UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For
the quarterly period ended
OR
For the transition period from __________ to __________
(Exact name of registrant as specified in its charter)
| (State
or other jurisdiction of incorporation or organization) |
(Commission File Number) |
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Employer Identification Number) |
| (Address of principal executive offices) | (Zip Code) |
Registrant’s
telephone number, including area code:
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of Each Class: | Trading Symbol: | Name of Each Exchange on Which Registered: | ||
| American, LLC | ||||
| American, LLC | ||||
| American, LLC |
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405
of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was
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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | ☒ | |
| Non-accelerated filer | ☐ | Smaller reporting company | |
| Emerging growth company |
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate
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As of August 4, 2023, shares of the registrant’s common stock, par value $0.0001 per share, were issued and outstanding.
AIRSPAN NETWORKS HOLDINGS INC.
Quarterly Report on Form 10-Q
Table of Contents
i
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q (“Quarterly Report”) contains statements reflecting assumptions, expectations, projections, intentions or beliefs about future events that are intended as “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. All statements included in this Quarterly Report, other than statements of historical fact, that address activities, events or developments that we expect, believe or anticipate will or may occur in the future are forward-looking statements. These statements appear in a number of places, including, but not limited to “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” These statements represent our reasonable judgment of the future based on various factors and using numerous assumptions and are subject to known and unknown risks, uncertainties and other factors that could cause our actual results and financial position to differ materially from those contemplated by the statements. You can identify these statements by the fact that they do not relate strictly to historical or current facts, and use words such as “anticipate,” “believe,” “estimate,” “expect,” “forecast,” “may,” “should,” “plan,” “project” and other words of similar meaning. In particular, these include, but are not limited to, statements relating to the following:
| ● | our expected financial and business performance; |
| ● | changes in our strategy, future operations, financial position, estimated revenues and losses, forecasts, projected costs, prospects and plans; |
| ● | the implementation, market acceptance and success of our products; |
| ● | demand for our products and the drivers of that demand; |
| ● | our estimated total addressable market and other industry projections, and our projected market share; |
| ● | competition in our industry, the advantages of our products and technology over competing products and technology existing in the market, and competitive factors including with respect to technological capabilities, cost and scalability; |
| ● | our ability to scale in a cost-effective manner and maintain and expand our manufacturing relationships; |
| ● | our ability to enter into production supply agreements with customers, the terms of those agreements, and customers’ utilization of our products and technology; |
| ● | our expected reliance on our significant customers; |
| ● | developments and projections relating to our competitors and industry, including with respect to investment in 5G networks; |
| ● | our expectation that we will incur substantial expenses and continuing losses for the foreseeable future and that we will incur increased expenses as a public company; |
| ● | the impact of health epidemics, including the COVID-19 pandemic, on our business and industry and the actions we may take in response thereto; |
| ● | our expectations regarding our ability to obtain and maintain intellectual property protection and not infringe on the rights of others; |
| ● | expectations regarding the time during which we will be an emerging growth company as defined in Section 2(a)(19) of the Securities Act of 1933, as amended (the “Securities Act”), as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”); |
| ● | our future capital requirements and sources and uses of cash; |
| ● | our ability to obtain funding for our operations; |
ii
| ● | our business, expansion plans and opportunities; |
| ● | anticipated financial performance, including gross margin, and the expectation that our future results of operations will fluctuate on a quarterly basis for the foreseeable future; |
| ● | expected capital expenditures, cost of revenue and other future expenses, and the sources of funds to satisfy our liquidity needs; and |
| ● | the outcome of any known and unknown litigation and regulatory proceedings. |
These forward-looking statements are based on information available as of the date of this Quarterly Report and current expectations, forecasts and assumptions, and involve a number of judgments, risks and uncertainties. Accordingly, forward-looking statements should not be relied upon as representing our views as of any subsequent date, and we do not undertake any obligation to update forward-looking statements to reflect events or circumstances after the date they were made, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.
