy products), which
comprised approximately 29% of revenues in 2008 and 32% in
2007.  Revenue from WiMAX products decreased 22% in 2008 to $50.3
million from $64.3 million in 2007. In 2008, we made deliveries of WiMAX systems
to more than 200 customers in over 100 countries.




Geographically,
in 2008, approximately 25% of our revenue was derived from customers in Mexico,
Latin America and the Caribbean, 25% from customers in Europe, 20% from
customers in Africa and the Middle East, 18% from customers in the United States
and Canada, and 12% from customers in Asia.




We are
intensifying our focus on mobile network deployments and the new opportunities
presented by these projects and our strong product line up.  These
products require continued research and development investment.  In
the short-term, we continue to work closely with our longstanding customers to
actively capitalize on new opportunities as carriers finalize their decisions to
deploy WiMAX products.  We expect our legacy business to continue to
decline in 2009 from 2008 levels.




Cost
of Revenue




Cost of
revenue decreased 30% from $70.1 million in the year ended December 31, 2007 to
$49.1 million in the year ended December 31, 2008.  This decrease was
due primarily to the decrease in revenue. As a percentage of revenue, our cost
of revenue was 69.8% in 2008 and 73.8% in 2007.




Cost of
revenue for fiscal 2007 included a charge for inventory provisions of $6.8
million, recorded primarily as a result of the decline of our non-WiMAX revenues
in 2007 from 2006 levels and a subsequent reduced outlook for sales of these
products.




Gross
margin was 30% for 2008 and 26% for 2007.  Our gross profit is
directly related to revenue except for period operating costs, including
inventory provisions. Our gross margin varies primarily based on the mix of
products we deliver and the composition of base station revenue that usually has
a higher margin, over lower margin customer premise equipment.  During
2007, the gross margins from the increased sales of higher-margin WiMAX products
were adversely offset by the inventory provision described above.




Research
and Development Expenses




Research
and development expenses decreased 2% from $24.6 million in the year ended
December 31, 2007 to $24.1 million in the year ended December 31,
2008.  The year-over-year decrease was due primarily to headcount
reductions from the restructuring activity during 2008.




Sales
and Marketing Expenses




Sales and
marketing expenses increased 7% from $14.2 million in the year ended December
31, 2007 to $15.2 million in the year ended December 31, 2008. The increase of
7% is primarily attributable to additional marketing headcount in
2008.




Bad
Debt Expense




During
2008 and 2007, we provided for receivables of $4.2 million and $1.8 million,
respectively. The increase in bad debt expense in 2008 was due primarily to the
Nortel bankruptcy filing in December 2008.




General
and Administrative Expenses




General
and administrative expenses decreased 5% to $14.4 million in the year ended
December 31, 2008 from $15.2 million in the year ended December 31, 2007. The
decrease is primarily attributable to the decrease in headcount as a result of
the restructuring activities during 2008.




Amortization
of Intangibles




Amortization
of intangibles expense remained flat at $0.9 million in the year ended December
31, 2008 and the year ended December 31, 2007.


-40-


Impairment
of Goodwill




The
Company performed its annual goodwill impairment review as of December 31, 2008.
This review found the fair value of the business to be lower than its carrying
value, and the second step of this analysis determined that goodwill had no
implied value. Therefore a non-cash charge of $10.2 million for goodwill
impairment was recorded in the fourth quarter of 2008.




The
Company breached the December 31, 2008 minimum tangible net worth covenant
contained in our agreement with SVB due to the impact of continued losses on
tangible net worth. Also the deterioration of overall macroeconomic conditions
in the fourth quarter of 2008 reduced our customers’ ability to finance
purchases of our equipment. The impact of these conditions, among others,
included lower projected future revenues from customers and a higher Company
specific risk factor included in the calculation of the weighted average cost of
capital. These factors then resulted in a calculated fair value below the book
value. The expected present value of future cash flows was used to estimate fair
value.




The
impairment of goodwill in the fourth quarter of 2008 was considered to be a
triggering event for the review of other long-lived assets.   The
other intangibles and long-lived assets were determined not to be impaired,
based on the gross cash flows related to those assets. There was no goodwill
impairment expense recorded in 2007.




Restructuring
Provision




During
2008, the Company commenced a company-wide restructuring program to reduce
operating expenses. As a result, in 2008, the Company recorded restructuring
charges of $1.9 million, to reflect the total cost of this restructuring
program.  In 2007, we recorded a credit for restructuring of $0.7
million relating to the reduction of a provision for certain liabilities related
to a leased property in the United Kingdom.




Interest
Income, Net




Interest
income decreased 38% to $0.8 million in the year ended December 31, 2008 from
$1.3 million for the year ended December 31, 2007. Interest expense increased
20% to $0.6 million in the year ended December 31, 2008 from $0.5 million for
the year ended December 31, 2007.  The net decrease resulted primarily
from an increase in borrowings under our bank line of credit.




Other
Income (Expense), Net




Other
income (expense), net decreased 825% to an expense of $0.8 million in the year
ended December 31, 2008 from income of $0.1 million for the year ended December
31, 2007. This decrease is primarily due to higher foreign exchange losses in
2008 of $1.2 million.




Income
Taxes




A net
income tax credit of $0.5 million was recorded in the year ended December 31,
2008, compared to a charge of $0.1 million recorded in the year ended December
31, 2007.  The tax credit in 2008 primarily relates to research and
development tax credits in the United Kingdom, for which we became eligible
starting in August 2008.  The Company was not eligible for the
research and development tax credits in the United Kingdom in 2007 as the
Company exceeded the maximum threshold limits during that year.  No
other income tax benefit has been recorded for the tax losses generated because
we have incurred operating losses since inception.




Deemed
Dividend Upon Issuance of Stock




During
2007, we recognized a non-cash charge of $4.7 million for a deemed dividend to
our Series B preferred stockholders as a result of an anti-dilution adjustment
to our Series B preferred stock following a public offering of our common
stock.




Net
Loss Attributable to Common Stockholders




For the
reasons described above, our net loss before taxes increased 65% to $50.3
million in 2008 from $30.4 million in 2007, and our net loss attributable to
common stockholders increased 42% to $49.8 million in 2008 from $35.1 million in
2007.


-41-


Comparison
of the Year Ended December 31, 2007 to the Year Ended December 31,
2006




Revenue




Revenue
decreased 26% from $127.8 million for the year ended December 31, 2006 to $95.0
million for the year ended December 31, 2007.  The $32.8 million
decrease in revenue was attributable to the continued decline in sales of our
non-WiMAX products (WipLL, Proximity and other legacy products), which comprised
approximately 32% of revenues in 2007 and 64% in 2006.  Revenue from
WiMAX products increased 40% in 2007 to $64.3 million from $45.8 million in
2006. In 2007, we made deliveries of WiMAX systems to more than 150 customers in
over 60 countries. However, increases in revenues from WiMAX products did not
fully offset significant declines in sales of non-WiMAX products.




Geographically,
in 2007, approximately 31% of our revenue was derived from customers in Mexico,
Latin America and the Caribbean, 29% from customers in Europe, 21% from
customers in Asia, 10% from customers in Africa and the Middle East and 9% from
customers in the United States and Canada.




In 2007,
we intensified our focus on mobile network deployments and the new opportunities
presented by these projects and our strong product line up.  These
products required continued research and development investment. We continued to
work closely with our longstanding customers to actively capitalize on new
opportunities as carriers finalized their decisions to deploy WiMAX
products.  Our legacy business continued to decline in 2007 from 2006
levels.




Cost
of Revenue




Cost of
revenue decreased 26% from $94.9 million in the year ended December 31, 2006 to
$70.1 million in the year ended December 31, 2007.  This decrease was
due primarily to the decrease in revenue. As a percentage of revenue, our cost
of revenue was 74.3% in 2006 and 73.8% in 2007.




Cost of
revenue for fiscal 2007 included a charge for inventory provisions of $6.8
million, recorded primarily as a result of the decline of our non-WiMAX revenues
in 2007 from 2006 levels and a subsequent reduced outlook for sales of these
products. 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.




Gross
margin was 26% for both 2007 and 2006. Our gross profit is directly related to
revenue except for period operating costs, including inventory provisions. Our
gross margin varies primarily based on the mix of products we deliver and the
composition of base station revenue that usually has a higher margin, over lower
margin customer premise equipment. During 2007, the gross margins from the
increased sales of higher-margin WiMAX products were adversely offset by the
inventory provision described above.




Research
and Development Expenses




Research
and development expenses decreased 1% from $24.8 million in the year ended
December 31, 2006 to $24.6 million in the year ended December 31,
2007.  The year-over-year decrease was due primarily to headcount
reductions from the restructuring activity the Company commenced in July 2006 to
focus development activity on WiMAX.




Sales
and Marketing Expenses




Sales and
marketing expenses decreased 17% from $17.2 million in the year ended December
31, 2006 to $14.2 million in the year ended December 31, 2007. The decrease of
17% is primarily attributable to fewer employees and lower travel costs as a
result of our restructuring program as well as lower agent
commissions.




Bad
Debt Expense




During
2006 and 2007, we provided for receivables of $2.3 million and $1.8 million,
respectively. The decrease in bad debt expense in 2007 was due primarily to
fewer uncollectible accounts in Latin America.




General
and Administrative Expenses




General
and administrative expenses decreased 4% from $15.8 million in the year ended
December 31, 2006 to $15.2 million in the year ended December 31,
2007.  The decrease was primarily attributable to the decrease in
headcount as a result of the restructuring in the second half of
2006.




Amortization
of Intangibles




Amortization
of intangibles expense decreased 12% from $1.1 million in the year ended
December 31, 2006 to $0.9 million in the year ended December 31, 2007 due to the
completion of the amortization of core developed technology in
Israel.




Restructuring
Provision




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.  In 2007, we recorded a credit for
restructuring of $0.7 million relating to the reduction of a provision for
certain liabilities related to a leased property in the United
Kingdom.


-42-


Interest
Income, Net




Interest
income, net decreased 21% from $1.0 million in the year ended December 31, 2006
to $0.8 million for the year ended December 31, 2007. The decrease resulted
primarily from an increase in borrowings under our bank line of credit and lower
interest income due to lower invested balances.




Other
Income (Expense), Net




Other
income (expense), net increased 227% from expense of $0.1 million in the year
ended December 31, 2006 to income of $0.1 million for the year ended December
31, 2007. This increase was primarily due to higher foreign exchange gains in
2007.




Income
Taxes




A net
income tax charge of $0.1 million was recorded in the year ended December 31,
2007, compared to a credit of $0.2 million recorded in the year ended December
31, 2006.  The tax charge was related to income taxes for certain of
our foreign subsidiaries. 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.  No other income tax benefit has been
recorded for the tax losses generated because we have incurred operating losses
since inception.




Deemed
Dividend Upon Issuance of Stock




During
2007, we recognized a non-cash charge of $4.7 million for a deemed dividend to
our Series B preferred stockholders as a result of an anti-dilution adjustment
to our Series B preferred stock following a public offering of our common
stock.  In 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 of
2006.




Net
Loss Attributable to Common Stockholders




For the
reasons described above, our net loss before taxes increased 3% from $29.4
million in 2006 to $30.4 million in 2007, and our net loss attributable to
common stockholders decreased 9% from $38.4 million in 2006 to $35.1 million in
2007.




Restructuring




In the
fourth quarter of 2002, the decision was made to completely outsource all of our
manufacturing.  As a result, a $1.0 million restructuring charge was
recorded for the closure of our Riverside, Uxbridge facility in 2003. All of
this cost relates to the excess facility. A further $0.4 million was recognized
as restructuring in the income statement in the fourth quarter of 2003 as we
reassessed the ability to sublease the Riverside facility. During the second
quarter of 2005, we recognized an additional restructuring charge of $1.2
million for additional costs expected to be incurred related to certain facility
charges in respect of buildings in the United Kingdom.  We paid $0.8
million in final settlement of these charges in February 2008.




In the
third quarter of 2006, the Company commenced a company-wide restructuring
program to reduce operating expenses.  The operating expense reduction
was accomplished primarily through reductions in worldwide
headcount.  In 2006, the Company recorded restructuring charges of
$2.2 million.




We
reached our cost cutting target in the third quarter of 2008 as a result of cost
reductions earlier in the year.  However, we decided to continue
reducing overall operating expenditures in light of the general economic
uncertainty, while not sacrificing our key commercial and research and
development activities. We believe that this focus will allow us to realize
additional cost savings in 2009.   The total restructuring charge
in 2008 was $1.9 million, including $1.5 million related to headcount reduction
and $0.4 million of asset write-offs related to the restructuring.  We
expect operating expenses in 2009 will be over $10 million lower than in
2008.




The
restructuring charges and their utilization are summarized as
follows:




-43-
 All amounts in thousands of U.S.$’s
                                
                                Balance at
                                  Beginning of
                                  Period
                                
                                
                                Restructuring
                                  Charge
                                
                                
                                Utilized
                                
                                
                                Balance at
                                  End of
                                  PeriodYear
      ended December 31, 2008One
      time termination benefits
                                
                                $
                                -
                                
                                
                                $
                                1,519
                                
                                
                                $
                                (1,105
                                )
                                
                                $
                                414Contract
      termination costs
                                
                                
                                796
                                
                                
                                
                                -
                                
                                
                                
                                (796
                                )
                                
                                
                                -Other
      associated costs
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
 $
                      796
                      
                      
                      $
                      1,519
                      
                      
                      $
                      (1,901
                      )
                      
                      $
                      414Year
      ended December 31, 2007One
      time termination benefits
                      
                      $
                      375
                      
                      
                      $
                      -
                      
                      
                      $
                      (375
                      )
                      
                      $
                      -Contract
      termination costs
                      
                      
                      1,437
                      
                      
                      
                      (639
                      )
                      
                      
                      (2
                      )
                      
                      
                      796Other
      associated costs
                      
                      
                      50
                      
                      
                      
                      (50
                      )
                      
                      
                      -
                      
                      
                      
                      -$
                      1,862
                      
                      
                      $
                      (689
                      )
                      
                      $
                      (377
                      )
                      
                      $
                      796Year
      ended December 31, 2006One
      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







Liquidity
and Capital Resources




As of
December 31, 2008, we had cash and cash equivalents totaling $14.7 million,
short-term investments totaling $7.7 million and $0.2 million of restricted cash
in current assets.  In addition, we had restricted cash of $0.9
million in other non-current assets.  A total of $1.0 million is held
as collateral for performance guarantees on customer contracts and with
landlords, of which $0.9 million is for guarantees with maturities in excess of
one year. The amount of $0.1 million included in restricted cash is for
withholding from salaries of employees under our Employee Share Purchase Plan
(“ESPP”).  All short-term investments are of investment grade quality
and are not subject to significant market risk.  We have no material
capital commitments.




For the
year ended December 31, 2008, we used $17.4 million of cash in operating
activities compared with $27.9 million for the year ended December 31, 2007. The
operating cash outflow for fiscal 2008 was primarily a result of our net loss of
$49.8 million and decreases in other accrued expenses, accounts payable and
customer advances of $2.9 million, $1.1 million and $0.7 million, respectively.
The cash outflow was partially offset by $10.2 million of goodwill impairment,
$3.9 million of depreciation and amortization, $2.6 million of non-cash stock
compensation and decreases in receivables of $13.2 million, decreases in
deferred revenue of $2.4 million and increases in other operating assets of $0.8
million.




We
implemented a cost reduction plan during 2008 in light of the general economic
uncertainty, while not sacrificing our key commercial and research and
development activities. We believe that this focus will allow us to realize cost
savings in 2009 and will reduce our commitments for headcount and related
expenses compared to 2008. We will continue to reduce our operating expenses in
2009 as we streamline our operating expenses in the light of the general
economic uncertainty.




We have
introduced new product variants in 2009 related to our WiMAX base stations in
the 700 MHz, 2.5 GHz and 2.3 GHz frequencies. In addition, we believe that our
products are well placed to support the market requirements related to broadband
initiatives under the American Recovery and Reinvestment Act.  We
believe that these variants and this government sponsored initiative may
increase our WiMAX sales in 2009. We continue to monitor carefully our credit
terms with our customers, which may have the impact of delaying or losing some
sales as a result of the customer’s inability to raise finances.




We expect
that our suppliers will continue to evaluate their credit arrangements with us
during this general economic uncertainty and may reduce the amount of credit
that is made available to us, above those demanded in 2008.




The net
cash used in investing activities for the year ended December 31, 2008 was $4.1
million, comprised of $2.2 million, net for the acquisition and sale of
investment securities and by cash used of $1.9 million for capital equipment
purchases. During 2009 we will move our Israel offices to a new facility which
will incur approximately $0.5 million of capital expenditure. Apart from this we
do not expect a significant increase in our capital expenditures in
2009.




Our net
cash provided by financing activities for the year ended December 31, 2008 was
$5.4 million. During 2008, we generated $5.0 million from borrowings under the
line of credit, $0.1 million from the exercise of stock options and $0.3 million
from the issuance of common stock under our ESPP.


-44-




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, a secured bank line of credit and an underwritten public
secondary offering of common stock.




