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 $118.8 million of current assets and $72.8 million of current liabilities as of June 30, 2022. During the six months ended
June 30, 2022, the Company used $22.5 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 the first half
of 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 7 and 9) may not allow the Company
to reasonably expect to meet its forecasted cash requirements.
Certain
covenants under the Fortress Credit Agreement and the agreement governing the Company’s senior secured convertible notes may not
be met as of or during the quarter ending September 30, 2022. See further discussion in Notes 9 and 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 Notes 9 and 10 to the condensed consolidated financial statements, the Company’s senior term loan and convertible debt require
certain prospective financial covenants to be met. 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 those financial covenants
during certain periods of the next twelve months. Given the continued uncertainty in the global markets, in the event that the Company
is unable to achieve these prospective financial covenants, the Company’s senior term loan (see Note 9) and senior secured convertible
notes (see Note 10) could become due prior to the maturity date. In addition, the Company’s subordinated loan (see Note 8) and
subordinated debt (see Note 7) could become due prior to the maturity date due to cross default provisions contained within those instruments.
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 factor receivables 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 Company does not meet the prospective financial covenants
and 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
spread of COVID-19, a novel strain of coronavirus, 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 50.7%
and 70.8%
of product sales were to non-U.S. customers for the three months ended June 30, 2022 and 2021, respectively and approximately 57.9%
and 69.6%
of product sales were to non-U.S. customers for the six months ended June 30, 2022 and 2021, respectively. Two customers accounted for
$24.5 million,
or 50.9%,
of the net accounts receivable balance at June 30, 2022 and three customers accounted for $23.7 million, or 58.2% of the net
accounts receivable balance at June 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 70%
and 59%
of revenue for the three months ended June 30, 2022 and 2021, respectively, and 68%
and 59%
of revenue for the six months ended June 30, 2022 and 2021, respectively. For the three months ended June 30, 2022, the Company had two
customers whose revenue was greater than 10%
of the three-month period’s total revenue. For the six months ended June 30, 2022, the Company had three customers whose revenue
was greater than 10%
of the six-month period’s total revenue. For the three and six months ended June 30, 2021, the Company had two customers whose
revenue was greater than 10% of the three and six month period’s total revenue.
The
Company received 94.3% and 92.8% of goods for resale from five suppliers in the three months ended June 30, 2022 and 2021, respectively.
The Company received 91.1% and 97.6% of goods for resale from five suppliers in the six months ended June 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, while 2,750,000 shares of Common
Stock held by the Sponsor Holders will be 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 June 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 book 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 10).
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 June 30, | | |
Six Months Ended June 30, | |
| |
2022 | | |
2021 | | |
2022 | | |
2021 | |
| |
| | |
| | |
| | |
| |
Products sales | |
$ | 42,500 | | |
$ | 33,874 | | |
$ | 74,146 | | |
$ | 71,655 | |
Non-recurring engineering (“NRE”) | |
| - | | |
| 4,833 | | |
| 1,156 | | |
| 6,958 | |
Product maintenance contracts | |
| 911 | | |
| 1,463 | | |
| 1,809 | | |
| 4,626 | |
Professional service contracts | |
| 2,003 | | |
| 959 | | |
| 3,937 | | |
| 2,863 | |
Software licenses | |
| 1,162 | | |
| 745 | | |
| 2,546 | | |
| 1,348 | |
Other | |
| 369 | | |
| 174 | | |
| 915 | | |
| 533 | |
Total revenue | |
$ | 46,945 | | |
$ | 42,048 | | |
$ | 84,509 | | |
$ | 87,983 | |
There
was no revenue recognized at a point in time for NRE services for the three and six months ended June 30, 2022. Revenue recognized at
a point in time for NRE services amounted to $1.4 million and $3.5 million for the three and six months ended June 30, 2021, respectively.
