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  , 2003

OR

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

For the transition period from ____________ to ____________.

Commission file number 000-31031

AIRSPAN NETWORKS INC.

(Exact name of registrant as specified in its charter)



|Washington                                                     |  |  |  | 75-2743995                          
|-------------------------------------------------------------- |  |  |  | ------------------------------------
|(State or
other jurisdiction 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)                          

Registrants telephone number, including area code: (561)
893-8670

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

NONE

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

Common Stock, $0.0003 par value



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




Indicate by check mark 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 the Form 10-K.
[  ]




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




Aggregate market value of voting stock held by
non-affiliates of the registrant as of June 29, 2003: $43,634,296




Number of shares outstanding of the
registrants class of common stock as of March 22, 2004: 36,933,245


DOCUMENTS INCORPORATED BY REFERENCE:



Portions of registrants definitive Proxy
Statement for its 2004 Annual Meeting of Shareholders are incorporated herein by reference into Part III.


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AIRSPAN NETWORKS INC

FORM 10-K For the Year Ended December 31, 2003

TABLE OF CONTENTS






|ITEM       |  |  |  |                                                                                                                 |  | Page No.
|---------- |  |  |  | --------------------------------------------------------------------------------------------------------------- |  | --------
|           |  |  |  | PART I                                                                                                          |  |         
|1          |  |  |  | Business                                                                                                        |  |         
|2          |  |  |  | Properties                                                                                                      |  |         
|3          |  |  |  | Legal Proceedings                                                                                               |  |         
|4          |  |  |  | Submission of Matters to a Vote of Security Holders                                                             |  |         
|           |  |  |  | PART II                                                                                                         |  |         
|5          |  |  |  | Market for Registrants Common Equity and Related Stockholder Matters and Issuer Purchases of Equity Securities |  |         
|6          |  |  |  | Selected Financial Data                                                                                         |  |         
|7          |  |  |  | Managements Discussion and Analysis of Financial Conditions and Results of Operations                          |  |         
|7A         |  |  |  | Quantitative and Qualitative Disclosures about Market Risk                                                      |  |         
|8          |  |  |  | Financial Statements and Supplementary Data                                                                     |  |         
|9          |  |  |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                            |  |         
|9A         |  |  |  | Controls and Procedures                                                                                         |  |         
|           |  |  |  | PART III                                                                                                        |  |         
|10         |  |  |  | Directors and Executive Officers of the Registrant                                                              |  |         
|11         |  |  |  | Executive Compensation                                                                                          |  |         
|12         |  |  |  | Security Ownership of Certain Beneficial Owners and Management and related Stockholder Matters                  |  |         
|13         |  |  |  | Certain Relationships and Related Transactions                                                                  |  |         
|14         |  |  |  | Principal Accounting Fees and Services                                                                          |  |         
|           |  |  |  | PART IV                                                                                                         |  |         
|15         |  |  |  | Exhibits, Financial Statement Schedules and Reports on Form 8-K                                                 |  |         
|SIGNATURES |  |  | 

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 prospectus.




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.


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PART I

ITEM 1. BUSINESS

Business Overview



We are a global supplier of Broadband Wireless
Access (BWA) equipment that allows communications service providers (often referred to as local exchange carriers, or simply
telephone companies), internet service providers (often referred to as ISPs) and other telecommunications users, such as utilities and
enterprises, to cost effectively deliver high-speed data and voice services using radio frequencies rather than wires. We call this transmission method
Wireless Broadband. The primary market for our systems is a subset of the fixed wireless access systems market, which is the fixed
point-to-multipoint market in radio frequencies below 6.0GHz. Each of our fixed wireless access systems utilizes digital wireless techniques, which
provide wide area coverage, security and resistance to fading. Our systems can be deployed rapidly and cost effectively, providing an attractive
alternative or complement to traditional copper wire, cable, or fiber-optic communications access networks. Our products also include software tools
that optimize geographic coverage of our systems and provide ongoing network management. To facilitate the deployment and operation of our systems, we
also offer network installation, training and support services. A more complete description of our various wireless access systems is provided below.
Our BWA systems (the Airspan BWA Solutions) have been installed by more than 160 network operators in more than 60 countries and are being
tested by numerous other service providers.




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




In October 2002, we strengthened our position in the
BWA equipment market with the acquisition of the WipLL (Wireless Internet Protocol in the Local Loop) business from Marconi pursuant to a stock
purchase agreement, and renamed the business Airspan Networks (Israel) Limited (Airspan Israel). The products and services produced by
Airspan Israel enable operators in licensed and unlicensed wireless bands to offer high-speed, low cost, wireless broadband connections for data and
voice over IP. We acquired all of the issued and outstanding capital stock and debt of Marconi WipLL in exchange for $3 million of
cash.




In October 2003, we released our AS4030 and AS3030
product range of Airspan branded high-end point-to-multipoint and point-to-point products suitable for operators wishing to deliver service offerings
to medium and large businesses and multi-tenant dwellings that require considerable bandwidth for their end users. These products, based on 802.16
Orthogonal Frequency Division Multiplexing (OFDM) technology, can also be used for a wide range of backhaul applications.




On December 23, 2003, we completed an agreement with
Nortel Networks to acquire the fixed wireless access business of Nortel Networks known as Proximity in accordance with the terms and
conditions of a contemporaneously executed and delivered Purchase and Sale Agreement. The final purchase price of approximately $13.1 million was
offset at closing against customer prepayments totaling approximately $14.9 million transferred to us as part of the transaction. We assumed the
product supply obligations associated with the customer prepayments and certain other liabilities and obligations of Nortel Networks relating to the
Proximity business. As part of the transaction, 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. In addition, we agreed to hire Nortel Networks workforce directly employed in
the Proximity business, which at closing totaled 26 persons who are located in Maidenhead, England and Sunrise, Florida. We also assumed Nortel
Networks then current manufacturing obligations for the assembly and final testing of Proximity products. The acquired Proximity products and
services provide carrier class circuit switched voice and data, based on a Time Division Multiple Access (TDMA)
technology.




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


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Industry Overview

The Global Need for Broadband Access



We believe there has been continued growth in the
number of end users of broadband access equipment throughout the world for the last five years. Although the number of users increased overall over
that period, it was not matched every year by a growth 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 twelve months that we believe we have seen evidence of renewed growth in spending on new broadband infrastructure. We anticipate that as
the Internet continues to gain acceptance as a global communications tool, end-users worldwide will increasingly demand reliable broadband access in
addition to traditional voice services.




We 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 teledensity regions, we believe BWA
systems are often selected in many areas to provide the broadband access solution.


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



The worldwide deregulation of the telecommunications
industry 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 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 average customer spending on communications services and larger coverage area requirements. We believe wireless broadband can
provide these solutions.




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.




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.


The Access Network



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 the solutions that are perceived to have, for a variety of technological and economic reasons, competed most
directly with BWA solutions we offer.


| |  | Wired Digital Subscriber
Line.    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 and countries 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) of wired DSL technology. In many instances, a substantial portion of an operators copper network is
unsuitable for DSL transmission.
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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| |  | Cable Modems.    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 continued to be the dominant broadband delivery
access method during 2003, but cable coverage, which is not available in many countries, limited the growth of this segment in 2003.
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Broadband Fixed Wireless
Access.    Broadband, fixed wireless access systems enable high-speed access to data and telephone networks without requiring a
cabled connection, such as copper wire or fiber, between the subscriber and the base station. A fixed wireless system can be more rapidly and cheaply
deployed than wire or cable. To provide high quality service, it is necessary to plan the deployment of radio equipment to maximize coverage and
availability, and the technology employed must resist fading. In addition, fixed wireless services work best in those regions where a suitable
frequency band is available.
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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


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



Government competition policy and other political
pressures to make broadband available in underserved areas has led to the creation of new licensed spectrum, especially in 3.5GHz, in many areas.
During 2003, 3.5GHz spectrum was licensed for the first time in a number of countries, including Brazil and New Zealand with additional licenses given
in China. Further, plans are underway for the allocation of additional spectrum at 3.5GHz in China. Additional spectrum for unlicensed applications was
added in many areas during 2003. Most notably, additional parts of the 5GHz band have been made available to network operators for broadband wireless
applications in most developed and developing countries via recommendation and agreements following the WRC (World Radio Conference) held in July 2003.
The greater availability of license-exempt spectrum has been of particular benefit to smaller carriers and ISPs, where a significant market has
developed around the deployment of broadband in rural communities using license-exempt wireless access systems. We believe the increased availability
of licensed and unlicensed spectrum may increase the relative demand for BWA solutions by various small carriers and ISPs.


WiFi Networks and Nomadic Broadband Access



We believe that there has been a significant growth
in the numbers of applications and service providers utilizing WiFi technology under the IEEE (Institute of Electrical and Electronic
Engineers) 802.11 standards to provide wireless Broadband Access. With rapidly falling WiFi technology prices, large chip vendors have started to
integrate WiFi capabilities into chip sets used in laptop computers, personal digital assistants and other WiFi-enabled products, giving their users
Broadband Access in areas (WiFi Hotspots) where a service provider or end user has installed a WiFi transceiver and the WiFi
transceiver is connected to a broadband access network. Under the 802.11 standards, WiFi-enabled products must be within approximately 200 meters of a
WiFi transceiver to operate as designed. It is our hope that WiFi systems will generate a greater level of demand for our BWA equipment, which in turn
will be used to provide the required connectivity between the WiFi transceiver and the backbone and transport networks. To facilitate this
connectivity, we have incorporated a WiFi access point into a variant of our AS4000 subscriber terminals.


The Emergence of Standardized Broadband Wireless and the WiMAX
Forum



During 2002 and 2003 we, and other similar
companies, cooperated within the IEEE to develop a standard for Wireless Metropolitan Area Networks known as 802.16a. This standard, for the first
time, fully supports all Broadband Wireless applications in the 2-11GHz frequency bands and provides a framework for the evolution of our products to
higher performance and lower cost. We have also helped to re-launch the WiMAX Forum, an organization designed to ensure true interoperability between
Broadband Wireless systems based on the 802.16 standard. We introduced our first 802.16a based product in the fourth quarter of 2003 to address high
end applications such as cellular backhaul and high speed internet connections for corporate customers, schools and hospitals.


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The Need for Fixed Wireless Access Solutions



The limitations and high costs of other existing
access solutions have led many network operators to consider deployment of fixed wireless access networks. Fixed wireless-technology permits fast,
flexible and cost-effective network rollouts. Many varieties of wireless fixed access systems exist, some offering only basic voice telephony services,
others delivering only IP data and data-derived services. Airspans technologies provide a platform for delivery of either or both high
quality voice and high-speed data.




Each type of wireless system operates within
assigned frequency bands that can be segmented by the bandwidth of data that can be carried, the effective range of a single cell and the cost of
deployment. Currently available wireless technologies include cellular, fixed wireless, cordless, wireless local area networks (Wireless
LANs, networks that cover a building or a small geographic area), radio systems using frequencies between 10GHz and 100GHz, or millimeter wave,
as well as various next generation mobile wireless technologies.




Each of these technologies is best suited to
specific applications. Systems based on millimeter wave technologies (LMDS Systems), for example, provide high bandwidth services. However
the LMDS Systems have high costs that make them suitable only for large users of data, have significant range limitations, require line-of-sight to
provide services and are adversely affected by weather conditions. These systems are generally targeted at large business customers in major
cities.




Lower frequency cordless and mobile cellular
technologies have been widely deployed to deliver wireless voice services. Cellular technologies typically have a wider geographic range than our
system. Systems with lower frequencies of operation are able to propagate further, while cordless and Wireless LAN technologies have a more limited
geographic range than our system. The lower bandwidth of cordless and cellular technologies today makes them unsuitable for delivering advanced
high-speed Internet access. The deployment of third generation mobile wireless systems in the future may, however, narrow the gap in data transmission
rates between mobile technologies and our BWA systems. Wireless LANs have greater bandwidth than our system, but like cordless technologies, have been
generally more expensive to deploy in large geographic areas because of their limited geographic range. Again, future developments of LAN products
using the IEEE802.16 / WiMAX standard may narrow the gap in range in the future. Wireless LAN technologies are not optimized, however, for delivery of
high-quality voice services.




Our systems are designed to provide a range of
communications services in the 900MHz 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 described above, 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 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 and Voice
Services.    Our AS4000, Proximity and AS4020 Wireless DSL solutions provide network operators with combined and simultaneous
optimized delivery of both high-speed packet data and wire-quality voice services. Our WipLL Solution gives network operators and ISPs a
relatively low cost data and voice-over-Internet-Protocol (VoIP) solution. 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. Collectively, we refer to these Solutions as
the Airspan BWA Solutions. 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.




Quality of Service and
Reliability.    Our AS4000 and AS4020 solutions are based on DS-CDMA technology (defined below), which allows 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


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(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 technology
(defined below), which allows operators and ISPs to offer a high-quality data and voice services using the VoIP solution. The Airspan branded AS4030
product line is based on the 802.16a standard and uses 256 OFDM technology to provide excellent non line of sight characteristics. These solutions
provide wide-area coverage, security and resistance to fading. In addition, 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 fixed 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 AS4020 or Proximity base station covers up to 70 square miles in an urban setting and as much as 700 square miles in a rural
setting. A single WipLL solution base station can cover up to 175 square miles. Network operators and ISPs can quickly begin generating new subscriber
revenues due to the reduced time for up-front planning and the relative ease and speed of installation of our base stations. Our systems allow our
customers to rapidly add new subscribers, who can be brought online in hours once the basic 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 to accommodate from 100 to 10,000 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 also can 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. 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 fixed broadband wireless access
systems for their communications. Key elements of our strategy include the following:




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




Maintain our strong 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 further acquisition.
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


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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 802.16a group, the WiMAX group and
ETSI (European Telecommunications Standards Institute). We believe our leadership role in WiMAX may give us a significant lead in the development and
sale of WiMAX-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.



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 service providers 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 service providers in such markets. Additionally in the United States we have sold our AS4000 and AS4020 solutions to customers who have had a
federally imposed requirement to use the PCS wireless spectrum they have acquired by auction or risk losing that spectrum. 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.




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.




Expand the product range that we have to
offer.    We are seeking to continue to expand our range of offered BWA solutions through both internal growth and/or
acquisition.


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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.




Below is a diagram of our 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 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 primarily of the following
broadband access platforms operating in licensed and unlicensed frequencies between 900 MHz and 6.0GHz:


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.
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | 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 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. 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 a high performance, high end product 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.
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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Network Management Systems



The AS4000, AS4020, AS4030, Proximity and WipLL
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.


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 2003 we introduced a significant number of
new products and product enhancements.


| |  | A number of additional frequency variants in the WipLL product
line, including 900 MHz, 2.7-2.9GHz and 5.8GHz.
|- |  | --------------------------------------------------------------------------------------------------------------

| |  | An enhancement to the AS4020 high-speed data and voice platform
to provide increased link budget and higher capacity base stations.
|- |  | -----------------------------------------------------------------------------------------------------------------------------------

| |  | Our Airspan branded AS4030 802.16a product aimed at Cell Site
backhaul and high-end IP / E1 applications.
|- |  | ---------------------------------------------------------------------------------------------------------

| |  | Our AS3010 and AS3030 point-to-point product range.
|- |  | ---------------------------------------------------



We are seeking to introduce further new products in
2004, including:


| |  | software upgrades to AS4020 and Proximity products
|- |  | --------------------------------------------------

| |  | a higher performance, lower cost integrated Subscriber Terminal
for the AS 4000 and AS4020 platforms
|- |  | ----------------------------------------------------------------------------------------------------

| |  | a 700MHz option for the WipLL product line
|- |  | ------------------------------------------

| |  | Our first 802.16d product, targeted at WiMAX interoperability,
available in the 3.5GHz and 5.8GHz frequency bands
|- |  | -----------------------------------------------------------------------------------------------------------------

| |  | a Service Qualification Software package that allows
pre-qualification of service availability to a subscriber, thereby eliminating the need for a site visit.
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------

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Technology



As of March 22, 2004, we had 96 people engaged in
research and development. Our technologies have been under continuous development since 1993, deliver high performance, and are resilient in a very
wide range of deployment conditions.


Frequency Choice



We recognized early that no single fixed wireless
spectrum would be made available for access 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 0.9 to 4.0GHz bands, encompassing both licensed and unlicensed bands. We are working to enhance our
products so that we can claim in the future that our wireless solutions operate down to the 700MHz band.


Technology



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 TDMA technology
that provides a high link budget and robust reliability.




CDMA functions differently from other access
technologies such as Frequency Division Multiple Access (FDMA), Time Division Multiple Access (TDMA) or Orthogonal Frequency
Division Multiplexing / Multiple Access (OFDM/A). CDMA uses virtually random encoding of data based on a unique access code per user, while
FDMA divides the frequencies into narrow bands per user and TDMA divides up the transmission into intervals of time per user.


Intellectual Property



We have developed reliable CDMA-based systems
employing our own enabling technology, which, as of March 22, 2004, has resulted in 43 separate U.S. patents granted (together with various foreign
counterparts), with a further 10 pending U.S. applications, for the Airspan BWA Solutions. 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 custom
integrated circuits, 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 U.S. 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.




We market our AS4030 and AS3030 products under the
Airspan trade name pursuant to a manufacturing and license agreement with a third party.


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.


9

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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. The AS4020 test network operates in and around
the town of Stratford upon-Avon, U.K., and the WipLL network operates in the town of Lod, Israel. In addition to providing valuable long-term system
reliability, availability and other performance data, these unique facilities 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 integrated
components are required to be replaced. During the years ended December 31, 2003, 2002, and 2001, we spent $14.6 million, $13.7 million and $15.1
million, respectively, on research and development of our products. Of such amounts, $0.2 million, $0.0 million and $0.4 million, respectively, were
attributed to amortization of intangibles. In 2004, we will also be required to incur Research and Development expenditures on the Proximity product
line, to meet existing commitments to deliver product and software enhancements and to maintain the functionality of existing Proximity
products.


Customers



We believe our existing and target customers are
principally comprised of network operators that 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 lines or coaxial cables is cost prohibitive, or where their existing copper lines cannot
effectively deliver broadband data connectivity;
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | mobile carriers that use their excess or under-utilized spectrum
to offer broadband access services to their customers;
|- |  | -----------------------------------------------------------------------------------------------------------------------

| |  | 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
|- |  | -------------------------------------------------------------------------------------------

| |  | enterprises that operate private, closed loop
networks.
|- |  | -------------------------------------------------------



We began shipping our products in 1996. By the end
of December 2003, we had shipped to over 160 customers in more than 60 countries. With the addition of the Proximity product line our customer base
expanded and our customers now include large fixed wireless access carriers including Axtel S.A. de C.V., Mexico (Axtel). Axtel is the
worlds largest fixed wireless operator 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 fiscal 2003, BCL, New Zealand, accounted for approximately 18% of
our annual revenue and was the only customer that individually accounted for more than 10% of our annual revenue. Nonetheless, in fiscal 2003 61% of
our revenue was derived from our top ten customers. Moreover, we anticipate that in fiscal 2004 one customer, Axtel, could account for greater than 50%
of our projected annual revenue. 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, maintenance and upgrades. 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.




On December 23, 2003, in connection with our
acquisition of the Proximity business from Nortel Networks Limited, we assumed the product supply rights and obligations associated with certain
Proximity customers, the


10

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largest of which is Axtel. In particular, Airspan has assumed rights and
obligations under an agreement signed by Axtel in March 2003 to supply equipment and related services to Axtel, including product support and annual
product software enhancements, until December 31, 2007. The agreement contains terms and conditions typical for supply agreements of this type,
including the requirements for minimum annual non-cancelable orders to be placed by Axtel, for Axtel to make certain cash down-payments with orders it
places under the agreement and for lead times for delivery of products, The Axtel Agreement provides Axtel a non-exclusive and perpetual license to use
the Proximity software, subject to certain events of default. The Axel Agreement also provides a one-year, limited warranty with respect to Proximity
hardware and no warranty with respect to Proximity software. The Axtel Agreement 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. If Axtel fails to make payments pursuant to the terms of the Axtel
Agreement and we elect to terminate the Axtel Agreement, our warranty and warranty service obligations are cancelled. The Axtel Agreement also states
that either party may terminate the agreement in the event the other party encounters various forms of financial difficulty, insolvency or
bankruptcy.