In
September 2006, we had a private sale of convertible preferred stock. We raised
approximately $28.7 million (net of expenses) through the issuance of Series B
preferred stock to Oak. In September and October 2007, the Company issued
17,250,000 shares of common stock in an underwritten public secondary offering
at a price of $2.00 per share. All of the shares were sold by the Company. The
offering was made under the Company’s effective shelf registration statement
covering up to $50 million of equity securities previously filed with the
SEC.




Effective
March 25, 2009, we and our wholly-owned subsidiary, Airspan Communications
Limited, entered into an Amended and Restated Loan and Security Agreement with
SVB.  For the term of the credit line, which was extended from
December 31, 2009 to March 31, 2010, we may, subject to certain
adjustments, borrow up to the lesser of (i) $20 million, and
(ii) (a) 80% of eligible accounts receivable plus (as long as the Company’s
worldwide cash and investments exceeds $20 million, and the Company’s cash and
investments maintained at SVB and its affiliates exceeds $15 million) and
(b) the lesser of (1) 60% of eligible inventory, and (2) $8 million
(the “Borrowing Base”).  In February 2009, the Company repaid $7.4
million under our agreement with SVB as the Company was no longer eligible to
borrow against inventory, as the Company’s worldwide cash and investments did
not exceed $20 million and the Company’s cash and investments maintained at SVB
and its affiliates did not exceed $15 million. The Company was not eligible to
make borrowings under the inventory portion of the line at March 27,
2009.  We are currently drawing on the credit line and we expect to
continue to use it in 2009.  The credit facility requires us to
satisfy certain financial covenants, including the maintenance of a minimum
Tangible Net Worth and a minimum Adjusted Quick Ratio (as defined in the Amended
and Restated Loan and Security Agreement).  As of December 31, 2008,
the minimum tangible net worth requirement under our agreement with SVB was
$30 million and the Company’s actual tangible net worth was
$25.8 million.  As such, the Company was not in compliance with
the tangible net worth covenant at December 31, 2008.  This
default has been waived effective March 25, 2009 pursuant to the Amended
and Restated Loan and Security Agreement.  The amended required
minimum tangible net worth at March 31, 2009, June 30, 2009, September
30, 2009 and December 31, 2009 and thereafter is $18 million, $14 million, $13
million and $12 million, respectively, subject to certain adjustments based on
positive earnings and equity issuances. Assuming that we are able to achieve our
planned sales levels and contain expenses and cash resources used in accordance
with our 2009 financial plan, we currently believe that we will be able to meet
the required minimum tangible net worth covenants as amended and restated. 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 would
give rise to a default under the Amended and Restated Loan and Security
Agreement.  In the event of an uncured default, the Amended and
Restated Loan and Security Agreement provides that all amounts owed to SVB may
be declared immediately due and payable and that SVB has the right to enforce
its security interest in our assets.




The
Amended and Restated Loan and Security Agreement is secured by collateral,
including all of our rights and interests in substantially all of our personal
property, including accounts receivable, inventory, equipment, general
intangibles, intellectual property, books and records, contract rights and
proceeds of the above items.  At December 31, 2008, $12.5 million of
indebtedness was outstanding and at March 27, 2009, $5.1 million of indebtedness
was outstanding under our agreement with SVB.  During 2008, advances
under our agreement with SVB bore interest at SVB’s prime rate plus a percentage
ranging from 0.0% to 1.75% per annum depending on certain financial and
collateral tests.  Effective March 25, 2009, amounts payable
under the Amended and Restated Loan and Security Agreement bear interest at
SVB’s prime rate plus 4.0% subject to a minimum rate of 8.0% per
annum.  See Note 8 to the Consolidated Financial Statements
included elsewhere in this report.




Until we
are able to generate positive cash flow from operations, if ever, we intend to
use our existing cash resources and the Amended and Restated 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 expect to fund our operations during 2009 from
existing cash resources, the continued use of our loan facility with SVB, the
sale of certain assets and the receipt of research and development tax credits.
Assuming, that we are able to achieve our planned sales levels and reduce and
contain expenses and cash resources used in accordance with our 2009 financial
plan, we currently believe we will have sufficient cash resources to finance our
operations for at least the next twelve months.  However, there can be
no certainty that we will not require additional funding in 2009 or, if needed,
that any such funding will be available.


-45-


We
recognize that our need for capital in future periods may increase 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 or seek new capital which may be available only on terms
that may not be acceptable to the Company, especially in light of current
adverse economic conditions. If we are compelled to adopt measures to conserve
cash resources due to the lack of availability of capital, such measures may
adversely affect our results of operations and the short-term and/or long-term
prospects for our business.





Summary
of Contractual Obligations




The
impact that our contractual obligations as of December 31, 2008 are expected to
have on our liquidity and cash flow in future periods is as
follows:




Payments Due by PeriodAll amounts in thousands of U.S.$’s
              
              Total
              
              
              2009
              
              
              
              2010-2011
              
              
              
              2012-2013
              
              
              After 2013Long-term
      debt (including interest)
              
              $
              14,431
              
              
              $
              13,061
              
              
              $
              1,370
              
              
              $
              -
              
              
              $
              -Operating
      lease obligations
              
              
              5,228
              
              
              
              2,361
              
              
              
              1,940
              
              
              
              856
              
              
              
              71Purchase
      obligations (1)
              
              
              8,551
              
              
              
              8,551
              
              
              
              -
              
              
              
              -
              
              
              
              -$
              28,210
              
              
              $
              23,973
              
              
              $
              3,310
              
              
              $
              856
              
              
              $
              71




(1) As
of December 31, 2008, the Company had commitments with its main subcontract
manufacturers under various purchase order and contractual forecast
arrangements.




The
Company had bank guarantees with its landlords and customers totaling $1.0
million at December 31, 2008. The guarantees secure payment or performance
obligations of the Company under contracts. The Company has pledged cash to the
banks as collateral for the customer guarantees in the same amounts as the
guarantees. This pledged cash has been classified as restricted
cash.




We have
no material commitments other than the loans we assumed with the Finnish Funding
Agency for Technology and Innovation in connection with our acquisition of
Radionet, borrowings under the Amended and Restated Loan and Security Agreement,
operating leases and supplier purchase commitments mentioned herein. See “Item
7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK” and
Note 9 to the Consolidated Financial Statements included elsewhere in this
report.




Off-Balance
Sheet Arrangements




As of
December 31, 2008, 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, 2008 and 2007, we had cash and cash equivalents, restricted cash
and short-term investments of $22.5 million and $36.7 million,
respectively.  Substantially all of the short-term investments as of
both December 31, 2008 and December 31, 2007, consisted of highly liquid
investments with maturities 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, 2008 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.


-46-


Foreign
Currency Exchange Rate Risk




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




Years ended December 31,2008
              
              
              2007
              
              
              2006U.S.
      dollars
              
              
              91.0
              %
              
              
              81.9
              %
              
              
              86.9
              %Euros
              
              
              3.6
              
              
              
              12.7
              
              
              
              10.4Australian
      dollars
              
              
              2.2
              
              
              
              2.8
              
              
              
              2.7Other
              
              
              3.2
              
              
              
              2.6
              
              
              
              -100.0
              %
              
              
              100.0
              %
              
              
              100.0
              %




Total
Euro denominated sales for the periods presented were:




Years ended December 31,All figures in thousands (except exchange rate figures)
              
              2008
              
              
              2007
              
              
              2006Euros
              
              €
              1,710
              
              
              €
              8,825
              
              
              €
              10,552Average
      exchange rate of $1U.S. = €
              
              
              0.6800
              
              
              
              0.7329
              
              
              
              0.79678U.S.$
      equivalent
              
              $
              2,514
              
              
              $
              12,041
              
              
              $
              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
              
              $
              229
              
              
              $
              1,095
              
              
              $
              1,192




Total
Australian dollar denominated sales for the periods presented were:




Years ended December 31,All figures in thousands (except exchange rate figures)
              
              2008
              
              
              2007
              
              
              2006Australian
      dollars
              
              Aus$
              1,811
              
              
              Aus$
              3,139
              
              
              Aus$
              4,554Average
      exchange rate of $1U.S. = Australian dollar
              
              
              1.168
              
              
              
              1.2010
              
              
              
              1.32774U.S.$
      equivalent
              
              $
              1,551
              
              
              $
              2,614
              
              
              $
              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
              
              $
              141
              
              
              $
              238
              
              
              $
              309




We expect
the proportions of sales in Euros and Australian dollars to fluctuate over time
although they were a small percentage of the total in all years. 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 or New Israeli
Shekels.




To manage
our pound foreign currency risk we have, at various times, entered into forward
exchange contracts to cover a percentage of the projected exposure. At December
31, 2008 and December 31, 2007, we had no forward exchange contracts
outstanding.




During
2008, we paid operating expenses in local currency of approximately 14.4 million
pounds sterling. If during 2008 the average exchange rates had been higher or
lower by 10%, the pound sterling denominated operating expenses would have
decreased or increased by $2.4 million.  None of these expenses were
hedged.




During
the year ended December 31, 2008, we paid operating expenses in New Israeli
Shekels of 59.0 million New Israeli Shekels.  If the average exchange
rates had been higher or lower by 10%, the New Israeli Shekel operating expenses
would have decreased or increased by $1.5 million for the year ended December
31, 2008.  None of these expenses were hedged.




For the
years ended December 31, 2008, 2007 and 2006, we incurred the majority of our
cost of revenue in U.S. dollars.


-47-




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.




ITEM
      8.
            FINANCIAL STATEMENTS AND
      SUPPLEMENTARY DATA




Financial
Statements and Supplementary Data are included on pages F-1 to
F-33.




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




None.




ITEM
9A(T).  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 Rules 13a-15(e) and 15d-15(e) under the Exchange Act).  Based
on that evaluation, our Chief Executive Officer and Chief Financial Officer
concluded that as of such date the Company’s disclosure controls and procedures
were effective at a reasonable assurance level.




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 GAAP.




Our
management assessed the effectiveness of our internal control over financial
reporting as of December 31, 2008.  In making this assessment,
our management 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,
2008.




This
annual report does not include an attestation report of the Company’s
independent registered public accounting firm regarding internal control over
financial reporting.  Management’s report was not subject to
attestation by the Company’s independent registered public accounting firm
pursuant to temporary rules of the SEC that permit the Company to provide only
management’s report in this annual report.




Changes
in Internal Control Over Financial Reporting




There
have been no changes in our internal control over financial reporting during our
fiscal year ended December 31, 2008 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.


-48-




ITEM
9B.  OTHER INFORMATION




None.


-49-


PART
III




Except
where otherwise noted, the information required by Items 10 through 14 is
incorporated by reference from our definitive proxy statement or by an amendment
to this Annual Report on Form 10-K, with the exception of the executive officers
and directors section of Item 10.  We will file our definitive proxy
statement or an amendment to this Annual Report on Form 10-K within 120 days
after the end of our fiscal year ended December 31, 2008.




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, Item 1.
BUSINESS of this Annual Report on Form 10-K under the caption “Executive
Officers and Directors of the Registrant”.  Except as set forth below,
all other information required by this Item is incorporated into this Annual
Report on Form 10-K by reference to our definitive proxy statement or by an
amendment to this Annual Report on Form 10-K to be filed within 120 days after
the end of our fiscal year ended December 31, 2008.




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 SEC 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 Web site 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 Web site. The information on our Web site, which might be accessible
through a hyperlink resulting from this URL, is not 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 or by an amendment to
this Annual Report on Form 10-K to be filed within 120 days after the end of our
fiscal year ended December 31, 2008.




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




Except as
set forth below, the information required by this Item is incorporated into this
Annual Report on Form 10-K by reference to our definitive proxy statement
or by an amendment to this Annual Report on Form 10-K to be filed within 120
days after the end of our fiscal year ended December 31, 2008.




-50-


Securities
Authorized for Issuance Under Equity Compensation Plans as of December 31,
2008




The
following table sets forth information as of December 31, 2008 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
                  plansEquity
      compensation plans approved by security holders (1)
              
              
              7,837,014
              
              
              $
              3.02
              
              
              
              3,239,722Equity
      compensation plans not approved bysecurity
      holders (2)
              
              
              172,805
              
              
              $
              3.68
              
              
              
              -Total
              
              
              8,009,819
              
              
              $
              3.03
              
              
              
              3,239,722





(1)
In 1998 and 2000, the Company’s stockholders approved the 1998 Employee Stock
Option Plan and the ESPP respectively.  In 2004, the Company’s
stockholders approved the 2004 Omnibus Equity Compensation Plan.


(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 the fair market value of a share of our
common stock 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 stockholder 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 the fair market value of a
share of our common stock 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 stockholder 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 or by an amendment to
this Annual Report on Form 10-K to be filed within 120 days after the end of our
fiscal year ended December 31, 2008.




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 or by an amendment to
this Annual Report on Form 10-K to be filed within 120 days after the end of our
fiscal year ended December 31, 2008.


-51-





PART IV




ITEM
      15.
            EXHIBITS AND FINANCIAL STATEMENT
      SCHEDULES




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




(1)           Financial
Statements




PageReport
      of Independent Registered Public Accounting Firm
                                
                                
                                F-1Consolidated
      Balance Sheets as of December 31, 2008 and 2007
                                
                                
                                F-2Consolidated
      Statements of Operations for the years ended December 31, 2008, 2007 and
      2006
                                
                                
                                F-3Consolidated
      Statements of Changes in Stockholders’ Equity for the years ended December
      31, 2008, 2007 and 2006
                                
                                
                                F-4Consolidated
      Statements of Cash Flows for the years ended December 31, 2008, 2007 and
      2006
                                
                                
                                F-5Notes
      to the Financial Statements
                                
                                
                                F-6




(2)           Financial
Statement Schedule




PageSchedule
      II — Valuation and Qualifying Accounts for the years ended December 31,
      2006, 2007 and 2008
                      
                      
                      F-34




(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 (24)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)4.3
              
              Consent
      to the Withdrawal of Registration Statements, made as of March 20, 2009,
      by Oak Investment Partners XI, Limited Partnership*10.1
              
              1998
      Stock Option and Restricted Stock Plan (6), (11)10.2
              
              Amended
      and Restated 2000 Employee Stock Purchase Plan (11),
  (25)10.3
              
              Omnibus
      Equity Compensation Plan (11)*10.4
              
              2001
      Supplemental Stock Option Plan (7), (11)10.5
              
              2003
      Supplemental Stock Option Plan (8), (11)10.6
              
              Written
      Summary of Airspan’s Non-Employee Director Compensation Plan (9),
      (11)10.7
              
              Employment
      Agreement with Eric Stonestrom (11), (12)10.8
              
              Employment
      Agreement with Henrik Smith-Petersen (11), (13)10.9
              
              Employment
      Agreement with Alastair Westgarth (11), (14)10.10
              
              Employment
      Agreement with Arthur Levine (10), (11)10.11
              
              Employment
      and Relocation Agreement with David Brant (11), (24)10.12
              
              Technical
      Assistance Support Services Agreement for FWA Equipment, dated as of
      February 14, 2003 (“FWA TASS”), by and between Nortel Networks U.K.
      Limited and Axtel, S.A. de C.V. (15)**10.13
              
              Preferred
      Stock Purchase Agreement, dated as of September 10, 2004, among Airspan
      and Oak Investment Partners XI, Limited Partnership
(16)10.14
              
              Amendment
      No. 1 to Preferred Stock Purchase Agreement (17)10.15
              
              Purchase
      and License Agreement, dated as of December 28, 2004, by and among Airspan
      Communications Limited (“Airspan Ltd.”) and Axtel, S.A. de C.V.
      (18)**10.16
              
              Amendment
      Agreement No. 3 to FWA TASS, dated as of December 28, 2004, between
      Airspan Ltd. and Axtel, S.A. de C.V. (19)**10.17
              
              Purchase
      Contract, dated April 14, 2005, by and between Yozan Incorporated
      (“Yozan”) and Airspan Ltd. (10) **10.18
              
              Supplement
      to Purchase Contract, dated August 15, 2005, by and between Yozan
      and
                Airspan
      Ltd. (10) **


-52-





Exhibit
                  Number
                
                Description of Exhibit10.19
                
                2nd
      Purchase Contract, dated September 13, 2005, by and between Yozan and
      Airspan Ltd. (10) **10.20
                
                Amendment
      of 1st
      and 2nd
      Purchase Contracts, dated October 6, 2005, by and between Yozan and
      Airspan Ltd. (10) **10.21
                
                Amendment
      of 2nd
      Purchase Contracts, dated February 25, 2006, by and between Yozan and
      Airspan Ltd. (10) **10.22
                
                Memorandum
      of Understandings, dated February 25, 2006, by and between Yozan and
      Airspan Ltd. (10) **10.23
                
                Memorandum
      of Understandings, dated June 23, 2006, by and between Yozan and Airspan
      Ltd. (20) **10.24
                
                Loan
      and Security Agreement, dated as of August 1, 2006, by and among Silicon
      Valley Bank, Airspan, and Airspan Ltd., including exhibits thereto
      (21)10.25
                
                Memorandum
      of Understandings, dated September 8, 2006, by and between Yozan
      and
                  Airspan
      Ltd. (22) **10.26
                
                First
      Amendment to Loan and Security Agreement, dated as of August 7, 2007,
      between Silicon Valley Bank, Airspan and Airspan Ltd.
  (23)10.27
                
