AIRSPAN NETWORKS INC. QUARTERLY REPORT MARCH 29, 2009 UNAUDITED

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2 ITEM 1. EXACT NAME OF THE ISSUER AND THE ADDRESS OF ITS PRINCIPAL EXECUTIVE OFFICES Airspan Networks Inc. Investor Relations 777 Yamato Road, Suite 310 Charlotte Laurent-Ottomane Boca Raton, FL Tel: Office: (561) Fax: (561) Airspan Networks Inc. Web: Yamato Road, Suite 310 Boca Raton, FL ITEM 2. SHARES OUTSTANDING March 29, 2009 December 31, 2008 December 31, 2007 Common Stock, $.0003 par value per share Number of shares authorized 100,000, ,000, ,000,000 Number of shares outstanding and tradable 59,814,232 59,472,165 58,542,517 Estimated number of beneficial shareholders 9,500 Total number of shareholders of record 278 Preferred Stock, $.0001 par value per share Number of shares authorized 250, , ,000 Number of shares outstanding 1 200, , ,690 Freely tradable shares 0 Number of beneficial shareholders 1 Total number of shareholders of record 1 1 Represents shares of Series B Convertible Preferred Stock, $.0001 par value per share. All of the shares of Series B Convertible Preferred Stock are held by Oak Investment Partners XI, LP, which is an affiliate of Airspan Networks Inc. ( Airspan or the Company ). For more information regarding our Series B Convertible Preferred Stock, please see Item 1A. Risk Factors - The holders of our Series B preferred stock are entitled to a liquidation preference of $ per share of Series B preferred stock on any liquidation or sale of our Company before holders of our common stock receive any cash or other distribution (in such a liquidation or sale)., Item 1A. Risk Factors - We have a significant stockholder whose interests may conflict with our other stockholders. and Note 11 to the audited Consolidated Financial Statements contained in our Annual Report on Form 10-K for the year ended December 31,

3 ITEM 3. INTERIM FINANCIAL STATEMENTS Page # Condensed Consolidated Balance Sheets Condensed Consolidated Statements of Operations Condensed Consolidated Statements of Cash Flows Consolidated Statements of Changes in Stockholders Equity Notes to Unaudited Condensed Consolidated Financial Statements

4 AIRSPAN NETWORKS INC. CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except for share data) March 29, 2009 December 31, 2008 (unaudited) (audited) ASSETS Current assets: Cash and cash equivalents $ 3,601 $ 14,675 Restricted cash Short-term investments 3,919 7,710 Accounts receivable, less allowance for doubtful accounts of $5,257 at March 29, 2009 and $5,169 at December 31, ,040 16,502 Inventory 17,171 17,311 Prepaid expenses and other current assets 4,309 5,327 Total current assets 44,149 61,688 Property, plant and equipment, net 4,305 4,398 Intangible assets, net Other non-current assets 2,512 2,884 Total assets $ 51,763 $ 69,911 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 7,072 $ 10,843 Deferred revenue 7,004 7,486 Customer advances Other accrued expenses 8,884 10,227 Revolving line of credit 5,077 12,500 Current portion of long-term debt Total current liabilities 28,859 41,766 Long-term debt 1,217 1,217 Accrued interest on long-term debt Total liabilities 30,235 43,140 Commitments and contingencies Stockholders' equity Series B convertible preferred stock, $ par value; 250,000 shares authorized at March 29, 2009 and December 31, 2008; 200,690 shares issued at March 29, 2009 and December 31, Common stock, $ par value; 100,000,000 shares authorized at March 29, 2009 and December 31, 2008; 59,814,232 and 59,472,165 shares issued at March 29, 2009 and December 31, 2008, respectively Note receivable stockholder (87) (87) Additional paid-in capital 353, ,741 Accumulated deficit (331,679) (325,901) Total stockholders' equity 21,528 26,771 Total liabilities and stockholders' equity $ 51,763 $ 69,911 The accompanying notes are an integral part of these condensed consolidated financial statements. 4

5 AIRSPAN NETWORKS INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except for share and per share data) Quarter ended Quarter ended March 29, 2009 March 30, 2008 (unaudited) (unaudited) Revenue $ 11,131 $ 17,159 Cost of revenue (7,831) (11,923) Gross profit 3,300 5,236 Operating expenses: Research and development 3,328 6,936 Sales and marketing 2,254 4,239 Bad debts - 47 General and administrative 3,099 4,140 Amortization of intangibles Restructuring Total operating expenses 8,928 15,596 Loss from operations (5,628) (10,360) Interest (expense) income, net (123) 116 Other (expense) income, net (142) 242 Loss before income taxes (5,893) (10,002) Income tax benefit (provision) 115 (50) Net loss $ (5,778) $ (10,052) Net loss per share - basic and diluted $ (0.10) $ (0.17) Weighted average shares outstanding - basic and diluted 59,726,082 58,599,702 The accompanying notes are an integral part of these condensed consolidated financial statements. 5