Under a technical support agreement we have assumed
with Axtel, 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 term of this agreement extends throughout the
term of the Axtel Agreement, and it 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.




At the closing of the Proximity acquisition we also
agreed to provide service, warranty and other support to customers of the Proximity business other than Axtel, at contractual rates and upon terms and
conditions that existed between those customers and Nortel Networks at the time we closed the acquisition.


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 U.S., U.K., Australia, China,
Czech Republic, Indonesia, New Zealand, 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 and resellers who target network operators and other customers. In certain countries we also sell 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 22, 2004, we had 60 employees dedicated
to sales, marketing and customer service.


Manufacturing



We subcontract all of our manufacturing to
subcontractors, who provide full service manufacturing solutions including systems integration and test procedures.




We currently outsource the manufacturing of our
AS4000, AS4020 and Proximity products. AS4000 and AS4020 products are outsourced directly to a global contract manufacturer, Solectron Corporation
(Solectron).




Under agreements signed with Nortel with respect to
the Proximity product, Nortel has agreed to provide us with purchasing services with respect to subscriber terminal products at cost that includes a
one-year product war-


11

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ranty. These services will end on the earliest to occur of (i) the mutual agreement
of the parties, (ii) December 31, 2004 or (iii) the other partys failure to cure a breach of any term or condition of the agreement. In addition,
Nortel may terminate the agreement if we sell substantially all of our assets, merge with or assign all or some of our rights under agreements with
Nortel to a direct competitor of Nortel.



Pursuant to a manufacturing agreement, Nortel has
agreed to assist us to, among other things, enter into new supply contracts with Solectron, transfer the production of the Proximity products to a
location to be determined by us and assist us with supply and inventory management.




Solectron manufactures our AS4000 and AS4020
subscriber and base station products and Proximity base station products in Dunfermline, Scotland. Solectron Milpitas manufactures our Proximity base
station boards and Solectron Guadalajara manufactures our Proximity subscriber terminals.




Solectron provides a range of manufacturing services
including prototyping, new product introduction, printed circuit board production, full assembly of our Subscriber Terminals and system integration and
test functions.




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 Yokenam, Israel. CAM
provides full manufacture of the products from component procurement to fully tested finished goods.




Our agreements with our manufacturing subcontractors
are all non-exclusive and may be terminated by either party with four to 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.




A third party based in Canada manufactures our
Airspan branded AS4030 and AS3030 products pursuant to a three year contract which is cancelable upon twelve months notice.




Finished AS4000 and AS4020 products are stored prior
to dispatch to end customers at Allport Freight Limited (Allport), a third-party logistics company based in Heston, UK. Finished WipLL products remain
at CAMs facilities prior to dispatch to end customers. Solectron provides storage for finished Proximity products that have not been sent to end
customers. Most Proximity products are stored by and shipped directly from the contract manufacturer to our customers.




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. Further, some of our
printed circuit boards have key components that, due to their complexity and uniqueness, are purchased from single vendors. 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 significant
delays in shipping our products while we seek other sources. See Risk Factors  Our dependence on key suppliers and contract
manufacturers...




Our operation and manufacturing strategies enable us
to configure our products to meet a wide variety of customer requirements and facilitate technology transfer between our research and development group
and our contract manufacturers. We are ISO 9001 certified.


Competition



We compete in a relatively new, rapidly evolving and
highly competitive and fragmented market. We compete with companies that are producing fixed wireless access systems, satellite access systems, cable
access systems, cellular mobile systems and other new entrants to the industry, as well as traditional communications companies.




We believe the primary competitive challenges our
business faces include:


| |  | competing with established traditional wired network equipment
providers and their wired solutions
|- |  | --------------------------------------------------------------------------------------------------

| |  | convincing service providers that our solutions are superior to
competing 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.


12

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Competitors vary in size and scope, in terms of
products and services offered. With respect to the wireless solutions we offer to serve in licensed and unlicensed frequencies, we believe we compete
directly with Alvarion and SR Telecom, and with a number of smaller start-up companies. We also believe we compete indirectly with a number of large
telecommunication equipment suppliers such as Motorola and Harris. In addition, our technology competes with other high-speed solutions, such as wired
DSL, cable modems and high-speed leased lines, 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 22, 2004, we had a total of 227
full-time employees, including contract personnel, of which 123 were based in the UK and 46 were based in Israel. Our employees are not presently
represented by a labor union. We have not experienced any work stoppages and consider our relations with our employees to be good.


Executive Officers and Directors



The names, ages and positions of our executive
officers and directors as of March 25, 2004 are listed below along with their business experience during the past five years.


|Name                  |  |  |  | Age |  | Title                                               
|--------------------- |  |  |  | --- |  | ----------------------------------------------------
|Matthew J.
Desch      |  |  |  | 46  |  | Chairman of the Board of Directors                  
|Eric D.
Stonestrom    |  |  |  | 42  |  | President and Chief Executive Officer, Director     
|Jonathan
Paget        |  |  |  | 57  |  | Executive Vice President and Chief Operating Officer
|Peter
Aronstam        |  |  |  | 51  |  | Senior Vice President and Chief Financial Officer   
|Henrik
Smith-Petersen |  |  |  | 40  |  | President, Asia Pacific                             
|David
Brant           |  |  |  | 40  |  | Vice
President, Finance and Controller              
|H. Berry
Cash         |  |  |  | 63  |  | Director                                            
|Thomas S.
Huseby      |  |  |  | 56  |  | Director                                            
|David A.
Twyver       |  |  |  | 57  |  | Director                                            
|Guillermo
Heredia     |  |  |  | 62  |  | Director                                            
|Michael T.
Flynn      |  |  |  | 55  |  | Director                                            



Matthew J. Desch became Chairman of
the Board of Directors of Airspan on July 1, 2000. Mr. Desch has been serving as the Chief Executive Officer of Telcordia Technologies, a wholly owned
subsidiary of SAIC, Inc. since July 2002. Telcordia is a supplier of operations support systems and services for service providers around the world.
Since January 2003, Mr. Desch has served as a member of the Compensation Committee and a member of the Board of Directors of Flarion, Inc. Flarion is a
privately held company that manufactures mobile, wireless broadband access equipment. 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 that support voice, data, and video transmission over
wireless and wireline technologies. From 1996 through May 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 also serves on the Board of Directors of SAIC, Inc., a
private corporation which provides systems integration, engineering, and R&D services to the U.S. government. Mr. Desch also has a B.S. from Ohio
State University, and an M.B.A. from the University of Chicago.


13

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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
lastas 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.




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.




David Brant joined Airspan at its inception
in January 1998 as Finance Director and in July 2000 was named Vice President, Finance and Controller. From 1990 to January 1998, Mr. Brant was
employed by DSC Communications Corporation, a United States based telecommunications company in various financial roles, the last post as Director of
European Accounting. He received a B.A. in Mathematical Economics in 1984 from Essex University and is a Fellow of the Association of Chartered
Certified Accountants.




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, MicroTune Inc., a provider of RF silicon solutions for the broadband
communications and consumer electronics markets and CIENA Company, a provider of next generation intelligent optical networking equipment. Mr. Cash is
also a member of the Board of Directors of Liberte` Investors, Inc., 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.




Thomas S. Huseby has served as a Director of
Airspan since January 1998, serving as the Chairman of the Board from January 1998 until July 2000. Mr. Huseby also served as the Chief Executive
Officer of Airspan from January 1998 until May 1998. Since August 1997, Mr. Huseby has served as the Managing Partner of SeaPoint


14

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Ventures, a venture capital fund focused on communications and internet
infrastructure. Prior to his employment with SeaPoint Ventures, from 1994 to 1997, Mr. Huseby was the Chairman and Chief Executive Officer of Metawave
Communications, a public corporation which manufactures cellular infrastructure equipment. Previously he was President and Chief Executive Officer of
Innova Corporation, a previously public manufacturer of millimeter wave radios. Mr. Huseby currently serves as a member of the Board and member of the
Compensation Committee of Entomo, Inc., a private corporation pioneering in Closed Loop Integrated Communications Services (a fee-based service that
facilitates business-to-business communications); Qpass, Inc., a private corporation which offers software that facilitates the sale of digital content
for wireless carriers; Wireless Services Corporation, a private corporation which provides services for wireless networks and Vayusa, a privately held
company that provides loyalty and payment merchant services utilizing mobile networks. Mr. Huseby holds a B.A. in Economics from Columbia College, a
B.S.I.E. from the Columbia School of Engineering and a M.B.A. 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 continues to serve as a member of Ensemble Communications Board of Directors. He served as the
President and Chief Executive Officer of Ensemble from January 2000 until September, 2002. Mr. Twyver also served as a director of Metawave
Communications, Inc. from March 1998 until February 2003 and as a member of Metawave Communications, Inc.s Audit Committee from June 2000 until
February 2003. Metawave Communications, Inc. is a public company that manufactures cellular infrastructure equipment. 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.




Guillermo Heredia joined the Board of
Directors of Airspan in January 2001. Since September 1999, Mr. Heredia has 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.




Michael T. Flynn has served as a director of
Airspan since July 2001. From June 1994 until March 31, 2004, Mr. Flynn has been 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 March 31, 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 worldwide media access and conferencing services.
He also serves as a member of the Board of Directors of Taqua Systems, a privately held provider of next generation telecommunications switching
products and 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.


15

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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, 2003 we had an accumulated deficit of $167 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.


The slowdown in expenditures by communications service providers has had, and
could continue to have a negative impact on our results of operations.



The deterioration of the global economy over the
past four years has resulted in a curtailment of capital investment by telecommunications carriers and service providers. Many new and small service
providers and wireless companies have failed, and existing service providers have been reducing or delaying expenditures on new equipment and
applications. We believe it is possible that this slow down could continue for the foreseeable future. A further global long-term decline in capital
expenditures 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 we have a limited operating history and a significant percentage of our
expenses are fixed and do not vary with revenues, our quarterly operating results are volatile and difficult to predict, 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 otherwise 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. You should not rely on the results of any one quarter as an indication of future
performance.


Competition from alternative communications systems, as well as larger,
better-capitalized or emerging competitors for our products, could result in price reductions, reduced gross margins and loss of market
share.



We compete in a relatively new, rapidly evolving and
highly competitive and fragmented market. We compete with companies that are producing fixed wireless communications systems, satellite access systems,
cable access systems and other new entrants to this industry, as well as traditional communications companies.




Competitors vary in size and scope, in terms of
products and services offered. With respect to the wireless solutions we offer to serve in licensed and unlicensed frequencies, we believe we compete
directly with Alvarion and SR Telecom, with a number of smaller start-up companies and with the divisions of a number of institutional


16

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telecommunication equipment companies. We also believe we compete indirectly with a
number of large telecommunication equipment suppliers such as Motorola and Harris. In addition, our technology competes with other high-speed
solutions, such as wired DSL, cable modems and high-speed leased lines, 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 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.


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.
|- |  | -----------------------------------------------------------------------

17

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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.


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 believe that these purchase
orders may represent the early portion of longer-term customer programs, we 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 expect, we may be unable to recover the
costs we incur and our business could suffer.




In addition, our 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 spend less, or delay or cancel expenditures, on communications access systems, which 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.


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, including
the:


| |  | particular communications market that the customer
serves;
|- |  | ----------------------------------------------------------

| |  | testing requirements imposed by the customer on our
systems;
|- |  | ------------------------------------------------------------

| |  | customers experience with sophisticated communications
equipment including fixed wireless technology; and
|- |  | ----------------------------------------------------------------------------------------------------------

| |  | the cost of purchasing our systems, including the cost of
converting to our products from previously-installed equipment, which may be significant.
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------



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 technologies or competing
technologies or, wait for new products or technologies to come to market. As the average order size for our products


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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. In addition, our sales cycle impairs our ability to
forecast revenues and control expenses.

Our sales in Asia, Latin America and Africa may be difficult and costly as a
result of the political, economic and regulatory risks in those regions.



Sales to customers based outside the U.S. have
historically accounted for a substantial majority of our revenues. In 2003, our international sales (sales to customers located outside the U.S. which
includes a small percentage of U.S. customers where the final destination of the equipment is not the U.S.) accounted for 97% of our total revenue,
with sales to customers in Asia Pacific, particularly New Zealand, accounting for 36%, and sales to customers in Africa, Europe and Latin America
accounting for 27% 19% and 15%, respectively, of total revenue. As a result of our acquisition of the Proximity business, we anticipate that our
percentage of sales to customers in Latin America will materially increase. Sales in Asia, Latin America and Africa in particular expose us to risks
associated with international operations including:


| |  | longer payment cycles and customers seeking extended payment
terms, particularly since our customers in Asia and Latin America have difficulty borrowing money or receiving lines of credit, especially if there is
political and economic turmoil in their countries;
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | tariffs, duties, price controls or other restrictions on foreign
currencies or trade barriers imposed by foreign countries may have made or may make our systems expensive and uncompetitive for local
operators;
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | import or export licensing or product-certification
requirements;
|- |  | -----------------------------------------------------------------

| |  | unexpected changes in regulatory requirements and delays in
receiving licenses to operate;
|- |  | ------------------------------------------------------------------------------------------

| |  | political and economic instability, including the impact of
economic recessions;
|- |  | --------------------------------------------------------------------------------

| |  | our reluctance to staff and manage foreign operations as a
result of political unrest even though we have business opportunities in a country; and
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------

| |  | limited ability to enforce agreements in regions where the
judicial systems may be less developed.
|- |  | --------------------------------------------------------------------------------------------------

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
product in Israel, including: research and development; design; raw material procurement; and manufacturing through a manufacturing sub contractor
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 had no material adverse effect on our operations in the past, conditions in Israel could in the future disrupt our development,
manufacture or distribution of WipLL products.


We may not be able to expand our sales and distribution capabilities, including
establishing relationships with international distributors, which would harm our ability to generate revenue.



We believe that our future success depends upon our
ability to expand our direct and indirect sales operations, including establishing relationships with international distributors. 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.


We are dependent on our lines of fixed wireless communications systems and our
future revenue depends on their commercial success and our ability to adapt to evolving industry standards and new technologies.



The market for communications systems has been
characterized by rapid technological developments and evolving industry standards. Our ability to increase revenue in the future depends on the
commercial success of our lines of fixed wireless communications systems and our ability to adapt to changing technologies, industry


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standards and customer preferences in a timely and cost-effective manner. To date
we have been marketing AS4000, AS4020 and WipLL products. Additionally we acquired the Proximity product line from Nortel in December 2003. Along with
software tools, network management systems and planning and configuration tools, these are the only products we have shipped to customers, and we
expect that revenue from these products will account for substantially all of our revenue for the foreseeable future. As indicated earlier, we
anticipate introducing a number of new products and/or product enhancements in 2004. In developing these various products and enhancements, we made
assumptions about the standards that may become adopted and potential demand for such products. If our assumptions are incorrect and products based on
new or alternative technologies are introduced, or new industry standards emerge, our products could be rendered obsolete. We cannot assure you that we
will be successful in developing enhancements to existing products or new products to meet evolving standards in the future.



In addition, because the market for fixed wireless
communications is in an early stage of development, we cannot assess the size of the market accurately, and we have limited insight into trends that
may emerge and affect our business. For example, we may have difficulty in predicting customer needs, developing products that could address those
needs and establishing a distribution strategy for those 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 boards from Solectron and electronic connector panels from Sanmina (Ireland) Limited, for
which alternative sources are generally not readily available. If our vendors fail to supply us with components because they do not have them in stock
when we need them, or if they reduce or eliminate their manufacturing capacity for these components or if they 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. We do not have long-term contracts with all of these 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 who 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 manufacturing subcontractors are non-exclusive and may be
terminated with limited notice (four to six months) 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.




We currently secure Proximity products under
agreements with Nortel Networks. We believe that Nortel Networks has manufacturing contracts with Solectron that are comparable to our manufacturing
contracts with Solectron. Accordingly, we believe our Proximity products are subject to manufacturing and supply risks comparable to our other
products.


We currently depend on Nortel Networks for product supply and transition
services with regards to the Proximity business. An estrangement in our relationship with Nortel Networks could negatively impact us.



In connection with our acquisition of the Proximity
Business, we have entered into a number of agreements with Nortel under which Nortel has agreed to assist us transition into the operation of the
Proximity business. Among other things, we are currently outsourcing our manufacturing processes with respect to the Proximity subscriber terminal
products to Nortel who is in turn outsourcing the manufacturing process to Solectron. In the event the supply agreement with Nortel is terminated or
expires, there can be no assurance that we will be able to enter into a manufacturing contract with Solectron or another contract manufacturer on
acceptable terms or at all. Under the terms of supply, Nortels liability is limited to the amount of any actual direct damages up to the charges
for the


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Proximity Products that are the subject of the claim. In addition, our sole remedy
against Nortel in the event any action is brought as a result of Nortels actions or omissions in failing to provide the services under the
agreements is (i) to demand that Nortel provide such service or (ii) if such service cannot be provided, demand that Nortel reimburse us for any
payment we have made for defective services.

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 2003, BCL, New Zealand, accounted for approximately 18% of
our annual revenue and was the only customer that individually accounted for more than 10% of our annual revenue. Nonetheless, in fiscal 2003 61% of
our revenue was derived from our top ten customers. Moreover, we anticipate that in fiscal 2004 one customer, Axtel, could 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 as a
customer or the loss of any large percentage of our supply contracts could negatively impact our gross profit margins, our net 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, including Nortel, Axtel may have the right to terminate the agreement. Additionally, Axtel itself is a new company, having only
been formed in 1998, 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 honor its purchase commitments under our supply
agreement. A small number of our customers are affiliated in that they have cross investments in each other, which means we may lose more than one
customer at once if one party decides to discontinue deploying our equipment. 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.


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.


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 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.


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


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. There is a
substantial risk of litigation regarding intellectual property rights in our industry. 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.
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------

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 97% of our sales in 2003 and a majority of
our cost of goods sold were denominated in U.S. dollars, we incur most of our operating expenses in British pounds and, to a lesser extent, Israeli
shekels for the WipLL business. 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.


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.


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


| |  | delayed or lost revenues and reduced market share due to adverse
customer reactions;
|- |  | ------------------------------------------------------------------------------------

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

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

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

| |  | diversion of management and development time and
resources.
|- |  | -----------------------------------------------------------



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


We have recently acquired Nortel Networks fixed wireless access business
and are subject to certain risks related to such acquisition.



Many of our financial projections, including our
projections relating to revenues, expenses and cash usage, are highly dependent upon our information and assumptions relating to the Proximity
business. Relatively small differences between our projections and our actual experiences with the Proximity business may have a material impact on our
business. We have limited experience acquiring other companies and, despite our due diligence efforts, may not know all the material risks associated
with Nortel Networks fixed wireless access business (Proximity). We expect to expend considerable time and resources to integrate
Proximity with our existing business. If we later discover that Proximity products and services do not perform as anticipated, that existing Proximity
customers are dissatisfied with Proximity products, or that our right or ability to manufacture, market, or service Proximity products is less than
anticipated, we could be negatively affected. Similarly, in connection with our acquisition of the Proximity business, we acquired all of Nortel
Networks existing sales contracts and assumed all of Nortel Networks current manufacturing obligations for the assembly and testing of
Proximity products and Nortel Networks existing service, warranty and other contractual obligations to 15 operators. We could be adversely
affected if our projections related to the revenues and expenses related to such rights and obligations prove to be incorrect.


Our failure to manage future acquisitions and joint ventures effectively may
divert management attention from our core business and cause us to incur additional debt, liabilities, or costs.