                Form
      of Option Agreements (11), (26)10.28
                
                Employment
      Agreement with Paul Senior (11), (26)10.29
                
                Employment
      Agreement with Uzi Shalev (11), (26)10.30
                
                Employment
      Agreement with Padraig Byrne (11), (26)10.31
                
                Second
      Amendment to Loan and Security Agreement, dated as of August 21, 2008,
      between Silicon Valley Bank, Airspan and Airspan Communications Ltd.
      (27)10.32
                
                Amended
      and Restated Loan and Security Agreement, dated as of March 25, 2009,
      between Silicon Valley Bank, Airspan and Airspan Communications Ltd.
      (28)14.1
                
                Airspan
      Code of Business Conduct (10)21
                
                Subsidiaries
      of registrant (24)31.1
                
                Certification
      of the Chief Executive Officer pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002*31.2
                
                Certification
      of the Chief Financial Officer pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002*32.1
                
                Certification
      of the Chief Executive Officer pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002***32.2
                
                Certification
      of the Chief Financial Officer pursuant to Section 906 of the
      Sarbanes-Oxley Act of
2002***





*
              
              Filed
      herewith**
              
              Confidential
      treatment has been granted with respect to certain portions of this
      exhibit. Omitted portions have been filed separately with the Securities
      and Exchange Commission***
              
              Furnished
      herewith(1)
              
              Incorporated
      by reference to Airspan’s Form 10-Q for the quarter ended April 4,
      2004(2)
              
              Incorporated
      by reference to Airspan’s report on Form 8-K filed on September 15,
      2004(3)
              
              Incorporated
      by reference to Airspan’s report on Form 8-K filed on September 26,
      2006(4)
              
              Incorporated
      by reference to Airspan’s Registration Statement on Form S-1 (333-34514)
      filed April 11, 2000(5)
              
              Incorporated
      by reference to Airspan’s report on Form 8-K filed on August 1,
      2006(6)
              
              Incorporated
      by reference to Airspan’s Registration Statement on Form S-1/A (333-34514)
      filed May 26, 2000(7)
              
              Incorporated
      by reference to Airspan’s Form 10-K for the year ended December 31,
      2000(8)
              
              Incorporated
      by reference to Airspan’s Form 10-K for the year ended December 31,
      2003(9)
              
              Incorporated
      by reference to Airspan’s report on Form 8-K filed on July 31,
      2006(10)
              
              Incorporated
      by reference to Airspan’s Form 10-K for the year ended December 31,
      2005(11)
              
              Management
      Contract or Compensatory Plan or Arrangement(12)
              
              Incorporated
      by reference to Airspan’s Registration Statement on Form S-1/A (333-34514)
      filed June 22, 2000(13)
              
              Incorporated
      by reference to Airspan’s Form 10-K for the year ended December 31,
      2002(14)
              
              Incorporated
      by reference to Airspan’s Form 10-Q for the quarter ended July 2,
      2006(15)
              
              Incorporated
      by reference to Airspan’s report on Form 8-K/A filed on July 6,
      2004(16)
              
              Incorporated
      by reference to Airspan’s report on Form 8-K filed on September 13,
      2004




-53-





Exhibit
                  Number
                
                Description of Exhibit(17)
                
                Incorporated
      by reference to Airspan’s report on Form 8-K filed on September 27,
      2004(18)
                
                Incorporated
      by reference to Airspan’s report on Form 8-K filed on June 9,
      2005(19)
                
                Incorporated
      by reference to Airspan’s Form 10-K for the year ended December 31,
      2004(20)
                
                Incorporated
      by reference to Airspan’s report on Form 8-K filed on June 29,
      2006(21)
                
                Incorporated
      by reference to Airspan’s report on Form 8-K filed on August 7,
      2006(22)
                
                Incorporated
      by reference to Airspan’s report on Form 8-K filed on September 21,
      2006(23)
                
                Incorporated
      by reference to Airspan’s Form 10-Q for the quarter ended June 29,
      2008(24)
                
                Incorporated
      by reference to Airspan’s Form 10-K for the year ended December 31,
      2006(25)
                
                Incorporated
      by reference to Airspan’s definitive proxy statement on Schedule 14A filed
      on November 5, 2008(26)
                
                Incorporated
      by reference to Airspan’s Form 10-K for the year ended December 31,
      2007(27)
                
                Incorporated
      by reference to Airspan’s report on Form 8-K filed on September 2,
      2008(28)
                
                Incorporated
      by reference to Airspan’s report on Form 8-K filed on March 31,
      2009




-54-


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,President
      and Chief Executive Officer


Date:  March
31, 2009




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 of 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, 2008 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 the registrant, in the
capacities and on the dates indicated.




Signature
              
              Title
              
              Dated/s/
      Eric D. StonestromEric
      D. Stonestrom
              
              President,
      Chief Executive Officer
                and
      Director
                (principal
      executive officer)
              
              March
      31, 2009/s/
      David BrantDavid
      Brant
              
              Chief
      Financial Officer and Senior
                Vice
      President, Finance
                (principal
      financial and accounting officer)
              
              March
      31, 2009/s/
      Matthew J. DeschMatthew
      J. Desch
              
              Chairman
      of the Board of Directors
              
              March
      31, 2009/s/
      Julianne BiaginiJulianne
      Biagini
              
              Director
              
              March
      31, 2009/s/
      Bandel Carano/s/
      Bandel Carano
              
              Director
              
              March
      31, 2009/s/
      Frederick FrommFrederick
      Fromm
              
              Director
              
              March
      31, 2009/s/
      Michael T. FlynnMichael
      T. Flynn
              
              Director
              
              March
      31, 2009/s/
      Guillermo HerediaGuillermo
      Heredia
              
              Director
              
              March
      31, 2009/s/
      Thomas S. HusebyThomas
      S. Huseby
              
              Director
              
              March
      31, 2009/s/
      David TwyverDavid
      Twyver
              
              Director
              
              March
      31, 2009




-55-


REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM





The Board
of Directors and Stockholders of


Airspan
Networks Inc.





We have
audited the accompanying consolidated balance sheets of Airspan Networks Inc. (a
Washington Corporation) and subsidiaries (the “Company”) as of December 31, 2008
and 2007, and the related consolidated statements of operations, changes in
stockholders’ equity and cash flows for each of the three years in the period
ended December 31, 2008.  Our audits of the basic financial statements
included the financial statement schedule listed in the index appearing under
Item 15 (a)(2). These consolidated financial statements and financial statement
schedule are the responsibility of the Company’s management.Our responsibility is
to express an opinion on these consolidated financial statements and financial
schedule based on our audits.





We
conducted our audits 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 consolidated financial statements are free of material misstatement.The Company is not
required to have, nor were we engaged to perform an audit of its internal
control over financial reporting.  Our audit included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Company's internal control
over financial reporting.  Accordingly, we express no such
opinion.  An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial statements,
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall consolidated financial statement
presentation.We
believe that our audits provide a reasonable basis for our opinion.





In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Airspan Networks Inc. and
subsidiaries as of December 31, 2008 and 2007, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2008 in conformity with accounting principles generally accepted in
the United States of America.  Also in our opinion, the related
financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, present fairly, in all material respects, the
information set forth therein.





/s/ GRANT
THORNTON LLP


Miami,
Florida


March 31,
2009


F-1





AIRSPAN
NETWORKS INC.


CONSOLIDATED
BALANCE SHEETS


(in thousands, except for share
data)




December 31,
                  2008
              
              
              December 31,
                  2007ASSETSCurrent
      assets:Cash
      and cash equivalents
              
              $
              14,675
              
              
              $
              30,815Restricted
      cash
              
              
              163
              
              
              
              393Short-term
      investments
              
              
              7,710
              
              
              
              5,504Accounts
      receivable, less allowance for doubtful accounts of $5,169 and $2,878 at
      December 31, 2008 and 2007, respectively
              
              
              16,502
              
              
              
              33,853Inventory
              
              
              17,311
              
              
              
              16,720Prepaid
      expenses and other current assets
              
              
              5,327
              
              
              
              5,338Total
      current assets
              
              
              61,688
              
              
              
              92,623Property,
      plant and equipment, net
              
              
              4,398
              
              
              
              5,895Goodwill
              
              
              -
              
              
              
              10,231Intangible
      assets, net
              
              
              941
              
              
              
              1,870Other
      non-current assets
              
              
              2,884
              
              
              
              3,402Total
      assets
              
              $
              69,911
              
              
              $
              114,021LIABILITIES
      AND STOCKHOLDERS’ EQUITYCurrent
      liabilities:Accounts
      payable
              
              $
              10,843
              
              
              $
              11,938Deferred
      revenue
              
              
              7,486
              
              
              
              5,125Customer
      advances
              
              
              224
              
              
              
              892Other
      accrued expenses
              
              
              10,227
              
              
              
              13,063Revolving
      line of credit
              
              
              12,500
              
              
              
              7,500Current
      portion of long-term debt
              
              
              486
              
              
              
              -Total
      current liabilities
              
              
              41,766
              
              
              
              38,518Long-term
      debt
              
              
              1,217
              
              
              
              1,787Accrued
      interest on long-term debt
              
              
              157
              
              
              
              191Total
      liabilities
              
              
              43,140
              
              
              
              40,496Commitments
      and contingencies (Note 10)Stockholders’
      equitySeries
      B convertible preferred stock, $0.0001 par value; 250,000 Series B shares
      authorized at December 31, 2008 and 2007; 200,690 Series B preferred
      shares issued and outstanding at December 31, 2008 and
2007
              
              
              -
              
              
              
              -Common
      stock, $0.0003 par value; 100,000,000 shares authorized at December 31,
      2008 and 2007; 59,472,165 and 58,542,517 issued and outstanding at
      December 31, 2008 and 2007, respectively
              
              
              18
              
              
              
              17Note
      receivable – stockholder
              
              
              (87
              )
              
              
              (87
              )Additional
      paid-in capital
              
              
              352,741
              
              
              
              349,718Accumulated
      deficit
              
              
              (325,901
              )
              
              
              (276,123
              )Total
      stockholders’ equity
              
              
              26,771
              
              
              
              73,525Total
      liabilities and stockholders’ equity
              
              $
              69,911
              
              
              $
              114,021





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




F-2


AIRSPAN
NETWORKS INC.


CONSOLIDATED
STATEMENTS OF OPERATIONS


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




Years ended December 31,2008
              
              
              2007
              
              
              2006Revenue
              
              $
              70,351
              
              
              $
              94,970
              
              
              $
              127,812Cost
      of revenue
              
              
              (49,076
              )
              
              
              (70,134
              )
              
              
              (94,948
              )Gross
      profit
              
              
              21,275
              
              
              
              24,836
              
              
              
              32,864Operating
      expenses:Research
      and development
              
              
              24,136
              
              
              
              24,596
              
              
              
              24,797Sales
      and marketing
              
              
              15,180
              
              
              
              14,240
              
              
              
              17,203Bad
      debts
              
              
              4,178
              
              
              
              1,835
              
              
              
              2,257General
      and administrative
              
              
              14,411
              
              
              
              15,199
              
              
              
              15,753Amortization
      of intangibles
              
              
              929
              
              
              
              936
              
              
              
              1,060Impairment
      of goodwill
              
              
              10,231
              
              
              
              -
              
              
              
              -Restructuring
              
              
              1,908
              
              
              
              (689
              )
              
              
              2,183Total
      operating expenses
              
              
              70,973
              
              
              
              56,117
              
              
              
              63,253Loss
      from operations
              
              
              (49,698
              )
              
              
              (31,281
              )
              
              
              (30,389
              )Interest
      income, net
              
              
              225
              
              
              
              802
              
              
              
              1,020Other
      income (expense), net
              
              
              (805
              )
              
              
              111
              
              
              
              (79
              )Loss
      before income taxes
              
              
              (50,278
              )
              
              
              (30,368
              )
              
              
              (29,448
              )Income
      tax benefit (provision)
              
              
              500
              
              
              
              (94
              )
              
              
              246Net
      loss
              
              
              (49,778
              )
              
              
              (30,462
              )
              
              
              (29,202
              )Deemed
      dividend associated with beneficial conversion of preferred
      stock
              
              
              -
              
              
              
              (4,670
              )
              
              
              (9,179
              )Net
      loss attributable to common stockholders
              
              $
              (49,778
              )
              
              $
              (35,132
              )
              
              $
              (38,381
              )Net
      loss per share attributable to common stockholders – basic and
      diluted
              
              $
              (0.84
              )
              
              $
              (0.77
              )
              
              $
              (0.96
              )Weighted
      average shares outstanding - basic and diluted
              
              
              58,945,401
              
              
              
              45,387,386
              
              
              
              40,026,411





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


F-3


CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY


(in
thousands, except for share data)




Preferred
      Stock
                
                
                Common
      Stock
                
                
                
                
                
                AccumulatedShares
                
                
                Par
      Value
                
                
                Shares
                
                
                Par
      Value
                
                
                Additional
                    Paid-In
                    Capital
                
                
                Note
                    Receivable
      -
                    Stockholder
                
                
                Other
                    Comprehensive
                    Income
                
                
                Deficit
                
                
                TotalBalance
      at January 1, 2006
                
                
                73,000
                
                
                
                -
                
                
                
                39,668,271
                
                
                $
                12
                
                
                $
                267,426
                
                
                $
                (87
                )
                
                $
                (130
                )
                
                $
                (202,610
                )
                
                $
                64,611Comprehensive
      loss:
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (29,202
                )
                
                
                (29,202
                )Net
      lossOther
      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
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                66Vesting
      of restricted stock
                
                
                
                
                
                
                
                
                
                
                24,692
                
                
                
                
                
                
                
                -
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                -Stock
      compensation expense
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                2,434
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                2,434Balance
      at December 31, 2006
                
                
                200,690
                
                
                
                -
                
                
                
                40,380,910
                
                
                $
                12
                
                
                $
                308,768
                
                
                $
                (87
                )
                
                $
                -
                
                
                $
                (240,991
                )
                
                $
                67,702Comprehensive
      loss:Net
      loss
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (30,462
                )
                
                
                (30,462
                )Comprehensive
      loss
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (30,462
                )Issuance
      of shares related to underwritten public offering
                
                
                
                
                
                
                
                
                
                
                17,250,000
                
                
                
                5
                
                
                
                31,985
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                31,990Deemed
      dividend associated with beneficial conversion of preferred
      stock
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                4,670
                
                
                
                
                
                
                
                
                
                
                
                (4,670
                )
                
                
                -Issuance
      of common stock - employee share purchase plan
                
                
                
                
                
                
                
                
                
                
                358,211
                
                
                
                
                
                
                
                588
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                588Exercise
      of stock options
                
                
                
                
                
                
                
                
                
                
                511,040
                
                
                
                
                
                
                
                1,135
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                1,135Issuance
      of common stock - 401K plan
                
                
                
                
                
                
                
                
                
                
                17,949
                
                
                
                
                
                
                
                50
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                50Vesting
      of restricted stock
                
                
                
                
                
                
                
                
                
                
                24,407
                
                
                
                
                
                
                
                -
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                -Stock
      compensation expense
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                2,522
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                2,522Balance
      at December 31, 2007
                
                
                200,690
                
                
                
                -
                
                
                
                58,542,517
                
                
                $
                17
                
                
                $
                349,718
                
                
                $
                (87
                )
                
                $
                -
                
                
                $
                (276,123
                )
                
                $
                73,525Comprehensive
      loss:Net
      loss
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (49,778
                )
                
                
                (49,778
                )Comprehensive
      loss
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (49,778
                )Issuance
      of common stock - employee share purchase plan
                
                
                
                
                
                
                
                
                
                
                661,494
                
                
                
                1
                
                
                
                303
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                304Exercise
      of stock options
                
                
                
                
                
                
                
                
                
                
                100,625
                
                
                
                
                
                
                
                62
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                62Issuance
      of common stock – 401K plan
                
                
                
                
                
                
                
                
                
                
                146,226
                
                
                
                
                
                
                
                127
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                127Vesting
      of restricted stock
                
                
                
                
                
                
                
                
                
                
                21,303
                
                
                
                
                
                
                
                -
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                -Stock
      compensation expense
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                2,531
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                2,531Balance
      at December 31, 2008
                
                
                200,690
                
                
                
                -
                
                
                
                59,472,165
                
                
                $
                18
                
                
                $
                352,741
                
                
                $
                (87
                )
                
                $
                -
                
                
                $
                (325,901
                )
                
                $
                26,771





The
accompanying notes are an integral part of these financial
statements


F-4


AIRSPAN
NETWORKS INC.