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 no revenue recognized over time for NRE services using a cost-based input method for the
three months ended June 30, 2022. Revenue recognized over time for NRE services using a cost-based input method amounted to $3.4 million
for the three months ended June 30, 2021, and $1.2 million and $3.4 million for the six months ended June 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 June 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 June 30, 2022 | |
| 8,704 | | |
| 4,588 | |
Change | |
$ | 1,031 | | |
$ | 1,686 | |
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 June 30, 2022 and December 31,
2021, deferred revenue (both current and noncurrent) of $4.6 million and $2.9 million, respectively, represents the Company’s remaining
performance obligations, of which $4.5 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 six months ended June 30, 2022 and 2021, include the following (in thousands):
Schedule of revenues from contract liability | |
| | | |
| | | |
| | | |
| | |
| |
Three Months Ended June 30, | | |
Six Months Ended June 30, | |
| |
2022 | | |
2021 | | |
2022 | | |
2021 | |
| |
| | | |
| | | |
| | | |
| | |
Amounts included in the beginning of year contract liability balance | |
$ | 835 | | |
$ | 877 | | |
$ | 1,880 | | |
$ | 4,427 | |
Warranty
Liabilities
Information
regarding the changes in the Company’s product warranty liabilities for the three and six months ended June 30, 2022 and 2021 is
as follows (in thousands):
Schedule of product warranty liabilities | |
| | | |
| | | |
| | | |
| | |
| |
Three Months Ended June 30, | | |
Six Months Ended June 30, | |
| |
2022 | | |
2021 | | |
2022 | | |
2021 | |
Balance, beginning of period | |
$ | 1,341 | | |
$ | 1,019 | | |
$ | 1,285 | | |
$ | 1,019 | |
Accruals | |
| 930 | | |
| 168 | | |
| 1,167 | | |
| 260 | |
Settlements | |
| (913 | ) | |
| (88 | ) | |
| (1,094 | ) | |
| (180 | ) |
Balance, end of period | |
$ | 1,358 | | |
$ | 1,099 | | |
$ | 1,358 | | |
$ | 1,099 | |
|
5. |
GOODWILL AND INTANGIBLE
ASSETS, NET |
The
Company had goodwill of $13.6 million as of June 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 | | |
June 30, 2022 | |
| |
Average Useful Life (in years) | | |
Gross Carrying Amount | | |
Accumulated Amortization | | |
Net Carrying Amount | |
| |
| | |
| | |
| | |
| |
Internally developed technology | |
| 10 | | |
$ | 7,810 | | |
$ | (2,798 | ) | |
$ | 5,012 | |
Customer relationships | |
| 6 | | |
| 2,130 | | |
| (1,272 | ) | |
| 858 | |
Trademarks | |
| 2 | | |
| 720 | | |
| (720 | ) | |
| - | |
Non-compete | |
| 3 | | |
| 180 | | |
| (180 | ) | |
| - | |
Total acquired intangible assets | |
| | | |
$ | 10,840 | | |
$ | (4,970 | ) | |
$ | 5,870 | |
| |
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 June 30, 2022 and
2021, and $0.6 million for both of the six months ended June 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 | |
$ | 570 | |
2023 | |
| 1,136 | |
2024 | |
| 1,107 | |
2025 | |
| 781 | |
2026 | |
| 781 | |
Thereafter | |
| 1,495 | |
Total | |
$ | 5,870 | |
|
6. |
OTHER ACCRUED EXPENSES |
Other
accrued expenses consist of the following (in thousands):
Schedule of other accrued expenses | |
| | | |
| | |
| |
June 30, 2022 | | |
December 31, 2021 | |
Payroll and related benefits and taxes | |
$ | 8,937 | | |
$ | 7,258 | |
Royalties | |
| 2,719 | | |
| 2,870 | |
Agent and sales commissions | |
| 2,762 | | |
| 2,833 | |
Right-of-use lease liability, current portion | |
| 2,306 | | |
| 2,599 | |
Tax liabilities | |
| 1,938 | | |
| 1,611 | |
Product warranty liabilities | |
| 1,358 | | |
| 1,285 | |
Product marketing | |
| 785 | | |
| 752 | |
Manufacturing subcontractor costs | |
| 2,019 | | |
| 2,165 | |
Legal and professional services | |
| 2,255 | | |
| 2,275 | |
Other | |
| 1,823 | | |
| 3,319 | |
Other accrued expenses | |
$ | 26,902 | | |
$ | 26,967 | |
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 9). 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 $1.8
million and $1.6 million of accrued interest as of June 30, 2022 and December 31, 2021, respectively.
See
Notes 9 and 10 for a discussion of potential financial covenant breaches which would cause the subordinated debt to be classified as
a current liability.
|
8. |
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 9). The term loan is subordinate to the Fortress
Credit Agreement (see Note 9).