Our strategy of expanding our business through,
among other things, acquisitions of other businesses and technologies and joint ventures presents special risks. We expect to continue to expand our
business in certain areas through the acquisition of businesses, technologies, products, and/or services from other businesses that may complement our
product and service offerings. We also may consider joint ventures and other collaborative projects. However, we may not be able to:


| |  | identify appropriate acquisition or joint venture
candidates;
|- |  | -------------------------------------------------------------

| |  | successfully negotiate, finance, or integrate any businesses,
products, or technologies that we acquire; and/or
|- |  | ---------------------------------------------------------------------------------------------------------------

| |  | successfully manage any joint venture or
collaboration.
|- |  | -------------------------------------------------------



Furthermore, the integration of any acquisition or
joint venture may divert management attention in connection with both negotiating the acquisitions and integrating the acquired assets. In addition,
any acquisition may strain managerial and operational resources as management tries to oversee larger operations. We also face exposure to unforeseen
liabilities of acquired companies and run the increased risk of costly and time-consuming litigation, including stockholder lawsuits. Moreover, in
connection with any acquisition or joint venture, we may issue securities that are superior to the right of holders of our common stock, or which may
have a dilutive effect on the common stockholders and/or we may incur additional debt. If we fail to manage these acquisitions or joint ventures
effectively, we may incur debts or other liabilities or costs that could harm our operating results or conditions.


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ITEM 2. PROPERTIES



Our corporate headquarters are located in Boca
Raton, Florida. This office consists of approximately 3,700 square feet and the lease on this property expires in 2006.




Our primary location of operations, manufacturing
and product development is in Uxbridge, UK. 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. With the acquisition of the Proximity business, we entered into a short-term lease, expiring in June 2004,
for a facility in Maidenhead, UK, consisting of approximately 7,000 square feet. Additionally we have an operation in Israel where we lease one
facility of approximately 11,000 square feet. The lease for the Israeli facility expires in October 2008.


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, 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) 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 actions seek damages in an unspecified amount.




This action is being coordinated with approximately
three hundred other nearly identical actions filed against other companies. On July 15, 2002, the Company moved to dismiss all claims against it and
the Individual Defendants. On October 9, 2002, the Court dismissed the Individual Defendants from the case without prejudice based upon Stipulations of
Dismissal filed by the plaintiffs and the Individual Defendants. This dismissal disposed of the Section 15 and 20(a) control person claims without
prejudice, since these claims were asserted only against the Individual Defendants. On February 19, 2003, the Court dismissed the Section 10b claim
against us, but allowed the Section 11 claim to proceed. Airspan has approved a Memorandum of Understanding (MOU) and related agreements
which set forth the terms of a settlement between Airspan, the plaintiff class and the vast majority of the other approximately 300 issuer defendants.
Among other provisions, the settlement contemplated by the MOU 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. It is anticipated that any potential financial obligation of Airspan to plaintiffs
pursuant to the terms of the MOU and related agreements will be covered by existing insurance. Therefore, Airspan does not expect that the settlement
will involve any payment by Airspan. The MOU and related agreements are subject to a number of contingencies, including the negotiation of a settlement
agreement and its approval by the Court. We cannot opine as to whether or when a settlement will occur or be finalized and are unable at this time to
determine whether the outcome of the litigation will have a material impact on our results of operations or financial condition in any future
period.




On February 28, 2003, a Class Action Complaint was
filed in the United States District Court for the Southern District of Florida naming as defendants Airspan, Eric D. Stonestrom, and Joseph J.
Caffarelli together with Credit Suisse First Boston (CSFB), an underwriter of our July 2000 initial public offering, as well as various
CSFB related entities and various CSFB employees. On June 19, 2003, Plaintiffs filed an Amended Complaint against the Company seeking damages in an
unspecified amount but voluntarily dismissed the individual defendants. On July 21, 2003 plaintiffs voluntarily dismissed Airspan from the
case.




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


24

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PART II

ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND 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
|------------------- |  |  |  | ---- | ---- | ---
|2003 Fourth
Quarter |  |  |  | $    | 3.55 |    
|2003 Third
Quarter  |  |  |  |      | 2.82 |    
|2003 Second
Quarter |  |  |  |      | 2.05 |    
|2003 First
Quarter  |  |  |  |      | 1.16 |    
|2002 Fourth
Quarter |  |  |  |      | 1.25 |    
|2002 Third
Quarter  |  |  |  |      | 1.19 |    
|2002 Second
Quarter |  |  |  |      | 1.80 |    
|2002 First
Quarter  |  |  |  |      | 2.98 |    



At March 19, 2004 the price per share of our common
stock was $5.445 and we believe we had approximately 5,100 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.


Securities Authorized for Issuance Under Equity Compensation Plans as of
December 31, 2003



The following table sets forth information as of
March 25, 2004 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)     |  |  |  |                                                                                             | 3,997,097 |                                                                             |  | $                                                                                    
|Equity
compensation plans not approved by security holders(2) |  |  |  |                                                                                             | 857,674   |                                                                             |  | $                                                                                    






|(1) |  | In 1998 and 2000, the Companys shareholders approved the
1998 Employee Stock Option Plan and the 2000 Employee Stock Purchase 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


25

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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 Issuance of Unregistered Securities



In connection with the acquisition of the Proximity
business from Nortel Networks on December 22, 2003, the Company hired 26 persons who were previously employed by Nortel Networks Proximity
business and issued stock options pursuant to the 2003 Plan exercisable to purchase an aggregate of 176,500 shares of Common Stock, subject to certain
anti-dilution protections, exercisable at a weighted average exercise price of $2.89 per share to such individuals. Each option vests in accordance
with the following schedule: 1/4 on the one-year anniversary of their date of grant and 1/48th per month thereafter. All of these options
expire ten years from their date of grant. The options were issued under the exemption to registration provided by Section 4(2) of the Securities Act.
The transferability of the options is restricted absent registration or applicable exemption.




On October 27, 2003, the Company hired a senior
sales person and issued stock options pursuant to the 2003 Plan exercisable to purchase an aggregate of 65,000 shares of Common Stock, subject to
certain anti-dilution protections, exercisable at $2.21 per share. The options were issued under the exemption to registration provided by Section 4(2)
of the Securities Act. Each option vests in accordance with the following schedule: 1/4 on the one-year anniversary of their date of grant and
1/48th per month thereafter. All of these options expire ten years from their date of grant. The transferability of the options is
restricted absent registration or applicable exemption.


Issuer Purchase of Equity Securities



On November 12, 2002, Airspan announced that its
Board of Directors has authorized the repurchase of up to four million shares of its common stock. Repurchases may be made from time to time on the
open market at prevailing market prices or in negotiated transactions off the market, subject to market conditions and at the discretion of management.
Airspan is under no obligation to purchase any or all of the shares under this repurchase program and may terminate the program at any
time.




Airspan did not repurchase any shares of common
stock during the quarter commencing on September 29, 2003 and ending on December 31, 2003. Prior to October 1, 2003, Airspan had purchased 834,560
shares of its common stock pursuant to this publicly announced repurchase plan. As at March 25, 2004 Airspan is authorized to repurchase up to an
additional 3,165,440 shares of its common stock.


26

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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, 1999, 2000, 2001, 2002 and 2003 are derived from our audited consolidated financial statements, which have been audited by Ernst &
Young LLP, independent auditors.







|                                                                             |  |  |  | Year ended December 31, 1999 |            | Year ended December 31, 2000 |  | Year ended December 31, 2001 |            | Year ended December 31, 2002 (2) |  | Year ended December 31, 2003 (3)
|---------------------------------------------------------------------------- |  |  |  | ---------------------------- | ---------- | ---------------------------- |  | ---------------------------- | ---------- | -------------------------------- |  | --------------------------------
|
|Consolidated
Statement of Operations Data:                                   |  |  |  |                              |            |                              |  |                              |            |                                  |  |                                 
|Revenue                                                                      |  |  |  | $                            | 12,480     |                              |  | $                            | 30,279     |                                  |  | $                               
|Cost of revenue
including inventory provision                                |  |  |  |                              | 8,086      |                              |  |                              | 18,782     |                                  |  |                                 
|Gross
profit                                                                 |  |  |  |                              | 4,394      |                              |  |                              | 11,497     |                                  |  |                                 
|Research and
development                                                     |  |  |  |                              | 13,845     |                              |  |                              | 16,746     |                                  |  |                                 
|Sales and
marketing including bad debts                                      |  |  |  |                              | 9,883      |                              |  |                              | 14,358     |                                  |  |                                 
|General and
administrative                                                   |  |  |  |                              | 7,686      |                              |  |                              | 9,368      |                                  |  |                                 
|Acquired
in-process research and development and amortization of intangibles |  |  |  |                              | 2,476      |                              |  |                              | 595        |                                  |  |                                 
|Restructuring
provisions                                                     |  |  |  |                              |           |                              |  |                              |           |                                  |  |                                 
|Total operating
expenses                                                     |  |  |  |                              | 33,890     |                              |  |                              | 41,067     |                                  |  |                                 
|Loss from
operations                                                         |  |  |  |                              | (29,496    | )                            |  |                              | (29,570    | )                                |  |                                 
|Interest and
other income, net                                               |  |  |  |                              | 147        |                              |  |                              | 3,928      |                                  |  |                                 
|Income taxes
(charge) / credit                                               |  |  |  |                              | (100       | )                            |  |                              | 5          |                                  |  |                                 
|Loss before
extraordinary items                                              |  |  |  |                              | (29,449    | )                            |  |                              | (25,637    | )                                |  |                                 
|Extraordinary
item                                                           |  |  |  |                              |            |                              |  |                              |            |                                  |  |                                 
|Gain on
extinguishment of debt                                               |  |  |  |                              |           |                              |  |                              |           |                                  |  |                                 
|Income tax
charge on gain                                                    |  |  |  |                              |           |                              |  |                              |           |                                  |  |                                 
|Net
loss                                                                     |  |  |  | $                            | (29,449    | )                            |  | $                            | (25,637    | )                                |  | $                               
|Net loss per
share  basic and diluted                                       |  |  |  | $                            | (33.84     | )                            |  | $                            | (1.44      | )                                |  | $                               
|Shares used to
compute net loss per share  basic and diluted                |  |  |  |                              | 870,328    |                              |  |                              | 17,797,899 |                                  |  |                                 
|Pro forma net
loss per share  basic and diluted (1)                         |  |  |  | $                            | (1.37      | )                            |  | $                            | (0.82      | )                                |  | $                               
|Shares used to
compute pro forma net loss per share  basic and diluted      |  |  |  |                              | 21,446,122 |                              |  |                              | 31,163,574 |                                  |  |                                 






|                                                  |  |  |  | December 31, 1999 |        | December 31, 2000 |  | December 31, 2001 |         | December 31, 2002 |  | December 31, 2003
|------------------------------------------------- |  |  |  | ----------------- | ------ | ----------------- |  | ----------------- | ------- | ----------------- |  | -----------------
|
|Consolidated
Balance Sheet Data:                  |  |  |  |                   |        |                   |  |                   |         |                   |  |                  
|Cash, cash
equivalents and short term investments |  |  |  | $                 | 58,828 |                   |  | $                 | 115,340 |                   |  | $                
|Working
capital                                   |  |  |  |                   | 68,795 |                   |  |                   | 131,100 |                   |  |                  
|Total
assets                                      |  |  |  |                   | 88,220 |                   |  |                   | 157,334 |                   |  |                  
|Long term
debt                                    |  |  |  |                   | 20,138 |                   |  |                   | 15,754  |                   |  |                  
|Stockholders equity                              |  |  |  |                   | 57,212 |                   |  |                   | 123,655 |                   |  |                  






|(1) |  | Pro forma basic and diluted per share calculations reflect the
pro forma conversion of all outstanding preferred stock at the date of issuance of common stock.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------

27

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|(2) |  | On October 4, 2002 we acquired Airspan Israel and, accordingly,
the Consolidated Statement of Operations for the year ended December 31, 2002 includes the results of operations of Airspan Israel from that date up to
December 31, 2003 and the Consolidated Balance Sheets of December 31, 2002 and 2003 includes the consolidated accounts of Airspan Israel.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) |  | On December 23, 2003 we acquired the fixed wireless access
business of Nortel Networks (Proximity) and, accordingly, the Consolidated Statement of Operations for the year ended December 31, 2003
includes the results of operations of Proximity from that date up to December 31, 2003 and the Consolidated Balance Sheet of December 31, 2003 includes
the assets and liabilities related to Proximity.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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.


Overview



We are a global supplier of Broadband Wireless
Access (BWA) equipment that allows communications service providers (often referred to as local exchange carriers, or simply
telephone companies), internet service providers (often referred to as ISPs) and other telecommunications users, such as utilities and
enterprises, to cost effectively deliver high-speed data and voice services using radio frequencies rather than wires. We call this transmission method
Wireless Broadband. The primary market for our systems is a subset of the fixed wireless access systems market, which is the fixed
point-to-multipoint market in radio frequencies below 6.0GHz. Each of our fixed wireless access systems utilizes digital wireless techniques, which
provide wide area coverage, security and resistance to fading. Our systems can be deployed rapidly and cost effectively, providing an attractive
alternative or complement to traditional copper wire, cable, or fiber-optic communications access networks. Our products also include software tools
that optimize geographic coverage of our systems and provide ongoing network management. To facilitate the deployment and operation of our systems, we
also offer network installation, training and support services. . A more complete description of our various wireless access systems is provided below.
Our BWA systems (the Airspan BWA Solutions) have been installed by more than 160 network operators in more than 60 countries and are being
tested by numerous other service providers.




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




In October 2002, we strengthened our position in the
BWA equipment market with the acquisition of the WipLL (Wireless Internet Protocol in the Local Loop) business from Marconi pursuant to a stock
purchase agreement, and renamed the business Airspan Networks (Israel) Limited (Airspan Israel). The products and services produced by
Airspan Israel enable operators in licensed and unlicensed wireless bands to offer high-speed, low cost, wireless broadband connections for data and
voice over IP. We acquired all of the issued and outstanding capital stock and debt of Marconi WipLL in exchange for $3 million of
cash.




In October 2003, we released our Airspan branded
AS4030 and AS3030 product range of 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 802.16
Orthogonal Frequency Division Multiplexing (OFDM) technology can also be used for a wide range of backhaul applications.




On December 23, 2003, we completed an agreement with
Nortel Networks to acquire the fixed wireless access business of Nortel Networks known as Proximity in accordance with the terms and
conditions of a contemporaneously executed and delivered Purchase and Sale Agreement. The final purchase price of approximately $13.1 million was
offset at closing against customer prepayments totaling approximately $14.9 million transferred to us as part of the transaction. We assumed the
product supply obligations associated with the customer prepayments and certain other liabilities and obligations of Nortel Networks relating to the
Proximity business. As part of the


28

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transaction, 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. In addition, we agreed to hire Nortel
Networks workforce directly employed in the Proximity business, which at closing totaled 26 persons who are located in Maidenhead, England and
Sunrise, Florida. We also assumed Nortel Networks then current manufacturing obligations for the assembly and final testing of Proximity
products. The acquired Proximity products and services provide carrier class circuit switched voice and data, based on a Time Division Multiple Access
(TDMA) technology. The purchase of the Proximity business does not result in an additional business segment.



In connection with the acquisition of the Proximity
business, we acquired customer prepayments of $14.9 million of cash, and inventory which we valued at approximately $8.6 million. As of December 31,
2003, substantially all of the $14.9 million of cash was held by us as prepayments from Axtel relating to future deliveries and substantially all of
the $8.6 million of inventory was expected to be sold to Axtel.




We intend to continue our strategy of expanding our
business through, among other things, acquisitions of other businesses and technologies and joint ventures. See Risk Factors  Our failure
to manage future acquisitions...




Our corporate headquarters are located in Boca
Raton, Florida. Our primary operations, manufacturing and product development centers are located in Uxbridge, U.K., and Airport City,
Israel.




We generated revenue of $37.4 million in 2001, $25.9
million in 2002 and $30.7 million in 2003. We have incurred net losses of $18.8 million, $28.1 million and $29.5 million for 2001, 2002 and 2003,
respectively. Since becoming an independent company, we have generated significant net losses and negative cash flow and expect to continue to do so in
2004. We have an accumulated deficit of $167.1 million as of December 31, 2003.




We generate revenue from sales of our systems
(including both hardware and software) and from services related to implementation and support activities. Revenue from services has always been under
10% of our total revenue.




Our proprietary software is integral to our products
and is not sold separately. Customer service contracts are generally of a short-term nature, for days and weeks rather than months, and are sold
separately from sales of our systems. Although service revenue does not currently constitute a material portion of our revenue, we believe that in
future, services will increase as a percentage of our revenue.




We recognize revenue pursuant to Staff Accounting
Bulletin No. 104, Revenue Recognition. Accordingly, revenues are recognized 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 and determinable,
and
|- |  | -------------------------------------------------------------------

| |  | collection of the receivable is reasonably assured.
|- |  | ---------------------------------------------------



Revenue from product sales, including sales to our
distributors and resellers, is generally recognized at the time the product is shipped to the end 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. Once these conditions have been satisfied, revenue is recognized. The estimated cost of any post-sale obligations, including basic product
warranties, is accrued at the time revenue is recognized based on historical experience.




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 using the percentage of completion method unless we are not unable to make
reasonable estimates under that method, in which case revenue is recognized on a completed contract basis.




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. We recognize revenue 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,


29

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(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.



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 U.S., U.K., Australia, Brazil, China, Czech
Republic, Germany, Indonesia, New Zealand, the Philippines, Poland, Russia, South Africa and Sri Lanka. 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.




In 2003, our non-U.S. sales accounted for 97% of our
total revenue. Of the U.S. sales, 5% consisted of systems sold to U.S. customers that were shipped to destinations outside the U.S. In 2003, our top
ten customers accounted for 61% of our revenue. In 2002, our non-U.S. sales accounted for 89% of our total revenue. Of the U.S. sales, 38% consisted of
systems sold to U.S. customers that were shipped to destinations outside the U.S. In 2002, our top ten customers accounted for 72% of our revenue. In
2001, our non-U.S. sales accounted for 87% of our total revenue. Of the U.S. sales, 25% consisted of systems sold to U.S. customers that were shipped
to destinations outside the U.S. In 2001, our top ten customers accounted for 59% of our revenue.




We currently derive, and expect to continue to
derive, a substantial percentage of our revenue from fewer than ten customers. In the year ended December 31, 2003 Broadcast Communications Ltd in New
Zealand represented 18% of our revenue. In the year ended December 31, 2002, Siemens Telecommunications (Pty) Ltd. in South Africa and SpeedNet Inc. in
Japan represented 32% and 10% respectively, of our revenue. In the year ended December 31, 2001 there were no customers that individually accounted for
more than ten percent of the years revenue. We anticipate that our dependence on our ten largest customers will grow in 2004, primarily due to
our projected sales of Proximity solutions to Axtel.




The following table identifies the percentage of our
revenue by geographic region in the periods identified.







|                                        |  |  |  | Percentage of Revenue |     
|--------------------------------------- |  |  |  | --------------------- | ----
|
|United
States                           |  |  |  |                       | 12.7
|Asia
Pacific                            |  |  |  |                       | 36.6
|Europe                                  |  |  |  |                       | 16.3
|Africa and
Middle East                  |  |  |  |                       | 26.9
|South and
Central America and Caribbean |  |  |  |                       | 7.5 



We anticipate that the percentage of our sales to
Central America will increase in 2004, primarily as a result of our projected sales of Proximity solutions to Axtel.




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 because our gross margin on base stations and related equipment is higher than the gross margin on subscriber
terminals. 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.




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. We expect to continue to make substantial investments in research and development.


30

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Sales and marketing expenses consist of salaries and
related costs for personnel, sales commissions, consulting 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 for the expansion of our distribution channels.




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




We outsource most of our manufacturing processes for
the AS4000 andAS4020 products to Solectron in Scotland, and we outsource the manufacturing for the WipLL product to Racamtech Limited, part of the CAM
Group of companies, in Israel. The Airspan branded AS4030 and AS3030 products are manufactured and sourced from a Canadian manufacturer. During 2003
the Proximity product was manufactured by Nortel Networks in Canada and by Solectron in Milpitas, California and Guadalajara, Mexico. We expect to
continue to use Solectron as the principal contract manufacturer of Proximity in 2004. We also expect to continue to use contract manufacturers for our
other products.. We also purchase some of the key components of our products from single vendors for which alternative sources are generally not
readily available.


Critical Accounting Policies and Estimates



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; reserves for doubtful debt, excess or obsolete inventory; warranty costs; restructuring costs; the valuation goodwill;
and legal proceedings.