You should not place undue reliance on these forward-looking statements. As a result of a number of known and unknown risks and uncertainties, our actual results or performance may be materially different from those expressed or implied by these forward-looking statements. Some factors that could cause actual results to differ include:
| ● | the ability to maintain the listing of our securities on the NYSE American or any other exchange; |
| ● | the price of our securities may be volatile due to a variety of factors, including changes in the industries in which we operate, variations in performance across competitors, changes in laws and regulations affecting our business and changes in our capital structure; |
| ● | the risk of downturns and the possibility of rapid change in the highly competitive industry in which we operate; |
| ● | our substantial indebtedness and our ability to secure additional liquidity; |
| ● | the risk that we and our current and future collaborators are unable to successfully develop and commercialize our products or services, or experience significant delays in doing so; |
| ● | the risk that we do not achieve or sustain profitability; |
| ● | the risk that we will need to raise additional capital to execute our business plan, which may not be available on acceptable terms or at all; |
| ● | the risk that we experience difficulties in managing our growth and expanding operations; |
| ● | the risk that third-party suppliers and manufacturers are not able to fully and timely meet their obligations; |
| ● | the risk of product liability or regulatory lawsuits or proceedings relating to our products and services; and |
| ● | the risk that we are unable to secure or protect our intellectual property. |
There are a number of risks and uncertainties that could cause our actual results to differ materially from the forward-looking statements contained in or contemplated by this report. Any forward-looking statements should be considered in light of the risks set forth in “Part II. Item 1A. Risk Factors” of the Quarterly Report and our other filings with the Securities and Exchange Commission, including our most recently filed Annual Report on Form 10-K.
iii
PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AIRSPAN NETWORKS HOLDINGS INC.
UNAUDITED CONDENSED consolidated BALANCE SHEETS
(in thousands, except for share data)
| June 30,
2023 |
December 31,
2022 |
|||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Restricted cash | ||||||||
| Accounts
receivable, net of allowance of $ |
||||||||
| Inventory | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Assets held for sale – current | ||||||||
| Total current assets | ||||||||
| Property, plant and equipment, net | ||||||||
| Goodwill | ||||||||
| Intangible assets, net | ||||||||
| Right-of-use assets, net | ||||||||
| Other non-current assets | ||||||||
| Assets held for sale – non-current | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses and other current liabilities | ||||||||
| Deferred revenue | ||||||||
| Senior term loan, current portion | ||||||||
| Subordinated debt | ||||||||
| Subordinated term loan – related party | ||||||||
| Convertible debt | ||||||||
| Current portion of long-term debt | ||||||||
| Liabilities held for sale – current | ||||||||
| Total current liabilities | ||||||||
| Subordinated term loan – related party | ||||||||
| Senior term loan | ||||||||
| Convertible debt | ||||||||
| Other long-term liabilities | ||||||||
| Liabilities held for sale – non-current | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies (Note 13) | ||||||||
| Stockholders’ deficit: | ||||||||
| Common stock, $ par value; shares authorized; and shares issued and outstanding at both June 30, 2023 and December 31, 2022 | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( |
) | ( |
) | ||||
| Total stockholders’ deficit | ( |
) | ( |
) | ||||
| Total liabilities and stockholders’ deficit | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
1
AIRSPAN NETWORKS HOLDINGS INC.
UNAUDITED CONDENSED consolidated STATEMENTS OF OPERATIONS
| Three
Months Ended June 30, |
Six
Months Ended June 30, |
|||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Revenues: | ||||||||||||||||
| Products and software licenses | $ | $ | $ | $ | ||||||||||||
| Maintenance, warranty and services | ||||||||||||||||
| Total revenues | ||||||||||||||||
| Cost of revenues: | ||||||||||||||||
| Products and software licenses | ||||||||||||||||
| Maintenance, warranty and services | ||||||||||||||||
| Total cost of revenues | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Operating expenses: | ||||||||||||||||
| Research and development | ||||||||||||||||
| Sales and marketing | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Amortization of intangibles | ||||||||||||||||
| Restructuring costs | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Loss from operations | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Interest expense, net | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Loss on extinguishment of debt | ( |
) | ( |
) | ||||||||||||
| Change in fair value of warrant liability and derivatives, net | ||||||||||||||||
| Other income (expense), net | ( |
) | ( |
) | ( |
) | ||||||||||
| Loss before income taxes | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Income tax benefit (expense), net | ||||||||||||||||
| Net loss | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
| Loss per share - basic and diluted | $ | ) | $ | ) | $ | ) | $ | ) | ||||||||
| Weighted average shares outstanding - basic and diluted | ||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
2
AIRSPAN NETWORKS HOLDINGS INC.
