**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, 2005**


**OR**




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




**For
      the transition period _________________to_________________**




Commission
      file number **:
      000-31031**




**AIRSPAN
      NETWORKS INC.**


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




**Washington**
            **75-2743995***(State
                or other jurisdiction of*
              *incorporation
                or organization)*
            *(I.R.S.
                Employer*
              *Identification
                No.)***777
                Yamato Road, suite 105**
              **Boca
                Raton, FL**
              **(561)
                893-8670**
            **33431***(Address
                of principal executive offices)*
            *(Zip
                Code)*




**(561)
      893-8670**


(Registrant’s
      telephone number, including area code)





None


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





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


None





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


Common
      Stock, $.0003 par value per share





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


Yes o    No
x




Indicate
        by check mark if the registrant is not required to file reports pursuant
        to
        Section 13 or Section 15(d) of the Exchange Act.
 Yes o    No
x





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


Yes x    No
o





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







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




Large
                accelerated filer ̈
            
            Accelerated
                filerx
            
            Non-accelerated
                filer ̈




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




As
      of
      July 3, 2005, the aggregate market value of the registrant’s common stock held
      by non-affiliates of the registrant was $205,838,036 based on the closing sale
      price as reported on the Nasdaq National Market. This calculation has been
      performed under the assumption that all directors, officers and stockholders
      who
      own more than 10% of the Company’s outstanding voting securities are affiliates
      of the Company.





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





Class
            
            Outstanding
                at March 24, 2006Common
                Stock, $0.0003 par value per share
            
            39,683,005




**DOCUMENTS
      INCORPORATED BY REFERENCE:**




The
      information required by Part III of this report, to the extent not set forth
      herein, is incorporated by reference from the registrant's definitive proxy
      statement relating to the 2006 annual meeting of shareholders, which definitive
      proxy statement will be filed with the Securities and Exchange Commission within
      120 days after the end of the fiscal year to which this report
      relates.














**AIRSPAN
      NETWORKS INC**


**FORM
      10-K**


**For
      the Year Ended**


**December
      31, 2005**





**TABLE
      OF CONTENTS**




**ITEM**
              
              
              **Page
                  No.****PART
                  I**1
              
              Business
              11A
              
              Risk
                  Factors
              211B
              
              Unresolved
                  Staff Comments
              312
              
              Properties
              313
              
              Legal
                  Proceedings
              314
              
              Submission
                  of Matters to a Vote of Security Holders
              32**PART
                  II**5
              
              Market
                  for Registrant’s Common Equity, Related Stockholder Matters and Issuer
                  Purchases of Equity Securities
              336
              
              Selected
                  Financial Data
              357
              
              Management’s
                  Discussion and Analysis of Financial Condition and Results of Operations
              377A
              
              Quantitative
                  and Qualitative Disclosures about Market Risk
              508
              
              Financial
                  Statements and Supplementary Data
              519
              
              Changes
                  in and Disagreements with Accountants on Accounting and Financial
                  Disclosure
              519A
              
              Controls
                  and Procedures
              519B
              
              Other
                  Information
              54**PART
                  III**10
              
              Directors
                  and Executive Officers of the Registrant
              5511
              
              Executive
                  Compensation
              5512
              
              Security
                  Ownership of Certain Beneficial Owners and Management and Related
                  Stockholder Matters
              5513
              
              Certain
                  Relationships and Related Transactions
              5514
              
              Principal
                  Accounting Fees and Services
              55**PART
                  IV**15
              
              Exhibits,
                  Financial Statement Schedules
              56**SIGNATURES**
              59




**CAUTIONARY
      STATEMENTS RELEVANT TO FORWARD-LOOKING INFORMATION FOR THE PURPOSE OF THE
      SAFE HARBOR PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
      1995**




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







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




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








**PART
      I**




**ITEM
      1. BUSINESS**




**Business
      Overview**




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




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




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




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




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




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





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




1


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





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





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





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




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





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





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




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





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
      Securities and Exchange Commission (SEC). The information found on our
      website is not part of this or any other report we file with or furnish to
      the
      SEC.




**Industry
      Overview**




*General*





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




·
            the
                market for basic voice connectivity;
                and




2


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





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





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





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





·
            *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 (5.5 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 sub-urban environments where business and residents create very
      high demand for services over broadband, and end-users can afford the relatively
      high tariffs charged by operators to provide fiber-based connectivity. The
      cost
      of deploying fiber access technologies continues to fall, however, and operators
      in some developed markets such as the USA have announced plans to deploy fiber
      access networks residentially.





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





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





3


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





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




The
      introduction in 2005 of WiMAX-compliant products will create additional
      deployment opportunities for BWA systems. WiMAX is a standards-based technology
      enabling the delivery of last mile wireless broadband access as an alternative
      to cable and DSL. WiMAX will provide fixed, nomadic, portable, and, eventually,
      mobile wireless broadband connectivity without the need for direct line-of-sight
      to a base station. According to the WiMAX Forum, in a typical cell radius
      deployment of three to 10 kilometers, WiMAX systems can be expected to deliver
      capacity of up to 40 Mbps per channel, for fixed and portable access
      applications. This is enough bandwidth to simultaneously support hundreds of
      businesses with T-1 speed connectivity and thousands of residences with DSL
      speed connectivity. WiMAX therefore becomes a viable alternative to fiber-based
      networks that would be too uneconomical to deploy in the area covered by a
      WiMAX
      cell. Mobile WiMAX network deployments are expected to provide up to 15 Mbps
      of
      capacity within a typical cell radius deployment of up to three kilometers.
      These data rates are much higher than those offered by the current generation
      of
      cellular network technologies. It is expected that WiMAX technology will be
      incorporated in notebook computers and PDAs by 2007, allowing for urban areas
      and cities to become “metro zones” for portable outdoor broadband wireless
      access.





WiMAX
      and
      WiFi are also expected to coexist in future and to become increasingly
      complementary technologies for their respective applications. WiMAX typically
      is
      not thought of as a replacement for WiFi. Rather, WiMAX complements WiFi by
      extending its reach and providing a "WiFi like” user experience on a larger
      geographical scale. WiFi technology was designed and optimized for Local Area
      Networks (LAN), whereas WiMAX was designed and optimized for Metropolitan Area
      Networks (MAN). In the 2006-2008 timeframe, it is expected that both 802.16
      and
      802.11 will be available in end user devices from laptops to PDAs, as both
      will
      deliver wireless connectivity directly to the end user - at home, in the office
      and on the move.





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





*The
      Global Need for Broadband Access*




At
      the
      end of December 2005, the number of broadband Internet users was estimated
      to be
      205 million, up from 150 million at the end of 2004 (source: Point Topic Ltd).
      We believe there has been continued growth in the number of end users of
      broadband wireless access equipment throughout the world for the last five
      years. We also believe that much of the growth in the number of broadband
      end-users has been generated in developing countries with a historically limited
      supply and penetration of telecom services, including broadband access. Although
      mobile operators are often selected to satisfy the demand for basic telephony
      in
      low tele-density regions, we believe BWA systems are often selected in many
      areas to provide the broadband access solution due to a superior set of features
      such as higher data speeds and availability of frequencies not serviced by
      traditional cellular networks.





Although
      the aggregate number of broadband users increased in the past five years, such
      growth was not matched every year by an increase in purchases of BWA equipment
      by network operators. The high-growth in spending on telecommunications and
      broadband infrastructure in the late 1990s was followed by declines in such
      spending at the start of this decade, and it is only in the past twenty four
      months that we believe we have seen evidence of renewed growth in spending
      on
      new wireless broadband infrastructure of the kind we supply. The market for
      BWA
      equipment comparable to ours has been stimulated by technologies such as WiFi
      and WiMAX, and it is expected to grow from $0.5 billion in 2004 to $3 billion
      in
      2009, with 50% of the market in 2009 to be derived from WiMAX Certified products
      (source: Skylight Research).





4
 *Migration
        of Telecommunications to IP Platforms*





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





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





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





Airspan
      has kept pace with the changes in underlying network topologies and the growth
      in packet-based services in a number of important respects. First, it acquired
      the technology and know-how to build and deploy packet-based networks when
      it
      acquired the WipLL business from Marconi in 2002. By 2005, WipLL had grown
      to
      approximately 23% of Airspan’s revenues. Secondly, Airspan co-founded the WiMAX
      Forum, specifically to develop the next generation of packet-based technologies
      upon which IP-based BWA systems will operate. And thirdly, to protect its
      position as one of the pioneers of combined voice and data BWA systems, Airspan
      acquired ArelNet in 2005 to give it the know-how and technology to be able
      to
      sell systems capable of carrying voice traffic as well as broadband data over
      IP-based fixed and wireless systems.




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




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




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





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





5


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




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




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




With
      the
      growth and spread of the Internet and the related growth for broadband
      connectivity, government competition policy and other political pressures to
      make broadband available in underserved areas has led to the allocation of
      new
      spectrum for broadband wireless, both licensed and unlicensed, in many
      countries. Most of the licensed spectrum has been made available globally in
      the
      3.5GHz band. During 2005, 3.5GHz spectrum was licensed for the first time in
      several countries, mainly in Europe. Further, plans are underway for the
      allocation of additional spectrum at 3.5GHz in other countries, as are
      allocations of other frequencies for broadband wireless applications.
      Frequencies are also being licensed in the sub 6GHz spectrum, particularly
      700MHz in the USA and in the 2GHz band in India. Additional spectrum for
      unlicensed applications was added in many areas during 2005. In the USA, the
      FCC
      made available frequency for unlicensed use in the 3.65GHz band; and in other
      countries additional parts of the 5GHz band have been made available to network
      operators for broadband wireless applications.




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





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





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





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




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





Our
      Proximity and AS4020 solutions provide network operators with combined and
      simultaneous optimized delivery of *both* high-speed packet data *and* wire-quality voice services. Our IP-based WiMAX and WipLL solutions give network
      operators and ISPs a relatively low cost high-speed data solution. When combined
      with our new AS.TONE portfolio, AS.MAX and WipLL are also capable of providing
      fully-integrated voice over IP services on one platform. AS.MAX will have
      sufficient capacity to permit the offering of simultaneous voice, data and
      IP TV
      video connections. Our Airspan branded AS4030 solution provides high-speed
      data
      rates that can be used for cellular backhaul or corporate or public sector
      high-speed Internet access.





Our
      systems flexibly allocate the available bandwidth to the services required,
      thereby permitting the radio resources and spectrum to be used most efficiently.
      Our systems are designed as modular solutions to enable deployments to be
      expanded as our technologies and customers’ needs evolve. We provide a single
      subscriber unit that delivers the voice or data connection, or a combination
      of
      both, to a subscriber, thus eliminating a need for multiple access devices
      in
      customer premises. During 2005 we supplemented this capability with our AS.MAX
      product line that also supports both voice and data applications using
      Voice-over-IP technology from the AS.TONE product line.




6


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




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




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




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




**Our
      Strategy**




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




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




7


*Maintain
      our technology position.*  We
      believe that we have established a strong technology position in the market
      for
      fixed wireless access solutions, and we seek to maintain this position by
      continuing to make substantial investments in research and development and
      by
      strategic acquisitions. Our research and development efforts are particularly
      focused on increasing the speed and capacity of data transmission and
      operational coverage area, while reducing the cost of our infrastructure
      equipment. We are also focused on reducing the installation time and costs
      of
      our subscriber terminals. We are actively involved in the development of
      standards through our membership in or participation with leading standards
      organizations such as the IEEE’s 802.16 group, the WiMAX Forum and ETSI
      (European Telecommunications Standards Institute). We believe our leadership
      role in WiMAX gives us a lead in the development and sale of WiMAX
      Certified TM compliant products. We also expect to continue to seek to acquire new
      businesses, products and technologies to accelerate the development of our
      products and our time-to-market with new advanced products.





*Successfully
      transition from circuit switched to Internet-based technologies and from
      proprietary to open-standard platforms* .
      Prior
      to 2002, all of our systems were designed to operate primarily over circuit
      switched telephone networks. In 2002, with the acquisition of the WipLL
      business, we acquired our first technology that was fully based in the Internet
      protocol. Between 2002 and 2005, we continued to spend on research and
      development for both technologies. By 2005, Internet Protocol based technologies
      comprised more than 30% of our revenues.





With
      the
      introduction of our AS.MAX products and the acquisition of Radionet and ArelNet
      in 2005, we committed ourselves fully to technologies that operate primarily
      using the Internet Protocol. We did so to match the move, explained above,
      of
      most telecommunications service providers to route more and more of their
      traffic and services over the Internet. AS.MAX and AS.NET products also exposed
      us for the first time in 2005 to the risks and opportunities of developing
      and
      selling technologies based on an open standard (see more below in the section
      dealing with “Risk Factors”). Our strategy in the future will therefore be to
      manage the transition to open-standard IP-based products while maintaining
      our
      technological lead in the more challenging environment of open standards. In
      2005, we took important steps in this regard by being first to market with
      an
      end-to-end 802.16 - 2004 WiMAX access solution. We also signed global reseller
      agreements in 2005 with Ericsson and Nortel to distribute our WiMAX systems
      through their channels and customers.





*Target
      key growth market opportunities globally.*  Our
      broadband wireless solutions find their strongest competitive advantage in
      areas
      where there is a growing demand for high-speed data or for combined high-speed
      data and voice services, and where cost considerations make traditional
      solutions impracticable. As a result, in a developed market like the United
      States, we focus on ILECs that are targeting small and medium sized businesses,
      small office/home office users and high-end consumers as well as end users
      in
      suburban and rural areas. We believe our WipLL product is especially attractive
      to such service providers in these markets. Outside of the USA, we have targeted
      CLECs and ILECs in developed economies with our WipLL and WiMAX solutions.
      By
      the end of 2005, WiMAX trials were being conducted in more than 20 countries.
      In
      the developing world, we believe our opportunities are generally much broader
      due to the general inadequacy of the existing communications infrastructure.
      In
      these markets, wireless solutions can be the basis for a new national
      telecommunications infrastructure.




*Develop
      and expand our strategic relationships.*  We
      intend
      to develop and expand our strategic relationships with large communications
      equipment manufacturers to help us market our products to network operators
      deploying large-scale turnkey networks. These relationships facilitate broader
      deployments of our systems worldwide, through stronger sales presence and
      additional integration services and support capabilities provided by those
      manufacturers. We also intend to form strategic relationships with
      communications companies situated within certain countries where there are
      competitive advantages to having a local presence. As mentioned above, in 2005
      we signed WiMAX agreements with Nortel and Ericsson for this
      purpose.




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




8


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




**Products**




*General*




We
      supply
      BWA systems that connect residential and business customers to a communications
      or Internet service provider’s network, or that connect various subscriber
      terminals in an enterprise network, together with related VoIP switching
      technologies.




Below
      is
      a diagram of our AS.MAX wireless systems that illustrates the relationship
      between subscriber terminal equipment, base station equipment and a
      communication service provider’s network.











The
        service provider installs base stations at various locations within its
        geographical area of operation that are linked to the rest of the
        telecommunications network at the central office (“CO site”). Voice traffic is
        routed to the public switched telecommunications network (“PSTN”) via a PSTN
        switch whilst data traffic can be connected directly to the Internet or to
        leased line data networks, typically via a router. Each base station in turn
        transmits and receives voice and high-speed data and Internet traffic via
        a
        wireless link from subscriber terminals located at residential and business
        premises.
  Our
        products consist of the following broadband access platforms operating in
        licensed and unlicensed frequencies between 700 MHz and 6.0GHz:
  9
 *Broadband
        Access Platforms*
  ·** *AS4000
        and AS4020 Solution* .  Our
        AS4000 and AS4020 Solution is a multi-service platform supporting carrier-class
        voice, IP data, leased line services and Integrated Services Digital Network
        (“ISDN”) solutions. The product range includes a wide variety of Subscriber
        Terminal (“ST”) types to deliver flexible combinations of voice and data
        services to end-users at speeds of up to 2 Mbit/s.
  · *Proximity
        Solution.*  Our
        Proximity Solution is a low cost, multi-service platform supporting
        carrier-class voice, modem and packet data. The product range includes a
        variety
        of ST types to deliver combinations of voice and data services at speeds
        up to
        100 Kbit/s to end-users and base stations with variable capacities.
  · *WipLL
        Solution.*  Our
        WipLL
        Solution is a low cost, high-performance IP data platform, supporting high-speed
        data, high-speed Internet access, VoIP services and multimedia services in
        a
        multitude of frequencies at speeds of up to 1.5 Mbit/s. The product range
        includes a variety of ST types, including an indoor model with built-in antenna,
        which does not require line of site to a base station receiver and which
        can be
        installed by the end user.
  · *AS4030
        Solution.*  Our
        Airspan branded AS4030 Solution is an IEEE 802.16a compliant high performance,
        high end product operating in the 3.5GHz frequency band, suitable for the
        transmission of data at speeds up to 36 Mbit/s and, accordingly, compatible
        for
        use with applications requiring E1 or T1 circuits. The solution has been
        designed to handle backhaul and high-speed Internet connections for corporate
        customers, schools and hospitals.
  · *AS3030
        Solution.*  Our
        Airspan branded AS3030 Solution is a proprietary high performance, high end
        product operating in the 5.4GHz and 5.8GHz frequency bands, suitable for
        the
        transmission of data at speeds up to 50 Mbit/s and, accordingly, compatible
        for
        use with applications requiring E1 or T1 circuits. This solution, like the
        AS4030 solution, has been designed to handle backhaul and high-speed Internet
        connections for corporate customers, schools and hospitals.
  · *AS.MAX
        Solutions.*  Our
        AS.MAX product line of WiMAX solutions will deliver high performance at low
        cost
        and can support IP services, such as voice and video, at speeds up to 10
        Mbit/s.
        The AS.MAX solution has been designed to deliver robust, high quality IP
        service
        to residential and enterprise users in the developed and developing world.
        The
        AS.MAX product line includes new CPE types that allow the end-user to
        self-install the CPE.
 
 ·  *AS.NET
        Solutions.*  Our
        AS.NET product line of IEEE 802.11-compliant WiFi solutions delivers high
        performance access to 802.11 / WiFi clients. The AS.NET solution can support
        point to point linking application such as backhaul, WiFi Hotzone with seamless
        roaming and handover and specialized WiFi for industrial applications.
  *Voice-over-IP
        Switching*
 
 · *AS.TONE
        Solutions.*  Our
        AS.TONE product line includes complete Class 4 and Class 5 Voice over IP
        switching. These comprehensive solutions give customers everything they require
        provide voice services to end users, including Billing, Self-Care Management,
        and SS7 and Primary ISDN PSTN interfaces. The AS.TONE solution also includes
        products to optimize the use of VoIP over AS.MAX networks. This product is
        called VoiceMAX. VoiceMAX also operates with our WipLL and AS.NET product
        lines.
 
 *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 systems are flexible and can be expanded to
        suit a
        range of different networks. They permit network operators to remotely manage
        a
        geographically dispersed set of network elements. They also all feature
        intuitive graphical user interfaces, and allow remote software upgrades for
        all
        deployed equipment. Our NMS systems are marketed under the names AS8100
        (Sitespan), AS8200 (Netspan), AS8300 (AirspanAccess) REM (Remote Element
        Manager) and WipManage.
  10
 *Installation
        tools*
  Our
        installation tools are designed to assist our customers with installation
        or
        troubleshooting of customer premises equipment installations in an efficient
        and
        effective manner. Our installation tools include the following:
  · *AS7020
        (STMon)* —
a
        PC-based software application for AS4000 and AS4020 subscriber installations
  · *AS7010
        (STMeter)* —
a
        self-contained handheld tool for AS4000 and AS4020 subscriber installations
  · *WipConfig* —
a
        PC or
        PDA-based software application for WipLL subscriber installations
  · *Proximity
        RIS* —
a
        handheld tool for Proximity subscriber installations
  *Radio
        Planning*
  Our
        planning and configuration tool, the AS9000 (“AS9000”), is a sophisticated
        software solution that enables operators to plan and deploy our wireless
        systems. This product is based on third-party software customized for use
        with
        our systems. The main task of the planning tool is to find the optimal location
        and configuration for base station deployment. The system provides a powerful
        prediction engine that can generate coverage maps for multiple scenarios
        until
        the best-case scenario is found. From these data detailed predictions of
        service
        availability can be made allowing service providers to accurately target
        markets.
  Once
        the
        locations of the base stations have been determined, AS9000 can be used to
        compare the way the radio signals fade as they spread out from a base station
        transmitter and the extent of coverage. The four key aspects of the predictive
        tool are the terrain (altitude) databases, clutter (natural terrain features
        and
        man-made obstructions) information, antenna information and system
        configuration, which are used to predict transmission coverage.
  *New
        Products and Enhancements*
  During
        2005 we introduced a number of new products and product enhancements.
  ·
              The
                  addition of a number of additional frequency variants in the WipLL
                  product
                  line, including 1.7-2.1 GHz.
 ·
              The
                  world’s first WiMAX indoor self-installable CPE, called
                  “EasyST”
 ·
              The
                  first AS.MAX base station, called “MacroMAX”, a high performance Macro
                  Cell.
 ·
              A
                  unique WiMAX CPE with an integrated WiFi access point, called
                  “ProST-WiFi”
 ·
              The
                  “MicroMAX-SDR”, a software upgradeable WiMAX base station that will
                  operate initially on the current 802.16-2004 standard, and that
                  may be
                  upgraded by software to operate on the new WiMAX 802.16 - 2005
                  mobile
                  standard
 ·
              New
                  customer premise equipment for our Proximity product line that
                  supports
                  both voice and packet data more
                  efficiently.
 
 We
        expect
        to introduce further new products in 2006, including:
  ·
              New
                  WiMAX products, including
 ·
              MicroMAX-SOC
                  (cost optimized WiMAX
                  base station),
 ·
              HiperMAX
                  (A high performance WiMAX
                  base station that may be upgraded by software to operate on the
                  new WiMAX
                  802.16 - 2005 mobile
                  standard).
  11
 **Technology**
  As
        of
        March 3, 2006, we had 116 full time employees and contracts engaged in research
        and development located in Uxbridge (UK), Airport City and Yavne (Israel)
        and
        Espoo (Finland). Our wireless technologies have been under continuous
        development since 1992, deliver high performance and are resilient in a very
        wide range of deployment conditions.
  *Frequency
        Choice*
  We
        recognized early that no single wireless spectrum would be made available
        for
        BWA services around the world. Consequently, our solutions are designed to
        easily change radio frequency subsystems to match a customer’s specific spectrum
        allocation. We believe our wireless solutions provide our customers with
        the
        widest choice of radio subsystems in the industry within the 700MHz to 6.0GHz
        bands, encompassing both licensed and unlicensed spectrum.
  *Technology
        - Proprietary Product Lines*
  Our
        AS4000 and AS4020 products are based on well-established Direct Sequence
        Code
        Division Multiple Access (“DS-CDMA”) technology that allows multiple users to
        simultaneously share a single radio channel while providing a high degree
        of
        security between channels and other users.
  Our
        WipLL
        product line utilizes Frequency Hopping Code Division Multiple Access
        (“FH-CDMA”), which also provides a high level of immunity to interference and a
        robust performance.
  Our
        Proximity product line employs a Time Division Multiple Access (“TDMA”)
        technology that provides a high link budget and robust reliability.
  *Technology
        - Open Standard Product lines*
 
 Today
        we
        sell wireless products based on two standards approved by the IEEE -
        802.16/WiMAX, and 802.11/WiFi.
 
 We
        are
        investing in the development of a line of products known as AS.MAX for the
        WiMAX/IEEE 802.16 market. AS.MAX products are be based on an air interface
        that
        employs OFDM and Orthogonal Frequency Division Multiple Access (“OFDMA”). This
        interface has characteristics that permits broadband wireless signals to
        penetrate objects more effectively than the interfaces used in our earlier
        products, and thereby creates significant opportunity for the installation
        of
        CPE in non-line of sight (“NLOS”) environments. Airspan’s first AS.MAX products
        (MacroMAX and EasyST) became Generally Available in the fourth quarter of
        2005
        for the 3.5GHz FDD band.
 
 Airspan’s
        AS.MAX products comply with the IEEE’s 802.16-2004 standard and the WiMAX Forum
        profiles. Further development is now underway to introduce new base station
        and
        CPE variants, develop a wide portfolio of frequency bands and to migrate
        some of
        these products to support 802.16e.
 
 Through
        our participation in the WiMAX Forum, we contribute to the development of
        the
        IEEE 802.16 standards and WiMAX Forum technical activities. As a part of
        our
        development of the AS.MAX portfolio, we are working closely with key technology
        partners. These include:
  ·
              Intel
                  - ASICs (“Application Specific Integrated Circuit”) for CPE
                  equipment
 ·
              picoChip
                  - High performance parallel processors for Software Defined Radio
                  base
                  stations
 ·
              Sequans
                  - SOCs (Systems on a Chip) for integrated Micro base
                  stations
 
 12
 We
        are
        also investing in the development of technologies and techniques that will
        provide further performance benefits. These include the development of
        multi-channel radio transceivers and smart antenna technology.
 
 Airspan’s
        AS.Net products are based on the IEEE 802.11a/b/g standards. Through our
        membership in the WiFi Alliance, a global, non-profit industry trade association
        devoted to the growth of wireless Local Area Networks (WLAN), Airspan
        participates with more than 200 companies in delivering interoperable WiFi
        solutions and ensuring a positive user experience through its WiFi CERTIFIED(TM)
        program. Airspan's new membership in the WiFi Alliance and its acquisition
        of
        Radionet reiterate Airspan's belief that a combination of WiMAX and WiFi
        technologies will provide the most flexible combination of wireless-based
        broadband connectivity solutions in enterprise and carrier networks.
  iTone
        Acquisition
 
 During
        2005 Airspan completed the acquisition of ArelNet and the iTone Voice over
        IP
        (VOIP) and soft switch product lines. Development work is now ongoing to
        integrate the iTone technology with the WiMAX software to provide carrier
        class
        voice support on the AS.MAX platforms. This is expected to be launched as
        a
        software upgrade in 2006.
 
 *Intellectual
        Property*
  During
        the development of our DS-CDMA and FH-CDMA based systems (AS4000, AS4020
        and
        WipLL) we generated a significant patent portfolio. As of March 1, 2006,
        our
        development efforts have resulted in 46 separate US patents granted (together
        with various foreign counterparts), with a further 6 pending US applications.
        In
        connection with our acquisition of the Radionet business, we acquired one
        patent. We do not license CDMA technology from or pay royalties to any other
        companies that have developed CDMA-based wireless technologies. To improve
        system performance and reduce costs, we have developed software and custom
        integrated circuits that incorporate much of our IP, and which are the key
        elements of our wireless solutions.
  In
        connection with our acquisition of the Proximity business from Nortel, Nortel
        assigned to us all of its rights, title and interest in the Proximity trademarks
        and service marks and certain of its copyrights used exclusively with the
        Proximity products. In addition, Nortel has granted us a non-exclusive,
        world-wide license to use its US patents that relate to the Proximity products
        for the term of the patents. Nortel has also granted us a non-exclusive
        word-wide 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.
 
 *Extensive
        testing and integration facilities*
  The
        performance and coverage area of a BWA system is dependent on a number of
        factors including: the strength of the radio signal transmitted, the sensitivity
        of the radio receiving apparatus, the radio frequency used and the clutter
        (natural terrain features and man-made obstructions). The ability of an operator
        to use a BWA system is predominantly dependent on the environment in which
        the
        BWA system is deployed and base stations and customer premise equipment are
        installed. Our process of radio planning considers these important factors
        to
        maximize performance, coverage and availability.
  We
        continue to operate live multi-cell test networks that provide always-on
        high-speed Internet access and voice services to a number of volunteer
        end-users. Airspan maintains WiMAX and AS4020 test networks in and around
        the
        town of Stratford upon-Avon, UK, and a WipLL test network in the vicinity
        of
        Airport City, Israel. In addition to providing valuable long-term system
        reliability, availability and other performance data, these unique networks
        permit us to empirically investigate radio transmission and reception and
        interference behavior for existing and emerging products.
  *Research
        and development expenditures*
  We
        incur
        Research and Development expenditures in an effort to reduce manufacturing
        costs, develop new products or product enhancements and to maintain the
        functionality of existing products as customers request new features or as
        integrated components need to be replaced. During the years ended December
        31,
        2005, 2004, and 2003, we spent $21.2 million, $18.8 million and $14.4 million,
        respectively, on research and development of our products.
  13
 **Customers**
  We
        believe our existing and target customers are principally comprised of network
        operators, looking to provide their customers with fixed, nomadic and portable
        broadband access solutions, as well as backhaul and bridging solutions, and
        can
        be generally described as follows:
  · CLECs
        and
        ILECs that operate in areas of relatively low tele-density or in areas where
        the
        installation of copper or fiber lines or coaxial cables is cost prohibitive,
        or
        where their existing copper lines cannot effectively deliver broadband data
        connectivity;
  · cable
        TV
        operators, who use BWA systems to extend the reach of their networks, and/or
        who
        offer telephone services in addition to their basic TV services;
  · ISPs
        that
        operate in areas where other carriers cannot offer broadband access services;
        and
 
 · operators
        of WiFi-based hotzones and networks, such as municipalities; and
 
 · enterprises
        that operate private, closed loop networks.
  We
        began
        shipping our products in 1996. By the end of December 2005, we had shipped
        to
        over 350 customers in more than 100 countries. Our customers today include
        large
        fixed wireless access carriers such as Axtel S.A. de C.V., Mexico (“Axtel”).
        Axtel, which has more than 600,000 subscribers, operates the world’s largest
        broadband fixed wireless operator that is not based on mobile technology.
  We
        currently derive, and expect to continue to derive, a substantial percentage
        of
        our net sales from fewer than ten customers. In 2005, Axtel was our largest
        customer, accounting for 56% of our revenue, while 71% was derived from our
        top
        ten customers. No single customer is expected to account for more than 30%
        of
        our projected annual revenue in 2006. Our business relationship with Axtel
        is
        summarized below.
  Our
        contracts with our customers typically provide for delivery of product and
        services, including installation and commissioning, training and maintenance.
        In
        addition, we generally also agree to provide warranty for the equipment and
        software for a limited period of time.
  Our
        contracts are generally non-exclusive and may contain provisions allowing
        our
        customers to terminate the agreement without significant penalties. Our
        contracts also may specify the achievement of shipment, delivery and service
        commitments. We are generally able to meet these commitments or negotiate
        extensions with our customers.
  Our
        largest customer in 2005 was Axtel. As a result of the acquisition of the
        Proximity business from Nortel Networks, Airspan assumed the right and
        obligation to supply products and services to Axtel pursuant to agreements
        (the
“Axtel Agreement”) signed between Nortel Networks and Axtel. The Axtel Agreement
        was amended in April and December, 2004. Under our existing agreements with
        Axtel, Axtel was committed to purchase a minimum of $38 million of product
        from
        us during the period from January 1, 2005 until December 2006. In 2005, Axtel’s
        purchases exceeded that amount, as a result of which no further purchase
        commitments currently exist by agreement between the companies. Axtel may
        continue to place orders for products for as long as the agreements remain
        in
        place and effective.
  The
        Axtel
        Agreement contains terms and conditions typical for supply and support
        agreements of this type, including the requirements for Axtel to make certain
        cash down-payments with orders placed and for lead times for delivery of
        products. We have agreed to provide technical assistance and support services
        related to the products used in Axtel’s network, including emergency recovery
        and remote technical assistance, as well as other services at agreed upon
        prices. The Axtel Agreement gives Axtel a non-exclusive and perpetual license
        to
        use the Proximity software, subject to certain events of default, and a
        one-year, limited warranty with respect to the delivered products. The Axtel
        agreements may be terminated by either party in the event of the other party’s
        failure to cure a breach of any term or condition of the agreement. The Axtel
        agreements state that either party may terminate the agreement in the event
        the
        other party encounters various forms of financial difficulty, insolvency
        or
        bankruptcy and where the other party has materially failed to perform any
        term
        under the Agreement that has not been cured within 30 days of notification.
  14
 **Sales,
        Marketing and Customer Service**
  We
        sell
        our systems and solutions through our direct sales force, independent agents,
        resellers and original equipment manufacturer (“OEM”) partners. Our direct sales
        force targets network operators, ISPs and enterprises in both developed and
        developing markets. Currently we have direct sales offices in the US, UK,
        Australia, China, Czech Republic, Indonesia, Japan, the Philippines, Poland,
        Russia, South Africa and Sri Lanka. In markets where we do not have a direct
        sales presence, we also sell through independent agents, resellers and system
        integrators who target network operators and other customers. We also sell
        our
        products to OEMs who may sell our products under their names.
  Our
        marketing efforts are focused on network operators and ISPs that provide
        voice
        and data or data-only communications services to their customers, and on
        enterprises. Through our marketing activities we provide technical and strategic
        sales support including in-depth product presentations, network design and
        analysis, bid preparation, contract negotiation and support, technical manuals,
        sales tools, pricing, marketing communications, marketing research, trademark
        administration and other support functions.
  A
        high
        level of ongoing service and support is critical to our objective of developing
        long-term customer relationships. To facilitate the deployment of our systems,
        we offer our customers a wide range of implementation and support services
        including spectrum planning and optimization, installation, commissioning,
        post-sales support, training, helpline and a variety of other support services.
  Our
        subcontractors, who have the expertise and ability to professionally install
        our
        products, perform most major installations. This enables us to efficiently
        manage fluctuations in volume of installation work.
  As
        of
        March 3, 2006, we had 118 full time employees and contractors dedicated to
        sales, marketing and customer service.
  **Manufacturing**
  We
        subcontract all of our manufacturing to subcontractors, who provide full
        service
        manufacturing solutions, including assembly, systems integration and test
        procedures. Except as noted below, our finished products are shipped directly
        from the manufacturing subcontractor to customers.
  We
        currently outsource the manufacturing of our AS4000, AS4020, Proximity CPE
        and
        WiMAX base station products directly to a global subcontract manufacturer,
        Solectron Corporation (“Solectron”). In addition to providing full service
        manufacturing solutions, Solectron provides a range of manufacturing services
        including prototyping, and new product introduction
  Solectron
        manufactures our AS4000 and AS4020 CPE and base station products in Scotland,
        and our Proximity CPE products in Guadalajara, Mexico. Finished AS4000, AS4020
        and WiMAX products are stored, prior to dispatch to end customers, at our
        third-party logistics provider based in the UK Proximity products are generally
        shipped directly from the manufacturing sites to our customers. In the event
        that they are not shipped directly they are stored, prior to dispatch, at
        our
        third-party logistics provider.
 
 Manufacture
        of our Proximity base station products is outsourced to Syntech Technologies,
        UK
 
 Manufacture
        of our WipLL products is outsourced to an Israeli manufacturing subcontractor
        named Racamtech Limited, which is part of the CAM Group (“CAM”), based in
        Israel.
 
 Manufacture
        of our WiMAX CPE product is outsourced directly to a global subcontract
        manufacturer, Flextronics Corporation (“Flextronics”). Flextronics currently
        manufactures this product in Israel.
 