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



Under our revenue recognition policy (See Note 1 in
the Notes to the Financial Statements) we are required to assess the credit worthiness of our customers. We use our own 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.


Accounts Receivable



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 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.


Inventory



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. Should we decide in the future that actual market conditions have become less favorable, or our
assumptions change due to changing market conditions, additional inventory provisions may be required.


31

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Warranty costs



Typically our products are covered by a warranty for
periods ranging from one to 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. 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



During 2001, 2002 and 2003 we recorded restructuring
charges arising from our cost-reduction programs. These reserves 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. 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 with liabilities assumed. Items such as accounts receivable, 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 deemed necessary, we may use third parties to assist us with such valuations.


Valuation of Goodwill



On January 1, 2002, FAS 142, Goodwill and
Other Intangible Assets, was implemented and as a result, we ceased to amortize our goodwill. We were required to perform an initial impairment
review of goodwill in 2002 and an annual impairment review thereafter. We performed our annual impairment test during the fourth quarter of 2003. The
carrying value of goodwill was compared to its implied fair value by using the expected present value of future cash flows. The result of this review
was that no impairment of goodwill was recorded during the year ended December 31, 2003. In the impairment review, we make various assumptions
regarding the estimated future cash flows and other factors to determine the fair value of goodwill. 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.


Legal Proceedings



We are subject to class action complaints related to
alleged false and misleading information in our Registration Statement and Prospectus (See Item 3. Legal Proceedings), and 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.


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Results of Operations



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







|                                                                             |  |  |  | Year ended December 31, 2001 |       | Year ended December 31, 2002 |  | Year ended December 31, 2003
|---------------------------------------------------------------------------- |  |  |  | ---------------------------- | ----- | ---------------------------- |  | ----------------------------
|Revenue                                                                      |  |  |  |                              | 100.0 | %                            |  |                             
|Cost of
revenue                                                              |  |  |  |                              | 62.2  |                              |  |                             
|Inventory
provision                                                          |  |  |  |                              | 3.8   |                              |  |                             
|Gross
profit                                                                 |  |  |  |                              | 34.0  |                              |  |                             
|Operating
expenses:                                                          |  |  |  |                              |       |                              |  |                             
|Research and
development                                                     |  |  |  |                              | 39.2  |                              |  |                             
|Sales and
marketing                                                          |  |  |  |                              | 41.4  |                              |  |                             
|Bad debt
expense                                                             |  |  |  |                              | 3.2   |                              |  |                             
|General and
administrative                                                   |  |  |  |                              | 28.7  |                              |  |                             
|Acquired
in-process research and development and amortization of intangibles |  |  |  |                              | 1.1   |                              |  |                             
|Restructuring
provision                                                      |  |  |  |                              | 3.3   |                              |  |                             
|Total
operating expenses                                                     |  |  |  |                              | 117.0 |                              |  |                             
|Loss from
operations                                                         |  |  |  |                              | (83.0 | )                            |  |                             
|Interest and
other income, net                                               |  |  |  |                              | 7.3   |                              |  |                             
|Income
taxes                                                                 |  |  |  |                              | (8.1  | )                            |  |                             
|Net loss
before extraordinary item                                           |  |  |  |                              | (67.6 | )                            |  |                             
|Extraordinary
Item:                                                          |  |  |  |                              |       |                              |  |                             
|Gain on
extinguishment of debt                                               |  |  |  |                              | 24.7  |                              |  |                             
|Income tax
charge                                                            |  |  |  |                              | (7.4  | )                            |  |                             
|Gain after
tax                                                               |  |  |  |                              | 17.3  |                              |  |                             
|Net
loss                                                                     |  |  |  |                              | (50.4 | )%                           |  |                             

Restructuring



In 2001, the Company implemented a restructuring
program to reduce operating expenses and recorded a charge of $1.2 million in relation to this program. Included in this charge were costs related to
excess facilities and severance. A further $167 thousand was recognized as restructuring in the income statement in the first quarter of
2002.




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




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




In the second quarter of 2003 a further
restructuring program was initiated to lower operating expenses. The total cost expected to be incurred as part of this restructuring program was $763
thousand arising from facility closures and severance costs. During the second half of 2003 the expected cost to be incurred as part of this
restructuring program was reassessed and adjusted to $413 thousand as set out in the table below.




In conjunction with the purchase of the Proximity
business the Company implemented its plan to relocate the Proximity business from Maidenhead, England and Sunrise, Florida to the Companys
facilities in Uxbridge, England and Boca Raton, Florida. The Company recorded $520 thousand for acquisition-related restructuring charges in connection
with the relocation of the Proximity business.


33

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The restructuring charges and their utilization are
summarized as follows:







|All figures in US$ thousands |  |  |  | Balance at beginning of period |       | Restructuring charge |  | Accrued at acquisition |       | Utilized |  | Balance at end of period
|---------------------------- |  |  |  | ------------------------------ | ----- | -------------------- |  | ---------------------- | ----- | -------- |  | ------------------------
|Year ended
December 31, 2003 |  |  |  |                                |       |                      |  |                        |       |          |  |                         
|Facility
related             |  |  |  | $                              | 975   |                      |  | $                      | 408   |          |  | $                       
|Severance and
other          |  |  |  |                                | 80    |                      |  |                        | 342   |          |  |                         
|                             |  |  |  | $                              | 1,054 |                      |  | $                      | 750   |          |  | $                       
|Year ended
December 31, 2002 |  |  |  |                                |       |                      |  |                        |       |          |  |                         
|Facility
related             |  |  |  | $                              | 307   |                      |  | $                      | 1,142 |          |  |                         
|Severance and
other          |  |  |  |                                | 234   |                      |  |                        | 278   |          |  |                         
|                             |  |  |  | $                              | 541   |                      |  | $                      | 1,420 |          |  |                         
|Year ended
December 31, 2001 |  |  |  |                                |       |                      |  |                        |       |          |  |                         
|Facility
related             |  |  |  |                                |      |                      |  | $                      | 551   |          |  |                         
|Severance and
other          |  |  |  |                                |      |                      |  |                        | 684   |          |  |                         
|                             |  |  |  |                                |      |                      |  | $                      | 1,235 |          |  |                         



Included in the third-quarter 2001 facility
restructuring charge was $200 thousand for the write down of certain fixed assets, mainly furniture and fixtures. These assets were disposed of as part
of the lease assignment of our Sunrise, Florida head office. Included in the 2002 restructuring charge was $100 thousand for the write down of certain
fixed assets used at tradeshows and the Riverside facility. All charges, other than the fixed asset write-downs, will result in direct cash
outlays.




The realizable value of these assets has been
estimated from the expected market price of similar assets.




During the first quarter of 2004 we initiated a
further restructuring program to reduce our operating expenses. This plan involves the termination of 30 employees and is expected to cost $450
thousand. All severance payments are expected to be made by the end of the third quarter of 2004.




We believe the 2004 restructurings described above
will enable us to reduce our otherwise projected expenses and uses of cash for operations by approximately $3 million in 2004. The vast majority of the
cost reductions relate to research and development.


Comparison of the Year Ended December 31, 2002 to the Year Ended December 31,
2003

Revenue



Revenue increased 18% from $25.9 million for the
year ended December 31, 2002 to $30.7 million for the year ended December 31, 2003. The $4.7 million increase in revenue is attributable to an increase
in revenues in the first half of 2003 relative to the first half of 2002. Revenue growth was principally driven by growth in Asia Pacific, primarily by
sales to Broadcast Communications in New Zealand, and in Europe, partly as a result of sales by Airspan Israel, which we acquired in October
2002.




We project that our revenue will increase in fiscal
2004 primarily as a result of the acquisition of the Proximity business. Revenues from the Proximity business are currently projected to exceed $25
million in the year ended December 31, 2004. See Risk Factors  We currently depend on a few key customers....


Cost of Revenue and Inventory Provision



Cost of revenue increased 19% from $19.2 million in
the year ended December 31, 2002 to $22.9 million in the year ended December 31, 2003. The increase was due primarily to the increase in revenue. As a
percentage of revenue, our cost of revenue was 74.2% in 2002 and 74.9% in 2003.




During both 2002 and 2003 we wrote down material
amounts of inventory. As a result of the depressed revenue for the first six months of 2002, we reassessed the levels of excess and obsolete inventory
and decided to write


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down inventory by $2.0 million in the second quarter of 2002. During the second
quarter of 2003 we took a $4.4 million inventory provision to reflect our view that, with the full introduction of the new AS4020 product line in the
quarter, demand for AS4000 equipment had lessened.



Gross margin declined to 10% in 2003 from 18% for
the year of 2002. The decline in gross margin was a function of lower average selling prices, a change in product mix and an increase in inventory
provisions.


Research and Development Expenses



Research and development expenses increased 6% from
$13.6 million in the year ended December 31, 2002 to $14.4 million in the year ended December 31, 2003. The increase was due to the additional research
and development expense of the Airspan Israel business purchased in the fourth quarter of 2002. We expect research and development expense to increase
in the early part of 2004 as we incur additional costs of the Proximity business acquired from Nortel Networks in December 2003. Our cost reduction
program, initiated in the first quarter of 2004, is expected to reduce research and development expenses for the second half of 2004.


Sales and Marketing Expenses



Sales and marketing expenses increased 2% from $10.1
million in the year ended December 31, 2002 to $10.4 million in the year ended December 31, 2003. The increase in sales and marketing expenses is
primarily attributable to the increase in revenue partially offset by our 2003 expense reduction programs. We have been able to sell the Airspan Israel
products through our existing sales network. We anticipate that the sales and marketing expenses associated with the Proximity business will increase
the absolute level of Sales and marketing expenses in 2004 by approximately $1 million. In 2002 we wrote down receivables by $3.7 million due to our
concerns with customers in Asia and Eastern Europe. During 2003 we wrote down receivables by $0.9 million due to our concerns with customers in
Asia.


General and Administrative Expenses



General and administrative expenses decreased 3%
from $9.0 million in the year ended December 31, 2002 to $8.7 million in the year ended December 31, 2003. The decrease in general and administrative
expenses was primarily the result of the full year effect of our cost reduction programs, including reductions in personnel and our relocation from our
original headquarters in Sunrise Florida to smaller offices in Boca Raton.


Amortization of Goodwill and Intangibles



Amortization of goodwill and intangibles expense
increased 291% from $44 thousand in the year ended December 31, 2002 to $172 thousand in the year ended December 31, 2003. The increase arose from the
amortization of intangibles identified after our fourth quarter acquisition of Airspan Israel. As a result of the Proximity acquisition at the end of
the fourth quarter of 2003 these costs are expected to be approximately $1.0 million for 2004.


Restructuring Provision



During both 2002 and 2003 we implemented expense
reduction programs. During 2002, we made restructuring provisions totaling $1.4 million to cover employee termination costs and facility closure costs.
As part of this $1.4 million we recorded a $1.0 million restructuring charge for the closure of our Riverside, Uxbridge facility. The closure of this
facility was a direct result of the decision to fully outsource all of our AS4000 and AS4020 product manufacturing. During 2003 we charged $0.8 million
to restructuring expense related to further employee termination costs and an increase in the estimated closure costs of the Riverside facility. For
more information regarding restructuring, see the section above entitled Restructuring.


Interest and Other Income Net



Interest and other income, which increased 30% from
$2.4 million for the year ended December 31, 2002 to $3.0 million in the year ended December 31, 2003, 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 increase in foreign
currency exchange gains were partially offset by lower interest income from lower cash balances and


35

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lower interest rates in 2003. Amounts from interest income were partially offset by
interest expense of $161 thousand in the year ended December 31, 2002 and $38 thousand in the year ended December 31, 2003. Interest expense decreased
in 2003 as a result of the repayment of debt.

Income Taxes



An income tax provision of $5 thousand recorded in
the year ended 31 December 2003 relates to a foreign branch of the UK company but no income tax benefit has been recoded for the tax losses generated
because overall operating losses have been experienced since inception. The 2002 tax credit relates to the receipt of $2.9 million from the United Kingdom
tax authorities in lieu of carrying forward tax losses related to research and development costs. The company surrendered $12 million of carry forward
tax losses in the U.K. as a result.


Net Loss



For the reasons described above, our Net loss before
taxes decreased 5% from $31.0 million in 2002 to $29.5 million in 2003 and our Net loss increased by 5% from $28.1 million in 2002 to $29.5 million in
2003.


Comparison of the Year Ended December 31, 2001 to the Year Ended December 31,
2002

Revenue



Revenue decreased 31% from $37.4 million for the
year ended December 31, 2001 to $25.9 million for the year ended December 31, 2002. The $11.5 million decline in revenue is primarily attributable to a
68% decrease in revenues in the first half of 2002 relative to the first half of 2001. In the second half of 2002 our revenue improved and revenue for
the second half of 2002 was 6% greater than the comparable period of 2001. We believe the drop in revenue in the first half of 2002 was primarily due
to a decrease in demand for telecom equipment in the USA, Asia and South America. In the second half of 2002 revenue was principally driven by growth
in Africa, primarily sales to Siemens in South Africa, and Asia, mainly as a result of sales by Airspan Israel, which we acquired in October
2002.


Cost of Revenue and Inventory Provision



Cost of revenue decreased 17% from $23.3 million in
the year ended December 31, 2001 to $19.2 million in the year ended December 31, 2002. The decrease was due primarily to the decrease in revenue.
During both 2001 and 2002 we wrote down material amounts of inventory. During the third quarter of 2001 we ceased marketing certain product variants
and we also undertook a detailed review of the levels and mix of related inventory. As a result we wrote down inventory in the third quarter of 2001 by
$1.4 million. As a result of the decline in revenue for the first six months of 2002, we reassessed the levels of excess and obsolete inventory and
decided to write down inventory by $2.0 million in the second quarter of 2002. Our gross margin was 18% in 2002 compared with 34% in 2001. The decline
in gross margin was primarily a function of increased inventory provisions in 2002 and certain relatively fixed period costs being allocated to a
relatively smaller revenue base.


Research and Development Expenses



Research and development expenses decreased 7% from
$14.7 million in the year ended December 31, 2001 to $13.6 million in the year ended December 31, 2002. As part of our operating expense reduction
programs introduced in the third quarters of 2001 and 2002, we re-focused our research and development priorities to lower our ongoing product
development costs. We believe these cost savings will initially be offset by the additional research and development expenses that will be incurred to
further develop the WipLL business, which was acquired in October 2002.


Sales and Marketing Expenses



Sales and marketing expenses decreased 34% from
$15.5 million in the year ended December 31, 2001 to $10.1 million in the year ended December 31, 2002. The decline in sales and marketing expenses is
primarily attributable to the decrease in revenue and the effect of our expense reduction programs. The Airspan Israel products are being sold though
our existing sales network and there has been no material increase in sales costs arising out


36

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of the acquisition. In 2002 we wrote down receivables by $3.7 million due to our
concerns with customers in Asia and Eastern Europe. During 2001 we wrote down receivables by $1.2 million.

General and Administrative Expenses



General and administrative expenses decreased 16%
from $10.7 million in the year ended December 31, 2001 to $9.0 million in the year ended December 31, 2002. The decrease in general and administrative
expenses was primarily the result of our cost reduction programs, including reductions in personnel and our relocation from our original headquarters
in Sunrise Florida to smaller offices in Boca Raton.


Amortization of Goodwill and Intangibles



Amortization of goodwill and intangibles expense
decreased 89% from $0.4 million in the year ended December 31, 2001 to $44 thousand in the year ended December 31, 2002. This reflects the full write
down of all intangibles from the original set up of the company and the implementation of FAS 142, Goodwill and Other Intangible Assets,
where goodwill in no longer amortized. The charge recorded during 2002 arises from the amortization of intangibles identified after our fourth quarter
acquisition of Airspan Israel.


Restructuring Provision



During both 2002 and 2001 we implemented expense
reduction programs. During the third quarter of 2001, we made a restructuring provision of $1.2 million to cover employee termination costs and
facility closures. During 2002, we made restructuring provisions totaling $1.4 million to cover further employee termination costs and facility closure
costs. As part of this $1.4 million we recorded a $1.0 million restructuring charge for the closure of our Riverside, Uxbridge facility. The closure of
this facility was a direct result of the decision to fully outsource all of our AS4000 and AS4020 product manufacturing. For more information regarding
restructuring, see the section above entitled Restructuring.


Interest and Other Income Net



Interest and other income, which decreased 22% from
$3.1 million for the year ended December 31, 2001 to $2.4 million in the year ended December 31, 2002, consisted of interest earned on cash deposits
with financial institutions, foreign exchange gains and losses on cash balances and the cost of purchasing foreign exchange contracts and options. The
decrease in interest income arose from lower cash balances and lower interest rates in 2002. Amounts from interest income were partially offset by
interest expense of $0.3 million in the year ended December 31, 2001 and $0.2 million in the year ended December 31, 2002. Interest expense decreased
51% in 2002 as a result of the repayment of debt.


Income Taxes



In general we did not record an income tax benefit
for the tax losses generated because we have experienced operating losses since inception. The 2001 tax credit provision of $3.0 million includes a
$2.7 million credit to offset the income tax expense recorded on our extraordinary gain and a $0.2 million income tax benefit for U.S. tax losses
offset against previous years federal income taxes paid on intercompany interest income. The 2002 tax credit relates to the receipt of $2.9
million from the United Kingdom tax authorities in lieu of carrying forward tax losses related to research and development costs. The company has
surrendered $12 million of carry forward tax losses in the U.K. as a result.


Extraordinary Gain



The Company negotiated a settlement of its $18.5
million promissory note with DSC Telcom L.P. in the first quarter of 2001. Under the settlement agreement, the Company agreed to pay $9.3 million in
the first half of 2001, in exchange for complete forgiveness of the debt owed by the Company that was originally repayable in 36 equal installments
over three years starting February 1, 2001. In addition, the Company and DSC Telcom L.P. mutually released each other from certain claims made by the
parties relating to the formation of Airspan in January 1998. The extraordinary gain of $9.2 million that arose from this transaction was partially
offset by tax on the gain of $2.7 million to show an extraordinary gain, net of taxes, of $6.5 million.


37

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Net Loss



For the reasons described above, our Net loss
increased by 49% from $18.8 million in 2001 to $28.1 million in 2002.


Liquidity and Capital Resources



As of December 31, 2003, we had cash and cash
equivalents totaling $33.9 million and $1.6 million of restricted cash that is held as collateral for performance guarantees on customer and supplier
contracts and with landlords. We do not have a line of credit or similar borrowing facility, nor do we have any material capital
commitments.




Since inception, we have financed our operations
through private sales of convertible preferred stock, which totaled $117.3 million (net of transaction expenses) and an initial public offering of
common stock, which we completed on July 25, 2000. In that offering, we issued 6,325,000 shares of common stock for approximately $86 million in cash
(net of underwriting discounts, commission and other expenses). We have used the net proceeds of the offering for working capital and other general
corporate purposes.




At December 31, 2003, we had no outstanding debt,
compared to $2.5 million at December 31, 2002.




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, 2003, we used $17.7
million cash in operating activities compared with $12.9 million for the year ended December 31, 2002. The difference between our net loss of $29.5
million and the $17.7 million cash used in operating activities principally arose from non-cash depreciation and amortization of $2.7 million and
tighter working capital control. During 2003 we reduced our inventory by $8.0 million and our receivables by $1.8 million.




The net cash provided in investing activities for
the year ended December 31, 2003 of $5.1 million arose from the sale of investment securities of $5.1 million along with net cash proceeds from
acquisitions of $1.8 million, partially offset by capital equipment purchases of $1.8 million.




Our financing cash flow for the year ended December
31, 2003 was a net outflow of $1.7 million. The outflow arose from a repayment of long term debt of $2.4 million and a $0.4 million purchase of
treasury stock partially offset by a $0.6 million decrease in restricted cash and net proceeds from issuance of common stock of $0.4 million.
Restricted cash increases whenever the Company issues a guarantee secured by cash collateral and decreases whenever such a guarantee is cancelled or
expires according to its terms.




