NOTES TO UNAUDITED CONDENSED Consolidated FINANCIAL STATEMENTS
On August 13, 2021 (the “Closing”), Airspan Networks Holdings Inc. (formerly New Beginnings Acquisition Corp.) (the “Company”) consummated a business combination transaction (the “Business Combination”) pursuant to a business combination agreement (the “Business Combination Agreement”), dated March 8, 2021, by and among the Company, Artemis Merger Sub Corp., a Delaware corporation and wholly-owned direct subsidiary of the Company (“Merger Sub”), and Airspan Networks Inc., a Delaware corporation (“Legacy Airspan”). In connection with the Closing of the Business Combination, the Company changed its name to Airspan Networks Holdings Inc. Unless the context otherwise requires, references to “Airspan”, the “Company”, “us”, “we”, “our” and any related terms prior to the Closing of the Business Combination are intended to mean Legacy Airspan and its consolidated subsidiaries, and after the Closing of the Business Combination, Airspan Networks Holdings Inc. and its consolidated subsidiaries. In addition, unless the context otherwise requires, references to “New Beginnings” and “NBA” are references to New Beginnings Acquisition Corp., the Company’s name prior to the Closing.
The Company designs and produces wireless network equipment for 4G and 5G networks for both mainstream public telecommunications service providers and private network implementations. Airspan provides Radio Access Network (“RAN”) products based on Open Virtualized Cloud Native Architectures that support technologies including 5G new radio and Long-Term Evolution, and Fixed Wireless standards, operating in licensed, lightly-licensed and unlicensed frequencies.
The market for the Company’s wireless systems includes mobile carriers, other public network operators and private and government network operators for command and control in industrial and public safety applications such as smart utilities, defense, transportation, mining and oil and gas. The Company’s strategy applies the same network technology across all addressable sectors.
The Company’s main operations are in Slough, United Kingdom; Mumbai and Bangalore, India; Tokyo, Japan; Airport City, Israel; Santa Clara, California; and the Company’s corporate headquarters are in the United States (“U.S.”) in Boca Raton, Florida.
|
2. |
BASIS OF PRESENTATION AND ACCOUNTING POLICIES |
Basis of Presentation, Principles of Consolidation and Use of Estimates
The accompanying condensed consolidated financial statements include the accounts of the Company, its wholly-owned subsidiaries and Airspan IP Holdco LLC (“Holdco”) – 99.8% owned by Airspan. Non-controlling interest in the results of operations of consolidated subsidiaries represents the minority stockholders’ share of the profit or loss of Holdco. The non-controlling interest in net assets of this subsidiary, and the net income or loss attributable to the non-controlling interest, were not recorded by the Company as they are considered immaterial. All significant inter-company balances and transactions have been eliminated in consolidation. The accompanying condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”).
The Company’s interim condensed consolidated financial statements and related notes are unaudited. In the opinion of management, all adjustments (including normal recurring adjustments) and disclosures necessary for a fair presentation of these interim financial statements have been included. The results reported in these interim financial statements are not necessarily indicative of the results that may be reported for the entire year. Certain information and footnote disclosures required by GAAP have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes thereto included in the Company’s Annual Report on Form 10-K as of and for the year ended December 31, 2021.
The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Actual results could differ from those estimates.
Liquidity
The Company has historically incurred losses from operations. In the past, these losses have been financed through cash on hand or capital raising activities including borrowings or the sale of newly issued shares.
The Company had $102.4 million of current assets and $199.7 million of current liabilities as of September 30, 2022. During the nine months ended September 30, 2022, the Company used $29.6 million in cash flow from operating activities. The Company is investing heavily in 5G research and development and the Company expects to continue to use cash from operations during the remainder of 2022 and through 2023. Cash on hand and borrowing capacity under our Assignment Agreement, Resignation and Assignment Agreement and Credit Agreement (the “Fortress Credit Agreement”) with DBFIP ANI LLC (“Fortress”) (see Notes 8 and 10) may not allow the Company to reasonably expect to meet its forecasted cash requirements.
The Company was not in compliance
with the minimum last twelve-month Earnings before Interest, Taxes, Depreciation and Amortization (“EBITDA”) covenant under
the Fortress Credit Agreement and the agreement governing the Company’s senior secured convertible notes as of the September 30,
2022 quarterly measurement date. In addition, during certain periods subsequent to September 30, 2022, the Company has not been
in compliance with the minimum liquidity covenant under the Fortress Credit Agreement and the agreement governing the Company’s
senior secured convertible notes. See further discussion below and in Note 10.
Going concern
The accompanying condensed consolidated
financial statements have been prepared and are presented assuming the Company’s ability to continue as a going concern. As discussed
in Note 10 to the condensed consolidated financial statements, the Company’s senior term loan and convertible debt require certain
financial covenants to be met. The Company was not in compliance with the minimum last twelve-month EBITDA covenant under the Fortress
Credit Agreement and the agreement governing the Company’s senior secured convertible notes as of the September 30, 2022 quarterly
measurement date, which is an event of default under those agreements. In addition, during certain periods subsequent to September 30,
2022, the Company has not been in compliance with the minimum liquidity covenant under the Fortress Credit Agreement and the agreement
governing the Company’s senior secured convertible notes, which is also an event of default under those agreements. The Company
is seeking a waiver with respect to such breaches. However, there can be no assurance that the lenders under the Fortress Credit Agreement
and the agreement governing the Company’s senior secured convertible notes will agree to waive the existing covenant breaches. Even
if the Company receives a waiver with respect to such breaches, based on management’s current forecast, absent of additional financing
or capital raising, the Company has concluded it is probable that the Company will not be in compliance with certain of the prospective
financial covenants under the Fortress Credit Agreement and the agreement governing the Company’s senior secured convertible notes
during certain periods of the next twelve months. Accordingly, while the Company intends to seek waivers from compliance with the applicable
covenants in connection with such anticipated breaches, or amendments of existing financial covenants included in the Fortress Credit
Agreement and the agreement governing the Company’s senior secured convertible notes, the Company is also pursuing alternative sources
of capital so that it will be able to satisfy its prospective minimum liquidity obligations under the Fortress Credit Agreement and the
agreement governing the Company’s senior secured convertible notes. There can be no assurance that the lenders under the Fortress
Credit Agreement and the agreement governing the Company’s senior secured convertible notes will agree to waive any breaches thereunder
that may arise in the future or that we will otherwise be able to remedy such breaches. In the absence of waivers or remedies of existing
covenant breaches or any additional breaches that may arise in the future, the lenders under the Fortress Credit Agreement and the agreement
governing the Company’s senior secured convertible notes could elect to declare all the funds borrowed thereunder to be due and
payable, together with accrued and unpaid interest, and institute foreclosure proceedings against the Company’s assets, such lenders
could elect to apply the default interest rate thereunder, the lenders under the Fortress Credit Agreement could elect to terminate their
delayed draw commitments thereunder and cease making further loans, and the Company could be forced into bankruptcy or liquidation. In
addition, the Company’s subordinated term loan – related party (see Note 9) and subordinated debt (see Note 8) could be accelerated
or required to be paid due to provisions contained within those instruments. As a result, the Company has classified its debt as current.
In order to address the need to satisfy the Company’s continuing obligations and realize its long-term strategy, management has taken several steps and is considering additional actions to improve its operating and financial results, including the following:
|
● |
focusing the Company’s efforts to increase sales in additional geographic markets; |
|
● |
continuing to develop 5G product offerings that will expand the market for the Company’s products; |
|
● |
focusing the Company’s efforts to improve days sales outstanding
to provide additional liquidity; and |
|
|
|
|
● |
continuing to implement cost reduction initiatives to reduce non-strategic costs in operations and expand the Company’s labor force in lower cost geographies, with headcount reductions in higher cost geographies. |
There can be no assurance that the
above actions will be successful. Without additional financing or capital, the Company’s current cash balance would be insufficient
to satisfy repayment demands from its lenders if the lenders elect to declare the senior term loan and the senior secured convertible
notes due prior to the maturity date. There is no assurance that the new or renegotiated financing will be available, or that if available,
will have satisfactory terms. These conditions raise substantial doubt about the Company’s ability to continue as a going concern
within one year after the date that these financial statements are issued. The accompanying condensed consolidated financial statements
do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification
of liabilities that might result from the outcome of this uncertainty.
COVID-19 Update
The coronavirus (“COVID-19”) pandemic, that started in 2020, has and continues to alter the behavior of business and people in a manner that is having negative effects on local, regional and global economies. The COVID-19 pandemic continues to have an impact with disruptions on our supply chains, as governments take robust actions to minimize the spread of localized COVID-19 outbreaks. The continued impact on our supply chains has caused delayed production and fulfilment of customer orders, disruptions and delays of logistics and increased logistic costs. As a further consequence of the COVID-19 pandemic, component lead times have extended as demand outstrips supply on certain components, including semiconductors, and have caused the costs of components to increase. These extended lead times have caused us to extend our forecast horizon with our contract manufacturing partners and have increased the risk of supply delays. The Company cannot at this time accurately predict what effects, or their extent, the coronavirus outbreak will have on the remainder of its 2022 operating results, due to uncertainties relating to the geographic spread of the virus, the severity of the disease, the duration of the outbreak, component shortages and increased component costs, the length of voluntary business closures, and governmental actions taken in response to the outbreak. More generally, the widespread health crisis has and may continue to adversely affect the global economy, resulting in an economic downturn that could affect demand for our products and therefore impact the Company’s results.