 15
 Manufacture
        of our ASNET product portfolio is outsourced to two subcontract manufacturers,
        based in Finland. Elcoteq Network Corporation (“Elcoteq”) manufactures the
        printed circuit board assemblies. Laukamo Elecctromec OY (“Laukamo”) performs
        the final configuration and box assembly functions. The products are then
        stored, prior to dispatch to end customers, at our third-party logistics
        provider based in the Finland.
  A
        third
        party based in Canada manufactures our Airspan branded AS3030 and AS4030
        products pursuant to a three year contract that ends in September, 2006,
        and
        which may also be cancelled upon twelve months notice. The contract will
        renew
        automatically for a further 12-month period unless it is terminated earlier
        by
        the parties.
  Our
        agreements with these manufacturing subcontractors are all non-exclusive
        and
        may, except as noted above, be terminated by either party with six months
        notice
        without significant penalty. Other than agreeing to purchase the materials
        we
        request in the forecasts we regularly provide, we do not have any agreements
        with our manufacturing subcontractors to purchase any minimum volumes. Our
        manufacturing support activities consist primarily of prototype development,
        new
        product introduction, materials planning and procurement and quality control.
  Some
        of
        the key components of our products are purchased from single vendors for
        which
        alternative sources are generally not readily available in the short to medium
        term. If these vendors fail to supply us with components because they do
        not
        have them in stock when we need them, if they reduce or eliminate their
        manufacturing capacity for these components or if they enter into exclusive
        relationships with other parties which prevents them from selling to us,
        we
        could experience and have experienced significant delays in shipping our
        products while we seek other sources. During the third quarter of 2004, as
        a
        result of a temporary shortage of components, we experienced temporary
        difficulty manufacturing enough Proximity products to meet existing orders
        in a
        timely manner. See “Risk Factors — Our dependence on key suppliers and contract
        manufacturers.”
  **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 wireless networks, cellular networks, wired DSL networks, cable
        networks and occasionally fiber optic cable and satellite networks. . We
        also
        compete with companies that have Voice-over-IP switching solutions.
  We
        believe the primary competitive challenges our business faces
        include:
  ·
              competing
                  with established, traditional wired network equipment providers
                  and their
                  wired solutions, and
  ·
              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.
  We
        face,
        or believe that we will face, competition from various other providers of
        wireless communications products and services and, while we believe our industry
        to be competitive, we do not believe there is a single dominant
        competitor.  Competitors vary in size and scope, in terms of products and
        services offered. With respect to the broadband fixed wireless solutions
        we
        offer today, we believe we compete directly with Motorola, Siemens, Alvarion,
        Terabeam, SR Telecom, ZTE, Huawei and with a number of smaller privately-held
        companies. We also believe we compete indirectly with a number of large
        telecommunication equipment suppliers such as Samsung and Alcatel.
  We
        believe we encounter, and may increasingly encounter, competition from competing
        wireless technologies such as cellular technology.
 
 Mobile
        wireless networks are now capable of delivering both voice and broadband
        data
        connectivity to fixed, nomadic, portable and mobile applications. Low-cost
        cellular networks may provide a competitive solution in markets where the
        operator is seeking to offer low-quality voice and limited data rates at
        a low
        cost. In developed markets, cellular technologies now also support the growing
        demand for high-quality broadband and voice communications. Cellular standards
        such as EV-DO, GPRS and EDGE can now provide access terminals (mobile devices)
        with air interface speeds of more than 2.5 Mb/s.
 
 16
 In
        addition, our technology competes with other high-speed solutions, such as
        wired
        DSL, cable networks, and occasionally fiber optic cable and satellite
        technologies. The performance and coverage area of our wireless systems are
        dependent on some factors that are outside of our control, including features
        of
        the environment in which the systems are deployed such as the amount of clutter
        (natural terrain features and man-made obstructions) and the radio frequency
        available. Any inability to overcome these obstacles may make our technology
        less competitive in comparison with other technologies and make other
        technologies less expensive or more suitable. Our business may also compete
        in
        the future with products and services based on other wireless technologies
        and
        other technologies that have yet to be developed.
  Many
        of
        our competitors are substantially larger than we are and have significantly
        greater financial, sales and marketing, technical, manufacturing and other
        resources and more established distribution channels. These competitors may
        be
        able to respond more rapidly to new or emerging technologies and changes
        in
        customer requirements or to devote greater resources to the development,
        promotion, sale and financing of their products than we can. Furthermore,
        some
        of our competitors may make strategic acquisitions or establish cooperative
        relationships among themselves. See “Risk Factors — Competition from alternative
        communications systems.”
  **Employees**
  As
        of
        March 3, 2006, we had a total of 302 full-time employees, including contract
        personnel, of which 116 were based in the UK, 90 were based in Israel, 22
        were
        based in the USA and 15 were based in Finland. 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.
  17
 **Executive
        Officers and Directors**
  The
        names, ages and positions of our executive officers and directors as of March
        3,
        2006 are listed below along with their business experience during the past
        five
        years.
  **Name**
              **Age**
              
              **Title**Matthew
                  J. Desch
              48
              
              Chairman
                  of the Board of DirectorsEric
                  D. Stonestrom
              44
              
              President
                  and Chief Executive Officer, DirectorJonathan
                  Paget
              59
              
              Executive
                  Vice President and Chief Operating OfficerPeter
                  Aronstam
              53
              
              Senior
                  Vice President and Chief Financial OfficerHenrik
                  Smith-Petersen
              42
              
              President,
                  Asia PacificArthur
                  Levine
              48
              
              Vice
                  President, Finance and ControllerH.
                  Berry Cash
              65
              
              DirectorRandall
                  E. Curran
              51
              
              DirectorMichael
                  T. Flynn
              57
              
              DirectorGuillermo
                  Heredia
              64
              
              DirectorThomas
                  S. Huseby
              58
              
              DirectorDavid
                  A. Twyver
              59
              
              Director
 
 **Matthew
        J. Desch** became
        Chairman of the Board of Directors of Airspan on July 1, 2000.
    Mr. Desch was the CEO of Telcordia Technologies, a
        private communications software and services supplier from July 2002 until
        October 2005.   Mr. Desch was also a member of the Board of
        Directors of Flarion, Inc., a mobile broadband equipment supplier until it
        was
        acquired by Qualcomm Incorporated in January 2006.  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 at its inception in January 1998 as Executive Vice President and
        Chief
        Operating Officer. 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 as a
        Vice
        President of operating divisions, including the Airspan product line. From
        1984
        until 1995, Mr. Stonestrom worked at 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.
  **Jonathan
        Paget** joined
        Airspan in April 1999 as Vice President, Product Operations. In June 2000,
        Mr.
        Paget was named Executive Vice President and Chief Operating Officer. Prior
        to
        joining Airspan, from 1997 to October 1998, he served as Group Chief Executive
        of Telspec Plc, a company specializing in the development, manufacture and
        sale
        of advanced wireline telecommunications equipment. From 1992 to 1996, he
        served
        as vice president and general manager of the European Radio Networks Solutions
        Group of Motorola, a provider of trunked radio systems. He holds a Masters
        Degree in Engineering Science from Cambridge University.
  **Peter
        Aronstam** joined
        Airspan in March 2001 as Senior Vice President and Chief Financial Officer.
        From
        1983 to 2001, Mr. Aronstam served in a variety of positions at Nortel Networks
        Limited, the last as Vice President, Customer Financing of Nortel’s Caribbean
        and Latin America region. From 1978 to 1980, he worked at Bank of Montreal
        in
        its international banking division, and from 1981 to 1983 at Bank of America
        in
        its Canadian corporate banking group. He received B.Com., LLB and PhD. degrees
        in 1971, 1973 and 1978, respectively, from the University of the Witwatersrand
        in Johannesburg, South Africa.
  18
 **Henrik
        Smith-Petersen** joined
        Airspan in February 1998 as Senior Director in Sales. He became Regional
        Vice
        President for Asia Pacific and later President, Asia Pacific in February
        2001.
        Prior to joining Airspan, he was with DSC Communications Corporation, a United
        States based telecommunications company, from July 1997,as Director of Business
        Development. Within DSC he gained extensive experience developing new business
        and partnerships worldwide in the wireless telecommunication market. Before
        joining DSC, he worked for four years for AT&T’s Network Systems Group in
        Italy, where he developed AT&T’s operation systems business and later became
        Key Account Manager for Italtel, AT&T’s local partner in Milan, developing
        the Telecom Italia business. He received his B.Sc. in Business Economics
        degree
        from Copenhagen School of Economics in Denmark in 1990, and a M.B.A. from
        SDA
        BOCCONI University in Milan in 1992.
  **Arthur
        Levine** joined
        Airspan in October 2005 as Director of Finance and, in January 2006, he was
        named Airspan’s Vice President, Finance and Controller. From February 2003 to
        March 2005, Mr. Levine was Director of Finance of DentaQuest Ventures, Inc.,
        a
        privately held third party administrator and insurer of dental benefits.
        From
        September 1995 to February 2003, at Scitex Corporation Ltd., a publicly-traded
        manufacturer of digital printing equipment, Mr. Levine served in various
        financial roles, the last of which was Vice President and Corporate Controller.
        Mr. Levine worked at Ernst & Young from 1984 to 1995. He holds a B.S. degree
        from the Wharton School of the University of Pennsylvania and is a Certified
        Public Accountant.
  **H.
        Berry Cash**  has
        served as a director of Airspan since January 1998. He has been a general
        partner with InterWest Partners, a venture capital fund focused on technology
        and healthcare, since 1986. Mr. Cash currently serves as a member of the
        Board
        of Directors, a member of the Compensation Committee, and a member of the
        Audit
        Committee of i2 Technologies, Inc., a public company which is a provider
        of
        software and services that help customers achieve measurable value through
        improvements in coordination and collaboration. Mr. Cash is also a member
        of the
        Board of Directors and Audit Committee of Staktek Holdings, Inc., a public
        company providing high-density packaged memory stacking solutions for systems
        and applications. Mr. Cash is also a member of the Board of Directors and
        a
        member of the Compensation Committee for the following public companies:
        Silicon
        Laboratories, Inc., a developer of mixed-signal integrated circuits for products
        such as cell phones, set-top boxes, and computer modems. Mr. Cash is also
        a
        member of the Board of Directors of First Acceptance Corporation, a public
        company specializing in real-estate sales. Mr. Cash received a B.S. in
        Electrical Engineering from Texas A&M University and a M.B.A. from Western
        Michigan University.
  **Randall
        E. Curran** joined
        the Board of Directors of Airspan in October 2004. In February 2005, Mr.
        Curran
        was appointed Chief Executive Officer of ITC^DeltaCom, Inc., a provider of
        full-service, integrated telecommunications and technology solutions to
        customers in the southeastern United States. From August 2004 to February
        2005,
        Mr. Curran was a Senior Managing Director in the Interim Management Practice
        of
        FTI Consulting, Inc., a publicly-traded company which provides corporate
        finance/restructuring, forensic and litigation consulting, and economic
        consulting. At FTI Consulting, Inc., Mr. Curran specialized in the
        telecommunications sector. From September 2000 until November 2003, Mr. Curran
        held the position of Chairman and Chief Executive Officer of ICG Communications,
        Inc., a publicly-traded facilities-based communications provider of Internet
        and
        voice communication services. In November 2000, ICG Communications Systems,
        Inc.
        filed for voluntary bankruptcy protection under Chapter 11 of the United
        States
        Bankruptcy Code in the United States Bankruptcy Court in the District of
        Delaware. During the course of the bankruptcy proceedings, ICG operated its
        business and managed its properties and assets as a debtor-in-possession.
        ICG
        emerged from bankruptcy in October 2002. From 1987 through June 2000, he
        held
        several positions, including the position of Chairman, President, Chief
        Executive Officer, Chief Operating officer, and Chief Financial Officer,
        of
        Thermadyne Holdings Corporation, a leading welding equipment manufacturer
        that
        was traded on NASDAQ until its sale in 1998. Mr. Curran served as Vice President
        of Finance from 1983 until 1986 at Clarke Industries, a division of Cooper
        Industries, a manufacturer of floor maintenance equipment. From 1981 to 1983
        he
        served as Director of Finance at McGraw-Edison Co., a manufacturer of electrical
        products. Mr. Curran was a Senior Auditor of Arthur Andersen & Co. in the
        Manufacturing Audit Division from 1976 until 1981. Mr. Curran earned his
        B.A.
        degree in Economics from DePauw University in 1976 and an M.B.A. from Loyola
        University of Chicago in 1982.
  **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; GENBAND a provider of access and trunking media gateway solutions
        for VoIP and signaling applications and BayPackets, a provider of next
        generation telecommunications  application
        services. 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
  19
 **Guillermo
        Heredia** joined
        the Board of Directors of Airspan in January 2001. Since September 2005,
        Mr
        Heredia has served as President and CEO of AeroLineas MesoAmericanas, a new
        low
        cost airline carrier operating within Mexico. From 1999 to 2005, Mr.
        Heredia served as the managing partner of Consultores en Inversiones
        Aeronauticas, a provider of consulting services to airline operators and
        investors. Mr. Heredia has served in the senior management of three major
        Mexican corporations: as President and Chief Operating Officer of Aeromexico
        from 1989 to 1992, as President and Chief Operating Officer of Grupo Iusacell,
        Mexico’s number two wireless carrier from 1992 to 1994, and as President and
        Chief Executive Officer of Previnter, a joint venture of AIG, Bank Boston
        and
        Bank of Nova Scotia from 1995 to 1999. Mr. Heredia currently serves as a
        member
        of the Board of Directors for W L Comunicaciones, a private telecommunications
        company involved in developing a wide band fiber optic network in Mexico
        City
        and throughout Mexico and for Jalisco Tequilana Internacional, a private
        distiller and distributor of Tequila. Mr. Heredia holds a degree in Mechanical
        Engineering from the Universidad de las Americas and in Business Administration
        from Universidad Iberoamericana.
  **Thomas
        S. Huseby** has
        served as a Director of Airspan since January 1998, serving as  Chairman of
        the Board from January 1998 until July 2000. Since August 1997, Mr. Huseby
        has
        served as the Managing Partner of SeaPoint Ventures, a venture capital fund
        focused on communications infrastructure . Mr. Huseby has also served as an
        advisor to Oak Investment Partners. since August 1997  Prior to his
        employment with SeaPoint Ventures, from 1994 to 1997, Mr. Huseby was the
        Chairman and Chief Executive Officer of Metawave Communications, a previously
        public corporation which manufactured cellular infrastructure equipment.
        Previously he was President and Chief Executive Officer of Innova Corporation,
        a
        previously public manufacturer of millimeter wave radios.   Mr.
        Huseby is currently Chairman of the Board of Hubspan, a private integration
        solutions provider, Qpass, Inc., a private corporation which offers software
        that facilitates the sale of digital content for wireless carriers, MobileLime,
        a private company that allows
        consumers to make purchases through any mobile phone at participating
        merchants, Telecom
        Transport Management, Inc., a privately held company providing comprehensive
        backhaul transport solutions for wireless carriers in the United States,
        and
        SnapIn Software, Inc., a privately held company that develops handset-based
        wireless customer care and diagnostic products for mobile network operators.
        He
        is also a  board member of the following privately held corporations:
        Kineto Wireless, Mojix, Trumba and Wireless Services Corporation. Mr. Huseby
        has
        a Bachelor's degree in Economics and a BSIE from Columbia University and
        an MBA
        from Stanford University.
  **David
        A. Twyver** joined
        the Board of Directors of Airspan in May 1999. Mr. Twyver served as Chairman
        of
        the Board of Directors of Ensemble Communications Inc., a supplier of LMDS
        wireless equipment from January 2002 until December 2003 and as a director
        until
        April 2004. He served as the President and Chief Executive Officer of Ensemble
        from January 2000 until September, 2002. 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. 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.
        He
        received his B.S. in Mathematics and Physics from the University of
        Saskatchewan.
  20
 **ITEM
        1A. RISK FACTORS**
  *In
        addition to other information in this Form 10-K, the following risk factors
        should be carefully considered in evaluating the Company and its business.*
  **If
        we continue to incur substantial losses and negative operating cash flows,
        we
        may not succeed in achieving or maintaining profitability in the future.**
  We
        have
        incurred net losses since we became an independent company, and as of December
        31, 2005 we had an accumulated deficit of $203 million. We anticipate that
        we
        will continue to experience negative cash flows over the next 12 months.
        Our
        operating losses have been due in part to the commitment of significant
        resources to our research and development and sales and marketing organizations.
        We expect to continue to devote resources to these areas and, as a result,
        we
        will need to continue increasing our quarterly revenues to achieve and maintain
        profitability. We cannot be certain that we will achieve sufficient revenues
        for
        profitability. If we do achieve profitability, we cannot be certain that
        we can
        sustain or increase profitability on a quarterly or annual basis in the future.
  **Any
        reduction in expenditures by communications service providers could have
        a
        negative impact on our results of operations.**
  We
        believe telecommunications carriers and service providers continue to spend
        less
        annually on capital investments and network expansions than they did at the
        end
        of the prior decade. Service providers have operated at reduced capital spending
        levels for a number of years, and there is no indication that they will increase
        spending to earlier levels in the foreseeable future. Any further decline
        in
        their capital spending may reduce our sales, increase the need for inventory
        write-offs and could result in downward pressure on the price of our products,
        all of which would have a material adverse effect on our results of operations
        and stock price.
  **Since
        a significant percentage of our expenses are fixed and do not vary with
        revenues, our quarterly operating results are volatile and difficult to predict,
        and our stock price could decline.**
  We
        believe that period-to-period comparisons of our operating results are not
        necessarily meaningful. Since our customers are not typically required to
        purchase a specific number of our products in any given quarter, we may not
        be
        able to accurately forecast our quarterly revenues. Revenues are further
        affected if major deployments of our products do not occur in any particular
        quarter as we anticipate and/or our customers delay shipments or payments
        due to
        their inability to obtain licenses or for other reasons. As a result, our
        quarterly operating results have fluctuated in the past and will likely vary
        in
        the future. This could cause the market price of our common stock to decline.
        Other factors that may affect our quarterly operating results and our stock
        price include the loss of a major customer, our ability to react quickly
        to new
        competing technologies, products and services which may cause us to lose
        our
        customers, or if our suppliers and manufacturers are not able to fulfill
        our
        orders as a result of a shortage of key components that leads to a delay
        in
        shipping our products. We incur expenses in significant part based on our
        expectations of future revenue, and we expect our operating expense, in
        particular salaries and lease payments, to be relatively fixed in the short
        run.
        Accordingly, any unanticipated decline in revenue for a particular quarter
        could
        have an immediate negative effect on results for that quarter, possibly
        resulting in a change in financial estimates or investment recommendations
        by
        securities analysts, which could result in a fall in our stock price. The
        results of any one quarter should not be relied upon as an indication of
        future
        performance.
  **If
        we are not able to implement a program to reduce 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 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.
 
 21
 **Our
          industry is** **subject** **to change as a result of emerging new technologies and industry
          standards.**
 
 The
        market for BWA equipment has historically been characterized by rapid
        technological developments and evolving industry standards. Our future success
        will therefore depend on our ability to adapt to these new standards and
        to
        successfully introduce new technologies that meet customer preferences.
        Accordingly, our success selling certain types of BWA equipment in one year
        should not be considered indicative of our future sales efforts.
 
 Although
        we have been marketing BWA equipment for many years, our experience marketing
        and supplying WiMAX equipment has only been developed since August 2005.
        Although our AS.MAX products have performed to date in accordance with our
        expectations, the AS.MAX products are still relatively new products and their
        future commercial success is not yet certain. Some of our competitors have
        developed and are currently marketing WiMAX equipment. Although we believe
        our
        AS.MAX products compare favorably to the existing competitive products in
        terms
        of price, performance, features and ease of use, we do not have enough
        information at this time to determine if our potential customers will share
        our
        perceptions.
 
 If
        WiMAX
        does become a principal standard for the BWA industry, we face the risk that
        our
        non-WiMAX products will become obsolete. In such event, we anticipate that
        our
        results of operations would be materially adversely affected unless our sales
        of
        AS.MAX products compensate for the loss of sales of non-WiMAX products. In
        the
        course of committing to research and development, enhancing our existing
        products and developing the AS.MAX product line, we have made projections
        and
        assumptions about the potential demand for our various product lines. If
        our
        projections or assumptions are incorrect for any reason, we anticipate that
        our
        product lines will not sell as projected and our results of operations will
        be
        materially adversely affected.
 
 **Since
        we incur most of our 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
        96% of our sales in 2005 and a majority of our cost of goods sold were
        denominated in US dollars, we incur most of our operating expenses in British
        pounds and, to a lesser extent, 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 currencies may also make our products more expensive than
        local
        products.
 
 **We
        operate in highly dynamic and volatile industries characterized by rapidly
        changing technologies, evolving industry standards, frequent new product
        introductions and short product life cycles.**
 
 The
        markets for our products have been characterized by rapidly changing
        technologies, evolving industry standards, frequent new product introductions
        and short product life cycles. Our success depends, in substantial part,
        on the
        timely and successful introduction of high quality new products and upgrades,
        as
        well as cost reductions on current products to address the operational speed,
        bandwidth, efficiency and cost requirements of our customers. With the adoption
        by the wireless broadband industry of the IEEE 802.16 and ETSI HiperMAN wireless
        MAN standards, our success will also depend on our ability to comply with
        these
        and other emerging industry standards, to operate with products of other
        suppliers..
 
 With
        the
        acquisition of our new AS.TONE and AS.NET product portfolios, we are moving
        more
        and more of our products to IP (Internet Protocol) based operating systems.
        The
        development of new, technologically advanced IP-optimized networking solutions
        and software products is a complex and uncertain process requiring high levels
        of innovation, as well as the anticipation of technological and market trends.
        Our commitment to develop and refine our IP based operating systems may result
        in our expenses growing at a faster rate than our revenues, particularly
        since
        the initial investment to bring a new or enhanced product to market may be
        high.
        We may not be successful in targeting new market opportunities, in developing
        and commercializing new products in a timely manner or in achieving market
        acceptance for our new products.
 
 The
        success of new or enhanced products depends on a number of other factors,
        including the timely introduction of those products, market acceptance of
        new
        technologies and industry standards, the perceived quality and robustness
        of new
        or enhanced products, competing product offerings, the pricing and marketing
        of
        our products and the availability of funding for those networks. Products
        and
        technologies developed by our competitors may render 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.
 
 22
 In
        addition, unanticipated changes in market demand for products based on a
        specific technology, particularly lower than anticipated demand for IP-optimized
        networking solutions in either broadband wireless applications or on a
        stand-alone basis, could have a material adverse effect on our business,
        results
        of operations and financial condition if we fail to respond to those changes
        in
        a timely and effective manner.
 
 **The
        adoption of open standards in the broadband wireless communications industry
        could result in increased competition.**
 
 Prior
        to
        the adoption of the WiMAX standards, we sold products that operated on our
        own,
        proprietary operating technologies. We anticipate that we and other BWA
        equipment suppliers will increasingly sell products that are WiMAX Forum
        Certified. With the adoption of WiMAX as the new industry standard for broadband
        wireless communications, many of those proprietary technologies will no longer
        be used in Airspan products. As a result, as it brings its new WiMAX-based
        systems to market, Airspan may face we expect that we will face increased
        competition from a number of other manufacturers who are no longer restricted
        by
        our Airspan intellectual property rights from building competing products. To
        remain
        competitive, we believe we will need to must continue to invest significant
        resources in research and development, sales and marketing and customer support
        for WiMAX. We cannot be certain that we will have sufficient resources to
        make
        these investments or that we will be able to make the technological advances
        necessary to remain competitive.  In
        developing products that conform to defined wireless-industry standards,
        we
        recognize that, by diminishing product differentiation, standardization may
        lower the barriers to entry by other manufacturers in the markets in which
        we
        seek to sell our products. If companies with greater resources than us choose
        to
        manufacture any standards-based products to compete with us, this may cause
        competition to be based on criteria such as the relative size, resources,
        marketing skills and financial incentives provided by our competitors, where
        we
        may be weaker than if competition is based on product differentiation alone. If
        we are
        unable to maintain our position as a technology leader in this market of
        open
        standards and broader competition, we may suffer reductions in revenues and
        margins and loss of market share, revenues and operating margins, which could
        result in reduced stock prices.
 
 **If
        we are not able to implement a program to conform our products to industry
        standards or to successfully market and sell our standards-based products,
        our
        revenues may decline**
  We
        have
        developed and continue to develop certain of our products in accordance with
        existing, emerging and anticipated wireless-industry standards. In particular,
        we develop our AS.MAX wireless products and product features to conform to
        IEEE
        802.16-2004 and IEEE 802.16e standards. If our products fail to comply with
        these standards, we may not be able to sell them. Industry standards are
        subject
        to change from time to time by their regulatory bodies. If, as a result of
        any
        changes, the products we have developed fail to meet industry standards,
        as
        revised, we may not be able to sell such products.
  Our
        future success depends in part on the successful adoption by our customers
        of
        products that meet these industry standards. If the wireless broadband market
        does not adopt these standards or if our customers are unable to successfully
        deploy products based on these standards, we will not be successful selling
        these products.
  In
        developing products that conform to defined wireless-industry standards,
        we
        recognize that, by diminishing product differentiation, standardization may
        lower the barriers to entry by other manufacturers in the markets in which
        we
        seek to sell our products. If companies with greater resources than us choose
        to
        manufacture any standards-based products to compete with us, this may cause
        competition to be based on criteria such as the relative size, resources,
        marketing skills and financial incentives provided by our competitors, where
        we
        may be weaker than if competition is based on product differentiation
        alone.
 
 **Competition
        from larger, better-capitalized or emerging competitors could result in price
        reductions, reduced gross margins and loss of or inhibited growth of market
        share.**
  We
        compete in a relatively new, rapidly evolving and highly competitive and
        fragmented market. We now compete with companies that are producing both
        mobile
        and fixed wireless communications systems, wired DSL, cable networks, fiber
        optic cable and occasionally satellite technologies and other new entrants
        to
        this industry, as well as traditional communications companies.
  23
 Competitors
        vary in size and scope, in terms of products and services offered. With respect
        to the fixed broadband wireless solutions we offer today to serve in licensed
        and unlicensed frequencies, we believe we compete directly with Siemens,
        Alcatel, Motorola, Alvarion, Terabeam, SR Telecom, with a number of smaller
        privately-held companies and with the divisions of a number of institutional
        telecommunication equipment companies. We also believe we compete indirectly
        with a number of large telecommunication equipment suppliers such as Alcatel
        and
        Harris.
 
 Many
        of
        our competitors are substantially larger than we are and have significantly
        greater financial, sales and marketing, technical, manufacturing and other
        resources and more established distribution channels. These competitors may
        be
        able to respond more rapidly to new or emerging technologies such as WiMAX
        and
        changes in customer requirements, or to devote greater resources to the
        development, promotion, sale and financing of their products than we can.
        Furthermore, some of our competitors have made or may make strategic
        acquisitions or establish cooperative relationships among themselves or with
        third parties to increase their ability to gain customer market share rapidly.
        These competitors may enter our existing or future markets with systems that
        may
        be less expensive, provide higher performance or contain additional features.
  We
        expect
        our competitors to continue to improve the performance of their current products
        and to introduce new products or new technologies that may supplant or provide
        lower-cost alternatives to our systems. This or other factors may result
        in
        changes in the market valuations of our competitors, which have been volatile
        recently, and could cause our stock price to fall. To remain competitive,
        we
        must continue to invest significant resources in research and development,
        sales
        and marketing and customer support. We cannot be certain that we will have
        sufficient resources to make these investments or that we will be able to
        make
        the technological advances necessary to remain competitive.
 
 **An
        inability to overcome competition from alternative communication systems
        could
        adversely affect our results of operations.**
 
 We
        believe we encounter, and may increasingly encounter, competition from competing
        wireless technologies such as cellular technology. Cellular networks are
        now
        capable of delivering both voice and broadband data connectivity to fixed,
        mobile, nomadic and portable applications. These technologies, such as 1XRTT
        and
        EVDO, have the ability to provide for multiple voice channels and rate data
        services at transmission rates of 512Kbps on the uplink and 2.4 Mbps on the
        down
        link. Their data rates speeds continue to improve as they are modified. In
        addition, our technology competes with other high-speed solutions, such as
        wired
        DSL, cable networks, fiber optic cable and occasionally satellite technologies.
        The performance and coverage area of our wireless systems are dependent on
        certain factors that are outside of our control, including features of the
        environment in which the systems are deployed, such as the amount of clutter
        (natural terrain features and man-made obstructions) and the radio frequency
        available. Any inability to overcome these obstacles may make our technology
        less competitive in comparison with other technologies and make other
        technologies less expensive or more suitable. Our business may also compete
        in
        the future with products and services based on other wireless technologies
        and
        other technologies that have yet to be developed.
 
 **We
        currently depend on a few key customers for substantially all of our sales.
        A
        loss of one or more of those customers could cause a significant decrease
        in our
        net revenue.**
  We
        currently derive, and expect to continue to derive, a substantial percentage
        of
        our net sales from fewer than ten customers. In fiscal 2005, 71% of our revenue
        was derived from our top ten customers. In fiscal 2005, Axtel accounted for
        approximately 56% of our annual revenue and was the only customer that
        individually accounted for more than 10% of our annual revenue. It is possible
        that in fiscal 2006, Axtel and Yozan Inc of Japan may account for greater
        than
        50% of our projected annual revenue. We believe that there are certain economies
        of scale inherent in our industry. Accordingly, the loss of Axtel or Yozan
        as a
        customer or the loss of any large percentage of our customer contracts could
        negatively impact our gross profit margins, our profitability and efforts
        to
        preserve cash resources.
  Axtel
        has
        the right to terminate the Axtel supply agreement if we fail to comply with
        the
        terms and conditions of the agreement and such breach is not cured. For
        instance, if we fail to meet delivery schedules or if we fail to deliver
        products and services that meet the contract specifications, Axtel may claim
        we
        breached the agreement. Even if such failures are solely attributable to
        the
        acts or failures to act of third parties, Axtel may have the right to terminate
        the agreement. Additionally, Axtel itself has a limited operating history
        having
        only commenced operations in 1999, and is subject to its own competitive
        pressures and operating constraints in the Mexican economy. If Axtel should
        fail
        for any reason, or fail to have access to debt and equity markets for liquidity,
        it may not be able to continue to make purchases at the same levels as prior
        years.
  24
 Yozan
        also has the right to terminate our supply agreement if we fail to comply
        with
        the terms and conditions of the agreement and such breach is not cured. For
        instance, if we fail to meet delivery schedules or if we fail to deliver
        products and services that meet the contract specifications, Yozan may claim
        we
        breached the agreement. Yozan is subject to its own competitive pressures
        and
        operating constraints in the Japanese economy. If Yozan should fail for any
        reason, or fail to have access to debt and equity markets for liquidity,
        it may
        not be able to make the purchases that we have forecast commitments under
        our
        supply agreement.
 
 The
        amount of revenue we derive from a specific customer is likely to vary from
        period to period, and a major customer in one period may not produce significant
        additional revenue in a subsequent period. We anticipate that our operating
        results will continue to depend on sales to a small number of key customers
        in
        the foreseeable future. In general, our contracts with our customers involve
        major deployments that require several months to fulfill, so our results
        may
        depend on the same major customers for consecutive quarters. Once a contract
        is
        fulfilled, we cannot assure you that the customer will continue to purchase
        upgrades or services from us, or possibly new products. It is necessary
        therefore for us to continually seek new customers in order to increase our
        revenue. To the extent that any major customer terminates its relationship
        with
        us, our revenues could decline significantly.
  **Our
        customer contracts vary widely in terms and duration, with a many of our
        customers executing only short-term purchase orders, and allow our customers
        to
        terminate without significant penalties.**
  Our
        contracts and purchase orders are separately negotiated with each of our
        customers and the terms vary widely. A majority of our customers may only
        execute short-term purchase orders for a single or a few systems at one time
        instead of long-term contracts for large-scale deployment of our systems.
        These
        contracts and purchase orders do not ensure that they will purchase any
        additional products beyond that specifically listed in the order.
  Moreover,
        since we often believe that these purchase orders may represent the early
        portion of longer-term customer programs, we often expend significant financial,
        personnel and operational resources to fulfill these orders. If our customers
        fail to purchase additional products to fulfill their programs as we hope,
        we
        may be unable to recover the costs we incur and our business could suffer.
  In
        addition, our general framework contracts are generally non-exclusive and
        contain provisions allowing our customers to terminate the agreement without
        significant penalties. Our contracts also may specify the achievement of
        shipment, delivery and installation commitments. If we fail to meet these
        commitments or negotiate extensions in a timely manner, our customers may
        choose
        to terminate their contracts with us or impose monetary penalties.
  **Changes
        in telecommunications regulation or delays in receiving licenses could adversely
        affect many of our customers and may lead to lower sales.**
  Many
        of
        our customers are subject to extensive regulation as communications service
        providers. Changes in legislation or regulation that adversely affect those
        existing and potential customers could lead them to delay, reduce or cancel
        expenditures on communications access systems, which actions would harm our
        business. In the past, we have suffered the postponement of anticipated customer
        orders because of regulatory issues. The resolution of those issues can be
        lengthy and the outcome can be unpredictable. We have also received orders
        in
        the past from customers that were contingent upon their receipt of licenses
        from
        regulators, the timing of which were uncertain. The receipt of licenses by
        our
        customers may occur a year or more after they initially seek those licenses,
        or
        even after they place orders with us.
  At
        present there are few laws or regulations that specifically address our business
        of providing communications access equipment. However, future regulation
        may
        include access or settlement charges or tariffs that could impose economic
        burdens on our customers and us. We are unable to predict the impact, if
        any,
        that future legislation, judicial decisions or regulations will have on our
        business.
  25
 **Our
        sales cycle is typically long and unpredictable, making it difficult to
        accurately predict inventory requirements, forecast revenues and control
        expenses.**
  Typically
        our sales cycle can range from one month to two years and varies by customer.
        The length of the sales cycle with a particular customer may be influenced
        by a
        number of factors.
 
 Before
        we
        receive orders, our customers typically test and evaluate our products for
        a
        period that can range from a month to more than a year. In addition, the
        emerging and evolving nature of the communication access market may cause
        prospective customers to delay their purchase decisions as they evaluate
        new
        and/or competing technologies or, wait for new products or technologies to
        come
        to market. As the average order size for our products increases, our customers’
processes for approving purchases may become more complex, leading to a longer
        sales cycle. We expect that our sales cycle will continue to be long and
        unpredictable. Accordingly, it is difficult for us to anticipate the quarter
        in
        which particular sales may occur, to determine product shipment schedules
        and to
        provide our manufacturers and suppliers with accurate lead-time to ensure
        that
        they have sufficient inventory on hand to meet our orders. Therefore, our
        sales
        cycle impairs our ability to forecast revenues and control expenses.
  **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 US have historically accounted for a substantial
        majority of our revenues. In 2005, our international sales (sales to customers
        located outside the US which includes a small percentage of US customers
        where
        the final destination of the equipment is outside of the US) accounted for
        93%
        of our total revenue, with sales to customers in Latin America, particularly
        Mexico, accounting for 65% of total revenue, and sales to customers in Europe,
        Asia and Africa accounting for 13%, 10% and 5%, respectively, of total revenue.
        In many international markets, long-standing relationships between potential
        customers and their local suppliers and protective regulations, including
        local
        content requirements and type approvals, create barriers to entry. In addition,
        pursuing international opportunities may require significant investments
        for an
        extended period before returns on such investments, if any, are realized
        and
        such investments may result in expenses growing at a faster rate than revenues.
        The following risks inherent in international business could reduce the
        international demand for our products, decrease the prices at which we can
        sell
        our products internationally or disrupt our international operations, which
        could adversely affect our operations:
  ·
              the
                  imposition of tariffs, duties, price controls or other restrictions
                  on
                  foreign currencies or trade barriers imposed by foreign countries;
 ·
              import
                  or export controls, including licensing or product-certification
                  requirements;
 ·
              unexpected
                  changes in government policies or regulatory requirements in the
                  Unites
                  States or in foreign governments and delays in receiving licenses
                  to
                  operate;
 ·
              political
                  instability and acts of war or
                  terrorism;
 ·
              economic
                  instability, including the impact of economic recessions;
 ·
              difficulty
                  in staffing and managing geographically diverse operations, including
                  our
                  reluctance to staff and manage foreign operations as a result of
                  political
                  unrest even though we have business opportunities in a country;
 ·
              any
                  limitation on our ability to limited 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.
  26
 **We
        may not be able to expand our sales and distribution capabilities, including
        establishing relationships with distributors and major system integrators
        and
        telecommunications equipment OEMs, which would harm our ability to generate
        revenue.**
  We
        believe that our future success, particularly with respect to WiMAX, will
        depend
        upon our ability to expand our direct and indirect sales operations, including
        establishing relationships with distributors and major system integrators
        and
        telecommunications equipment OEMs. While we have been at times successful
        in
        signing country-specific OEM agreements with major suppliers such as Siemens
        and
        L.M. Ericsson, we cannot be certain that we will be successful in maintaining
        or
        expanding these agreements.
 