For the year ended December 31, 2003, our Cash and
Cash Equivalents decreased by an aggregate of $14.2 million for the reasons described above. We do not expect the Proximity business to increase our
expected cash usage in the year ended December 31, 2004. See Risk Factors  We have recently acquired Nortel
Networks.....


Contractual Obligations



The impact that our contractual obligations as of December 31, 2003, are expected to have
on our liquidity and cash flow in future periods is as follows:


|Payments
      due by period     
|---------------------------------
|                                 
|Contractual
      obligations    
|Operating
      lease obligations
|Purchase
      obligations (1)   
|                                 

__________

|(1) |  | As
of December 31, 2003, the Company  had commitments with its main sub contract
manufacturers under various purchase order and forecast arrangements, to a value of
$8,105 and  with other suppliers for capital equipment, to a value of $123.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

38

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The Company has bank guarantees with its landlords, customers totaling $1,435 at December 31,
2003. 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.




We have no material commitments other than operating
leases, supplier purchase commitments and forward exchange contracts mentioned herein. See ITEM 7A and Note 12 of the Notes to the Financial
Statements.


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, 2002 and 2003 we had cash and cash equivalents, restricted cash and short-term investments of $55.4 million and
$35.5 million, respectively. Of these amounts, in 2002, $5.1 million related to investments with purchase to maturity dates between 90 and 365 days ($0
in 2003). Substantially all of the remaining amounts 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, 2003 rates would cause the fair market value of these short-term investments to change by an insignificant amount. Due to the short duration of
these investments, a short-term increase in interest rates would not have a material effect on our financial condition or results of operations.
Declines in interest rates over time would, however, reduce our interest income. Due to the uncertainty of the specific actions that would be taken to
mitigate this, and their possible effects, the sensitivity analysis does not take into account any such action.


Foreign Currency Exchange Rate Risk



For the year ended December 31, 2003, 96.8% of our
sales were denominated in U.S. dollars and the remaining 3.2% were predominantly denominated in euro. Comparatively for the year ended December 31,
2002, 95.0% of our sales were denominated in U.S. dollars, 2.7% were denominated in Australian dollars, and the remaining 2.3% were denominated
predominantly in euro. Our total euro-denominated sales for the year ended December 31, 2003 were  0.8 million (US$0.9 million), which were recorded at
an average exchange rate of $1U.S. =  0.8892 compared to total euro-denominated sales for the year ended December 31, 2002 of  0.5 million (U.S.$0.5
million) which were recorded at an average exchange rate of $1U.S.=  1.0700. Although our total Australian dollar-denominated sales for the year ended
December 31, 2003 were insignificant our total Australian dollar-denominated sales for the year ended December 31, 2002 were AUS $1.3 million, which
were recorded at an average exchange rate of $1U.S.=AUS$1.8524. If the average exchange rates used had been higher or lower during 2003 by 10% they
would have decreased or increased the total non-US dollar-denominated sales value by $0.1 million. We expect the proportions of sales in Australian
dollars and euro to fluctuate over time. The Companys sensitivity analysis for changes in foreign currency exchange rates does not factor in
changes in sales volumes.




Since May 2000, we have from time to time entered
into fair value currency hedging contracts that lock in minimum exchange rates for payments due to us under some of our sales contracts where those
payments are to be made in currencies other than U.S. dollars. We do not enter into any currency hedging activities for speculative purposes. There was
no impact from such contracts during 2003 on earnings, nor were there any fair value hedges outstanding at December 31, 2003. We will continue to
monitor our foreign currency exposures and may modify our hedging strategies, as we deem appropriate.




We have also entered into cash flow currency hedges.
Our operating results are affected by moves in foreign currency exchange rates, particularly the rate between U.S. dollars and U.K. pounds sterling and
the U.S. dollar and the Israeli shekel. This is because most of our operating expenses, which may fluctuate over time, are incurred in pounds sterling
and Israeli shekels.




To manage our pound foreign currency risk we have,
at various times in 2001, 2002 and 2003, forecast our likely net spending in non U.S. dollars until December 31, 2004 and, based on these forecasts, we
have entered into forward exchange contracts to cover at least 80% of the projected exposure.




We have entered into the following forward exchange
contracts:


39

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| |  | In October 2001, we entered into a forward exchange contract to
purchase 10.0 million pounds sterling at an average exchange rate of $1U.S. = 0.7019 pounds sterling in eight equal amounts, from May 2002 to December
2002. At December 31, 2003 there were no contracts outstanding.
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | In May 2002, we entered into a forward exchange contract to
purchase 7.5 million pounds sterling at an average exchange rate of $1U.S. = 0.6927 pounds sterling in six equal amounts, from January 2003 to June
2003. At December 31, 2002 these were outstanding at an average exchange rate of $1U.S. = 0.6927 pounds sterling. At December 31, 2003 there were no
contracts outstanding.
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | In November 2002, we entered into a forward exchange contract to
purchase 6.0 million pounds sterling at an average exchange rate of $1U.S. = 0.6421 pounds sterling in six equal amounts, from July 2003 to December
2003. At December 31, 2002 these were outstanding at an average exchange rate of $1U.S. = 0.6421 pounds sterling. At December 31, 2003 there were no
contracts outstanding.
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | In May 2003, we entered into a forward exchange contract to
purchase 4.5 million pounds sterling at an average exchange rate of $1U.S. = 0.6326 pounds sterling in six equal amounts, from January 2004 to June
2004. At December 31, 2003 these were outstanding at an average exchange rate of $1U.S. = 0.6326 pounds sterling.
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | In September 2003, we entered into a forward exchange contract
to purchase 3.6 million pounds sterling at an average exchange rate of $1U.S. = 0.6489 pounds sterling in six equal amounts, from July 2004 to December
2004. At December 31, 2003 these were outstanding at an average exchange rate of $1U.S. = 0.6489 pounds sterling.
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The total forward purchases of pounds sterling for
the year ended December 31, 2003, was 13.5 million pounds sterling, and we paid expenses in local currency of approximately 14.2 million pounds
sterling over the same period.


The effectiveness of the contracts as a hedge was therefore 100%. If the expenses
in pounds sterling had not been hedged and the average exchange rates had been higher or lower by 10%, the pound-sterling denominated operating
expenses would have decreased or increased by $2.0 million.



During the year ended December 31, 2003 we paid
expenses in Israeli Shekels of 37.4 million Israeli Shekels. Non of these expenses have been hedged. If the average exchange rates had been higher or
lower by 10%, the Israeli Shekel operating expenses would have decreased or increased by $0.8 million for the year ended December 31,
2003.




For the years ended December 31, 2003 and 2002 we
incurred the majority of our cost of revenue in U.S. dollars.


Equity Price Risk



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


Commodity Price Risk



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


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA



Financial Statements and Supplementary Data are
included on pages F-1 to F-28.


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



None


ITEM 9A. 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 Airspans management, including the Chief Executive
Officer and Chief Financial Officer, of the effectiveness of the design and operation of Airspans disclosure controls and procedures (as defined


40

---

in Section
13a-15(e) and 15d-15(3) of the Securities Exchange Act of 1934, as amended). Based on
that evaluation, the Chief Executive Officer and Chief  Financial Officer concluded that
the design and operation of these disclosure controls and procedures were effective.



Our evaluation included our recently
acquired Proximity business acquired from Nortel Networks on December 23, 2003. Prior to acquisition, the Proximity business
operated as a division within Nortel Networks.




Since acquisition,
we have focused on integrating the procedures and controls of the
Proximity business. We performed additional procedures to substantiate the financial information of the Proximity
business in this report and, as a result, our management,
including our Chief Executive Officer and Chief Financial Officer, concluded that the
disclosure controls and procedures were effective.




Except as mentioned above,
there have been no significant changes in Airspans internal controls over financial reporting that occurred during Airspans last fiscal quarter that
has materially affected or is reasonably likely to materially affect, Airspans internal control over financial reporting. However, we are continuing
to analyze, and expect to make changes in, the controls and procedures in place for our recently acquired Proximity business.


41

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, except the information regarding our code of
conduct provided below, 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, 2003.


Code of Conduct



We maintain a code of conduct (the Code)
that applies to our Directors, our Chief Executive Officer, Chief Financial Officer, Chief Accounting Officer and Controller, as well as to all of our
other employees of the company. 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,
2003.


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, 2003. 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,
2003.


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,
2003.


42

---

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K

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



(1)  Financial
Statements







|                                                                                                                |  |  |  | Page
|--------------------------------------------------------------------------------------------------------------- |  |  |  | ----
|Report of
Independent Auditors                                                                                  |  |  |  |     
|Consolidated
Balance Sheets as of December 31, 2002 and 2003                                                    |  |  |  |     
|Consolidated
Statements of Operations for the years ended December 31, 2001, 2002 and 2003                      |  |  |  |     
|Consolidated
Statements of Changes in Stockholders Equity for the years ended December 31, 2001, 2002 and 2003 |  |  |  |     
|Consolidated
Statements of Cash Flows for the years ended December 2001, 2002 and 2003                          |  |  |  |     
|Notes to the
Financial Statements                                                                               |  |  |  |     



(2)  Financial Statement
Schedules


|Schedule II
 Valuation and Qualifying Accounts for the year ended December 31, 2001, 2002 and 2003 |  |  |  |  | II-1 | 
|--------------------------------------------------------------------------------------------------- |  |  |  |  | ---- | 



(3)  Exhibits and Reports on Form
8-K




(a)
Exhibits.




Certain exhibits have been previously filed with the
Commission and are incorporated herein by reference.


43

---



AIRSPAN NETWORKS INC.

EXHIBIT INDEX Year Ended December 31, 2003

|3.1   |  |  |  | Amended and Restated Articles of Incorporation of Airspan (1)                                                                                                                     |  |  |  | 
|----- |  |  |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  |  |  | 
|3.2   |  |  |  | Amended and Restated Bylaws of Airspan*                                                                                                                                           |  |  |  | 
|4.1   |  |  |  | Form
of Airspans common stock certificate (2)                                                                                                                                    |  |  |  | 
|10.1  |  |  |  | 1998
Stock Option and Restricted Stock Plan (2)                                                                                                                                   |  |  |  | 
|10.2  |  |  |  | 2000
Employee Stock Purchase Plan (2)                                                                                                                                             |  |  |  | 
|10.3  |  |  |  | Employment Agreement with Eric Stonestrom (3), (4)                                                                                                                                |  |  |  | 
|10.4  |  |  |  | Employment Agreement with Jonathan Paget (3), (4)                                                                                                                                 |  |  |  | 
|10.5  |  |  |  | Employment Agreement with Peter Aronstam, as amended (4), (5), (7)                                                                                                                |  |  |  | 
|10.6  |  |  |  | 2001
Supplemental Stock Option Plan (5)                                                                                                                                           |  |  |  | 
|10.7  |  |  |  | Employment Agreement with Henrik Smith-Petersen (4), (7)                                                                                                                          |  |  |  | 
|10.8  |  |  |  | Employment Agreement with David Brant (4), (7)                                                                                                                                    |  |  |  | 
|10.9  |  |  |  | 2003
Supplemental Stock Option Plan*                                                                                                                                              |  |  |  | 
|10.10 |  |  |  | Purchase and License Agreement, dated as of March 20, 2003, as amended on September 15, 2003 by and between Nortel Networks de Mexico , S.A.
de C.V. and Axtel, S.A. de C.V.* (6) |  |  |  | 
|10.11 |  |  |  | Product Supply Agreement, dated as of December 23, 2003 by and between Airspan Networks, Inc. and Nortel Networks Limited* (6)                                                    |  |  |  | 
|21    |  |  |  | Subsidiaries of registrant (7)                                                                                                                                                    |  |  |  | 
|23.1  |  |  |  | Consent of Ernst & Young LLP, Independent Auditors*                                                                                                                               |  |  |  | 
|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
|- |  | --------------

|(1) |  | Incorporated by reference to Airspans Form 10-Q for the
three months ended September 30, 2001
|--- |  | ----------------------------------------------------------------------------------------------

|(2) |  | Incorporated by reference to Airspans Registration
Statement on Form S-1 (333-34514) filed July 18, 2000
|--- |  | ---------------------------------------------------------------------------------------------------------

|(3) |  | Confidential treatment granted for portions of this
agreement.
|--- |  | --------------------------------------------------------------

|(4) |  | Management Agreement or Compensatory Plan or
Arrangement
|--- |  | --------------------------------------------------------

|(5) |  | Incorporated by reference to Airspans Form 10-K for the
year ended December 31, 2000
|--- |  | -------------------------------------------------------------------------------------

|(6) |  | Confidential treatment requested for portions of this
agreement
|--- |  | ---------------------------------------------------------------

|(7) |  | Incorporated by reference to Airspans Form 10-K for the
year ended December 31, 2002
|--- |  | -------------------------------------------------------------------------------------

44

---



(b) Reports on Form 8-K.




The following current reports were filed on Form 8-K
since the third quarter of 2003:


|(1) |  | On November 10, 2003, a Current Report was filed under Item 7
and Item 12 of Form 8-K related to the Companys third quarter financial results.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------

|(2) |  | On December 29, 2003, a Current Report was filed under Item 2
and Item 7 of Form 8-K related to the acquisition of the Fixed Wireless Access business from Nortel Networks.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) |  | On February 5, 2004, a Current Report was filled under Item 7
and Item 12 related to the Companys fourth quarter financial results.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------

|(4) |  | On March 8, 2004, a Current Report was filed on Item 2 and Item
7 of Form 8-K/A related to the acquisition of the Fixed Wireless Access business from Nortel Networks.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------

45

---

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 30th day of March 2004.


| |  | Airspan Networks Inc.By: /s/ Eric D.
Stonestrom             Eric 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.
StonestromEric D. Stonestrom |  |  |  | Chief
Executive Officer, Director (Principal Executive Officer)                                      |  | March 30,
2004
|/s/ Matthew J.
DeschMatthew J. Desch     |  |  |  | Chairman of the Board of Directors                                                                   |  | March 30,
2004
|/s/ Peter
AronstamPeter Aronstam         |  |  |  | Senior Vice President, Finance; Chief Financial Officer (Principal Financial and Accounting Officer) |  | March 30,
2004
|/s/ H. Berry
CashH. Berry Cash           |  |  |  | Director                                                                                             |  | March 30,
2004
|/s/ Guillermo
HerediaGuillermo Heredia   |  |  |  | Director                                                                                             |  | March 30,
2004
|/s/ Thomas S.
HusebyThomas S. Huseby     |  |  |  | Director                                                                                             |  | March 30,
2004
|/s/ David
TwyverDavid Twyver             |  |  |  | Director                                                                                             |  | March 30,
2004
|/s/ Michael T.
FlynnMichael T. Flynn     |  |  |  | Director                                                                                             |  | March 30,
2004

46

---

REPORT OF INDEPENDENT AUDITORS

To: The Stockholders and Board of Directors



Airspan Networks Inc.




We have audited the accompanying consolidated
balance sheets of Airspan Networks Inc. and its subsidiaries as of December 31, 2002 and 2003, and the related consolidated statements of operations,
stockholders equity and cash flows for each of the three years in the period ended December 31, 2003. Our audits also included the financial
statement schedule listed in the Index at Item 15(a). These financial statements and schedule are the responsibility of the Companys management.
Our responsibility is to express an opinion on these financial statements and schedule based on our audits.




We conducted our audits in accordance with auditing
standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurances about
whether the financial statements are free from material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our
opinion.




In our opinion, the financial statements referred to
above present fairly in all material respects, the consolidated financial position of Airspan Networks Inc. and its subsidiaries at December 31, 2002
and 2003, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2003 in
conformity with accounting principles generally accepted in the United States. 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.




/s/ Ernst & Young LLP Ernst & Young
LLP


London, England February 4, 2004

F-1

---

AIRSPAN NETWORKS INC.CONSOLIDATED BALANCE SHEETS(in thousands, except
for share data)



|                                                                                                                                        |  |  |  | December 31, 2002 |          | December 31, 2003
|--------------------------------------------------------------------------------------------------------------------------------------- |  |  |  | ----------------- | -------- | -----------------
|ASSETS                                                                                                                                  |  |  |  |                   |          |                  
|Current
assets                                                                                                                          |  |  |  |                   |          |                  
|Cash and cash
equivalents                                                                                                               |  |  |  | $                 | 48,167   |                  
|Restricted
cash                                                                                                                         |  |  |  |                   | 2,146    |                  
|Short term
investments                                                                                                                  |  |  |  |                   | 5,074    |                  
|Accounts
receivable, less allowance for doubtful accounts of $4,531 in 2002 and $5,207 in 2003                                          |  |  |  |                   | 14,328   |                  
|Unbilled
accounts receivable                                                                                                            |  |  |  |                   | 152      |                  
|Inventory                                                                                                                               |  |  |  |                   | 17,627   |                  
|Prepaid
expenses and other current assets                                                                                               |  |  |  |                   | 3,914    |                  
|Total current
assets                                                                                                                    |  |  |  |                   | 91,408   |                  
|Property,
plant and equipment, net                                                                                                      |  |  |  |                   | 4,137    |                  
|Goodwill,
net                                                                                                                           |  |  |  |                   | 784      |                  
|Intangible
assets, net                                                                                                                  |  |  |  |                   | 626      |                  
|Other non
current assets                                                                                                                |  |  |  |                   | 906      |                  
|Total
assets                                                                                                                            |  |  |  | $                 | 97,861   |                  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                    |  |  |  |                   |          |                  
|Current
liabilities                                                                                                                     |  |  |  |                   |          |                  
|Accounts
payable                                                                                                                        |  |  |  | $                 | 7,759    |                  
|Accrued
taxes                                                                                                                           |  |  |  |                   | 481      |                  
|Deferred
revenue                                                                                                                        |  |  |  |                   | 772      |                  
|Customer
advances                                                                                                                       |  |  |  |                   | 150      |                  
|Other accrued
expenses                                                                                                                  |  |  |  |                   | 8,099    |                  
|Current
portion of long-term debt                                                                                                       |  |  |  |                   | 2,500    |                  
|Total current
liabilities                                                                                                               |  |  |  |                   | 19,761   |                  
|Commitments (see note 12)                                                                                                               |  |  |  |                   |          |                  
|Stockholders equity                                                                                                                    |  |  |  |                   |          |                  
|Common stock,
$0.0003 par value; 50,000,000 shares authorized in 2002 and 2003: 35,538,482 issued in 2002 and 36,314,410 issued in 2003 |  |  |  |                   | 10       |                  
|Note
receivable  stockholder                                                                                                           |  |  |  |                   | (130     | )                
|Additional
paid in capital                                                                                                              |  |  |  |                   | 214,727  |                  
|Treasury
Stock; 412,486 shares held in 2002 and 834,560 shares held in 2003                                                             |  |  |  |                   | (405     | )                
|Accumulated
other comprehensive income                                                                                                  |  |  |  |                   | 1,562    |                  
|Accumulated
deficit                                                                                                                     |  |  |  |                   | (137,664 | )                
|Total
stockholders equity                                                                                                              |  |  |  |                   | 78,100   |                  
|Total
liabilities and stockholders equity                                                                                              |  |  |  | $                 | 97,861   |                  

