SecProbe.io

CORRESP
1
filename1.htm

Unassociated Document

Airspan
Networks, Inc.

April 21,
2005

VIA
EDGAR AND OVERNIGHT MAIL

Securities
and Exchange Commission

450 Fifth
Street, N.W.

Washington,
D.C. 20549-0510

Attention:
Larry Spirgel, Assistant Director

Airspan
Networks, Inc.

Form
10-K for the Fiscal Year Ended December 31, 2004

File
No. 000-31031

Dear Mr.
Spirgel

As the
Chief Financial Officer of Airspan Networks, Inc. (the “Company”), I am writing
on behalf of the Company to respond to the comments of the staff (the “Staff”)
of the Division of Corporation Finance of the Securities and Exchange Commission
(the “Commission”) contained in its letter, dated April 7, 2005, addressed to
me, with respect to the above-referenced filing.

For
convenience of reference, each Staff comment is reprinted in italics, numbered
to correspond with the paragraph numbers assigned in the Staff’s letter, and is
followed by the corresponding response of the Company.

Although
not specifically requested by the Staff, the Company has also included herein
under the heading “Other Proposed Future Actions” a discussion of some of the
other actions the Company intends to take in the next few days, which actions
include filing with the Commission:

      * a
      Form 8-K which includes disclosures under Item 4.02 (the “Form
      8-K”);

      *
      an amendment (the “Form 10-Q/A”) to its Form 10-Q for the quarter ended
      October 3, 2004 (the “Form 10-Q”), and

      *
      an amendment (the “Form 10-K/A”) to its Form 10-K for the year ended
      December 31, 2004 (the “Form 10-K”)

Staff
Comment: Note 1. Service Revenue, page F-9

      1.

      Tell
      us why it is appropriate to recognize your fixed-price service contracts
      under the percentage of completion method. Refer to SAB
      13(A)(3).

Company
Response:

In 2002
we expanded our revenue recognition policy to include all potential types of
revenue, including turn key installation service projects where it would be
appropriate to account for these as long term contracts. However, for the
periods covered by the Financial Statements in the 2004 Form 10-K, the Company
has not recognized any fixed-price service contracts under the percentage of
completion method. To clarify this point, the Company intends to file the Form
10-K/A, which will amend the portion of Notes to the Financial Statements (the
“Notes”) that relates to Service Revenue. Please see below the relevant text of
the Form 10-K and the amended text of the proposed Form 10-K/A.

Accordingly,
we intend to amend the Note in the Form 10-K/A filing, as follows:

      Form
      10-K filed with the Commission on March 16, 2005

      Form
      10-K/A intended to be filed with the Commission

      Note
      1. Service Revenue from Notes to Financial Statements included in Form
      10-K

      Note
      1. Service Revenue from Notes to Financial Statements included in Form
      10-K/A

      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
      from time-and-material service contracts is recognized once the services
      have been performed. Revenue from service contracts that relate to a
      period of cover is recognized ratably over the given contract period.
      Revenue is recognized on fixed-price service contracts when the services
      have been completed.

Staff
Comment: Note 14. Convertible Preferred Stock, page
F-25

      2.

      Tell
      us how you accounted for the 10% discount on the issuance of the preferred
      stock. Refer to EITF 98-5.

Company
Response

At the
time of the issuance of the Series A Preferred Stock, the Company believed that
$4.00 per share of common stock equivalent represented the fair value of the
transaction and that there was no beneficial discount to be accounted for. In
the process of determining how to account for the transaction, the Company had
considered a number of sources with respect to the levels of purchase price
discounts given in similar stock issues.

In
accordance with the Staff’s suggestion, the Company specifically considered the
provisions of EITF 98-5 and EITF 00-27 and now believes that there was a
beneficial conversion feature associated with the issuance of the Series A
Preferred Stock as a result of a deemed discount to fair value on the commitment
date.

Intrinsic
value of embedded beneficial conversion feature

The
Company has calculated the intrinsic value of the embedded beneficial conversion
feature as the difference between the conversion price and the fair value of the
common stock on the commitment date.

The
commitment date (EITF 00-27 Issue 4) has been identified as Monday September 13,
2004, the closing date of the issue.

The fair
value (EITF 00-27 Issue 5) of the common stock on the commitment date has been
taken as the closing price on Monday September 13, 2004, which was $5.43 per
ordinary share.

At the
commitment date each preferred share, purchased for $400.00, was convertible
into 100 common shares, implying a common stock equivalent value (conversion
price) on the commitment date of $4.00 per share.