Significant Concentrations
Financial instruments, which potentially subject the Company to concentration of credit risk, consist primarily of cash and cash equivalents, restricted cash and accounts receivable. The Company places its cash and cash equivalents in highly rated financial instruments. The Company maintains certain of its cash balances in various U.S. banks, which at times, may exceed federally insured limits. The Company has not experienced any losses on such accounts.
The Company’s accounts receivable are derived from sales of its products and approximately 57.3% and 72.6% of product sales were to non-U.S. customers for the three months ended September 30, 2022 and 2021, respectively and approximately 57.7% and 70.8% of product sales were to non-U.S. customers for the nine months ended September 30, 2022 and 2021, respectively. Two customers accounted for $20.2 million, or 47.8%, of the net accounts receivable balance at September 30, 2022 and three customers accounted for $34.7 million, or 64.9% of the net accounts receivable balance at September 30, 2021. The Company requires payment in advance or payment security in the form of a letter of credit to be in place at the time of shipment, except in cases where credit risk is considered to be acceptable. The Company’s top three customers accounted for 50.8% and 60.4% of revenue for the three months ended September 30, 2022 and 2021, respectively, and 65.8% and 59.6% of revenue for the nine months ended September 30, 2022 and 2021, respectively. For the three months and nine months ended September 30, 2022, the Company had three customers whose revenue was greater than 10% of the three- and nine-month period’s total revenue. For the three and nine months ended September 30, 2021, the Company had two customers whose revenue was greater than 10% of the three and nine-month period’s total revenue.
The Company received 90.2% and 85.4% of goods for resale from five suppliers in the three months ended September 30, 2022 and 2021, respectively. The Company received 86.9% and 89.5% of goods for resale from five suppliers in the nine months ended September 30, 2022 and 2021, respectively. The Company outsources the manufacturing of its base station products to contract manufacturers and obtains subscriber terminals from vendors in the Asia Pacific region. In the event of a disruption to supply, the Company would be able to transfer the manufacturing of base stations to alternate contract manufacturers and has alternate suppliers for the majority of subscriber terminals.
Recent Accounting Pronouncements
In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2020-06, “Debt — Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic 815-40)”. This ASU simplifies the accounting for certain financial instruments with characteristics of liabilities and equity. The FASB reduced the number of accounting models for convertible debt and convertible preferred stock instruments and made certain disclosure amendments to improve the information provided to users. The new standard was adopted by the Company on January 1, 2022, and it did not have a material impact on the Company’s condensed consolidated financial statements.
In May 2021, the FASB issued ASU No. 2021-04, “Earnings Per Share (Topic 260), Debt — Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options”. This ASU provides guidance for a modification or an exchange of a freestanding equity-classified written call option that is not within the scope of another Topic. The new standard was adopted by the Company on January 1, 2022, and it did not have a material impact on the Company’s condensed consolidated financial statements.
In March 2020, the FASB issued ASU No. 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting” which provides optional expedient and exceptions for applying generally accepted accounting principles to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. In response to the concerns about structural risks of interbank offered rates and, particularly, the risk of cessation of the LIBOR, regulators in several jurisdictions around the world have undertaken reference rate reform initiatives to identify alternative reference rates that are more observable or transaction based and less susceptible to manipulation. This ASU provides companies with optional guidance to ease the potential accounting burden associated with transitioning away from reference rates that are expected to be discontinued. This new standard must be adopted by the Company no later than December 1, 2022, with early adoption permitted. The adoption of this standard is not expected to have a material impact on the Company’s condensed consolidated financial statements.
In June 2016, the FASB issued ASU No. 2016-13 (amended by ASU 2019-10), “Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, regarding the measurement of credit losses for certain financial instruments.” which replaces the incurred loss model with a current expected credit loss (“CECL”) model. The CECL model is based on historical experience, adjusted for current conditions and reasonable and supportable forecasts. The Company is required to adopt the new standard on January 1, 2023. The Company is currently evaluating the impact this standard will have on the Company’s condensed consolidated financial statements.
Reclassifications
Certain reclassifications have been made to prior-year amounts to conform with current-year presentation. These reclassifications had no effect on the Company’s net loss or cash flows from operations.
|
3. |
THE BUSINESS COMBINATION |
On August 13, 2021, the Company and Legacy Airspan completed the Business Combination, with Legacy Airspan surviving the Business Combination as a wholly-owned subsidiary of the Company, and the Company was renamed Airspan Networks Holdings Inc. Cash proceeds from the Business Combination totaled approximately $115.5 million, which included funds held in NBA’s trust account and the completion of the concurrent private placement (the “PIPE” or “PIPE Financing”) of shares of the Company’s common stock (the “Common Stock”) and sale of the Company’s senior secured convertible notes (the “Convertible Notes Financing”).
In accordance with the terms and subject to the conditions of the Business Combination Agreement, at the effective time of the Business Combination, each share of Legacy Airspan capital stock issued and outstanding immediately prior to the Closing automatically converted into and became the right to receive a specified number of shares of the Company’s Common Stock, warrants exercisable to purchase one share of the Company’s Common Stock at a price of $12.50 per share (the “Post-Combination $12.50 Warrants”), warrants exercisable to purchase one share of the Company’s Common Stock at a price of $15.00 per share (the “Post-Combination $15.00 Warrants”) and warrants exercisable to purchase one share of the Company’s Common Stock at a price of $17.50 per share (the “Post-Combination $17.50 Warrants” and the Post-Combination $17.50 Warrants, together with the Post-Combination $12.50 Warrants and Post-Combination $15.00 Warrants, the “Post-Combination Warrants”). The aggregate transaction consideration paid in the Business Combination was (i) 59,426,486 shares of the Company’s Common Stock, (ii) 3,000,000 Post-Combination $12.50 Warrants, (iii) 3,000,000 Post-Combination $15.00 Warrants, (iv) 3,000,000 Post-Combination $17.50 Warrants and (v) $17,500,000 in cash. The aggregate transaction consideration was allocated among the holders of shares of Legacy Airspan capital stock (including holders of shares of Legacy Airspan capital stock issued pursuant to the net exercise of warrants to purchase Legacy Airspan capital stock and holders of shares of Legacy Airspan restricted stock), holders of Legacy Airspan stock options and participants (the “MIP Participants”) in Legacy Airspan’s Management Incentive Plan (the “MIP”).
Prior to the Business Combination, New Beginnings issued 11,500,000 public warrants (the “Public Warrants”) and 545,000 private placement warrants (the “Private Placement Warrants”, and the Public Warrants together with the Private Placement Warrants, the “Common Stock Warrants”). Following the Business Combination, the Common Stock Warrants remain exercisable for Common Stock of the Company. All other features of the Common Stock Warrants remained unchanged. There were no cash obligations for the Company pertaining to these Common Stock Warrants.
Prior to the consummation of the Business Combination, holders of an aggregate of 9,997,049 shares of Common Stock sold in NBA’s initial public offering exercised their right to have such shares redeemed for a full pro rata portion of the trust account holding the proceeds from NBA’s initial public offering, calculated as of two business days prior to the consummation of the Business Combination, which was approximately $10.10 per share, or $101.0 million in the aggregate.
At Closing, the Company filed a second amended and restated certificate of incorporation (the “Restated Certificate of Incorporation”). Among other things, the Restated Certificate of Incorporation increased the number of shares of (a) Common Stock the Company is authorized to issue from 100,000,000 shares to 250,000,000 shares and (b) preferred stock the Company is authorized to issue from 1,000,000 shares to 10,000,000 shares.
In connection with the Closing of the Business Combination, certain former stockholders of Legacy Airspan (the “Legacy Airspan Holders”) and certain NBA stockholders (the “Sponsor Holders”) entered into a registration rights and lock-up agreement (the “Registration Rights and Lock-Up Agreement”). Subject to certain exceptions, the Registration Rights and Lock-Up Agreement provided that 44,951,960 shares of Common Stock, as well as 2,271,026 Post-Combination $12.50 Warrants, 2,271,026 Post-Combination $15.00 Warrants and 2,271,026 Post-Combination $17.50 Warrants (and the shares of Common Stock issuable upon exercise of such Post-Combination Warrants), in each case, held by the Legacy Airspan Holders were locked-up for a period of six months following the Closing, and 2,750,000 shares of Common Stock held by the Sponsor Holders were locked-up for a period of one year following the Closing, in each case subject to earlier release upon (i) the date on which the last reported sale price of the Common Stock equals or exceeds $12.50 per share for any 20 trading days within any 30-day trading period or (ii) the date on which we complete a liquidation, merger, capital stock exchange or other similar transaction after the Closing that results in all of our stockholders having the right to exchange their shares of our Common Stock for cash, securities or other property. The Registration Rights and Lock-Up Agreement also provided that the Private Placement Warrants and shares of Common Stock underlying the units sold by NBA in a private placement concurrent with its initial public offering (the “Private Placement Units”), along with any shares of Common Stock underlying the Private Placement Warrants, were locked-up for a period of 30 days following the Closing so long as such securities were held by the initial purchasers of the Private Placement Units or their permitted transferees.