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

F-2

---

AIRSPAN NETWORKS INC.CONSOLIDATED STATEMENTS OF OPERATIONS(in
thousands, except for share and per share data)



|                                                        |  |  |  | Year ended December 31, 2001 |            | Year ended December 31, 2002 |  | Year ended December 31, 2003
|------------------------------------------------------- |  |  |  | ---------------------------- | ---------- | ---------------------------- |  | ----------------------------
|Revenue                                                 |  |  |  | $                            | 37,422     |                              |  | $                           
|Cost of
revenue                                         |  |  |  |                              | (23,291    | )                            |  |                             
|Inventory
provision                                     |  |  |  |                              | (1,417     | )                            |  |                             
|Gross
profit                                            |  |  |  |                              | 12,714     |                              |  |                             
|Operating
expenses:                                     |  |  |  |                              |            |                              |  |                             
|Research and
development                                |  |  |  |                              | 14,667     |                              |  |                             
|Sales and
marketing                                     |  |  |  |                              | 15,504     |                              |  |                             
|Bad debt
expense                                        |  |  |  |                              | 1,207      |                              |  |                             
|General and
administrative                              |  |  |  |                              | 10,735     |                              |  |                             
|Amortization
of goodwill                                |  |  |  |                              | 125        |                              |  |                             
|Amortization
of intangibles                             |  |  |  |                              | 300        |                              |  |                             
|Restructuring
provision                                 |  |  |  |                              | 1,235      |                              |  |                             
|Total
operating expenses                                |  |  |  |                              | 43,773     |                              |  |                             
|Loss from
operations                                    |  |  |  |                              | (31,059    | )                            |  |                             
|Interest
expense                                        |  |  |  |                              | (326       | )                            |  |                             
|Interest and
other income                               |  |  |  |                              | 3,052      |                              |  |                             
|Loss before
income taxes                                |  |  |  |                              | (28,333    | )                            |  |                             
|Income tax
credits (expenses)                           |  |  |  |                              | 3,018      |                              |  |                             
|Loss before
extraordinary items                         |  |  |  |                              | (25,315    | )                            |  |                             
|Extraordinary
item                                      |  |  |  |                              |            |                              |  |                             
|Gain on
extinguishment of debt                          |  |  |  |                              | 9,244      |                              |  |                             
|Income tax
charge on gain                               |  |  |  |                              | (2,773     | )                            |  |                             
|Net
loss                                                |  |  |  | $                            | (18,844    | )                            |  | $                           
|Net loss per
share  basic and diluted                  |  |  |  |                              |            |                              |  |                             
|Loss before
extraordinary item                          |  |  |  | $                            | (0.73      | )                            |  | $                           
|Extraordinary
item, net of taxes                        |  |  |  |                              | 0.19       |                              |  |                             
|Net loss per
share                                      |  |  |  | $                            | (0.54      | )                            |  | $                           
|Weighted
average shares outstanding  basic and diluted |  |  |  |                              | 34,810,311 |                              |  |                             

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

F-3

---



AIRSPAN NETWORKS INC. CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS EQUITY (in thousands, except for share data)






|                                                                      |  |  |  | Common Stock |           
|--------------------------------------------------------------------- |  |  |  | ------------ | ----------
|
|At January 1,
2001                                                    |  |  |  |              | 34,692,331
|Comprehensive
Loss:                                                   |  |  |  |              |           
|Net loss for
the year                                                 |  |  |  |              |           
|Other
Comprehensive Income:                                           |  |  |  |              |           
|Movement in
the fair value of cash flow hedges                        |  |  |  |              |           
|Unrealized
gains on foreign currency cash flow hedges                 |  |  |  |              |           
|Less:
reclassification of adjustment for gains realized in net income |  |  |  |              |           
|                                                                      |  |  |  |              |           
|Comprehensive
loss for the year                                       |  |  |  |              |           
|Issuance of
common stock under the employee share purchase plan       |  |  |  |              | 157,094   
|Exercise of
stock options                                             |  |  |  |              | 270,774   
|At December 31,
2001                                                  |  |  |  |              | 35,120,199
|Comprehensive
Loss:                                                   |  |  |  |              |           
|Net loss for
the year                                                 |  |  |  |              |           
|Other
Comprehensive Income:                                           |  |  |  |              |           
|Movement in
the fair value of cash flow hedges                        |  |  |  |              |           
|Unrealized
gains on foreign currency cash flow hedges                 |  |  |  |              |           
|Less:
reclassification of adjustment for gains realized in net income |  |  |  |              |           
|                                                                      |  |  |  |              |           
|Comprehensive
loss for the year                                       |  |  |  |              |           
|Decrease in
notes receivable                                          |  |  |  |              |           
|Issuance of
common stock under the employee share purchase plan       |  |  |  |              | 274,411   
|Exercise of
stock options                                             |  |  |  |              | 143,872   
|Purchase of own
shares                                                |  |  |  |              | (412,486  
|At December 31,
2002                                                  |  |  |  |              | 35,125,996
|Comprehensive
Loss:                                                   |  |  |  |              |           
|Net loss for
the year                                                 |  |  |  |              |           
|Other
Comprehensive Income:                                           |  |  |  |              |           
|Movement in
the fair value of cash flow hedges                        |  |  |  |              |           
|Unrealized
gains on foreign currency cash flow hedges                 |  |  |  |              |           
|Less:
reclassification of adjustment for gains realized in net income |  |  |  |              |           
|                                                                      |  |  |  |              |           
|Comprehensive
loss for the year                                       |  |  |  |              |           
|Issuance of
common stock under the employee share purchase plan       |  |  |  |              | 531,164   
|Exercise of
stock options                                             |  |  |  |              | 244,765   
|Purchase of own
shares                                                |  |  |  |              | (422,074  
|At December 31,
2003                                                  |  |  |  |              | 35,479,851

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

F-4

---

AIRSPAN NETWORKS INC.CONSOLIDATED STATEMENTS OF CASH FLOWS(in
thousands)





|                                                                            |  |  |  | Year ended December 31, 2001 |         | Year ended December 31, 2002 |  | Year ended December 31, 2003
|--------------------------------------------------------------------------- |  |  |  | ---------------------------- | ------- | ---------------------------- |  | ----------------------------
|CASH FLOWS
FROM OPERATING ACTIVITIES                                        |  |  |  |                              |         |                              |  |                             
|Net
loss                                                                    |  |  |  | $                            | (18,844 | )                            |  | $                           
|Adjustments
to reconcile net loss to net cash used in operating activities: |  |  |  |                              |         |                              |  |                             
|Depreciation
and amortization                                               |  |  |  |                              | 4,093   |                              |  |                             
|Gain on
settlement of long-term debt                                        |  |  |  |                              | (9,252  | )                            |  |                             
|Loss on sale
of fixed assets                                                |  |  |  |                              | 28      |                              |  |                             
|Accretion of
interest on notes payable                                      |  |  |  |                              | 109     |                              |  |                             
|Changes in
operating assets and liabilities:                                |  |  |  |                              |         |                              |  |                             
|(Increase)/decrease in receivables                                          |  |  |  |                              | (9,448  | )                            |  |                             
|(Increase)/decrease in inventories                                          |  |  |  |                              | (3,741  | )                            |  |                             
|(Increase)/
decrease in other current assets                                |  |  |  |                              | (1,092  | )                            |  |                             
|(Decrease)/
increase in accounts payable                                    |  |  |  |                              | (82     | )                            |  |                             
|(Decrease)/increase in deferred revenue                                     |  |  |  |                              | (420    | )                            |  |                             
|Increase/(decrease) in other accrued expenses                               |  |  |  |                              | 1,034   |                              |  |                             
|Increase in
non current assets                                              |  |  |  |                              |        |                              |  |                             
|Net cash used
in operating activities                                       |  |  |  |                              | (37,615 | )                            |  |                             
|CASH FLOWS
FROM INVESTING ACTIVITIES                                        |  |  |  |                              |         |                              |  |                             
|Purchase of
property and equipment                                          |  |  |  |                              | (3,229  | )                            |  |                             
|Proceeds from
the sale of property and equipment                            |  |  |  |                              | 49      |                              |  |                             
|Purchase of
investment securities                                           |  |  |  |                              | (50,040 | )                            |  |                             
|Proceeds from
sale of investments securities                                |  |  |  |                              | 33,400  |                              |  |                             
|Cost of
acquisitions, net of cash acquired                                  |  |  |  |                              |        |                              |  |                             
|Net cash
(used)/provided in investing activities                            |  |  |  |                              | (19,820 | )                            |  |                             
|CASH FLOWS
FROM FINANCING ACTIVITIES                                        |  |  |  |                              |         |                              |  |                             
|Net proceeds
from issuance of common stock                                  |  |  |  |                              | 247     |                              |  |                             
|Purchase of
treasury stock                                                  |  |  |  |                              |        |                              |  |                             
|Payment of
short-term debt                                                  |  |  |  |                              | (849    | )                            |  |                             
|Payment on
long-term debt, including capital lease obligations              |  |  |  |                              | (9,778  | )                            |  |                             
|Exercise of
stock options                                                   |  |  |  |                              | 178     |                              |  |                             
|Decrease in
notes receivable from stockholders                              |  |  |  |                              |        |                              |  |                             
|Restricted
cash movement                                                    |  |  |  |                              | 5,917   |                              |  |                             
|Net cash used
by financing activities                                       |  |  |  |                              | (4,285  | )                            |  |                             
|Decrease in
cash and cash equivalents                                       |  |  |  |                              | (61,720 | )                            |  |                             
|Cash and cash
equivalents, beginning of period                              |  |  |  |                              | 115,340 |                              |  |                             
|Cash and cash
equivalents, end of period                                    |  |  |  | $                            | 53,620  |                              |  | $                           
|SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION                           |  |  |  |                              |         |                              |  |                             
|Interest
paid                                                               |  |  |  | $                            | 318     |                              |  | $                           
|Income taxes
paid                                                           |  |  |  | $                            | 7       |                              |  | $                           

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

F-5

---

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

1. THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Business



The Company is a global supplier of broadband fixed
wireless access equipment 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 techniques, that can be deployed rapidly and cost effectively, providing an alternative or complement to
traditional copper wire, cable, or fiber-optic communications access networks. 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, U.S.A.


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 have been
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 equivalents



The Company considers all highly liquid investments
with a maturity of three months or less when purchased to be cash equivalents.


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 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



Accounts receivable represent receivables from
customers in the ordinary course of business. These are recorded at the invoiced amount and do not bear interest. Receivables are recorded net of the
allowance for doubtful accounts in the accompanying consolidated balance sheets. The Company evaluates the collectibility of its accounts receivable
based on a combination of factors. The Company regularly analyzes its customer accounts, and when it becomes aware of a specific customers
inability to meet its financial obligations to the Company records a specific reserve for bad debt to reduce the related receivable to the amount it
reasonably believes is collectible. The Company records reserves for bad debt based on a variety of factors, including the length of time the
receivables are past due, the financial health of the customer, macroeconomic considerations and historical experience. If
circumstances


F-6

---

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

related to specific customers change, the Companys estimates of the
recoverability of receivables could be further adjusted. At December 31, 2003 and 2002, the allowance for doubtful accounts was $5.2 million and $4.5
million, respectively.

Fair value of financial instruments



The financial instruments of the Company consist
mainly of cash and cash equivalents, restricted cash, short term investments, accounts receivable, accounts payable, promissory notes, foreign currency
forward contracts and foreign currency options. 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. There were no financial instruments at December 31, 2003. Specifically, the fair value of long-term debt instruments reflects a
current yield valuation based on a 1.48% borrowing rate at December 31, 2002. The fair value of foreign currency forward contracts reflect the present
value of the potential gain or loss if settlement were to take place on December 31, 2003. Accordingly, the estimates that follow are not necessarily
indicative of the amounts that the Company realized in a current market exchange.




At December 31, 2002 and 2003, the carrying amount
of all financial instruments approximates fair value with the following exception:


|                                   |  |  |  | 2002 |       | 2003 | 
|---------------------------------- |  |  |  | ---- | ----- | ---- | 
|
|Financial
Liabilities              |  |  |  |      |       |      | 
|Long term
debt due within one year |  |  |  | $    | 2,500 |      | 

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, 2003.




Our foreign exchange forward contracts are
designated as hedging the exposure to variable cash flows of a forecasted transaction. 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 2002 and 2003
there were no ineffective portions. Our cash flow hedges are being used to manage our pound sterling foreign currency risk, primarily on our U.K. based
employee salaries and other U.K. expenses. Our U.K. salaries and expenses are accounted for each month and therefore reclassification into earnings
from comprehensive income will occur every month. At December 31, 2003 there were twelve monthly contracts outstanding to purchase a total of 8.1
million pounds sterling up until December 2004.




During 2003, 2002 and 2001 the Company recorded a
net unrealized gain in other comprehensive income of $277, $1,104 and $17 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,


F-7

---

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

2001, 2002 and 2003. Based on the exchange rate at December 31, 2003, the Company
would expect to reclassify as gains to earnings during the next twelve months $1,839 from other comprehensive income.



Realized gains and losses arising from fair value
and cash flow hedges are reported in interest and other income.




The foreign exchange forward contracts hedge our
U.K. expenses through December 2004.




The total forward purchases of pounds sterling for
the year ended December 31, 2003, was 13.5 million pounds sterling, and we paid expenses in local currency of approximately 14.2 million pounds
sterling over the same period. The hedge contracts are therefore recorded as being 100% effective.




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 goods for resale
 average cost




Work in progress and finished goods  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



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. In performing the impairment test,
the Company compares the carrying value of the identified intangible assets with the expected future discounted cash flows. Estimates of expected
future cash flows represent managements best estimate based on reasonable and supportable assumptions and projections. Any impairment provisions
recognized are permanent and may not be restored in the future. No impairment expense was recognized in either 2003, 2002 or 2001.


Goodwill arising on business combinations



Beginning in fiscal 2002 with the adoption of
Statement of Financial Accounting Standards 142, Goodwill and Other Intangible Assets, goodwill is no longer amortized, but is instead
tested for impairment at least annually. Prior to fiscal 2002, goodwill was amortized using the straight-line method over its estimated period of
benefit. 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. In performing the impairment test, the
Company compares the carrying value of the goodwill with


F-8

---

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

the expected future discounted cash flows. Estimates of expected future cash flows
represent managements best estimate based on reasonable and supportable assumptions and projections. Any impairment provisions recognized are
permanent and may not be restored in the future. No impairment expense was recognized in either 2003, 2002 or 2001.

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, an 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 2001, 2002 or 2003.


Restricted cash



Restricted cash consists of cash pledged as
collateral to secure the guarantees described in note 12.


Research and development



All research and development expenditures are
charged to research and development expense in the period incurred. Generally accepted accounting principles require the capitalization of certain
software development costs after technological feasibility of the software is established. In the development of the Companys new products and
enhancements to existing products, the technological feasibility of the software is not established until substantially all product development is
complete, including the development of a working model. Internal software development costs that were eligible for capitalization in 2001, 2002 and
2003 were insignificant and were charged to research and development expense in the accompanying statements of operations.


Revenue recognition



General




The company recognizes revenue pursuant to Staff
Accounting Bulletin No. 104, Revenue Recognition. Accordingly, revenues are recognized 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.


F-9

---

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



Service Revenue




Revenue from time-and-material service contracts is
recognized once the services have been performed. Revenue from service contracts that relate to a period of cover is recognized ratably over the given
contract period. Revenue is recognized on fixed-price service contracts using the percentage of completion method unless it is not possible to make
reasonable estimates under that method, in which case revenue is recognized on a completed contract basis.




Revenue Arrangements that include Multiple
Deliveries




In certain cases, the company enters into agreements
with customers whereby it is obligated to deliver multiple products and/or multiple services (multiple deliveries). 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.


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. The initial recognition and initial measurement provisions apply on a prospective basis to guarantees issued or modified
after December 31, 2002. The adoption of FIN 45 did not have a material impact on the Companys results of operations or financial condition and
did not result in any additional liabilities as of December 31, 2003 associated with guarantees covered by this interpretation.


Warranty



The Company provides a limited warranty for periods,
usually ranging from twelve to twenty-four months, to all purchasers of its new equipment. Warranty expense is accrued at the date revenue is
recognized on the sale of equipment and is recognized as a cost of revenue. The expense is estimated based on analysis of historic costs and is
amortized over the warranty period. Management believes that the amounts provided for are sufficient for all future warranty cost on equipment sold
through December 31, 2003 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 year ended December 31, 2003.







|                             |  |  |  | Balance at beginning of period |     | Accrual for warranties issued during the period |  | Accruals related to pre-existing warranties (including
changes in estimates) |     | Settlements made (in cash or in kind) during the period |  | Balance at end of period
|---------------------------- |  |  |  | ------------------------------ | --- | ----------------------------------------------- |  | ---------------------------------------------------------------------------- | --- | ------------------------------------------------------- |  | ------------------------
|Year ended
December 31, 2003 |  |  |  |                                |     |                                                 |  |                                                                              |     |                                                         |  |                         
|Product
warranty liability   |  |  |  | $                              | 600 |                                                 |  | $                                                                            | 630 |                                                         |  | $                       

F-10

---

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

Other guarantees



The Company had delivered to its landlords and
customers bank guarantees aggregating to $2,146 at December 31, 2002 and had delivered to its landlords bank guarantees aggregating to $1,435 at
December 31, 2003. The foregoing figures represent the maximum potential amount of future payments the Company could be required to make under these
guarantees. The guarantees secure payment or performance obligations of the Company under contracts. The Company has pledged cash to the banks as
collateral for the guarantees in the same amounts as the guarantees. These pledges have been classified as restricted cash. The Company has not
recognized any liability for these guarantees as in managements opinion the likelihood of having to make payments under the guarantees is
remote.


Legal claims



On and after July 23, 2001, three Class Action
Complaints were filed in the United States District Court for the Southern District of New York naming as defendants Airspan, 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) 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 actions seek damages in an unspecified amount.




This action is being coordinated with approximately
three hundred other nearly identical actions filed against other companies. On July 15, 2002, the Company moved to dismiss all claims against it and
the Individual Defendants. On October 9, 2002, the Court dismissed the Individual Defendants from the case without prejudice based upon Stipulations of
Dismissal filed by the plaintiffs and the Individual Defendants. This dismissal disposed of the Section 15 and 20(a) control person claims without
prejudice, since these claims were asserted only against the Individual Defendants. On February 19, 2003, the Court dismissed the Section 10b claim
against us, but allowed the Section 11 claim to proceed. Airspan has approved a Memorandum of Understanding (MOU) and related agreements
which set forth the terms of a settlement between Airspan, the plaintiff class and the vast majority of the other approximately 300 issuer defendants.
Among other provisions, the settlement contemplated by the MOU 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. It is anticipated that any potential financial obligation of Airspan to plaintiffs
pursuant to the terms of the MOU and related agreements will be covered by existing insurance. Therefore, Airspan does not expect that the settlement
will involve any payment by Airspan. The MOU and related agreements are subject to a number of contingencies, including the negotiation of a settlement
agreement and its approval by the Court. We cannot opine as to whether or when a settlement will occur or be finalized and are unable at this time to
determine whether the outcome of the litigation will have a material impact on our results of operations or financial condition in any future
period.




On February 28, 2003, a Class Action Complaint was
filed in the United States District Court for the Southern District of Florida naming as defendants Airspan, Eric D. Stonestrom, and Joseph J.
Caffarelli together with Credit Suisse First Boston (CSFB), an underwriter of our July 2000 initial public offering, as well as various
CSFB related entities and various CSFB employees. On June 19, 2003, Plaintiffs filed an Amended Complaint against the Company seeking damages in an
unspecified amount but voluntarily dismissed the individual defendants. On July 21, 2003 plaintiffs voluntarily dismissed Airspan from the
case.


F-11

---

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



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


Shipping and handling costs



Shipping and handling costs are included within cost
of sale.


Foreign currency transactions



The groups functional currency is the U.S.
dollar. Transactions in currencies other than U.S. dollars are converted at the monthly average exchange rate in effect on the date of the
transaction.




Monetary assets and liabilities denominated in
currencies other than U.S. dollars are translated into U.S. dollars at the rate of exchange on the balance sheet date. Transactional gains and losses
arising from transactions not denominated in U.S. dollars are recognized in the consolidated statement of operations as other income or expense. The
net value of exchange gains and losses during the year ended December 31, 2003 was $2.5 million of which $1.7 million related to the reclassification
of our forward exchange contracts gains from part of other comprehensive income into part of net income.


Advertising costs



Advertising costs are expensed at the time the
promotion is held or the advertisement is first aired. Advertising expenses amounted to $379 in 2003, $625 in 2002 and $1,176 in 2001. There were no
prepaid advertising expenditures at December 31, 2003 and $42 at December 31, 2002.


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.


Pension, post retirement and post employment benefits.



The Company contributes to a defined contribution
pension plan for all eligible employees. The Company recorded pension expense of $645, $801 and $1,193 in, 2001, 2002 and 2003, respectively. The
increase in pension expenses between 2001 and 2002 and between 2002 and 2003 related primarily to the Companys employment of additional staff as
a result of its acquisition of Airspan Israel at the beginning of the fourth quarter of 2002.