 **Our
        operations in Israel may be disrupted by political and military tensions
        in
        Israel and the Middle East.**
 
 We
        conduct various activities related to the WipLL, WiMAX and AS.TONE products
        in
        Israel, including: research and development; design; raw material procurement;
        and manufacturing through manufacturing subcontractors based in Israel. Our
        operations could be negatively affected by the political and military tensions
        in Israel and the Middle East.
 
 Israel
        has been involved in a number of armed conflicts with its neighbors since
        1948
        and a state of hostility, varying in degree and intensity, has led to security
        and economic problems in Israel. Since September 2000, a continuous armed
        conflict with the Palestinian Authority has been taking place. While these
        conflicts have not had a material adverse effect on our operations in the
        past,
        conditions in Israel could, in the future, disrupt the development, manufacture
        and/or distribution of our products.
  **Our
        dependence on key suppliers and contract manufacturers may result in product
        delivery delays if they do not have components in stock or terminate their
        non-exclusive arrangements with us.**
  Some
        of
        the key components of our products are purchased from single vendors, including
        printed circuit board assemblies, application specific integrated circuits
        and
        radio frequency filters, for which alternative sources are generally not
        readily
        available in the short to medium term. If our vendors fail to supply us with
        components because they do not have them in stock when we need them, if the
        supply of the components in the market is limited, or if our vendors reduce
        or
        eliminate their manufacturing capacity for these components or enter into
        exclusive relationships with other parties which prevent them from selling
        to
        us, we could experience significant delays in shipping our products while
        we
        seek other supply sources, which may result in our customers claiming damages
        for delays. At times we have been forced to purchase these components from
        distributors instead of from the manufacturers, which has significantly
        increased our costs. During the second quarter of 2005, as a result of a
        temporary shortage of components, we experienced temporary difficulty
        manufacturing enough products to meet certain existing orders in a timely
        manner. We do not have long-term contracts with all of our suppliers. Instead,
        we execute purchase orders approximately three to six months in advance of
        when
        we believe we may need the components. These purchase orders are non-exclusive,
        and we are generally not required to purchase any minimum volume of components
        from any of these suppliers. In those instances in which we do not have a
        long-term contract with a supplier, the supplier may terminate our relationship
        upon six months’ prior notice.
  In
        addition, we generally outsource our manufacturing processes to subcontractors
        all of whom rely on our forecasts of future orders to make purchasing and
        manufacturing decisions. We provide them with forecasts on a regular basis.
        If a
        forecast turns out to be inaccurate, it may lead either to excess inventory
        that
        would increase our costs or a shortage of components that would delay shipments
        of our systems. Our contracts with our major manufacturing subcontractors
        are
        non-exclusive and most contracts may be terminated with six months notice
        by
        either party without significant penalty. Other than agreeing to purchase
        the
        materials we request in the forecasts, we do not have any agreements with
        them
        to purchase any minimum volume.
  **If
        we lose Eric Stonestrom or any of our other executive officers, we may encounter
        difficulty replacing their expertise, which could impair our ability to
        implement our business plan successfully.**
  We
        believe that our ability to implement our business strategy and our future
        success depends on the continued employment of our senior management team,
        in
        particular our president and chief executive officer, Eric Stonestrom. Our
        senior management team, who have extensive experience in our industry and
        are
        vital to maintaining some of our major customer relationships, may be difficult
        to replace. The loss of the technical knowledge and management and industry
        expertise of these key employees could make it difficult for us to execute
        our
        business plan effectively, could result in delays in new products being
        developed, lost customers and diversion of resources while we seek replacements.
 
 27
 **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 depends in part on proprietary technology. We have
        historically relied on a combination of patent, copyright, trademark and
        trade
        secret laws and contractual restrictions on disclosure to protect our
        intellectual property rights associated with our products other than AS.MAX.
        Despite our efforts to protect our proprietary rights, we cannot be certain
        that
        the steps we have taken will prevent misappropriation of our technology,
        and we
        may not be able to detect unauthorized use or take appropriate steps to enforce
        our intellectual property rights. The laws of some foreign countries,
        particularly in Asia, do not protect our proprietary rights to the same extent
        as the laws of the US and the UK, and we may encounter substantial infringement
        problems in those countries. In addition, we do not file for patent protection
        in every country where we conduct business. In instances where we have licensed
        intellectual property from third parties, we may have limited rights to
        institute actions against third parties for infringement of the licensed
        intellectual property or to defend any suit that challenges the validity
        of the
        licensed intellectual property. If we fail to adequately protect our
        intellectual property rights, or fail to do so under applicable law, it would
        be
        easier for our competitors to copy our products and sell competing products
        at
        lower prices, which would harm our business.
 
 **Our
        products may infringe on the intellectual property rights of third parties,
        which may result in lawsuits that could be costly to defend and prohibit
        us from
        selling our products.**
  Third
        parties could assert exclusive patent, copyright, trademark and other
        intellectual property infringement claims against the technologies that are
        important to us. If any inquiry from a third party relating to patents or
        trademarks leads to a proceeding against us and we are unable to defend
        ourselves successfully, our ability to sell our products may be adversely
        affected and our business would be harmed. In addition, third parties may
        assert
        claims, or initiate litigation against us, or our manufacturers, suppliers
        or
        customers with respect to existing or future products, trademarks or other
        proprietary rights. Any claims against us, or customers that we indemnify
        against intellectual property claims, with or without merit, may:
  ·
              be
                  time-consuming, costly to defend and harm our reputation;
  ·
              divert
                  management’s attention and resources;
  ·
              cause
                  delays in the delivery of our products;
  ·
              require
                  the payment of monetary damages;
  ·
              result
                  in an injunction, which would prohibit us from using these technologies
                  and require us to stop shipping our systems until they could be
                  redesigned, if possible; and
  ·
              require
                  us to enter into license or royalty agreements, which may not be
                  available
                  on acceptable terms or require payment of substantial sums.
  **A
        material defect in our products that either delays the commencement of services
        or affects customer networks could seriously harm our credibility and our
        business, and we may not have sufficient insurance to cover any potential
        liability.**
  Fixed
        wireless devices are highly complex and frequently contain undetected software
        or hardware errors when first introduced or as new versions are released.
        We
        have detected and are likely to continue to detect errors and product defects
        in
        connection with new product releases and product upgrades. In the past, some
        of
        our products have contained defects that delayed the commencement of service
        by
        our customers.
  If
        our
        hardware or software contains undetected errors, we could
        experience:
  ·
              delayed
                  or lost revenues and reduced market share due to adverse customer
                  reactions;
  28
 ·
              higher
                  costs and expenses due to the need to provide additional products
                  and
                  services to a customer at a reduced charge or at no charge;
  ·
              claims
                  for substantial damages against us, regardless of our responsibility
                  for
                  any failure, which may lead to increased insurance costs;
  ·
              negative
                  publicity regarding us and our products, which could adversely
                  affect our
                  ability to attract new customers; and
  ·
              diversion
                  of management and development time and resources.
  Our
        general liability insurance coverage may not continue to be available on
        reasonable terms or in sufficient amounts to cover one or more large claims
        or
        our insurer may disclaim coverage as to any future claim. The successful
        assertion of any large claim against us could adversely affect our business.
  **We
        have made, and may continue to make, strategic acquisitions or enter into
        joint
        ventures. If we are not successful in operating or integrating these
        acquisitions or joint ventures, our business, results of operations and
        financial condition may be materially and adversely
        affected.**
  In
        the
        past, we have acquired companies that we believed would enhance the expansion
        of
        our business and products. We may make selective opportunistic acquisitions
        of
        companies or businesses with resources and product or service offerings capable
        of providing us with additional product and/or market strengths. Acquisitions
        involve significant risks and uncertainties, including:
  ·
              the
                  industry may develop in a different direction than anticipated
                  and the
                  technologies we acquire may not prove to be those we
                  need;
  ·
              the
                  future valuations of acquired businesses may decrease from the
                  market
                  price we paid for these
                  acquisitions;
  ·
              the
                  revenues of acquired businesses may not offset increased operating
                  expenses associated with these
                  acquisitions;
  ·
              potential
                  difficulties in integrating new products, software, businesses
                  and
                  operations in an efficient and effective
                  manner;
  ·
              our
                  customers or customers of the acquired businesses may defer purchase
                  decisions as they evaluate the impact of the acquisitions on our
                  future
                  product strategy;
  ·
              potential
                  loss of key employees of the acquired
                  businesses;
  ·
              diversion
                  of the attention of our senior management from the operation of
                  our daily
                  business;
  ·
              entering
                  new markets in which we have limited experience and where competitors
                  may
                  have a stronger market presence;
  ·
              the
                  potential adverse effect on our cash position as a result of all
                  or a
                  portion of an acquisition purchase price being paid in
                  cash;
  ·
              potential
                  issuance of securities that are superior to the right of holders
                  of our
                  common stock, or that would dilute our shareholders’ percentage
                  ownership;
  ·
              potential
                  assumption and/or incurrence of liabilities and the increased risk
                  of
                  costly and time-consuming litigation, including stockholder lawsuits;
                  and
  ·
              the
                  potential assumption of significant amounts of debt.
  Our
        inability to successfully operate and integrate newly acquired businesses
        in a
        timely manner could have a material adverse effect on our ability to take
        advantage of further growth in demand for IP-optimized network solutions,
        if
        any, and other advances in technologies and ultimately our results of operations
        and/or financial condition.
 
 29
 Acquisitions
        are inherently risky, and no assurance can be given that our previous or
        future
        acquisitions will be successful and will not materially adversely affect
        our
        business, operating results, or financial condition. Failure to manage and
        successfully integrate acquisitions could materially harm our business and
        operating results.
 
 **If
        our stock price falls below $1.00 per share, our common stock may be de-listed
        from the Nasdaq National Market.**
  The
        National Association of Securities Dealers, Inc. has established certain
        standards for the continued listing of a security on the Nasdaq National
        Market.
        These standards require, among other things, that the minimum bid price for
        a
        listed security be at least $1.00 per share. Under Nasdaq’s listing maintenance
        standards, if the closing bid price of our common stock remains below $1.00
        per
        share for 30 consecutive trading days, Nasdaq will issue a deficiency notice
        to
        us. If the closing bid price subsequently does not reach $1.00 per share
        or
        higher for a minimum of ten consecutive trading days during the 180 calendar
        days following the issuance of the deficiency notice from Nasdaq, Nasdaq
        may
        de-list our common stock from trading on the Nasdaq National Market.
  If
        our
        common stock is to be de-listed from the Nasdaq National Market, we may apply
        to
        have our common stock listed on the Nasdaq SmallCap Market. In the event
        that
        such application is accepted, of which there can be no assurance, we anticipate
        the change in listings may result in a reduction in some or all of the
        following, each of which could have a material adverse effect on our investors:
  ·
              the
                  liquidity of our common stock;
  ·
              the
                  market price of our common stock;
  ·
              the
                  number of institutional investors that will consider investing
                  in our
                  common stock;
  ·
              the
                  number of investors in general that will consider investing in
                  our common
                  stock;
  ·
              the
                  number of market makers in our common stock;
  ·
              the
                  availability of information concerning the trading prices and volume
                  of
                  our common stock;
  ·
              the
                  number of broker-dealers willing to execute trades in shares of
                  our common
                  stock; and
  ·
              our
                  ability to obtain financing for the continuation of our operations.
  Should
        our application to the Nasdaq SmallCap Market be rejected or if we fail to
        continue to satisfy the Nasdaq SmallCap Market’s continued listing requirements,
        our common stock could be delisted entirely or relegated to trading on the
        over-the-counter-market.
 
 **For
        2004 and 2005, our independent registered public accounting firm reported
        material weaknesses** **in our internal control over financial reporting. If such material weaknesses
        were to recur, they could result in a material misstatement in our financial
        statements that would not be prevented or detected, cause investors to lose
        confidence in our reported financial information and have a negative effect
        on
        the trading price of our stock.**
  In
        connection with the audits of our financial statements for 2004 and 2005,
        our
        independent registered public accounting firm reported to our Audit Committee
        a
        "material weakness" in our internal control over financial reporting. In
        general, a material weakness is defined as a control deficiency, or combination
        of control deficiencies, that results in more than a remote likelihood that
        a
        material misstatement of the annual or interim financial statements will
        not be
        prevented or detected.
  The
        material weakness reported in 2004 was that that the Company’s internal control
        pertaining to the review and evaluation of the accounting treatment required
        for
        complex and non-standard Stockholders’ Equity transactions, in particular the
        Company’s issuance of Series A Preferred Stock, was ineffective.
  The
        material weakness reported in 2005 was that o ur
        processes and procedures relating to the appropriate accounting treatment
        for
        the recognition of revenue under certain types of extended payment arrangements
        in our sales contracts did not operate effectively.
  30
 Although
        we believe we have remediated the material weakness identified above, the
        measures we have taken to date or any future measures we may take might not
        sufficiently allow us to maintain adequate controls over our financial processes
        and reporting in the future.
  As
        discussed further in Item 9A below, we identified an additional material
        weakness in 2005. Following
        the performance of a physical inventory count at our Israeli subsidiary in
        January 2006, significant differences were identified between the count and
        the
        inventory subledger. The differences were for the most part due to inventory
        movements that had not been recorded or were recorded incorrectly. We also
        identified at our Israeli subsidiary insufficient segregation of duties in
        the
        Logistics department, inadequate security access controls and failure to
        perform
        effective and timely reviews of reconciliations by individuals with appropriate
        levels of experience, which contributed to the delay in the differences being
        detected. We are in the process of remediating this material
        weakness.
  Furthermore,
        additional material weaknesses in our internal control over financial reporting
        could be discovered in the future. To the extent we identify any additional
        weaknesses in our internal control over financial reporting, significant
        resources from our management team and additional expenses may be required
        to
        implement and maintain effective controls and procedures. In addition, we
        may
        need to hire additional employees and outside consultants and further train
        our
        existing employees. If the material weaknesses previously reported by our
        independent registered public accounting firm were to recur, if we fail to
        implement required new or improved controls, or if we encounter difficulties
        in
        their implementation, our operating results could be adversely affected.
        If such
        an event were to occur, we may fail to meet our reporting obligations or
        we may
        have material misstatements in our financial statements. Any such failure
        also
        could adversely affect the results of the periodic management evaluations
        and
        annual independent registered public accounting firm attestation reports
        regarding the effectiveness of our internal control over financial reporting.
        Ineffective internal control over financial reporting could also cause investors
        to lose confidence in our reported financial information, which could have
        a
        negative effect on the trading price of our common stock.
  **ITEM
        1B. UNRESOLVED STAFF COMMENTS**
  None.
 
 **ITEM
        2. PROPERTIES**
  Our
        corporate headquarters are located in Boca Raton, Florida. This office consists
        of approximately 4,300 square feet and the lease on this property expires
        in
        April 2006. We have entered into a new lease for approximately 5,400 square
        feet
        in the same building through April 2011.
  Our
        primary locations of operations and product development are in the in Uxbridge
        in the United Kingdom and in Airport City in Israel. In Uxbridge, we lease
        three
        facilities of approximately 25,000, 17,000 and 12,000 square feet. These
        leases
        expire in 2006, 2010 and 2010, respectively. In Israel we lease two facilities
        of approximately 18,000 and 11,000 square feet. The leases for the Israeli
        facilities expire in July 2008 and December 2007, respectively.
 
 **ITEM
        3. LEGAL PROCEEDINGS**
 
 On
        and
        after July 23, 2001, three Class Action Complaints were filed in the United
        States District Court for the Southern District of New York naming as defendants
        Airspan, and Eric D. Stonestrom (our President and Chief Executive Officer),
        Joseph J. Caffarelli (our former Senior Vice President and Chief Financial
        Officer), Matthew Desch (our Chairman) and Jonathan Paget (our Executive
        Vice
        President and Chief Operating Officer) (the “Individual Defendants”) together
        with certain underwriters of our July 2000 initial public offering. A
        Consolidated Amended Complaint, which is now the operative complaint, was
        filed
        on April 19, 2002. The complaint alleges violations of Sections 11 and 15
        of the
        Securities Act of 1933 and Sections 10(b) and 20(a) of the Securities Exchange
        Act of 1934 for issuing a Registration Statement and Prospectus that contained
        materially false and misleading information and failed to disclose material
        information. In particular, Plaintiffs allege that the underwriter-defendants
        agreed to allocate stock in our initial public offering to certain investors
        in
        exchange for excessive and undisclosed commissions and agreements by those
        investors to make additional purchases of stock in the aftermarket at
        pre-determined prices. The action seeks damages in an unspecified amount.
  31
 This
        action is being coordinated with approximately three hundred other nearly
        identical actions filed against other companies. On July 15, 2002, the Company
        moved to dismiss all claims against it and the Individual Defendants. On
        October
        9, 2002, the Court dismissed the Individual Defendants from the case without
        prejudice based upon Stipulations of Dismissal filed by the plaintiffs and
        the
        Individual Defendants. This dismissal disposed of the Section 15 and 20(a)
        control person claims without prejudice, since these claims were asserted
        only
        against the Individual Defendants. On February 19, 2003, the Court dismissed
        the
        Section 10(b) claim against us, but allowed the Section 11 claim to proceed.
        On
        October 13, 2004, the Court certified a class in six of the approximately
        300
        other nearly identical actions. In her Opinion, Judge Scheindlin noted that
        the
        decision is intended to provide strong guidance to all parties regarding
        class
        certification in the remaining cases. Judge Scheindlin determined that the
        class
        period for Section 11 claims is the period between the IPO and the date that
        unregistered shares entered the market. Judge Scheindlin also ruled that
        a
        proper class representative of a Section 11 class must (1) have purchased
        shares
        during the appropriate class period; and (2) have either sold the shares
        at a
        price below the offering price or held the shares until the time of suit.
        In two
        of the six cases, the class representatives did not meet the above criteria
        and
        therefore, the Section 11 cases were not certified. Plaintiffs have not yet
        moved to certify a class in the Airspan case. The
        Underwriter defendants sought leave to appeal Judge Scheindlin’s class
        certification decision and the Second Circuit has accepted the appeal.
  Airspan
        has approved a settlement agreement and related agreements which set forth
        the
        terms of a settlement between Airspan, the Individual Defendants, the plaintiff
        class and the vast majority of the other approximately 300 issuer defendants
        and
        the individual defendants currently or formerly associated with those companies.
        Among other provisions, the settlement provides for a release of Airspan
        and the
        individual defendants for the conduct alleged in the action to be wrongful.
        Airspan would agree to undertake certain responsibilities, including agreeing
        to
        assign away, not assert, or release certain potential claims Airspan may
        have
        against its underwriters. The settlement agreement also provides a guaranteed
        recovery of $1 billion to plaintiffs for the cases relating to all of the
        approximately 300 issuers. To the extent that the underwriter defendants
        settle
        all of the cases for at least $1 billion, no payment will be required under
        the
        issuers’ settlement agreement. To the extent that the underwriter defendants
        settle for less than $1 billion, the issuers are required to make up the
        difference. It is anticipated that any potential financial obligation of
        Airspan
        to plaintiffs pursuant to the terms of the settlement agreement and related
        agreements will be covered by existing insurance. The Company currently is
        not
        aware of any material limitations on the expected recovery of any potential
        financial obligation to plaintiffs from its insurance carriers. Its carriers
        are
        solvent, and the company is not aware of any uncertainties as to the legal
        sufficiency of an insurance claim with respect to any recovery by plaintiffs.
        Therefore, we do not expect that the settlement will involve any payment
        by
        Airspan. If material limitations on the expected recovery of any potential
        financial obligation to the plaintiffs from Airspan’s insurance carriers should
        arise, Airspan’s maximum financial obligation to plaintiffs pursuant to the
        settlement agreement would be less than $3.4 million. On February 15, 2005,
        the
        Court granted preliminary approval of the settlement agreement, subject to
        certain modifications consistent with its opinion. Those modifications have
        been
        made. On March 20, 2006, the Underwriter Defendants submitted objections
        to the
        settlement to the Court. They also requested that the Fairness Hearing on
        the
        settlement agreement, currently scheduled for April 24, 2006, be adjourned
        until
        the Second Circuit addresses the Underwriter Defendants’ appeal of Judge
        Scheindlin’s decision on class certification. There is no assurance that the
        court will grant final approval to the settlement. If the settlement agreement
        is not approved and Airspan is found liable, we are unable to estimate or
        predict the potential damages that might be awarded, whether such damages
        would
        be greater than Airspan’s insurance coverage, and whether such damages would
        have a material impact on our results of operations or financial condition
        in
        any future period.
  Except
        as
        set forth above, we are not currently subject to any other material legal
        proceedings. We may from time to time become a party to various other legal
        proceedings arising in the ordinary course of our business.
 
 **ITEM
        4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**
  None.
  32
 **PART
        II**
  **ITEM
        5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
        PURCHASES OF EQUITY SECURITIES**
  Our
        common stock is traded on the Nasdaq National Market under the symbol “AIRN”.
        The price range per share, reflected in the table below, is the highest and
        lowest sale price for our stock as reported by the Nasdaq National Market
        during
        each quarter of the last two fiscal years.
  **High**
              
              **Low**2005
                  Fourth Quarter
              
              $
              6.21
              
              $
              4.512005
                  Third Quarter
              
              
              5.84
              
              
              4.532005
                  Second Quarter
              
              
              6.02
              
              
              4.242005
                  First Quarter
              
              
              5.54
              
              
              3.972004
                  Fourth Quarter
              
              
              6.69
              
              
              4.232004
                  Third Quarter
              
              
              6.00
              
              
              3.392004
                  Second Quarter
              
              
              6.84
              
              
              4.552004
                  First Quarter
              
              
              6.11
              
              
              3.36
  At
        March
        20, 2006 the price per share of our common stock was $6.09 and, based upon
        the
        number of record holders, we believe we had approximately 9,703 beneficial
        shareholders.
  **DIVIDENDS**
  We
        have
        never paid any dividends on our common stock and we do not anticipate paying
        cash dividends on our common stock in the foreseeable future. Pursuant to
        Washington law, we are prohibited from paying dividends or otherwise
        distributing funds to our shareholders, except out of legally available funds.
        The declaration and payment of dividends on our common stock and the amount
        thereof will be dependent upon our results of operations, financial condition,
        cash requirements, future prospects and other factors deemed relevant by
        the
        Board of Directors. No assurance can be given that we will pay any dividends
        on
        our common stock in the future.
  In
        the
        third quarter 2004, we recognized a non cash charge of $10.4 million as a
        deemed
        dividend to preferred stockholders associated with the beneficial
        conversion feature of the preferred stock issued in the third quarter 2004.
        The
        full intrinsic value of the embedded beneficial conversion feature of $10.4
        million was recognized on issuance as the Preferred Stock was immediately
        convertible to common stock on the commitment date.
  **Securities
        Authorized for Issuance Under Equity Compensation Plans as of December 31,
        2005**
  The
        following table sets forth information as of December 31, 2005 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
                  issuance under**
                **equity
                  compensation**
                **plans**Equity
                  compensation plans approved by security holders(1)
              
              
              4,614,640
              
              $
              4.1474
              
              
              3,080,663Equity
                  compensation plans not approved by security holders(2)
              
              
              677,039
              
              $
              2.9953
              
              
              —**Total**
              
              
              5,291,679
              
              $
              4.0002
              
              
              3,080,663
  33
 (1)  In
        1998
        and 2000, the Company’s shareholders approved the 1998 Employee Stock Option
        Plan and the 2000 Employee Stock Purchase Plan, respectively. In 2004, the
        Company’s shareholders approved the Omnibus Equity Compensation Plan.
  (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 administers the 2001 Plan.
        The
        Compensation Committee determines the terms of options granted under the
        2001
        Plan, including the number of shares subject to the option, exercise price,
        term, and exercisability. The exercise price may be equal to, more than or
        less
        than 100% of fair market value on the date the option is granted, as determined
        by the Compensation Committee. The Compensation Committee has the authority
        to
        amend or terminate the 2001 Plan, provided that shareholder approval shall
        be
        required if such approval is necessary to comply with any tax or regulatory
        requirement. If not terminated earlier, the 2001 Plan will terminate February
        7,
        2011.
  *The
        2003 Supplemental Stock Option Plan*
  The
        2003
        Plan provides for the grant to our non-officer employees, new hires, and
        consultants of non-statutory stock options. The 2003 Plan provides for the
        grant
        of options for up to 241,500 shares of common stock, all of which options
        have
        been granted as of the date hereof. The Compensation Committee administers
        the
        2003 Plan. The Compensation Committee determines the terms of options granted
        under the 2003 Plan, including the number of shares subject to the option,
        exercise price, term, and exercisability. The exercise price may be equal
        to,
        more than or less than 100% of fair market value on the date the option is
        granted, as determined by the Compensation Committee. The Compensation Committee
        has the authority to amend or terminate the 2003 Plan, provided that shareholder
        approval shall be required if such approval is necessary to comply with any
        tax
        or regulatory requirement. If not terminated earlier, the 2003 Plan will
        terminate September 1, 2013.
  **RELATED
        SHAREHOLDER MATTERS**
  **Recent
        Sales of Unregistered Securities**
  Effective
        as of September 10, 2004, the Company entered into a Preferred Stock Purchase
        Agreement with Oak Investment Partners XI Limited Partnership (“Oak”) pursuant
        to which the Company sold 73,000 shares of Series A Preferred Stock to Oak
        for
        $29,200,000. These shares of Series A Preferred Stock are initially convertible
        into 7.3 million shares of Common Stock. The transaction closed on September
        13,
        2004. The shares of Series A Preferred Stock were issued pursuant to the
        exemption from registration provided by Section 4(2) of the Securities Act
        of
        1933, as amended.
 
 34
 **ITEM
        6. SELECTED FINANCIAL DATA**
  The
        following selected financial data should be read together with our consolidated
        financial statements and related notes and “Management’s Discussion and Analysis
        of Financial Condition and Results of Operations” included elsewhere in this
        report. The consolidated statement of operations data and balance sheet data
        for
        the years ended December 31, 2001, 2002, 2003, 2004 and 2005 are derived
        from
        our audited consolidated financial statements, which have been audited by
        the
        independent registered public accounting firms of Ernst & Young LLP for the
        fiscal years ended December 31, 2001 through 2004 and Grant Thornton LLP
        for the
        fiscal year ended December 31, 2005.
  **Year
                  ended**
                **December
                  31,**
                **2001**
              
              **Year
                  ended**
                **December
                  31,**
                **2002
                  (1)**
              
              **Year
                  ended**
                **December
                  31,**
                **2003
                  (2)**
              
              **Year
                  ended**
                **December
                  31,**
                **2004**
              
              **Year
                  ended**
                **December
                  31,**
                **2005
                  (3)(4)****(in
                  thousands, except for share data)****Consolidated
                  Statement of Operations Data:**Revenue
              
              $
              37,422
              
              $
              25,930
              
              $
              30,651
              
              $
              94,647
              
              $
              110,966Cost
                  of revenue
              
              
              24,708
              
              
              21,242
              
              
              27,691
              
              
              67,243
              
              
              79,467Gross
                  profit
              
              
              12,714
              
              
              4,688
              
              
              2,960
              
              
              27,404
              
              
              31,499Research
                  and development
              
              
              14,667
              
              
              13,642
              
              
              14,395
              
              
              18,794
              
              
              21,157Sales
                  and marketing including bad debts
              
              
              16,711
              
              
              13,821
              
              
              11,335
              
              
              11,562
              
              
              12,579General
                  and administrative
              
              
              10,735
              
              
              8,969
              
              
              8,741
              
              
              11,042
              
              
              12,682Amortization
                  of intangibles
              
              
              425
              
              
              44
              
              
              172
              
              
              723
              
              
              942Restructuring
                  provisions
              
              
              1,235
              
              
              1,420
              
              
              750
              
              
              413
              
              
              1,150Total
                  operating expenses
              
              
              43,773
              
              
              37,896
              
              
              35,393
              
              
              42,534
              
              
              48,510Loss
                  from operations
              
              
              (31,059
              )
              
              (33,208
              )
              
              (32,433
              )
              
              (15,130
              )
              
              (17,011
              )Interest
                  and other income, net
              
              
              2,726
              
              
              2,208
              
              
              2,983
              
              
              3,217
              
              
              1,388Income
                  taxes (charge) / credit
              
              
              3,018
              
              
              2,862
              
              
              (5
              )
              
              1,938
              
              
              546Loss
                  before extraordinary items
              
              
              (25,315
              )
              
              (28,138
              )
              
              (29,455
              )
              
              (9,975
              )
              
              (15,077
              )Extraordinary
                  itemGain
                  on extinguishment of debt
              
              
              9,244
              
              
              —
              
              
              —
              
              
              —
              
              
              —Income
                  tax charge on gain
              
              
              (2,773
              )
              
              —
              
              
              —
              
              
              —
              
              
              —
 Net
                  loss
              
              
              (18,844
              )
              
              (28,138
              )
              
              (29,455
              )
              
              (9,975
              )
              
              (15,077
              )Deemed
                  dividend associated with beneficial conversion of preferred stock
              
              
              —
              
              
              —
              
              
              —
              
              
              (10,439
              )
              
              —Net
                  loss attributable to common stockholders
              
              $
              (18,844
              )
              $
              (28,138
              )
              $
              (29,455
              )
              $
              (20,414
              )
              $
              (15,077
              )Net
                  loss attribute to common stockholders per share-basic and
                  diluted
              
              $
              (0.54
              )
              $
              (0.80
              )
              $
              (0.84
              )
              $
              (0.56
              )
              $
              (0.39
              )Shares
                  used to compute net loss attributable to common stockholders per
                  share-basic and diluted
              
              
              34,810,311
              
              
              35,258,645
              
              
              35,073,315
              
              
              36,441,932
              
              
              38,736,939
 
 35
  **December
                  31,**
                **2001**
              
              **December
                  31,**
                **2002
                  (1)**
              
              **December
                  31,**
                **2003
                  (2)**
              
              **December
                  31,**
                **2004**
              
              **December
                  31,**
                **2005
                  (3)(4)****(in
                  thousands)****Consolidated
                  Balance Sheet Data:**Cash,
                  cash equivalents and short term investments
              
              $
              70,260
              
              $
              53,241
              
              $
              33,926
              
              $
              66,296
              
              $
              53,495Working
                  capital
              
              
              98,680
              
              
              71,647
              
              
              36,603
              
              
              65,476
              
              
              44,196Total
                  assets
              
              
              119,694
              
              
              97,861
              
              
              83,272
              
              
              115,198
              
              
              120,452Long
                  term debt
              
              
              1,250
              
              
              —
              
              
              —
              
              
              —
              
              
              1,296Stockholders’
                  equity
              
              
              105,253
              
              
              78,100
              
              
              49,013
              
              
              73,165
              
              
              64,611
   (1)
              On
                  October 4, 2002 we acquired Airspan Israel and, accordingly, the
                  Consolidated Statement of Operations for the years ended December
                  31,
                  2002-2005 include the results of operations of Airspan Israel from
                  that
                  date up to December 31, 2005 and the Consolidated Balance Sheets
                  of
                  December 31, 2002-2005 include the consolidated accounts of Airspan
                  Israel.
 
 (2)
              On
                  December 23, 2003 we acquired the fixed wireless access business
                  of Nortel
                  Networks (“Proximity”) and, accordingly, the Consolidated Statement of
                  Operations for the years ended December 31, 2003-2005 include the
                  results
                  of operations of Proximity from that date up to December 31, 2005
                  and the
                  Consolidated Balance Sheets of December 31, 2003-2005 include the
                  assets
                  and liabilities related to Proximity.
 
 (3)
              On
                  June 16, 2005 we acquired ArelNet Ltd of Israel and, accordingly,
                  the
                  Consolidated Statement of Operations for the year ended December
                  31, 2005
                  includes the results of operations of ArelNet Ltd from that date
                  up to
                  December 31, 2005 and the Consolidated Balance Sheet of December
                  31, 2005
                  includes the consolidated accounts of ArelNet Ltd.
 
 (4)
              On
                  November 9, 2005, we acquired Radionet Oy, Ltd of Finland and,
                  accordingly, the Consolidated Statement of Operations for the year
                  ended
                  December 31, 2005 includes the results of operations of Radionet
                  Oy, Ltd
                  from that date up to December 31, 2005 and the Consolidated Balance
                  Sheet
                  of December 31, 2005 includes the consolidated accounts of Radionet
                  Oy,
                  Ltd.
 
 36
 **ITEM
        7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
        OPERATIONS**
 
 *The
        following discussion and analysis should be read in conjunction with our
        consolidated financial statements and the related notes included elsewhere
        in
        this report. See "Item 1A. RISK FACTORS" for further discussion of the most
        significant risks that affect our business, financial condition, results
        of
        operations and/or cash flows.*
 
 **Overview**
 
 Since
        1998 we have evolved from being the supplier of one line of BWA equipment
        that
        utilized our proprietary technology to a supplier of a highly diversified
        suite
        of BWA equipment, including certain equipment that has been developed to
        conform
        with the WiMAX and the WiFi standards. The diversification of our product
        portfolio has been the product of both internal research and development
        and
        targeted acquisitions. See "Item 1. Business - Business Overview".
 
 As
        a
        result of the migration of telecommunications to platforms that operate using
        the Internet protocol, we anticipate our BWA equipment that is designed to
        handle communications over the Internet will become increasingly important
        to
        us. Due to the projected popularity of technologies such as WiMAX and WiFi,
        we
        also anticipate that our AS.MAX and AS.NET products will become increasingly
        important to us. See "Item 1 Business - Migration of Telecommunications to
        IP
        Platforms", "- The Global Need for Broadband Access" and "- Industry Overview
        -
        General". Our AS.MAX and AS.NET products are designed to be inter-operable
        with
        any other equipment that is WiMAX or WiFi Certified, respectively. Accordingly,
        we believe these relatively new products will face certain opportunities
        and
        risks that our proprietary products did not encounter. See "Item 1 Business
        -
        The Global Need for Broadband Access", "Risk Factors - Our industry is subject
        to change as a result of emerging new technologies...." and “We operate in highly
        dynamic and volatile industries...".
 
 The
        market for BWA equipment has been characterized by rapid technological
        developments and evolving industry standards, our future success will therefore
        depend on our ability to adapt to these new standards and to successfully
        introduce new technologies that meet customer preferences. We anticipate
        that we
        will need to continue to devote considerable resources to research and
        development to maintain and/or improve upon our competitive position. See
        "Risk
        Factors - Our industry is subject to change as a result of emerging new
        technologies...." and "We operate in highly dynamic and volatile
        industries...".
 
 Since
        July 1, 2003, we have acquired three suppliers of BWA equipment. We intend
        to
        continue our strategy of expanding our business through, among other things,
        acquisitions of other businesses and technologies and joint ventures.
        Accordingly, we anticipate our future results of operation and financial
        condition may be directly or indirectly materially affected by our acquisition
        and joint venture effort. Acquisitions are inherently risky and our future
        growth may depend on our ability to successfully acquire, operate and integrate
        new businesses into our company. See "Item 1. Business - Business Overview"
        and
“Risk Factors - We have made, and may continue to make, strategic
        acquisitions....”
 