6 AIRSPAN NETWORKS INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) Year to date Year to date March 29, 2009 March 30, 2008 (unaudited) (unaudited) Cash flows from operating activities Net loss $ (5,778) $ (10,052) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization Accrued interest on long-term debt 2 38 Non-cash stock compensation Loss on disposal of property, plant and equipment 1 - Bad debts - 47 Changes in operating assets and liabilities: Decrease in receivables 1,461 10,151 Decrease in inventories Decrease in other current assets 1, Decrease in accounts payables (3,771) (2,931) Decrease in deferred revenue (481) (2,053) Increase in customer advances Decrease in other accrued expenses (1,344) (1,244) Decrease (increase) in other operating assets 426 (39) Net cash used in operating activities (6,883 ) (2,341) Cash flows from investing activities Purchase of property, plant and equipment (559) (590) Purchase of investment securities (359) (1,657) Sale of investment securities 4,150 4,500 Net cash provided by investing activities 3,232 2,253 Cash flows from financing activities Repayment of borrowings under line of credit (7,423) - Proceeds from the exercise of stock options - 62 Net cash (used in)/provided by financing activities (7,423) 62 Decrease in cash and cash equivalents (11,074) (26) Cash and cash equivalents, beginning of period 14,675 30,815 Cash and cash equivalents, end of period $ 3,601 $ 30,789 The accompanying notes are an integral part of these condensed consolidated financial statements. 6

7 CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY (in thousands, except for share data) Preferred Stock Common Stock Additional Paid-In Capital Note Receivable - Stockholder Accumulated Other Comprehensive Income Deficit Total Shares Par Value Shares Par Value Balance at December 31, ,690-58,542,517 $ 17 $ 349,718 $ (87) $ - $ (276,123) $ 73,525 Comprehensive loss: Net loss (49,778) (49,778) Comprehensive loss (49,778) Issuance of common stock - employee share purchase plan 661, Exercise of stock options 100, Issuance of common 127 stock 401 K plan 146, Vesting of restricted stock 21, Stock compensation expense 2,531 2,531 Balance at December 31, ,690-59,472,165 $ 18 $ 352,741 $ (87) $ - $ (325,901) $ 26,771 Comprehensive loss: Net loss (5,778) (5,778) Comprehensive loss (5,778) Issuance of common stock 401 K plan 310, Vesting of restricted stock 31, Stock compensation expense Balance at March 29, ,690-59,814,232 $ 18 $ 353,276 $ (87) $ - $ (331,679) $ 21,528 The accompanying notes are an integral part of these condensed consolidated financial statements. 7

8 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Business Airspan Networks Inc. ( Airspan or the Company ) is a global supplier of broadband wireless equipment supporting the Worldwide Interoperability for Microwave Access ( WiMAX ) protocol standard, which provides a wide area telecommunication access network to connect end-users to telecom backbone networks. The WiMAX standard is established by the WiMAX Forum, a self-regulatory, industry standards-setting organization. While our main product focus is WiMAX, we utilize other supplemental technologies, including Wireless Fidelity and Voice-over-Internet Protocol, which allow communications network operators and service providers to deliver highspeed data and voice services cost-effectively using wireless communications rather than wired infrastructure. Historically, the primary market for our wireless systems has been fixed (stationary) point to multi-point applications. Our development of new technology has expanded the market to include portable and mobile applications. The Company s main operations are in Uxbridge, United Kingdom, and Airport City, Israel, with corporate headquarters in Boca Raton, Florida. Basis of Presentation The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and are of a normal recurring nature. The interim operating results are not necessarily indicative of operating results expected in subsequent periods or for the year as a whole. The condensed consolidated balance sheet at December 31, 2008 has been derived from the audited financial statements at that date included in our Form 10-K for the year ended December 31, 2008 but does not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. For further information, refer to the consolidated financial statements and footnotes thereto included in our Annual Report on Form 10-K for the year ended December 31, Our Annual Report on Form 10-K can be found online at All notes to the condensed consolidated financial statements are shown in thousands, except for share and per share data. NOTE 2 - INVENTORY Inventory consists of the following: March 29, 2009 December 31, 2008 Purchased parts and materials $ 8,423 $ 6,047 Work in progress 1,826 1,275 Finished goods and consumables 10,343 13,592 Inventory provision (7,271) (7,567) Deferred cost of sales 3,850 3,964 $ 17,171 $ 17,311 8