CONSOLIDATED
STATEMENTS OF CASH FLOWS


(in
thousands)




For the Years Ending December 31,2008
              
              
              2007
              
              
              2006Cash
      flows from operating activitiesNet
      loss
              
              $
              (49,778
              )
              
              $
              (30,462
              )
              
              $
              (29,202
              )Adjustments
      to reconcile net loss to net cash used in operating
      activities:Depreciation
      and amortization
              
              
              3,933
              
              
              
              3,824
              
              
              
              3,789Impairment
      of goodwill
              
              
              10,231
              
              
              
              -
              
              
              
              -Loss
      (gain) on disposal of property, plant and equipment
              
              
              431
              
              
              
              (9
              )
              
              
              88Accrued
      interest on long-term debt
              
              
              44
              
              
              
              42
              
              
              
              39Revaluation
      of long-term debt
              
              
              (84
              )
              
              
              229
              
              
              
              223Non-cash
      stock compensation
              
              
              2,633
              
              
              
              2,591
              
              
              
              2,511Bad
      debts
              
              
              4,178
              
              
              
              1,835
              
              
              
              2,257Changes
      in operating assets and liabilities:Decrease/(increase)
      in receivables
              
              
              13,172
              
              
              
              (3,913
              )
              
              
              (9,410
              )Decrease/(increase)
      in inventories
              
              
              (592
              )
              
              
              6,904
              
              
              
              (6,774
              )Decrease/(increase)
      in other current assets
              
              
              11
              
              
              
              597
              
              
              
              (2,213
              )Decrease
      in accounts payable
              
              
              (1,095
              )
              
              
              (4,002
              )
              
              
              (8,738
              )Increase/(decrease)
      in deferred revenue
              
              
              2,361
              
              
              
              (1,531
              )
              
              
              5,142Decrease
      in customer advances
              
              
              (668
              )
              
              
              (773
              )
              
              
              (12,270
              )Increase/(decrease)
      in other accrued expenses
              
              
              (2,888
              )
              
              
              (3,841
              )
              
              
              2,615Decrease
      in other operating assets
              
              
              749
              
              
              
              562
              
              
              
              1,379Net
      cash used in operating activities
              
              
              (17,362
              )
              
              
              (27,947
              )
              
              
              (50,564
              )Cash
      flows from investing activitiesPurchase
      of property, plant and equipment
              
              
              (1,938
              )
              
              
              (3,069
              )
              
              
              (3,136
              )Purchase
      of investment securities
              
              
              (11,706
              )
              
              
              (17,726
              )
              
              
              (31,640
              )Proceeds
      from sale of investment securities
              
              
              9,500
              
              
              
              22,454
              
              
              
              27,427Net
      cash (used in)/provided by investing activities
              
              
              (4,144
              )
              
              
              1,659
              
              
              
              (7,349
              )Cash
      flows from financing activitiesNet
      proceeds from issuance of preferred stock
              
              
              -
              
              
              
              -
              
              
              
              28,674Borrowings
      under line of credit
              
              
              5,000
              
              
              
              7,500
              
              
              
              2,500Repayment
      of borrowings under line of credit
              
              
              -
              
              
              
              -
              
              
              
              (2,500
              )Proceeds
      from public offering, net of issuance costs
              
              
              -
              
              
              
              31,990
              
              
              
              -Proceeds
      from the exercise of stock options
              
              
              62
              
              
              
              1,135
              
              
              
              657Issuance
      of common stock under employee share purchase plan
              
              
              304
              
              
              
              588
              
              
              
              332Net
      cash provided by financing activities
              
              
              5,366
              
              
              
              41,213
              
              
              
              29,663Increase/(decrease)
      in cash and cash equivalents
              
              
              (16,140
              )
              
              
              14,925
              
              
              
              (28,250
              )Cash
      and cash equivalents, beginning of year
              
              
              30,815
              
              
              
              15,890
              
              
              
              44,140Cash
      and cash equivalents, end of year
              
              $
              14,675
              
              
              $
              30,815
              
              
              $
              15,890Supplemental
      disclosures of cash flow informationInterest
      paid
              
              $
              504
              
              
              $
              425
              
              
              $
              24Income
      taxes paid
              
              $
              145
              
              
              $
              51
              
              
              $
              21Non-cash
      investing and financing activities:Deemed
      dividend associated with beneficial conversion of preferred
      stock
              
              $
              -
              
              
              $
              4,670
              
              
              $
              9,179





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


F-5


AIRSPAN
NETWORKS INC.


NOTES
TO THE FINANCIAL STATEMENTS


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




1.  THE
BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES




Business




Airspan
Networks Inc. (“Airspan” or the “Company”) is a global supplier of broadband
wireless equipment supporting the Worldwide Interoperability for Microwave
Access (“WiMAX”) protocol standard, which provides a wide area telecommunication
access network to connect end-users to telecom backbone networks. The WiMAX
standard is established by the WiMAX Forum®, a
self-regulatory, industry standards-setting organization.  While our
main product focus is WiMAX, we utilize other supplemental technologies,
including Wireless Fidelity (“Wi-Fi”) and Voice-over-Internet Protocol, which
allow communications network operators and service providers to deliver
high-speed data and voice services cost-effectively using wireless
communications rather than wired infrastructure.  Historically, the
primary market for our wireless systems has been fixed (stationary) point to
multi-point applications.  Our development of new technology has
expanded the market to include portable and mobile applications.  The
Company’s main operations are in Uxbridge, United Kingdom, and Airport City,
Israel, with corporate headquarters in Boca Raton, Florida.




Basis
of Presentation and Liquidity




The
accompanying consolidated financial statements have been prepared in conformity
with accounting principles generally accepted in the United States of America
(“GAAP”), which contemplates continuation of the Company as a going
concern.




The
Company has historically incurred significant losses from
operations.  These losses have been financed through cash on hand, or
capital raising activities including borrowings or sales of newly-issued
shares.





In the
current economy, the ability to access capital markets to raise capital is
considered unlikely.





The
Company has taken certain cost-cutting steps including reductions in headcount,
and management believes that these actions, along with existing resources, will
provide adequate liquidity for the next 12 months, and that the Company will be
in compliance with its loan covenants in 2009.  This liquidity,
however, is dependent upon the Company maintaining or increasing revenues
and continuing to reduce costs.





There can
be no assurance that management will be successful in implementing its plans or
that, if implemented, they will generate the results planned.





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 GAAP 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.  As of
December 31, 2008, cash equivalents consisted primarily of U.S. money
market funds and short term commercial paper.  In February 2009, we
repaid $7.4 million under the Loan and Security Agreement (as defined below)
with SVB (as defined below) which correspondingly reduced our cash
balances.  See Note 8.


F-6


Restricted
cash




Restricted
cash consists of cash pledged as collateral to secure the guarantees described
in Note 10 and cash held on behalf of employees to purchase Airspan stock under
our Employee Stock Purchase Plan.




Years ended December 31,2008
              
              
              2007Bank
      guarantees - with Customers
              
              $
              16
              
              
              $
              122Employee
      cash held under the Employee Stock Purchase Plan
              
              
              147
              
              
              
              271Total
              
              $
              163
              
              
              $
              393




In
addition, we had restricted cash of $0.9 million in other non-current
assets.




Short-term
investments




The
Company accounts for its investments in marketable securities using Statement of
Financial Accounting Standards (“SFAS”) No. 115, “Accounting for Certain
Investments in Debt and Equity Securities.”




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 available for sale and are stated at
fair value.  Unrealized holding gains and losses are excluded from
earnings and are reported as other comprehensive income, which is a separate
component of stockholders’ equity, until realized.  In 2008 and 2007,
the unrealized gains and losses were immaterial.




Accounts
receivable




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 collectability 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 or collection is
considered remote, 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, 2008 and 2007, the allowance for doubtful
accounts was $5.2 million and $2.9 million, respectively.




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,
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 except for the SVB line of credit.  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,
excluding the SVB line of credit, approximates fair value at December 31, 2008
and 2007, they are not necessarily indicative of the amounts that the Company
could realize in a current market exchange in the future.




As at
December 31 2008 the Company had drawn down $12.5 million under the Loan and
Security Agreement with SVB. The interest rate applicable at December 31, 2008
under this arrangement was SVB prime. Subsequently we amended and restated this
agreement with an interest rate of SVB prime plus 4%, subject to a minimum
interest rate of 8.0% per annum.  As a result the estimated fair
value, at which this financial instrument could be exchanged in a current
transaction between willing parties, was $11.9 million.




Derivative
financial instruments and hedging activities




The
Company from time to time 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.


F-7


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, 2008 or December 31,
2007.




Our
foreign exchange forward contracts are designated as hedging the exposure to
variable cash flows of a forecasted transaction. The foreign exchange forward
contracts are re-valued at the end of each period using current market exchange
rates. Effectiveness is measured by comparing the changes in fair value of
the hedge against the change in the expense being hedged. 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 2008, 2007 and 2006, there were no
ineffective portions.  Our cash flow hedges were used to manage our
pound sterling foreign currency risk, primarily on our U.K.-based employee
salaries, facility costs and other U.K. expenses.




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.




At
December 31, 2008 and December 31, 2007, there were no forward contracts
outstanding and there were no unrealized gains or losses.




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 lesser of the minimum lease term or the useful
life




Plant,
machinery and equipment — over 2 to 5 years




Furniture
and fixtures — over 4 to 5 years




Goodwill
arising on business combinations




Under
SFAS No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”), goodwill is
not amortized, but is instead tested for impairment at least annually or
whenever events or changes in circumstances indicate that the carrying value of
goodwill may not be recoverable.  A goodwill impairment review was
performed as of December 31, 2008 and it was determined that the goodwill was
fully impaired.




Identifiable
intangible assets




Only
purchased intangible assets 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.  All of the
Company’s intangible assets other than goodwill are subject to
amortization.


F-8




Impairment
of long-lived assets




In
accordance with SFAS 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. In addition, at least annually, the Company tests
its identified intangible assets for impairment. 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.  The impairment of goodwill was considered
to be a trigger event for the review of other long-lived assets. The other
intangibles and long-lived assets were determined not to be impaired, based on
the gross cash flows related to those assets.




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, 2008, 2007 and 2006,
were $0.6 million, $0.6 million and $0.5 million,
respectively.




Revenue
recognition




Our
revenue recognition policy reflects the fact that our revenue streams are
primarily derived from (i) sales of hardware 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 revenue stream. In
those instances, there is an added level of complexity in determining the
appropriate method of revenue recognition.  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.




The
following are our specific revenue recognition policies:




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 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.




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.


F-9




Applicability of Statement of
Position 97-2, Software Revenue Recognition, (and Subsequent Modifications) “SOP
97-2”:Since inception, Airspan has accounted for the sale of
products principally under Staff Accounting Bulletin No. 104 and Emerging
Issues Task Force (“EITF”) 00-21.  Software related to the products
has been considered incidental to the product offering as a whole. In the
future, we anticipate that some of our products may include software that is not
considered incidental to our products. In those cases, we will account for those
arrangements under the provisions of SOP 97-2.




Contract Accounting: When the
Company performs a specific development type contract for a customer subject to
contract accounting under Statement of Position 81-1, Accounting for Performance
of Certain Construction-Type Contracts, 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.




Shipping
and handling costs




Shipping
and handling costs are included within cost of revenues.




Research
and development




All
research and development expenditures are charged to research and development
expense in the period incurred.  The Company evaluates whether to
capitalize or expense software development costs in accordance with SFAS No. 86,
“Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise
Marketed.”  The Company sells products in a market that is subject to
rapid technological change, new product development and changing customer needs;
accordingly, the Company has concluded that technological feasibility is not
established until the development stage of the product is nearly
complete.  The Company defines technological feasibility as the
completion of a working model.  The time period during which costs
could be capitalized from the point of reaching technological feasibility until
the time of general product release is very short and, consequently, the amounts
that could be capitalized are not material to the Company’s financial position
or results of our operations.  Generally, the Company does not develop
software for resale.




Guarantees




Financial
Accounting Standards Board (“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 non-contingent 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.  No accruals were required at December 31, 2008 or 2007
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 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.




Information
regarding the changes in the Company’s product warranty liabilities is as
follows for the years ended December 31, 2008, 2007 and 2006.


F-10




Balance at
                  beginning of
                  period
              
              
              Accrual for
                  warranties
                  issued
                  during the
                  period
              
              
              Accruals
                  related to
                  pre-existing
                  warranties
                  (including
                  changes in
                  estimates)
              
              
              Settlements
                  made (in
                  cash or in
                  kind) during
                  the period
              
              
              Balance at
                  end of
                  periodProduct
      warranty liability year ended December 31, 2008
              
              $
              1,010
              
              
              
              46
              
              
              
              (115
              )
              
              
              (374
              )
              
              $
              567Product
      warranty liability year ended December 31, 2007
              
              $
              985
              
              
              
              531
              
              
              
              (224
              )
              
              
              (282
              )
              
              $
              1,010Product
      warranty liability year ended December 31, 2006
              
              $
              410
              
              
              
              1,190
              
              
              
              284
              
              
              
              (899
              )
              
              $
              985





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 remeasured into U.S.
dollars at the rate of exchange on the balance sheet date.  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, 2008 was
an expense of $0.9 million.The net value of exchange gains and
losses during the year ended December 31, 2007 was a credit of $0.3 million. The
net value of exchange gains and losses during the year ended December 31, 2006
was a credit of $0.2 million of which $0.1 million related to the
reclassification of gains on our forward exchange contracts from other
comprehensive income.




Comprehensive
income




The
Company reports comprehensive income or loss in accordance with the provisions
of SFAS No. 130 “Reporting Comprehensive Income” (“SFAS 130”).  SFAS
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 sources of other
comprehensive income are foreign exchange forward contracts and available for
sale securities.




Concentration
of credit risk




Financial
instruments, which potentially subject Airspan to concentration of credit risk,
consist primarily of cash and cash equivalents, restricted cash, short-term
investments and accounts receivable. Airspan places its cash and cash
equivalents and short-term investments only in highly rated financial
instruments.




Financial
instruments with significant credit risk include investments and cash and cash
equivalents. The Company invests its cash and cash equivalents with high credit
quality financial institutions. Certain cash and cash equivalents were in excess
of FDIC insurance limits at December 31, 2008. The Company has not
experienced any losses on such accounts.





The
Company’s accounts receivable are derived from sales of its products, and
approximately 82%, 91% and 92% of product sales were to non-U.S. customers for
the year ended December 31, 2008, 2007 and 2006, respectively.  One
customer accounted for $4.9 million of our net accounts receivable balance at
December 31, 2008 and another customer accounted for 14% at December 31,
2007.  For some customers, the Company 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.  The Company’s top
three customers accounted for 29% of revenue in 2008, 37% of revenue in 2007 and
53% of revenue in 2006.




Stock
based compensation




We
adopted SFAS No. 123R, “Share-Based Payment” (“SFAS 123R”) as of January 1,
2006, using the modified prospective transition method. 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
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 No. 123, “Accounting
for Stock Based Compensation” (“SFAS 123”), 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.


F-11




The
following table summarizes share-based compensation expense under SFAS 123R for
the years ended December 31, 2008, 2007 and 2006:




2008
              
              
              2007
              
              
              2006Research
      and development
              
              $
              896
              
              
              $
              859
              
              
              $
              688Sales
      and marketing
              
              
              546
              
              
              
              690
              
              
              
              818General
      and administrative
              
              
              1,094
              
              
              
              977
              
              
              
              971Stock-based
      compensation expense included in operating expense
              
              
              2,536
              
              
              
              2,526
              
              
              
              2,477Cost
      of sales
              
              
              97
              
              
              
              65
              
              
              
              34Total
      stock-based compensation
              
              $
              2,633
              
              
              $
              2,591
              
              
              $
              2,511




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.




Fair
Value and Assumptions Used to Calculate Fair Value under SFAS 123R:




The
weighted average fair value of each restricted stock share granted under our
equity compensation plans for 2007 and 2006 was $4.69 and $5.23,
respectively.  There were no restricted stock shares granted in
2008.  The fair value of each restricted stock award was estimated on
the date of grant using the fair market value of the stock on the date of
grant.


F-12


The
weighted average fair value of each option granted during 2008, 2007 and 2006
was $0.55, $3.54 and $2.66, respectively.  The fair value of each
option award was estimated on the date of grant using the Black-Scholes option
pricing model, using the following weighted average assumptions for 2008, 2007
and 2006:




Years ended December 31,2008
              
              
              2007
              
              
              2006Risk-free
      interest rate
              
              
              2.23
              %
              
              
              3.66
              %
              
              
              4.68
              %Expected
      average years until exercised
              
              
              5
              
              
              
              5
              
              
              
              5Expected
      dividend yield
              
              
              -
              
              
              
              -
              
              
              
              -Expected
      volatility
              
              
              92
              %
              
              
              77
              %
              
              
              85
              %




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




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




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




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




As
share-based compensation expense recognized in the consolidated statements 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.




Segment
reporting




The
Company operates as a single segment - the development and supply of broadband
wireless equipment and technologies.




Income
taxes




The
Company adopted the provisions of FASB Interpretation No. 48 “Accounting for
Uncertainty in Income Taxes” (“FIN 48”), on January 1,
2007.  Previously, the Company had accounted for tax contingencies in
accordance with SFAS No. 5, “Accounting for Contingencies.”  As
required by FIN 48, which clarifies SFAS No. 109, “Accounting for Income
Taxes,” 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. At the adoption date, the Company applied FIN
48 to all tax positions for which the statute of limitations remained
open.  As a result of the implementation, the Company did not have to
recognize any liability for unrecognized tax benefits.   In May
2007, the FASB issued FASB Staff Position (“FSP”) 48-1, which provides guidance
on how an enterprise should determine whether a tax position is effectively
settled for the purpose of recognizing previously unrecognized tax
benefits.  FSP 48-1 did not impact the adoption of FIN
48.




The
Company recognizes interest accrued related to unrecognized tax benefits in
interest expense and penalties in operating expenses.