 Our
        revenue has increased from $30.7 million in 2003 to $94.6 million in 2004
        and to
        $111.0 million in 2005. We have incurred net losses attributable to common
        stockholders of $29.5 million, $20.4 million and $15.1 million in 2003, 2004
        and
        2005, respectively. Since becoming an independent company, we have generated
        significant net losses and negative cash flow. We expect our cash flow to
        be
        negative in 2006, but expect that our net losses will decline relative to
        2005.
        We had an accumulated deficit of $202.6 million as of December 31, 2005.
  We
        generate revenue from sales of our systems and from services related to
        implementation and support activities. Revenue from services in 2005 continued
        to be under 10% of our total revenue. See “Management’s Discussion and Analysis
        - Critical Accounting Policies” for a discussion of our revenue recognition
        policies.
  Customer
        service contracts are generally of a short to medium term in nature, mostly
        for
        days and weeks with a small number extending beyond a year. With larger
        customers, we may agree in specific contracts to provide technical support
        and
        repair and maintenance services for longer periods, such as in the case of
        the
        agreement with Yozan, where we have agreed to provide such services for a
        period
        of eight years. Otherwise, service contracts are typically sold separately
        from
        sales of our systems and typically provide services other than what is included
        in the basic warranty.
 
 37
 We
        sell
        our products primarily through our direct sales force and, to a lesser extent,
        through distribution channels. We have direct sales offices in the US, UK,
        Australia, China, Czech Republic, Finland, Greece, Indonesia, Israel, Japan,
        New
        Zealand, the Philippines, Poland, Russia, South Africa, Sri Lanka and the
        United
        Arab Emirates. We also sell through independent agents and resellers in markets
        where we do not have a direct sales presence and to original equipment
        manufacturers, or 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 71%, 82% and 61% of our total revenue in 2005,
        2004
        and 2003, respectively.
  We
        expect
        to continue to derive a substantial percentage of our revenue from fewer
        than
        ten customers. In the years ended December 31, 2005 and December 31, 2004,
        Axtel
        in Mexico represented 56% and 70%, respectively, of our revenue. In the year
        ended December 31, 2003, Broadcast Communications Ltd in New Zealand represented
        18% of our revenue. We anticipate that our dependence on our ten largest
        customers will continue in 2006, primarily due to our projected sales of
        ASMAX
        to Yozan and Proximity solutions to Axtel. See “Risk Factors - We currently
        depend on a few key customers....”.
  Our
        non-U.S sales accounted for 93%, 97% and 97% of our total revenue in 2005,
        2004
        and 2003, respectively. The following table identifies the percentage of
        our
        revenue by customer geographic region in the periods identified.
 
 **Percentage
                  of Revenue****Geographic
                  Area**
              
              **Year
                  ended**
                **December
                  31,**
                **2003**
              
              **Year
                  ended**
                **December
                  31,**
                **2004**
              
              **Year
                  ended**
                **December
                  31,**
                **2005**United
                  States
              
              
              3.1
              %
              
              3.2
              %
              
              7.0
              %Asia
                  Pacific
              
              
              35.9
              
              
              8.5
              
              
              10.3Europe
              
              
              19.2
              
              
              11.8
              
              
              12.9Africa
                  and Middle East
              
              
              27.1
              
              
              2.0
              
              
              4.7South
                  and Central America and Caribbean
              
              
              14.7
              
              
              74.5
              
              
              65.1
   While
        we
        expect that sales to Axtel will still comprise a large percentage of our
        revenues for 2006, we anticipate that the percentage of our sales to Central
        America will continue to decrease in 2006 and that our sales to the Asia
        Pacific
        region will increase.
 
 For
        further information on our business and geographic segments refer to “Note 12
        Segments” in the Consolidated Financial Statements.
  Cost
        of
        revenue consists of component and material costs, direct labor costs, warranty
        costs, royalties, overhead related to manufacture of our products and customer
        support costs. Our gross margin is affected by changes in our product mix
        both
        because our gross margin on base stations and related equipment is higher
        than
        the gross margin on subscriber terminals, and because our different product
        lines generate different margins. In addition, our gross margin is affected
        by
        changes in the average selling price of our systems, volume discounts granted
        to
        significant customers and the proportion of total revenue of sales of software,
        which typically carries a higher gross margin than hardware. We expect the
        average selling prices of our products to decline and we intend to continue
        to
        implement product cost reductions and develop and introduce new products
        or
        product enhancements in an effort to maintain or increase our gross margins.
        Further, we expect to derive an increasing proportion of our revenue from
        the
        sale of our integrated systems through distribution channels. Revenue derived
        from these sales channels typically carries a lower gross margin than direct
        sales.
  38
 Research
        and development expenses consist primarily of salaries and related costs
        for
        personnel and expenses for design, development and testing facilities and
        equipment. These expenses also include costs associated with product development
        efforts, including consulting fees and prototyping costs from initial product
        concept to manufacture and production as well as sub-contracted development
        work. We expect to continue to make substantial investments in research and
        development.
  Sales
        and
        marketing expenses consist of salaries and related costs for personnel, sales
        commissions, consulting and agent’s fees and expenses for advertising, travel,
        technical assistance, trade shows, and promotional and demonstration materials.
        We expect to continue to incur substantial expenditures related to sales
        and
        marketing activities including costs associated with the recruitment of
        additional sales and marketing personnel and the expansion of our distribution
        channels.
  General
        and administrative expenses consist primarily of salaries and related expenses
        for our personnel, professional and consulting fees and other related expenses
        and facilities costs.
  **Critical
        Accounting Policies and Estimates**
 
 The
        Company’s accounting policies are more fully described in Note 1. of the
        Consolidated Financial Statements. Management’s Discussion and Analysis of
        Financial Condition and Results of Operations discusses our consolidated
        financial statements, which have been prepared in accordance with accounting
        principles generally accepted in the United States. The preparation of these
        financial statements requires us to make estimates and assumptions that affect
        the reported amounts of assets and liabilities, the disclosure of contingent
        liabilities at the date of the financial statements and the reported amounts
        of
        revenues and expenses during the reporting period. On an on-going basis,
        we
        evaluate our estimates and judgments, including those related to: revenue
        recognition; allowance for doubtful accounts, inventory reserves; warranty
        reserve; restructuring costs; purchase accounting, valuation of goodwill
        and
        other intangibles; income taxes; derivative instruments; and legal proceedings.
        From the first quarter of 2006, with the adoption of FAS 123R, equity
        compensation will involve critical accounting policies and
        estimates.
 
 We
        base
        our estimates and judgments on historical experience and on various other
        factors that we believe to be reasonable under the circumstances, the results
        of
        which form the basis for making judgments about the carrying values of assets
        and liabilities that are not readily apparent from other sources. Actual
        results
        may differ from these estimates under different assumptions or conditions
        and
        may change as future events occur.
  We
        believe the following critical accounting policies are dependant on significant
        judgments and estimates used in the preparation of our consolidated financial
        statements.
  *Revenue
        recognition*
  We
        recognize revenue when all of the following conditions are met:
  ·
              an
                  arrangement exists with the customer,
  ·
              delivery
                  has occurred or services have been rendered,
  ·
              the
                  price for the product or service is fixed or determinable, and
  ·
              collection
                  of the receivable is reasonably assured.
  Management
        must apply significant estimates and judgment in determining how to apply
        the
        current accounting standards and interpretations related to revenue recognition.
        If these estimates are significantly different from actual results, our revenue
        could be impacted.
 
 Under
        our
        revenue recognition policy we are required to assess the credit worthiness
        of
        our customers. We use judgment in assessing their credit worthiness, and
        the
        criteria by which each judgment is made may change in future periods and
        therefore may change future revenue recognition. The collectibility of
        receivables is critical in determining whether revenue should be recognized.
        We
        will defer revenue if we are uncertain as to whether we will be able to collect
        the receivable. As a result, our estimates and judgment regarding customer
        credit quality could significantly impact the timing and amount of revenue
        recognition.
 
 39
 We
        provide extended payment terms to certain customers. The agreement for these
        customers is considered fixed or determinable if the contracts are similar
        to
        others for which we have a standard business practice of providing extended
        payment terms and we have a history of successfully collecting from the customer
        under the original payment terms without making concessions. If the agreement
        is
        not considered fixed or determinable at the outset of the arrangement, revenue
        for delivered products is generally deferred until the fees become legally
        due
        and payable and in certain cases where there have previously been collection
        issues, revenue is recognized as cash is collected. Therefore, estimates
        and
        judgment in this area can impact the timing of revenue recognition.
 
 *Product
        Revenue* :
        Revenue
        from product sales, including sales to distributors and resellers, is generally
        recognized at the time the product is shipped to the customer. Revenue is
        deferred when customer acceptance is required, rights of return exist,
        collection of the receivable becomes less than assured or other significant
        obligations remain that are essential to the functionality of the delivered
        products. Revenue is 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 historical experience.
        On
        sales to resellers and distributors, we generally recognize revenue only
        when
        the resellers are creditworthy in their own right or have an identified
        creditworthy end customer.
 
 *Service
        Revenue* :
        Revenue
        from time-and-material service contracts is recognized once the services
        have
        been performed. Revenue from service contracts that relate to a period of
        cover
        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 Deliveries* :
        In
        certain cases, we enter into agreements with customers whereby we are obligated
        to deliver multiple products and/or multiple services (multiple deliveries).
        In
        these transactions, we allocate the total revenue to be earned under the
        arrangement among the various elements based on their relative fair value.
        Revenue for these transactions is recognized on each element when the revenue
        recognition criteria have been met for that element. Revenue is recognized
        for
        delivered products and services only if: (i) the above Product Revenue or
        Service Revenue criteria are met; (ii) undelivered products or services are
        not
        essential to the functionality of the delivered elements, (iii) payment for
        the
        delivered products or services is not contingent upon delivery of the remaining
        products or services; and (iv) the fair value for each of the undelivered
        elements is known. If objective and reliable evidence of fair value exists
        for
        all units of accounting in the contract, revenue is allocated to each unit
        of
        accounting or element based on relative fair values. In situations where
        there
        is objective and reliable evidence of fair value for all undelivered elements,
        but not for delivered elements, the residual method is used to allocate the
        contract consideration. Under the residual method, the amount of revenue
        allocated to delivered elements equals the total arrangement consideration
        less
        the aggregate fair value of any undelivered elements. Each unit of accounting
        is
        then accounted for under the applicable revenue recognition guidance. If
        fair
        value does not exist for any undelivered element, revenue is not recognized
        until the earlier of (i) the undelivered element is delivered or (ii) fair
        value of the undelivered element exists, unless the undelivered element is
        a
        service, in which case revenue is recognized as the service is performed
        once
        the service is the only undelivered element. Our determination of whether
        deliverables within a multiple element arrangement can be treated separately
        for
        revenue recognition purposes involves significant estimates and judgment,
        such
        as whether fair value can be established on undelivered obligations and/or
        whether delivered elements have standalone value to the customer. Changes
        to our
        assessment of the accounting units in an arrangement and/or our ability to
        establish fair values could significantly change the timing of revenue
        recognition. Our assessment of which revenue recognition guidance is appropriate
        to account for a deliverable also can involve significant judgment.
  *Allowance
        for doubtful accounts*
  We
        are
        required to assess the collectibility of our accounts receivable balances.
        A
        considerable amount of judgment is required in assessing the ultimate
        realization of these receivables including, but not limited to, the current
        credit-worthiness of each customer. Significant changes in required reserves
        have been recorded in recent periods to reflect our current judgment, and
        changes may occur in the future due to the market environment. Should we
        consider it necessary to increase the level of reserves required for a
        particular customer or customers then additional charges will be recorded
        in the
        future.
  *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.
  40
 *Warranty
        reserves*
  Typically
        our products are covered by a warranty for periods ranging from one to two
        years. In a limited number of cases, warranties extend beyond two years.
        We
        accrue a warranty reserve for estimated costs to provide warranty services.
        Our
        estimate of costs required to fulfill our warranty obligations is based on
        historical experience and expectation of future conditions, as well as
        back-to-back warranty coverage that we have with our contract manufacturers.
        To
        the extent we experience increased warranty claim activity, increased costs
        or
        our assessment of future conditions change, our warranty accrual will increase,
        which will result in decreased gross profit.
  *Restructuring
        costs*
  During
        2003, 2004 and 2005 we recorded restructuring charges arising from our
        cost-reduction programs and established reserves which include estimates
        pertaining to employee termination costs, the loss on subletting excess
        facilities, and the write down of assets to be disposed of as part of the
        restructuring. When providing for restructuring charges we make estimates
        as to
        the expected costs to be incurred, particularly with respect to the costs
        of
        excess facilities. 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
        use
        the purchase method of accounting for our acquisitions. Adjustments to our
        initial purchase price allocation are made during the allocation period as
        defined by SFAS 38 - Accounting for Preacquisition Contingencies of Purchased
        Enterprises. The allocation period ends when we are no longer waiting for
        information that we have arranged to obtain and that is known to be available
        or
        obtainable. Although the time required will vary with circumstances, the
        “allocation period” should usually not exceed one year from the consummation of
        a business combination.
  The
        purchase price allocation for the Arelnet acquisition has been finalized.
        Amounts recorded as of December 31, 2005 for the Radionet acquisition are
        subject to possible further adjustment during 2006, because we are still
        in the
        process of evaluating the assets and liabilities acquired, in particular
        its
        accounts receivables, inventory and accrued expenses. Once we have built
        up a
        history of the collectibility of accounts receivable, the realizable value
        of
        inventory and we have performed a thorough review of accruals, we will finalize
        the purchase price allocation in the second quarter of 2006. [See Note 2
        ACQUISITIONS to the Financial Statements].
 
 *Valuation
        of goodwill and other intangible assets*
 
 In
        accordance with FAS 142 and FAS 144, we performed our annual goodwill impairment
        review and the review of long-lived assets for impairment during the fourth
        quarter of 2005. The result of these reviews was that no impairment of goodwill
        or other intangible or long-lived assets was recorded during the year ended
        December 31, 2005. In these reviews, we make various assumptions regarding
        estimated future cash flows and other factors to determine the fair value
        of
        goodwill and other intangible and long-lived assets. If these estimates or
        related assumptions change in the future, we may be required to record an
        impairment charge that would adversely affect our results.
  *Income
        taxes*
  Research
        and development tax credits: During 2004 and 2005, we recorded tax credits
        relating to research and development expenditures in the United Kingdom for
        the
        amount we expect to realize - see note 3 to the Financial Statements. The
        Inland
        Revenue has the right to audit claims made for research and development tax
        credits and, until the authorities have approved the claims, there is potential
        uncertainty as to whether the final claim will be accepted. It is therefore
        possible that we may ultimately realize more or less than the amount of credit
        that has been accrued in the financial statements at December 31,
        2005.
  41
 Deferred
        taxes: We record a valuation allowance to reduce our deferred tax assets.
        As at
        December 31, 2005, we recorded a 100% valuation allowance, effectively writing
        down our deferred tax assets to zero. We consider our future taxable income
        and
        prudent tax planning strategies to determine whether our valuation allowance
        is
        appropriate. The main factors we consider are our cumulative losses in recent
        years, our net loss for the current period and our future earnings potential
        determined through the use of internal forecasts. Should we determine in
        the
        future that a lower valuation allowance is appropriate, an adjustment to
        the
        deferred tax asset would result in income being recorded in the period that
        that
        determination is made.
  Other
        taxes: We are subject to local taxes in each country that we have a permanent
        establishment or other taxable presence. We make estimates of our potential
        liability to tax in these jurisdictions, which estimates are subject to
        examination by the local tax authorities.
  *Derivative
        instruments*
  We
        are
        subject to fluctuations in the exchange rates of certain currencies to the
        US
        dollar, particularly UK 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 sterling operating expenses, primarily salary and facility
        lease
        expenses. We make assumptions with respect to the amount and timing of entering
        into these contracts and the number of periods that we hedge, and we consider
        the value of our foreign currency obligations and the forecasted exchange
        rate.
        Should the spot rate at the maturity of the contract be more favorable than
        the
        forward rate, we would incur an economic loss on that particular contract
        since
        we would pay more for the foreign currency than we would have without the
        contract. (See ITEM 7A Quantitative and qualitative disclosures about market
        risk).
 
 *Legal
        proceedings*
  We
        are
        subject to class action complaints related to alleged false and misleading
        information in the Registration Statement and Prospectus used in July 19,
        2000
        (See Item 3. Legal Proceedings), and we may also face litigation for labor
        and
        other matters. We are required to assess the likelihood of adverse judgments
        or
        outcomes to these matters as well as potential ranges of probable losses.
        A
        determination of the amount of reserves required, if any, for these
        contingencies are made after careful analysis of each individual issue. The
        required reserves may change in the future due to changes in circumstances
        within each case.
 
 *New
        accounting pronouncements*
 
 In
        December 2004, the FASB issued Statement No. 123(R), *Share-Based
        Payment.* This
        Statement eliminates the use of the intrinsic value method described in
        Accounting Principles Board (APB) Opinion No. 25, *Accounting
        for Stock Issued to Employees* ,
        and
        requires an entity to measure the cost of employee services received in exchange
        for an award of equity instruments based on the grant-date fair value of
        the
        award. That cost will be recognized over the period during which an employee
        is
        required to provide service in exchange for the award. We will adopt the
        provisions of Statement No. 123(R) when it becomes a mandatory requirement,
        effective January 1, 2006. The adoption of this statement will result in
        higher reported operating expenses in our future financial statements. The
        impact on 2006 results of adopting SFAS No. 123R is estimated to be a reduction
        of approximately $0.06 to $0.07 per share. This estimate is affected by
        assumptions regarding a number of complex and subjective variables.
  42
 **Results
        of Operations**
 
 The
        following table provides operating data as a percentage of revenue for the
        periods presented.
  **Year
                  ended**
                **December
                  31,**
                **2003**
              
              **Year
                  ended**
                **December
                  31,**
                **2004**
              
              **Year
                  ended**
                **December
                  31,**
                **2005**Revenue
              
              
              100.0
              %
              
              100.0
              %
              
              100.0
              %Cost
                  of revenue
              
              
              90.3
              %
              
              71.0
              %
              
              71.6
              %Gross
                  profit
              
              
              9.7
              %
              
              29.0
              %
              
              28.4
              %Operating
                  expenses:Research
                  and development
              
              
              47.0
              %
              
              19.9
              %
              
              19.1
              %Sales
                  and marketing
              
              
              33.9
              %
              
              11.6
              %
              
              10.3
              %Bad
                  debt expense
              
              
              3.1
              %
              
              0.6
              %
              
              1.0
              %General
                  and administrative
              
              
              28.5
              %
              
              11.7
              %
              
              11.4
              %Amortization
                  of intangibles
              
              
              0.6
              %
              
              0.8
              %
              
              0.8
              %Restructuring
                  provision
              
              
              2.4
              %
              
              0.4
              %
              
              1.0
              %Total
                  operating expenses
              
              
              115.5
              %
              
              45.0
              %
              
              43.7
              %Loss
                  from operations
              
              
              (105.8
              )%
              
              (16.0
              )%
              
              (15.3
              )%Interest
                  and other income, net
              
              
              9.8
              %
              
              3.5
              %
              
              1.3
              %Income
                  taxes
              
              
              0.0
              %
              
              2.0
              %
              
              (0.5
              )%Net
                  loss
              
              
              (96.1
              )%
              
              (10.5
              )%
              
              (13.6
              )%Deemed
                  dividend associated with beneficial conversion of preferred
                  stock
              
              
              —
              
              
              (11.0
              )%
              
              —Net
                  loss attributable to common stockholders
              
              
              (96.1
              )%
              
              (21.6
              )%
              
              (13.6
              )%
  **Restructuring**
  We
        have
        initiated five restructuring programs over the last four years to reduce
        our
        operating expenses. The first of these was initiated in the third quarter
        of
        2002. A charge of $0.3 million was recorded in the quarter. Included in this
        charge were costs related to the write off of tradeshow equipment and severance
        payments. A total of 19 employees were terminated as part of this program
        and
        all severance payments were made by the end of the second quarter of 2003.
  In
        the
        second quarter of 2003, an additional restructuring program was initiated
        to
        further lower operating expenses. The cost incurred as part of this program
        was
        $0.3 million arising from costs associated with facility closures and severance.
        A total of 30 employees were terminated as part of this program and all
        severance payments were made by December 31, 2003.
  During
        the first quarter of 2004 we revised our original restructuring programs
        and
        initiated a new program to further reduce operating expenses. This program
        was
        completed by the end of the third quarter of 2004. The total cost incurred
        for
        this restructuring program was $0.4 million related to termination costs
        for 21
        employees. All of these employees had left the Company by December 31,
        2004.
  In
        conjunction with the purchase of the Proximity business in 2003 the Company
        implemented its plan to relocate the Proximity business from Maidenhead,
        England
        and Sunrise, Florida to the Company’s facilities in Uxbridge, England and Boca
        Raton, Florida. The Company recorded acquisition-related restructuring charges
        of $0.5 million, in the fourth quarter of 2003, in connection with the
        relocation of the Proximity business. The accrued relocation costs were reduced
        during 2004 to $0.2 million. The adjustment formed part of the revised fair
        value adjustments of the Proximity acquisition. This relocation plan was
        completed by December 31, 2004.
  43
 In
        the
        fourth quarter of 2002 the decision was made to completely outsource all
        of our
        manufacturing. As a result, the Company recorded a $1.0 million restructuring
        charge for the closure of its Riverside, Uxbridge facility in 2003. All of
        this
        cost relates to the excess facility. A further $0.4 million was recognized
        as
        restructuring in the income statement in the fourth quarter of 2003 as the
        Company reassessed the ability to sublease the Riverside facility. During
        the
        second quarter of 2005, the Company recognized an additional restructuring
        charge of $1.2 million for additional costs expected to be incurred related
        to
        certain facility charges in respect of buildings in the UK The total amount
        expected to be incurred as a result of the closure of the Riverside facility
        is
        up to $2.5 million, of which $1.5 million remains accrued as at December
        31,
        2005. Included in this accrual is the estimated cost to repair “dilapidations”
at our Riverside facility. The final cost of these dilapidations will depend
        on
        the lessor’s intended use for this facility. Currently, the lessor expects us to
        refurbish the facility, and accordingly we have accrued the total cost of
        this
        refurbishment. However, if the lessor should subsequently decide to demolish
        the
        building and completely rebuild on this site, our costs will be materially
        lower. All cash outflows in connection with this restructuring are expected
        to
        occur by the end of 2007.
  The
        restructuring charges and their utilization are summarized as follows:
 
 **All
                  figures in US$ thousands**
              
              **Balance
                  at**
                **beginning
                  of**
                **period**
              
              **Restructuring**
                **charge**
              
              **Accrued
                  on**
                **acquisition**
              
              **Utilized**
              
              **Balance
                  at end**
                **of
                  period**Year
                  ended December 31, 2005One-time
                  termination benefits
              
              $
              —
              
              $
              —
              
              $
              —
              
              $
              —
              
              $
              —Contract
                  termination costs
              
              
              599
              
              
              1,150
              
              
              —
              
              
              (313
              )
              
              1,436Other
                  associated costs
              
              
              61
              
              
              —
              
              
              —
              
              
              (11
              )
              
              50$
              660
              
              $
              1,150
              
              $
              —
              
              $
              (324
              )
              $
              1,486Year
                  ended December 31, 2004One-time
                  termination benefits
              
              $
              —
              
              $
              413
              
              $
              —
              
              $
              (413
              )
              $
              —Contract
                  termination costs
              
              
              947
              
              
              —
              
              
              —
              
              
              (348
              )
              
              599Other
                  associated costs
              
              
              592
              
              
              —
              
              
              (339
              )
              
              (192
              )
              
              61$
              1,539
              
              $
              413
              
              $
              (339
              )
              $
              (953
              )
              $
              660Year
                  ended December 31, 2003One-time
                  termination benefits
              
              $
              79
              
              $
              342
              
              $
              —
              
              $
              (421
              )
              $
              —Contract
                  termination costs
              
              
              825
              
              
              397
              
              
              —
              
              
              (275
              )
              
              947Other
                  associated costs
              
              
              150
              
              
              11
              
              
              520
              
              
              (89
              )
              
              592$
              1,054
              
              $
              750
              
              $
              520
              
              $
              (785
              )
              $
              1,539
   **Comparison
        of the Year Ended December 31, 2004 to the Year Ended December 31,
        2005**
  *Revenue*
  Revenue
        increased 17% from $94.6 million for the year ended December 31, 2004 to
        $111.0
        million for the year ended December 31, 2005. The $16.3 million increase
        in
        revenue is primarily attributable to:
  ·
              the
                  introduction of our WiMAX products;
                  and
  ·
              the
                  more than 100% increase in sales of our WipLL products.
  Revenues
        for our other products also remained strong during the year. In the fourth
        quarter of 2005, revenues for our AS4000/4020 products reached their highest
        quarterly level in two years as customers, particularly in Europe and Africa,
        rediscovered the versatility of this DSL-type product for voice and data
        services. In November 2005, Airspan delivered the highest-ever monthly number
        of
        Proximity CPE units.
  Sales
        of
        our WiMAX and WipLL products constituted 4.5% and 23%, respectively, of our
        revenue during fiscal 2005.
  44
 We
        project that a significant amount of our revenues in 2006 will come from
        a
        limited number of customers. See “Risk Factors — We currently depend on a few
        key customers.” First half 2006 revenue is targeted to be approximately $65
        million, based in part on the recent strong order intake from several major
        WiMAX customers. Revenue for the first quarter is expected to be approximately
        $26 million.
 
 *Cost
        of Revenue and Inventory Provision*
  Cost
        of
        revenue increased 18% from $67.2 million in the year ended December 31, 2004
        to
        $79.5 million in the year ended December 31, 2005. This increase was due
        primarily to the increase in revenue. As a percentage of revenue, our cost
        of
        revenue was 71.0% in 2004 and 71.6% in 2005. Cost of revenue for fiscal 2005
        includes an approximate $0.5 million write off in the fourth quarter of 2005
        in
        connection with inventory shortages that were identified in the physical
        inventory count at our Israeli subsidiary. Cost of revenue for fiscal 2004
        included a $1.1 million write-off of inventory, primarily due to a reduction
        in
        demand for AS4000 equipment.
 
 Gross
        margin was 28% in 2005 versus 29% for the 2004 fiscal year. During 2005,
        our
        increased sale of higher margin products, including our new WiMAX products
        and
        our WipLL products, was offset by the reduction in the selling prices of
        our
        Proximity products and the write-off of approximately $0.5 million of
        inventory
  *Research
        and Development Expenses*
  Research
        and development expenses increased 13% from $18.8 million in the year ended
        December 31, 2004 to $21.2 million in the year ended December 31, 2005. The
        increase was primarily due to the additional research and development expenses
        we incurred in connection with the introduction of our new WiMAX products
        and
        costs incurred by ArelNet, which was acquired during 2005. In 2006, we expect
        to
        continue to incur significant R&D costs related to our continued WiMAX
        development and to a lesser extent, our continued development of other product
        lines.
 
 *Sales
        and Marketing Expenses*
 
 Sales
        and
        marketing expenses increased 4% from $11.0 million in the year ended December
        31, 2004 to $11.5 million in the year ended December 31, 2005. The increase
        in
        sales and marketing expenses is primarily attributable to the payment of
        sales
        commissions in connection with our increased product sales. .
 
 *Bad
        Debt Expense*
 
 During
        2004 and 2005, we wrote down receivables by $0.5 million and $1.1 million,
        respectively, primarily due to our concerns with certain customers in Asia
        and
        Africa.
 
 *General
        and Administrative Expenses*
 
 General
        and administrative expenses increased 15% from $11.0 million in the year
        ended
        December 31, 2004 to $12.7 million in the year ended December 31, 2005. The
        increase in general and administrative expenses was primarily the result
        of
        payroll costs in connection with our acquisition of ArelNet and Radionet
        and
        additional fees incurred in connection with our change in independent
        auditors.
 
 *Amortization
        of Intangibles*
 
 Amortization
        of intangibles expense increased 30% from $0.7 million in the year ended
        December 31, 2004 to $0.9 million in the year ended December 31, 2005. The
        increase resulted from the amortization of intangibles acquired from ArelNet
        and
        Radionet in 2005.
 
 *Restructuring
        Provision*
 
 During
        2004, we implemented an expense reduction program. We charged $0.4 million
        during 2004 to restructuring expense related to employee termination costs.
        During the second quarter of 2005, the Company recorded an additional
        restructuring charge of $1.2 million for costs related to certain facility
        charges in respect of buildings in the UK For more information regarding
        our
        restructuring programs, see the section above entitled “Restructuring”.
 
 45
 *Interest
        and Other Income Net*
 
 Interest
        and other income net, which decreased 56% from $3.2 million for the year
        ended
        December 31, 2004 to $1.4 million in the year ended December 31, 2005, consisted
        of gains and losses on foreign currency cash balances and foreign exchange
        hedging contracts and interest earned on cash deposits with financial
        institutions. The decrease in 2005 was primarily due to exchange rate gains
        realized in 2004.
 
 *Income
        Taxes*
  An
        income
        tax credit of $0.5 million was recorded in the year ended December 31, 2005.
        This tax credit was obtained from the UK tax authorities in lieu of carrying
        forward tax losses related to research and development costs. We surrendered
        a
        total of $2.4 million of tax losses in the United Kingdom as a result.
        In 2004, we surrendered $8.7 million of tax losses in exchange for a $2.1
        million tax benefit. The tax credit recorded in 2005 was partially offset
        by $21
        thousand of tax charges relating to certain of our foreign branches and
        subsidiaries. In 2004, the income tax credit obtained was partially offset
        by
        $156 thousand of tax charges relating to one of our foreign branches and
        certain
        franchise taxes relating to the US operations of Airspan. As of 2005, we
        are no
        longer eligible to receive tax credits from the UK taxing authorities in
        lieu of
        our carry-forward of tax losses and, accordingly, we anticipate that future
        tax
        credits from the UK tax authorities will be less than $0.4 million. No other
        income tax benefit has been recorded for the tax losses generated because
        we
        have incurred operating losses since inception.
  *Deemed
        Dividend to Preferred Stockholders Associated With Beneficial Conversion
        of
        Preferred Stock*
 
 In
        the
        third quarter of 2004, we recognized a non cash charge of $10.4 million as
        a
        deemed dividend to preferred stockholders associated with the beneficial
        conversion feature of the preferred stock issued in the quarter. The full
        intrinsic value of the embedded beneficial conversion feature of $10.4 million
        was recognized on issuance since the Preferred Stock was immediately
        convertible to common stock on the commitment date. There was no charge in
        the
        year ended December 31, 2005.
  *Net
        Loss Attributable to Common Stockholders*
 
 For
        the
        reasons described above, our net loss before taxes increased 31% from $11.9
        million in 2004 to $15.6 million in 2005 and our net loss attributable to
        common
        stockholders decreased 26% from $20.4 million in 2004 to $15.1 million in
        2005.
  **Comparison
        of the Year Ended December 31, 2003 to the Year Ended December 31,
        2004**
  *Revenue*
  Revenue
        increased 209% from $30.6 million for the year ended December 31, 2003 to
        $94.6
        million for the year ended December 31, 2004. The $64.0 million increase
        in
        revenue is primarily attributable to sales of Proximity products to Axtel,
        representing 70% of our revenue for 2004.
  *Cost
        of Revenue and Inventory Provision*
  Cost
        of
        revenue increased 143% from $27.7 million in the year ended December 31,
        2003 to
        $67.2 million in the year ended December 31, 2003. This increase was due
        primarily to the increase in revenue. As a percentage of revenue, our cost
        of
        revenue was 90.3% in 2003 and 71.0% in 2004.
  During
        both 2003 and 2004, we wrote down amounts of inventory to reflect our view
        of
        the demand for our AS4000 inventory. In 2003, we made inventory provisions
        in
        the aggregate amount of $4.7 million to reflect our view that, with the full
        introduction of the new AS4020 product line in that year, demand for AS4000
        equipment had lessened. In the third quarter of 2004, we provided for an
        additional $1.1 million provision related to excess AS4000 inventory, reflecting
        our revised estimates of the demand for this product.
  46
 Gross
        margin increased to 29% in 2004 from 10% for the year of 2003. The increase
        in
        gross margin in 2004 relative to 2003 was primarily due to smaller inventory
        provisions in 2004, the allocation of certain relatively fixed period costs
        over
        a significantly larger revenue base in 2004 and the increased sale of higher
        margin products in 2004.
  *Research
        and Development Expenses*
  Research
        and development expenses increased 31% from $14.4 million in the year ended
        December 31, 2003 to $18.8 million in the year ended December 31, 2004. The
        increase was primarily due to the additional research and development expenses
        we incurred in connection with the acquisition of the Proximity business
        in the
        fourth quarter of 2003 and expenses associated with the development of our
        new
        WiMAX portfolio.
  *Sales
        and Marketing Expenses*
  Sales
        and
        marketing expenses increased 6% from $10.4 million in the year ended December
        31, 2003 to $11.0 million in the year ended December 31, 2004. The increase
        in
        sales and marketing expenses is primarily attributable to the increase in
        revenue relating to the acquisition of the Proximity business.
  *Bad
        Debt Expense*
  In
        2003,
        we wrote down receivables by $0.9 million due to our concerns with customers
        in
        Asia. During 2004, we wrote down receivables by $0.5 million due to our concerns
        with customers in Asia and Africa.
  *General
        and Administrative Expenses*
  General
        and administrative expenses increased 26% from $8.7 million in the year ended
        December 31, 2003 to $11.0 million in the year ended December 31, 2004. The
        increase in general and administrative expenses was primarily the result
        of
        costs incurred in preparing to meet the requirements of Section 404 of the
        Sarbanes Oxley Act.
  *Amortization
        of Intangibles*
  Amortization
        of intangibles expense increased 320% from $0.2 million in the year ended
        December 31, 2003 to $0.7 million in the year ended December 31, 2004. The
        increase arose from the amortization of intangibles identified after our
        acquisition of the Proximity business in the fourth quarter of
        2003.
  *Restructuring
        Provision*
  During
        both 2003 and 2004, we implemented expense reduction programs. During 2003,
        we
        made restructuring provisions totaling $0.8 million to cover employee
        termination costs and a revision of our estimates of costs associated with
        the
        closure of our Riverside facility in 2002. During 2004, we charged $0.4 million
        to restructuring expense related to additional employee termination costs.
        For
        more information regarding our restructuring programs, see the section above
        entitled “Restructuring”.
  *Interest
        and Other Income Net*
  Interest
        and other income net, which increased 8% from $3.0 million for the year ended
        December 31, 2003 to $3.2 million in the year ended December 31, 2004, consisted
        of gains and losses on foreign currency cash balances and foreign exchange
        hedging contracts and interest earned on cash deposits with financial
        institutions.
  *Income
        Taxes*
  An
        income
        tax credit of $1.9 million was recorded in the year ended December 31, 2004.
        We
        received a $2.1 million tax credit related to the benefit granted to us by
        the
        UK tax authorities, which we received in lieu of carrying forward tax
        losses related to research and development costs. We surrendered approximately
        $9 million of carry forward tax losses in the United Kingdom as a
        result. The tax credit was partially offset by tax charges relating to a
        foreign
        branch and certain franchise taxes relating to the US operations. No income
        tax
        benefit has been recorded for the tax losses generated because we have incurred
        operating losses since inception. The 2003 tax charge of $5 thousand relates
        to
        a foreign branch
 
 47
 *Deemed
        Dividend to Preferred Stockholders Associated With Beneficial Conversion
        of
        Preferred Stock*
 
 In
        the
        third quarter 2004, we recognized a non cash charge of $10.4 million as a
        deemed
        dividend to preferred stockholders associated with the beneficial
        conversion feature of the preferred stock issued in the quarter. The full
        intrinsic value of the embedded beneficial conversion feature of $10.4 million
        was recognized on issuance as the Preferred Stock was immediately
        convertible to common stock on the commitment date. There was no charge in
        the
        year ended December 31, 2003.
  *Net
        Loss Attributable to Common Stockholders*
 
 For
        the
        reasons described above, our net loss before taxes decreased 60% from $29.5
        million in 2003 to $11.9 million in 2004 and out net loss attributable to
        common
        stockholders decreased 31% from $29.5 million in 2003 to $20.4 million in
        2004.
 