9 NOTE 3 - ACCRUED RESTRUCTURING CHARGES The total restructuring charge in 2008 was $1.9 million, including $1.5 million related to headcount reduction and $0.4 million of asset write-offs related to the restructuring. In the first quarter of 2009, the total restructuring charge was $0.1 million. The restructuring charges and their utilization are summarized as follows: Balance at Beginning of Period Restructuring Charge Utilized Balance at End of Period Three months ended March 29, 2009 One-time termination benefits $ 414 $ 103 $ (517) $ - Contract termination costs Other associated costs $ 414 $ 103 $ (517) $ - Year ended December 31, 2008 One-time termination benefits $ - $ 1,519 $ (1,105) $ 414 Contract termination costs (796) - Other associated costs $ 796 $ 1,519 $ (1,901) $ 414 NOTE 4 - COMMITMENTS AND CONTINGENCIES Commitments As of March 29, 2009, our material commitments consisted of obligations on operating leases, repayment of principal and interest owed on the loans made to us by the Finnish Funding Agency for Technology and Innovation ( Tekes ) and purchase commitments to our manufacturing subcontractors. These purchase commitments totaled $10.5 million at March 29, We have no material capital commitments. Warranty The Company provides a limited warranty for periods, usually ranging from 12 to 24 months, to all purchasers of its new equipment. Warranty expense is accrued on the sale of equipment and is recognized as a cost of revenue. The expense is estimated based on analysis of historic costs and other relevant factors. Information regarding the changes in the Company s product warranty liabilities is as follows for the three months ended March 29,

10 Balance at beginning of period Accrual for warranties issued during the period Accruals related to pre-existing warranties (including changes in estimates) Settlements made (in cash or in kind) during the period Balance at end of period Three months ended March 29, 2009 Product warranty liability $ (1) $ 566 Other guarantees At March 29, 2009, the Company had pledged cash to the banks as collateral for guarantees aggregating $1.0 million, of which $0.1 million is recorded as restricted cash in current assets and $0.9 million is recorded as other non-current assets. The Company has also issued guarantees to customers under the line of credit provided by Silicon Valley Bank for a total of $1.6 million, which does not require any related pledge of cash collateral. The Company has not recognized any liability for these guarantees as in management s opinion the likelihood of having to make payments under the guarantees is remote. These guarantees will all expire before the end of the first quarter of 2010 with the majority expiring in In addition to the guarantees mentioned above, the Company has issued a guarantee to Tekes, the main public funding organization for research and development in Finland, for the repayment of loans taken out by its fully consolidated subsidiary, Airspan Networks (Finland) Oy. These loans totaled $1.9 million at March 29, 2009, which includes $0.2 million of accrued interest, and are recorded in current and long-term debt. This guarantee expires only when Airspan Networks (Finland) Oy has fulfilled all its obligations to Tekes. Legal claims Beginning in July 2001, the Company, its President and Chief Executive Officer Eric D. Stonestrom, its former Senior Vice President and Chief Financial Officer, its Chairman Matthew Desch and its former Executive Vice President and Chief Operating Officer Jonathan Paget (the Individual Defendants ) were named as defendants in a class action complaint alleging violations of the federal securities laws in the United States District Court for the Southern District of New York. A Consolidated Amended Complaint, which is now the operative complaint, was filed on April 19, The purported class action 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 and Rule 10b-5 promulgated thereunder. The essence of the complaint is that defendants issued and sold the Company s common stock pursuant to the Registration Statement for the July 20, 2000 Initial Public Offering ( IPO ) without disclosing to investors that certain underwriters in the offering had solicited and received excessive and undisclosed commissions from certain investors. The complaint also alleges that the Registration Statement for the IPO failed to disclose that the underwriters allocated Company shares in the IPO to customers in exchange for the customers promises to purchase additional shares in the aftermarket at pre-determined prices above the IPO price, thereby maintaining, distorting and/or inflating the market price for the shares in the aftermarket. The action seeks damages in an unspecified amount. This action is being coordinated with approximately three hundred other nearly identical actions filed against other companies. On July 15, 2002, the Company moved to dismiss all claims against it and the Individual Defendants. On October 9, 2002, the Court dismissed the Individual Defendants from the case without prejudice. This dismissal disposed of the Section 15 and 20(a) control person claims without prejudice, since these claims were asserted only against the Individual Defendants. On February 19, 2003, the Court dismissed the Section 10(b) claim against the Company, but denied the motion to dismiss the Section 11 claim. 10