The Company accounted for the Business Combination as a reverse recapitalization, which is the equivalent of Legacy Airspan issuing stock for the net assets of New Beginnings, accompanied by a recapitalization, with New Beginnings treated as the acquired company for accounting purposes. The determination of New Beginnings as the “acquired” company for accounting purposes was primarily based on the fact that subsequent to the Business Combination, Legacy Airspan comprised all of the ongoing operations of the combined entity, a majority of the governing body of the combined company and Legacy Airspan’s senior management comprised all of the senior management of the combined company. The net assets of New Beginnings were stated at historical cost with no goodwill or other intangible assets recorded. Reported results from operations included herein prior to the Business Combination are those of Legacy Airspan. The shares and corresponding capital amounts and loss per share related to Legacy Airspan’s outstanding convertible preferred stock and common stock prior to the Business Combination have been retroactively restated to reflect the conversion ratio established pursuant to the Business Combination Agreement.
In connection with the Business Combination, the Company incurred underwriting fees and other costs considered direct and incremental to the transaction totaling $27.0 million, consisting of legal, accounting, financial advisory and other professional fees. These amounts are reflected within additional paid-in capital in the condensed consolidated balance sheets as of September 30, 2022 and December 31, 2021.
PIPE Financing
Concurrent with the execution of the Business Combination Agreement, the Company entered into subscription agreements with certain investors (the “PIPE Investors”) pursuant to which the PIPE Investors subscribed for and purchased an aggregate of 7,500,000 shares of Common Stock for an aggregate purchase price of $75.0 million.
Convertible Notes Financing
Concurrent with the Closing of the Business Combination, the Company issued $50,000,000 aggregate principal amount of senior secured convertible notes (the “Convertible Notes”). The Convertible Notes bear interest at a rate equal to 7.0% per annum, payable quarterly in arrears on March 31, June 30, September 30 and December 31 of each year, beginning on September 30, 2021. The Convertible Notes mature on December 30, 2024, unless earlier accelerated, converted, redeemed or repurchased. The Convertible Notes are pari passu in right of payment and lien priority and are secured by a security interest in (a) all of the real, personal and mixed property in which liens are granted or purported to be granted pursuant to any of the collateral documents as security for the obligations, (b) all products, proceeds, rents and profits of such property, (c) all of each loan party’s books and records and (d) all of the foregoing whether now owned or existing, in each case excluding certain excluded assets.
At Closing, each Convertible Note, together with all accrued but unpaid interest, was convertible, in whole or in part, at the option of the holder, at any time prior to the payment in full of the principal amount (together with all accrued but unpaid interest thereon), into shares of Common Stock at a conversion price equal to $12.50 per share (see Note 11).
Summary of Net Proceeds
The following table summarizes the elements of the net proceeds from the Business Combination as of December 31, 2021:
Schedule of business combination |
|
|
|
|
Cash—Trust Account (net of redemptions of $101 million) |
|
$ |
15,184,107 |
|
Cash—Convertible Notes financing |
|
|
48,669,322 |
|
Cash—PIPE Financing |
|
|
75,000,000 |
|
|
|
|
|
|
Less: Underwriting fees and other issuance costs paid at Closing |
|
|
(23,353,127 |
) |
Cash proceeds from the Business Combination |
|
$ |
115,500,302 |
|
|
|
|
|
|
Less: Non-cash net liabilities assumed from New Beginnings |
|
|
(38,216 |
) |
Add: Non-cash net assets assumed from New Beginnings |
|
|
3,684,000 |
|
Less: Non-cash fair value of Common Stock Warrants |
|
|
(13,176,450 |
) |
Less: Non-cash fair value of Post-Combination Warrants |
|
|
(1,980,000 |
) |
Less: Non-cash fair value of Convertible Notes issued |
|
|
(48,273,641 |
) |
Less: Other issuance costs included in accounts payable and accrued liabilities |
|
|
(3,618,792 |
) |
|
|
|
|
|
Additional paid-in-capital from Business Combination, net of issuance costs paid |
|
$ |
52,097,203 |
|
Summary of Shares Issued
The following table summarizes the number of shares of Common Stock outstanding immediately following the consummation of the Business Combination:
Schedule of number of shares Common Stock outstanding |
|
|
|
|
New Beginnings shares of Common Stock outstanding prior to the Business Combination |
|
|
14,795,000 |
|
Less: redemption of New Beginnings shares of Common Stock |
|
|
(9,997,049 |
) |
Shares of Common Stock issued pursuant to the PIPE |
|
|
7,500,000 |
|
Outstanding New Beginnings shares of Common Stock prior to the Business Combination, plus shares of Common Stock issued in PIPE Financing |
|
|
12,297,951 |
|
|
|
|
|
|
Conversion of Legacy Airspan preferred stock |
|
|
56,857,492 |
|
Conversion of Legacy Airspan common stock |
|
|
1,182,912 |
|
Conversion of Legacy Airspan restricted common stock |
|
|
339,134 |
|
Conversion of Legacy Airspan Class B common stock |
|
|
1,340,611 |
|
Conversion of Legacy Airspan restricted Class B common stock |
|
|
6,337 |
|
Total shares of Company Common Stock outstanding immediately following the Business Combination |
|
|
72,024,437 |
|
The 5,815,796 Common Stock options exchanged for options to purchase Legacy Airspan common stock and Legacy Airspan Class B common stock, the restricted stock units (“RSUs”) with respect to 1,750,000 shares of Common Stock issued to the MIP Participants, and 4,257,718 shares of Common Stock reserved for issuance with future grants under the Company’s 2021 Stock Incentive Plan (the “2021 Plan”) are not issued shares and are not included in the table above.
The following is a summary of revenue by category (in thousands):
Schedule of revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
Product sales |
|
$ |
34,621 |
|
|
$ |
29,823 |
|
|
$ |
109,394 |
|
|
$ |
101,628 |
|
Non-recurring engineering (“NRE”) |
|
|
1,031 |
|
|
|
3,631 |
|
|
|
2,187 |
|
|
|
10,590 |
|
Product maintenance contracts |
|
|
961 |
|
|
|
1,421 |
|
|
|
2,770 |
|
|
|
6,047 |
|
Professional service contracts |
|
|
2,581 |
|
|
|
1,769 |
|
|
|
6,518 |
|
|
|
4,632 |
|
Software licenses |
|
|
1,556 |
|
|
|
2,122 |
|
|
|
4,102 |
|
|
|
3,470 |
|
Other |
|
|
344 |
|
|
|
157 |
|
|
|
632 |
|
|
|
539 |
|
Total revenue |
|
$ |
41,094 |
|
|
$ |
38,923 |
|
|
$ |
125,603 |
|
|
$ |
126,906 |
|
There was $0.5 million recognized at a point in time for NRE services for the three and nine months ended September 30, 2022. Revenue recognized at a point in time for NRE services amounted to $1.5 million for the three months ended September 30, 2021 and $3.0 million for the nine months ended September 30, 2021. For services performed on a customer’s owned asset, since the customer controls the asset being enhanced, revenue is recognized over time as services are rendered. There was $0.5 million recognized over time for NRE services using a cost-based input method for the three months ended September 30, 2022. Revenue recognized over time for NRE services using a cost-based input method amounted to $2.2 million for the three months ended September 30, 2021, and $1.7 million and $7.6 million for the nine months ended September 30, 2022 and 2021, respectively. The Company is allowed to bill for services performed under the contract in the event the contract is terminated.
The opening and closing balances of our contract asset and liability balances from contracts with customers as of September 30, 2022 and December 31, 2021 were as follows (in thousands):
Schedule of contracts with customers asset and liability |
|
|
|
|
|
|
|
|
|
|
Contracts Assets |
|
|
Contracts Liabilities |
|
Balance as of December 31, 2021 |
|
$ |
7,673 |
|
|
$ |
2,902 |
|
Balance as of September 30, 2022 |
|
|
8,235 |
|
|
|
3,553 |
|
Change |
|
$ |
562 |
|
|
$ |
651 |
|
Remaining performance obligations represent the revenue that is expected to be recognized in future periods related to performance obligations included in a contract that are unsatisfied, or partially satisfied, as of the end of a period. As of September 30, 2022 and December 31, 2021, deferred revenue (both current and noncurrent) of $3.6 million and $2.9 million, respectively, represents the Company’s remaining performance obligations, of which $3.4 million and $2.5 million, respectively, is expected to be recognized within one year, with the remainder to be recognized thereafter.