UNAUDITED CONDENSED consolidated STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT
| Six Months Ended June 30, 2023 | ||||||||||||||||||||
| Common Stock | Additional Paid-In |
Accumulated | ||||||||||||||||||
| Shares | Amount | Capital | Deficit | Total | ||||||||||||||||
| Balance as of December 31, 2022 | $ | $ | $ | ( |
) | $ | ( |
) | ||||||||||||
| Net loss | - | ( |
) | ( |
) | |||||||||||||||
| Issuance of restricted shares, net of cash withheld for payment of taxes | ( |
) | ( |
) | ||||||||||||||||
| Share-based compensation expense | - | |||||||||||||||||||
| Balance as of March 31, 2023 | $ | $ | $ | ( |
) | $ | ( |
) | ||||||||||||
| Net loss | - | ( |
) | ( |
) | |||||||||||||||
| Warrants issued | - | |||||||||||||||||||
| Share-based compensation expense | - | |||||||||||||||||||
| Balance as of June 30, 2023 | $ | $ | $ | ( |
) | $ | ( |
) | ||||||||||||
| Six Months Ended June 30, 2022 | ||||||||||||||||||||
| Common Stock | Additional Paid-In |
Accumulated | ||||||||||||||||||
| Shares | Amount | Capital | Deficit | Total | ||||||||||||||||
| Balance as of December 31, 2021 | $ | $ | $ | ( |
) | $ | ( |
) | ||||||||||||
| Net loss | - | ( |
) | ( |
) | |||||||||||||||
| Share-based compensation expense | - | |||||||||||||||||||
| Balance as of March 31, 2022 | $ | $ | $ | ( |
) | $ | ( |
) | ||||||||||||
| Net loss | - | ( |
) | ( |
) | |||||||||||||||
| Share-based compensation expense | - | |||||||||||||||||||
| Balance as of June 30, 2022 | $ | $ | $ | ( |
) | $ | ( |
) | ||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3
AIRSPAN NETWORKS HOLDINGS INC.
UNAUDITED CONDENSED consolidated STATEMENTS OF CASH FLOWS
Six Months Ended June 30, |
||||||||
| 2023 | 2022 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | ( |
) | $ | ( |
) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Foreign exchange loss (gain) on long-term debt | ( |
) | ||||||
| Bad debt expense | ||||||||
| Change in fair value of warrants and derivatives, net | ( |
) | ( |
) | ||||
| Loss on extinguishment of debt | ||||||||
| Non-cash debt amendment fee | ||||||||
| Inventory impairment charge | ||||||||
| Share-based compensation | ||||||||
| Total adjustments | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Decrease in accounts receivable | ||||||||
| Increase in inventory | ( |
) | ( |
) | ||||
| Decrease in prepaid expenses and other current assets | ||||||||
| Decrease in other non-current assets | ||||||||
| Increase (decrease) in accounts payable | ( |
) | ||||||
| (Decrease) increase in deferred revenue | ( |
) | ||||||
| Decrease in accrued expenses and other current liabilities | ( |
) | ( |
) | ||||
| Increase in other long-term liabilities | ||||||||
| Increase in accrued interest on long-term debt | ||||||||
| Net cash used in operating activities | ( |
) | ( |
) | ||||
| Cash flows from investing activities: | ||||||||
| Purchase of property, plant and equipment | ( |
) | ( |
) | ||||
| Net cash used in investing activities | ( |
) | ( |
) | ||||
| Cash flows from financing activities: | ||||||||
| Borrowings from senior term loan | ||||||||
| Repayment of senior term loan | ( |
) | ( |
) | ||||
| Payment of debt issuance costs | ( |
) | ||||||
| Payment of taxes withheld on stock awards | ( |
) | ||||||
| Net cash provided by (used in) financing activities | ( |
) | ||||||
| Net increase (decrease) in cash, cash equivalents and restricted cash | ( |
) | ||||||
| Cash, cash equivalents and restricted cash, beginning of year | ||||||||
| Cash, cash equivalents and restricted cash, end of period | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
AIRSPAN NETWORKS HOLDINGS INC.