11 At the Court s request, plaintiffs selected six focus cases, which do not include Airspan. The Court indicated that its decisions in the six focus cases are intended to provide strong guidance for the parties in the remaining cases. On August 14, 2007, the plaintiffs filed amended complaints in the six focus cases, and on September 27, 2007, the plaintiffs moved to certify a class in these cases. On November 14, 2007, the defendants in the six focus cases filed motions to dismiss. On March 26, 2008, the District Court dismissed the Section 11 claims of those members of the putative classes in the focus cases who sold their securities for a price in excess of the initial offering price and those who purchased outside the previously certified class period. With respect to all other claims, the motions to dismiss were denied. On October 10, 2008, at the request of the plaintiffs, the motion for class certification was withdrawn, without prejudice. On April 3, 2009, the plaintiffs submitted to the Court a motion for preliminary approval of a settlement of the approximately 300 coordinated cases, which includes Airspan, the underwriter defendants in Airspan s class action lawsuit, and the plaintiff class in Airspan s class action lawsuit. The insurers for the issuer defendants in the coordinated cases will make the settlement payment on behalf of the issuers, including Airspan. The settlement is subject to termination by the parties under certain circumstances, and Court approval. There is no assurance that the Court will approve the settlement. Due to the inherent uncertainties of litigation, we cannot accurately predict the outcome of this matter. If the settlement is not approved, the litigation continues, and Airspan is found liable, the Company is unable to estimate or predict the potential damages that might be awarded, whether such damages would be greater than Airspan s insurance coverage, and whether such damages would have a material impact on its results of operations or financial condition in any future period. From time to time, the Company receives and reviews offers from third parties with respect to licensing their patents and other intellectual property in connection with the manufacture of our WiMAX and other products. There can be no assurance that disputes will not arise with such third parties if no agreement can be reached regarding the licensing of such patents or intellectual property. The Company resolved its previously reported patent dispute with Wi-Lan Inc. ( Wi-Lan ) in connection with the sale of a number of CDMA ( Code Division Multiple Access ) related patents to Wi-Lan on April 30, For more information regarding this sale, please see Note 9. 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. NOTE 5 - STOCK COMPENSATION At March 29, 2009, the Company had three stock option plans (the 1998 Stock Option and Restricted Stock Plan, the 2001 Supplemental Stock Option Plan, and the 2003 Supplemental Stock Option Plan), the 2004 Omnibus Equity Compensation Plan, and the 2000 Employee Stock Purchase Plan. Employee stock options granted under all of the plans generally vest over a four-year period and expire on the tenth anniversary of their issuance. Restricted stock is common stock that is subject to a risk of forfeiture or other restrictions that will lapse upon satisfaction of specified performance conditions and/or the passage of time. Awards of restricted stock that vest only by the passage of time will generally fully vest after four years from the date of grant. At March 29, 2009, the Company had reserved a total of 16,413,976 shares of its common stock for issuance under the above plans. 11

12 The following table summarizes share-based compensation expense under Statement of Financial Accounting Standards No. 123(R), Share-Based Payment ( SFAS 123(R) ), for the three months ended March 29, 2009 and March 30, 2008, which was allocated as follows (in thousands): Three months ended March 29, March 30, Research and development $ 137 $ 280 Sales and marketing General and administrative Stock-based compensation expense included in operating expense Cost of sales Total stock-based compensation $ 535 $ 736 SFAS 123(R) requires companies to estimate the fair value of share-based awards on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as an expense in our consolidated statement of operations over the requisite service periods. Compensation expense for all share-based awards is recognized using the straight-line single-option method. Because share-based compensation expense is based on awards that are ultimately expected to vest, share-based compensation expense has been reduced to account for estimated forfeitures. SFAS 123(R) requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. To calculate option-based compensation under SFAS 123(R), we used the Black-Scholes option-pricing model. Our determination of fair value of option-based awards on the date of grant using the Black-Scholes model is affected by our stock price as well as assumptions regarding a number of subjective variables. These variables include, but are not limited to our expected stock price volatility over the term of the awards, and actual and projected employee stock option exercise behaviors. Fair Value and Assumptions Used to Calculate Fair Value under SFAS 123(R) There were no restricted stock shares granted during the first three months of 2009 or The fair value of each restricted stock award is estimated on the date of grant using the intrinsic value method. There were no options granted during the first three months of The weighted average fair value of each option granted during the first three months of 2008 was $0.78. The fair value of each option award is estimated on the date of grant using the Black-Scholes option pricing model, using the following weighted average assumptions: Three Months Ended March 29, 2009 March 30, 2008 Expected volatility 107 % 80% Risk-free interest rate 1.75 % 2.77% Expected life (years) 5 5 Expected dividend yield 0 % 0% 12