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 $9.7 million and $8.0 million of accrued interest as of June
30, 2022 and December 31, 2021, respectively.
See
Notes 9 and 10 for a discussion of potential financial covenant breaches which would cause 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
10) 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 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.
As
of June 30, 2022, the Company was in compliance with all applicable covenants under the Fortress Credit Agreement.
Based
on management’s current forecast, the Company has concluded that it is probable that it will not be in compliance with the minimum
last twelve-month Earnings before Interest, Taxes, Depreciation and Amortization (“EBITDA”) covenant under the Fortress Credit
Agreement as of the September 30, 2022 quarterly measurement date. Under the terms of the Fortress Credit 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. For the last day of the next four fiscal quarters, commencing with the fiscal quarter ending September
30, 2022, the applicable minimum twelve-month EBITDA under the Fortress Credit Agreement ranges from a loss of $23.0 million to a loss
of $42.0 million.
In
addition, based on management’s current forecast, absent of additional financing or capital raising, the Company has concluded it is
also probable that it will not be in compliance with the minimum liquidity covenant under the Fortress Credit Agreement during certain
periods of the next twelve months. Under the terms of the Fortress Credit 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.
While
the Company intends to seek waivers from compliance with the applicable covenants in connection with such anticipated breaches, or amendments
of the existing financial covenants included in the Fortress Credit Agreement, the Company is also pursuing alternative sources of capital.
In the event the Company is not in compliance with all applicable covenants under the Fortress Credit Agreement as of September 30, 2022,
and the Company is unable to obtain waivers from compliance with such covenants or otherwise remedy such breaches, the Company expects
to classify 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 $45.5 million and $46.8 million, inclusive of accrued interest of $3.7 million and $2.5
million, as of June 30, 2022 and December 31, 2021, respectively. Deferred financing fees of $4.5 million and $5.9 million are reflected
as reductions of the outstanding senior term loan balance as of June 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 Convertible Notes 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 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 book 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 June 30 2022, the Company had convertible debt outstanding as shown below (in thousands):
Schedule of convertible debt | |
| | |
| |
June 30, 2022 | |
Convertible Notes | |
$ | 41,887 | |
Accrued interest(a) | |
| 1,790 | |
Subtotal | |
| 43,677 | |
Loan discount costs | |
| (1,072 | ) |
Total Convertible Notes | |
$ | 42,605 | |
|
(a) |
The accrued interest will
accrete to principal value by the end of the term, December 30, 2024. |
As
of June 30, 2022, the Company was in compliance with all applicable covenants under the Fortress Convertible Note
Agreement.
Based
on management’s current forecast, the Company has concluded that it is probable that it will not be in compliance with the minimum
last twelve-month EBITDA covenant under the Fortress Convertible Note Agreement as of the September 30, 2022 quarterly measurement date.
Under the terms of 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 Convertible Note Agreement.
For the last day of the next four fiscal quarters, commencing with the fiscal quarter ending September 30, 2022, the applicable minimum
twelve-month EBITDA under the Fortress Convertible Note Agreement ranges from a loss of $23.0 million to a loss of $42.0 million.
In
addition, based on management’s current forecast, absent of additional financing or capital raising, the Company has concluded it is
also probable that it will not be in compliance with the minimum liquidity covenant under the Fortress Convertible Note Agreement during
certain periods of the next twelve months. Under the terms of 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 Convertible Note Agreement.
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 Convertible Note Agreement, the Company is also pursuing alternative sources
of capital. In the event the Company is not in compliance with all applicable covenants under the Fortress Convertible Note Agreement
as of September 30, 2022, and the Company is unable to obtain waivers from compliance with such covenants or otherwise remedy such breaches,
the Company expects to classify 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.