Revenues for the three and nine months ended September 30, 2022 and 2021, include the following (in thousands):
Schedule of revenues from contract liability |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
Amounts included in the beginning of year contract liability balance |
|
$ |
418 |
|
|
$ |
626 |
|
|
$ |
2,299 |
|
|
$ |
5,053 |
|
Warranty Liabilities
Information regarding the changes in the Company’s product warranty liabilities for the three and nine months ended September 30, 2022 and 2021 is as follows (in thousands):
Schedule of product warranty liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30, |
|
|
Nine Months Ended
September 30, |
|
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
Balance, beginning of period |
|
$ |
1,358 |
|
|
$ |
1,099 |
|
|
$ |
1,285 |
|
|
$ |
1,019 |
|
Accruals |
|
|
216 |
|
|
|
236 |
|
|
|
1,383 |
|
|
|
496 |
|
Settlements |
|
|
(140 |
) |
|
|
(139 |
) |
|
|
(1,234 |
) |
|
|
(319 |
) |
Balance, end of period |
|
$ |
1,434 |
|
|
$ |
1,196 |
|
|
$ |
1,434 |
|
|
$ |
1,196 |
|
5. |
GOODWILL AND INTANGIBLE ASSETS, NET |
The Company had goodwill of $13.6 million as of September 30, 2022 and December 31, 2021 resulting from a prior acquisition.
Intangible assets, net consists of the following (in thousands):
Schedule of Intangible assets, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
September 30, 2022 |
|
|
|
Average Useful Life (in years) |
|
|
Gross Carrying Amount |
|
|
Accumulated Amortization |
|
|
Net Carrying Amount |
|
Internally developed technology |
|
10 |
|
|
$ |
7,810 |
|
|
$ |
(2,993 |
) |
|
$ |
4,817 |
|
Customer relationships |
|
6 |
|
|
|
2,130 |
|
|
|
(1,361 |
) |
|
|
769 |
|
Trademarks |
|
2 |
|
|
|
720 |
|
|
|
(720 |
) |
|
|
- |
|
Non-compete |
|
3 |
|
|
|
180 |
|
|
|
(180 |
) |
|
|
- |
|
Total acquired intangible assets |
|
|
|
|
$ |
10,840 |
|
|
$ |
(5,254 |
) |
|
$ |
5,586 |
|
|
|
Weighted |
|
|
December 31, 2021 |
|
|
|
Average Useful Life (in years) |
|
|
Gross Carrying Amount |
|
|
Accumulated Amortization |
|
|
Net Carrying Amount |
|
Internally developed technology |
|
10 |
|
|
$ |
7,810 |
|
|
$ |
(2,408 |
) |
|
$ |
5,402 |
|
Customer relationships |
|
6 |
|
|
|
2,130 |
|
|
|
(1,094 |
) |
|
|
1,036 |
|
Trademarks |
|
2 |
|
|
|
720 |
|
|
|
(720 |
) |
|
|
- |
|
Non-compete |
|
3 |
|
|
|
180 |
|
|
|
(180 |
) |
|
|
- |
|
Total acquired intangible assets |
|
|
|
|
$ |
10,840 |
|
|
$ |
(4,402 |
) |
|
$ |
6,438 |
|
Amortization expense related to the Company’s intangible assets amounted to $0.3 million for both of the three months ended September 30, 2022 and 2021, and $0.9 million for both of the nine months ended September 30, 2022 and 2021.
Estimated amortization expense for the remainder of 2022 and thereafter related to the Company’s intangible assets is as follows (in thousands):
Schedule of estimated amortization expense |
|
|
|
|
2022 |
|
$ |
284 |
|
2023 |
|
|
1,136 |
|
2024 |
|
|
1,107 |
|
2025 |
|
|
781 |
|
2026 |
|
|
781 |
|
Thereafter |
|
|
1,497 |
|
Total |
|
$ |
5,586 |
|
6. |
ACCRUED
EXPENSES AND OTHER CURRENT LIABILITIES |
Accrued
expenses and other current liabilities consist of the following (in thousands):
Schedule of other accrued expenses |
|
|
|
|
|
|
|
|
|
|
September 30, 2022 |
|
|
December 31, 2021 |
|
Payroll and related benefits and taxes |
|
$ |
8,724 |
|
|
$ |
7,258 |
|
Fair value of embedded derivatives related to Convertible Debt |
|
|
7,494 |
|
|
|
- |
|
Royalties |
|
|
3,179 |
|
|
|
2,870 |
|
Agent and sales commissions |
|
|
2,792 |
|
|
|
2,833 |
|
Right-of-use lease liability, current portion |
|
|
2,683 |
|
|
|
2,599 |
|
Tax liabilities |
|
|
1,697 |
|
|
|
1,611 |
|
Product warranty liabilities |
|
|
1,434 |
|
|
|
1,285 |
|
Product marketing |
|
|
452 |
|
|
|
752 |
|
Manufacturing subcontractor costs |
|
|
2,279 |
|
|
|
2,165 |
|
Legal and professional services |
|
|
2,070 |
|
|
|
2,275 |
|
Other |
|
|
1,661 |
|
|
|
3,319 |
|
Total accrued
expenses and other current liabilities |
|
$ |
34,465 |
|
|
$ |
26,967 |
|
7. |
RESTRUCTURING ACTIVITIES |
In June 2022, as part of a strategic review of our operations, the Company announced a cost reduction and restructuring program (the “2022 restructuring program”). The 2022 restructuring program was primarily comprised of entering into severance and termination agreements with employees. Formal announcements to the relevant employees were made in June and July 2022 and activities were ongoing throughout the three months ended September 30, 2022 and are expected to be complete by December 31, 2022.
Restructuring costs are presented separately on the condensed consolidated statements of operations.
The following table presents the restructuring costs recognized by the Company under the 2022 restructuring program during both the three and nine months ended September 30, 2022. The Company did not incur any costs under the 2022 restructuring program during the three and nine months ended September 30, 2021.
Schedule of restructuring costs recognized |
|
|
|
|
|
|
2022 |
|
Severance costs |
|
$ |
927 |
|
Other |
|
|
17 |
|
Total restructuring costs |
|
$ |
944 |
|
The
following table represents the restructuring liabilities, which are presented within accrued expenses and other current liabilities
in the condensed consolidated balance sheet:
Schedule of restructuring liabilities |
|
|
|
|
|
|
2022 |
|
Balance, December 31, 2021 |
|
$ |
- |
|
Current period charges |
|
|
944 |
|
Payments |
|
|
803 |
|
Balance, September 30, 2022 |
|
$ |
141 |
|
On August 6, 2015, Legacy Airspan issued Golden Wayford Limited a $10.0 million subordinated Convertible Promissory Note (the “Golden Wayford Note”) pursuant to a Subordinated Convertible Note Purchase Agreement. The Golden Wayford Note was amended and restated on November 28, 2017, to reduce the interest rate thereon and to reflect the application of the payment of $1.0 million of principal on such note. The Golden Wayford Note had an original maturity date of February 16, 2016, which through subsequent amendments was extended to June 30, 2020. The conversion rights related to this agreement expired on its maturity date, June 30, 2020, and on this date the loan was reclassified from subordinated convertible debt to subordinated debt.
The principal and accrued interest under the Golden Wayford Note would have been automatically converted into common shares at the time of the next equity financing and consummated prior to, on or after the maturity date (June 30, 2020). Such conversion right expired in accordance with its term. Interest accrues at 5.0% per annum and is payable quarterly, however, because such payment is prohibited by the terms of the subordination, interest is (in accordance with the terms of the related promissory note) paid in kind.
The Golden Wayford Note is subordinate to the obligations under the Fortress Credit Agreement (see Note 10). A limited waiver under the Fortress Credit Agreement waives each actual and prospective default and event of default existing under the Fortress Credit Agreement directly as a result of the non-payment of the Golden Wayford Note. The Company had subordinated debt outstanding of $9.0 million, plus $2.0 million and $1.6 million of accrued interest as of September 30, 2022 and December 31, 2021, respectively.
See
Note 10 for a discussion of financial covenant breaches under the Fortress Credit Agreement and the agreement governing the
Company’s senior secured convertible notes which have caused the subordinated debt to be classified as a current
liability.
9. |
SUBORDINATED TERM LOAN – RELATED PARTY |
On February 9, 2016, Legacy Airspan entered into a $15.0 million subordinated term loan agreement with a related party (the “Subordinated Term Loan Agreement”) that was due to mature on February 9, 2018. On July 12, 2016, Legacy Airspan entered into an additional $15.0 million Amendment No. 1 to the Subordinated Term Loan Agreement that was due to mature on February 9, 2018. On July 3, 2017, Legacy Airspan entered into Amendment No. 2 to the Subordinated Term Loan Agreement that extended the maturity date to June 30, 2019. On May 23, 2019, Legacy Airspan entered into Amendment No. 3 to the Subordinated Term Loan Agreement that extended the maturity date to December 31, 2020. On March 30, 2020, Legacy Airspan entered into Amendment No. 4 to the Subordinated Term Loan Agreement that extended the maturity date to December 31, 2021. On December 30, 2020, Legacy Airspan entered into Amendment No. 5 to the Subordinated Term Loan Agreement that extended the maturity date to the later of (a) December 30, 2024 and (b) 365 days after the maturity date of the Fortress Credit Agreement (as in effect on December 30, 2020) (see Note 10). The term loan is subordinate to the Fortress Credit Agreement (see Note 10).