13 Assumptions for Option-Based Awards under SFAS 123(R) The expected volatility is determined based on historical price changes of our common stock over a period of time which approximates the expected option term. The risk-free interest rate assumption is based upon observed interest rates appropriate for the term of our stock options. The expected term of options is estimated based on our historical data regarding exercise behavior. The dividend yield assumption is based on our history and expectation of no dividend payouts. As share-based compensation expense recognized in the consolidated statement of operations is based on awards ultimately expected to vest, it has been reduced for estimated forfeitures. Forfeitures were estimated based on our historical experience. NOTE 6 - NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS PER SHARE Net loss attributable to common stockholders per share is computed using the weighted average number of shares of common stock outstanding less the number of shares subject to repurchase. Shares associated with stock options and common stock to be issued on the conversion of Series B Preferred Stock are not included in the calculation of diluted net loss attributable to common stockholders per share as they are anti-dilutive. The following table sets forth the computation of basic and diluted net loss per share for the periods indicated: March 29, 2009 Quarter Ended March 30, 2008 (unaudited) Numerator: Net loss $ (5,778) $ (10,052) Denominator: Weighted average common shares outstanding basic and diluted 59,726,082 58,599,702 Net loss per share- basic and diluted $ (0.10 ) $ (0.17 ) There were 7,804,199 stock options outstanding at March 29, 2009 and 6,907,538 stock options outstanding at March 30, 2008 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. There were 200,690 shares of convertible preferred stock at March 29, 2009 and March 30, 2008, respectively, that were also excluded from the computation of diluted net loss per share as their effect was anti-dilutive. The 200,690 shares of convertible preferred stock would be convertible into 21,630,856 common shares as of March 29, 2009 and March 30, 2008, respectively. There were 53,037 and 107,940 non-vested shares of restricted stock at March 29, 2009 and March 30, 2008, respectively, that were excluded from the computation of diluted net loss per share as their effect was anti-dilutive. NOTE 7 - GEOGRAPHICAL INFORMATION As a developer and supplier of broadband wireless equipment and other technologies, the Company has one reportable segment. The revenue of this single segment is comprised primarily of revenue from products and, to a lesser extent, services. The majority of the Company s revenue is generated from products manufactured in the 13

14 United Kingdom, Mexico and Israel, with additional revenue generated from sales of original equipment manufacturers products. An analysis of revenue by geographical market is given below: Quarter Ended March 29, 2009 March 30, 2008 (unaudited) USA and Canada $ 1,409 $ 2,508 Asia 712 2,027 Europe 1,828 3,361 Africa and the Middle East 1,537 5,210 Latin America and Caribbean 5,645 4,053 $ 11,131 $ 17,159 NOTE 8 - RECENT ACCOUNTING PRONOUNCEMENTS In April 2009, the Financial Accounting Standards Board ( FASB ) issued FSP and Accounting Principles Board ( APB ) 28-1, Interim Disclosures about Fair Value of Financial Instruments ( FSP ). FSP amends SFAS No. 107, Disclosures about Fair Value of Financial Instruments, to require disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements. FSP also amends APB Opinion No. 28, Interim Financial Reporting, to require those disclosures in summarized financial information at interim reporting periods. FSP is effective for interim reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, FSP does not require disclosures for earlier periods presented for comparative purposes at initial adoption. In periods after initial adoption, FSP requires comparative disclosures only for periods ending after initial adoption. The Company does not expect the changes associated with the adoption of FSP to have a material impact on its consolidated financial statements. In April 2009, the FASB issued FSP and 124-2, Recognition and Presentation of Other-Than-Temporary Impairments ( FSP and ). FSP and amends the other-than-temporary impairment guidance for debt securities to make the guidance more operational and to improve the presentation and disclosure of other-than-temporary impairments on debt and equity securities in the financial statements. FSP and does not amend existing recognition and measurement guidance related to other-than-temporary impairments of equity securities. FSP and is effective for interim and annual reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, FSP and does not require disclosures for earlier periods presented for comparative purposes at initial adoption. In periods after initial adoption, FSP and requires comparative disclosures only for periods ending after initial adoption. The Company does not expect the changes associated with the adoption of FSP and to have a material effect on the determination or reporting of its financial results. In April 2009, the FASB issued FSP 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly ( FSP ). FSP provides additional guidance for estimating fair value in accordance with SFAS No. 157, Fair Value Measurements, when the volume and level of activity for the asset or liability have significantly decreased. FSP also includes guidance on identifying circumstances that indicate a transaction is not orderly. FSP is effective for interim and annual reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, FSP does not require disclosures for earlier periods presented for comparative purposes at initial adoption. In periods after initial adoption, FSP requires comparative 14

15 disclosures only for periods ending after initial adoption. The Company does not expect the changes associated with the adoption of FSP to have a material effect on the determination or reporting of its financial results. NOTE 9 SUBSEQUENT EVENT On April 30, 2009, the Company sold a number of CDMA related patents to Wi-LAN for total consideration of $11 million. On the same date, the Company entered into a perpetual non-exclusive license with Wi-LAN for a onetime payment of $3 million. Of the net $8 million proceeds, $2 million was used for repayment of outstanding borrowings under the revolving line of credit. On April 30, 2009, the Company entered into an amendment to the Amended and Restated Loan and Security Agreement with SVB. Under this amendment, the revolving line of credit available to the Company was capped at $6.9 million the then current outstanding borrowing. As a result of the sale of CDMA related patents to Wi-LAN, this facility was reduced by $2 million to $4.9 million. 15