 **Liquidity
        and Capital Resources**
  As
        of
        December 31, 2005, we had cash and cash equivalents totaling $44.1 million,
        short-term investments totaling $6.0 million and $3.3 million of restricted
        cash. Of this restricted cash, $3.1 million is held as collateral for
        performance guarantees on customer contracts and with landlords and $0.2
        million
        is for payments made by employees under our Employee Share Purchase Plan.
        All
        short-term investments are of investment grade quality and are not subject
        to
        significant market risk . We
        do not
        have a line of credit or similar borrowing facility other than the loans
        acquired through the Radionet acquisition. We have no material capital
        commitments.
  Since
        inception, we have financed our operations through private sales of convertible
        preferred stock, which have totaled $146.5 million (net of transaction expenses)
        and an initial public offering of common stock, which we completed on July
        25,
        2000. In the initial public offering, we issued 6,325,000 shares of common
        stock
        for approximately $86 million in cash (net of underwriting discounts, commission
        and other expenses). In our most recent private sale of convertible preferred
        stock, which we closed in September 2004, we raised $29.2 million through
        the
        issuance of Series A preferred stock to Oak Investment Partners XI, Limited
        Partnership. In November 2004, we also raised $4.4 million through the sale
        of
        treasury stock that was acquired through a share buy back program completed
        in
        2002. We have used the proceeds of the sale of all securities for working
        capital and other general corporate purposes .
  Until
        we
        are able to generate cash from operations, if ever, we intend to use our
        existing cash resources to finance our operations. We believe we have sufficient
        cash resources to finance our operations for at least the next twelve
        months .
  For
        the
        year ended December 31, 2005, we used $7.2 million cash in operating activities
        compared with $0.9 million for the year ended December 31, 2004. The operating
        cash outflow for fiscal 2005 was primarily a result of our net loss of $15.1
        million and an increase in inventories and receivables of $3.4 million and
        $1.8
        million, respectively. The cash outflow was partially offset by an increase
        in
        customer advances of $8.8 million, $2.8 million of depreciation and amortization
        and a $1.9 million decrease in other current assets, primarily related to
        receipt of research and development tax credits during 2005.
  The
        net
        cash used in investing activities for the year ended December 31, 2005 was
        $15.1
        million, comprised of $3.1 million for capital equipment purchases, $6.0
        million, net for the acquisition and sales of investment securities, and
        $4.3
        million and $1.6 million for the acquisitions of ArelNet and Radionet, net
        of
        cash acquired, respectively.
  48
 Our
        net
        cash inflow from financing activities for the year ended December 31, 2005
        was
        $0.2 million. During 2005, we generated $1.3 million upon the exercise of
        stock
        options and $0.5 million from the issuance of common stock under our Employee
        Share Purchase Plan. This inflow was offset by a $1.6 million increase in
        restricted cash. Restricted cash increases when we issue guarantees secured
        by
        cash collateral or additional contributions are collected from employees
        under
        the ESPP and decreases whenever such a guarantee is cancelled or shares are
        actually purchased under the ESPP. Our net cash inflow from financing activities
        for the year ended December 31, 2004 was $35.4 million, primarily generated
        from
        the issuance of $29.1 million (net of legal fees) of preferred stock. In
        addition, in 2004, we generated $4.4 million through the sale of our treasury
        stock, and $2.0 million upon the exercise of stock options and issuance of
        common stock under out Employee Share Purchase Plan.
 
 On
        November 9, 2005, we completed the acquisition of Radionet. As part of the
        acquisition, we assumed two outstanding loans (the “Tekes Loans”) borrowed by
        Radionet from the Finnish Funding Agency for Technology and Innovation
        (“Tekes”). Tekes is the primary public funding organization for research and
        development in Finland. At December 31, 2005, the outstanding principal and
        accrued interest payable on the Tekes Loans was $1.4 million. The Tekes Loans
        are recorded in long term debt and current portion of long term debt in our
        consolidated financial statements. We have issued a guarantee to Tekes for
        the
        repayment of the Tekes Loans. The guarantee covers the loan principal and
        interest. See Note 17 *Long-term
        debt* to the
        Consolidated Financial Statements for further information on these
        loans
 
 The
        impact that our contractual obligations as of December 31, 2005 are expected
        to
        have on our liquidity and cash flow in future periods is as
        follows:
 
  **Payments
                  due by period****All
                  figures in US$ thousands**
              
              **Total**
              
              **2006**
              
              **2007
                  - 2008**
              
              **2009
                  - 2010**
              
              **2011
                  &**
                **thereafter**Long-term
                  debt (including interest)
              
              $
              1,480
              
              $
              131
              
              $
              849
              
              $
              500
              
              $
              —Operating
                  lease obligations
              
              
              5,154
              
              
              1,750
              
              
              2,394
              
              
              1,010
              
              
              —Purchase
                  obligations (1)
              
              
              37,444
              
              
              37,444
              
              
              —
              
              
              —
              
              
              —$
              44,078
              
              $
              39,325
              
              $
              3,243
              
              $
              1,510
              
              $
              —
  (1)
              As
                  of December 31, 2005, the Company had commitments with its main
                  sub
                  contract manufacturers under various purchase order and forecast
                  arrangements of $37,256 thousand.
  The
        Company has bank guarantees with its landlords and customers totaling $3,119
        thousand at December 31, 2005. The guarantees secure payment or performance
        obligations of the Company under contracts. The Company has pledged cash
        to the
        banks as collateral for the guarantees in the same amounts as the guarantees.
        This pledged cash has been classified as restricted cash. There were no off
        balance sheet guarantees as of December 31, 2005.
 
 We
        have
        no material commitments other than the TEKES Loans, operating leases, supplier
        purchase commitments and forward exchange contracts mentioned herein. See
“ITEM
        7A” and “Note 11 in Financial Statements”.
  49
 **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,
        2004 and 2005 we had cash and cash equivalents, restricted cash and short-term
        investments of $68.0 million and $53.5 million, respectively. Of these amounts,
        in 2005, $6.0 million related to investments with a purchase to maturity
        date
        between 90 days and 442 days. Substantially all of the remaining amounts
        as of
        both December 31, 2004 and December 31, 2005, consisted of highly liquid
        investments with purchase to maturity terms of less than 90 days. These
        investments are exposed to interest rate risk, but a hypothetical increase
        or
        decrease in market interest rates by two percentage points from December
        31,
        2005 rates would cause the fair market value of these short-term investments
        to
        change by an insignificant amount. Due to the short duration of these
        investments, a short-term increase in interest rates would not have a material
        effect on our financial condition or results of operations. Declines in interest
        rates over time would, however, reduce our net interest income. Due to the
        uncertainty of the specific actions that would be taken to mitigate this,
        and
        their possible effects, the sensitivity analysis does not take into account
        any
        such action.
  *Foreign
        Currency Exchange Rate Risk*
  The
        following table shows our revenue by currency as a percentage of our total
        revenue for the periods presented
  **Year
                  ended**
                **December
                  31,**
                **2003**
              
              **Year
                  ended**
                **December
                  31,**
                **2004**
              
              **Year
                  ended**
                **December
                  31,**
                **2005**US
                  Dollars
              
              
              96.8
              %
              
              96.1
              %
              
              94.4
              %Euros
              
              
              3.0
              
              
              2.8
              
              
              2.9Australian
                  Dollars
              
              
              —
              
              
              0.9
              
              
              2.5Other
              
              
              0.2
              
              
              0.2
              
              
              0.2100.0
              %
              
              100.0
              %
              
              100.0
              %
  Total
        euro denominated sales for the periods presented.
  **All
                  figures in thousands**
              
              **Year
                  ended**
                **December
                  31,**
                **2003**
              
              **Year
                  ended**
                **December
                  31,**
                **2004**
              
              **Year
                  ended**
                **December
                  31,**
                **2005**Euros
              
              €
              824
              
              €
              2,163
              
              €
              2,596Average
                  exchange rate of $1US = €
              
              
              0.8892
              
              
              0.8043
              
              
              0.8136US
                  $ equivalent
              
              $
              927
              
              $
              2,689
              
              $
              3,191If
                  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
              
              $
              83
              
              $
              244
              
              $
              290
  Total
        Australian dollar denominated sales for the periods presented.
  **All
                  figures in thousands**
              
              **Year
                  ended**
                **December
                  31,**
                **2003**
              
              **Year
                  ended**
                **December
                  31,**
                **2004**
              
              **Year
                  ended**
                **December
                  31,**
                **2005**Australian
                  dollars
              
              Aus$
              —
              
              Aus$
              1,169
              
              Aus$
              3,594Average
                  exchange rate of $1US = Australian dollar
              
              
              —
              
              
              1.3625
              
              
              1.3174US
                  $ equivalent
              
              $
              —
              
              $
              858
              
              $
              2,728If
                  the average exchange rates used had been higher or lower by 10% they
                  would have decreased or increased the total euro denominated sale
                  value by
              
              $
              —
              
              $
              78
              
              $
              248
  We
        expect
        the proportions of sales in euro and Australian dollars to fluctuate over
        time.
        The Company’s sensitivity analysis for changes in foreign currency exchange
        rates does not factor in changes in sales volumes.
  50
 The
        Company’s operating results are affected by movements in foreign currency
        exchange rates against the US dollar, particularly the UK pound sterling
        and New
        Israeli Shekel. This is because most of our operating expenses, which may
        fluctuate over time, are incurred in pounds sterling and New Israeli
        Shekels.
  To
        manage
        our pound foreign currency risk we have, at various times in 2003 through
        2005,
        forecast our likely net spending in non US dollars and, based on these
        forecasts, we have entered into forward exchange contracts to cover a percentage
        of the projected exposure. Our current forward exchange contracts hedge a
        percentage of our UK pound sterling expenditure until March 2006. At December
        31, 2005 we had outstanding three forward exchange contracts for an aggregate
        3.0 million pounds sterling.
  The
        aggregate amount of forward contracts of pounds sterling that matured during
        the
        year ended December 31, 2005 was 6.2 million pounds sterling, and we paid
        expenses in local currency of approximately 17.3 million pounds sterling
        over
        the same period. The effectiveness of the contracts as hedges was approximately
        100%. If during 2005 the average exchange rates had been higher or lower
        by 10%,
        the pound-sterling denominated operating expenses would have decreased or
        increased by $2.2 million.
  During
        the year ended December 31, 2005 we paid expenses in New Israeli Shekels
        of 48.7
        million New Israeli Shekels. None of these expenses have been hedged. If
        the
        average exchange rates had been higher or lower by 10%, the New Israeli Shekel
        operating expenses would have decreased or increased by $1.2 million for
        the
        year ended December 31, 2005.
  For
        the
        years ended December 31, 2005 and 2004 we incurred the majority of our cost
        of
        revenue in US dollars.
  *Equity
        Price Risk*
  We
        do not
        own any equity investments, other than in our subsidiaries. As a result,
        we do
        not currently have any direct equity price risk.
  *Commodity
        Price Risk*
  We
        do not
        enter into contracts for the purchase or sale of commodities. As a result,
        we do
        not currently have any direct commodity price risk.
 
 **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. CONTROLS AND PROCEDURES**
 
 *Evaluation
        of Disclosure Controls and Procedures*
 
 As
        of the
        end of the period covered by this annual report, an evaluation was performed
        under the supervision and with the participation of our management, including
        our Chief Executive Officer and Chief Financial Officer, of the effectiveness
        of
        the design and operation of our disclosure controls and procedures (as defined
        in Section 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934,
        as
        amended). Based on that evaluation, the Chief Executive Officer and Chief
        Financial Officer concluded that as of such date, our disclosure controls
        and
        procedures were (1) not sufficiently designed to ensure that material
        information relating to Airspan, including our consolidated subsidiaries,
        was
        made known to them by others within those entities, particularly in the period
        in which this report was being prepared and (2) not effective, in that they
        did
        not provide reasonable assurance that information required to be disclosed
        by us
        in the reports that we file or submit under the Exchange Act is recorded,
        processed, summarized and reported within the time periods specified in the
        SEC’s rules and forms. More specifically, the Chief Executive Officer and Chief
        Financial Officer concluded that our disclosure controls and procedures were
        not
        effective due to the material weakness in the Company’s internal control over
        financial reporting described in the section immediately below.
 
 51
 The
        acquisition of ArelNet in June 2005 and Radionet in November 2005 represent
        changes in internal control over financial reporting since management's last
        assessment of the Company's internal controls over financial reporting, which
        was completed as of December 31, 2004. The acquired ArelNet and Radionet
        businesses utilizes separate information and accounting systems and processes
        and accordingly, their internal controls over financial reporting as of
        December 31, 2005 are excluded from this assessment of the Company’s internal
        control over financial reporting, in accordance with the guidance from the
        Division of Corporation Finance and Office of the Chief Accountant of the
        Commission contained in the release captioned Frequently Asked Questions
        (revised October 6, 2004). Management intends to complete its assessment
        of the
        effectiveness of internal controls over financial reporting for the acquired
        ArelNet and Radionet businesses within one year of the date of the
        acquisitions.
 
 *Management's
        Annual Report on Internal Control over Financial Reporting*
 
 Our
        management is responsible for establishing and maintaining adequate internal
        control over the Company’s financial reporting as defined in Rules 13a-15(f) and
        15d-15(f) under the Securities Exchange Act of 1934, as amended. Our internal
        control over financial reporting is designed to provide reasonable assurance
        regarding the reliability of financial reporting and the preparation of
        financial statements for external purposes in accordance with generally accepted
        accounting principles.
 
 There
        are
        inherent limitations in the effectiveness of any internal control, including
        the
        possibility of human error and the circumvention or overriding of controls.
        Accordingly, even effective internal controls can provide only reasonable
        assurances with respect to financial statement preparation. Further because
        of
        changes in conditions, the effectiveness of internal controls may vary over
        time
        such that the degree of compliance with the policies or procedures may
        deteriorate.
  We
          assessed the effectiveness of our internal control over financial reporting
          as
          of December 31, 2005. In making our assessment, we used the criteria set
          forth by the Committee of Sponsoring Organizations, also known as the Treadway
          Commission. In accordance with the rules of the SEC, we did not assess
          the
          internal control over financial reporting of two subsidiaries that we acquired
          in 2005, namely, ArelNet Ltd and Radionet, Oy Ltd which represented
          approximately 12% of our total consolidated assets at December 31, 2005. In
          our Report on Form 10-K for the year ended December 31, 2006, we will
          be required to provide an assessment of our compliance that takes into
          account
          an assessment of ArelNet Ltd, Radionet, Oy Ltd and all of our other currently
          existing subsidiaries as of December 31, 2005.
  Following
        the performance of a physical inventory count at our Israeli subsidiary in
        January 2006, significant differences were identified between the count and
        the
        inventory subledger. The differences were for the most part due to inventory
        movements that had not been recorded or were recorded incorrectly. We also
        identified at our Israeli subsidiary insufficient segregation of duties in
        the
        Logistics department, inadequate security access controls and failure to
        perform
        effective and timely reviews of reconciliations by individuals with appropriate
        levels of experience, which contributed to the delay in the differences being
        detected.
  As
        a
        result Management has concluded that, as of December 31, 2005, the Company
        did
        not maintain effective internal controls over financial reporting as of such
        date. This conclusion is based upon management’s determination that the
        Company’s internal control pertaining to the recording of inventory transactions
        at its Israeli subsidiary is not effective.
  In
        making
        this assessment, management used the criteria set forth by the Committee
        of
        Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal
        Control-Integrated Framework.
  A
        material weakness in internal control over financial reporting is a control
        deficiency (within the meaning of the Public Company Accounting Oversight
        Board
        ("PCAOB") Auditing Standard No. 2), or combination of control deficiencies,
        that
        results in there being more than a remote likelihood that a material
        misstatement of the annual or interim financial statements will not be prevented
        or detected.
  Our
          independent registered public accounting firm, Grant Thornton LLP, has
          audited
          the consolidated financial statements included in this Annual Report on
          Form
          10-K and has issued an attestation report on management’s assessment of our
          internal control over financial reporting as stated in their report which
          appears below.
  *Remediation
        Steps to Address Material Weakness*
 
 To
        address the Company’s material weakness relating to the recording of inventory
        at the Israeli subsidiary, we are in the process of implementing a number
        of
        remediation measures. Our remediation plan includes:
 
 ·
              supplementing
                  our staff at the Israeli subsidiary with additional personnel to
                  work in
                  the logistics department;
 ·
              reorganizing
                  the Logistics department at our Israeli subsidiary to increase
                  the level
                  of segregation of various operational and accounting and finance
                  tasks;
   52
 ·
              implementing
                  a variety of controls, including physical segregation, to prevent
                  the
                  movement of inventory without authorization;
                  and
 ·
              requiring
                  real time recording of inventory
                  movements.
  *Attestation
        Report of the Independent Registered Public Accounting Firms*
  REPORT
          OF
          INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
  Board
          of
          Directors and Stockholders of
          Airspan Networks Inc.
  We
            have
            audited management’s assessment, included in the accompanying annual report,
            that Airspan Networks Inc. did not maintain effective internal control
            over
            financial reporting as of December 31, 2005, because of the effect of
            the
            material weakness identified in management’s assessment and described below,
            based on criteria established in Internal Control—Integrated Framework issued by
            the Committee of Sponsoring Organizations of the Treadway Commission
            (the COSO
            criteria). Company’s management is responsible for maintaining effective
            internal control over financial reporting and for its assessment of the
            effectiveness of internal control over financial reporting. Our responsibility
            is to express an opinion on management’s assessment and an opinion on the
            effectiveness of the company’s internal control over financial reporting based
            on our audit.
 
 We
          conducted our audit in accordance with the standards of the Public Company
          Accounting Oversight Board (United States). Those standards require that
          we plan
          and perform the audit to obtain reasonable assurance about whether effective
          internal control over financial reporting was maintained in all material
          respects. Our audit included obtaining an understanding of internal control
          over
          financial reporting, evaluating management's assessment, testing and evaluating
          the design and operating effectiveness of internal control, and performing
          such
          other procedures as we considered necessary in the circumstances. We believe
          that our audit provides a reasonable basis for our opinions.
 
 A
          company's internal control over financial reporting is a process designed
          to
          provide reasonable assurance regarding the reliability of financial reporting
          and the preparation of financial statements for external purposes in accordance
          with generally accepted accounting principles. A company's internal control
          over
          financial reporting includes those policies and procedures that (1) pertain
          to
          the maintenance of records that, in reasonable detail, accurately and fairly
          reflect the transactions and dispositions of the assets of the company;
          (2)
          provide reasonable assurance that transactions are recorded as necessary
          to
          permit preparation of financial statements in accordance with generally
          accepted
          accounting principles, and that receipts and expenditures of the company
          are
          being made only in accordance with authorizations of management and directors
          of
          the company; and (3) provide reasonable assurance regarding prevention
          or timely
          detection of unauthorized acquisition, use, or disposition of the company's
          assets that could have a material effect on the financial
          statements.
  As
            indicated in Management’s Report on Internal Controls over Financial Reporting,
            management’s assessment of and conclusion on the effectiveness of internal
            control over financial reporting did not include the internal controls
            of its
            wholly-owned subsidiaries ArelNet Ltd and Radionet, Oy Ltd which were
            acquired
            in 2005 and constituted approximately 12% of total consolidated assets
            as of
            December 31, 2005. Refer to Note 2 of the consolidated financial
            statements for further discussion of these acquisitions. Our audit of
            internal
            control over financial reporting of Airspan Networks Inc. also did not
            include
            an evaluation of the internal control over financial reporting of these
            acquired
            companies.
 Because
          of its inherent limitations, internal control over financial reporting
          may not
          prevent or detect misstatements. Also, projections of any evaluation of
          effectiveness to future periods are subject to the risk that controls may
          become
          inadequate because of changes in conditions, or that the degree of compliance
          with the policies or procedures may deteriorate.
 
 A
          material weakness is a control deficiency, or combination of control
          deficiencies, that results in more than a remote likelihood that a material
          misstatement of the annual or interim financial statements will not be
          prevented
          or detected. The following material weakness has been identified and included
          in
          management's assessment. Inadequate controls were identified over Airspan’s
          Israel inventory. The weaknesses in this area included lack of segregation
          of
          duties, inadequate security access controls and failure to perform timely
          reviews of related reconciliation schedules. This material weakness was
          considered in determining the nature, timing, and extent of audit tests
          applied
          in our audit of the 2005 financial statements, and this report does not
          affect
          our report dated March 31, 2006 on those financial statements.
  In
          our
          opinion, management's assessment that Airspan Networks Inc. did not maintain
          effective internal control over financial reporting as of December 31,
          2005, is
          fairly stated, in all material respects, based on the COSO criteria. Also
          in our
          opinion, because of the effect of the material weakness described above
          on the
          achievement of the objectives of the control criteria, Airspan Networks
          Inc. has
          not maintained effective internal control over financial reporting as of
          December 31, 2005, based on the COSO criteria.
  We
          have
          also audited, in accordance with the standards of the Public Company Accounting
          Oversight Board (United States), the consolidated balance sheets of Airspan
          Networks, Inc. as of December 31, 2005, and the related consolidated
          statements of operations, shareholders’ equity and cash flows for the year then
          ended and our report dated March 31, 2006 expressed an unqualified opinion
          on those consolidated financial statements.
 
 /s/
          GRANT
          THORNTON LLP
 
 Miami,
          Florida
 March
          31,
          2006
 53
 **ITEM
        9B. OTHER INFORMATION**
  None.
  54
 **PART
          III**
 
 **ITEM
        10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT**
  The
        information regarding the names, ages and business experience of our executive
        officers and directors required by this Item is furnished in Part I of this
        Annual Report on Form 10-K under the caption “Executive Officers of the
        Registrant”. All other information required by this Item is incorporated by
        reference to our definitive proxy statement to be filed within 120 days after
        the end of our fiscal year ended December 31, 2005.
 
 **Code
        of Ethics**
 
 We
        maintain a code of conduct (the “Code”) that applies to our Directors, Chief
        Executive Officer, Chief Financial Officer, Chief Accounting Officer and
        Controller, as well as to all of our other employees. This Code, a copy of
        which
        is available on our web site at www.airspan.com ,
        addresses, among other things: (i) honest and ethical conduct, including
        the
        ethical handling of actual or apparent conflicts of interest between personal
        and professional relationships; (ii) compliance with applicable governmental
        laws, rules, and regulations; (iii) the prompt internal reporting of violations
        of the Code to an appropriate person or persons identified in the Code; (iv)
        accountability for adherence to the Code; and (v) full, fair, accurate, timely
        and understandable disclosure in reports and documents that we file with
        or
        submit to the Commission and in other public communications we make. In the
        event we ever waive compliance by our Directors, our Chief Executive Officer,
        Chief Financial Officer, Chief Accounting Officer or Controller with the
        Code,
        we will disclose the waiver on our website at the web address provided above.
        (The URL above is intended to be an inactive textual reference only. It is
        not
        intended to be an active hyperlink to our website. The information on our
        website, which might be accessible through a hyperlink resulting from this
        URL,
        is not and is not to be part of this report and is not incorporated herein
        by
        reference).
 
 **ITEM
        11. EXECUTIVE COMPENSATION**
  The
        information required by this Item is incorporated by reference to our definitive
        proxy statement to be filed within 120 days after the end of our fiscal year
        ended December 31, 2005.
 
 **ITEM
        12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
        STOCKHOLDER MATTERS**
  The
        information required by this Item and Item 403 of Regulation S-K is incorporated
        by reference to our definitive proxy statement to be filed within 120 days
        after
        the end of our fiscal year ended December 31, 2004. The information required
        by
        this Item and Item 201(d) of Regulation S-K is furnished in Item 5 of this
        Annual Report on Form 10-K under the caption ”Securities Authorized for Issuance
        under Equity Compensation Plans”.
 
 **ITEM
        13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS**
  The
        information required by this Item is incorporated by reference to our definitive
        proxy statement to be filed within 120 days after the end of our fiscal year
        ended December 31, 2005.
 
 **ITEM
        14. PRINCIPAL ACCOUNTING FEES AND SERVICES**
  The
        information required by this Item is incorporated by reference to our definitive
        proxy statement to be filed within 120 days after the end of our fiscal year
        ended December 31, 2005.
 
 55
 **PART
        IV**
  **ITEM
        15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES**
  (a)
              The
                  following documents are filed as part of this report:
  (1)
              Financial
                  Statements
  **Page**Report
                  of Independent Registered Public Accounting Firms
              F-1Consolidated
                  Balance Sheets as of December 31, 2004 and 2005
              F-3Consolidated
                  Statements of Operations for the years ended December 31, 2003,
                  2004 and
                  2005
              F-4Consolidated
                  Statements of Changes in Stockholders’ Equity for the years ended December
                  31, 2003, 2004 and 2005
              F-5Consolidated
                  Statements of Cash Flows for the years ended December 2003, 2004
                  and
                  2005
              F-6Notes
                  to the Financial Statements
              F-7
  (2)
              Financial
                  Statement Schedules
  Schedule
                  II — Valuation and Qualifying Accounts for the year ended December 31,
                  2003, 2004 and 2005
              II-1
  (3)
              Exhibits
  56
 **AIRSPAN
        NETWORKS INC.**
 
 **EXHIBIT
        INDEX**
 **Year
        Ended December 31, 2005**
 
 3.1
              
              Amended
                  and Restated Articles of Incorporation of Airspan(1)3.2
              
              Articles
                  of Amendment to the Articles of Incorporation (2)3.3
              
              Amended
                  and Restated Bylaws of Airspan (3)4.1
              
              Form
                  of Airspan’s common stock certificate (4)10.1
              
              1998
                  Stock Option and Restricted Stock Plan (4)10.2
              
              2000
                  Employee Stock Purchase Plan, as amended (2)10.3
              
              Employment
                  Agreement with Eric Stonestrom (4), (5)10.4
              
              Employment
                  Agreement with Jonathan Paget (4), (5)10.5
              
              Employment
                  Agreement with Peter Aronstam, as amended (5), (6), (7)10.6
              
              2001
                  Supplemental Stock Option Plan (6)10.7
              
              Employment
                  Agreement with Henrik Smith-Petersen (5), (7)10.8
              
              Employment
                  Agreement with Arthur Levine* (5)10.9
              
              2003
                  Supplemental Stock Option Plan (3)10.10
              
              Airspan
                  Omnibus Equity Compensation Plan (1)10.11
              
              Purchase
                  and License Agreement, dated as of December 28, 2004, by and among
                  Airspan
                  Communications Limited and Axtel, S.A. de C.V. (13)**10.12
              
              Technical
                  Assistance Support Services Agreement for FWA Equipment, dated
                  as of
                  February 14, 2003, by and between Nortel Networks UK Limited and
                  Axtel,
                  S.A. de C.V. (8)**10.13
              
              Preferred
                  Stock Purchase Agreement, dated as of September 10, 2004 among
                  Airspan
                  Networks, Inc. and Oak Investment Partners XI, Limited Partnership
                  (9)10.14
              
              Amendment
                  to Preferred Stock Purchase Agreement (10)10.15
              
              Amendment
                  Agreement No. 3 to FWA TASS dated as of December 28, 2004 between
                  Airspan
                  Communications Limited and Axtel, S.A. de C.V.(12)**10.16
              
              Purchase
                  Contract, dated April 14, 2005, by and between Yozan Incorporated
                  and
                  Airspan Communications Limited (11)*10.17
              
              Supplement
                  to Purchase Contract, dated August 15, 2005, by and between Yozan
                  Incorporated and Airspan Communications Limited
                  (11)*
  57
 10.18
              
              2ndPurchase Contract, dated September 13, 2005, by and between Yozan
                  Incorporated and Airspan Communications Limited (11)*10.19
              
              Amendment
                  of 1stand 2ndPurchase Contracts, dated October 6, 2005, by and between Yozan
                  Incorporated and Airspan Communications Limited (11)*10.20
              
              Amendment
                  of 2ndPurchase Contracts, dated February 25, 2006, by and between Yozan
                  Incorporated and Airspan Communications Limited (11)*10.21
              
              Memorandum
                  of Understandings, dated February 25, 2006, by and between Yozan
                  Incorporated and Airspan Communications Limited (11)*10.22
              
              Airspan
                  Code of Business Conduct*21
              
              Subsidiaries
                  of registrant*23.1
              
              Consent
                  of Grant Thornton LLP, Independent Registered Public Accounting
                  Firm
                  *23.2
              
              Consent
                  of Ernst & Young LLP, Independent Registered Public Accounting Firm
                  *31.1
              
              Certification
                  of the Chief Executive Officer pursuant to Section 302 of the
                  Sarbanes-Oxley Act of 2002*31.2
              
              Certification
                  of the Chief Financial Officer pursuant to Section 302 of the
                  Sarbanes-Oxley Act of 2002*32.1
              
              Certification
                  of the Chief Executive Officer pursuant to section 906 of the
                  Sarbanes-Oxley Act of 2002***32.2
              
              Certification
                  of the Chief Financial Officer pursuant to section 906 of the
                  Sarbanes-Oxley Act of 2002***
  
  *
              Filed
                  herewith
 **
              Confidential
                  treatment has been granted with respect to certain portions of
                  this
                  exhibit. Omitted portions have been filed separately with the Securities
                  and Exchange Commission.***
              Furnished
                  herewith
  1
              
              Incorporated
                  by reference to Airspan’s Form 10-Q for the quarter ended April 4,
                  2004.2
              
              Incorporated
                  by reference to the Company’s report on Form 8-K filed on September 15,
                  2004.3
              
              Incorporated
                  by reference to Company’s report on Form 8-K/A filed in February 22, 2005.4
              
              Incorporated
                  by Reference to Airspan’s Registration Statement on Form S-1 (333-34514)
                  filed July 18, 20005
              
              Management
                  Agreement or Compensatory Plan or Arrangement6
              
              Incorporated
                  by Reference to Airspan’s Form 10-K for the year ended December 31,
                  20007
              
              Incorporated
                  by Reference to Airspan’s Form 10-K for the year ended December 31,
                  20028.
              
              Incorporated
                  by reference by the Company’s report on Form 8-K/A filed on July 6, 2004.9
              
              Incorporated
                  by reference to the Company’s report on Form 8-K filed on September 13,
                  2004.10
              
              Incorporated
                  by reference to the Company’s report on Form 8-K filed on September 27,
                  2004.11
              
              Portions
                  of this document have been omitted and were filed separately with
                  the SEC
                  on March 30, 2006 pursuant to a request for confidential
                  treatment.12
              
              Incorporated
                  by reference to the Company's Form 10-K for the year ended December
                  31,
                  2004.13
              
              Incorporated
                  by reference to the Company’s report on Form 8-K filed on June 9,
                  2005.
 
 58
 **SIGNATURES**
  Pursuant
        to the requirements of Section 13 or 15(d) of the Securities Exchange Act
        of
        1934, Airspan has duly caused this Report to be signed on its behalf by the
        undersigned, thereunto duly authorized, in Boca Raton, Florida, on the 31st
        day
        of March 2006.
  Airspan
                    Networks Inc.By:
              /s/ Eric
                D.
                StonestromEric
                D. Stonestrom,President
                  and Chief Executive Officer
  The
        undersigned directors and officers of Airspan hereby constitute and appoint
        Eric
        D. Stonestrom and Peter Aronstam and each of them with full power to act
        without
        the other and with full power and substitution and resubstitution, our true
        and
        lawful attorneys-in-fact with full power to execute in our name and behalf
        in
        the capacities indicated below this Annual Report on Form 10-K and any and
        all
        amendments thereto and to file the same, with all exhibits thereto and other
        documents in connection therewith, with the Securities and Exchange Commission
        and hereby ratify and confirm all that such attorneys-in-fact, or any of
        them,
        or their substitutes shall lawfully do or cause to be done by virtue hereof.
  Pursuant
        to the requirements of the Securities Exchange Act of 1934, this report has
        been
        signed below by the following persons on behalf of Airspan, in the capacities
        and dates indicated.
 
 **Signature**
              
              **Title**
              
              **Dated**/s/
                  Eric D. Stonestrom
              
              Chief
                  Executive Officer,
              
              March
                  31, 2006Eric
                  D. Stonestrom
              
              Director
                  (Principal Executive Officer)/s/
                  Matthew J. Desch
              
              Chairman
                  of the Board of Directors
              
              March
                  31, 2006Matthew
                  J. Desch/s/
                  Peter Aronstam
              
              Senior
                  Vice President, Finance;
              
              March
                  31, 2006Peter
                  Aronstam
              
              Chief
                  Financial Officer (Principal
                Financial
                  and Accounting Officer)/s/
                  H. Berry Cash
              
              Director
              
              March
                  31, 2006H.
                  Berry Cash/s/
                  Randall E. Curran
              
              Director
              
              March
                  31, 2006Randall
                  E. Curran
  59
  /s/
                  Michael T. Flynn
              
              Director
              
              March
                  31, 2006Michael
                  T. Flynn/s/
                  Guillermo Heredia
              
              Director
              
              March
                  31, 2006Guillermo
                  Heredia/s/
                  Thomas S. Huseby
              
              Director
              
              March
                  31, 2006Thomas
                  S. Huseby/s/
                  David Twyver
              
              Director
              
              March
                  31, 2006David
                  Twyver
 
 60
 **REPORT
        OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMS**
   Board
        of
        Directors and Stockholders of Airspan
        Networks, Inc.
  We
        have
        audited the accompanying consolidated balance sheet of Airspan Networks,
        Inc.
        and its subsidiaries as of December 31, 2005, and the related consolidated
        statement of operations, changes in stockholders’ equity, and cash flows for the
        year then ended. These financial statements are the responsibility of the
        Company's management. Our responsibility is to express an opinion on these
        financial statements based on our audit. The financial statements of Airspan
        Networks, Inc. as of and for the years ended December 31, 2004 and 2003 were
        audited by other auditors. Those auditors expressed an unqualified opinion
        on
        those financial statements in their report dated April 27, 2005.
  We
        conducted our audit in accordance with the standards of the Public Company
        Accounting Oversight Board (United States). Those standards require that
        we plan
        and perform the audit to obtain reasonable assurance about whether the financial
        statements are free of material misstatement. An audit includes examining,
        on a
        test basis, evidence supporting the amounts and disclosures in the financial
        statements. An audit also includes assessing the accounting principles used
        and
        significant estimates made by management, as well as evaluating the overall
        financial statement presentation. We believe that our 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.
        as of
        December 31, 2005, and the consolidated results of their operations and their
        cash flows for the year ended December 31, 2005 in conformity with accounting
        principles generally accepted in the United States of America.
 
 Our
        audit
        was conducted for the purpose of forming an opinion on the basic financial
        statements taken as a whole. Schedule II is presented for purposes of additional
        analysis and is not a required part of the basic financial statements. Such
        information has been subjected to the auditing procedures applied in the
        audit
        of the basic financial statements and, in our opinion, is fairly stated in
        all
        material respects in relation to the basic financial statements taken as
        a
        whole.
 