|
11. |
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 six months ended June
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 | |
June 30, 2022 | | |
December 31, 2021 | |
| |
Fair Value | |
Carrying | | |
Fair | | |
Carrying | | |
Fair | |
| |
Hierarchy | |
Amount | | |
Value | | |
Amount | | |
Value | |
Assets: | |
| |
| | | |
| | | |
| | | |
| | |
Cash and cash equivalents | |
1 | |
$ | 36,305 | | |
$ | 36,305 | | |
$ | 62,937 | | |
$ | 62,937 | |
Restricted cash | |
1 | |
| 51 | | |
| 51 | | |
| 185 | | |
| 185 | |
Cash and investment in severance benefit accounts | |
1 | |
| 3,514 | | |
| 3,514 | | |
| 3,687 | | |
| 3,687 | |
| |
| |
| | | |
| | | |
| | | |
| | |
Liabilities: | |
| |
| | | |
| | | |
| | | |
| | |
Subordinated term loan(a) | |
2 | |
$ | 39,706 | | |
$ | 26,436 | | |
$ | 37,991 | | |
$ | 28,376 | |
Subordinated debt(a) | |
2 | |
| 10,844 | | |
| 7,470 | | |
| 10,577 | | |
| 7,674 | |
Senior term loan(a) | |
2 | |
| 41,036 | | |
| 39,829 | | |
| 41,063 | | |
| 43,276 | |
Convertible debt | |
2 | |
| 42,605 | | |
| 45,952 | | |
| 41,343 | | |
| 44,494 | |
Public Warrants | |
1 | |
| 1,380 | | |
| 1,380 | | |
| 8,510 | | |
| 8,510 | |
Warrants(b) | |
3 | |
| 499 | | |
| 499 | | |
| 1,317 | | |
| 1,317 | |
|
(a) |
As of June 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 21.53%, 21.83% and 17.8%, respectively,
as of June 30, 2022 and 17.16%, 16.83% and 13.8%, respectively, as of December 31, 2021. |
|
(b) |
As of June 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 June 30, 2022 were as follows: |
Schedule of assumptions | |
| | | |
| | |
| |
Post- Combination Warrants | | |
Private Placement Warrants | |
Assumptions: | |
| | | |
| | |
Stock price | |
$ | 2.99 | | |
$ | 2.99 | |
Exercise price | |
$ | 12.50 – 17.50 | | |
$ | 11.50 | |
Risk free rate | |
| 2.78 | % | |
| 2.96 | % |
Expected volatility | |
| 81.2 | % | |
| 45.2 | % |
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 June 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 | |
| | | |
| | |
| |
June 30, 2022 | | |
Issuance Date | |
Assumptions: | |
| | | |
| | |
Stock price | |
$ | 2.99 | | |
$ | 9.75 | |
Conversion strike price | |
$ | 8.00 | | |
$ | 12.50 | |
Volatility | |
| 59.00 | % | |
| 25.00 | % |
Dividend yield | |
| 0.00 | % | |
| 0.00 | % |
Risk free rate | |
| 2.91 | % | |
| 0.51 | % |
Debt discount rate | |
| 17.80 | % | |
| 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 | |
| 25.00 | % | |
| 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 | |
| (818 | ) | |
| 4,570 | | |
| (559 | ) |
Ending balance, June 30, 2022 | |
$ | 499 | | |
$ | 5,913 | | |
$ | 1,092 | |
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.
|
12. |
COMMITMENTS AND CONTINGENCIES |
The
Company had commitments with its main subcontract manufacturers under various purchase orders and forecast arrangements of $51.6 million
as of June 30, 2022, the majority of which have expected delivery dates during the remainder of 2022.
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.
|
13. |
COMMON STOCK AND WARRANTS |
Common
Stock
As
of June 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 June 30, 2022, there were 72,335,952 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 June 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 June 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 June 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 June 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.