Concentration of credit risk



Financial instruments, which potentially subject
Airspan to concentration of credit risk, consist primarily of cash and cash equivalents and accounts receivable. Airspan places its 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 87%, 89% and 97% of product sales were to non-U.S. customers for the year ended December 31, 2001, 2002 and 2003
respectively. During the year ended December 31, 2003 88% our net income arose from operations outside the United States. Airspan generally requires a
dollar 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 24.1% of revenue in 2001, 47% of revenue in 2002 and 32.4% of revenue
in 2003. In 2001, the Company received 79% of goods for resale from two suppliers, Flextronics International and Universal Scientific Industrial Co. In
2002, the Company received 70% of goods for resale from three suppliers, Flextronics International and Universal Scientific Industrial Co and
Solec


F-12

---

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

tron Scotland Ltd. In 2003, the Company received 79% of goods for resale from two
suppliers, Flextronics International and Solectron Scotland Ltd. These suppliers act as sub-contractors to manufacture a substantial part of
Airspans product for resale.

Stock based compensation



At December 31, 2003 the Company has three
stock-based employee compensation plans and one employee share purchase plan, which are described more fully in Note 14. 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. No stock-based compensation cost is reflected in net income, 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 income 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, 2001 |         | Year ended December 31, 2002 |  | Year ended December 31, 2003
|------------------------------------------------------------------------------------------------------------------------------------------- |  |  |  | ---------------------------- | ------- | ---------------------------- |  | ----------------------------
|Net income,
as reported                                                                                                                     |  |  |  | $                            | (18,844 | )                            |  | $                           
|Add:
Stock-based employee compensation expense included in reported net income, net of related tax effects                                  |  |  |  |                              |        |                              |  |                             
|Deduct: Total
stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects |  |  |  |                              | (6,192  | )                            |  |                             
|Pro forma net
income                                                                                                                        |  |  |  | $                            | (25,036 | )                            |  | $                           
|Earnings per
share  basic and diluted:                                                                                                     |  |  |  |                              |         |                              |  |                             
|Net loss per
share                                                                                                                          |  |  |  | $                            | (0.54   | )                            |  | $                           
|Pro forma net
loss per share                                                                                                                |  |  |  | $                            | (0.72   | )                            |  | $                           



The weighted average fair value of the options at
their grant date was $2.54 during 2001, $0.52 during 2002 and $1.74 during 2003. 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, 2001 |      | Year ended December 31, 2002 |  | Year ended December 31, 2003
|------------------------------ |  |  |  | ---------------------------- | ---- | ---------------------------- |  | ----------------------------
|Risk-free
interest rate        |  |  |  |                              | 4.40 | %                            |  |                             
|Expected
years until exercised |  |  |  |                              | 5    |                              |  |                             
|Expected
dividend yield        |  |  |  |                              |     |                              |  |                             
|Expected
volatility            |  |  |  |                              | 108  | %                            |  |                             



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.


Segment reporting



During the periods, the Company operated as a single
segment, being the development and supply of fixed wireless access systems and solutions.


F-13

---

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

Reclassifications



Certain prior-year amounts have been reclassified to
conform to the current year presentations. The reclassifications are cash and cash equivalents to short term investments and customer advances out from
deferred revenue in 2002.


Recent Accounting Pronouncements



In July 2003, the EITF reached a tentative
conclusion on EITF No. 03-10, Application of Issue No. 02-16 by Resellers to Sales Incentives Offered to Consumers by Manufacturers. EITF No. 03-10
states that certain sales incentive arrangements are not subject to the guidance in EITF No. 02-16. EITF No. 03-10 also requires disclosure of the
accounting policy with respect to vendors sales incentive arrangements. EITF No. 03-10 is effective for fiscal years beginning after December 15,
2003. The Company is evaluating the impact of adopting this pronouncement, but does not expect it to have a material impact on its consolidated
financial position or results of operations.




In December 2003, the Securities and Exchange
Commission issued Staff Accounting Bulletin (SAB) No. 104, Revenue Recognition. SAB No. 104 rescinds portions of SAB No. 101, Revenue
Recognition in Financial Statements. The Company has applied the provisions of SAB No. 104 in 2003, which did not have a material impact on the
Companys consolidated financial position or results of operations.


2.  THE ACQUISITION OF THE FIXED WIRELESS ACCESS
(PROXIMITY) BUSINESS OF NORTEL NETWORKS



On December 23, 2003, the Company completed an
agreement with Nortel Networks to acquire the fixed wireless access business of Nortel Networks known as Proximity in accordance with the
terms and conditions of a contemporaneously executed and delivered Purchase and Sale Agreement. The final purchase price of approximately $13.1 million
was offset at closing against customer prepayments totaling approximately $14.9 million transferred to Airspan as part of the transaction. Airspan
assumed the product supply obligations associated with the customer prepayments and certain other liabilities and obligations of Nortel Networks
relating to the Proximity business sold to Airspan. As part of the transaction, Airspan acquired Nortel Networks inventory relating to the
Proximity business as well as existing assets associated with the manufacture, development and support of the Proximity product line. In addition,
Airspan agreed to hire Nortel Networks workforce directly employed in the Proximity business, which at closing totaled 26 persons who are currently
located in Maidenhead, England and Sunrise, Florida. Airspan also assumed Nortel Networks current manufacturing obligations for the assembly and final
testing of Proximity products. This business combination has been accounted for under the purchase method and the results of operations of Proximity
are included in the consolidated income statement of the Company from December 23, 2003 to December 31, 2003.




The primary reasons for the acquisition were as
follows


| |  | To solidify the Companys position in the fixed-wireless
market.
|- |  | ----------------------------------------------------------------

| |  | To give the Company a strong presence in every major market in
the world, along with the increased status that comes with the servicing of such well-recognized customers.
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | To enable the Company to leverage its product range to existing
Proximity customers.
|- |  | ------------------------------------------------------------------------------------

| |  | To increase the Companys revenue streams and lower its
cash usage.
|- |  | -------------------------------------------------------------------

F-14

---

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



The following table represents the purchase price
allocation




Calculation of purchase
price:


|                           |  |  |  | Cash consideration |        | Accrued costs |  | Total
|-------------------------- |  |  |  | ------------------ | ------ | ------------- |  | -----
|Initial
purchase price     |  |  |  | $                  | 12,850 |               |  |      
|Working
capital adjustment |  |  |  |                    | 241    |               |  |      
|Acquisition
costs          |  |  |  |                    |       |               |  | $    
|Total
purchase price       |  |  |  | $                  | 13,091 |               |  | $    



Preliminary allocation of purchase
price:







|                                          |  |  |  | Historical book value |         | Purchase price allocation / fair value adjustments |  | Fair value
|----------------------------------------- |  |  |  | --------------------- | ------- | -------------------------------------------------- |  | ----------
|Cash                                      |  |  |  | $                     | 14,946  |                                                    |  |           
|Inventory                                 |  |  |  |                       |        |                                                    |  | $         
|Prepaid
expenses and other current assets |  |  |  |                       | 393     |                                                    |  |           
|Property,
plant and equipment, net        |  |  |  |                       |        |                                                    |  |           
|Intangible
assets, net                    |  |  |  |                       |         |                                                    |  |           
|Patents                                   |  |  |  |                       |        |                                                    |  |           
|Customer
contracts                        |  |  |  |                       |        |                                                    |  |           
|Accounts
payable                          |  |  |  |                       | (8      | )                                                  |  |           
|Deferred
revenue                          |  |  |  |                       | (93     | )                                                  |  |           
|Customer
advances                         |  |  |  |                       | (14,946 | )                                                  |  |           
|Other accrued
expenses                    |  |  |  |                       |        |                                                    |  |           
|Goodwill                                  |  |  |  |                       |         |                                                    |  |           
|Total
purchase price                      |  |  |  |                       |         |                                                    |  |           



In conjunction with the purchase of the Proximity
business the Company implemented its plan to relocate the Proximity business from Maidenhead, England and Sunrise, Florida to the Companys
facilities in Uxbridge, England and Boca Raton, Florida. The Company recorded significant acquisition-related restructuring charges in connection with
the relocation of the Proximity business.







|                     |  |  |  | Accrued at acquisition |     | Paid in 2003 |  | Accrued at December 31, 2003
|-------------------- |  |  |  | ---------------------- | --- | ------------ |  | ----------------------------
|Office
closure costs |  |  |  | $                      | 520 |              |  |                             



The relocation is expected to be completed by the
third quarter of 2004.


F-15

---

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



The table below shows the unaudited pro forma
consolidated operating results of the Company for the periods indicated, as if the acquisition had occurred as of January 1, 2002.







|                                                        |  |  |  | Year ended December 31, 2002 |            | Year ended December 31, 2003
|------------------------------------------------------- |  |  |  | ---------------------------- | ---------- | ----------------------------
|Revenue                                                 |  |  |  | $                            | 29,676     |                             
|Gross
profit                                            |  |  |  |                              | 5,812      |                             
|Operating
expenses                                      |  |  |  |                              | 51,183     |                             
|Loss from
operations                                    |  |  |  |                              | (45,371    | )                           
|Net
loss                                                |  |  |  | $                            | (40,375    | )                           
|Net loss per
share  basic and diluted                  |  |  |  |                              |            |                             
|Net loss per
share                                      |  |  |  | $                            | (1.15      | )                           
|Weighted
average shares outstanding  basic and diluted |  |  |  |                              | 35,258,645 |                             

3. TAXATION



The income tax provision of $5 recorded in the year
ended 31 December 2003 relates to a foreign branch of the UK company. The income tax benefit of $2,862 in the year ended 31 December 2002 was for tax
credits received in respect of research and development expenditure in the UK in the period 1 April 2000 to 31 December 2001.




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, 2003 the Company had the following net operating loss carry-forwards:







|Country   |  |  |  | Net operating loss carry-forwards |         | Expiry terms
|--------- |  |  |  | --------------------------------- | ------- | ------------
|U.K.      |  |  |  | $                                 | 124,200 |             
|U.S.      |  |  |  |                                   | 11,500  |             
|Australia |  |  |  |                                   | 3,200   |             
|Israel    |  |  |  |                                   | 25,200  |             
|Other     |  |  |  |                                   | 2,300   |             



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







|                                  |  |  |  | December 31, 2002 |         | December 31, 2003
|--------------------------------- |  |  |  | ----------------- | ------- | -----------------
|Net operating
loss carry-forwards |  |  |  | $                 | 34,691  |                  
|Accruals and
reserves             |  |  |  |                   | 707     |                  
|Fixed
assets                      |  |  |  |                   | 1,084   |                  
|                                  |  |  |  |                   | 36,482  |                  
|Valuation
allowance               |  |  |  |                   | (36,482 | )                
|                                  |  |  |  | $                 |        |                  

F-16

---

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



The following is a reconciliation of income taxes,
calculated at the US federal income tax rate, to the income tax benefit included in the accompanying consolidated statements of operation for each of
the three years:







|                                                                                         |  |  |  | December 31, 2001 |        | December 31, 2002 |  | December 31, 2003
|---------------------------------------------------------------------------------------- |  |  |  | ----------------- | ------ | ----------------- |  | -----------------
|Income tax at
U.S. rates                                                                 |  |  |  | $                 | 6,488  |                   |  | $                
|Difference
between U.S. rate and rates applicable to subsidiaries in other jurisdictions |  |  |  |                   | (201   | )                 |  |                  
|Difference
between U.S. rate and rate applicable to U.K. R&D tax credits                 |  |  |  |                   |       |                   |  |                  
|Expenditure
not deductible for tax purposes                                              |  |  |  |                   | 1,349  |                   |  |                  
|Valuation
allowance on tax benefits                                                      |  |  |  |                   | (7,636 | )                 |  |                  
|Utilization
of tax losses in U.S.                                                        |  |  |  |                   | 245    |                   |  |                  
|R&D tax
credits in U.K.                                                                  |  |  |  |                   |       |                   |  |                  
|Income tax
benefit/(provision)                                                           |  |  |  | $                 | 245    |                   |  | $                



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, 2002 |         | December 31, 2003
|------------------------------ |  |  |  | ----------------- | ------- | -----------------
|Plant,
machinery and equipment |  |  |  | $                 | 14,381  |                  
|Furniture and
fixtures         |  |  |  |                   | 632     |                  
|Leasehold
improvements         |  |  |  |                   | 2,550   |                  
|                               |  |  |  |                   | 17,564  |                  
|Accumulated
depreciation       |  |  |  |                   | (13,427 | )                
|                               |  |  |  | $                 | 4,137   |                  



Depreciation expense totaled, $3,598 for the year
ended December 31, 2001, $3,270 for the year ended December 31, 2002 and $3,515 for year ended December 31, 2003.


5. GOODWILL AND INTANGIBLES



On January 1, 2002, FAS 142, Goodwill and
Other Intangible Assets, was implemented and as a result, the Company ceased to amortize approximately $0.8 million of goodwill. The Company
performed an initial impairment as of January 1, 2002 and its annual impairment review during the fourth quarter of 2002 and 2003. 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 and 2002.







|         |  |  |  | December 31, 2002 |     | December 31, 2003
|-------- |  |  |  | ----------------- | --- | -----------------
|Goodwill |  |  |  | $                 | 784 |                  

F-17

---

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






|                            |  |  |  | December 31, 2002 gross carrying amount |       | Accumulated amortization |  | Net |        | December 31, 2003 gross carrying amount |  | Accumulated amortization |     | Net |  | Weighted average amortization period in years
|--------------------------- |  |  |  | --------------------------------------- | ----- | ------------------------ |  | --- | ------ | --------------------------------------- |  | ------------------------ | --- | --- |  | ---------------------------------------------
|Intangibles                 |  |  |  |                                         |       |                          |  |     |        |                                         |  |                          |     |     |  |                                              
|Customer
contracts          |  |  |  | $                                       | 2,091 |                          |  | $   | (2,085 | )                                       |  | $                        | 6   |     |  | $                                            
|Patent/developed technology |  |  |  |                                         | 2,680 |                          |  |     | (2,060 | )                                       |  |                          | 620 |     |  |                                              
|                            |  |  |  | $                                       | 4,772 |                          |  | $   | (4,145 | )                                       |  | $                        | 626 |     |  | $                                            



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, as was done with the Proximity business acquisition, to estimate the fair value and remaining
economic life of intangible assets.




The following intangible assets and goodwill were
acquired as part of the acquisition of the Proximity business from Nortel Networks on December 23, 2003.







|                              |  |  |  | Value |       | Amortization period in years
|----------------------------- |  |  |  | ----- | ----- | ----------------------------
|Goodwill                      |  |  |  | $     | 2,352 |                             
|Intangibles                   |  |  |  |       |       |                             
|Patented/developed technology |  |  |  | $     | 1,500 |                             
|Customer
contracts            |  |  |  |       | 2,600 |                             
|                              |  |  |  | $     | 4,100 |                             



During 2003 and 2002 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, |  |  |  |   |     | 
|------------------------------- |  |  |  | - | --- | 
|2004                            |  |  |  | $ | 985 | 
|2005                            |  |  |  |   | 985 | 
|2006                            |  |  |  |   | 944 | 
|2007                            |  |  |  |   | 820 | 
|2008                            |  |  |  |   | 820 | 



The following table sets forth the loss before
extraordinary items, net loss and loss per share adjusted to exclude amortization of goodwill as required under FAS 142:







|                                               |  |  |  | Year-to-date |        
|---------------------------------------------- |  |  |  | ------------ | -------
|
|Adjusted:                                      |  |  |  |              |        
|Loss before
extraordinary item                 |  |  |  | $            | (24,890
|Net
loss                                       |  |  |  | $            | (18,419
|Adjusted
basic and diluted earnings per share: |  |  |  |              |        
|Loss before
extraordinary item                 |  |  |  | $            | (0.72  
|Net
loss                                       |  |  |  | $            | (0.53  

F-18

---

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



Net loss and net loss per share adjusted to exclude
amortization of goodwill is presented below:







|                                      |  |  |  | Year-to-date |        
|------------------------------------- |  |  |  | ------------ | -------
|
|Reported net
loss                     |  |  |  | $            | (18,844
|Add
back:                             |  |  |  |              |        
|Goodwill
amortization                 |  |  |  |              | 125    
|Assembled
workforce amortization      |  |  |  |              | 300    
|Adjusted net
loss                     |  |  |  | $            | (18,419
|Basic and
diluted earnings per share: |  |  |  |              |        
|Reported net
loss                     |  |  |  | $            | (0.54  
|Goodwill
amortization                 |  |  |  | $            | 0.00   
|Assembled
workforce amortization      |  |  |  | $            | 0.01   
|Adjusted net
loss                     |  |  |  | $            | (0.53  



Amortization of intangible assets amounted to $300
for the year ended December 31, 2001, $44 for the year ended December 31, 2002 and $172 for the year ended December 31, 2003.


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,
2003        |  |  |  |                |       |                  |  |                   |    |                     
|US Government
Securities |  |  |  | $              |      |                  |  | $                 |   |                     
|US Municipal
Bonds       |  |  |  |                |      |                  |  |                   |   |                     
|                         |  |  |  | $              |      |                  |  | $                 |   |                     
|December 31,
2002        |  |  |  |                |       |                  |  |                   |    |                     
|US Government
Securities |  |  |  | $              | 4,052 |                  |  | $                 | 7  |                     
|US Municipal
Bonds       |  |  |  |                | 1,022 |                  |  |                   | 3  |                     
|                         |  |  |  | $              | 5,074 |                  |  | $                 | 10 |                     

7. INVENTORY



Inventory consists of the
following:







|                               |  |  |  | December 31, 2002 |        | December 31, 2003
|------------------------------ |  |  |  | ----------------- | ------ | -----------------
|Purchased
parts and materials  |  |  |  | $                 | 7,649  |                  
|Work in
progress               |  |  |  |                   | 1,351  |                  
|Finished
goods and consumables |  |  |  |                   | 8,627  |                  
|                               |  |  |  | $                 | 17,627 |                  

F-19

---

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

8. ACCOUNTS RECEIVABLE



Accounts receivable consists of:







|                             |  |  |  | December 31, 2002 |        | December 31, 2003
|---------------------------- |  |  |  | ----------------- | ------ | -----------------
|Amounts due
within one year  |  |  |  | $                 | 18,859 |                  
|Allowance for
doubtful debts |  |  |  |                   | (4,531 | )                
|                             |  |  |  | $                 | 14,328 |                  

9. OTHER ACCRUED EXPENSES






|                  |  |  |  | December 31, 2002 |       | December 31, 2003
|----------------- |  |  |  | ----------------- | ----- | -----------------
|Warranty          |  |  |  | $                 | 600   |                  
|Restructuring     |  |  |  |                   | 1,054 |                  
|Acquisition
costs |  |  |  |                   | 180   |                  
|Other             |  |  |  |                   | 6,265 |                  
|                  |  |  |  | $                 | 8,099 |                  

10. ACCRUED RESTRUCTURING CHARGES



In 2001, the Company implemented a restructuring
program to reduce operating expenses and recorded a charge of $1,200 in relation to this program. Included in this charge were costs related to excess
facilities and severance payments. A further $167 was recognized as restructuring in the income statement in the first quarter of
2002.




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




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




In the second quarter of 2003 an additional
restructuring program was initiated to further lower operating expenses. The total cost expected to be incurred as part of this restructuring program
was $763 arising from costs associated with facility closures and severance. During the second half of 2003 the expected cost to be incurred as part of
this restructuring program was reassessed and adjusted to $413 as set out in the table below:







|                              |  |  |  | Total expected to be incurred |     | Incurred during the year ended December 31, 2003 |  | Cumulative incurred during the year ended December 31,
2003
|----------------------------- |  |  |  | ----------------------------- | --- | ------------------------------------------------ |  | -----------------------------------------------------------
|
|2003
restructuring program    |  |  |  |                               |     |                                                  |  |                                                            
|One-time
termination benefits |  |  |  | $                             | 323 |                                                  |  | $                                                          
|Contract
termination costs    |  |  |  |                               | 50  |                                                  |  |                                                            
|Other
associated costs        |  |  |  |                               | 40  |                                                  |  |                                                            
|                              |  |  |  | $                             | 413 |                                                  |  | $                                                          

F-20

---

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



The costs incurred during the year ended December
31, 2003 related to termination costs for 30 employees. All of these employees had left the Company by December 31, 2003. The Company will continue to
implement its cost reduction program in 2004. This will include the closure of certain commercial offices and further elimination of employees. This
plan is expected to be completed by the third quarter of 2004.