 We
        also
        have audited, in accordance with the standards of the Public Company Accounting
        Oversight Board (United States), the effectiveness of Airspan Networks, Inc.’s
        internal control over financial reporting as of December 31, 2005, based
        on
        criteria established in Internal Control—Integrated Framework issued by the
        Committee of Sponsoring Organizations of the Treadway Commission (COSO)")
        and
        our report dated March 31, 2006 which expressed an unqualified opinion on
        management’s assessment and an adverse opinion on the effectiveness of internal
        control over financial reporting.
 
 
 /s/
        GRANT
        THORNTON LLP
  Miami,
        Florida
 March
        31,
        2006
  F-1
 
 **REPORT
          OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMS**–**(Continued)**
  To
          the
          Board of Directors and Stockholders of Airspan Networks Inc.
 
 We
        have
        audited the accompanying consolidated balance sheet of Airspan Networks Inc.
        and
        subsidiaries as of December 31, 2004 and the related consolidated statements
        of
        operations, changes in stockholders’ equity, and cash flows for each of the two
        years in the period ended December 31, 2004. Our audits also included the
        financial statement schedule listed in the Index at Item 15(a) for each of
        the
        two years in the period ended December 31, 2004. These consolidated financial
        statements and schedule are the responsibility of the Company’s management. Our
        responsibility is to express an opinion on these consolidated financial
        statements and schedule based on our 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 financial
        statements are free of material misstatement. An audit includes examining,
        on a
        test basis, evidence supporting the amounts and disclosures in the financial
        statements. An audit also includes assessing the accounting principles used
        and
        significant estimates made by management, as well as evaluating the overall
        financial statement presentation. We believe that our audits provide a
        reasonable basis for our opinion.
 
 In
        our
        opinion, the consolidated financial statements referred to above present
        fairly,
        in all material respects, the consolidated financial position of Airspan
        Networks Inc. and subsidiaries at December 31, 2004, and the consolidated
        results of their operations and their cash flows for each of the two years
        in
        the period ended December 31, 2004, in conformity with U.S. generally accepted
        accounting principles. Also, in our opinion, the related financial statement
        schedule, when considered in relation to the basic financial statements taken
        as
        a whole, presents fairly in all material respects the information set forth
        therein for each of the two years in the period ended December 31,
        2004.
 
 
 Ernst
        & Young LLP
 
 London,
        England
 April
        27,
        2005
  F-2
 **AIRSPAN
        NETWORKS INC.**
 **CONSOLIDATED
        BALANCE SHEETS**
 **(in
        thousands, except for share data)**
 
 **December
                  31,**
                **2004**
              
              **December
                  31,**
                **2005****ASSETS****Current
                  assets**Cash
                  and cash equivalents
              
              $
              66,296
              
              $
              44,140Restricted
                  cash
              
              
              1,687
              
              
              3,335Short
                  term investments
              
              
              —
              
              
              6,020Accounts
                  receivable, less allowance for doubtful accounts of $2,814 in 2004 and
                  $3,519 in 2005
              
              
              20,947
              
              
              24,348Unbilled
                  accounts receivable
              
              
              43
              
              
              273Inventory
              
              
              12,834
              
              
              16,850Prepaid
                  expenses and other current assets
              
              
              5,702
              
              
              3,722Total
                  current assets
              
              
              107,509
              
              
              98,688Property,
                  plant and equipment, net
              
              
              3,707
              
              
              5,268Goodwill
              
              
              789
              
              
              10,231Intangible
                  assets, net
              
              
              1,672
              
              
              3,865Long
                  term accounts receivable
              
              
              305
              
              
              —Other
                  non current assets
              
              
              1,216
              
              
              2,400Total
                  assets
              
              $
              115,198
              
              $
              120,452**LIABILITIES
                  AND STOCKHOLDERS’ EQUITY****Current
                  liabilities**Accounts
                  payable
              
              $
              24,615
              
              $
              24,678Accrued
                  taxes
              
              
              653
              
              
              1,156Deferred
                  revenue
              
              
              627
              
              
              1,514Customer
                  advances
              
              
              4,789
              
              
              13,935Other
                  accrued expenses
              
              
              11,349
              
              
              13,113Current
                  portion of long term debt
              
              
              —
              
              
              96Total
                  current liabilities
              
              
              42,033
              
              
              54,492**Non
                  Current liabilities**Long
                  term debt
              
              
              —
              
              
              1,296Accrued
                  interest on long term debt
              
              
              —
              
              
              53Total
                  non current liabilities
              
              
              —
              
              
              1,349**Commitments
                  (see note 11)**
              
              
              —
              
              
              —**Stockholders’
                  equity**Preferred
                  stock.$0.0001
                  par value; 74,200 shares authorized at December 31, 2004 and 2005:
                  73,000 shares issued at December 31, 2004 and 2005
              
              
              —
              
              
              —Common
                  stock,
                  $0.0003 par value; 100,000,000 shares authorized at December 31 2004
                  and 2005: 37,644,627 issued at December 31, 2004 and 39,668,271 issued
                  at December 31, 2005
              
              
              11
              
              
              12Note
                  receivable — stockholder
              
              
              (87
              )
              
              (87
              )Additional
                  paid in capital
              
              
              260,356
              
              
              267,426Accumulated
                  other comprehensive income
              
              
              418
              
              
              (130
              )Accumulated
                  deficit
              
              
              (187,533
              )
              
              (202,610
              )Total
                  stockholders’ equity
              
              
              73,165
              
              
              64,611Total
                  liabilities and stockholders’ equity
              
              $
              115,198
              
              $
              120,452
  The
        accompanying notes are an integral part of these financial statements
  F-3
 **AIRSPAN
        NETWORKS INC.**
 **CONSOLIDATED
        STATEMENTS OF OPERATIONS**
 **(in
        thousands, except for share and per share data)**
  **Year
                  ended**
                **December
                  31,**
                **2003**
              
              **Year
                  ended**
                **December
                  31,**
                **2004**
              
              **Year
                  ended**
                **December
                  31,**
                **2005**Revenue
              
              $
              30,651
              
              $
              94,647
              
              $
              110,966Cost
                  of revenue
              
              
              (27,691
              )
              
              (67,243
              )
              
              (79,467
              )Gross
                  profit
              
              
              2,960
              
              
              27,404
              
              
              31,499Operating
                  expenses:Research
                  and development
              
              
              14,395
              
              
              18,794
              
              
              21,157Sales
                  and marketing
              
              
              10,389
              
              
              11,013
              
              
              11,464Bad
                  debt expense
              
              
              946
              
              
              549
              
              
              1,115General
                  and administrative
              
              
              8,741
              
              
              11,042
              
              
              12,682Amortization
                  of intangibles
              
              
              172
              
              
              723
              
              
              942Restructuring
                  provision
              
              
              750
              
              
              413
              
              
              1,150Total
                  operating expenses
              
              
              35,393
              
              
              42,534
              
              
              48,510Loss
                  from operations
              
              
              (32,433
              )
              
              (15,130
              )
              
              (17,011
              )Interest
                  expense
              
              
              (38
              )
              
              —
              
              
              (9
              )Interest
                  and other income
              
              
              3,021
              
              
              3,217
              
              
              1,397Loss
                  before income taxes
              
              
              (29,450
              )
              
              (11,913
              )
              
              (15,623
              )Income
                  tax credits/ (expenses)
              
              
              (5
              )
              
              1,938
              
              
              546
 Net
                  loss
              
              
              (29,455
              )
              
              (9,975
              )
              
              (15,077
              )Deemed
                  dividend associated with beneficial conversion of preferred
                  stock
              
              
              —
              
              
              (10,439
              )
              
              —Net
                  loss attributable to common stockholders
              
              $
              (29,455
              )
              $
              (20,414
              )
              $
              (15,077
              )Net
                  loss attributable to common stockholders per share - basic and
                  diluted
              
              $
              (0.84
              )
              $
              (0.56
              )
              $
              (0.39
              )Weighted
                  average shares outstanding-basic and diluted
              
              
              35,073,315
              
              
              36,441,932
              
              
              38,736,939
  The
        accompanying notes are an integral part of these financial statements
 
 F-4
 **AIRSPAN
        NETWORKS INC.**
 **CONSOLIDATED
        STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY**
 **(in
        thousands, except for share data)**
 
 **Preferred
                  Stock**
              
              **Common
                  Stock****Shares**
              
              **Par
                  value**
              
              **Shares**
              
              **Par**
                **value**
              
              **Additional**
                **paid
                  in**
                **capital**
              
              **Treasury**
                **stock**
              
              **Note**
                **receivable**
                **stockholder**
              
              **Accumulated**other
                **comprehensive**
                **income**
              
              **Accumulated**
                **deficit**
              
              **Total**At
                  At January 1, 2003
              
              
              
              
              
              
              
              
              35,125,996
              
              $
              10
              
              $
              214,727
              
              $
              (405
              )
              $
              (130
              )
              $
              1,562
              
              $
              (137,664
              )
              $
              78,100Comprehensive
                  Loss:Net
                  loss
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              (29,455
              )
              
              (29,455
              )Other
                  Comprehensive Income:Movement
                  in the fair value of cash flow hedgesUnrealized
                  gains on foreign currency cashflow hedges
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              —
              
              
              —
              
              
              —
              
              
              1,952
              
              
              —Less:
                  reclassification of adjustment for gains realized in net income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              —
              
              
              —
              
              
              —
              
              
              (1,675
              )
              
              —277
              
              
              
              
              
              277Comprehensive
                  loss
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              (29,178
              )Issuance
                  of common stock - employee share purchase plan
              
              
              
              
              
              
              
              
              531,164
              
              
              1
              
              
              369
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              370Exercise
                  of stock options
              
              
              
              
              
              
              
              
              244,765
              
              
              —
              
              
              112
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              112Purchase
                  of own shares
              
              
              
              
              
              
              
              
              (422,074
              )
              
              —
              
              
              —
              
              
              (392
              )
              
              —
              
              
              —
              
              
              —
              
              
              (392
              )At
                  December 31, 2003
              
              
              —
              
              
              —
              
              
              35,479,851
              
              $
              11
              
              $
              215,209
              
              $
              (797
              )
              $
              (130
              )
              $
              1,839
              
              $
              (167,119
              )
              $
              49,013Comprehensive
                  Loss:Net
                  loss
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              (9,975
              )
              
              (9,975
              )Other
                  Comprehensive Income:Movement
                  in the fair value of cash flow hedgesUnrealized
                  gains on foreign currency cash flow hedges
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              —
              
              
              —
              
              
              —
              
              
              590
              
              
              —Less:
                  reclassification of adjustment for gainsrealized in net income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              —
              
              
              —
              
              
              —
              
              
              (2,011
              )
              
              —(1,421
              )
              
              
              
              
              (1,421
              )Comprehensive
                  loss
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              (11,396
              )Decrease
                  in notes receivable
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              43
              
              
              
              
              
              
              
              
              43Issuance
                  of Series A Preferred shares
              
              
              73,000
              
              
              —
              
              
              
              
              
              
              
              
              29,132
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              29,132Deemed
                  dividend associated with beneficial conversion of preferred
                  stock
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              10,439
              
              
              —
              
              
              —
              
              
              —
              
              
              (10,439
              )
              
              —Issuance
                  of common stock - employee sharepurchase plan
              
              
              
              
              
              
              
              
              211,754
              
              
              —
              
              
              373
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              373Exercise
                  of stock options
              
              
              
              
              
              
              
              
              1,118,462
              
              
              —
              
              
              1,577
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              1,577Sale
                  of own shares
              
              
              
              
              
              
              
              
              834,560
              
              
              —
              
              
              3,626
              
              
              797
              
              
              —
              
              
              —
              
              
              —
              
              
              4,423At
                  December 31, 2004
              
              
              73,000
              
              
              **—**
              
              
              37,644,627
              
              $
              11
              
              $
              260,356
              
              
              —
              
              $
              (87
              )
              $
              418
              
              $
              (187,533
              )
              $
              73,165Comprehensive
                  Loss:Net
                  loss
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              (15,077
              )
              
              (15,077
              )Other
                  Comprehensive Income:Movement
                  in the fair value of cash flow hedgesUnrealized
                  losses on foreign currency cash flow hedges
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              —
              
              
              —
              
              
              —
              
              
              (130
              )
              
              —Less:
                  reclassification of adjustment forgains realized in net income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              —
              
              
              —
              
              
              —
              
              
              (418
              )
              
              —(548
              )
              
              
              
              
              (548
              )Comprehensive
                  loss
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              (15,625
              )Issuance
                  of common stock - employee share purchase plan
              
              
              
              
              
              
              
              
              130,630
              
              
              —
              
              
              485
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              485Exercise
                  of stock options
              
              
              
              
              
              
              
              
              883,390
              
              
              —
              
              
              1,332
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              1,332Issuance
                  of common stock -ArelNet acquisition
              
              
              
              
              
              
              
              
              1,001,325
              
              
              1
              
              
              4,751
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              4,752Stock
                  compensation from the issuance of stock options -ArelNet
                  acquisition
              
              
              
              
              
              
              
              
              
              
              
              —
              
              
              309
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              309Issuance
                  of common stock - 401K plan
              
              
              
              
              
              
              
              
              8,299
              
              
              —
              
              
              45
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              45Restricted
                  stock compensation
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              148
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              148At
                  December 31, 2005
              
              
              73,000
              
              
              **—**
              
              
              39,668,271
              
              $
              12
              
              $
              267,426
              
              
              —
              
              $
              (87
              )
              $
              (130
              )
              $
              (202,610
              )
              $
              64,611
   The
        accompanying notes are an integral part of these financial
        statements
  F-5
 **AIRSPAN
        NETWORKS INC.**
 **CONSOLIDATED
        STATEMENTS OF CASH FLOWS**
 **(in
        thousands)**
  **Year
                  ended**
                **December
                  31,**
                **2003**
              
              **Year
                  ended**
                **December
                  31,**
                **2004**
              
              **Year
                  ended**
                **December
                  31,**
                **2005****CASH
                  FLOWS FROM OPERATING ACTIVITIES**Net
                  loss
              
              $
              (29,455
              )
              $
              (9,975
              )
              $
              (15,077
              )Adjustments
                  to reconcile net loss to net cash used in operating
                  activities:Depreciation
                  and amortization
              
              
              2,701
              
              
              2,546
              
              
              2,817Gain
                  on settlement of long-term debt
              
              
              (125
              )
              
              —
              
              
              —Loss
                  on sale of property, plant and equipment
              
              
              —
              
              
              136
              
              
              57401K
                  plan common stock distribution
              
              
              —
              
              
              —
              
              
              45Restricted
                  stock compensation
              
              
              —
              
              
              —
              
              
              148Changes
                  in operating assets and liabilities:Decrease/(increase)
                  in receivables
              
              
              1,819
              
              
              (8,743
              )
              
              (1,816
              )Decrease/(increase)
                  in inventories
              
              
              7,962
              
              
              10,077
              
              
              (3,440
              )Decrease/(increase)
                  in other current assets
              
              
              112
              
              
              (2,541
              )
              
              1,869Increase/(decrease)
                  in accounts payable
              
              
              (16
              )
              
              16,864
              
              
              (411
              )Increase/(decrease)
                  in deferred revenue
              
              
              101
              
              
              (362
              )
              
              867Increase/(decrease)
                  in customer advances
              
              
              —
              
              
              (10,280
              )
              
              8,760Increase/(decrease)
                  in other accrued expenses
              
              
              (674
              )
              
              1,583
              
              
              (854
              )Increase
                  in non current assets
              
              
              (78
              )
              
              (233
              )
              
              (211
              )Net
                  cash used in operating activities
              
              
              (17,653
              )
              
              (928
              )
              
              (7,246
              )**CASH
                  FLOWS FROM INVESTING ACTIVITIES**Purchase
                  of property, plant and equipment
              
              
              (1,791
              )
              
              (2,151
              )
              
              (3,114
              )Purchase
                  of investment securities
              
              
              —
              
              
              —
              
              
              (16,669
              )Proceeds
                  from sale of investments securities
              
              
              5,074
              
              
              —
              
              
              10,649Cost
                  of acquisitions, net of cash acquired
              
              
              1,855
              
              
              —
              
              
              (5,945
              )Net
                  cash provided/(used) in investing activities
              
              
              5,138
              
              
              (2,151
              )
              
              (15,079
              )**CASH
                  FLOWS FROM FINANCING ACTIVITIES**Net
                  proceeds from issuance of common stock
              
              
              369
              
              
              373
              
              
              485Net
                  proceeds from issuance of preferred stock
              
              
              —
              
              
              29,132
              
              
              —Purchase
                  of treasury stock
              
              
              (392
              )
              
              —
              
              
              —Sale
                  of treasury stock
              
              
              —
              
              
              4,423
              
              
              —Payment
                  on long-term debt, including capital lease obligations
              
              
              (2,375
              )
              
              —
              
              
              —Exercise
                  of stock options
              
              
              114
              
              
              1,577
              
              
              1,332Decrease
                  in notes receivable from stockholders
              
              
              —
              
              
              43
              
              
              —Restricted
                  cash movement
              
              
              558
              
              
              (99
              )
              
              (1,648
              )Net
                  cash provided/(used) by financing activities
              
              
              (1,726
              )
              
              35,449
              
              
              169Increase/(decrease)
                  in cash and cash equivalents
              
              
              (14,241
              )
              
              32,370
              
              
              (22,156
              )Cash
                  and cash equivalents, beginning of period
              
              
              48,167
              
              
              33,926
              
              
              66,296Cash
                  and cash equivalents, end of period
              
              $
              33,926
              
              $
              66,296
              
              $
              44,140**SUPPLEMENTAL
                  DISCLOSURES OF CASH FLOW INFORMATION**Interest
                  paid
              
              $
              26
              
              $
              —
              
              $
              —Income
                  taxes paid
              
              $
              5
              
              $
              23
              
              $
              20Noncash
                  Investing and Financing ActivitiesIssuance
                  of stock related to acquisitions
              
              $
              —
              
              $
              —
              
              $
              5,061
  The
        accompanying notes are an integral part of these financial statements
 
 F-6
 AIRSPAN
        NETWORKS INC.
 NOTES
        TO
        THE FINANCIAL STATEMENTS
 (in
        thousands, except for share and per share data)
  **1.
        THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**
  *Business*
  The
        Company is a global supplier of broadband fixed wireless access equipment
        and
        other technologies, including Voice-over-IP (VoIP) switching, that allows
        communications service providers, Internet service providers and other
        telecommunications users such as utilities and enterprises to cost effectively
        deliver high-speed data and voice services using radio frequencies rather
        than
        wires. The Company’s systems are based on a number of digital wireless
        technologies that can be deployed rapidly and cost effectively, providing
        an
        alternative or complement to traditional cellular, copper wire, cable, or
        fiber-optic communications access networks. The primary market for our systems
        has historically been a subset of the fixed broadband wireless access systems
        market, which is the fixed point-to-multipoint market in radio frequencies
        below
        6.0GHz. The Company’s products also include software tools that optimize
        geographic coverage and provide ongoing network management. To facilitate
        the
        deployment and operation of its systems, the Company also offers network
        installation, training and support services. The Company’s main operations are
        in Uxbridge, United Kingdom, and Airport City, Israel, with corporate
        headquarters in Boca Raton, Florida, USA.
  *Principles
        of consolidation*
  The
        consolidated financial statements include the accounts of the Company and
        its
        subsidiaries, all of which are wholly owned. All significant inter-company
        transactions and balances are eliminated on consolidation.
  *Use
        of estimates*
  The
        preparation of financial statements in conformity with generally accepted
        accounting principles requires management to make estimates and assumptions
        that
        affect the amounts reported in the financial statements and accompanying
        notes.
        Actual results could differ from those estimates.
  *Cash
        and cash equivalents*
  The
        Company considers all highly liquid investments with a maturity of three
        months
        or less when purchased to be cash equivalents. Cash and cash equivalents
        are all
        maintained in either bank accounts or investments that are of investment
        grade
        quality and are not subject to significant market risk.
  *Short
        term investments*
 
 The
        Company accounts for its investments in marketable securities using Statement
        of
        Financial Accounting Standard No. 115, “Accounting for Certain Investments in
        Debt and Equity Securities” (“SFAS 115”).
  Debt
        securities with original maturities greater than three months and with current
        maturities less than one year are considered short-term investments. They
        are of
        investment grade quality and are not subject to significant market risk.
        Short-term investments are classified as held-to-maturity when the Company
        has
        the positive intent and ability to hold the securities to maturity and are
        stated at amortized cost. The amortized cost of held-to-maturity securities
        is
        adjusted for amortization of premiums and accretion of discounts to maturity.
        Such amortization, interest and declines in value that are other than temporary,
        are included in the statements of operations as interest income or expense
        as
        appropriate.
 
 *Accounts
        receivable and long term accounts receivable*
  Accounts
        receivable and long term accounts receivable represent receivables from
        customers in the ordinary course of business. These are recorded at the invoiced
        amount and do not bear interest. Receivables are recorded net of the allowance
        for doubtful accounts in the accompanying consolidated balance sheets. The
        Company evaluates the collectibility of its accounts receivable based on
        a
        combination of factors. The Company regularly analyzes its overdue customer
        accounts, and when it becomes aware of a specific customer’s inability to meet
        its financial obligations to the Company records a specific reserve to reduce
        the related receivable to the amount it reasonably
  F-7
 AIRSPAN
          NETWORKS INC.
 NOTES
          TO
          THE FINANCIAL STATEMENTS –
          (Continued)
 (in
          thousands, except for share and per share data)
  believes
        to be collectible. In addition, the Company records a general allowance for
        bad
        debts based on historical experience applied to the customer accounts receivable
        aging. When collection efforts cease, the account and related reserve are
        written off. If circumstances related to specific customers change, the
        Company’s estimates of the recoverability of receivables could be further
        adjusted. At December 31, 2005 and 2004, the allowance for doubtful accounts
        was
        $3.5 million and $2.8 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,
        long
        term accounts receivable, accounts payable, long term debt and foreign currency
        forward contracts. The estimated fair values approximate amounts at which
        these
        financial instruments could be exchanged in a current transaction between
        willing parties. Therefore, fair values are based on estimates using present
        value and other techniques, which are significantly affected by assumptions
        used
        concerning the amount and timing of, estimated future cash flows and discount
        rates, which reflect varying degrees of risk. Specifically, the fair value
        of
        long-term debt instruments reflects a current yield valuation based on a
        3.00%
        euro borrowing rate at December 31, 2005. The fair value of the foreign currency
        forward contracts reflects the present value of the potential gain or loss
        if
        settlement were to take place on December 31, 2005. Accordingly, although
        the
        carrying amount of all financial instruments approximates fair value at December
        31, 2005 and 2004 they are not necessarily indicative of the amounts that
        the
        Company could realize in a current market exchange in the future.
 
 *Derivative
        financial instruments and hedging activities*
  The
        Company enters into forward and option contracts to manage its exposure to
        fluctuations in foreign exchange rates. The Company does not hold any derivative
        instruments for trading purposes. As part of the Company’s risk management
        policy the Company assesses its foreign currency risk on each transaction
        on a
        case-by-case basis. The Company will only enter into forward and option
        contracts after taking into account the size of the transaction, expected
        volatility of the currency and prevailing foreign currency exchange rates.
  Our
        foreign exchange option contracts are designated as hedging the exposure
        to
        changes in the fair value of a recognized asset and the gain or loss is
        recognized in income in the period of change together with the offsetting
        loss
        or gain on the hedged item attributable to the risk being hedged. There were
        no
        outstanding option contracts at December 31, 2005.
  Our
        foreign exchange forward contracts are designated as hedging the exposure
        to
        variable cash flows of a forecasted transaction. The foreign exchange contracts
        are revalued at the end of each period using current market exchange
        rates.  Effectiveness
        will be measured by comparing the changes in fair value of the hedge against
        the
        change in the expense being hedged arising form US dollars to UK pound sterling
        currency fluctuations since the date of inception. There is no portion of
        the
        hedging instruments that have been excluded from the assessment of
        effectiveness. The effective portion of the derivatives gain or loss is
        initially reported as a component of other comprehensive income and subsequently
        reclassified into income when the forecast transaction affects earnings.
        Any
        ineffective portion of the derivatives gain or loss is reported in interest
        and
        other income as it arises. In the years 2003, 2004 and 2005 there were no
        ineffective portions. Our cash flow hedges are being used to manage our pound
        sterling foreign currency risk, primarily on our UK-based employee salaries,
        facility costs and other UK expenses. Our UK salaries and expenses are accounted
        for each month and therefore reclassification into earnings from comprehensive
        income will occur every month.
 
 We
        use
        two types of forward contracts to hedge our pound sterling risk
  ·
              straight
                  forward contracts that lock in exchange rates for a specific date
                  in the
                  future and
 ·
              “Forward
                  Extra Plus” contracts that lock in exchange rates only if certain exchange
                  rates are reached over the period of the contract. The terms of
                  these are
                  explained more fully in “ITEM 7A”
  At
        December 31, 2005 there were three monthly Forward Extra Plus contracts
        outstanding to purchase a total of 3.0 million pounds sterling up until March
        2006 and no straight forward contracts outstanding. At December 31, 2005
        these
        were valued at a loss of $130 and are reported in other accrued expenses
        in the
        balance sheet.
  F-8
 AIRSPAN
            NETWORKS INC.
 NOTES
            TO
            THE FINANCIAL STATEMENTS –
            (Continued)
 (in
            thousands, except for share and per share data)
 During
        2005, 2004 and 2003, the Company recorded, after reclassification
        of amounts into net income, net unrealized losses in other comprehensive
        income of $130, $1,421 and $227, respectively, related to derivatives that
        were
        designated as cash flow hedging instruments. The tax effects of comprehensive
        income or loss were not considered material for the years ended December
        31,
        2005, 2004 and 2003. Based on the exchange rate at December 31, 2005, the
        Company would expect to reclassify as a loss to earnings during the next
        twelve
        months $130 from other comprehensive income.
  Realized
        gains and losses arising from fair value and cash flow hedges are reported
        in
        interest and other income. Unrealized gains and losses are shown in Other
        Comprehensive Income with the other side of the transaction shown in prepayments
        for gains and accruals for losses. Changes in unrealized gains and losses
        are
        shown in the cash flow statement as adjustments to reconcile net loss to
        net
        cash used in operating activities within either other current assets or other
        accrued expenses, depending on whether the movements relate to gains or
        losses.
  The
        total
        straight forward and “Forward Extra Plus” contracts of pounds sterling that
        matured during the year ended December 31, 2005, was 6.2 million pounds
        sterling, and we paid expenses in local currency of approximately 17.3 million
        pounds sterling over the same period. The effectiveness of the contracts
        as
        hedges was approximately 100%.
  The
        fair
        value of foreign exchange forward and options contracts are determined using
        published rates.
  *Inventories*
  Inventories
        are stated at the lower of cost or market value. Cost includes all costs
        incurred in bringing each product to its present location and condition,
        as
        follows:
  Raw
        materials, consumables and finished goods — average cost
  Work
        in
        progress— cost of direct materials, labor and allocated manufacturing overhead
 
 *Property,
        plant and equipment*
  Property
        plant and equipment are stated at cost. Depreciation is provided on all tangible
        fixed assets at rates calculated to write off the cost, less estimated residual
        value, based on prices prevailing at the date of acquisition of each asset
        evenly over its expected useful life, as follows:
  Leasehold
        improvements — over the minimum lease term
  Plant,
        machinery and equipment — over 2 to 5 years
  Furniture
        and fixtures — over 4 to 5 years
  *Identifiable
        intangible assets*
  Only
        intangible assets purchased are capitalized. The company does not capitalize
        internally generated intangible assets or goodwill. Intangible assets other
        than
        goodwill are amortized using the straight-line method over their estimated
        period of benefit, ranging from one to five years. The Company periodically
        evaluates the recoverability of intangible assets and takes into account
        events
        or circumstances that warrant revised estimates of useful lives or that indicate
        that an impairment exists. All of the Company’s intangible assets other than
        goodwill are subject to amortization. At least annually, the Company tests
        its
        identified intangible assets for impairment. In addition, the Company also
        tests
        such intangible assets for impairment whenever events or changes in
        circumstances indicate that the carrying value of identified intangible assets
        may not be recoverable. No impairment expense was recognized in 2005, 2004
        or
        2003.
  F-9
 AIRSPAN
            NETWORKS INC.
 NOTES
            TO
            THE FINANCIAL STATEMENTS –
            (Continued)
 (in
            thousands, except for share and per share data)
 *Goodwill
        arising on business combinations*
  Under
        Statement of Financial Accounting Standards 142, “Goodwill and Other Intangible
        Assets”, goodwill is not amortized, but is instead tested for impairment at
        least annually. At least annually, the Company tests its goodwill for
        impairment. In addition, the Company also tests its goodwill for impairment
        whenever events or changes in circumstances indicate that the carrying value
        of
        goodwill may not be recoverable. No impairment expense was recognized in
        2005,
        2004 or 2003.
  *Impairment
        of long-lived assets*
  In
        accordance with Statement of Financial Accounting Standards No. 144, “Accounting
        for the Impairment or Disposal of Long-Lived Assets”, the Company reviews its
        long-lived assets for impairment when events or changes in circumstances
        indicate that the carrying value of such assets may not be recoverable. This
        review consists of a comparison of the carrying value of the asset with the
        asset’s expected future undiscounted cash flows. Estimates of expected future
        cash flows represent Management’s best estimate based on reasonable and
        supportable assumptions and projections. If the expected future cash flows
        exceed the carrying value of the asset, no impairment is recognized. If the
        carrying value of the asset exceeds the expected future cash flows, impairment
        exists and is determined by the excess of the carrying value over the fair
        value
        of the asset. Any impairment provisions recognized are permanent and may
        not be
        restored in the future. No impairment expense was recognized in 2005, 2004
        or
        2003.
  *Other
        non current assets*
  Other
        non
        current assets represent the value of accumulated Israel severance pay
        funds.  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 expense.
        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, 2003, 2004 and 2005,
        were $211, $260 and $333, respectively.
  *Restricted
        cash*
  Restricted
        cash consists of cash pledged as collateral to secure the guarantees described
        in Note 11 and cash held on behalf of employees to purchase Airspan stock
        under
        our Employee Share Purchase Plan.
  **December
                  31,**
                **2004**
              
              **December
                  31,**
                **2005**Bank
                  Guarantees - with Landlords
              
              $
              1,488
              
              $
              1,332Bank
                  Guarantees - with Customers
              
              
              14
              
              
              1,787Employee
                  cash held under the Employee Share Purchase Plan
              
              
              185
              
              
              216$
              1,687
              
              $
              3,335
  *Research
        and development*
  All
        research and development expenditures are charged to research and development
        expense in the period incurred.
  F-10
 AIRSPAN
            NETWORKS INC.
 NOTES
            TO
            THE FINANCIAL STATEMENTS – (Continued)
 (in
            thousands, except for share and per share data)
  *Revenue
        recognition*
  *General*
  The
        Company recognizes revenue when all of the following conditions are
        met:
  ·
              an
                  arrangement exists with the customer,
 ·
              delivery
                  has occurred or services have been rendered,
 ·
              the
                  price for the product or service is fixed or determinable, and
 ·
              collection
                  of the receivable is reasonably assured.
  *Product
        Revenue*
  Revenue
        from product sales, including sales to distributors and resellers, is generally
        recognized at the time the product is shipped 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 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
        historical experience.
  *Service
        Revenue*
  Revenue
        from time-and-material service contracts is recognized once the services
        have
        been performed. Revenue from service contracts that relate to a period of
        cover
        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, the company enters into agreements with customers whereby
        it is
        obligated to deliver multiple products and/or multiple services (multiple
        elements). In these transactions, the Company allocates the total revenue
        to be
        earned under the arrangement among the various elements based on their relative
        fair value. Revenue for these transactions is recognized on each element
        when
        the revenue recognition criteria have been met for that element. Revenue
        is
        recognized for delivered products and services only if: (i) the above Product
        Revenue or Service Revenue criteria are met; (ii) undelivered products or
        services are not essential to the functionality of the delivered elements,
        (iii)
        payment for the delivered products or services is not contingent upon delivery
        of the remaining products or services; and (iv) the fair value for each of
        the
        undelivered elements is known. Our assessment of which revenue recognition
        guidance is appropriate to account for a deliverable also can involve
        significant judgment.
  *Contingencies*
  *Guarantees*
  In
        November 2002, the FASB issued FIN 45, “Guarantor’s Accounting and Disclosure
        Requirements for Guarantees, Including Indirect Guarantees of Indebtedness
        of
        Others.” FIN 45 elaborates on the existing disclosure requirements for most
        guarantees, including loan guarantees such as standby letters of credit.
        It also
        clarifies that at the time a company issues a guarantee, the company must
        recognize an initial liability for the fair value, or market value, of the
        obligations it assumes under the guarantee and must disclose that information
        in
        its interim and annual financial statements. The provisions related to
        recognizing a liability at inception of the guarantee for the fair value
        of the
        guarantor’s obligations do not apply to product warranties or to guarantees
        accounted for as derivatives.
  F-11
 AIRSPAN
            NETWORKS INC.
 NOTES
            TO
            THE FINANCIAL STATEMENTS – (Continued)
 (in
            thousands, except for share and per share data)
 *Warranty*
  The
        Company provides a limited warranty for periods, usually ranging from twelve
        to
        twenty-four months, to all purchasers of its new equipment. Warranty expense
        is
        accrued as of the date revenue is recognized on the sale of equipment and
        is
        recognized as a cost of revenue. The expense is estimated based on analysis
        of
        historic costs and other relevant factors and is amortized over the warranty
        period. Management believes that the amounts provided for are sufficient
        for all
        future warranty cost on equipment sold through December 31, 2005 but if actual
        product failure rates, material usage or service delivery costs differ from
        estimates, revisions to the estimated warranty liability would be required.
  Information
        regarding the changes in the Company’s product warranty liabilities was as
        follows for the years ended December 31, 2005, 2004 and 2003.
 
 **Balance
                  at**
                **beginning
                  of**
                **period**
              
              **Acquired
                  on acquisition**
              
              **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
                  period**Product
                  warranty liabilityYear
                  ended December 31, 2005
              
              $
              604
              
              $
              134
              
              $
              582
              
              $
              (482
              )
              $
              (428
              )
              $
              410Year
                  ended December 31, 2004
              
              $
              652
              
              
              —
              
              
              1,003
              
              
              (299
              )
              
              (752
              )
              
              604Year
                  ended December 31, 2003
              
              $
              600
              
              
              —
              
              $
              630
              
              $
              (65
              )
              $
              (513
              )
              $
              652
 
 *Other
        guarantees*
  The
        Company had delivered to its landlords and customers bank guarantees aggregating
        to $3,119 at December 31, 2005 and $1,502 as at December 31, 2004. The foregoing
        figures represent the maximum potential amount of future payments the Company
        could be required to make under these guarantees. The guarantees secure payment
        or performance obligations of the Company under contracts. The Company has
        pledged cash to the banks as collateral for the guarantees in the same amounts
        as the guarantees. These pledges have been classified as restricted cash.
        The
        Company has not recognized any liability for these guarantees as in management’s
        opinion the likelihood of having to make payments under the guarantees is
        remote. These guarantees will all expire before the end of 2010 with the
        majority expiring in the fourth quarter of 2010.
 
 As
        well
        as the guarantees mentioned above the Company has issued a guarantee to Tekes,
        the main public funding organization for research and development in Finland,
        to
        guarantee the repayment of loans taken out by our fully consolidated subsidiary
        Radionet. These loans total $1,392 at December 31, 2005 and are recorded
        in long
        term debt. This guarantee expires only once Radionet has fulfilled all its
        obligations to Tekes.
 