Prior to May 23, 2019, interest accrued at 2.475% per annum and was payable quarterly. In accordance with the amendments below, the interest rate changed as follows:
|
(a) |
Amendment No. 3, on May 23, 2019, the interest rate changed to 9.0% per annum to be accrued; |
|
(b) |
Amendment No. 4, on March 30, 2020, the interest rate changed to 9.0% per annum through December 31, 2020 and from and after January 1, 2021, at a rate of 12.0% per annum to be accrued; and |
|
(c) |
Amendment No. 5, on December 30, 2020, the interest rate from January 1, 2021 and thereafter changed to 9.0% per annum to be accrued, subject to reversion to 12.0% if a condition subsequent is not satisfied. The subsequent condition was satisfied. |
The principal and accrued interest may be repaid early without penalty.
The Company had a subordinated term loan outstanding of $30.0 million, plus $10.6 million and $8.0 million of accrued interest as of September 30, 2022 and December 31, 2021, respectively.
See Note 10 for a discussion of financial covenant breaches under the Fortress Credit Agreement and the agreement governing the Company’s senior secured convertible notes which have caused the subordinated term loan to be classified as a current liability.
On December 30, 2020, Legacy Airspan, together with Holdco, Airspan Networks (SG) Inc., Mimosa Networks, Inc., Mimosa Networks International, LLC, Airspan Communications Limited, Airspan Networks LTD, and Airspan Japan K.K., as guarantors, together with the other parties thereto, entered into an assignment agreement, whereby Pacific Western Bank (“PWB”) and Ally Bank assigned their interests in a loan facility under the Second Amended and Restated Loan and Security Agreement with Legacy Airspan (the “PWB Facility”) to certain new lenders (the “Assignment Agreement”), and PWB entered into a resignation and assignment agreement (the “Agent Resignation Agreement”) pursuant to which PWB resigned in its capacity as agent under all of the transaction documents and Fortress became the successor agent (as defined in the Agent Resignation Agreement), replacing PWB in such capacity under the PWB Facility. The Assignment Agreement and the Agent Resignation Agreement, along with a Reaffirmation and Omnibus Amendment, resulted in the amendment and restatement of the terms of the PWB Facility and the Fortress Credit Agreement with the new lenders as the lenders thereunder. Fortress became the administrative agent, collateral agent and trustee for the lenders and other secured parties. At Closing, on August 13, 2021, the Company, Legacy Airspan and certain of the Company’s subsidiaries who are party to the Fortress Credit Agreement entered into a Waiver and Consent, Second Amendment, Restatement, Joinder and Omnibus Amendment to Credit Agreement and Other Loan Documents relating to the Fortress Credit Agreement with Fortress (the “August 2021 Fortress Amendment”) to, among other things, add the Company as a guarantor, recognize and account for the Business Combination, recognize and account for the Convertible Notes (see Note 11) and provide updated procedures for replacement of LIBOR. On March 29, 2022, the Company, Legacy Airspan and certain of the Company’s subsidiaries who are party to the Fortress Credit Agreement entered into a Third Amendment and Waiver to Credit Agreement and Other Loan Documents relating to the Fortress Credit Agreement with Fortress (the “March 2022 Fortress Amendment”) to, among other things, amend the financial covenants included in the Fortress Credit Agreement.
The Fortress Credit Agreement initial term loan total commitment of $34.0 million and a term loan commitment of $10.0 million were both funded to Legacy Airspan on December 30, 2020. Pursuant to the Fortress Credit Agreement, the Company may expand the term loan commitment by $20.0 million subject to the terms and conditions of the Fortress Credit Agreement. The maturity date of the total loan commitment is December 30, 2024. The Fortress Credit Agreement contains a prepayment premium of 5.0% if the prepayment occurs during the period from December 30, 2021 through December 29, 2022, and 3.0% if the prepayment occurs during the period from December 30, 2022 through December 29, 2023. The Fortress Credit Agreement also contained a prohibition on prepayment during the period from December 30, 2020 through December 29, 2021. Subsequent to December 29, 2021, the Company may prepay this loan but will incur a related fee in the amount of a make-whole amount of interest that would have been payable had such prepayment not been made.
Under the terms of the Fortress
Credit Agreement and the Fortress Convertible Note Agreement, as of the last day of any fiscal quarter, the Company’s EBITDA
for the preceding twelve months may not be less than the applicable minimum established in the Fortress Credit Agreement and the
Fortress Convertible Note Agreement. The Company was not in compliance with the minimum last twelve-month EBITDA covenant under the
Fortress Credit Agreement and the Fortress Convertible Note Agreement (as defined in Note 11) as of the September 30, 2022
quarterly measurement date. For the last day of the next four fiscal quarters, commencing with the fiscal quarter ending
December 31, 2022, the applicable minimum twelve-month EBITDA under the Fortress Credit Agreement or the Fortress Convertible
Note Agreement ranges from a loss of $21.0 million
to a loss of $39.0 million.
In
addition, under the terms of the Fortress Credit Agreement and the Fortress Convertible Note Agreement, the Company is required at
all times to maintain minimum liquidity of between $15.0
million and $20.0
million, depending on EBITDA performance levels and whether a default or event of default exists under the Fortress Credit Agreement
or the Fortress Convertible Note Agreement, as applicable. During certain periods subsequent to September 30, 2022, the Company has not been in compliance with the
minimum liquidity covenant under the Fortress Credit Agreement and the Fortress Convertible Note Agreement.
The Company is seeking a waiver with
respect to the applicable breached covenants referenced above. However, there can be no assurance that the lenders under the Fortress
Credit Agreement and the Fortress Convertible Note Agreement will agree to waive such existing covenant breaches. Even if the Company
receives a waiver with respect to such breaches, based on management’s current forecast, absent of additional financing or capital
raising, the Company has concluded it is probable that the Company will not be in compliance with certain of the prospective financial
covenants under the Fortress Credit Agreement and the Fortress Convertible Note Agreement during certain periods of the next twelve months.
Accordingly, while the Company intends to seek waivers from compliance with the applicable covenants in connection with such anticipated
breaches, or amendments of existing financial covenants included in the Fortress Credit Agreement and the Fortress Convertible Note Agreement,
the Company is also pursuing alternative sources of capital so that it will be able to satisfy its prospective minimum liquidity obligations
under the Fortress Credit Agreement and the Fortress Convertible Note Agreement. There can be no assurance that the lenders under the
Fortress Credit Agreement and the Fortress Convertible Note Agreement will agree to waive any breaches thereunder that may arise in the
future or that the Company will otherwise be able to remedy such breaches. In the absence of waivers or remedies of existing covenant
breaches or any additional breaches that may arise in the future, the lenders under the Fortress Credit Agreement and the Fortress Convertible
Note Agreement could elect to declare all the funds borrowed thereunder to be due and payable, together with accrued and unpaid interest,
and institute foreclosure proceedings against the Company’s assets, could elect to apply the default interest rate under the Fortress
Credit Agreement and the Fortress Convertible Note Agreement, could elect to terminate their delayed draw commitments under the Fortress
Credit Agreement and cease making further loans, and the Company could be forced into bankruptcy or liquidation. In addition, the Company’s
subordinated term loan – related party (see Note 9) and subordinated debt (see Note 8) could be accelerated or required to be paid
due to provisions contained within those instruments. Accordingly, the Company has classified its senior term loan, convertible debt,
subordinated term loan and subordinated debt as current liabilities on its condensed consolidated balance sheet as of September 30,
2022.
The Company’s senior term loan balance was $40.8 million and $46.8 million, inclusive of accrued interest of $4.3 million and $2.5 million, as of September 30, 2022 and December 31, 2021, respectively. Deferred financing fees of $4.1 million and $5.9 million are reflected as reductions of the outstanding senior term loan balance as of September 30, 2022 and December 31, 2021, respectively.