UNAUDITED CONDENSED consolidated STATEMENTS OF CASH FLOWS
(CONTINUED)
Six Months Ended June 30, |
||||||||
| 2023 | 2022 | |||||||
| Supplemental disclosures of cash flow information | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Cash (refunded) paid for income taxes | $ | $ | ( |
) | ||||
| Supplemental disclosure of non-cash financing activities: | ||||||||
| Non-cash debt amendment fee | $ | $ | ||||||
| Warrants issued for convertible debt | $ | $ | ||||||
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the unaudited condensed consolidated balance sheets that sum to the total of the same such amounts shown in the unaudited condensed consolidated statements of cash flows:
| June 30, | ||||||||
| 2023 | 2022 | |||||||
| Cash and cash equivalents | $ | $ | ||||||
| Restricted cash | $ | $ | ||||||
| Total cash, cash equivalents and restricted cash shown in the unaudited condensed consolidated statement of cash flows | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
5
AIRSPAN NETWORKS HOLDINGS INC.
NOTES TO UNAUDITED CONDENSED Consolidated FINANCIAL STATEMENTS
| 1. | BUSINESS |
Airspan Networks Holdings Inc. (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 (“5G NR”) and Long-Term Evolution (“LTE”), 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.
On August 13, 2021 (the “Closing”), the Company (formerly New Beginnings Acquisition Corp.) (the “Company”) consummated its previously announced business combination transaction (the “Business Combination”) pursuant to the 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.
In
connection with the Closing of the Business Combination, NBA sold
Mimosa Sale
On
March 8, 2023 (the “Closing Date”), the Company entered into a Stock Purchase Agreement (the “Mimosa Purchase
Agreement”) with Airspan Networks Inc., a Delaware corporation and a direct wholly-owned subsidiary of the Company (“Seller”),
Mimosa Networks, Inc., a Delaware corporation and a direct wholly-owned subsidiary of Seller (“Mimosa”), and Radisys Corporation,
an Oregon corporation (“Buyer”), pursuant to which Seller will sell all of the issued and outstanding shares of common stock
of Mimosa to Buyer for an aggregate purchase price of approximately $
The accounting requirements for reporting the Mimosa business as held for sale were met, however, the requirements for discontinued operations were not met. Accordingly, the consolidated financial statements and notes to the consolidated financial statements reflect the assets and liabilities of the Mimosa business as held for sale for the periods presented. (See Note 7).
6
| 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, 2022.
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 $
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; |
|
● | selling the Mimosa business for approximately $60.0 million; 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.
7
Global Economic Conditions
The Company has experienced supply chain disruptions and inflationary impacts across our businesses, driven by the impact of the COVID-19 pandemic, the war in Ukraine and resulting economic sanctions, and general macroeconomic factors. These factors have increased our operating costs. While the Company is taking actions to respond to the supply chain disruptions, inflationary environment, and global demand dynamics, we may not be able to enact these measures in a timely manner, or the measures may not be sufficient to offset the increase in costs, which could have a material adverse impact on our results of operations.
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
The
Company received
Recent Accounting Pronouncements
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 (“IBORs”) 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, 2024, with early adoption permitted. The potential adoption of this standard is not expected to have a material impact on the Company’s 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 new guidance was adopted by the Company on January 1, 2023, and it did not have a material impact on the Company’s condensed consolidated financial statements.