Advertising
expense




Advertising
is expensed as incurred.  Advertising expense was $0.1 million, $0.3
million and $0.4 million in 2008, 2007 and 2006, respectively.




Other
taxes




Taxes on
the sale of products and services to customers are collected by us as an agent
and recorded as a liability until remitted to the respective taxing
authority.  These taxes have been presented on a net basis in the
consolidated financial statements.


F-13




Reclassifications




Certain
prior year amounts have been reclassified to be consistent with the current year
presentation.




Recent
accounting pronouncements




Adopted
Accounting Standards




Effective
January 1, 2008, the Company adopted SFAS No. 157, “Fair Value
Measurements” (“SFAS 157”), which defines fair value as the exchange price that
would be received for an asset or paid to transfer a liability (an exit price)
in the principal or most advantageous market for the asset or liability in an
orderly transaction between market participants at the measurement
date.  SFAS 157 establishes a three-level fair value hierarchy
that prioritizes the inputs used to measure fair value.  This
hierarchy requires entities to maximize the use of observable inputs and
minimize the use of unobservable inputs.  The three levels of inputs
used to measure fair value are as follows:




Level 1 –
quoted prices in active markets for identical assets or liabilities


Level 2 –
inputs other than Level 1 quoted prices that are directly or indirectly
observable


Level 3 –
significant unobservable inputs that are supported by little or no market
activity




The
Company’s adoption of SFAS 157 did not have a material impact on its
consolidated financial statements. The Company has segregated all financial
assets and liabilities at fair value on a recurring basis into the most
appropriate level within the fair value hierarchy based on the inputs used to
determine the fair value at the measurement date in the table
below.  FSP FAS 157-2, “Effective Date of FASB Statement No. 157”
delayed the effective date of SFAS 157 for all nonfinancial assets and
liabilities until January 1, 2009, except those that are recognized or
disclosed at fair value in the financial statements on a recurring
basis.  We do not expect the adoption of FSP FAS 157-2 will have
a material impact on our consolidated financial statements.  In
October 2008, the FASB issued FSP 157-3, “Determining the Fair Value of a
Financial Asset When the Market for That Asset is Not Active” (“FSP
157-3”).  FSP 157-3 clarifies the application of SFAS 157 to financial
assets for which an active market does not exist.  Specifically, FSP
157-3 addresses the following SFAS 157 application issues: (1) how a reporting
entity’s own assumptions should be considered in measuring fair value when
observable inputs do not exist; (2) how observable inputs in inactive markets
should be considered when measuring fair value; and (3) how the use of market
quotes should be considered when assessing the relevance of inputs available to
measure fair value. FSP 157-3 applies to financial assets within the scope of
accounting pronouncements that require or permit fair value measurements in
accordance with SFAS 157 and was effective upon issuance.  FSP 157-3
did not have a material impact on our consolidated financial
statements.




As of
December 31, 2008, financial assets and liabilities subject to fair value
measurements were as follows:




As of December 31, 2008Level 1(a)
              
              
              Level 2(b)
              
              
              Level 3
              
              
              BalanceAssetsCash
      equivalents
              
              $
              9,452
              
              
              $
              -
              
              
              $
              -
              
              
              $
              9,452Available
      for sale investments
              
              $
              1,000
              
              
              $
              6,710
              
              
              $
              -
              
              
              $
              7,710





(a)  
These consist of money market funds and U.S. Treasury bills that are priced at
the market price.




(b)  
These consist of commercial paper with short maturities and infrequent secondary
market trades and are priced via mathematical calculations; in the event that a
transaction is observed on the same security, the accretion schedule is
revised.




In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option
for Financial Assets and Financial Liabilities” (“SFAS 159”). SFAS 159 allows
entities the option to measure eligible financial instruments at fair value as
of specified dates. Such election, which may be applied on an
instrument-by-instrument basis, is typically irrevocable once
elected.  Upon adoption, we did not elect the fair value option for
any items within the scope of SFAS 159 and, therefore, the adoption of SFAS 159
did not have an impact on our consolidated financial statements.




F-14




In June
2007, the FASB ratified Emerging Issues Task Force (“EITF”) 07-3, “Accounting
for Nonrefundable Advance Payments for Goods or Services Received for Use in
Future Research and Development Activities” (“EITF 07-3”).  EITF
07-3 requires nonrefundable advance payments for research and development goods
or services to be deferred and capitalized.  The adoption of EITF 07-3
did not have a material effect on our consolidated financial
statements.




Future
Adoption of Accounting Standards




In
December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business
Combinations” (“SFAS 141R”). SFAS 141R requires the acquiring entity in a
business combination to recognize the full fair value of assets acquired and
liabilities assumed in the transaction whether full or partial acquisition,
establishes the acquisition-date fair value as the measurement objective for all
assets acquired and liabilities assumed, requires expensing of most transaction
and restructuring costs, and requires the acquirer to disclose all information
needed to evaluate and understand the nature and financial effect of the
business combination.  SFAS 141R applies to all transactions or other
events in which an entity obtains control of one or more businesses, including
combinations achieved without transfer of consideration, for example, by
contract alone or through the lapse of minority veto rights. SFAS 141R applies
prospectively to business combinations for which the acquisition date is on or
after the beginning of the first fiscal year beginning after December 15,
2008.  The adoption of SFAS 141R could have a material effect on our
consolidated financial statements if there are any acquisitions after January 1,
2009.




In
December 2007, EITF 07-01, “Accounting for Collaborative Arrangements
Related to the Development and Commercialization of Intellectual Property”
(“EITF 07-01”) was issued.  EITF 07-01 prescribes the accounting
for collaborations. It requires certain transactions between collaborators to be
recorded in the income statement on either a gross or net basis within expenses
when certain characteristics exist in the collaboration relationship. Based on
the nature of the arrangement, payments to or from collaborators would be
evaluated and the terms of the arrangement, the nature of the entity’s business
and whether those payments are within the scope of other accounting literature
would be presented.  Companies are also required to disclose the
nature and purpose of collaborative arrangements along with the accounting
policies and the classification and amounts of significant financial-statement
amounts related to the arrangements. EITF 07-1 is effective for financial
statements issued for fiscal years beginning after December 15, 2008, and
interim periods within those fiscal years, and is to be applied retrospectively
to all periods presented for all collaborative arrangements existing as of the
effective date.  We do not expect the adoption of EITF 07-01 will have
a material impact on our consolidated financial statements.




In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements, an Amendment of ARB No. 51” (“SFAS
160”). SFAS 160 will change the accounting and reporting for minority interests,
which will be recharacterized as noncontrolling interests and classified as a
separate component of equity rather than as a liability.  SFAS 160 is
effective for fiscal years beginning on or after December 15, 2008. We do
not expect that the adoption of SFAS 160 will have a material effect on our
consolidated financial statements.




In March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments
and Hedging Activities - an amendment of FASB Statement No. 133”
(“SFAS 161”).  SFAS 161 amends and expands the disclosure requirements
of SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,”
to provide a better understanding of how and why an entity uses derivative
instruments, how derivative instruments and related hedged items are accounted
for, and their effect on an entity’s financial position, financial performance,
and cash flows.  SFAS 161 is effective for fiscal years beginning
after November 15, 2008. We do not expect that the adoption of SFAS 161
will have a material impact on our consolidated financial
statements.




In
April 2008, the FASB issued FSP 142-3, “Determination of the Useful Life of
Intangible Assets” (“FSP 142-3”). FSP 142-3 amends the factors that should be
considered in developing renewal or extension assumptions used to determine the
useful life of a recognized intangible asset under SFAS 142.  FSP
142-3 is effective for fiscal years beginning after December 15,
2008.  We do not expect that FSP 142-3 will have a material impact on
our consolidated financial statements.




In
May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally
Accepted Accounting Principles” (“SFAS 162”).  SFAS 162
identifies the sources of accounting principles and provides entities with a
framework for selecting the principles used in preparation of financial
statements that are presented in conformity with GAAP.  The current
GAAP hierarchy has been criticized because it is directed to the auditor rather
than the entity, it is complex, and it ranks FASB Statements of Financial
Accounting Concepts, which are subject to the same level of due process as FASB
Statements of Financial Accounting Standards, below industry practices that are
widely recognized as generally accepted but that are not subject to due process.
The FASB believes the GAAP hierarchy should be directed to entities because it
is the entity (not its auditors) that is responsible for selecting accounting
principles for financial statements that are presented in conformity with
GAAP.  The adoption of SFAS 162 is not expected to have a material
impact on our consolidated financial statements.


F-15





2.  SHORT-TERM
INVESTMENTS




The
following is a summary of short-term investments:




Cost Basis
              
              
              Unrealized
                  Gains
              
              
              Unrealized
                  Losses
              
              
              Fair ValueDecember
      31, 2008:Commercial
      paper
              
              $
              6,710
              
              
              $
              -
              
              
              $
              -
              
              
              $
              6,710U.S.
      Treasury bills
              
              
              1,000
              
              
              
              -
              
              
              
              -
              
              
              
              1,000$
              7,710
              
              
              $
              -
              
              
              $
              -
              
              
              $
              7,710December
      31, 2007:Commercial
      paper
              
              $
              5,504
              
              
              $
              -
              
              
              $
              -
              
              
              $
              5,504




In 2008
and 2007, the Company accounted for short-term investments as available for sale
securities.  The above short-term investments had maturities at
December 31, 2008 of more than 90 days and less than one year.




3.  INVENTORY




Inventory
consists of the following:




December 31,2008
              
              
              2007Purchased
      parts and materials
              
              $
              6,047
              
              
              $
              6,941Work
      in progress
              
              
              1,275
              
              
              
              1,283Finished
      goods and consumables
              
              
              17,556
              
              
              
              20,585Inventory
      provision
              
              
              (7,567
              )
              
              
              (12,089
              )$
              17,311
              
              
              $
              16,720




F-16





4.  PROPERTY,
PLANT AND EQUIPMENT




Property,
plant and equipment consists of the following:




December 31,2008
              
              
              2007Plant,
      machinery and equipment
              
              $
              23,436
              
              
              $
              22,410Furniture
      and fixtures
              
              
              821
              
              
              
              845Leasehold
      improvements
              
              
              4,058
              
              
              
              3,71428,315
              
              
              
              26,969Accumulated
      depreciation
              
              
              (23,917
              )
              
              
              (21,074
              )$
              4,398
              
              
              $
              5,895





Depreciation
expense totaled $3.0 million, $2.9 million and $2.7 million for the years ended
December 31, 2008, 2007 and 2006, respectively.




5.  GOODWILL
AND INTANGIBLES




Goodwill
from business combinations represents the difference between the fair value of
the identified net assets purchased and the purchase price.  The
Company performed its annual goodwill impairment review as of December 31, 2008.
This review found the fair value of the business to be lower than its carrying
value, and the second step of this analysis determined that goodwill had no
implied value. Therefore a non-cash charge of $10.2 million for goodwill
impairment was recorded in the fourth quarter of 2008.




The
Company breached the December 31, 2008 minimum tangible net worth covenant
contained in the Loan and Security Agreement (as defined below) due to the
impact of continued losses on tangible net worth. Also the deterioration of
overall macroeconomic conditions in the fourth quarter of 2008 reduced our
customers’ ability to finance purchases of our equipment. The impact of these
conditions, among others, included lower projected future revenues from
customers and a higher Company specific risk factor included in the calculation
of the weighted average cost of capital. These factors then resulted in a
calculated fair value below the book value. The expected present value of future
cash flows was used to estimate fair value.




The
impairment of goodwill in the fourth quarter of 2008 was considered to be a
triggering event for the review of other long-lived assets.   The
other intangibles and long-lived assets were determined not to be impaired,
based on the gross cash flows related to those assets.




December 31,2008
                  
                  
                  2007Goodwill
                  
                  $
                  -
                  
                  
                  $
                  10,231




December
      31, 2008
              
              
              December
      31, 2007
              
              
              WeightedIntangibles
              
              Gross
                  Carrying
                  Amount
              
              
              Accumulated
                  Amortization
              
              
              Net
                  Book
                  Value
              
              
              Gross
                  Carrying
                  Amount
              
              
              Accumulated
                  Amortization
              
              
              Net
      Book
                  Value
              
              
              Average
                  Amortization
                  Period
      in
                  YearsCustomer
      contracts
              
              $
              1,390
              
              
              $
              (1,351
              )
              
              $
              39
              
              
              $
              1,390
              
              
              $
              (1,104
              )
              
              $
              286
              
              
              
              1.90Patent/developed
      technology
              
              
              4,355
              
              
              
              (3,453
              )
              
              
              902
              
              
              
              4,355
              
              
              
              (2,771
              )
              
              
              1,584
              
              
              
              1.63$
              5,745
              
              
              $
              (4,804
              )
              
              $
              941
              
              
              $
              5,745
              
              
              $
              (3,875
              )
              
              $
              1,870
              
              
              
              1.64




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 amortized intangible assets.  During 2008, 2007 and 2006,
there were no unamortized intangible assets other than goodwill.




F-17


The
estimated amortization expense for intangibles over the next three years is as
follows:




For
      the Years Ending December 31,2009
                
                $
                5752010
                
                
                3222011
                
                
                44Total
                
                $
                941





Amortization
of intangible assets amounted to $0.9 million, $0.9 million and $1.1 million for
the years ended December 31, 2008, 2007 and 2006, respectively.




6.  OTHER
ACCRUED EXPENSES




Other
accrued expenses consist of the following:




December 31,2008
                
                
                2007Warranty
                
                $
                567
                
                
                $
                1,010Restructuring
                
                
                414
                
                
                
                796Accrued
      Israeli severance pay
                
                
                2,372
                
                
                
                2,539Accrued
      payroll and related benefits and taxes
                
                
                2,359
                
                
                
                2,925Other
                
                
                4,515
                
                
                
                5,793$
                10,227
                
                
                $
                13,063





7.  ACCRUED
RESTRUCTURING CHARGES




In the
fourth quarter of 2002, the decision was made to completely outsource all our
manufacturing. As a result, the Company recorded a $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 United
Kingdom.  We paid $0.8 million in final settlement of these charges in
February 2008.




In the
third quarter of 2006, the Company commenced a company-wide restructuring
program to reduce operating expenses.  The operating expense reduction
was accomplished primarily through reductions in worldwide
headcount.  In 2006, the Company recorded restructuring charges of
$2.2 million.




We
reached our cost cutting target in the third quarter of 2008 as a result of cost
reductions earlier in the year.  However, we decided to continue
reducing overall operating expenditures in light of the general economic
uncertainty, while not sacrificing our key commercial and research and
development activities.  We believe that this focus will allow us to
realize additional cost savings in 2009.  The total restructuring
charge in 2008 was $1.9 million, including $1.5 million related to headcount
reduction and $0.4 million of asset write-offs related to the
restructuring.




F-18




The
restructuring charges and their utilization are summarized as
follows:




Balance
      at
                    Beginning
      of
                    Period
                
                
                Restructuring
                    Charge
                
                
                Utilized
                
                
                Balance
      at End
                    of
      PeriodYear
      ended December 31, 2008One-time
      termination benefits
                
                $
                -
                
                
                $
                1,519
                
                
                $
                (1,105
                )
                
                $
                414Contract
      termination costs
                
                
                796
                
                
                
                -
                
                
                
                (796
                )
                
                
                -Other
      associated costs
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -$
                796
                
                
                $
                1,519
                
                
                $
                (1,901
                )
                
                $
                414Year
      ended December 31, 2007One-time
      termination benefits
                
                $
                375
                
                
                $
                -
                
                
                $
                (375
                )
                
                $
                -Contract
      termination costs
                
                
                1,437
                
                
                
                (639
                )
                
                
                (2
                )
                
                
                796Other
      associated costs
                
                
                50
                
                
                
                (50
                )
                
                
                -
                
                
                
                -$
                1,862
                
                
                $
                (689
                )
                
                $
                (377
                )
                
                $
                796Year
      ended December 31, 2006One-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








8.  REVOLVING
LINE OF CREDIT




Effective
August 21, 2008, the Company and its wholly-owned subsidiary, Airspan
Communications Limited, entered into a Second Amendment to our August 1, 2006
Loan and Security Agreement, as amended August 7, 2007 (as amended, the
“Loan and Security Agreement”) with Silicon Valley Bank (“SVB”), with respect to
a revolving credit line.  For the term of the credit line, which
expires on December 31, 2009, the Company may, subject to certain adjustments,
borrow up to the lesser of (i) (a) 80% of eligible accounts receivable plus (as
long as the Company’s worldwide cash and investments exceeds $20 million and the
Company’s cash and investments maintained at SVB and its affiliates exceeds $15
million) (b) the lesser of (1) 60% of eligible inventory and (2) $8 million and
(ii) $20 million.  In addition, the credit facility requires the
Company to satisfy certain financial covenants, including the maintenance of a
minimum Tangible Net Worth (as defined in the Loan and Security
Agreement).  As of December 31, 2008, the minimum tangible net worth
requirement was $30 million and the Company’s actual tangible net worth was
$25.8 million.  As such, the Company was not in compliance with
the tangible net worth covenant at December 31, 2008.  The credit
facility also contains various provisions that restrict the Company’s use of
cash, its operating flexibility and its ability to pay dividends.  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.  The Loan and
Security Agreement is secured by collateral, including all of the Company’s
rights and interests in substantially all of its personal property, including
accounts receivable, inventory, equipment, general intangibles, intellectual
property, books and records, contract rights and proceeds of the above
items.  At December 31, 2008, $12.5 million of indebtedness was
outstanding under the Loan and Security Agreement.  The Company had
issued $3.0 million of letters of credit under the facility, which were still
outstanding at December 31, 2008.   The Loan
and Security Agreement was amended subsequent to year end to, among other
things, waive the covenant violation discussed above.See Note 19 –
Subsequent Events for a description of the Loan and Security Agreement, as
amended and restated effective March 25, 2009.