16 ITEM 4. MANAGEMENT S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION The following discussion should be read in conjunction with the Company s Annual Report on Form 10-K for the year ended December 31, 2008, as well as the financial statements and notes thereto. Except for historical matters contained herein, statements made in this quarterly report are forward-looking and are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of Without limiting the generality of the foregoing, words such as may, will, to, plan, expect, believe, anticipate, intend, could, would, estimate, or continue or the negative other variations thereof or comparable terminology are intended to identify forward-looking statements. Investors and others are cautioned that a variety of factors, including certain risks, may affect our business and cause actual results to differ materially from those set forth in the forward-looking statements. The Company is also subject to the risks and uncertainties described in its filings with the Securities and Exchange Commission, including those set forth in its Annual Report on Form 10-K for the year ended December 31, Overview We are a global supplier of broadband wireless equipment supporting the WiMAX protocol standard, which provides a wide area telecommunication access network to connect end users to telecom backbone networks. Our primary target customers are communications service providers and other network operators that deploy WiMAX networks in licensed and unlicensed (license exempt) spectrums worldwide. Historically, our business addressed communications service providers that used fixed, non-wimax wireless infrastructure to deliver services in those parts of their service areas that are difficult or not cost effective to reach using copper or fiber. We now offer a comprehensive range of WiMAX solutions to support these traditional fixed wireless applications as well as the broader market for the mobile applications that WiMAX is expected to enable. We are leveraging many years of experience in complex radio systems design to provide innovative and cost effective products for all types of WiMAX users. We have transitioned our company over the last four years to focus on WiMAX product development and sales and marketing. As a result, a majority of our resources are dedicated to WiMAX-based products and we are dependent on the acceptance of WiMAX solutions in the marketplace. Critical Accounting Policies and Estimates Our Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America. We review the accounting policies used in reporting our financial results on a regular basis. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our process used to develop estimates. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates due to actual outcomes being different from those on which we based our assumptions. Our significant accounting policies were described in Note 1 to our audited Consolidated Financial Statements and our critical accounting policies were included in the Management s Discussion and Analysis of Financial Condition and Results of Operations section in our Annual Report on Form 10-K for the year ended December 31, With the exception of the items discussed in Note 8 in the accompanying Condensed Consolidated Financial Statements, there have been no significant changes to these policies and no recent accounting pronouncements or changes in accounting pronouncements during the three months ended March 29, Our Annual Report on Form 10-K can be found online at 16

17 A. Results of Operations AIRSPAN NETWORKS INC. Comparison of the Quarter Ended March 29, 2009 to the Quarter Ended March 30, 2008 Revenue Revenue totaled $11.1 million for the quarter ended March 29, 2009, representing a 35% decrease from the $17.2 million reported for the quarter ended March 30, WiMAX revenues decreased to $10.0 million in the quarter ending March 29, 2009 from $13.3 million in the quarter ending March 30, Non-WiMAX revenues decreased to $1.2 million in the quarter ending March 29, 2009 from $3.9 million in the quarter ending March 30, The first quarter historically has seasonally lower revenue than other quarters. Geographically, in the first three months of 2009, approximately 51% of our revenue was derived from customers in Mexico, Latin America and the Caribbean, 16% from customers in Europe, 14% from customers in Africa and the Middle East, 13% from customers in the United States and Canada and 6% from customers in Asia. Cost of Revenue Cost of revenue reduced 34% to $7.8 million in the quarter ended March 29, 2009 from $11.9 million in the quarter ended March 30, 2008, primarily due to decreased sales. The gross profit for the first quarter of 2009 was $3.3 million (30% of revenue) compared to a gross profit of $5.2 million (31% of revenue) for the first quarter of Total Operating Expenses Total operating expenses decreased 43% to $8.9 million in the quarter ending March 29, 2009 from $15.6 million in the quarter ending March 30, The decrease is primarily due to a 30% reduction of personnel, in conjunction with reduced travel, trade show and subcontract development expenses in the first quarter of Research and Development Expenses Research and development expenses decreased 52% to $3.3 million in the quarter ended March 29, 2009 from $6.9 million in the quarter ended March 30, The decrease year over year is primarily due to reduced personnel and subcontract development costs. Sales and Marketing Expenses Sales and marketing expenses decreased 47% to $2.3 million in the quarter ended March 29, 2009 from $4.2 million in the quarter ended March 30, The decrease as compared to the first quarter of 2008 is primarily attributable to lower headcount related costs, travel costs and trade show expenses in the first quarter of Bad Debt Provision In the first quarter of 2009, we did not record a provision for bad debts. We recorded bad debt provisions of $47 thousand in the first quarter of General and Administrative Expenses General and administrative expenses decreased 25% to $3.1 million in the quarter ended March 29, 2009 from $4.1 million in the quarter ended March 30, The decrease from the first quarter of 2008 was primarily attributable to reduced headcount related costs and reduced professional fees in the first quarter of