8
| 3. | REVENUE RECOGNITION |
The following is a summary of revenue by category (in thousands):
| Three
Months Ended June 30, |
Six
Months Ended June 30, |
|||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Products sales | $ | $ | $ | $ | ||||||||||||
| Non-recurring engineering (“NRE”) | ||||||||||||||||
| Product maintenance contracts | ||||||||||||||||
| Professional service contracts | ||||||||||||||||
| Software licenses | ||||||||||||||||
| Other | ||||||||||||||||
| Total revenue | $ | $ | $ | $ | ||||||||||||
There
was $
The opening and closing balances of our contract asset and liability balances from contracts with customers as of June 30, 2023 and December 31, 2022 were as follows (in thousands):
| Contracts Assets |
Contracts Liabilities |
|||||||
| Balance as of December 31, 2022 | $ | $ | ||||||
| Balance as of June 30, 2023 | ||||||||
| Change | $ | $ | ( |
) | ||||
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, 2023 and December 31,
2022, deferred revenue (both current and noncurrent) of $
Revenues for the three and six months ended June 30, 2023 and 2022, include the following (in thousands):
| Three
Months Ended June 30, |
Six
Months Ended June 30, |
|||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Amounts included in the beginning of year contract liability balance | $ | $ | $ | $ | ||||||||||||
9
| 4. | RESTRUCTURING ACTIVITIES |
In the second quarter of 2023, as part of a strategic review of our operations, the Company implemented a cost reduction and restructuring program (the “2023 Restructuring Program”). The 2023 Restructuring Program was primarily comprised of entering into severance and termination agreements with employees. Formal announcements to the relevant employees were made in May, June and July 2023 and activities will be ongoing throughout the third and fourth quarter of 2023. The payments related to severance costs should be completed by March 31, 2024 and the payments related to the building costs should be completed by December 31, 2024.
Restructuring costs are presented separately on the consolidated statements of operations.
The following table presents the restructuring costs recognized by the Company under the 2023 Restructuring Program during the three and six-month periods ended June 30, 2023. The Company did not incur any costs for restructuring during the six months ended June 30, 2022.
| Three Months Ended | Six Months Ended | |||||||
| June 30, 2023 |
June 30, 2023 |
|||||||
| Severance costs | $ | $ | ||||||
| Other | ||||||||
| Total restructuring costs | $ | $ | ||||||
The following table represents the restructuring liabilities, which are presented within other accrued expenses in the consolidated balance sheet:
| June 30, 2023 |
||||
| Balance, December 31, 2022 | $ | |||
| Current period charges | ||||
| Payments | ( |
) | ||
| Balance, June 30, 2023 | $ | |||
The
Company also recorded an inventory impairment charge of $
10
| 5. | GOODWILL AND INTANGIBLE ASSETS, NET |
The
Company had goodwill of $
Intangible assets, net consists of the following (in thousands):
| Weighted | June 30, 2023 | ||||||||||||||
| Average
Useful Life (in years) |
Gross Carrying Amount |
Accumulated Amortization |
Net Carrying Amount |
||||||||||||
| Internally developed technology | $ | $ | ( |
) | $ | ||||||||||
| Customer relationships | ( |
) | |||||||||||||
| Trademarks | ( |
) | |||||||||||||
| Non-compete | ( |
) | |||||||||||||
| Total acquired intangible assets | $ | $ | ( |
) | $ | ||||||||||
| Weighted | December 31, 2022 | ||||||||||||||
| Average
Useful Life (in years) |
Gross Carrying Amount |
Accumulated Amortization |
Net Carrying Amount |
||||||||||||
| Internally developed technology | $ | $ | ( |
) | $ | ||||||||||
| Customer relationships | ( |
) | |||||||||||||
| Trademarks | ( |
) | |||||||||||||
| Non-compete | ( |
) | |||||||||||||
| Total acquired intangible assets | $ | $ | ( |
) | $ | ||||||||||
Amortization
expense related to the Company’s intangible assets amounted to $
There will be no further amortization expense for the remainder of 2023 and thereafter related to the Company’s intangible assets as the long-lived assets in the disposal group should be recorded at the carrying amount at the time the assets are accounted as held for sale.