F-19




To secure
its obligations under the Loan and Security Agreement, the Company has granted
SVB a security interest in all of our assets and has established a 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 0.0% to 1.75%, depending on certain financial and
collateral tests. At December 31, 2008 the rate was SVB prime plus 0.0%. The
monthly interest is calculated based on the higher amount of outstanding
borrowings or $10 million.  The Company has also paid or agreed
to pay SVB (i) commitment fees totaling $147 thousand; (ii) 1% per year on the
face amount of any issued letter of credit; and (iii) 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 at
which advances are made against eligible receivables if it determines, after an
audit, that there are events, contingencies or risks that adversely affect our
assets.




The Loan
and Security Agreement provides that, with the exception of certain permitted
indebtedness and liens, the Company may not incur additional indebtedness or
liens. Permitted indebtedness is defined to include unsecured trade debt and
currency hedges incurred in the ordinary course 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 the Company may not convey, sell,
transfer or otherwise dispose of property except for inventory in the ordinary
course of business and other similar dispositions. In addition, the Loan and
Security Agreement limits our right to enter into a merger or acquisition, or
make investments in other entities.


Effective
March 25, 2009, the Company and its wholly-owned subsidiary, Airspan
Communications Limited, entered into an Amended and Restated Loan and Security
Agreement with SVB.  The Company had not been in compliance with the
minimum tangible net worth covenant contained in the Loan and Security Agreement
at December 31, 2008, however, pursuant to the Amended and Restated Loan and
Security Agreement, this default has been
waived.    Effective March 25, 2009, amounts payable under
the Amended and Restated Loan and Security Agreement bear interest at SVB’s
prime rate plus 4.0% subject to a minimum rate of 8.0% per annum. In February
2009, the Company repaid $7.4 million under the Loan and Security Agreement with
SVB as the Company was no longer eligible to borrow against inventory, as the
Company’s worldwide cash and investments did not exceed $20 million and the
Company’s cash and investments maintained at SVB and its affiliates did not
exceed $15 million.


9.
DEBT




Debt
consists of:




December
      31,2008
                
                
                2007Finnish
      Funding Agency for Technology and Innovation (“Tekes”)
                
                $
                1,933
                
                
                $
                1,978Less
      current portion
                
                
                486
                
                
                
                -Less
      accrued interest on long-term debt – current
                
                
                73
                
                
                
                -Less
      accrued interest on long-term debt – non current
                
                
                157
                
                
                
                191$
                1,217
                
                
                $
                1,787




On
November 9, 2005, the Company completed its acquisition of
Radionet.  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 years of 2009 through
2012 in varying amounts through annual installments made in December of each
year.  These loans all accrue interest at 3.75% per annum, payable
annually once repayment of the loan principal has commenced.




F-20




Long-term
debt maturities at December 31, 2008 (including accrued interest) were as
follows:




2009
                  
                  $
                  5592010
                  
                  
                  1,2302011
                  
                  
                  144$
                  1,933





Interest
expense was $0.6 million, $0.5 million and $0.1 million in 2008, 2007 and 2006,
respectively.




10.  COMMITMENTS AND
CONTINGENCIES




The
Company had commitments with its main subcontract manufacturers under various
purchase orders and forecast arrangements, for a value of $8.6 million and $17.6
million at December 31, 2008 and 2007, respectively. All capital commitments and
commitments with subcontract manufacturers existing at December 31, 2008 are
expected to be completed during 2009.




The
Company has entered into various operating lease agreements that expire at
various times through 2014, primarily for office space, warehouse space and
vehicles. Rent expense was $2.4 million for the year ended December 31,
2008, $2.1 million for the year ended December 31, 2007, and $2.1 million 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, 2008 are
as follows:




Amounts
      Due2009
                    
                    $
                    2,3612010
                    
                    
                    1,3902011
                    
                    
                    5502012
                    
                    
                    4282013
                    
                    
                    428Thereafter
                    
                    
                    71$
                    5,228





The
Company had bank guarantees with its landlords and customers totaling $1.0
million at December 31, 2008 and $1.3 million at December 31, 2007. The
guarantees secure payment or performance obligations of the Company under
contracts.  At December 31, 2008, the Company had pledged cash to the
banks as collateral for guarantees aggregating $1.0 million, of which $0.1
million is recorded as restricted cash in current assets and $0.9 million is
recorded as other non-current assets.  The Company has also issued
guarantees to customers under the line of credit provided by SVB for a total of
$3.0 million, 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 2011 with the
majority expiring in 2009.




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, Airspan Finland Oy.  These loans totaled $1.9 million at
December 31, 2008, which includes $0.2 million of accrued interest, and are
recorded in current and long-term debt.  This guarantee expires only
when Airspan Finland Oy has fulfilled all its obligations to Tekes.




Beginning
in July 2001, the Company and certain current and former officers and directors,
including its CEO and Chairman of the Board (the “Individual Defendants”) were
named as defendants in a class action complaint alleging violations of the
federal securities laws in the United States District Court for the Southern
District of New York.  A Consolidated Amended Complaint, which is now
the operative complaint, was filed on April 19, 2002.


F-21





The
purported class action alleges violations of Sections 11 and 15 of the
Securities Act of 1933 (the “1933 Act”) and Sections 10(b) and 20(a) of the
Exchange Act and Rule 10b-5 promulgated thereunder.  The essence of
the complaint is that defendants issued and sold the Company’s common stock
pursuant to the Registration Statement for the July 20, 2000 Initial Public
Offering (“IPO”) without disclosing to investors that certain underwriters in
the offering had solicited and received excessive and undisclosed commissions
from certain investors.  The complaint also alleges that the
Registration Statement for the IPO failed to disclose that the underwriters
allocated Company shares in the IPO to customers in exchange for the customers’
promises to purchase additional shares in the aftermarket at pre-determined
prices above the IPO price, thereby maintaining, distorting and/or inflating the
market price for the shares in the aftermarket.  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.  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 the
Company, but denied the motion to dismiss the Section 11 claim.  On
October 13, 2004, the Court certified a class in six of the approximately 309
other nearly identical actions that are part of the consolidated
litigation.  These six cases are the class certification “focus
cases.”  The plaintiffs selected these six cases, which do not include
Airspan.  On December 5, 2006, the Second Circuit Court of Appeals
vacated an order by the district court granting class certification in the six
focus cases.  On April 6, 2007, the Second Circuit denied a petition
for rehearing filed by plaintiffs, but noted that Plaintiffs could ask the
District Court to certify more narrow classes than those that were
rejected.





Prior to
the Second Circuit’s December 5, 2006 ruling, the majority of the issuers,
including the Company, and their insurers, had submitted a settlement agreement
to the Court for approval.  In light of the Second Circuit opinion,
the parties agreed that the settlement could not be approved.  On June
25, 2007, the district court approved a stipulation filed by the plaintiffs and
the issuers which terminated the proposed settlement.  On August 14, 2007,
the plaintiffs filed amended complaints in the six focus cases.  The
amended complaints include a number of changes, such as changes to the
definition of the purported class of investors, and the elimination of the
Individual Defendants as defendants.  The six focus case issuers and
the underwriters named as defendants in the focus cases filed motions to dismiss
the amended complaints against them on November 14, 2007.  On
September 27, 2007, the plaintiffs filed a motion for class certification in the
six focus cases.  On March 26, 2008, the district court dismissed the
Section 11 claims of those members of the putative classes in the focus cases
who sold their securities for a price in excess of the initial offering price
and those who purchased outside the previously certified class
period.  With respect to all the other claims, the motions to dismiss
were denied.  On October 10, 2008, at the request of plaintiffs,
plaintiffs’ motion for class certification was withdrawn, without
prejudice.




The
parties in the approximately 300 coordinated class actions, including Airspan,
the underwriter defendants in the Airspan class action, and the plaintiffs in
the Airspan class action, have reached an agreement in principle under which the
insurers for the issuer defendants in the coordinated cases will make the
settlement payment on behalf of the issuers, including the
Company.  The settlement is subject to approval by the parties,
termination by the parties under certain circumstances, and Court
approval.  There is no assurance that the settlement will be concluded
or that the Court will approve the settlement.




Due to
the inherent uncertainties of litigation, we cannot accurately predict the
outcome of this matter. If the settlement is not concluded and approved, the
litigation continues, and Airspan is found liable, the Company is unable to
estimate or predict the potential damages that might be awarded, whether such
damages would be greater than our insurance coverage, and whether such damages
would have a material impact on our results of operations or financial condition
in any future period.





On
October 9, 2007, a purported Airspan stockholder filed a complaint for
violation of Section 16(b) of the Securities Exchange Act of 1934, which
prohibits short-swing trading, against the Company’s initial public offering
underwriters. The complaint, Vanessa Simmonds v. Credit Suisse Group,
et al., Case No. C07-01638, filed in the District Court for the Western
District of Washington, seeks the recovery of short-swing profits. The
Company was named as a nominal defendant. No recovery was sought from the
Company.  On March 12, 2009, the Court dismissed the action against
the Company with prejudice.


F-22




From time
to time, the Company receives and reviews offers from third parties with respect
to licensing their patents and other intellectual property in connection with
the manufacture of our WiMAX and other products.  There can be no
assurance that disputes will not arise with such third parties if no agreement
can be reached regarding the licensing of such patents or intellectual
property.




For
example, we and other WiMAX manufacturers have received letters/communications
from Wi-LAN Inc. (“Wi-LAN”) offering licenses of various Wi-LAN patents and
contending that products complying with 802.11 and 802.16 standards are covered
by certain patents allegedly owned by Wi-LAN.  The Company, in
consultation with its patent counsel, has been reviewing Wi-LAN’s allegations
and has had extensive correspondence with Wi-LAN regarding those
allegations.  Wi-LAN continues to allege that its patents cover
certain of the Company’s products, and has offered to negotiate a license with
the Company with respect to the patents in question.  The Company is
in discussions with Wi-LAN regarding a possible resolution of this
matter.  However, there can be no assurance as to the ultimate outcome
of this matter.




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.




11.  CONVERTIBLE
PREFERRED STOCK




On
September 25, 2006 (the “Closing Date”), in accordance with the terms of that
certain Preferred Stock Purchase Agreement, dated July 28, 2006, by and between
the Company and Oak Investment Partners XI, Limited Partnership (“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 outstanding shares of Series A preferred stock which were held by Oak
prior to the closing of the transaction (the “Private Placement”).




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 were
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, represented approximately 29% of the
voting power outstanding.




The
Company agreed, upon certain terms and conditions, to register the resale of the
shares of common stock underlying the Series B preferred stock with the
Securities and Exchange Commission (“SEC”).  On February 15, 2007, a
registration statement with respect to the sale of the shares was declared
effective by the SEC.  If the registration statement ceases to be
effective as to the shares at any time thereafter for longer than 30 days at any
one time or 60 days during any one year, the Company may be required to pay
certain liquidated damages to Oak not to exceed $30 million. The Company
believes that the liquidated damages are a contingent
liability.  However, since such liability is not perceived to be
probable at this time, the Company has made no expense accrual for
it.




In the
third quarter of 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 Private Placement.  Of this charge, $8.3 million
was related to the shares of Series B preferred stock issued to Oak in exchange
for its Series A preferred stock and $0.9 million of this charge is 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 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, by $2.99, the closing price of the Company’s
common stock on the NASDAQ Global Market on the Closing Date.  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.  The total deemed dividend was $9.2
million.


F-23


On
September 26, 2007, the Company issued 15,000,000 shares of common stock in an
underwritten public offering at a price of $2.00 per share. All of the shares
were sold by the Company. The offering was made under the Company’s effective
shelf registration statement covering up to $50.0 million of equity securities
previously filed with the SEC.  As the sale price of these shares to
the underwriters on a per share basis was less than $2.90 per share, there was
an anti-dilution adjustment to the number of shares of common stock issuable on
conversion of the Series B preferred stock. As a result of the anti-dilution
adjustment, the Company recorded a deemed dividend of $4.1 million, calculated
by multiplying the number of additional shares to be received on conversion
(1.38 million shares) by $2.99, the closing price of the Company’s common stock
on the NASDAQ Global Market on the Closing Date.  The underwriters
were granted a 30 day option to purchase up to an additional 2,250,000 shares of
common stock from the Company to cover over-allotments, if any.  On
October 10, 2007, the Company issued 2,250,000 shares of common stock as a
result of the exercise by the underwriters of their over-allotment
provision.  As the sale price of these shares to the underwriters on a
per share basis was less than $2.90 there was an anti-dilution adjustment in the
fourth quarter of 2007 to the number of shares of common stock issuable on
conversion of the Series B preferred stock. As a result of this anti-dilution
adjustment, the Company recorded a deemed dividend in the fourth quarter of
approximately $0.6 million, calculated by multiplying the number of additional
shares to be received on conversion (approximately 0.2 million shares) by $2.99,
the closing price of the Company’s common stock on the NASDAQ Global Market on
the Closing Date.  Net proceeds from the 17,250,000 shares issued were
$32.0 million.




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 approximately 107.8 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.




The
Conversion Rate is subject to further anti-dilution adjustments pursuant to a
broad-based weighted average formula for certain issuances of equity securities
by the Company below $2.69 (as adjusted from $2.90 after the effect of the
anti-dilution provisions related to our common stock offering in 2007). 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 is 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, it 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
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
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.


F-24


There are currently outstanding 200,690
shares of our Series B preferred stock.  The holders of our Series B
preferred stock are entitled to a liquidation preference of $290.00 per share of
Series B preferred stock on voluntary or involuntary liquidation of our Company
before any payment of cash or distribution of other property may be made to the
holders of our common stock, or any other class or series of stock subordinate
in liquidation preference to the Series B preferred stock.  However,
if the holders of the Series B preferred stock would receive a greater return in
a liquidation by converting their shares of Series B preferred stock into common
stock, then the Series B preferred stock will be deemed to be automatically
converted into common stock immediately before the effectiveness of the
liquidation.  For this purpose a “liquidation” is deemed to include
the following transactions unless our stockholders approve a proposal that such
transaction shall not be treated as a liquidation:  (i) any
liquidation, dissolution, or winding-up of our affairs, or (ii) unless, at our
request, the holders of at least a majority of the Series B preferred stock then
outstanding determine otherwise, (a) the merger, reorganization or consolidation
of us into or with another entity, unless, as a result of such transaction the
holders of our outstanding securities immediately preceding such merger,
reorganization or consolidation own (in approximately the same proportions,
relative to each other, as immediately before such transaction) at least a
majority of the voting securities of the surviving or resulting entity or the
direct or indirect parent of such entity, (b) the sale, transfer or lease of all
or substantially all of our assets, (c) the sale, transfer or lease (but not
including a transfer or lease by pledge or mortgage to a bona fide lender), of
all or substantially all the assets of any of our subsidiaries the assets of
which constitute all or substantially all of our assets and the assets of such
subsidiaries, taken as a whole, or the liquidation, dissolution or winding-up of
such of our subsidiaries the assets of which constitute all or substantially all
of our assets and the assets of such subsidiaries taken as a whole, or (d) any
transaction or series of related transactions in which securities of the Company
representing 50% or more of the combined voting power of the Company’s then
outstanding voting securities are acquired by any person, entity or
group.




Therefore,
upon any liquidation of our Company, certain mergers, reorganizations and/or
consolidations of us 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 preferred stock (as appropriately adjusted for any combinations,
divisions, or similar recapitalizations affecting the Series B preferred stock
after issuance).




For
example, if we were to be acquired in a merger, acquisition, consolidation or
sale of assets, the holders of the Series B preferred stock would be
entitled to receive $290.00 per share of Series B preferred stock in the
acquisition transaction before any payment would be able to be made to the
holders of our common stock unless the holders of the Series B preferred
stock  (i) determined to convert their shares into common stock or
(ii) approve a proposal that the acquisition transaction not be treated as
a liquidation.  There are currently 200,690 shares of Series B
preferred stock outstanding.  As a result, the holders of the
Series B preferred stock would be entitled to receive $58.2 million before
the holders of common stock receive any amounts in such a transaction (assuming
no conversion of Series B preferred stock prior to the transaction and that
the Series B preferred stockholders do not approve a proposal that the
acquisition not be treated as a liquidation).  This could result in
the holders of the Series B preferred stock receiving substantially more, on a
common share equivalent basis, than holders of our common stock in such a
transaction.




12.  STOCK
OPTIONS AND COMMON STOCK




At
December 31, 2008, the Company had three stock option plans (the 1998 Plan (as
defined below), the 2001 Plan (as defined below), and the 2003 Plan (as
defined below)), the 2004 Omnibus Equity Compensation Plan, and the 2000
Employee Stock Purchase Plan.  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, 2008, the Company had reserved a total of
16,801,843 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 the
Company’s 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 the Company’s
employees, officers, directors, and consultants.