 *Legal
        claims*
  On
        and
        after July 23, 2001, three Class Action Complaints were filed in the United
        States District Court for the Southern District of New York naming as defendants
        Airspan, and Eric D. Stonestrom (our President and Chief Executive Officer),
        Joseph J. Caffarelli (our former Senior Vice President and Chief Financial
        Officer), Matthew Desch (our Chairman) and Jonathan Paget (our Executive
        Vice
        President and Chief Operating Officer) (the “Individual Defendants”) together
        with certain underwriters of our July 2000 initial public offering. A
        Consolidated Amended Complaint, which is now the operative complaint, was
        filed
        on April 19, 2002. The complaint alleges violations of Sections 11 and 15
        of the
        Securities Act of 1933 and Sections 10(b) and 20(a) of the Securities Exchange
        Act of 1934 for issuing a Registration Statement and Prospectus that contained
        materially false and misleading information and failed to disclose material
        information. In particular, Plaintiffs allege that the underwriter-defendants
        agreed to allocate stock in our initial public offering to certain investors
        in
        exchange for excessive and undisclosed commissions and agreements by those
        investors to make additional purchases of stock in the aftermarket at
        pre-determined prices. The action seeks damages in an unspecified amount.
  F-12
 AIRSPAN
            NETWORKS INC.
 NOTES
            TO
            THE FINANCIAL STATEMENTS – (Continued)
 (in
            thousands, except for share and per share data)
  This
        action is being coordinated with approximately three hundred other nearly
        identical actions filed against other companies. On July 15, 2002, the Company
        moved to dismiss all claims against it and the Individual Defendants. On
        October
        9, 2002, the Court dismissed the Individual Defendants from the case without
        prejudice based upon Stipulations of Dismissal filed by the plaintiffs and
        the
        Individual Defendants. This dismissal disposed of the Section 15 and 20(a)
        control person claims without prejudice, since these claims were asserted
        only
        against the Individual Defendants. On February 19, 2003, the Court dismissed
        the
        Section 10(b) claim against us, but allowed the Section 11 claim to proceed.
        On
        October 13, 2004, the Court certified a class in six of the approximately
        300
        other nearly identical actions. In her Opinion, Judge Scheindlin noted that
        the
        decision is intended to provide strong guidance to all parties regarding
        class
        certification in the remaining cases. Judge Scheindlin determined that the
        class
        period for Section 11 claims is the period between the IPO and the date that
        unregistered shares entered the market. Judge Scheindlin also ruled that
        a
        proper class representative of a Section 11 class must (1) have purchased
        shares
        during the appropriate class period; and (2) have either sold the shares
        at a
        price below the offering price or held the shares until the time of suit.
        In two
        of the six cases, the class representatives did not meet the above criteria
        and
        therefore, the Section 11 cases were not certified. Plaintiffs have not yet
        moved to certify a class in the Airspan case.  The
        Underwriter Defendants sought leave to appeal Judge Scheindlin’s class
        certification decision and the Second Circuit has accepted the
        appeal.
  Airspan
        has approved a settlement agreement and related agreements which set forth
        the
        terms of a settlement between Airspan, the Individual Defendants, the plaintiff
        class and the vast majority of the other approximately 300 issuer defendants
        and
        the individual defendants currently or formerly associated with those companies.
        Among other provisions, the settlement provides for a release of Airspan
        and the
        individual defendants for the conduct alleged in the action to be wrongful.
        Airspan would agree to undertake certain responsibilities, including agreeing
        to
        assign away, not assert, or release certain potential claims Airspan may
        have
        against its underwriters. The settlement agreement also provides a guaranteed
        recovery of $1 billion to plaintiffs for the cases relating to all of the
        approximately 300 issuers. To the extent that the underwriter defendants
        settle
        all of the cases for at least $1 billion, no payment will be required under
        the
        issuers’ settlement agreement. To the extent that the underwriter defendants
        settle for less than $1 billion, the issuers are required to make up the
        difference. It is anticipated that any potential financial obligation of
        Airspan
        to plaintiffs pursuant to the terms of the settlement agreement and related
        agreements will be covered by existing insurance. The Company currently is
        not
        aware of any material limitations on the expected recovery of any potential
        financial obligation to plaintiffs from its insurance carriers. Its carriers
        are
        solvent, and the company is not aware of any uncertainties as to the legal
        sufficiency of an insurance claim with respect to any recovery by plaintiffs.
        Therefore, we do not expect that the settlement will involve any payment
        by
        Airspan. If material limitations on the expected recovery of any potential
        financial obligation to the plaintiffs from Airspan’s insurance carriers should
        arise, Airspan’s maximum financial obligation to plaintiffs pursuant to the
        settlement agreement would be less than $3.4 million. On February 15, 2005,
        the
        Court granted preliminary approval of the settlement agreement, subject to
        certain modifications consistent with its opinion. Those modifications have
        been
        made. On March
        20, 2006, the Underwriter Defendants submitted objections to the settlement
        to
        the Court. They also requested that the Fairness Hearing on the settlement
        agreement, currently scheduled for April 24, 2006, be adjourned until the
        Second
        Circuit addresses the Underwriter Defendants’ appeal of Judge Scheindlin’s
        decision on class certification. There
        is
        no assurance that the court will grant final approval to the settlement.
        If the
        settlement agreement is not approved and Airspan is found liable, we are
        unable
        to estimate or predict the potential damages that might be awarded, whether
        such
        damages would be greater than Airspan’s insurance coverage, and whether such
        damages would have a material impact on our results of operations or financial
        condition in any future period.
  Except
        as
        set forth above, we are not currently subject to any other material legal
        proceedings. We may from time to time become a party to various other legal
        proceedings arising in the ordinary course of our business.
  *Shipping
        and handling costs*
  Shipping
        and handling costs are included within cost of sales.
 
 F-13
 AIRSPAN
            NETWORKS INC.
 NOTES
            TO
            THE FINANCIAL STATEMENTS – (Continued)
 (in
            thousands, except for share and per share data)
  *Foreign
        currency transactions*
  The
        functional currency of all companies in the group is the US dollar. Transactions
        in currencies other than US 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 US dollars are
        translated into US dollars at the rate of exchange on the balance sheet date.
        Transactional gains and losses arising from transactions not denominated
        in US
        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, 2005 was $0.1 million  of
        which
        $0.4 million related to the reclassification of our forward exchange contracts
        gains from other comprehensive income into part of net loss. The net value
        of
        exchange gains and losses during the year ended December 31, 2004 was $2.6
        million of which $2.2 million related to the reclassification of gains on
        our
        forward exchange contracts from part of other comprehensive income into part
        of
        net loss.
  *Interest
        and other income*
 
 The
        components of interest and other income for the last three years are shown
        in
        the table below:
  **Year
                  ended**
                **December
                  31,**
                **2003**
              
              **Year
                  ended**
                **December
                  31,**
                **2004**
              
              **Year
                  ended**
                **December
                  31,**
                **2005**Interest
                  income arising on cash and investments
              
              $
              686
              
              $
              670
              
              $
              1,447Foreign
                  exchange gains and losses
              
              
              2,544
              
              
              2,562
              
              
              17Other
              
              
              (209
              )
              
              (15
              )
              
              (67
              )Total
              
              $
              3,021
              
              $
              3,217
              
              $
              1,397
 
 *Advertising
        costs*
  Advertising
        costs are expensed at the time the promotion is held or the advertisement
        is
        first aired. Advertising expenses amounted to $545 in 2005, $287 in 2004
        and
        $379 in 2003. There were $43 prepaid advertising expenditures at December
        31,
        2005 and $29 at December 31, 2004.
 
 *Comprehensive
        Income*
  The
        Company reports comprehensive income or loss in accordance with the provisions
        of Statement of Financial Accounting Standards No. 130 “Reporting Comprehensive
        Income.” SFAS No. 130 establishes standards for reporting comprehensive income
        and its components in financial statements. Comprehensive income or loss,
        as
        defined, includes all changes in equity (net assets) during a period from
        non-owner sources. Tax effects of other comprehensive income or loss are
        not
        considered material for any period. The Company’s only source of other
        comprehensive income is from its foreign exchange forward
        contracts.
  *Defined
        contribution plan expense.*
  The
        Company contributes to defined contribution plans for all eligible employees.
        The Company recorded expenses of $1,193, $1,230 and $1,523 in 2003, 2004
        and
        2005, respectively. Employer contributions are accrued as earned by the
        employees.
 
 *Concentration
        of credit risk*
  Financial
        instruments, which potentially subject Airspan to concentration of credit
        risk,
        consist primarily of cash and cash equivalents, short-term investments and
        accounts receivable. Airspan places its cash and cash equivalents and short-term
        investments only in highly rated financial instruments. Airspan’s accounts
        receivable are derived from sales of fixed wireless access products and
        approximately 97%, 97% and 93% of product sales were to non-US customers
        for the
        year ended December 31, 2003, 2004 and 2005 respectively. One customer in
        Mexico
        accounted $5.7 million of our account receivable balance at December 31,
        2005
        and $11.1 million at December 31, 2004. Airspan generally requires payment
        in
        advance or payment security in the form of an irrevocable letter of credit
        for
        the full amount of significant sales to be in place at the time of shipment,
        except in cases where credit risk is considered to be acceptable.  Airspan’s
        top three customers accounted for 32% of revenue in 2003, 75% of revenue
        in 2004
        and 62% of revenue in 2005.
  F-14
 AIRSPAN
            NETWORKS INC.
 NOTES
            TO
            THE FINANCIAL STATEMENTS – (Continued)
 (in
            thousands, except for share and per share data)
  *Stock
        based compensation*
  At
        December 31, 2005 the Company has three stock-based employee compensation
        plans
        and one employee share purchase plan, which are described more fully in Note
        13.
        The Company accounts for those plans under the recognition and measurement
        principles of APB Opinion No.25 Accounting for Stock issued to Employees,
        and
        related interpretations and values stock based compensation via the intrinsic
        value method. For all fixed employee stock compensation awards with graded
        vesting, the method for amortizing compensation cost is the straight-line
        method. No stock-based compensation cost is reflected in net loss attributable
        to common stockholders, as all options granted under those plans had an exercise
        price equal to the market value of the underlying common stock on the date
        of
        grant. The following table illustrates the effect on net loss attributable
        to common stockholders and earnings per share if the Company had applied
        fair
        value recognition provisions of FASB Statement No. 123, Accounting for Stock
        Based Compensation, to stock-based employee compensation.
 
 **Year
                  ended**
                **December
                  31,**
                **2003**
              
              **Year
                  ended**
                **December
                  31,**
                **2004**
              
              **Year
                  ended**
                **December
                  31,**
                **2005**Net
                  loss attributable to common stockholders, as reported
              
              $
              (29,455
              )
              $
              (20,414
              )
              $
              (15,077
              )Add:
                  Stock-based employee compensation expense included in reported net
                  loss
              
              
              —
              
              
              —
              
              
              192Deduct:
                  Total stock-based employee compensation expense determined under fair
                  value based method for all awards
              
              
              (1,928
              )
              
              (2,149
              )
              
              (2,341
              )Pro
                  forma net loss attributable to common stockholders
              
              $
              (31,383
              )
              $
              (22,563
              )
              $
              (17,226
              )Earnings
                  per share — basic and diluted:Net
                  loss attributable to common stockholders per share
              
              $
              (0.84
              )
              $
              (0.56
              )
              $
              (0.39
              )Pro
                  forma net loss attributable to common stockholders per share
              
              $
              (0.89
              )
              $
              (0.62
              )
              $
              (0.44
              )
   The
        weighted average fair value of the options at their grant date was $1.74
        during
        2003, $5.03 during 2004 and $3.16 during 2005. The estimated fair value of
        each
        option granted is calculated using the Black-Scholes option-pricing model.
        The
        following summarizes the assumptions used in the model:
 
 **Year
                  ended**
                **December
                  31,**
                **2003**
              
              **Year
                  ended**
                **December
                  31,**
                **2004**
              
              **Year
                  ended**
                **December
                  31,**
                **2005**Risk-free
                  average interest rate
              
              
              2.10
              %
              
              3.83
              %
              
              4.06
              %Expected
                  average years until exercised
              
              
              4
              
              
              4
              
              
              5Expected
                  dividend yield
              
              
              —
              
              
              —
              
              
              —Expected
                  average volatility
              
              
              109
              %
              
              92
              %
              
              86
              %
 
 F-15
 AIRSPAN
            NETWORKS INC.
 NOTES
            TO
            THE FINANCIAL STATEMENTS – (Continued)
 (in
            thousands, except for share and per share data)
  The
        weighted average fair value of equity instruments other than options, granted
        during the past three years is shown in the table below:
 
 **Year
                  ended**
                **December
                  31,**
                **2003**
              
              **Year
                  ended**
                **December
                  31,**
                **2004**
              
              **Year
                  ended**
                **December
                  31,**
                **2005**Restricted
                  Stock (nonvested stock)Weighted
                  average fair value at grant date
              
              
              —
              
              
              —
              
              $
              4.12Number
                  of shares
              
              
              —
              
              
              —
              
              
              100,000US
                  employee 401K planWeighted
                  average fair value at grant date
              
              
              —
              
              
              —
              
              $
              5.41Number
                  of shares
              
              
              —
              
              
              —
              
              
              8,299
 
 The
        pro
        forma effect of applying SFAS 123 is not likely to be representative of the
        effects on reported net income or loss for future years.
 
 *Electronic
        Equipment Waste Obligations*
 
 In
        June
        2005, the FASB issued FSP No. 143-1, “Accounting for Electronic Equipment Waste
        Obligations” (“FSP 143-1”). FSP 143-1 provides guidance on how commercial users
        and producers of electronic equipment should recognize and measure asset
        retirement obligations associated with the European Union (“EU”) Directive
        2002/96/EC on Waste Electrical and Electronic Equipment. FSP 143-1 is
        effective as of the later of Airspan’s fiscal quarter ended October 2, 2005
        or the date of the adoption of the law by the applicable EU-member country.
        In
        the third quarter of 2005, Airspan adopted FSP 143-1 with respect to those
        EU-member countries that had adopted the directive into country specific
        laws by
        the end of the third quarter. The adoption of the FSP 143-1 did not have
        a
        material impact on Airspan’s 2005 results of operations and financial condition.
        Due to the fact that certain EU-member countries have not yet enacted
        country-specific laws, Airspan cannot yet estimate the impact of applying
        this
        guidance in future periods.
 
 *Segment
        reporting*
  During
        the periods, the Company operated as a single segment - the development and
        supply of broadband wireless equipment and technologies.
 
 *Reclassifications*
 
 Certain
        prior year amounts have been reclassified to be consistent with the current
        year
        presentation
 
 *New* *Accounting Pronouncements*
  On
        December 16, 2004, the Financial Accounting Standards Board (“FASB”) issued
        Statement No. 123 (revised 2004), “Share Based Payment” (“SFAS No. 123R”), which
        is a revision of Statement No. 123, “Accounting for Stock-Based Compensation”
(“SFAS No. 123”).  Statement No. 123R supersedes APB Opinion No. 25,
“Accounting for Stock Issued to Employees and amends Statement No. 95,
“Statement of Cash Flows”.  Under SFAS No. 123R, companies must calculate
        and record the cost of equity instruments, such as stock options or restricted
        stock, awarded to employees for services received in the income statement
        based
        on fair value of the instruments on the date they are granted (with certain
        exceptions).  The cost of the equity instruments is required to be
        recognized over the period during which the employees are required to provide
        services in exchange for the equity instruments. The statement is effective
        for
        the Company from January 1, 2006.
  F-16
 AIRSPAN
            NETWORKS INC.
 NOTES
            TO
            THE FINANCIAL STATEMENTS – (Continued)
 (in
            thousands, except for share and per share data)
  SFAS
        No.
        123R provides two alternatives for adoption: (1) “modified prospective” method
        in which compensation cost is recognized for all awards granted subsequent
        to
        the effective date of this statement as well as for the unvested portion
        of
        awards outstanding as of the effective date and (2) a “modified retrospective”
method which follows the approach in the “modified prospective” method, but also
        permits entities to restate prior periods to reflect compensation cost
        calculated under SFAS No. 123 for pro forma amounts disclosure. The company
        plans to adopt SFAS No. 123R using the modified prospective method.
 
 In
        March
        2005, the Securities and Exchange Commission issued Staff Accounting Bulletin
        (SAB) 107, *Share-Based Payment* ,
        to
        provide additional guidance to public companies in applying the provisions
        of
        Statement 123(R).  During 2005, the FASB issued three FASB Staff Positions
        (FSP):  FSP FAS 123(R)-1, “Classification and Measurement of Freestanding
        Financial Instruments Originally Issued in Exchange for Employee Services
        under
        FASB Statement No. 123(R),” FSP FAS 123(R)-2, “Practical Accommodation to the
        Application of Grant Date as Defined in FASB Statement No. 123(R),” and FSP FAS
        123(R)-3, “Transition Election Related to Accounting for the Tax Effects of
        Share-Based Payment Awards.”  The Company will adopt the provisions of SAB
        107 in conjunction with the adoption of Statement 123(R) and also consider
        the
        guidance provided in the FSPs as it considers the effect that Statement 123(R)
        will have on its results of operations, financial position and cash
        flows.
 
 As
        the
        Company currently accounts for share based payments to employees in accordance
        with the intrinsic value method permitted under ABP Opinion No. 25, no
        compensation expense is recognized.  The adoption of SFAS No. 123R is
        expected to have a significant impact on our results of operations, although
        it
        will have no impact on our overall financial position.  The impact on 2006
        results of adopting SFAS No. 123R is estimated to be a reduction of
        approximately $0.06 to $0.07 per share. This estimate is affected by assumptions
        regarding a number of complex and subjective variables.
  **2. 
         ACQUISITIONS**
  On
        June
        16, 2005, the Company consummated its acquisition of all of the outstanding
        shares of capital stock of ArelNet Ltd (“ArelNet”). This business combination
        has been accounted for under the purchase method and the results of operations
        of ArelNet from June 16, 2005 to December 31, 2005 are included in the
        consolidated statement of operations of the Company. ArelNet is a pioneer
        in
        VoIP network infrastructure equipment and solutions, including soft switches
        and
        gateways supporting all major VoIP standards. ArelNet has extensive experience
        worldwide, having installed network equipment with a capacity exceeding two
        billion minutes per year.
 
 ArelNet
        was acquired primarily to enable the Company to develop carrier grade voice
        telephony using switching and gateway technologies in the Company’s WiMAX data
        platforms. The purchase price of $9.4 million was made up of $4.0 million
        of
        cash, 1,001,325 shares of the Company’s common stock valued at $4.8 million,
        employee stock options to purchase 100,000 shares of the Company’s common stock
        valued at $0.3 million and $0.4 million of direct acquisition costs. Of the
        total purchase price $0.5 million was deposited in escrow with an escrow
        agent
        to secure the sellers’ representations and warranties under the purchase
        agreement. These funds will remain in escrow until June 16, 2006, unless
        sooner
        released to us in payment of indemnification claims. The options issued to
        ArelNet employees were valued in accordance with FASB Statement No. 123,
        “Accounting for Stock-Based Compensation” and measured at fair value using a
        Black-Scholes option-pricing model. In accordance with the FASB Emerging
        Issues
        Task Force (EITF) issue No . 99-12 -“
Determination of the Measurement Date for the Market Price of Acquirer
        Securities Issued in a Purchase Business Combination” and FASB Statement No.
        141, “Business Combinations”, the 1,001,325 shares issued in connection with the
        transaction were valued based on market prices on the three days before the
        measurement date of June 16, 2005.
  The
        preliminary purchase price allocation made in the second quarter of 2005
        (the
“Preliminary Allocation”) was finalized in the third quarter. The preliminary
        purchase price allocation and the revisions to the Preliminary Allocation
        are
        shown in the tables below. The Company engaged an independent third party
        to
        assist in the valuation of intangible assets.
  Calculation
        of purchase price:
  **Original**
              
              **Revisions**
              
              **Total**Cash
                  consideration
              
              $
              4,000
              
              
              —
              
              $
              4,000Fair
                  value of shares issued
              
              
              4,752
              
              
              —
              
              
              4,752Fair
                  value of options granted
              
              
              309
              
              
              —
              
              
              309Direct
                  acquisition costs
              
              
              450
              
              $
              (71
              )
              
              379Total
                  purchase price
              
              $
              9,511
              
              $
              (71
              )
              $
              9,440
  F-17
 AIRSPAN
            NETWORKS INC.
 NOTES
            TO
            THE FINANCIAL STATEMENTS – (Continued)
 (in
            thousands, except for share and per share data)
  The
        following table shows the historical book value and the purchase price
        allocation.
  **Allocation
                  of purchase price**
              
              **Historical**
                **book
                  value**
              
              **Purchase
                  price allocation/fair value adjustments**
              
              **Revision
                  to**
                **Purchase
                  price allocation/fair**
                **value**
                **adjustments**
              
              **Fair
                  value**Cash
              
              $
              18
              
              
              —
              
              
              —
              
              $
              18Accounts
                  receivable
              
              
              1,507
              
              $
              (548
              )
              $
              (42
              )
              
              917Inventory
              
              
              1,161
              
              
              (789
              )
              
              —
              
              
              372Prepaid
                  expenses and other current assets
              
              
              581
              
              
              (19
              )
              
              —
              
              
              562Property,
                  plant and equipment, net
              
              
              110
              
              
              161
              
              
              —
              
              
              271Other
                  long term assets
              
              
              1,037
              
              
              (64
              )
              
              —
              
              
              973Intangible
                  assets, net:Core
                  developed technology
              
              
              —
              
              
              2,440
              
              
              —
              
              
              2,440Other
                  technology
              
              
              —
              
              
              65
              
              
              —
              
              
              65Customer
                  relationships
              
              
              —
              
              
              45
              
              
              —
              
              
              45Backlog
              
              
              —
              
              
              160
              
              
              —
              
              
              160Accounts
                  payable
              
              
              (169
              )
              
              —
              
              
              —
              
              
              (169
              )Deferred
                  revenue
              
              
              (1,510
              )
              
              1,490
              
              
              —
              
              
              (20
              )Customer
                  advances
              
              
              —
              
              
              (386
              )
              
              —
              
              
              (386
              )Accrued
                  taxes
              
              
              (225
              )
              
              —
              
              
              —
              
              
              (225
              )Other
                  accrued expenses
              
              
              (2,228
              )
              
              (293
              )
              
              (73
              )
              
              (2,594
              )Goodwill
              
              
              —
              
              
              6,967
              
              
              44
              
              
              7,011Total
                  purchase price
              
              $
              282
              
              $
              9,229
              
              $
              (71
              )
              $
              9,440
  All
        intangible assets acquired, other than goodwill, are subject to amortization
        over the periods shown in the table below:
  Value
              
              Life
                  in yearsCore
                  developed technology
              
              $
              2,440
              
              
              5.0Other
                  technology
              
              
              65
              
              
              5.0Customer
                  relationships
              
              
              45
              
              
              3.0Backlog
              
              
              160
              
              
              0.5Weighted-average
                  amortization period
              
              $
              2,710
              
              
              4.7
 
 The
        unaudited pro forma revenue and net loss of the Company for the periods
        indicated, as if the ArelNet acquisition had occurred as of January 1, 2004
        and
        January 1, 2005, respectively, are shown in the following table.
  **Year-to-Date****December
                  31,**
                **2004**
              
              **December
                  31**
                **2005**Revenue
              
              $
              98,579
              
              $
              112,797Net
                  loss
              
              $
              (20,670
              )
              
              (15,614
              )Net
                  loss per share - basic and diluted
              
              $
              (0.55
              )
              
              (0.40
              )Weighted
                  average shares outstanding - basic and diluted
              
              
              37,443,257
              
              
              39,154,158
 
 F-18
 AIRSPAN
            NETWORKS INC.
 NOTES
            TO
            THE FINANCIAL STATEMENTS – (Continued)
 (in
            thousands, except for share and per share data)
  There
        were no extraordinary items or cumulative effect of accounting changes included
        in the pro forma results of operations. The unaudited pro forma results above
        have been prepared for comparative purposes only and do not purport to be
        indicative of the results of operations which actually would have resulted
        had
        the acquisition occurred at January 1, 2004 or 2005, nor are they necessarily
        indicative of future operating results.
 
 On
        November 9, 2005 the Company completed its acquisition of Radionet Oy, Ltd.
        of
        Finland (“Radionet”) in exchange for up to $1.88 million of cash. The
        Company is in the process of evaluating the assets and liabilities acquired,
        in
        particular its accounts receivables, inventory and accrued expenses, and
        expects
        to finalize the purchase price allocation in the second quarter of 2006.
        This
        will be done once we have built up a history of collectibility of accounts
        receivable, the realizable value of inventory and we have performed a thorough
        review of accruals. The preliminary purchase price allocation is shown in
        the
        tables. The Company engaged an independent third party to assist in the
        valuation of intangible assets.
 
 Calculation
        of purchase price:
  **Purchase
                  price**Consideration
                  paid
              
              $
              1,875Direct
                  acquisition costs
              
              
              159Total
                  purchase price
              
              $
              2,034
 
 The
        following table shows the historical book value and the purchase price
        allocation.
 
 **Allocation
                  of purchase price**
              
              **Historical**
                **book
                  value**
              
              **Purchase
                  price allocation/fair value adjustments**
              
              **Fair
                  value**Cash
              
              $
              450
              
              
              —
              
              $
              450Accounts
                  receivable
              
              
              502
              
              $
              (139
              )
              
              363Inventory
              
              
              302
              
              
              (98
              )
              
              204Prepaid
                  expenses and other current assets
              
              
              120
              
              
              (15
              )
              
              105Property,
                  plant and equipment, net
              
              
              129
              
              
              (21
              )
              
              108Intangible
                  assets, net:Core
                  developed technology
              
              
              —
              
              
              319
              
              
              319Customer
                  relationships
              
              
              —
              
              
              105
              
              
              105Accounts
                  payable
              
              
              (305
              )
              
              —
              
              
              (305
              )Other
                  accrued expenses
              
              
              (226
              )
              
              (50
              )
              
              (276
              )Long
                  term debt
              
              
              (1,392
              )
              
              —
              
              
              (1,392
              )Interest
                  on long term debt
              
              
              —
              
              
              (79
              )
              
              (79
              )Goodwill
              
              
              2,454
              
              
              (22
              )
              
              2,432Total
                  purchase price
              
              $
              2,034
              
              $
              —
              
              $
              2,034
 
 All
        intangible assets acquired, other than goodwill, are subject to amortization
        over the periods shown in the table below:
  Value
              
              Life
                  in yearsCore
                  developed technology
              
              $
              319
              
              
              6.0Customer
                  relationships
              
              
              105
              
              
              5.0Weighted-average
                  amortization period
              
              $
              424
              
              
              5.7
  F-19
 AIRSPAN
          NETWORKS INC.
 NOTES
          TO
          THE FINANCIAL STATEMENTS – (Continued)
 (in
          thousands, except for share and per share data)
 The
        unaudited pro forma revenue and net loss of the Company for the periods
        indicated, as if the Radionet acquisition had occurred as of January 1, 2004
        and
        January 1, 2005, respectively, are shown in the following table.
  **Year-to-Date****December
                  31,**
                **2004**
              
              **December
                  31**
                **2005**Revenue
              
              $
              97,331
              
              $
              112,858Net
                  loss
              
              $
              (22,545
              )
              $
              (16,997
              )Net
                  loss per share- basic and diluted
              
              $
              (0.62
              )
              $
              (0.44
              )Weighted
                  average shares outstanding- basic and diluted
              
              
              36,441,932
              
              
              38,736,939
 
 **3.
        TAXATION**
  The
        income tax benefit of $546 in the year ended 31 December 2005 related to
        tax
        credits of $567 accrued in respect of research and development expenditure
        in
        the UK in the period January 1, 2004 to 31 December 2004, offset by tax charges
        relating to local country income taxes of $21. In exchange for the tax credits
        the Company surrendered $2,363 of taxable losses in the UK equated to $709
        of
        deferred tax asset. In the year ended 31 December 2004 the benefit of $1,938
        related to $2,094 of tax credits accrued in respect of research and development
        expenditure in the UK over the period January 1, 2002 to December 31, 2004,
        for
        which the Company forfeited $8,725 of taxable losses equated to $2,617 of
        deferred tax asset, offset by tax charges relating to local state and country
        income and franchise taxes of $156. The income tax provision of $5 recorded
        in
        the year ended December 31, 2003 relates to a foreign branch of ACL. During
        2005 the company received $2,564 of cash related to prior years claims for
        research and development tax credits.
  The
        loss
        before tax was $15,623 for the year ended December 31, 2005 of which $1,892
        was
        attributable to domestic US operations. The loss for the year ended December
        31,
        2004 attributable to domestic operations was $3,925 out of a total loss before
        tax of $11,913 . The
        Company did not record an income tax benefit for the remainder of the tax
        losses
        generated in any of the territories in which it operates because it has
        experienced operating losses since inception. At December 31, 2005 the Company
        had the following net operating loss carry-forwards:
   **Country**
              
              **Net
                  operating loss****carry-forwards**
              
              **Expiry
                  terms**UK
              
              $120,100
              
              Does
                not expireUS
              
              17,600
              
              Expires in 16 to 20 yearsAustralia
              
              3,700
              
              Does
                not expireIsrael
              
              41,000
              
              Does
                not expireOther
              
              3,200
              
              Expires
                in 1 to 10 years
  Significant
        components of the Company’s deferred tax assets are as follows:
  **December
                  31,**
                **2004**
              
              **December
                  31,**
                **2005**Net
                  operating loss carry-forwards
              
              $
              44,811
              
              $
              50,388Accruals
                  and reserves
              
              
              1,038
              
              
              1,801Fixed
                  assets
              
              
              2,920
              
              
              3,33048,769
              
              
              55,519Valuation
                  allowance
              
              
              (48,769
              )
              
              (55,519
              )$
              —
              
              $
              —
  F-20
 AIRSPAN
            NETWORKS INC.
 NOTES
            TO
            THE FINANCIAL STATEMENTS – (Continued)
 (in
            thousands, except for share and per share data)
 The
        net
        increase in valuation allowances during 2005 was $6,750, $2,755 of which
        relates
        to the acquisition of ArelNet and which, upon ultimate recognition, will
        be
        allocated to reduce goodwill and/or other non-current intangible assets.
 
 Net
        operating losses carryforwards of $3,180 held by Radionet, Finland, expired
        on
        acquisition of the company and are excluded from the above deferred tax asset
        components. The Company has applied to the Finnish tax authorities for
        reinstatement
  The
        following is a reconciliation of income taxes, calculated at the effective
        US
        federal income tax rate of 38%, to the income tax benefit (provision) included
        in the accompanying consolidated statements of operation for each of the
        three
        years:
  **December
                  31,**
                **2003**
              
              **December
                  31,**
                **2004**
              
              **December
                  31,**
                **2005**Income
                  tax benefit at US rates
              
              $
              10,013
              
              $
              4,051
              
              $
              5,937Difference
                  between US rate and rates applicable to subsidiaries in other
                  jurisdictions
              
              
              (1,792
              )
              
              (753
              )
              
              (1,390
              )Surrender
                  of taxable losses re UK R&D Tax Credits
              
              
              —
              
              
              (2,618
              )
              
              (708
              )Expenditure
                  not deductible for tax purposes
              
              
              (54
              )
              
              (83
              )
              
              (242
              )Other
              
              
              —
              
              
              1,427
              
              
              377Valuation
                  allowance on tax benefits
              
              
              (8,172
              )
              
              (2,180
              )
              
              (3,995
              )UK
                  R&D tax credits
              
              
              —
              
              
              2,094
              
              
              567Income
                  tax benefit/(provision)
              
              $
              (5
              )
              $
              1,938
              
              $
              546
 
 Since
        the
        Company’s utilization of these deferred tax assets is dependent on future
        profits, a valuation allowance equal to the net deferred tax assets has been
        provided following the criteria under SFAS 109 as it is considered more likely
        than not that such assets will not be realized.
  **4.
        PROPERTY, PLANT AND EQUIPMENT**
 
 **December
                  31,**
                **2004**
              
              **December
                  31,**
                **2005**Plant,
                  machinery and equipment
              
              $
              13,714
              
              $
              16,864Furniture
                  and fixtures
              
              
              611
              
              
              737Leasehold
                  improvements
              
              
              3,464
              
              
              3,54717,789
              
              
              21,148Accumulated
                  depreciation
              
              
              (14,082
              )
              
              (15,880
              )$
              3,707
              
              $
              5,268
  Depreciation
        expense totaled $3,515 for the year ended December 31, 2003, $1,806 for the
        year
        ended December 31, 2004 and $1,876 for year ended December 31,
        2005.
  F-21
 AIRSPAN
        NETWORKS INC.
 NOTES
        TO
        THE FINANCIAL STATEMENTS – (Continued)
 (in
        thousands, except for share and per share data)
 
 **5.
        GOODWILL AND INTANGIBLES**
  The
        Company performed its annual impairment review during the fourth quarter
        of
        2003, 2004 and 2005. The carrying value of goodwill has been compared to
        its
        implied fair value by using the expected present value of future cash flows.
        No
        impairment of goodwill was recorded during the years ended December 31, 2003,
        2004 and 2005.
  **December
                  31,**
                **2004**
              
              **December
                  31,**
                **2005****Goodwill**
              
              $
              789
              
              $
              10,231
  
 **December
                  31, 2004**
              
              **December
                  31,2005**
              
              **Weighted
                  average****G****ross
                  carrying**
                **amount**
              
              **Accumulated**
                **amortization**
              
              **Net**
              
              **G****ross
                  carrying**
                **amount**
              
              **Accumulated**
                **amortization**
              
              **Net**
              
              **amortization**
                **period
                  in**
                **years****Intangibles**Customer
                  contracts
              
              $
              1,240
              
              $
              (366
              )
              $
              874
              
              $
              1,390
              
              $
              (595
              )
              $
              795
              
              
              3.13Patent/developed
                  technology
              
              
              1,371
              
              
              (573
              )
              
              798
              
              
              4,355
              
              
              (1,285
              )
              
              3,070
              
              
              3.82$
              2,611
              
              $
              (939
              )
              $
              1,672
              
              $
              5,745
              
              $
              (1,880
              )
              $
              3,865
              
              
              3.65
  Goodwill
        from business combinations represents the difference between the fair value
        of
        the identified net assets purchased and the purchase price. For each acquisition
        a detailed review is undertaken by management, which has primary responsibility,
        to estimate the fair values and remaining economic life for all material
        intangible assets. In addition to this review, independent experts may be
        used
        to estimate the fair value and remaining economic life of intangible assets.
        During 2005, 2004 and 2003 there were no unamortized intangible assets other
        than goodwill.
  The
        estimated amortization expense for intangibles over the next five years is
        as
        follows:
  **For
                  the year ended December 31,**2006
              
              $
              1,0592007
              
              
              9362008
              
              
              9282009
              
              
              5752010
              
              
              322Thereafter
              
              
              45
  The
        changes in the gross carrying value of goodwill for the year ended December
        31,
        2005, are as follows
 
 **Goodwill**Balance
                  as of January 1, 2005
              
              $
              789Acquisitions:ArelNet
              
              
              7,011Radionet
              
              
              2,431Balance
                  as of December 31, 2005
              
              $
              10,231
  F-22
 AIRSPAN
          NETWORKS INC.
 NOTES
          TO
          THE FINANCIAL STATEMENTS – (Continued)
 (in
          thousands, except for share and per share data)
 Amortization
        of intangible assets amounted to $172 for the year ended December 31, 2003,
        $723
        for the year ended December 31, 2004 and $941 for the year ended December
        31,
        2005.
  **6.
        SHORT TERM INVESTMENTS**
  The
        following is a summary of held to maturity securities:
 
 **Amortized
                  Cost**
              
              **Unrealized
                  gains**
              
              **Unrealized
                  losses**
              
              **Estimated
                  fair value**December
                  31, 2004US
                  Government Securities
              
              $
              —
              
              $
              —
              
              $
              —
              
              $
              —US
                  Corporate Bonds
              
              
              —
              
              
              —
              
              
              —
              
              
              —$
              —
              
              $
              —
              
              $
              —
              
              $
              —December
                  31, 2005US
                  Government Securities
              
              $
              5,511
              
              $
              —
              
              $
              (17
              )
              $
              5,494US
                  Corporate Bonds
              
              
              509
              
              
              —
              
              
              (1
              )
              
              508$
              6,020
              
              $
              —
              
              $
              (18
              )
              $
              6,002
  All
        the
        above short term investments had maturities at December 31, 2005 of under
        one
        year.
 