11
| 6. | ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES |
Accrued expenses and other current liabilities consist of the following (in thousands):
| June 30,
2023 |
December 31,
2022 |
|||||||
| Payroll and related benefits and taxes | $ | $ | ||||||
| Fair value of embedded derivatives related to Convertible Debt | ||||||||
| Royalties | ||||||||
| Loan success fee related to Convertible Debt | ||||||||
| Agent and sales commissions | ||||||||
| Right-of-use lease liability, current portion | ||||||||
| Tax liabilities | ||||||||
| Restructuring costs | ||||||||
| Product warranty liabilities | ||||||||
| Product marketing | ||||||||
| Manufacturing subcontractor costs | ||||||||
| Legal and professional services | ||||||||
| Other | ||||||||
| Other accrued expenses | $ | $ | ||||||
12
| 7. | HELD FOR SALE |
As
discussed in Note 1, on March 8, 2023 the Company entered into the Purchase Agreement with Seller, Mimosa, and Buyer, pursuant to
which the Seller will sell all of the issued and outstanding shares of common stock of Mimosa to Buyer for an aggregate purchase price
of approximately $
The Company met the criteria for recording the Mimosa assets and liabilities as “held for sale” at June 30, 2023. Since the Company did not meet the criteria for held for sale at December 31, 2022, the assets and liabilities of the Mimosa group are recorded in their respective categories.
The assets and liabilities of the disposal group, Mimosa, were evaluated to determine whether the carrying amounts should be adjusted in accordance with other GAAP standards. After adjusting the assets and liabilities of the disposal group, the disposal group as a whole is measured at the lower of carrying amount or fair value less costs to sell. Depreciation and amortization of long-lived assets in the disposal group will not be recorded during the period in which the disposal group meets the criteria for held for sale.
The unaudited condensed balance sheet of Mimosa at June 30, 2023 is as follows:
| June 30,
2023 |
December 31,
2022 |
|||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Accounts receivable, net of allowance of $103 and $123 as of June 30, 2023 and December 31, 2022, respectively | $ | $ | ||||||
| Inventory | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Property, plant and equipment, net | ||||||||
| Goodwill | ||||||||
| Intangible assets, net | ||||||||
| Right-of-use assets, net | ||||||||
| Other non-current assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses and other current liabilities | ||||||||
| Deferred revenue | ||||||||
| Total current liabilities | ||||||||
| Other long-term liabilities | ||||||||
| Total liabilities | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
13
| 8. | SUBORDINATED DEBT |
On
August 6, 2015, Legacy Airspan issued Golden Wayford Limited a $
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
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. | SUBORDINATED TERM LOAN – RELATED PARTY |
On
February 9, 2016, Legacy Airspan entered into a $
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 $
14
| 10. | SENIOR TERM LOAN |
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 as 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 to, among other things, amend the financial covenants included in the
Fortress Credit Agreement. On May 18, 2023, the Company, Legacy Airspan and certain of the Company’s subsidiaries who are
party to the Fortress Credit Agreement entered into a Limited Waiver and Consent, Second Amendment and Restatement of Credit Agreement
and Reaffirmation of Loan Documents (the “May 2023 Credit Agreement Amendment”) relating to the Fortress Credit Agreement
with Fortress pursuant to which the parties agreed to, among other things, (i) certain consents related to the Company’s previously
disclosed divestiture of Mimosa, (ii) waive certain existing events of default under the Fortress Credit Agreement in the limited manner
set forth therein, (iii) terminate the existing delayed draw term loan commitments under the Fortress Credit Agreement and establish
new delayed draw term loan commitments in the aggregate amount of $25 million, (iv) modify the interest rates applicable to certain loans
under the Fortress Credit Agreement, (v) provide for the issuance of warrants to purchase shares of the Company’s common
stock (collectively, the “Warrants”), (vi) amend certain financial covenants, (vii) provide for additional fees related to
the Fortress Credit Agreement, and (viii) amend and restate the Fortress Credit Agreement. The Warrants provided for under the Fortress
Credit Agreement were issued to certain lenders or their designees and will be exercisable to purchase one share of the Company’s
common stock at an exercise price of $0.01 per share. The Warrants have a term of
With
the May 2023 Credit Agreement Amendment, the interest rates were increased to 5.5% plus SOFR to up to 8.5% for the paid in-kind
interest. The maturity of the loan did not change. The Company accounted for the May 2023 Credit Agreement Amendment as a loss on
debt extinguishment of which $
The
Fortress Credit Agreement initial term loan total commitment of $
To secure its obligations under the Fortress Credit Agreement, Fortress was assigned PWB’s security interest under the PWB Facility and the Company and certain of its subsidiaries granted Fortress as security for the obligations 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 (d) all of the foregoing whether now owned or existing, in each case excluding certain excluded assets.