On August 13, 2021, the Company, together with Legacy Airspan, Holdco, Airspan Networks (SG) Inc., Mimosa Networks, Inc., Mimosa Networks International, LLC, Airspan Communications Limited, Airspan Networks LTD, and Airspan Japan K.K., as guarantors, and Fortress, entered into a Senior Secured Convertible Note Purchase and Guarantee Agreement (the “Fortress Convertible Note Agreement”), in order to meet the available cash requirement of the reverse recapitalization described in Note 3. Pursuant to the Fortress Convertible Note Agreement, $50.0 million was funded to the Company in exchange for the issuance of $50.0 million aggregate principal amount of Convertible Notes on August 13, 2021, the date of the reverse recapitalization. The Convertible Notes bear interest at 7.0% per annum (the “Base Rate”), payable quarterly in arrears on March 31, June 30, September 30 and December 31 of each year, beginning on September 30, 2021. The Convertible Notes will mature on December 30, 2024, unless earlier accelerated, converted, redeemed or repurchased. Under certain circumstances, a default interest will apply following an event of default under the Fortress Convertible Note Agreement at a per annum rate equal to the lower of (i) the Base Rate plus 3.75% and (ii) the maximum amount permitted by law (the “Default Rate”). The Convertible Notes are pari passu in right of payment and lien priority and are secured by a security interest in (a) all of the real, personal and mixed property in which liens are granted or purported to be granted pursuant to any of the collateral documents as security for the obligations, (b) all products, proceeds, rents and profits of such property, (c) all of each loan party’s books and records and (d) all of the foregoing whether now owned or existing, in each case excluding certain excluded assets.
On March 29, 2022, the Company and certain of its subsidiaries who are party to the Fortress Convertible Note Agreement entered into a First Amendment and Waiver to Senior Secured Convertible Note Purchase and Guarantee Agreement and Other Note Documents relating to the Fortress Convertible Note Agreement and the Convertible Notes (the “Fortress Convertible Note Agreement Amendment”) to, among other things, amend the financial covenants included in the Fortress Convertible Note Agreement, amend the conversion price of the Convertible Notes and amend the optional redemption provisions of the Convertible Notes.
Prior to the Fortress Convertible Note Agreement Amendment, the Convertible Notes, together with all accrued but unpaid interest thereon, were convertible, in whole or in part, at any time prior to the payment in full of the principal amount thereof (together with all accrued but unpaid interest thereon), into shares of Common Stock at a conversion price equal to $12.50 per share. Pursuant to the Fortress Convertible Note Agreement Amendment, the conversion price with respect to the Convertible Notes was decreased to $8.00 per share. The conversion price with respect to the Convertible Notes is subject to adjustment to reflect stock splits and subdivisions, stock and other dividends and distributions, recapitalizations, reclassifications, combinations and other similar changes in capital structure. The conversion price with respect to the Convertible Notes is also subject to a broad-based weighted average anti-dilution adjustment in the event the Company issues, or is deemed to have issued, shares of Common Stock, other than certain excepted issuances, at a price below the conversion price then in effect. In addition, pursuant to the Fortress Convertible Note Agreement Amendment, if, during the period commencing on and including the date of the Fortress Convertible Note Agreement Amendment and ending on and including the 15-month anniversary of the date of the Fortress Convertible Note Agreement Amendment, there is no 30 consecutive trading day-period during which the average of the daily volume weighted average price of the Common Stock (“Daily VWAP”) for such 30 consecutive trading day-period (after excluding the three highest and the three lowest Daily VWAPs during such period) equals or exceeds $10.00 (as adjusted for stock splits, stock combinations, dividends, distributions, reorganizations, recapitalizations and the like), the conversion price with respect to the Convertible Notes will be reduced to the amount that such conversion price would otherwise have been had the conversion price with respect to the Convertible Notes been $6.00 on the date of the Fortress Convertible Note Agreement Amendment.
The following is the allocation among the freestanding instruments (in thousands) at the issuance date:
Schedule of convertible notes |
|
|
|
|
Convertible Notes |
|
$ |
41,887 |
|
Conversion option derivative |
|
|
7,474 |
|
Call and contingent put derivative |
|
|
639 |
|
Total Convertible Notes |
|
$ |
50,000 |
|
As of September 30, 2022, the Company had convertible debt outstanding as shown below (in thousands):
Schedule of convertible debt |
|
|
|
|
|
|
September 30, 2022 |
|
Convertible Notes |
|
$ |
41,887 |
|
Accrued interest(a) |
|
|
2,335 |
|
Subtotal |
|
|
44,222 |
|
Loan discount costs |
|
|
(964 |
) |
Total Convertible Notes |
|
$ |
43,258 |
|
|
(a) |
The accrued interest will accrete to principal value by the end of the term, December 30, 2024. |
See Note 10 for further information related to the Fortress Convertible Note Agreement.
|
12. |
FAIR VALUE MEASUREMENTS |
The Company’s assets and liabilities recorded at fair value are categorized based upon a fair value hierarchy that ranks the quality and reliability of the information used to determine fair value.
The Company has certain non-financial assets that are measured at fair value on a non-recurring basis when there is an indicator of impairment, and they are recorded at fair value only when impairment is recognized. These assets include property, plant and equipment, goodwill and intangible assets, net. The Company did not record impairment to any non-financial assets in the three and nine months ended September 30, 2022 and 2021. The Company does not have any non-financial liabilities measured and recorded at fair value on a non-recurring basis.
Financial Disclosures about Fair Value of Financial Instruments
The table below sets forth information related to the Company’s condensed consolidated financial instruments (in thousands):
Schedule of assumptions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level in |
|
|
September 30, 2022 |
|
|
December 31, 2021 |
|
|
|
Fair Value |
|
|
Carrying |
|
|
Fair |
|
|
Carrying |
|
|
Fair |
|
|
|
Hierarchy |
|
|
Amount |
|
|
Value |
|
|
Amount |
|
|
Value |
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
1 |
|
|
$ |
27,265 |
|
|
$ |
27,265 |
|
|
$ |
62,937 |
|
|
$ |
62,937 |
|
Restricted cash |
|
1 |
|
|
|
43 |
|
|
|
43 |
|
|
|
185 |
|
|
|
185 |
|
Cash and investment in severance benefit accounts |
|
1 |
|
|
|
3,146 |
|
|
|
3,146 |
|
|
|
3,687 |
|
|
|
3,687 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subordinated term loan(a) |
|
2 |
|
|
$ |
40,607 |
|
|
$ |
23,743 |
|
|
$ |
37,991 |
|
|
$ |
28,376 |
|
Subordinated debt(a) |
|
2 |
|
|
|
10,981 |
|
|
|
6,820 |
|
|
|
10,577 |
|
|
|
7,674 |
|
Senior term loan(a) |
|
2 |
|
|
|
40,791 |
|
|
|
36,410 |
|
|
|
41,063 |
|
|
|
43,276 |
|
Convertible debt |
|
2 |
|
|
|
43,258 |
|
|
|
43,046 |
|
|
|
41,343 |
|
|
|
44,494 |
|
Public Warrants |
|
1 |
|
|
|
2,070 |
|
|
|
2,070 |
|
|
|
8,510 |
|
|
|
8,510 |
|
Warrants(b) |
|
3 |
|
|
|
240 |
|
|
|
240 |
|
|
|
1,317 |
|
|
|
1,317 |
|
|
(a) |
As of September 30, 2022 and December 31, 2021, the fair value of the subordinated term loan, subordinated debt and senior term loan considered the senior status of the senior term loan under the Fortress Credit Agreement, followed by the junior status of the subordinated term loan and subordinated debt. The implied yields of the subordinated term loan, subordinated debt and senior term loan were 27.52%, 28.98% and 23.30%, respectively, as of September 30, 2022 and 17.16%, 16.83% and 13.8%, respectively, as of December 31, 2021. |
|
(b) |
As of September 30, 2022 and December 31, 2021, the fair value of warrants outstanding that are classified as liabilities are included in other long-term liabilities in the Company’s condensed consolidated balance sheets. The key inputs to the valuation models that were utilized to estimate the fair value of the Post-Combination Warrants and Private Placement Warrants as of September 30, 2022 were as follows: |
Schedule of assumptions |
|
|
|
|
|
|
|
|
|
|
Post- Combination Warrants |
|
|
Private Placement Warrants |
|
Assumptions: |
|
|
|
|
|
|
|
|
Stock price |
|
$ |
2.02 |
|
|
$ |
2.02 |
|
Exercise price |
|
$ |
12.50 – 17.50 |
|
|
$ |
11.50 |
|
Risk free rate |
|
|
3.94 |
% |
|
|
4.05 |
% |
Expected volatility |
|
|
89.7 |
% |
|
|
62.1 |
% |
Dividend yield |
|
|
0.0 |
% |
|
|
0.0 |
% |
The conversion option derivative and call and contingent put derivative are considered a Level 3 measurement due to the utilization of significant unobservable inputs in the valuation. The Company utilized a binomial model to estimate the fair value of the embedded derivative features requiring bifurcation associated with the Convertible Notes payable at the issuance date and as of the September 30, 2022 reporting date. The key inputs to the valuation models that were utilized to estimate the fair value of the convertible debt derivative liabilities include:
Schedule of assumptions |
|
|
|
|
|
|
|
|
|
|
September 30, 2022 |
|
|
Issuance Date |
|
Assumptions: |
|
|
|
|
|
|
|
|
Stock price |
|
$ |
2.02 |
|
|
$ |
9.75 |
|
Conversion strike price |
|
$ |
8.00 |
|
|
$ |
12.50 |
|
Volatility |
|
|
76.00 |
% |
|
|
25.00 |
% |
Dividend yield |
|
|
0.00 |
% |
|
|
0.00 |
% |
Risk free rate |
|
|
4.14 |
% |
|
|
0.51 |
% |
Debt discount rate |
|
|
23.30 |
% |
|
|
12.80 |
% |
Coupon interest rate |
|
|
7.00 |
% |
|
|
7.00 |
% |
Face amount (in thousands) |
|
$ |
50,000 |
|
|
$ |
50,000 |
|
Contingent put inputs and assumptions: |
|
|
|
|
|
|
|
|
Probability of fundamental change |
|
|
33.00 |
% |
|
|
25.00 |
% |
The following table presents a roll-forward of the Level 3 instruments:
Schedule of warrants |
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands) |
|
Warrants |
|
|
Conversion option derivative |
|
|
Call and contingent put derivative |
|
Beginning balance, December 31, 2021 |
|
$ |
1,317 |
|
|
$ |
1,343 |
|
|
$ |
1,651 |
|
Change in fair value |
|
|
(1,077 |
) |
|
|
4,122 |
|
|
|
378 |
|
Ending balance, September 30, 2022 |
|
$ |
240 |
|
|
$ |
5,465 |
|
|
$ |
2,029 |
|
The fair value of the Company’s cash and cash equivalents and restricted cash approximate the carrying value because of the short-term nature of these accounts.