18 Amortization of Intangibles AIRSPAN NETWORKS INC. We recorded amortization of intangibles expense of $0.1 million in the first quarter of 2009 compared with amortization of intangibles expense of $0.2 million for the first quarter of The amortization expense arises primarily as a result of our acquisition of intangible assets in connection with the ArelNet and Radionet acquisitions in June and November 2005, respectively. The amortization of other intangibles related to an acquisition of assets in Such amortization of other intangibles ended in Restructuring In the first quarter of 2009, we recorded a restructuring charge of $0.1 million. In the first quarter of 2008, we did not record a restructuring charge. Interest Income (Expense), Net At March 29, 2009, the outstanding principal and accrued interest payable on loans made to us by the Finnish Funding Agency for Technology and Innovation (the Tekes Loans ) was $1.9 million. We also had outstanding borrowings under the bank line of credit of $5.1 million. In the first quarter of 2009, we had interest income of $44 thousand compared to interest income of $0.3 million in the first quarter of 2008 primarily due to lower bank balances in the first quarter of 2009 and lower average interest rates. Interest expense did not change materially in the first quarter of 2009 compared to Other Income (Expense), Net Other income (expense), net decreased to an expense of $0.1 million in the first quarter of 2009 from income of $0.2 million in the first quarter of 2008, primarily due to foreign exchange differences on non-cash balances. Income Tax Credits (Charge), Net In the first quarter of 2009, we recorded a net tax credit of $0.1 million compared to a net tax charge of $50 thousand in the first quarter of The tax credit in the first quarter of 2009 primarily relates to research and development tax credits in the United Kingdom. No other income tax benefit has been recorded for the tax losses generated because we have incurred operating losses since inception. Net Loss Attributable to Common Stockholders For the reasons described above, we incurred a net loss of $5.8 million, or $(0.10) per share, in the quarter ended March 29, 2009, compared to a net loss of $10.1 million, or $(0.17) per share, in the quarter ended March 30, Liquidity and Capital Resources As of March 29, 2009 we had cash, cash equivalents, short-term investments and current restricted cash of $7.6 million, as compared to $22.5 million at December 31, As of March 29, 2009, this consisted of cash and cash equivalents totaling $3.6 million, short-term investments totaling $3.9 million and $0.1 million of restricted cash in current assets. In addition, we had restricted cash of $1.1 million in other non-current assets. We have no material capital commitments. Since inception, we have financed our operations through private sales of convertible preferred stock, public offerings of common stock and a secured bank line of credit. Effective March 25, 2009, we and our wholly-owned subsidiary, Airspan Communications Limited, entered into an Amended and Restated Loan and Security Agreement with Silicon Valley Bank ( SVB ). The term of the credit line expires on March 31, Prior to the amendment to the Amended and Restated Loan and Security Agreement discussed below, we were able to, subject to certain adjustments, borrow up to the lesser of 18

19 (i) $20 million, and (ii) (a) 80% of eligible accounts receivable plus (as long as the Company s worldwide cash and investments exceeded $20 million, and the Company s cash and investments maintained at SVB and its affiliates exceeded $15 million) and (b) the lesser of (1) 60% of eligible inventory, and (2) $8 million. In February 2009, the Company repaid $7.4 million under our agreement with SVB as the Company was no longer eligible to borrow against inventory, as the Company s worldwide cash and investments did not exceed $20 million and the Company s cash and investments maintained at SVB and its affiliates did not exceed $15 million. The Company was not eligible to make borrowings under the inventory portion of the line at March 29, We are currently drawing on the credit line and we expect to continue to use it in The credit facility requires us to satisfy certain financial covenants, including the maintenance of a minimum Tangible Net Worth and a minimum Adjusted Quick Ratio (as defined in the Amended and Restated Loan and Security Agreement). As of March 29, 2009, the minimum tangible net worth requirement under our agreement with SVB was $18 million and the Company s actual tangible net worth was $22.0 million. The amended required minimum tangible net worth at June 30, 2009, September 30, 2009 and December 31, 2009 and thereafter is $14 million, $13 million and $12 million, respectively, subject to certain adjustments based on positive earnings and equity issuances. Assuming that we are able to achieve our planned sales levels and contain expenses and cash resources used in accordance with our 2009 financial plan, we currently believe that we will be able to meet the required minimum tangible net worth covenants as amended and restated. The credit facility also contains various provisions that restrict our use of cash and operating flexibility. These provisions could have important consequences for us, including (i) causing us to use a portion of our cash flow from operations for debt repayment and/or service rather than other perceived needs, (ii) precluding us from incurring additional debt financing for future working capital or capital expenditures, and (iii) impacting our ability to take advantage of significant, perceived business opportunities, such as acquisition opportunities or to react to market conditions. Our failure to meet financial and other covenants would give rise to a default under the Amended and Restated Loan and Security Agreement. In the event of an uncured default, the Amended and Restated Loan and Security Agreement provides that all amounts owed to SVB may be declared immediately due and payable and that SVB has the right to enforce its security interest in our assets. The Amended and Restated Loan and Security Agreement is secured by collateral, including all of our rights and interests in substantially all of our personal property, including accounts receivable, inventory, equipment, general intangibles, intellectual property, books and records, contract rights and proceeds of the above items. At March 29, 2009, $5.1 million of indebtedness was outstanding under our agreement with SVB. During most of the first quarter of 2009, advances under our agreement with SVB bore interest at SVB s prime rate plus a percentage ranging from 0.0% to 1.75% per annum depending on certain financial and collateral tests. Effective March 25, 2009, amounts payable under the Amended and Restated Loan and Security Agreement bear interest at SVB s prime rate plus 4.0% subject to a minimum rate of 8.0% per annum. On April 30, 2009, we sold a number of CDMA related patents to Wi-Lan Inc. ( Wi-Lan ) for total consideration of $11.0 million and received net cash proceeds (after a one-time payment of $3.0 million to Wi-Lan for a perpetual non-exclusive license to their WiMAX and Wi-Fi patents) of $8.0 million. Of the net $8 million proceeds, $2 million was used for repayment of outstanding borrowings under the revolving line of credit. On April 30, 2009, the Company entered into an amendment to the Amended and Restated Loan and Security Agreement with SVB. Under this amendment, the revolving line of credit available to the Company was reduced to $4.9 million after the sale of CDMA related patents to Wi-LAN. For the three months ended March 29, 2009, we used $6.9 million of cash for operating activities, compared with an operating cash outflow of $2.3 million for the three months ended March 30, The operating cash outflow for the first three months of 2009 was primarily a result of the: net loss of $5.8 million; decrease of $3.8 million in accounts payable; and decrease of $1.3 million in accrued expenses. The cash outflow was partially offset by the: decrease of $1.5 million in receivables; and decrease of $1.0 million in other current assets. 19