 **7.
        INVENTORY**
  Inventory
        consists of the following:
  **December
                  31,**
                **2004**
              
              **December
                  31,**
                **2005**Purchased
                  parts and materials
              
              $
              8,679
              
              $
              9,743Work
                  in progress
              
              
              1,214
              
              
              1,198Finished
                  goods and consumables
              
              
              13,290
              
              
              16,395Inventory
                  provision
              
              
              (10,349
              )
              
              (10,486
              )$
              12,834
              
              $
              16,850
  **8.
        ACCOUNTS RECEIVABLE**
  Accounts
        receivable consists of:
  **December
                  31,**
                **2004**
              
              **December
                  31,**
                **2005**Amounts
                  due within one year
              
              $
              23,761
              
              $
              27,867Allowance
                  for doubtful debts
              
              
              (2,814
              )
              
              (3,519
              )$
              20,947
              
              $
              24,348
  F-23
 AIRSPAN
          NETWORKS INC.
 NOTES
          TO
          THE FINANCIAL STATEMENTS – (Continued)
 (in
          thousands, except for share and per share data)
  **9.
        OTHER ACCRUED EXPENSES**
 
 **December
                  31,**
                **2004**
              
              **December
                  31,**
                **2005**Warranty
              
              $
              604
              
              $
              410Restructuring
              
              
              660
              
              
              1,486Accrued
                  Israeli severance pay
              
              
              1,274
              
              
              2,520Other
              
              
              8,811
              
              
              8,697$
              11,349
              
              $
              13,113
  **10.
        ACCRUED RESTRUCTURING CHARGES**
  The
        Company has initiated several restructuring programs over the last four years
        to
        reduce operating expenses. The first of these was initiated in the third
        quarter
        of 2002, which resulted in a charge of $278. Included in this charge were
        costs
        related to the write off of tradeshow equipment and severance payments. A
        total
        of 19 employees were terminated as part of this program and all severance
        payments were made by the end of the second quarter of 2003.
 
 In
        the
        second quarter of 2003, an additional restructuring program was initiated
        to
        further lower operating expenses. The cost incurred as part of this program
        was
        $298 arising from costs associated with facility closures and severance.
        A total
        of 30 employees were terminated as part of this program and all severance
        payments were made by December 31, 2003.
 
 During
        the first quarter of 2004 we revised our original restructuring programs
        and
        initiated a new program to further reduce operating expenses. This program
        was
        completed by the end of the third quarter of 2004. The total cost incurred
        for
        this restructuring program was $413 related to termination costs for 21
        employees. All of these employees had left the Company by December 31,
        2004.
 
 In
        addition to these programs two further restructuring programs were
        initiated.
 
 In
        conjunction with the purchase of the Proximity business in 2003 the Company
        implemented its plan to relocate the Proximity business from Maidenhead,
        England
        and Sunrise, Florida to the Company’s facilities in Uxbridge, England and Boca
        Raton, Florida. The Company recorded acquisition-related restructuring charges
        of $520, in the fourth quarter of 2003, in connection with the relocation
        of the
        Proximity business. The accrued relocation costs were reduced during 2004
        to
        $181. The adjustment formed part of the revised fair value adjustments of
        the
        Proximity acquisition. This relocation plan was completed by December 31,
        2004.
 
 In
        the
        fourth quarter of 2002 the decision was made to completely outsource all
        our
        manufacturing. As a result the Company recorded a $975 restructuring charge
        for
        the closure of its Riverside, Uxbridge facility in 2003. All of this cost
        relates to the excess facility. A further $368 was recognized as restructuring
        in the income statement in the fourth quarter of 2003 as the Company reassessed
        the ability to sublease the Riverside facility. During the second quarter
        of
        2005, the Company recognized an additional restructuring charge of $1,150
        for
        additional costs expected to be incurred related to certain facility charges
        in
        respect of buildings in the UK. The total amount expected to be incurred
        as a
        result of the closure of the Riverside facility is up to $2,493 of which
        $1,486
        remains accrued as at December 31, 2005. All cash outflows in connection
        with
        this restructuring are expected to occur by the end of 2007.
  F-24
 AIRSPAN
          NETWORKS INC.
 NOTES
          TO
          THE FINANCIAL STATEMENTS – (Continued)
 (in
          thousands, except for share and per share data)
  All
        charges have or will result in direct cash outlays. The restructuring charges
        and their utilization are summarized as follows:
 
 **Balance
                  at**
                **beginning
                  of**
                **period**
              
              **Restructuring**
                **charge**
              
              **Accrued
                  on**
                **acquisition**
              
              **Utilized**
              
              **Balance
                  at end**
                **of
                  period**Year
                  ended December 31, 2005One-time
                  termination benefits
              
              $
              —
              
              $
              —
              
              $
              —
              
              $
              —
              
              $
              —Contract
                  termination costs
              
              
              599
              
              
              1,150
              
              
              —
              
              
              (313
              )
              
              1,436Other
                  associated costs
              
              
              61
              
              
              —
              
              
              —
              
              
              (11
              )
              
              50$
              660
              
              $
              1,150
              
              $
              —
              
              $
              (324
              )
              $
              1,486Year
                  ended December 31, 2004One-time
                  termination benefits
              
              $
              —
              
              $
              413
              
              $
              —
              
              $
              (413
              )
              $
              —Contract
                  termination costs
              
              
              947
              
              
              —
              
              
              —
              
              
              (348
              )
              
              599Other
                  associated costs
              
              
              592
              
              
              —
              
              
              (339
              )
              
              (192
              )
              
              61$
              1,539
              
              $
              413
              
              $
              (339
              )
              $
              (953
              )
              $
              660Year
                  ended December 31, 2003One-time
                  termination benefits
              
              $
              79
              
              $
              342
              
              $
              —
              
              $
              (421
              )
              $
              —Contract
                  termination costs
              
              
              825
              
              
              397
              
              
              —
              
              
              (275
              )
              
              947Other
                  associated costs
              
              
              150
              
              
              11
              
              
              520
              
              
              (89
              )
              
              592$
              1,054
              
              $
              750
              
              $
              520
              
              $
              (785
              )
              $
              1,539
  **11.
        COMMITMENTS**
  Airspan
        had capital commitments of $188 and $31 for the acquisition of property,
        plant
        and equipment at December 31, 2005 and 2004, respectively. The Company had
        commitments with its main sub contract manufacturers under various purchase
        orders and forecast arrangements, for a value of $37,256 and $21,147 at December
        31, 2005 and 2004, respectively. All capital commitments and commitments
        with
        sub contract manufacturers existing at December 31, 2005 are expected to
        be
        completed during 2006.
  Airspan
        Networks Inc. has entered into various operating lease agreements, primarily
        for
        office space, warehouse space and vehicles. Rent expense was $1,844 for the
        year
        ended December 31, 2003, $1,965 for the year ended December 31, 2004 and
        $1,774
        for the year ended December 31, 2005.
  Future
        minimum lease payments for assets under non-cancelable operating lease
        agreements with original terms of more than one year as of December 31, 2005
        are
        as follows:
 
 **Amounts
                  due**2006
              $
              1,7502007
              
              1,3282008
              
              1,0662009
              
              8242010
              
              186Thereafter
              
              -$
              5,154
  F-25
 AIRSPAN
            NETWORKS INC.
 NOTES
            TO
            THE FINANCIAL STATEMENTS – (Continued)
 (in
            thousands, except for share and per share data)
  The
        Company had bank guarantees with its landlords and customers totaling $1,502
        at
        December 31, 2004 and $3,119 at December 31, 2005. The guarantees secure
        payment
        or performance obligations of the Company under contracts. The Company has
        pledged cash to the banks as collateral for the guarantees in the same amounts
        as the guarantees. These pledges have been classified as restricted cash.
 
 In
        addition to the guarantees mentioned above, the Company has issued a guarantee
        to Tekes, the main public funding organization for research and development
        in
        Finland. Tekes made loans to Radionet and this guarantee covers the repayment
        of
        the loan principal and interest. These loans total $1,392 at December 31,
        2005,
        are recorded in long term debt and are described more fully in Note 17. This
        guarantee expires only when all loan and interest repayments have been
        made.
  **12.
        GEOGRAPHICAL INFORMATION**
  As
        a
        developer and supplier of broadband wireless equipment and other technologies,
        the Company has one reportable segment. The revenue of this single segment
        is
        comprised primarily of revenue from products and, to a lesser extent, services.
        In 2005, the majority of the Company’s revenue was generated from products
        manufactured in the United Kingdom, Mexico, Israel and Finland, with additional
        revenue generated from sales of an original equipment manufacturer’s ("OEM")
        products.
  An
        analysis of revenue by geographical market is given below:
  **Year
                  ended**
                **December
                  31,**
                **2003**
              
              **Year
                  ended**
                **December
                  31,**
                **2004**
              
              **Year
                  ended**
                **December
                  31,**
                **2005**United
                  States
              
              $
              930
              
              $
              3,027
              
              $
              7,722Asia
                  Pacific:New
                  Zealand
              
              
              5,498
              
              
              769
              
              
              794The
                  rest of Asia Pacific
              
              
              5,492
              
              
              7,314
              
              
              10,595Europe
              
              
              5,879
              
              
              11,191
              
              
              14,273Africa
                  and Middle East
              
              
              8,305
              
              
              1,859
              
              
              5,242South
                  and Central America & Caribbean:Mexico
              
              
              —
              
              
              66,317
              
              
              62,792The
                  rest of South and Central America & Caribbean
              
              
              4,547
              
              
              4,170
              
              
              9,548$
              30,651
              
              $
              94,647
              
              $
              110,966
 
 Revenues
        are attributed to countries based on the destination of the equipments and
        services supplied.
 
 In
        2005,
        the Company received 73% of goods for resale from three suppliers - Racamtech
        Limited, Solectron International Distribution Inc. and Solectron Scotland
        Ltd.
        In 2004, the Company received 73% of goods for resale from two suppliers,
        Solectron International Distribution Inc and Solectron Scotland Ltd. In 2003,
        the Company received 79% of goods for resale from two suppliers, Flextronics
        International and Solectron Scotland Ltd.
 
 During
        the year ended December 31, 2005, net loss before income tax was $15,623.
        The
        net loss before income taxes that related to operations in the United States
        was
        $1,892 and that from foreign operations was $13,731. During the same period
        the
        net loss was $15,077 of which a net loss of $13,185 arose from foreign
        operations.
 
 During
        the year ended December 31, 2003 the Company had one customer accounting
        for 18%
        of revenue. For the year ended December 31, 2004 the Company had one customer
        whose revenue accounted for 70% of the year’s total. For the year ended December
        31, 2005 the Company had one customer whose revenue was greater than 10%
        of the
        year’s total and such customer’s revenue accounted for 56% of the year’s
        total.
  F-26
 AIRSPAN
            NETWORKS INC.
 NOTES
            TO
            THE FINANCIAL STATEMENTS – (Continued)
 (in
            thousands, except for share and per share data)
 Long
                  lived assets by geographic region
              
              **December
                  31,**
                **2004**
              
              **December
                  31,**
                **2005**Long-lived
                  assets:Property,
                  plant and equipment, net:United
                  States
              
              $
              97
              
              $
              181United
                  Kingdom and Ireland
              
              
              2,977
              
              
              3,067Israel
              
              
              518
              
              
              1,823Rest
                  of the world
              
              
              115
              
              
              1973,707
              
              
              5,268Goodwill
                  and Intangible assets, net:United
                  States
              
              
              789
              
              
              789Mexico
              
              
              874
              
              
              656United
                  Kingdom and Ireland
              
              
              509
              
              
              382Finland
              
              
              
              
              
              2,843Israel
              
              
              289
              
              
              9,4262,461
              
              
              14,096Other
                  non current assets and long term accounts receivable:United
                  States
              
              
              —
              
              
              —United
                  Kingdom and Ireland
              
              
              305
              
              
              —Israel
              
              
              1,216
              
              
              2,4001,521
              
              
              2,400Total
                  long-lived assets
              
              $
              7,689
              
              $
              21,764Total
                  assets, net:United
                  States
              
              $
              55,703
              
              $
              36,977United
                  Kingdom and Ireland
              
              
              39,088
              
              
              46,044Mexico
              
              
              12,008
              
              
              6,318Israel
              
              
              7,624
              
              
              25,403Finland
              
              
              —
              
              
              3,815Rest
                  of the world
              
              
              775
              
              
              1,895$
              115,198
              
              $
              120,452
   **13.
        STOCK OPTIONS AND COMMON STOCK**
  On
        February 1, 1998, the Board of Directors authorized the establishment of
        a
        non-qualified employee stock options 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 plan
        from
        2,791,667 to 4,591,667 in May 2000 and from 4,591,667 to 6,091,667 in February
        2001. The 1998 Plan provides for the grant to our employees (including officers
        and employee directors) of “incentive stock options” within the meaning of
        Section 422 of the Internal Revenue Code of 1986 and for the grant of
        non-statutory stock options to our employees, officers, directors, and
        consultants.
  On
        February 7, 2001, the Board of Directors authorized the establishment of
        the
        2001 supplemental stock option 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-27
 AIRSPAN
            NETWORKS INC.
 NOTES
            TO
            THE FINANCIAL STATEMENTS – (Continued)
 (in
            thousands, except for share and per share data)
 On
        September 1, 2003, the Board of Directors authorized the establishment of
        the
        2003 supplemental stock option 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 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 this Plan and the law. The number of shares reserved under this plan
        is
        5,000,000.
  Under
        the
        1998, 2001 2003 and 2004 plans, the Compensation Committee is authorized
        to
        establish the terms of stock options. Under the 1998 plan, the exercise price
        of
        all incentive stock options must be at least equal to the fair market value
        of
        our common stock on the date of the grant and the exercise price of all
        non-statutory options may be equal to, more than, or less than 100% of the
        fair
        market value of our common stock on the date of the grant. Under the 2001,
        2003
        and 2004 plans, the exercise price of each option may be equal to, more than,
        or
        less than 100% of fair market value of our common stock on the date of the
        grant. Employee stock options granted under all the plans generally vest
        over a
        four-year period and expire on the tenth anniversary of their issuance. The
        total number of options granted to employees under the plans was 277,800
        in
        2003, 616,450 in 2004 and 1,108,500 in 2005. Also issued to employees in
        2005
        were 100,000 restricted stock shares. The restriction on this stock is lifted
        on
        the basis of 25% after 18 months from grant, 25% after 30 months from grant
        and
        50% after 48 months from grant .
  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 120,000, 125,000 and 120,000
        in
        2003, 2004 and 2005, respectively.
  The
        Company has a full recourse note receivable from a director relating to the
        exercise of stock options in the amount of $87 outstanding at December 31,
        2004
        and 2005. Such options may be exercised for the issuance of restricted stock
        to
        the extent such options are not vested. Restrictions on such stock would
        lapse
        over the same four-year vesting schedule as the underlying option. In the
        event
        of termination, the Company has a repurchase right determined at the original
        exercise price.
  At
        December 31, 2005 the Company had reserved 3,080,663 of its Common Stock
        for
        purchase upon exercise of options to be granted in the future.
  F-28
 AIRSPAN
            NETWORKS INC.
 NOTES
            TO
            THE FINANCIAL STATEMENTS – (Continued)
 (in
            thousands, except for share and per share data)
  The
        following table sets forth the activity for all common stock
        options:
  **Number
                  of**
                **Shares**
              
              **Weighted**
                **average**
                **exercise
                  price**Outstanding,
                  January 1, 2003
              
              
              5,476,953
              
              $
              2.67Granted
              
              
              397,800
              
              
              2.30Forfeited
              
              
              (139,041
              )
              
              2.25Exercised
              
              
              (244,765
              )
              
              0.53Outstanding,
                  December 31, 2003
              
              
              5,490,947
              
              $
              2.74Granted
              
              
              741,450
              
              
              5.03Forfeited
              
              
              (119,315
              )
              
              3.43Exercised
              
              
              (1,118,462
              )
              
              1.40Outstanding,
                  December 31, 2004
              
              
              4,994,620
              
              $
              3.37Granted
              
              
              1,228,500
              
              
              4.77Forfeited
              
              
              (48,051
              )
              
              3.47Exercised
              
              
              (883,390
              )
              
              1.51Outstanding,
                  December 31, 2005
              
              
              5,291,679
              
              $
              4.00
 
 The
        following table sets forth stock options outstanding at December 31,
        2005:
 
 **Outstanding
                  options**
              
              **Weighted
                  average**
              
              **Exercisable
                  options**
              
              **Weighted
                  average****Number**
              
              **Exercise**
                **price**
              
              **Remaining**
                **contractual**
                **life
                  in years**
              
              **Number**
              
              **Exercise**
                **price**Exercise
                  Price ranges$0.30-0.45
              
              
              557,775
              
              $
              0.43
              
              
              5.99
              
              
              397,475
              
              $
              0.420.49-1.83
              
              
              695,465
              
              
              1.17
              
              
              5.90
              
              
              592,548
              
              
              1.281.85-2.86
              
              
              607,285
              
              
              2.54
              
              
              5.87
              
              
              568,928
              
              
              2.572.89-4.12
              
              
              694,541
              
              
              3.79
              
              
              7.98
              
              
              171,092
              
              
              3.384.22-4.37
              
              
              132,500
              
              
              4.37
              
              
              8.58
              
              
              83,667
              
              
              4.374.38
              
              
              558,030
              
              
              4.38
              
              
              5.10
              
              
              558,030
              
              
              4.384.55-5.08
              
              
              1,011,472
              
              
              5.00
              
              
              9.04
              
              
              230,747
              
              
              5.055.14-6.00
              
              
              745,279
              
              
              5.81
              
              
              6.78
              
              
              287,032
              
              
              5.906.13-9.60
              
              
              119,332
              
              
              8.12
              
              
              5.07
              
              
              105,167
              
              
              8.3815.00
              
              
              170,000
              
              
              15.00
              
              
              4.58
              
              
              170,000
              
              
              15.00Total
              
              
              5,291,679
              
              $
              4.00
              
              
              6.82
              
              
              3,164,685
              
              $
              3.81
  In
        2000,
        the Company adopted the 2000 Employee Stock Purchase Plan (“ESPP”), which is
        intended to qualify as an employee stock purchase plan under Section 423
        of the
        Internal Revenue Code of 1986. On January 30, 2004 the Board of Directors
        authorized an increase to 3,000,000 shares from 1,000,000 shares of common
        stock
        reserved for issuance under the ESPP. On August 1, 2003, the Company issued
        531,164 shares at $0.697 per share to employees participating in the ESPP.
        On
        August 1, 2004, the Company issued 211,754 shares at $1.76 per share to
        employees participating in the ESPP. On August 1, 2005, the Company issued
        130,630 shares at $3.715 per share to employees participating in the ESPP.
        As of
        December 31, 2005, there were 1,694,947 shares of common stock reserved for
        issuance under the ESPP. Further offerings shall commence on each subsequent
        August 1 and shall last for a period of one year, and the final offering
        under
        this Plan shall commence on August 1, 2008 and terminate on July 31,
        2009.
  F-29
 AIRSPAN
            NETWORKS INC.
 NOTES
            TO
            THE FINANCIAL STATEMENTS – (Continued)
 (in
            thousands, except for share and per share data)
 The
        following table summarizes the total number of shares of common stock that
        were
        reserved for issuance as of December 31, 2005:
 
 **Plan
                  reserved under**
              
              **Number
                  of shares**2000
                  Employee Stock Purchase Plan
              
              
              1,694,9471998,
                  2001, 2003 and 2004 Stock Option plans — options still to be granted
              
              
              3,080,663—
                  options outstanding
              
              
              5,291,67910,067,289
  On
        November 9, 2004, the Company sold 834,560 shares of its common Stock in
        accordance with a prospectus it filed with the Securities and Exchange
        Commission on October 12, 2004. Net proceeds to the Company were $5.30 per
        share, or $4.4 million in total. The shares were being held as treasury stock,
        having originally been acquired under a share buy back program implemented
        by
        the Company in 2002. Using Oppenheimer & Co. Inc, whom the Company had
        engaged to serve as its exclusive solicitation agent for the sale, the Company
        sold the shares through a series of block trades to a group of institutional
        investors.
  **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:
 
 **Year
                  ended**
                **December
                  31,**
                **2003**
              
              **Year
                  ended**
                **December
                  31,**
                **2004**
              
              **Year
                  ended**
                **December
                  31,**
                **2005**Numerator:Net
                  loss
              
              $
              (29,455
              )
              $
              (9,975
              )
              $
              (15,077
              )Deemed
                  dividend associated with beneficial conversion of preferred
                  stock
              
              
              —
              
              
              (10,439
              )
              
              —Net
                  loss attributable to common stockholders
              
              $
              (29,455
              )
              $
              (20,414
              )
              $
              (15,077
              )Denominator
                  - basic and diluted:Weighted
                  average common shares outstanding
              
              
              35,073,315
              
              
              36,441,932
              
              
              38,736,939Net
                  loss attributable to common stockholders per share — basic and diluted:
              
              $
              (0.84
              )
              $
              (0.56
              )
              $
              (0.39
              )
  There
        were 5,490,947 stock options outstanding at December 31, 2003, 4,994,620
        stock
        options outstanding at December 31, 2004 and 5,291,679 options outstanding
        at
        December 31, 2005 that were excluded from the computation of diluted net
        loss
        per share as their effect was antidilutive. If the Company had reported net
        income, the calculation of these per share amounts would have included the
        dilutive effect of these common stock equivalents using the treasury stock
        method for stock options. The convertible preferred stock referred to in
        Note 15
        was also excluded from the computation of diluted net loss per share as its
        effect was antidilutive. 100,000 nonvested shares of restricted stock were
        excluded from the computation of diluted net loss per share as their effect
        was
        antidilutive.
 
 F-30
 AIRSPAN
            NETWORKS INC.
 NOTES
            TO
            THE FINANCIAL STATEMENTS – (Continued)
 (in
            thousands, except for share and per share data)
 **15.
        CONVERTIBLE PREFERRED STOCK**
 
 On
        September 13, 2004, the Company consummated the private sale of 73,000 shares
        of
        Series A Preferred Stock to Oak Investment Partners XI Limited Partnership
        (“Oak”) for aggregate gross proceeds of $29.2 million (net proceeds $29.1
        million after legal fees) pursuant to the terms of a Preferred Stock Purchase
        Agreement (the “Purchase Agreement”). The Purchase Agreement was amended
        effective September 23, 2004. Pursuant to the Purchase Agreement, Oak purchased
        73,000 shares of Series A Preferred Stock, which are convertible into 7,300,000
        shares of common stock, for $400 per share of preferred stock or $4 per share
        of
        common stock equivalent. The per common stock equivalent price was established
        at a discount of approximately 10% off the trailing 10 day volume weighted
        average closing price for the common stock on September 9, 2004.
  The
        fair
        value of the common stock on the commitment date was $5.43 per ordinary share.
        Each preferred share, purchased for $400.00, was convertible into 100 common
        shares, implying a common stock equivalent value (conversion price) on the
        commitment date of $4.00 per share. The intrinsic value of the beneficial
        conversion feature of the 73,000 preferred shares on the commitment date
        was
        $10.4 million.
 
 As
        a
        result of the discount to fair market value at the commitment date, the Company
        recognized the intrinsic value of the embedded beneficial conversion feature
        relating to the issuance of the Preferred Stock of $10.4 million as a deemed
        dividend to preferred stockholders. The Preferred Stock was immediately
        convertible to common stock on the date of issue and, as a result, the embedded
        beneficial conversion feature was immediately debited to “Accumulated
        deficit” in the third quarter 2004, reflected as a “Deemed dividend to
        preferred stockholders associated with beneficial conversion of preferred
        stock”
and credited to “Additional paid in capital”.
  Pursuant
        to the Articles, holders of the Series A Preferred Stock may convert the
        stock
        into shares of the Company’s common stock at any time at the rate of 100 shares
        of common stock for each share of Series A Preferred Stock (the “Conversion
        Rate”). Holders of the Series A Preferred Stock are entitled to participate in
        dividends declared with respect to the common stock as if the Series A Preferred
        Stock was converted into the common stock. To the extent that the holders
        of the
        Series A Preferred Stock do not participate fully with other Company
        stockholders with respect to dividends paid, the Conversion Rate may be
        appropriately adjusted upon the occurrence of any of the following events:
        (i)
        the Company’s payment of common stock dividends and distributions, (ii) common
        stock splits, subdivisions or combinations and (iii) reclassification,
        reorganization, change or conversion of the common stock. To the extent that
        the
        holders of the Series A Preferred Stock do not participate fully with
        other Company stockholders with respect to dividends paid, the Conversion
        Rate may be appropriately adjusted upon the occurrence of any of the following
        events: (i) the Company’s payment of common stock dividends and distributions,
        (ii) common stock splits, subdivisions or combinations and (iii)
        reclassification, reorganization, change or conversion of the common
        stock.
  The
        Series A Preferred Stock is identified as ranking senior and prior to the
        common
        stock and all other classes or series of capital stock with respect to payments
        upon liquidation. Upon any liquidation of the Company, certain mergers,
        reorganizations and/or consolidations of the Company into or with another
        corporation or any transaction or series of related transactions in which
        a
        person, entity or group acquires 50% or more of the combined voting power
        of the
        Company’s then outstanding securities (a “Liquidation”), holders are entitled to
        receive prior and in preference to any distribution to holders of the Company’s
        common stock, the greater of the amount they invested plus all accumulated
        or
        accrued and unpaid dividends thereon or the amount they would receive in
        such
        transaction if they converted the preferred stock into common
        stock.
  Pursuant
        to the Company’s Articles of Incorporation, holders of the Series A Preferred
        Stock are entitled to vote on matters presented to the holders of common
        stock
        as if the Series A Preferred Stock was converted into the common stock. However,
        the Company, Oak and each subsequent holder of the Series A Preferred Stock
        (collectively, the “Parties”) have agreed that the holders of the Series A
        Preferred Stock will only vote on matters presented to the holders of common
        stock as if the Series A Preferred Stock was converted into the common stock
        at
        the rate of 1 share of Series A Preferred Stock to 86 shares of common stock
        (the “Voting Conversion Rate”). The Parties have agreed that the holders of the
        Series A Preferred Stock shall abstain from voting with respect to any remaining
        votes to which the holders of the Series A Preferred Stock may be entitled
        under
        the Articles. The Parties have further agreed that the Voting Conversion
        Rate
        will be adjusted from time to time in the same manner and under the same
        circumstances as the Conversion Rate is adjusted pursuant to the Articles.
  F-31
 AIRSPAN
        NETWORKS INC.
 NOTES
            TO
            THE FINANCIAL STATEMENTS – (Continued)
 (in
            thousands, except for share and per share data)
  **16.
        RELATED PARTY TRANSACTIONS**
  On
        April
        27, 1999, Mr. Stonestrom, the Company’s President and Chief Executive Officer,
        incurred $130 of indebtedness to the Company in connection with the purchase
        of
        five hundred thousand shares of the Company’s common stock. During the year
        2004, Mr Stonestrom repaid $43 leaving indebtedness at December 31, 2005
        of $87.
        No interest is due on the debt.
 
 **17.
        LONG-TERM DEBT**
  Long-term
          debt consists of:
 **December
                    31, 2004**
                
                **December
                    31, 2005**Finnish
                    Funding Agency for Technology and Innovation (“Tekes”)
                
                
                —
                
                $
                1,392Less
                    current portion
                
                
                
                
                
                (96
                )—
                
                $
                1,296
  On
        November 9, 2005 the Company completed its acquisition of Radionet Oy, Ltd.
        The
        Company assumed from Radionet four loans with Tekes, the main public funding
        organization for research and development in Finland. These loans are to
        be
        repaid over the next five years in varying amounts through five annual
        installments made in December of each year. These loans all accrue interest
        at
        3% per annum, payable annually once repayment of the loan principal has
        commenced.
  Long
        term
        debt maturities at December 31, 2005 are as follows:
 
 2006
              $
              962007
              
              2762008
              
              5212009
              
              4252010
              
              74$
              1,392
  F-32
 AIRSPAN
          NETWORKS INC.
 NOTES
            TO
            THE FINANCIAL STATEMENTS – (Continued)
 (in
            thousands, except for share and per share data)
 **18.
          QUARTERLY FINANCIAL DATA (UNAUDITED)**
 The
        following table represents the Company’s consolidated results for each of the
        most recent eight quarters up to and including the quarter ending December
        31,
        2005. The information for each of these quarters is unaudited and has been
        prepared on the same basis as our audited consolidated financial statements.
        In
        the opinion of management, all necessary material adjustments have been included
        to present fairly the unaudited quarterly results when read in conjunction
        with
        the Company’s audited financial statements and related notes.
 
 **Quarter
                  Ended****Apr.
                  4,**
                **2004**
              
              **July
                  4,**
                **2004**
              
              **Oct.
                  3,**
                **2004**
              
              **Dec.
                  31,**
                **2004**
              
              **Apr.
                  3,**
                **2005**
              
              **July
                  3,**
                **2005**
              
              **Oct.
                  2,**
                **2005**
              
              **Dec.
                  31,**
                **2005****($
                  in thousands, except per share data)**Consolidated
                  statement of operations data:Revenue
              
              $
              12,420
              
              $
              18,252
              
              $
              26,452
              
              $
              37,523
              
              $
              22,218
              
              $
              20,309
              
              $
              30,545
              
              $
              37,894Cost
                  of revenue
              
              
              8,693
              
              
              12,182
              
              
              19,393
              
              
              26,975
              
              
              15,362
              
              
              14,887
              
              
              21,462
              
              
              27,756Gross
                  profit /(loss)
              
              
              3,727
              
              
              6,070
              
              
              7,059
              
              
              10,548
              
              
              6,856
              
              
              5,422
              
              
              9,083
              
              
              10,138Operating
                  expenses:Research
                  and development
              
              
              5,046
              
              
              4,743
              
              
              4,495
              
              
              4,510
              
              
              4,598
              
              
              5,062
              
              
              5,398
              
              
              6,099Sales
                  and marketing
              
              
              2,560
              
              
              2,752
              
              
              2,782
              
              
              2,919
              
              
              2,572
              
              
              2,675
              
              
              2,858
              
              
              3,359Bad
                  debt reserve
              
              
              —
              
              
              300
              
              
              249
              
              
              —
              
              
              316
              
              
              179
              
              
              307
              
              
              313General
                  and administration
              
              
              2,051
              
              
              2,828
              
              
              3,342
              
              
              2,821
              
              
              2,827
              
              
              2,996
              
              
              3,223
              
              
              3,636Amortization
                  of intangibles
              
              
              246
              
              
              158
              
              
              175
              
              
              144
              
              
              128
              
              
              128
              
              
              337
              
              
              349Restructuring
                  provision
              
              
              —
              
              
              397
              
              
              16
              
              
              —
              
              
              —
              
              
              1,150
              
              
              —
              
              
              —Total
                  operating expense
              
              
              9,903
              
              
              11,178
              
              
              11,059
              
              
              10,394
              
              
              10,441
              
              
              12,190
              
              
              12,123
              
              
              13,756(Loss)
                  /profit from operations
              
              
              (6,176
              )
              
              (5,108
              )
              
              (4,000
              )
              
              154
              
              
              (3,585
              )
              
              (6,768
              )
              
              (3,040
              )
              
              (3,618
              )Other
                  income/(expense):Interest
                  expense
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              (9
              )Interest
                  and other income
              
              
              807
              
              
              686
              
              
              591
              
              
              1,133
              
              
              676
              
              
              47
              
              
              345
              
              
              329(Loss)
                  /profit before income taxes
              
              
              (5,369
              )
              
              (4,422
              )
              
              (3,409
              )
              
              1,287
              
              
              (2,909
              )
              
              (6,721
              )
              
              (2,695
              )
              
              (3,298
              )Income
                  tax (charge)/credit
              
              
              (16
              )
              
              14
              
              
              (48
              )
              
              1,988
              
              
              —
              
              
              (5
              )
              
              567
              
              
              (16
              )
 
 Net
                  (loss)/profit
              
              
              (5,385
              )
              
              (4,408
              )
              
              (3,457
              )
              
              3,275
              
              
              (2,909
              )
              
              (6,726
              )
              
              (2,128
              )
              
              (3,314
              )Deemed
                  dividend associated withbeneficial conversion ofpreferred stock
              
              
              —
              
              
              —
              
              
              (10,439
              )
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —Net
                  (loss)/profit attributable to common stockholders
              
              $
              (5,385
              )
              $
              (4,408
              )
              $
              (13,896
              )
              $
              3,275
              
              $
              (2,909
              )
              $
              (6,726
              )
              $
              (2,128
              )
              $
              (3,314
              )Net
                  (loss)/profit attributable to common stockholders per share -
                  basic (1)
              
              $
              (0.15
              )
              $
              (0.12
              )
              $
              (0.38
              )
              $
              0.07
              
              $
              (0.08
              )
              $
              (0.17
              )
              $
              (0.05
              )
              $
              (0.08
              )Net
                  (loss)/profit attributable to common stockholders per share -
                  diluted
              
              $
              (0.15
              )
              $
              (0.12
              )
              $
              (0.38
              )
              $
              0.07
              
              $
              (0.08
              )
              $
              (0.17
              )
              $
              (0.05
              )
              $
              (0.08
              )
 
 (1)
              In
                  accordance with EITF 03-6 Participating Securities and the Two-Class
                  Method under FASB Statement No. 128, Earnings Per Share, the Series
                  "A"
                  Preferred Stock have been included in the computation of basic
                  earnings
                  per share for the fourth quarter
                  2004.
  (2)
              Cost
                  of revenue for fiscal 2005 includes an approximate $0.5 million
                  write off
                  in the fourth quarter of 2005 in connection with inventory shortages
                  that
                  were identified in the physical inventory
                  count
  F-33
 **Financial
          Statement Schedules**
  **Schedule
        II**
    **Airspan
                  Networks Inc. Valuation and Qualifying Accounts****Additions**
              
              **Deductions****Balance
                  at**
                **beginning**
                **of
                  period**
              
              **Charged
                  to**
                **expenses**
              
              **Written**
                **back
                  to**
                **provision**
              
              **Credit
                  to**
                **expenses**
              
              **Charged**
                **against**
                **provision**
              
              **Balance
                  at**
                **end
                  of**
                **period****(in
                  thousands of US Dollars)****Allowance
                  for doubtful debts:**Year
                  ended December 31, 2005
              
              $
              2,814
              
              $
              1,462
              
              $
              223
              
              $
              (347
              )
              $
              (633
              )
              $
              3,519Year
                  ended December 31, 2004
              
              
              5,207
              
              
              985
              
              
              —
              
              
              (436
              )
              
              (2,942
              )
              
              2,814Year
                  ended December 31, 2003
              
              
              4,531
              
              
              1,212
              
              
              —
              
              
              (266
              )
              
              (270
              )
              
              5,207
 
 II-1