|
14. |
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 June 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 June 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 six months ended June 30, 2022 and 2021 (in thousands):
Schedule of summarizes share-based compensation expense | |
| | | |
| | | |
| | | |
| | |
| |
Three Months Ended June 30, | | |
Six Months Ended June 30, | |
| |
2022 | | |
2021 | | |
2022 | | |
2021 | |
Research and development | |
$ | 1,169 | | |
$ | 254 | | |
$ | 2,135 | | |
$ | 468 | |
Sales and marketing | |
| 1,197 | | |
| 196 | | |
| 2,279 | | |
| 336 | |
General and administrative | |
| 4,541 | | |
| 363 | | |
| 9,015 | | |
| 657 | |
Cost of sales | |
| 65 | | |
| 14 | | |
| 107 | | |
| 28 | |
Total share-based compensation | |
$ | 6,972 | | |
$ | 827 | | |
$ | 13,536 | | |
$ | 1,489 | |
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 | |
| (14,114 | ) | |
| 6.01 | | |
| - | | |
| 2.59 | |
Expired | |
| (146,668 | ) | |
| 5.10 | | |
| - | | |
| 2.73 | |
Outstanding, June 30, 2022(a) | |
| 7,983,614 | | |
$ | 3.74 | | |
| 7.06 | | |
$ | 2.24 | |
Exercisable, June 30, 2022(b) | |
| 4,305,177 | | |
$ | 3.98 | | |
| 5.21 | | |
$ | 2.09 | |
|
(a) |
The aggregate intrinsic
value of all stock options outstanding as of June 30, 2022 was $1.9 million. |
|
(b) |
The aggregate intrinsic
value of all vested/exercisable stock options as of June 30, 2022 was $0.9 million. |
As
of June 30, 2022, there was $7.7 million of unrecognized compensation expense related to stock options to be recognized over a weighted
average period of 3.19 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 | |
Granted | |
| - | | |
| - | |
Forfeited | |
| - | | |
| - | |
Outstanding (nonvested), June 30, 2022 | |
| 351,831 | | |
$ | 9.63 | |
As
of June 30, 2022, there was $0.4 million of unrecognized compensation expense related to RSAs to be recognized over a weighted average
period of 0.12 years.
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 vest one year after the date of the grant.
The
following table sets forth the activity for all RSUs:
| |
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 | |
Forfeited | |
| (108,500 | ) | |
| 6.94 | |
Outstanding (nonvested), June 30, 2022 | |
| 6,407,319 | | |
$ | 5.49 | |
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 six months ended June 30, 2022 and 2021. As of June 30, 2022, there was $17.6 million of unrecognized
compensation expense related to RSUs to be recognized over a weighted average period of 1.97 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 June 30, | | |
Six Months Ended June 30, | |
| |
2022 | | |
2021 | | |
2022 | | |
2021 | |
Numerator: | |
| | | |
| | | |
| | | |
| | |
Net loss | |
$ | (21,017 | ) | |
$ | (10,418 | ) | |
$ | (50,755 | ) | |
$ | (23,967 | ) |
| |
| | | |
| | | |
| | | |
| | |
Denominator - basic and diluted: | |
| | | |
| | | |
| | | |
| | |
Weighted average common shares outstanding | |
| 72,335,952 | | |
| 59,714,562 | | |
| 72,335,952 | | |
| 59,713,471 | |
| |
| | | |
| | | |
| | | |
| | |
Net loss per share - basic and diluted | |
$ | (0.29 | ) | |
$ | (0.17 | ) | |
$ | (0.70 | ) | |
$ | (0.40 | ) |
The
following table sets forth the amounts excluded from the computation of diluted net loss per share as of June 30, 2022 and 2021 because
their effect was anti-dilutive.
Schedule of anti-dilutive net loss per share | |
| | | |
| | |
| |
June 30, | |
| |
2022 | | |
2021 | |
Stock options outstanding | |
| 7,983,614 | | |
| 1,018,125 | |
Non-vested shares of restricted stock | |
| 6,759,150 | | |
| 72,989 | |
Warrants (a) | |
| - | | |
| - | |
Convertible notes (a) | |
| - | | |
| - | |
|
(a) |
The Convertible Notes and
warrants referred to in Notes 10 and 13 were also excluded on an as converted basis because their effect would have been anti-dilutive. |
|
16. |
RELATED PARTY TRANSACTIONS |
As
disclosed in Note 8, as of June 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 $44 thousand in revenue from sales of products and services to this related party for the three months ended June 30, 2022
and $0.1 million for the six months ended June 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 June 30, 2022.
The
Company has an outstanding receivable from and payable to a related party, a stockholder, amounting to $0.4 million and $6.1 million,
respectively, as of June 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 $9.1 million
and $11.5 million as of June 30, 2022 and December 31, 2021, respectively. The Company derived approximately $4.5 million and $8.7 million
in revenue from sales of products and services to this related party for the three months ended June 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 $1.0 million for both of the three and six months ended June 30,
2021. As of March 7, 2022, Dense Air ceased to be a related party.
|
17. |
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 June 30, 2022 and December 31, 2021.