The
intrinsic value of the beneficial conversion feature of the 73,000 preferred
shares on the commitment date was $10,439,000. [73,000 x 100 x ($5.43 - $4.00) =
$10,439,000]

Amortization
period of the embedded beneficial conversion feature

The
embedded beneficial conversion feature is required to be amortized over the
period from the date of issue to the first date the convertible instrument may
be converted. The Series A Preferred Stock was convertible into shares of common
stock immediately upon issuance and did not have a stated redemption date.
Therefore, the Company amortized the entire feature to retained earnings on the
date of issuance.

Accounting
impact

The
proposed accounting entries to the financial statements are to credit Additional
Paid in Capital and debit Retained Earnings within Stockholders’ Equity by
$10,439,000.

      Pro
      forma Impact Summary

      As
      originally reported

      Proposed
      restatement

      Delta

      (In
      thousands, except for per share data)

      Quarter
      ended October 3, 2004

      $

      Additional
      Paid in Capital

      245,615

      256,054

      10,439

      Accumulated
      deficit

      (180,369)

      (190,808)

      (10,439)

      Deemed
      dividend associated with beneficial conversion of preferred
      stock

      -

      (10,439)

      (10,439)

      Net
      loss attributable to common stockholders

      (3,457)

      (13,896)

      (10,439)

      Net
      loss attributable to common stockholders per share

      (0.09)

      (0.38)

      (0.29)

      Nine
      months ended October 3, 2004

      $

      Additional
      Paid in Capital

      245,615

      256,054

      10,439

      Accumulated
      deficit

      (180,369)

      (190,808)

      (10,439)

      Deemed
      dividend associated with beneficial conversion of preferred
      stock

      -

      (10,439)

      (10,439)

      Net
      loss attributable to common stockholders

      (13,250)

      (23,689)

      (10,439)

      Net
      loss attributable to common stockholders per share

      (0.37)

      (0.65)

      (0.28)

      Year
      ended December 31, 2004

      $

      Additional
      Paid in Capital

      249,917

      260,356

      10,439

      Accumulated
      deficit

      (177,094)

      (187,533)

      (10,439)

      Deemed
      dividend associated with beneficial conversion of preferred
      stock

      -

      (10,439)

      (10,439)

      Net
      loss attributable to common stockholders

      (9,975)

      (20,414)

      (10,439)

      Net
      loss attributable to common stockholders per share

      (0.27)

      (0.56)

      (0.29)

The
Company intends to file a Form 10-Q/A for the third quarter 2004 and a Form
10-K/A for the year ended December 31, 2004 to reflect a change in the Company’s
accounting treatment of the issuance of the Series A Preferred Stock and expand
Note 14 in the notes to the financial statements included in the and Form 10-K/A
and relevant section in the Company’s Form 10-Q/A to describe the embedded
beneficial conversion feature. (italics
denote revision/addition)

      Form
      10-K filed with the Commission on March 16, 2005

      Form
      10-K/A to be filed with the Commission

      14.
      Convertible Preferred Stock

      14.
      Convertible Preferred Stock

      On
      September 13, 2004, the Company consummated the private sale of 73,000
      shares of Series A Preferred Stock to Oak Investment Partners XI Limited
      Partnership (“Oak”) for aggregate gross proceeds of $29.2 million (net
      proceeds $29.1 million after legal fees) pursuant to the terms of a
      Preferred Stock Purchase Agreement (the “Purchase Agreement”). The
      Purchase Agreement was amended effective September 23, 2004. Pursuant to
      the Purchase Agreement, Oak purchased 73,000 shares of Series A Preferred
      Stock, which are convertible into 7,300,000 shares of common stock, for
      $400 per share of preferred stock or $4 per share of common stock
      equivalent. The per common stock equivalent price was established at a
      discount of approximately 10% off the trailing 10 day volume weighted
      average closing price for the common stock on September 9, 2004.

      On
      September 13, 2004, the Company consummated the private sale of 73,000
      shares of Series A Preferred Stock to Oak Investment Partners XI Limited
      Partnership (“Oak”) for aggregate gross proceeds of $29.2 million (net
      proceeds $29.1 million after legal fees) pursuant to the terms of a
      Preferred Stock Purchase Agreement (the “Purchase Agreement”). The
      Purchase Agreement was amended effective September 23, 2004. Pursuant to
      the Purchase Agreement, Oak purchased 73,000 shares of Series A Preferred
      Stock, which are convertible into 7,300,000 shares of common stock, for
      $400 per share of preferred stock or $4 per share of common stock
      equivalent. The per common stock equivalent price was established at a
      discount of approximately 10% off the trailing 10 day volume weighted
      average closing price for the common stock on September 9,
      2004.