On
February 7, 2001, the Board of Directors 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.


F-25




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 9,500,000.




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 the fair market
value of our common stock on the date of the grant. The total number of options
granted to employees under the above plans was 2,631,780 in 2008, 1,071,200 in
2007 and 1,031,650 in 2006.




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 400,000, 135,000 and 150,000 in
2008, 2007 and 2006, respectively.




The
following table sets forth the activity for all common stock
options:




Number
      of
                  Shares
              
              
              Weighted
                  Average
                  Exercise
      PriceOutstanding,
      December 31, 2007
              
              
              5,628,664
              
              
              $
              4.13Granted
              
              
              3,031,780
              
              
              
              0.83Forfeited
              
              
              (550,000
              )
              
              
              2.44Exercised
              
              
              (100,625
              )
              
              
              0.64Outstanding,
      December 31, 2008
              
              
              8,009,819
              
              
              
              3.03Exercisable,
      December 31, 2008
              
              
              4,454,043
              
              
              $
              4.24





The
following table sets forth stock options outstanding at December 31,
2008:




Outstanding
      Options
                
                
                Options
      ExercisableExercise
      Price Ranges
                
                
                Number
      of
                    Outstanding
                    Options
                
                
                Weighted
                    Average
                    Exercise
                    Price
                
                
                Remaining
                    Contractual
                    Life
      in
                    Years
                
                
                Number
      of
                    Exercisable
                    Options
                
                
                Weighted
                    Average
                    Exercise
                    Price$0.17
      - 0.49
                
                
                
                290,811
                
                
                $
                0.43
                
                
                
                4.01
                
                
                
                264,911
                
                
                $
                0.460.50 - 0.50
                
                
                
                1,463,800
                
                
                
                0.50
                
                
                
                9.44
                
                
                
                66,664
                
                
                
                0.500.54 - 1.10
                
                
                
                120,871
                
                
                
                0.88
                
                
                
                3.33
                
                
                
                103,871
                
                
                
                0.871.20 - 1.20
                
                
                
                1,337,800
                
                
                
                1.20
                
                
                
                9.16
                
                
                
                -
                
                
                
                -1.55 - 3.60
                
                
                
                1,363,381
                
                
                
                2.39
                
                
                
                5.14
                
                
                
                1,129,550
                
                
                
                2.363.67 - 15.00
                
                
                
                3,433,156
                
                
                
                5.37
                
                
                
                4.83
                
                
                
                2,889,047
                
                
                
                5.528,009,819
                
                
                $
                3.03
                
                
                
                6.40
                
                
                
                4,454,043
                
                
                $
                4.24





As of
December 31, 2008, the weighted average remaining contractual life of options
exercisable was 4.33 years and their aggregate intrinsic value was
nil.  The total intrinsic value of options exercised during 2008 was
$0.1 million.  Cash received from stock option exercises for the year
ended December 31, 2008 was $0.1 million.  Because the Company
maintained a full valuation allowance on our U.S. deferred tax assets, it did
not recognize any tax benefit related to stock based compensation expense for
the year ended December 31, 2008.




The
Company also granted 0, 56,000 and 50,596 shares of restricted stock to
employees in 2008, 2007 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
$151 thousand and $111 thousand was recorded related to these shares for the
years ended December 31, 2008 and 2007, respectively.  The summary of
the changes in restricted stock outstanding during the year ended December 31,
2008 is presented below:




Number
      of
                  Shares
              
              
              Weighted-
                  Average
      Grant
                  Date
      Fair ValueNon-vested
      balance at December 31, 2007
              
              
              109,940
              
              
              $
              4.76Granted
              
              
              -
              
              
              
              -Forfeited
              
              
              (3,475
              )
              
              
              4.80Vested
              
              
              (21,303
              )
              
              
              5.01Non-vested
      balance at December 31, 2008
              
              
              85,162
              
              
              $
              4.70





As of
December 31, 2008, there was $2.9 million of unrecognized compensation expense,
net of estimated forfeitures, related to stock options that will be recognized
over the weighted average period of 2.86 years. Also, as of December 31, 2008,
there was $0.1 million of unrecognized compensation expense related to
restricted stock awards that will be recognized over the weighted average period
of 1.19 years. A total of 85,162 non-vested restricted shares are scheduled to
vest based on passage of time.




In 2000,
the Company adopted the 2000 Employee Stock Purchase Plan (the “ESPP”), which is
intended to qualify as an employee stock purchase plan under Section 423 of the
Internal Revenue Code of 1986.  In 2004, the Board of Directors and
stockholders authorized an increase to 3,000,000 shares from 1,000,000 shares of
common stock reserved for issuance under the ESPP and, in 2008, the Board of
Directors and stockholders authorized an increase to 8,000,000 shares from
3,000,000 shares of common stock reserved for issuance under the
ESPP.  On August 1, 2006, the Company issued 208,102 shares at $1.60
per share to employees participating in the ESPP.  On August 1, 2007,
the Company issued 358,211 shares at $1.64 per share to employees participating
in the ESPP.  On August 1, 2008, the Company issued 661,494 shares at
$0.46 per share to employees participating in the ESPP.  As of
December 31, 2008, there were 5,467,140 remaining shares of common stock
available for issuance under the ESPP.  Further offerings have been
authorized by the stockholders but will be subject to approval by the
Compensation Committee of the Board of Directors.


F-26


The
following table summarizes the remaining number of shares of common stock that
were authorized but unissued as of December 31, 2008:




Plans
                  
                  Number
      of Shares2000
      Employee Stock Purchase Plan
                  
                  
                  5,467,1401998,
      2001, 2003, and 2004 Plans -Options
      to be granted
                  
                  
                  3,239,722Options
      outstanding
                  
                  
                  8,009,819Non-vested
      restricted stock
                  
                  
                  85,162Total
                  
                  
                  16,801,843





13.  DEFINED
CONTRIBUTION PLAN EXPENSE




The
Company contributes to defined contribution plans for all eligible employees.
The Company recorded expenses of $2.3 million, $2.3 million and $2.1 million in
2008, 2007 and 2006, respectively.  Employer contributions are accrued
as earned by the employees.




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 31,2008
              
              
              2007
              
              
              2006Numerator:Net
      loss
              
              $
              (49,778
              )
              
              $
              (30,462
              )
              
              $
              (29,202
              )Deemed
      dividend associated with beneficial conversion of preferred
      stock
              
              
              -
              
              
              
              (4,670
              )
              
              
              (9,179
              )Net
      loss attributable to common stockholders
              
              $
              (49,778
              )
              
              $
              (35,132
              )
              
              $
              (38,381
              )Denominator
      - basic and diluted:Weighted
      average common shares outstanding
              
              
              58,945,401
              
              
              
              45,387,386
              
              
              
              40,026,411Net
      loss attributable to common stockholders per share - basic and
      diluted
              
              $
              (0.84
              )
              
              $
              (0.77
              )
              
              $
              (0.96
              )





There
were 8,009,819 stock options outstanding at December 31, 2008, 5,628,664 stock
options outstanding at December 31, 2007 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 anti-dilutive.  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 11 was also excluded (21,630,856 shares on an as
converted basis) from the computation of diluted net loss per share as its
effect was anti-dilutive. 85,162 and 109,940 non-vested shares of restricted
stock were excluded from the computation of diluted net loss per share at
December 31, 2008 and December 31, 2007, respectively, as their effect was
anti-dilutive.




F-27




15.  TAXATION




The
Company is subject to federal and various state income taxes in the US as well
as income taxes in certain foreign jurisdictions.  Tax regulations
within each jurisdiction are subject to the interpretation of the related tax
laws and regulations.  The Company is no longer subject to US federal
tax examinations for years through 2004, nor to corporate tax examination for
years through 2006 in the United Kingdom. In addition, the statute of
limitations for years through 2004 in Israel has expired.




The
income tax credit of $500 thousand in the year ended December 31, 2008 mainly
related to tax credits of $605 accrued in respect of additional research and
development expenditure in the U.K. in the period August 1, 2008 to December 31,
2008.  In exchange for the tax credits, the Company surrendered $5,477
of taxable losses in the U.K. equivalent to $1,533 of deferred tax assets less
local country income taxes. The income tax charge of $94 in the year ended
December 31, 2007 related to local country income taxes.  The tax benefits
of $246 in the year ended December 31, 2006 related mainly 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.   In
exchange for the tax credits, the Company surrendered $3,650 of taxable losses
in the U.K. which equated to $1,095 of deferred tax assets.





The loss
before tax was $50,278 for the year ended December 31, 2008 of which $3,639 was
attributable to domestic U.S. operations. The loss before tax was $30,368 for
the year ended December 31, 2007 of which $2,330 was attributable to domestic
U.S. operations. The loss before tax for the year ended December 31, 2006
attributable to domestic operations was $4,045 out of a total loss before tax of
$29,448. The Company did not record a material 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, 2008, the Company had the following net
operating loss carry-forwards:





Country
                
                Net
      Operating Loss Carryforwards
                
                Expiry
      TermsUK
                
                $
                120,100
                
                Does
      not expireUS
                
                
                25,800
                
                Expires
      in 13 to 20 yearsAustralia
                
                
                4,000
                
                Does
      not expireIsrael
                
                
                62,000
                
                Does
      not expireFinland
                
                
                15,200
                
                Expires
      in 2 to 10 yearsOther
                
                
                1,800
                
                Expires
      in 1 to 5 years





Significant
components of the Company’s deferred tax assets are as follows:




For
      the years ended December 31,2008
              
              
              2007Net
      operating loss carryforwards
              
              $
              58,451
              
              
              $
              67,938Fixed
      assets
              
              
              4,498
              
              
              
              4,650Accruals
      and reserves
              
              
              3,225
              
              
              
              2,215Stock
      compensation
              
              
              1,108
              
              
              
              1,31867,282
              
              
              
              76,121Valuation
      allowance
              
              
              (67,282
              )
              
              
              (76,121
              )$
              -
              
              
              $
              -


F-28





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 operations for each of the three
years:




For
      the years ended December 31,2008
              
              
              2007
              
              
              2006Expected
      income tax benefit at U.S. rates
              
              $
              19,105
              
              
              $
              10,276
              
              
              $
              10,012Difference
      between U.S. rate and rates applicable to subsidiaries in other
      jurisdictions
              
              
              (7,434
              )
              
              
              (2,726
              )
              
              
              (1,250
              )Surrender
      of taxable losses - UK R&D tax credits
              
              
              (1,533
              )
              
              
              -
              
              
              
              (386
              )Expenditures
      not deductible for tax purposes
              
              
              (2,737
              )
              
              
              (664
              )
              
              
              (110
              )Tax
      rate change in U.K.
              
              
              (3,492
              )
              
              
              -
              
              
              
              -Other
              
              
              (223
              )
              
              
              668
              
              
              
              1,386Valuation
      allowance on tax benefits
              
              
              (3,791
              )
              
              
              (7,648
              )
              
              
              (9,715
              )UK
      R&D tax credits
              
              
              605
              
              
              
              -
              
              
              
              309Income
      tax benefit (provision)
              
              $
              500
              
              
              $
              (94
              )
              
              $
              246





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 No. 109, “Accounting for Income
Taxes,” as it is considered more likely than not that such assets will not be
realized. The valuation allowance includes a reduction in deferred tax assets
through foreign exchange movements, mainly in UK Pounds.




16.  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 2008, the majority of the Company’s revenue was generated from products
manufactured in the United Kingdom, Mexico and Israel, with additional revenue
generated from sales of original equipment manufacturers’ products.




An
analysis of revenue by geographical market is given below:




Years
      ended December 31,2008
              
              
              2007
              
              
              2006United
      States and Canada
              
              $
              12,924
              
              
              $
              8,515
              
              
              $
              9,778Asia
              
              
              8,120
              
              
              
              19,409
              
              
              
              38,615Europe
              
              
              17,639
              
              
              
              27,512
              
              
              
              23,945Africa
      and the Middle East
              
              
              13,895
              
              
              
              9,903
              
              
              
              4,609Latin
      America and the Caribbean
              
              
              17,773
              
              
              
              29,631
              
              
              
              50,865$
              70,351
              
              
              $
              94,970
              
              
              $
              127,812





Revenues
are attributed to countries based on the destination of the equipment and
services supplied.


F-29




During
the year ended December 31, 2008, the loss before income tax was $50.3 million.
The loss before income taxes that related to operations in the United States was
$3.7 million and that from foreign operations was $46.6
million.  During the same period, the net loss was $39.5 million, of
which a net loss of $32.2 million arose from foreign
operations.  During the year ended December 31, 2007, the loss before
income tax was $30.4 million. The loss before income taxes that related to
operations in the United States was $2.3 million and that from foreign
operations was $28.1 million.  During the same period, the net loss
was $35.1 million, of which a net loss of $28.1 million arose from foreign
operations.  During the year ended December 31, 2006, the loss before
income tax was $29.4 million. The loss before income taxes that related to
operations in the United States was $4.0 million and that from foreign
operations was $25.4 million.  During the same period, the net loss
was $38.4 million, of which a net loss of $25.2 million arose from foreign
operations.




For the
year ended December 31, 2008, the Company had one customer whose revenue was
greater than 10% of the year’s total and such customer’s revenue accounted for
15% of the year’s total.  For the year ended December 31, 2007, the
Company had three customers whose revenue was greater than 10% of the year’s
total and such customer revenues accounted for 15%, 12% and 10% 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.




In 2008,
the Company received 69% of goods for resale from four suppliers.  In
2007, the Company received 72% of goods for resale from four
suppliers.  In 2006, the Company received 78% of goods for resale from
four suppliers.




At
December 31, 2008, the Company had one customer whose net accounts receivable
balance was greater than 10% of the total balance at that date.  Such
customer’s receivable accounted for 29% of the total.  At
December 31, 2007, the Company had three customers whose accounts
receivable balance was greater than 10% of the total balance at that
date.  Such customer receivables accounted for 14%, 14% and 12% of the
total.




For
      the Years ended December 31,2008
              
              
              2007Long-lived
      assets by geographic regionProperty,
      plant and equipment, net:United
      States
              
              $
              77
              
              
              $
              133United
      Kingdom
              
              
              1,943
              
              
              
              3,056Israel
              
              
              2,348
              
              
              
              2,517Other
              
              
              30
              
              
              
              189$
              4,398
              
              
              $
              5,895Goodwill
      and intangible assets, net:United
      States
              
              $
              -
              
              
              $
              789United
      Kingdom
              
              
              -
              
              
              
              127Mexico
              
              
              -
              
              
              
              219Israel
              
              
              752
              
              
              
              8,271Finland
              
              
              189
              
              
              
              2,695$
              941
              
              
              $
              12,101Other
      non-current assets:United
      Kingdom
              
              $
              883
              
              
              $
              1,212Israel
              
              
              2,001
              
              
              
              2,190$
              2,884
              
              
              $
              3,402Total
      long-lived assets
              
              $
              8,223
              
              
              $
              21,398





F-30




For
      the Years ended December 31,2008
            
            
            2007Total
      assets, net:United
      States
            
            $
            18,858
            
            
            $
            31,491United
      Kingdom
            
            
            33,429
            
            
            
            53,319Mexico
            
            
            -
            
            
            
            308Israel
            
            
            15,932
            
            
            
            23,692Finland
            
            
            381
            
            
            
            3,083Other
            
            
            1,311
            
            
            
            2,128$
            69,911
            
            
            $
            114,021




17.  RELATED
PARTY TRANSACTIONS




On April
27, 1999, Mr. Stonestrom, the Company’s President and Chief Executive Officer,
incurred $130 thousand 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 thousand leaving indebtedness at December 31, 2008 of
$87 thousand.  No interest is due on the debt.