20 Days sales outstanding were at 64 days at the end of the first quarter of 2009, up from 60 days at the end of the fourth quarter of The change from the end of the fourth quarter of 2008 to the end of the first quarter of 2009 primarily reflects the lower revenue and net accounts receivable balances in the most recent period. Inventory turns were 2.4 for the first quarter of 2009, down from 3.1 for the fourth quarter of 2008, primarily due to lower cost of sales for the first quarter of The net cash provided by investing activities for the three months ended March 29, 2009 was $3.2 million. The investing cash inflow for the first three months of 2009 resulted from $3.8 million of net proceeds from the sale of investment securities, net of $0.6 million of fixed asset purchases. Our net cash used in financing activities for the three months ended March 29, 2009 was $7.4 million related to the repayment of borrowings under the line of credit. As of March 29, 2009, our material commitments consisted of obligations on operating leases, repayment of principal and interest owed on the Tekes Loans and purchase commitments to our manufacturing subcontractors. These purchase commitments totaled $10.5 million at March 29, 2009 and $11.9 million at March 30, Until we are able to generate positive cash flow from operations, if ever, we intend to use our existing cash resources and the Amended and Restated Loan and Security Agreement, if available, together with, depending on market conditions and opportunities, the net proceeds of equity financings and asset sales to finance our operations. We expect to fund our operations during the remainder of 2009 from existing cash resources, the continued use of our loan facility with SVB, the sale of certain assets and the receipt of research and development tax credits. However, there can be no certainty that we will not require additional funding in the next 12 months or, if needed, that any such funding will be available. We recognize that our need for capital in future periods may increase due to a variety of factors, estimates and assumptions. If our projected demand for capital materially increases and our then current and/or projected cash resources have not increased a comparable amount, we may need to modify our existing business plan or seek new capital which may be available only on terms that may not be acceptable to the Company, especially in light of current adverse economic conditions. If we are compelled to adopt further measures to conserve cash resources due to the lack of availability of capital, such measures may adversely affect our results of operations and the short-term and/or long-term prospects for our business. We have raised equity in the past and may in the future seek to raise additional equity or debt capital to assist us in financing an acquisition and/or our on-going business operations or those of any business that we may in the future acquire. Among other securities, we may seek to sell additional shares of common stock, or shares of an existing or newly designated class of preferred stock or debt securities. We have not, as of the date of this report, entered into any definitive financing arrangements other than those described above. Particularly in light of extraordinary market conditions, there can be no assurance that we will be able to secure equity or debt capital in amounts and on terms acceptable to us. Although we will seek to secure financing on terms and conditions favorable to the Company and its existing shareholders, we may seek to raise capital by issuing securities, which, under certain circumstances, enjoy certain preferences and/or priorities relative to the common stock or which may result in material dilution of the interests of our existing shareholders. B. Off-Balance Sheet Arrangements The Company has no off-balance sheet arrangements. ITEM 5. LEGAL PROCEEDINGS Beginning in July 2001, the Company, its President and Chief Executive Officer Eric D. Stonestrom, its former Senior Vice President and Chief Financial Officer, its Chairman Matthew Desch and its former Executive Vice President and Chief Operating Officer Jonathan Paget (the Individual Defendants ) were named as defendants in a class action complaint alleging violations of the federal securities laws in the United States District Court for the 20