      As
      a result of the discount to fair market value at the commitment date, the
      Company recognized the intrinsic value of the embedded beneficial
      conversion feature relating to the issuance of the Preferred Stock of
      $10.4 million as a deemed dividend to preferred stockholders. . The
      Preferred Stock was immediately convertible to common stock on the date of
      issue and, as a result, the embedded beneficial conversion feature was
      immediately debited to the Consolidated Statement of Operations in the
      third quarter 2004 as a “deemed dividend to preferred stockholders
      associated with beneficial conversion of preferred stock” and credited to
      “additional paid in capital”.

      Pursuant
      to the Articles, holders of the Series A Preferred Stock may convert the
      stock into shares of the Company’s common stock at any time at the rate of
      100 shares of common stock for each share of Series A Preferred Stock (the
      “Conversion Rate”). To the extent that the holders of the Series A
      Preferred Stock do not participate fully with other  Company
      stockholders with respect to dividends paid, the Conversion Rate may be
      appropriately adjusted upon the occurrence of any of the following events:
      (i) the Company’s payment of common stock dividends and distributions,
      (ii) common stock splits, subdivisions or combinations and (iii)
      reclassification, reorganization, change or conversion of the common
      stock. To the extent that the holders of the Series A Preferred Stock do
      not participate fully with other Company stockholders with respect to
      dividends paid, the Conversion Rate may be appropriately adjusted upon the
      occurrence of any of the following events: (i) the Company’s payment of
      common stock dividends and distributions, (ii) common stock splits,
      subdivisions or combinations and (iii) reclassification, reorganization,
      change or conversion of the common stock.

      Unchanged

      Holders
      of the Series A Preferred Stock are entitled to participate in dividends
      declared with respect to the common stock as if the Series A Preferred
      Stock was converted into the common stock. The Series A Preferred Stock is
      identified as ranking senior and prior to the common stock and all other
      classes or series of capital stock with respect to payments upon
      liquidation. Upon any liquidation of the Company, certain mergers,
      reorganizations and/or consolidations of the Company into or with another
      corporation or any transaction or series of related transactions in which
      a person, entity or group acquires 50% or more of the combined voting
      power of the Company’s then outstanding securities (a “Liquidation”),
      holders are entitled to receive prior and in preference to any
      distribution to holders of the Company’s common stock, the greater of the
      amount they invested plus all accumulated or accrued and unpaid dividends
      thereon or the amount they would receive in such transaction if they
      converted the preferred stock into common stock.

    Unchanged

      Pursuant
      to the Company’s Articles of Incorporation, holders of the Series A
      Preferred Stock are entitled to vote on matters presented to the holders
      of common stock as if the Series A Preferred Stock was converted into the
      common stock. However, the Company, Oak and each subsequent holder of the
      Series A Preferred Stock (collectively, the “Parties”) have agreed that
      the holders of the Series A Preferred Stock will only vote on matters
      presented to the holders of common stock as if the Series A Preferred
      Stock was converted into the common stock at the rate of 1 share of Series
      A Preferred Stock to 86 shares of common stock (the “Voting Conversion
      Rate”). The Parties have agreed that the holders of the Series A Preferred
      Stock shall abstain from voting with respect to any remaining votes to
      which the holders of the Series A Preferred Stock may be entitled under
      the Articles. The Parties have further agreed that the Voting Conversion
      Rate will be adjusted from time to time in the same manner and under the
      same circumstances as the Conversion Rate is adjusted pursuant to the
      Articles.

      Unchanged

Other
Proposed Future Actions:

A. The
effect of participating convertible securities on the computation of basic
earnings per share.

Having
further researched the accounting treatment and implications of convertible
securities we have also concluded that per EITF 03-6 Participating Securities
and the Two-Class Method under FASB Statement No. 128, Earnings
Per Share, the
Series A Preferred Stock should have been included in the computation of
 Net (loss)/ profit attributable to common stockholders per share - basic
using the two-class method for the fourth quarter 2004, as disclosed in Note 16:
Quarterly Financial Data (Unaudited) in the Company’s Form 10K. We have computed
that the Net (loss)/ profit attributable to common stockhold