18.  QUARTERLY
FINANCIAL DATA (UNAUDITED)




The
following table represents the Company’s consolidated results for each of the
most recent eight quarters. 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
      EndedMar.
      30,
                    2008
                
                
                June
      29,
                    2008
                
                
                Sept.
      28,
                    2008
                
                
                Dec.
      31,
                    2008
                
                
                Apr.
      1,
                    2007
                
                
                Jul.
      1,
                    2007 (a)
                
                
                Sept.
      30,
                    2007
                
                
                Dec.
      31,
                    2007($
      in thousands, except per share data)Consolidated
      statements of operations data:Revenue
                
                $
                17,159
                
                
                $
                21,391
                
                
                $
                17,789
                
                
                $
                14,012
                
                
                $
                26,660
                
                
                $
                22,073
                
                
                $
                22,470
                
                
                $
                23,767Cost
      of revenue
                
                
                (11,923
                )
                
                
                (14,647
                )
                
                
                (12,294
                )
                
                
                (10,212
                )
                
                
                (18,409
                )
                
                
                (20,223
                )
                
                
                (14,680
                )
                
                
                (16,822
                )Gross
      profit
                
                
                5,236
                
                
                
                6,744
                
                
                
                5,495
                
                
                
                3,800
                
                
                
                8,251
                
                
                
                1,850
                
                
                
                7,790
                
                
                
                6,945Operating
      expenses:Research
      and development
                
                
                6,936
                
                
                
                6,738
                
                
                
                5,511
                
                
                
                4,951
                
                
                
                5,606
                
                
                
                5,781
                
                
                
                6,185
                
                
                
                7,024Sales
      and marketing
                
                
                4,239
                
                
                
                4,302
                
                
                
                3,653
                
                
                
                2,986
                
                
                
                3,362
                
                
                
                3,508
                
                
                
                3,521
                
                
                
                3,849Bad
      debt
                
                
                47
                
                
                
                426
                
                
                
                492
                
                
                
                3,213
                
                
                
                232
                
                
                
                723
                
                
                
                632
                
                
                
                248General
      and administrative
                
                
                4,140
                
                
                
                3,395
                
                
                
                3,537
                
                
                
                3,339
                
                
                
                4,178
                
                
                
                3,986
                
                
                
                3,311
                
                
                
                3,724Amortization
      of intangibles
                
                
                234
                
                
                
                234
                
                
                
                230
                
                
                
                231
                
                
                
                234
                
                
                
                234
                
                
                
                234
                
                
                
                234Impairment
      of goodwill
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                10,231
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Restructuring
                
                
                -
                
                
                
                640
                
                
                
                50
                
                
                
                1,218
                
                
                
                40
                
                
                
                (525
                )
                
                
                -
                
                
                
                (204
                )Total
      operating expenses
                
                
                15,596
                
                
                
                15,735
                
                
                
                13,473
                
                
                
                26,169
                
                
                
                13,652
                
                
                
                13,707
                
                
                
                13,883
                
                
                
                14,875Loss
      from operations
                
                
                (10,360
                )
                
                
                (8,991
                )
                
                
                (7,978
                )
                
                
                (22,369
                )
                
                
                (5,401
                )
                
                
                (11,857
                )
                
                
                (6,093
                )
                
                
                (7,930
                )


Other
      income/(expense):Interest
      income (expense)
              
              
              116
              
              
              
              117
              
              
              
              54
              
              
              
              (62
              )
              
              
              280
              
              
              
              207
              
              
              
              31
              
              
              
              284Other
      income (expense)
              
              
              242
              
              
              
              71
              
              
              
              (358
              )
              
              
              (760
              )
              
              
              32
              
              
              
              (28
              )
              
              
              317
              
              
              
              (210
              )Loss
      before income taxes
              
              
              (10,002
              )
              
              
              (8,803
              )
              
              
              (8,282
              )
              
              
              (23,191
              )
              
              
              (5,089
              )
              
              
              (11,678
              )
              
              
              (5,745
              )
              
              
              (7,856
              )Income
      tax benefit/(provision)
              
              
              (50
              )
              
              
              (17
              )
              
              
              528
              
              
              
              39
              
              
              
              (39
              )
              
              
              2
              
              
              
              (24
              )
              
              
              (33
              )Net
      loss before deemed dividend
              
              
              (10,052
              )
              
              
              (8,820
              )
              
              
              (7,754
              )
              
              
              (23,152
              )
              
              
              (5,128
              )
              
              
              (11,676
              )
              
              
              (5,769
              )
              
              
              (7,889
              )Deemed
      dividend associated with preferred stock
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (4,138
              )
              
              
              (532
              )Net
      loss attributable to common stockholders
              
              $
              (10,052
              )
              
              $
              (8,820
              )
              
              $
              (7,754
              )
              
              $
              (23,152
              )
              
              $
              (5,128
              )
              
              $
              (11,676
              )
              
              $
              (9,907
              )
              
              $
              (8,421
              )Net
      loss attributable to common stockholders per share – basic and
      diluted
              
              $
              (0.17
              )
              
              $
              (0.15
              )
              
              $
              (0.13
              )
              
              $
              (0.39
              )
              
              $
              (0.13
              )
              
              $
              (0.29
              )
              
              $
              (0.24
              )
              
              $
              (0.14
              )




F-31




(a)
            In
      the second quarter of 2007, an inventory provision was made for $5.9
      million, recorded as a result of the decline of our non-WiMAX revenues and
      a subsequent reduced outlook for sales of these
  products.




19.  SUBSEQUENT
EVENTS





Effective
March 25, 2009, the Company and its wholly-owned subsidiary, Airspan
Communications Limited, entered into an Amended and Restated Loan and Security
Agreement with SVB.  For the term of the credit line, which expires on
March 31, 2010, we may, subject to certain adjustments, borrow up to the
lesser of (i) $20 million, and (ii) (a) 80% of eligible accounts
receivable plus (as long as the Company’s worldwide cash and investments exceeds
$20 million, and the Company’s cash and investments maintained at SVB and its
affiliates exceeds $15 million) (b) the lesser of (1) 60% of eligible
inventory, and (2) $8 million (the “Borrowing Base”).  The Company was
not eligible to make borrowings under the inventory portion of the line at
March 31, 2008.  The Company had not been in compliance with the
minimum tangible net worth covenant contained in the Loan and Security Agreement
at December 31, 2008, however, pursuant to the Amended and Restated Loan and
Security Agreement, this default has been waived.  The amended
required minimum tangible net worth at March 31, 2009, June 30, 2009,
September 30, 2009 and December 31, 2009 and thereafter is $18 million, $14
million, $13 million and $12 million, respectively, subject to certain
adjustments based on positive earnings and equity
issuances.  Effective March 25, 2009, amounts payable under the
Amended and Restated Loan and Security Agreement bear interest at SVB’s prime
rate plus 4.0% subject to a minimum rate of 8.0% per annum.  Assuming
that the Company is able to achieve its planned sales levels and contain
expenses and cash resources used in accordance with our 2009 financial plan,
management currently believes that the Company will have sufficient cash
resources to finance its operations at least through the end of
2009.  In February 2009, the Company repaid $7.4 million under the
Loan and Security Agreement with SVB as the Company was no longer eligible to
borrow against inventory, as the Company’s worldwide cash and investments did
not exceed $20 million and the Company’s cash and investments maintained at SVB
and its affiliates did not exceed $15 million.


F-32


On March
31, 2009, the Company announced that it would voluntarily delist its common
stock from the NASDAQ Global Market by filing a Form 25 with the Securities and
Exchange Commission on April 10, 2009.  Therefore, effective
April 20, 2009, our common stock will be delisted from the NASDAQ Global
Market.  After that date, our common stock will be quoted in the
over-the-counter market in the “Pink Sheets,” a centralized electronic quotation
service for over-the-counter securities.  The Company expects its
common stock will continue to trade in the Pink Sheets, so long as market makers
demonstrate an interest in trading in the Company’s common stock.  The
Company will provide its new ticker symbol for trading on the Pink Sheets as
soon as it becomes available.  Following such delisting, the Company
intends to deregister its common stock under the Securities Exchange Act of 1934
(the “Exchange Act”), and become a non-reporting company under the Exchange
Act.  On or about April 20, 2009, the Company will file with the
SEC a Form 15, Notice of Termination of Registration and Suspension of Duty to
File, to terminate its reporting obligations under the Exchange
Act.  When the Form 15 has been filed, the Company’s obligation to
file reports, and other information under the Exchange Act, such as Forms 10-K,
10-Q and 8-K will be suspended.  The deregistration of the Company’s
common stock under the Exchange Act will become effective 90 days after the date
on which the Form 15 was filed.  The Company is eligible to deregister
under the Exchange Act because its common stock was held of record by fewer than
300 persons.




On
October 9, 2007, a purported Airspan stockholder filed a complaint for
violation of Section 16(b) of the Exchange Act, which prohibits short-swing
trading, against the Company’s initial public offering underwriters. The
complaint, Vanessa Simmonds v. Credit Suisse Group, et al. Case
No. C07-01638, filed in the District Court for the Western District of
Washington, seeks the recovery of short-swing profits. The Company was
named as a nominal defendant.  No recovery was sought from the
Company.  On March 12, 2009, the Court dismissed the action against
the Company with prejudice.


F-33


Financial
Statement Schedules




Schedule
      II
                  
                  Airspan
      Networks Inc.
                  Valuation
      and Qualifying AccountsAdditions
              
              
              DeductionsBalance
      at
                  beginning
                  of
      period
              
              
              Charged
      to
                  expense
              
              
              Written
                  back
      to
                  provision
              
              
              Credit
      to
                  expense
              
              
              Charge
                  against
                  provision
              
              
              Balance
      at
                  end
      of
                  period(in
      thousands of U.S. dollars)Allowance
      for doubtful accounts:Year
      ended December 31, 2008
              
              $
              2,878
              
              
              $
              5,100
              
              
              $
              65
              
              
              $
              (922
              )
              
              $
              (1,952
              )
              
              $
              5,169Year
      ended December 31, 2007
              
              $
              5,489
              
              
              $
              2,998
              
              
              $
              491
              
              
              $
              (1,163
              )
              
              $
              (4,937
              )
              
              $
              2,878Year
      ended December 31, 2006
              
              $
              3,519
              
              
              $
              2,917
              
              
              $
              63
              
              
              $
              (660
              )
              
              $
              (350
              )
              
              $
              5,489Allowance
      for deferred tax assets:Year
      ended December 31, 2008
              
              $
              76,121
              
              
              $
              -
              
              
              $
              1,009
              
              
              $
              (9,487
              )
              
              $
              (361
              )
              
              $
              67,282Year
      ended December 31, 2007
              
              $
              68,473
              
              
              $
              7,550
              
              
              $
              3,361
              
              
              $
              (571
              )
              
              $
              (2,692
              )
              
              $
              76,121Year
      ended December 31, 2006
              
              $
              55,519
              
              
              $
              8,762
              
              
              $
              4,379
              
              
              $
              (110
              )
              
              $
              (77
              )
              
              $
              68,473




F-34





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 (24)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)4.3
                
                Consent
      to the Withdrawal of Registration Statements, made as of March 20, 2009,
      by Oak Investment Partners XI, Limited Partnership*10.1
                
                1998
      Stock Option and Restricted Stock Plan (6), (11)10.2
                
                Amended
      and Restated 2000 Employee Stock Purchase Plan (11),
  (25)10.3
                
                Omnibus
      Equity Compensation Plan (11)*10.4
                
                2001
      Supplemental Stock Option Plan (7), (11)10.5
                
                2003
      Supplemental Stock Option Plan (8), (11)10.6
                
                Written
      Summary of Airspan’s Non-Employee Director Compensation Plan (9),
      (11)10.7
                
                Employment
      Agreement with Eric Stonestrom (11), (12)10.8
                
                Employment
      Agreement with Henrik Smith-Petersen (11), (13)10.9
                
                Employment
      Agreement with Alastair Westgarth (11), (14)10.10
                
                Employment
      Agreement with Arthur Levine (10), (11)10.11
                
                Employment
      and Relocation Agreement with David Brant (11), (24)10.12
                
                Technical
      Assistance Support Services Agreement for FWA Equipment, dated as of
      February 14, 2003 (“FWA TASS”), by and between Nortel Networks U.K.
      Limited and Axtel, S.A. de C.V. (15)**10.13
                
                Preferred
      Stock Purchase Agreement, dated as of September 10, 2004, among Airspan
      and Oak Investment Partners XI, Limited Partnership
(16)10.14
                
                Amendment
      No. 1 to Preferred Stock Purchase Agreement (17)10.15
                
                Purchase
      and License Agreement, dated as of December 28, 2004, by and among Airspan
      Communications Limited (“Airspan Ltd.”) and Axtel, S.A. de C.V.
      (18)**10.16
                
                Amendment
      Agreement No. 3 to FWA TASS, dated as of December 28, 2004, between
      Airspan Ltd. and Axtel, S.A. de C.V. (19)**10.17
                
                Purchase
      Contract, dated April 14, 2005, by and between Yozan Incorporated
      (“Yozan”) and Airspan Ltd. (10) **10.18
                
                Supplement
      to Purchase Contract, dated August 15, 2005, by and between Yozan
      and
                  Airspan
      Ltd. (10) **10.19
                
                2nd
      Purchase Contract, dated September 13, 2005, by and between Yozan and
      Airspan Ltd. (10) **10.20
                
                Amendment
      of 1st
      and 2nd
      Purchase Contracts, dated October 6, 2005, by and between Yozan and
      Airspan Ltd. (10) **10.21
                
                Amendment
      of 2nd
      Purchase Contracts, dated February 25, 2006, by and between Yozan
      and
                  Airspan
      Ltd. (10) **10.22
                
                Memorandum
      of Understandings, dated February 25, 2006, by and between Yozan
      and
                  Airspan
      Ltd. (10) **10.23
                
                Memorandum
      of Understandings, dated June 23, 2006, by and between Yozan and Airspan
      Ltd. (20) **10.24
                
                Loan
      and Security Agreement, dated as of August 1, 2006, by and among Silicon
      Valley Bank, Airspan, and Airspan Ltd., including exhibits thereto
      (21)10.25
                
                Memorandum
      of Understandings, dated September 8, 2006, by and between Yozan
      and
                  Airspan
      Ltd. (22) **10.26
                
                First
      Amendment to Loan and Security Agreement, dated as of August 7, 2007,
      between Silicon Valley Bank, Airspan and Airspan Ltd.
  (23)10.27
                
                Form
      of Option Agreements (11), (26)10.28
                
                Employment
      Agreement with Paul Senior (11), (26)10.29
                
                Employment
      Agreement with Uzi Shalev (11),
(26)









Exhibit
                Number
            
            Description
      of Exhibit10.30
            
            Employment
      Agreement with Padraig Byrne (11), (26)10.31
            
            Second
      Amendment to Loan and Security Agreement, dated as of August 21, 2008,
      between Silicon Valley Bank, Airspan and Airspan Communications Ltd.
      (27)10.32
            
            Amended
      and Restated Loan and Security Agreement, dated as of March 25, 2009,
      between Silicon Valley Bank, Airspan and Airspan Communications
      Ltd.(28)14.1
            
            Airspan
      Code of Business Conduct (10)21
            
            Subsidiaries
      of registrant (24)31.1
            
            Certification
      of the Chief Executive Officer pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002*31.2
            
            Certification
      of the Chief Financial Officer pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002*32.1
            
            Certification
      of the Chief Executive Officer pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002***32.2
            
            Certification
      of the Chief Financial Officer pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002***__________________*
            
            Filed
      herewith**
            
            Confidential
      treatment has been granted with respect to certain portions of this
      exhibit. Omitted portions have been filed separately with the Securities
      and Exchange Commission***
            
            Furnished
      herewith(1)
            
            Incorporated
      by reference to Airspan’s Form 10-Q for the quarter ended April 4,
      2004(2)
            
            Incorporated
      by reference to Airspan’s report on Form 8-K filed on September 15,
      2004(3)
            
            Incorporated
      by reference to Airspan’s report on Form 8-K filed on September 26,
      2006(4)
            
            Incorporated
      by reference to Airspan’s Registration Statement on Form S-1 (333-34514)
      filed April 11, 2000(5)
            
            Incorporated
      by reference to Airspan’s report on Form 8-K filed on August 1,
      2006(6)
            
            Incorporated
      by reference to Airspan’s Registration Statement on Form S-1/A (333-34514)
      filed May 26, 2000(7)
            
            Incorporated
      by reference to Airspan’s Form 10-K for the year ended December 31,
      2000(8)
            
            Incorporated
      by reference to Airspan’s Form 10-K for the year ended December 31,
      2003(9)
            
            Incorporated
      by reference to Airspan’s report on Form 8-K filed on July 31,
      2006(10)
            
            Incorporated
      by reference to Airspan’s Form 10-K for the year ended December 31,
      2005(11)
            
            Management
      Contract or Compensatory Plan or Arrangement(12)
            
            Incorporated
      by reference to Airspan’s Registration Statement on Form S-1/A (333-34514)
      filed June 22, 2000(13)
            
            Incorporated
      by reference to Airspan’s Form 10-K for the year ended December 31,
      2002(14)
            
            Incorporated
      by reference to Airspan’s Form 10-Q for the quarter ended July 2,
      2006(15)
            
            Incorporated
      by reference to Airspan’s report on Form 8-K/A filed on July 6,
      2004(16)
            
            Incorporated
      by reference to Airspan’s report on Form 8-K filed on September 13,
      2004(17)
            
            Incorporated
      by reference to Airspan’s report on Form 8-K filed on September 27,
      2004(18)
            
            Incorporated
      by reference to Airspan’s report on Form 8-K filed on June 9,
      2005(19)
            
            Incorporated
      by reference to Airspan’s Form 10-K for the year ended December 31,
      2004(20)
            
            Incorporated
      by reference to Airspan’s report on Form 8-K filed on June 29,
      2006(21)
            
            Incorporated
      by reference to Airspan’s report on Form 8-K filed on August 7,
      2006(22)
            
            Incorporated
      by reference to Airspan’s report on Form 8-K filed on September 21,
      2006(23)
            
            Incorporated
      by reference to Airspan’s Form 10-Q for the quarter ended June 29,
      2008(24)
            
            Incorporated
      by reference to Airspan’s Form 10-K for the year ended December 31,
      2006(25)
            
            Incorporated
      by reference to Airspan’s definitive proxy statement on Schedule 14A filed
      on November 5, 2008(26)
            
            Incorporated
      by reference to Airspan’s Form 10-K for the year ended December 31,
      2007(27)
            
            Incorporated
      by reference to Airspan’s report on Form 8-K filed on September 2,
      2008(28)
            
            Incorporated
      by reference to Airspan’s report on Form 8-K filed on March 31,
      2009