|
13. |
COMMITMENTS AND CONTINGENCIES |
The Company had commitments with its main subcontract manufacturers under various purchase orders and forecast arrangements of $55.5 million as of September 30, 2022, the majority of which have expected delivery dates during the remainder of 2022 and 2023.
Contingencies and Legal Proceedings
From time to time, the Company receives and reviews correspondence from third parties with respect to licensing their patents and other intellectual property in connection with the sale of the Company’s products. Disputes may arise with such third parties if an agreement cannot be reached regarding the licensing of such patents or intellectual property.
On October 14, 2019, Barkan Wireless IP Holdings, L.P. (“Barkan”) filed a suit against Sprint Corporation and related entities (“Sprint”) in the United States District Court for the Eastern District of Texas alleging patent infringement based in part on two of the Company’s products, Airave 4 and Magic Box Gold. See Barkan Wireless IP Holdings, L.P. v. Sprint Corporation et al, Case No. 2:19-cv-00336-JRG (E.D. Tex.). On March 26, 2021, after a settlement between Barkan and Sprint, the court granted an agreed motion to dismiss and the case was closed. Sprint has demanded that the Company indemnify Sprint $3,870,000 for a portion of the amounts Sprint paid to defend and settle the case. On April 27, 2021, Sprint gave notice that it intends to set-off amounts it owes the Company until Sprint’s indemnity demand is satisfied. The Company disputes Sprint’s indemnity demand and, on March 15, 2022, filed a complaint for breach of contract in the United States District Court for the District of Kansas. See Airspan Networks, Inc. v. Sprint/United Management Company, Case No. 2:22-cv-02104-JAR-ADM (D. Kan.). That complaint was subsequently voluntarily dismissed by the Company and the underlying breach of contract claim is now a counterclaim in the matter captioned Sprint Communications Company, L.P et al. vs. Casa Systems, Inc. et al., No. 22CV02327 Div.7 pending in the District Court of Johnson County Kansas.
Except as set forth above, the Company is not currently subject to any other material legal proceedings. The Company may from time to time become a party to various other legal proceedings arising in the ordinary course of its business. While the results of such claims and litigation cannot be predicted with certainty, the Company currently believes that it is not a party to any litigation the final outcome of which is likely to have a material adverse effect on the Company’s condensed consolidated financial position, results of operations or cash flows.
|
14. |
COMMON STOCK AND WARRANTS |
Common Stock
As of September 30, 2022, 260,000,000 shares, $0.0001 par value per share are authorized, of which, 250,000,000 shares are designated as Common Stock and 10,000,000 shares are designated as preferred stock. As of September 30, 2022, there were 73,393,907 shares of Common Stock issued and outstanding and no shares of preferred stock issued or outstanding.
Holders of our Common Stock are entitled to receive dividends when, as and if declared by the board of directors of the Company (the “Board”), payable either in cash, in property or in shares of capital stock. As of September 30, 2022, the Company had not declared any dividends.
Legacy Airspan Warrants
The Company accounted for Legacy Airspan convertible preferred stock warrants that have been earned and are exercisable into shares of Legacy Airspan’s convertible preferred stock as liabilities pursuant to Accounting Standards Codification 480, “Distinguishing Liabilities from Equity” as the warrants were exercisable into shares of Legacy Airspan convertible preferred stock that were contingently redeemable upon events outside the control of Legacy Airspan. The warrant liability is included in other long-term liabilities on the accompanying condensed consolidated balance sheets. The warrants are remeasured and recognized at fair value at each balance sheet date. At the end of each reporting period, changes in fair value during the period are recognized as a component of other expense, net on the accompanying condensed consolidated statements of operations.
In January 2021 and February 2021, Legacy Airspan issued warrants for the purchase of 6,097 and 406, respectively, shares of Legacy Airspan Series H Convertible Preferred Stock to certain holders of Legacy Airspan Series H Senior Convertible Preferred Stock (one warrant for every two shares of Legacy Airspan Series H Senior Convertible Preferred Stock purchased in January and February 2021, respectively) with an exercise price of $61.50 per share and a 5-year term (“Series H warrants”). Legacy Airspan accounted for the initial fair value of the Series H warrants as a discount on the Legacy Airspan Series H Senior Convertible Preferred Stock issuance and recorded a corresponding warrant liability.
In October 2015, Legacy Airspan issued warrants to purchase 487,805 shares of Legacy Airspan Series D Convertible Preferred Stock to holders of its Series D Convertible Preferred Stock with an exercise price of $61.50 per share, subject to certain performance requirements (the “Series D-1 Warrants”). In June 2014, Legacy Airspan issued warrants to purchase 203,252 shares of Legacy Airspan Series D Convertible Preferred Stock to holders of Legacy Airspan Series D Convertible Preferred Stock with an exercise price of $61.50 per share, subject to certain performance requirements (the “Series D Warrants”).
The Series D Warrants expired unexercised in January 2021 and the Series D-1 Warrants and Series H warrants were converted as part of the Closing of the Business Combination (Note 3) and ceased to exist after the Business Combination.
Common Stock Warrants
As of September 30, 2022, there are 12,045,000 Common Stock Warrants outstanding, consisting of 11,500,000 and 545,000 Public Warrants and Private Placement Warrants, respectively.
As part of NBA’s initial public offering, 11,500,000 Public Warrants were sold. The Public Warrants entitle the holder thereof to purchase one share of Common Stock at a price of $11.50 per share, subject to adjustment. The Public Warrants may be exercised only for a whole number of shares of Common Stock. No fractional shares will be issued upon exercise of the Public Warrants. The Public Warrants will expire on August 13, 2026 at 5:00 p.m., New York City time, or earlier upon redemption or liquidation.
The Company may redeem the Public Warrants when exercisable, in whole and not in part, at a price of $0.01 per warrant, so long as the Company provides not less than 30 days’ prior written notice of redemption to each warrant holder, and if, and only if, the reported last sale price of the Common Stock equals or exceeds $18.00 per share for any 20 trading days within a 30-trading day period ending on the third trading day prior to the date the Company sends the notice of redemption to the warrant holders.
Simultaneously with NBA’s initial public offering, NBA consummated a private placement of 545,000 Private Placement Warrants with its sponsor. The Private Placement Warrants are exercisable for one share of Common Stock at a price of $11.50 per share, subject to adjustment. The Private Placement Warrants are identical to the Public Warrants, except that, so long as the Private Placement Warrants are held by the initial purchaser or its permitted transferees, the Private Placement Warrants: (1) may be exercised for cash or on a cashless basis; (2) may not be transferred, assigned or sold until thirty (30) days after the date of the Closing; and (3) may not be redeemed.
Post-Combination Warrants
As of September 30, 2022, there are 9,000,000 Post-Combination Warrants outstanding.
At Closing, the Company issued Post-Combination Warrants exercisable for 9,000,000 shares of Company Common Stock. The Post-Combination Warrants include: (i) 3,000,000 Post-Combination $12.50 Warrants; (ii) 3,000,000 Post-Combination $15.00 Warrants; and (iii) 3,000,000 Post-Combination $17.50 Warrants. As of September 30, 2022, there were 3,000,000 Post-Combination $12.50 Warrants, 3,000,000 Post-Combination $15.00 Warrants, and 3,000,000 Post-Combination $17.50 Warrants outstanding. The Post-Combination Warrants may only be exercised during the period commencing on the Closing and terminating on the earlier of (i) two years following the date of the Closing and (ii) the redemption date, for a price of $12.50 per Post-Combination $12.50 Warrant, $15.00 per Post-Combination $15.00 Warrant and $17.50 per Post-Combination $17.50 Warrant.
|
15. |
SHARE-BASED COMPENSATION |
2021 Stock Incentive Plan
Prior to the Business Combination, the Company maintained its 2009 Omnibus Equity Compensation Plan (the “2009 Plan” and together with the 2021 Plan, the “Plans”). Upon Closing of the Business Combination, awards under the 2009 Plan were converted at the exchange ratio calculated in accordance with the Business Combination Agreement and the 2021 Plan became effective. On June 21, 2022, the 2021 Plan was amended and restated to, among other things, increase the number of shares of Common Stock authorized for issuance under the 2021 Plan by 5,643,450 shares. As of September 30, 2022, there were 11,651,168 shares of Common Stock authorized for issuance under the amended and restated 2021 Plan, plus any shares of Common Stock subject to awards under the 2009 Plan that are forfeited or reacquired by the Company due to termination or cancellation. As of September 30, 2022, there were 17,466,964 shares of Common Stock authorized for issuance under the Plans.