In conjunction with the purchase of the Proximity
business the Company implemented its plan to relocate the Proximity business from Maidenhead, England and Sunrise, Florida to the Companys
facilities in Uxbridge, England and Boca Raton, Florida. The Company recorded significant acquisition-related restructuring charges in connection with
the relocation of the Proximity business.







|                                        |  |  |  | Accrued at acquisition |     | Paid in 2003 |  | Accrued at December 31, 2003
|--------------------------------------- |  |  |  | ---------------------- | --- | ------------ |  | ----------------------------
|Office
closure  other associated costs |  |  |  | $                      | 520 |              |  |                             



The relocation is expected to be completed by the
third quarter of 2004.




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, 2003  |  |  |  |                                |       |                      |  |                        |       |          |  |                         
|One-time
termination benefits |  |  |  | $                              | 79    |                      |  | $                      | 342   |          |  |                         
|Contract
termination costs    |  |  |  |                                | 825   |                      |  |                        | 397   |          |  |                         
|Other
associated costs        |  |  |  |                                | 150   |                      |  |                        | 11    |          |  | $                       
|                              |  |  |  | $                              | 1,054 |                      |  | $                      | 750   |          |  | $                       
|Year ended
December 31, 2002  |  |  |  |                                |       |                      |  |                        |       |          |  |                         
|Facility
related              |  |  |  | $                              | 307   |                      |  | $                      | 1,142 |          |  |                         
|Severance and
other           |  |  |  |                                | 234   |                      |  |                        | 278   |          |  |                         
|                              |  |  |  | $                              | 541   |                      |  | $                      | 1,420 |          |  |                         
|Year ended
December 31, 2001  |  |  |  |                                |       |                      |  |                        |       |          |  |                         
|Facility
related              |  |  |  |                                |      |                      |  | $                      | 551   |          |  |                         
|Severance and
other           |  |  |  |                                |      |                      |  |                        | 684   |          |  |                         
|                              |  |  |  |                                |      |                      |  | $                      | 1,235 |          |  |                         



Included in the third-quarter 2001 facility
restructuring charge was $200 for the write down of certain fixed assets, mainly furniture and fixtures. These assets were disposed of as part of the
lease assignment of the Sunrise, Florida head office. Included in the 2002 restructuring charge was $100 for the write down of certain fixed assets
used at tradeshows and the Riverside facility. All charges, other than the fixed asset write-downs, will result in direct cash
outlays.


11. LONG-TERM DEBT



Long-term debt consists of:







|                                                      |  |  |  | December 31, 2002 |       | December 31, 2003
|----------------------------------------------------- |  |  |  | ----------------- | ----- | -----------------
|Subordinated
promissory notes, bearing interest at 6% |  |  |  | $                 | 2,500 |                  

F-21

---

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



The Company negotiated a settlement with DSC Telcom
L.P. in the first quarter of 2001. Under the settlement agreement the Company agreed to pay $9.3 million in 2001 in exchange for complete forgiveness
of the debt that would have been repayable in 36 equal monthly installments commencing February 1, 2001. This gave rise to an extraordinary gain of
$9.2 million, which was partially offset by tax on the gain of $2.7 million to show an extraordinary gain, net of taxes, of $6.5 million. In addition,
the Company and DSC Telcom L.P. mutually released each other from certain claims made by the parties relating to the formation of Airspan in January
1998.




On March 19, 1999 the Company entered into two Loan
Agreements to borrow $2,500 in installments of $1,250 each. The Company executed the borrowing of $1,250 against this Loan Agreement on March 29, 1999
as evidenced by the issuance of a promissory note. The promissory note was repayable in 30 equal monthly installments of $46 commencing May 1, 1999, an
installment of $94 on October 1, 2001 and a final installment on May 1, 2002. The promissory note had an interest rate of 9% per
annum.




On March 19, 1999 the Company also entered into a
subordinated loan and security agreement to borrow $3,750 in increments of $1,250 each. The Company executed the loan on March 29, 1999 by the issuance
of three subordinated promissory notes of $1,250. Two of the subordinated promissory notes have the same repayment conditions of 54 monthly
installments consisting of one monthly installment of interest only of $0.4 (paid April 1999), 52 monthly installments of interest only of $6 (starting
May 1, 1999) and one final balloon payment of $1,256 on September 1, 2003. Both subordinated promissory notes have an interest rate of 6% per annum.
The third subordinated promissory note was payable in 21 monthly installments consisting of one monthly installment of interest only of $0.4 (paid
April 1999), 19 monthly installments of interest only of $6 (starting May 1, 1999) and one final balloon payment of $1,256 made on December 1, 2000.
The promissory note had an interest rate of 6% per annum.




On April 1, 2003 the Company entered into a
settlement agreement with Comdisco Ventures, Inc. (Comdisco) to settle its outstanding loan of $2,500 due to be repaid on September 20,
2003. The Company paid $2,375, during the second quarter of 2003, in full settlement of its obligations and Comdisco released the Company from all
further obligations under the original secured loan and security agreement


12. COMMITMENTS



There were no capital lease obligations at December
31, 2003 or 2002.




Airspan has capital commitments of $123 and $58 for
the acquisition of property, plant and equipment at December 31, 2003 and 2002, respectively.




As of December 31, 2003, the Company had commitments
with its main sub contract manufacturers under various purchase order and forecast arrangements, to a value of $8,105, and $1,971 at December 31,
2002.




Airspan Networks Inc. has entered into various
operating lease agreements, primarily for office space, warehouse space and vehicles. Rent expense for the year ended December 31, 2001 was $2,531,
$1,915 for the year ended December 31, 2002 and $1,844 for the year ended December 31, 2003.




Future minimum lease payments for assets under
non-cancelable operating lease agreements with original terms of more than one year as of December 31, 2003 are as follows:







|           |  |  |  | As at December 31,
|---------- |  |  |  | ------------------
|2004       |  |  |  | $                 
|2005       |  |  |  |                   
|2006       |  |  |  |                   
|2007       |  |  |  |                   
|2008       |  |  |  |                   
|Thereafter |  |  |  |                   
|           |  |  |  | $                 

F-22

---

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,
a supplier and customers totaling $2,146 at December 31, 2002 and $1,435 at December 31, 2003. 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.


13. SEGMENTS



As a developer and supplier of fixed wireless
communications access systems and solutions, the Company has one reportable segment. The revenue of this single segment is comprised primarily of
revenue from products and, to a lesser extent, services. In 2003, the majority of the Companys revenue was generated from products manufactured
in the United Kingdom and Israel, with additional revenue generated from sales of original equipment manufacturers (OEM)
products.




An analysis of revenue by geographical market is
given below:







|                                      |  |  |  | Year ended December 31, 2001 |        | Year ended December 31, 2002 |  | Year ended December 31, 2003
|------------------------------------- |  |  |  | ---------------------------- | ------ | ---------------------------- |  | ----------------------------
|United
States                         |  |  |  | $                            | 4,745  |                              |  | $                           
|Asia
Pacific                          |  |  |  |                              |        |                              |  |                             
|Sri
Lanka                             |  |  |  |                              | 2,856  |                              |  |                             
|Philippines                           |  |  |  |                              | 5,195  |                              |  |                             
|Indonesia                             |  |  |  |                              | 4,251  |                              |  |                             
|Japan                                 |  |  |  |                              |       |                              |  |                             
|New
Zealand                           |  |  |  |                              | 17     |                              |  |                             
|The rest of
Asia Pacific              |  |  |  |                              | 1,383  |                              |  |                             
|Europe                                |  |  |  |                              | 6,108  |                              |  |                             
|Africa and
Middle East                |  |  |  |                              |        |                              |  |                             
|Lesotho                               |  |  |  |                              |       |                              |  |                             
|Nigeria                               |  |  |  |                              | 5,217  |                              |  |                             
|The rest of
Africa and Middle East    |  |  |  |                              | 4,866  |                              |  |                             
|South and
Central America & Caribbean |  |  |  |                              | 2,801  |                              |  |                             
|                                      |  |  |  | $                            | 37,422 |                              |  | $                           

F-23

---

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



For the year ended December 31, 2001 the Company had
no customers whose revenue was greater than 10% of the years total. During the year ended December 31, 2002 the Company had revenues from
transactions with two customers, which amounted to 32% and 10% of total revenues. For the year ended December 31, 2003 the Company had one customer
whose revenue was 18% of the years total.







|                                            |  |  |  | December
      31,
      2002 |        | December
      31,
      2003
|------------------------------------------- |  |  |  | ----------------------------- | ------ | -----------------------------
|Long-lived
        assets:                  |  |  |  |                               |        |                              
|Property,
        plant and equipment, net: |  |  |  |                               |        |                              
|United
        States                       |  |  |  | $                             | 122    |                              
|United
        Kingdom and Ireland          |  |  |  |                               | 3,676  |                              
|Israel                                      |  |  |  |                               | 134    |                              
|Rest
        of the world                   |  |  |  |                               | 205    |                              
|                                            |  |  |  |                               | 4,137  |                              
|Intangible
        assets, net:             |  |  |  |                               |        |                              
|United
        States                       |  |  |  |                               | 784    |                              
|Mexico                                      |  |  |  |                               |       |                              
|United
        Kingdom and Ireland          |  |  |  |                               |       |                              
|Israel                                      |  |  |  |                               | 626    |                              
|                                            |  |  |  |                               | 1,410  |                              
|Other
        non current assets:           |  |  |  |                               |        |                              
|United
        States                       |  |  |  |                               |       |                              
|United
        Kingdom and Ireland          |  |  |  |                               |       |                              
|Israel                                      |  |  |  |                               | 906    |                              
|                                            |  |  |  |                               | 906    |                              
|Total
        long-lived assets             |  |  |  | $                             | 6,453  |                              
|Total
        assets:                       |  |  |  |                               |        |                              
|United
        States                       |  |  |  | $                             | 32,392 |                              
|United
        Kingdom and Ireland          |  |  |  |                               | 57,409 |                              
|Israel                                      |  |  |  |                               | 7,468  |                              
|Rest
        of the world                   |  |  |  |                               | 592    |                              
|                                            |  |  |  | $                             | 97,861 |                              

14. 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 nonstatutory 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-24

---

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.




Under the 1998, 2001 and 2003 plans, the
Compensation Committee is authorized to establish the terms of the 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 nonstatutory 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 and 2003 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 were 1,823,265 in 2001, 1,841,792 in 2002 and 277,800 in 2003.




Also, within the plans described above, the Company
granted non-qualified common stock options to directors under various discrete option agreements. The number of non-qualified options granted to
directors were 685,000, 275,000 and 120,000 in 2001, 2002 and 2003, respectively.




The Company has a full recourse note receivable from
a director relating to the exercise of such options in the amount of $130 outstanding at December 31, 2002 and 2003. 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.




In July 2001 the Board of Directors approved a plan
to allow eligible employees to exchange outstanding options granted between and including October 1, 1999 and December 13, 2001 under the Airspan
Networks Inc. 1998 stock option and restricted stock plan and the 2001 supplemental stock option plan for new options. The offer of exchange was made
to eligible employees on December 13, 2001 and remained open for acceptance until January 18, 2002, at which time surrendered options were cancelled.
Under the offer, new options were issued on July 19, 2002 to employees who tendered their old ones for exchange. On the expiration of the offer,
665,796 options tendered were cancelled at a weighted average price of $6.64. On July 19, 2002, 524,875 new options were granted at $1.039 to those
eligible employees who had accepted the offer of exchange and validly tendered their options for exchange.




At December 31, 2003 the Company had reserved 15,962
of its Common Stock for purchase upon exercise of options to be granted in the future.


F-25

---

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,
December 31, 2000 |  |  |  |                  | 3,028,816  |                                
|Granted                        |  |  |  |                  | 2,508,265  |                                
|Forfeited                      |  |  |  |                  | (311,961   | )                              
|Exercised                      |  |  |  |                  | (270,774   | )                              
|Outstanding,
December 31, 2001 |  |  |  |                  | 4,954,346  |                                
|Granted                        |  |  |  |                  | 2,116,792  |                                
|Forfeited                      |  |  |  |                  | (1,450,313 | )                              
|Exercised                      |  |  |  |                  | (143,872   | )                              
|Outstanding,
December 31, 2002 |  |  |  |                  | 5,476,953  |                                
|Granted                        |  |  |  |                  | 397,800    |                                
|Forfeited                      |  |  |  |                  | (139,041   | )                              
|Exercised                      |  |  |  |                  | (244,765   | )                              
|Outstanding,
December 31, 2003 |  |  |  |                  | 5,490,947  |                                



The following table sets forth stock options
outstanding at December 31, 2003:


|                      |  |  |  |  |           | Outstanding options weighted average |  |   |       | Exercisable options weighted average | 
|--------------------- |  |  |  |  | --------- | ------------------------------------ |  | - | ----- | ------------------------------------ | 
|
|Exercise Price
ranges |  |  |  |  |           |                                      |  |   |       |                                      | 
|$0.30                 |  |  |  |  | 312,760   |                                      |  | $ | 0.30  |                                      | 
|0.450.49             |  |  |  |  | 1,296,142 |                                      |  |   | 0.46  |                                      | 
|0.540.95             |  |  |  |  | 261,534   |                                      |  |   | 0.69  |                                      | 
|1.021.86             |  |  |  |  | 1,073,132 |                                      |  |   | 1.53  |                                      | 
|1.943.02             |  |  |  |  | 843,600   |                                      |  |   | 2.61  |                                      | 
|3.134.38             |  |  |  |  | 960,346   |                                      |  |   | 4.23  |                                      | 
|5.126.18             |  |  |  |  | 455,486   |                                      |  |   | 5.99  |                                      | 
|7.50                  |  |  |  |  | 63,781    |                                      |  |   | 7.50  |                                      | 
|9.60                  |  |  |  |  | 54,166    |                                      |  |   | 9.60  |                                      | 
|15.00                 |  |  |  |  | 170,000   |                                      |  |   | 15.00 |                                      | 
|Total                 |  |  |  |  | 5,490,947 |                                      |  | $ | 2.74  |                                      | 



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 August 1, 2002, the Company issued 274,411 shares at $0.697 per share to employees participating in the ESPP. On August 1, 2003, the Company
issued 531,164 shares at $0.697 per share to employees participating in the ESPP. As of December 31, 2003, there were 37,331 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, 2005 and terminate on July 31, 2006.


F-26

---

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, 2003:







|Plan reserved under                                                   |  |  |  | Number of options
|--------------------------------------------------------------------- |  |  |  | -----------------
|2000 Employee
Stock Purchase Plan                                     |  |  |  |                  
|1998, 2001
and 2003 Stock Option plans:  options still to be granted |  |  |  |                  
|
options outstanding                                                 |  |  |  |                  
|                                                                      |  |  |  |                  

15. EXTRAORDINARY ITEMS



The Company negotiated a settlement with DSC Telcom
L.P. in the first quarter of 2001. Under the settlement agreement the Company agreed to pay $9.3 million in 2001 in exchange for complete forgiveness
of the debt that would have been repayable in 36 equal monthly installments commencing February 1, 2001. This gave rise to an extraordinary gain of
$9.2 million, which was partially offset by tax on the gain of $2.7 million to show an extraordinary gain, net of taxes, of $6.5 million. In addition,
the Company and DSC Telcom L.P. mutually released each other from certain claims made by the parties relating to the formation of Airspan in January
1998.


16. NET LOSS PER SHARE



Net loss per share is computed using the weighted
average number of shares of common stock outstanding less the number of shares subject to repurchase. Shares associated with stock options, warrants
and the convertible preferred stock are not included in the calculation of diluted net loss per share because they are antidilutive. As described
above, each share of convertible preferred stock automatically converted to common stock upon the completion of the Companys initial public
offering. Pro forma net loss per share data has been determined as if each share of convertible preferred stock had converted to common stock at the
time of issuance.




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







|                                                 |  |  |  | Year ended December 31, 2001 |            | Year ended December 31, 2002 |  | Year ended December 31, 2003
|------------------------------------------------ |  |  |  | ---------------------------- | ---------- | ---------------------------- |  | ----------------------------
|Numerator:                                       |  |  |  |                              |            |                              |  |                             
|Loss before
extraordinary item                   |  |  |  | $                            | (25,315    | )                            |  | $                           
|Extraordinary
item, net of taxes                 |  |  |  |                              | 6,471      |                              |  |                             
|Net
loss                                         |  |  |  | $                            | (18,844    | )                            |  | $                           
|Denominator:                                     |  |  |  |                              |            |                              |  |                             
|Weighted
average common shares outstanding       |  |  |  |                              | 34,902,325 |                              |  |                             
|Less weighted
average shares of restricted stock |  |  |  |                              | (92,014    | )                            |  |                             
|Denominator
for basic and diluted calculations   |  |  |  |                              | 34,810,311 |                              |  |                             
|Earnings per
share  basic and diluted:          |  |  |  |                              |            |                              |  |                             
|Loss before
extraordinary item                   |  |  |  | $                            | (0.73      | )                            |  | $                           
|Extraordinary
item, net of taxes                 |  |  |  |                              | 0.19       |                              |  |                             
|Net loss per
share  basic and diluted:          |  |  |  | $                            | (0.54      | )                            |  | $                           



There were 4,954,346 stock options and 83,333 Common
stock warrants outstanding at December 31, 2001 and 5,476,953 stock options and 83,333 common stock warrants outstanding at December 31, 2002 and
5,490,947 stock options and no common stock warrants outstanding at December 31, 2003 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 and warrants.


F-27

---

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

17. RELATED PARTY TRANSACTIONS



On April 27, 1999, Mr. Stonestrom incurred $130 of
indebtedness to the Company in connection with the purchase of five hundred thousand shares of the Companys common stock. Since April 27, 1999,
the aggregate amount of Mr. Stonestroms debt has remained at $130. No interest is due on the debt.


18. QUARTERLY FINANCIAL DATA (UNAUDITED)



The following table represents the Companys
consolidated results for each of the most recent eight quarters up to and including the quarter ending December 31, 2003. 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 |       
|------------------------------------------ |  |  |  | ------------- | ------
|
|
|Consolidated
statement of operations data: |  |  |  |               |       
|Revenue                                    |  |  |  | $             | 3,389 
|Cost of
revenue                            |  |  |  |               | 3,017 
|Inventory
provision                        |  |  |  |               |      
|Gross
profit                               |  |  |  |               | 372   
|Operating
expenses:                        |  |  |  |               |       
|Research and
development                   |  |  |  |               | 3,314 
|Sales and
marketing                        |  |  |  |               | 2,876 
|Bad debt
reserve                           |  |  |  |               | 62    
|General and
administration                 |  |  |  |               | 2,241 
|Amortization
of intangibles                |  |  |  |               |      
|Restructuring
provision                    |  |  |  |               | 167   
|Total
operating expense                    |  |  |  |               | 8,660 
|Loss from
operations                       |  |  |  |               | (8,288
|Other
income/(expense):                    |  |  |  |               |       
|Interest
expense                           |  |  |  |               | (45   
|Interest and
other income                  |  |  |  |               | 83    
|Loss before
income taxes                   |  |  |  |               | (8,250
|Income tax
(charge)/ credit                |  |  |  |               | (1    
|Net
(loss)/profit                          |  |  |  | $             | (8,251
|Net loss per
share basic and diluted       |  |  |  | $             | (0.23 

F-28

---

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

Financial Statement Schedules

Schedule II






|                              |  |  |  | Airspan Networks Inc. Valuation and Qualifying Accounts |      
|----------------------------- |  |  |  | ------------------------------------------------------- | -----
|
|
|
|Allowance for
doubtful debts: |  |  |  |                                                         |      
|Year ended
December 31, 2003  |  |  |  | $                                                       | 4,531
|Year ended
December 31, 2002  |  |  |  |                                                         | 2,601
|Year ended
December 31, 2001  |  |  |  |                                                         | 1,371

II-1

---