The following table summarizes share-based compensation expense for the three and nine months ended September 30, 2022 and 2021 (in thousands):
Schedule of summarizes share-based compensation expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
Research and development |
|
$ |
1,007 |
|
|
$ |
214 |
|
|
$ |
3,142 |
|
|
$ |
682 |
|
Sales and marketing |
|
|
945 |
|
|
|
140 |
|
|
|
3,225 |
|
|
|
476 |
|
General and administrative |
|
|
3,835 |
|
|
|
293 |
|
|
|
12,850 |
|
|
|
950 |
|
Cost of sales |
|
|
76 |
|
|
|
14 |
|
|
|
182 |
|
|
|
42 |
|
Total share-based compensation |
|
$ |
5,863 |
|
|
$ |
661 |
|
|
$ |
19,399 |
|
|
$ |
2,150 |
|
Common Stock Options
The following table sets forth the activity for all Common Stock options:
Schedule of common stock options |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Shares |
|
|
Weighted Average
Exercise Price |
|
|
Weighted Average
Remaining Contractual
Life (Years) |
|
|
Weighted-Average Grant Date Fair Value |
|
Outstanding, December 31, 2021 |
|
|
5,489,492 |
|
|
$ |
4.23 |
|
|
|
6.05 |
|
|
$ |
2.27 |
|
Granted |
|
|
2,654,904 |
|
|
|
2.81 |
|
|
|
|
|
|
|
2.20 |
|
Exercised |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
- |
|
Forfeited |
|
|
(49,745 |
) |
|
|
4.90 |
|
|
|
|
|
|
|
2.52 |
|
Expired |
|
|
(162,999 |
) |
|
|
5.13 |
|
|
|
|
|
|
|
2.74 |
|
Outstanding, September 30, 2022(a) |
|
|
7,931,652 |
|
|
$ |
3.73 |
|
|
|
7.06 |
|
|
$ |
2.24 |
|
Exercisable, September 30, 2022(b) |
|
|
4,476,596 |
|
|
$ |
4.02 |
|
|
|
5.21 |
|
|
$ |
2.12 |
|
|
(a) |
The aggregate intrinsic value of all stock options outstanding as of September 30, 2022 was $35 thousand. |
|
(b) |
The aggregate intrinsic value of all vested/exercisable stock options as of September 30, 2022 was $35 thousand. |
As of September 30, 2022, there was $6.7 million of unrecognized compensation expense related to stock options to be recognized over a weighted average period of 3.06 years.
Restricted Stock Awards (“RSAs”)
The following table sets forth the activity for all RSAs:
Schedule of Unvested Restricted Stock Units |
|
|
|
|
|
|
|
|
|
|
Number of Shares |
|
|
Weighted Average Grant Date Fair Value |
|
Outstanding (nonvested), December 31, 2021 |
|
|
351,831 |
|
|
$ |
9.63 |
|
Vested |
|
|
(345,471 |
) |
|
|
9.75 |
|
Cancelled |
|
|
(6,360 |
) |
|
|
9.63 |
|
Outstanding (nonvested), September 30, 2022 |
|
|
- |
|
|
$ |
- |
|
As of September 30, 2022, there was no unrecognized compensation expense related to RSAs to be recognized.
Restricted Stock Units
As part of the consideration in the Business Combination, RSUs with respect to 1,750,000 shares of Common Stock were granted to the participants in Legacy Airspan’s MIP. For the RSUs granted to MIP Participants, the weighted average grant date fair value was $9.75 per RSU. The RSUs granted in connection with the MIP vested one year after the date of the grant.
The following table sets forth the activity for all RSUs:
Schedule of Unvested Restricted Stock Units |
|
|
|
|
|
|
|
|
|
|
Number of RSUs |
|
|
Weighted Average Grant Date Fair Value |
|
Outstanding (nonvested), December 31, 2021 |
|
|
2,962,884 |
|
|
$ |
8.60 |
|
Granted |
|
|
3,552,935 |
|
|
|
2.93 |
|
Vested |
|
|
(1,137,063 |
) |
|
|
9.75 |
|
Forfeited |
|
|
(181,222 |
) |
|
|
6.63 |
|
Outstanding (nonvested), September 30, 2022 |
|
|
5,197,534 |
|
|
$ |
4.54 |
|
Because the Company maintained a full valuation allowance on its U.S. deferred tax assets, it did not recognize any tax benefit related to share-based compensation expense for the three and nine months ended September 30, 2022 and 2021. As of September 30, 2022, there was $15.6 million of unrecognized compensation expense related to RSUs to be recognized over a weighted average period of 2.16 years.
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.
The following table sets forth the computation of basic and diluted net loss per share for the periods indicated (in thousands, except share data):
Schedule of basic and diluted net loss per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(23,314 |
) |
|
$ |
(26,953 |
) |
|
$ |
(74,069 |
) |
|
$ |
(50,920 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator - basic and diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding |
|
|
72,572,138 |
|
|
|
66,276,223 |
|
|
|
72,415,546 |
|
|
|
61,923,661 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share - basic and diluted |
|
$ |
(0.32 |
) |
|
$ |
(0.41 |
) |
|
$ |
(1.02 |
) |
|
$ |
(0.82 |
) |
The following table sets forth the amounts excluded from the computation of diluted net loss per share as of September 30, 2022 and 2021 because their effect was anti-dilutive.
Schedule of anti-dilutive net loss per share |
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
|
2022 |
|
|
2021 |
|
Stock options outstanding |
|
|
7,931,652 |
|
|
|
5,773,428 |
|
Non-vested shares of restricted stock |
|
|
6,360 |
|
|
|
345,471 |
|
Warrants(a) |
|
|
- |
|
|
|
- |
|
Convertible notes(a) |
|
|
- |
|
|
|
- |
|
|
(a) |
The Convertible Notes and warrants referred to in Notes 11 and 14 were also excluded on an as converted basis because their effect would have been anti-dilutive. |
|
17. |
RELATED PARTY TRANSACTIONS |
As disclosed in Note 9, as of September 30, 2022 and December 31, 2021, Legacy Airspan had a subordinated term loan with a related party. This related party has an indirect, non-controlling beneficial interest in Fortress, which is the agent and principal lender under the Fortress Credit Agreement and the collateral agent and trustee under the Fortress Convertible Note Agreement and the Convertible Notes. This related party also has an indirect, non-controlling beneficial interest in each holder of Convertible Notes. The Company derived approximately $41 thousand in revenue from sales of products and services to this related party for the three months ended September 30, 2022 and $0.1 million for the nine months ended September 30, 2022. The Company had outstanding receivables amounting to $0.4 million from this related party as of December 31, 2021. There were no amounts receivable from this related party as of September 30, 2022.
The Company has an outstanding receivable from and payable to a related party, a stockholder, amounting to $0.4 million and $5.8 million, respectively, as of September 30, 2022. The Company had an outstanding receivable from and payable to the same related party, amounting to $0.4 million and $12.1 million, respectively, as of December 31, 2021.
In addition, the Company has an outstanding accounts receivable from a separate related party, also a stockholder, amounting to $10.7 million and $11.5 million as of September 30, 2022 and December 31, 2021, respectively. The Company derived approximately $9.6 million and $22.2 million in revenue from sales of products and services to this related party for the three months ended September 30, 2022 and 2021, respectively. A senior executive at this customer is also a member of the Board.
The Company derived revenues from sales of products and services to Dense Air Ltd. (“Dense Air”) amounting to approximately $52 thousand for the period from January 1, 2022 through March 7, 2022 and $0.1 million for the three months and $1.2 million for the nine months ended September 30, 2021, respectively. As of March 7, 2022, Dense Air ceased to be a related party.
|
18. |
EQUITY METHOD INVESTMENT |
The Company previously accounted for its investment in Dense Air, which prior to March 7, 2022, was a wholly-owned subsidiary of the Company, as an equity method investment. On March 7, 2022, the outstanding amount of Dense Air’s loan was converted into shares equating to 95% of the share capital of Dense Air. This conversion did not have a significant effect on the Company’s condensed consolidated balance sheets, statements of operations or cash flows.
The investment had no carrying value as of September 30, 2022 and December 31, 2021.