15
The
Fortress Credit Agreement and the Fortress Convertible Note Agreement each contains representations and warranties, events of default
and affirmative and negative covenants, which include, among other things, certain restrictions on the ability to pay dividends, create
liens, incur additional indebtedness, make investments, dispose of assets, consummate business combinations (except for permitted investment,
as defined in the Fortress Credit Agreement and the Fortress Convertible Note Agreement, respectively), and make distributions. In addition,
financial covenants apply. Prior to the May 2023 Fortress Credit Agreement Amendment and the May 2023 Fortress Convertible
Note Agreement Amendment, these financial covenants included (a) minimum liquidity of an amount between $
The Company was not in compliance with the minimum last twelve-month EBITDA covenant and the minimum last twelve-month revenue covenant under the Fortress Credit Agreement and the agreement governing the Company’s senior secured convertible notes as of the December 31, 2022 and the March 31, 2023 quarterly measurement dates, and the Company was not in compliance with the minimum liquidity covenant under the Fortress Credit Agreement and the Fortress Convertible Note Agreement at all times from November 29, 2022, until the date of the May 2023 Fortress Credit Agreement Amendment and the May 2023 Fortress Convertible Note Agreement Amendment, each of which is an event of default under those agreements. The Company did not make the payments due under the Fortress Credit Agreement and the Fortress Convertible Note Agreement on March 31, 2023, which was an event of default under the Fortress Credit Agreement and the Fortress Convertible Note Agreement. Each of these defaults was waived pursuant to the May 2023 Fortress Credit Agreement Amendment and the May 2023 Fortress Convertible Note Agreement Amendment.
Based on management’s current forecast, absent of additional financing or capital raising, the Company has concluded it may not be in compliance with certain of the prospective financial covenants under the May 2023 Credit Agreement Amendment and the agreement governing the Company’s senior secured convertible notes during certain periods of the next twelve months. Accordingly, while the Company may seek future 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 would 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 May 2023 Credit Agreement Amendment and the agreement governing the Company’s senior secured convertible notes could (i) elect to declare all the funds borrowed thereunder to be due and payable, together with accrued and unpaid interest and other premiums, and institute foreclosure proceedings against the Company’s assets, (ii) elect to apply the default interest rate under the Fortress Credit Agreement and the Fortress Convertible Note Agreement and related agreements, and (iii) with respect to the Fortress Credit Agreement, elect to terminate their delayed draw commitments thereunder and cease making further loans. As a result of any of these actions, 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 of June 30, 2023, the Company was in compliance with all applicable covenants under the Fortress Credit Agreement. Prior to June 30, 2023, the Company had breached certain covenants, but they were waived by the lender when the May 2023 Credit Agreement Amendment was executed.
The
Company’s senior term loan balance was $
16
| 11. | CONVERTIBLE DEBT |
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, $
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 “March 2022 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. On May 18, 2023, the Company and
certain of its subsidiaries who are party to the Fortress Convertible Note Agreement entered into a Limited Waiver and Consent, Third
Amendment to Senior Secured Convertible Note Purchase and Guarantee Agreement and Reaffirmation of Note Documents (the “May 2023
Fortress Convertible Note Agreement Amendment”) to, among other things, (i) provide for certain consents relating to the Company’s
previously disclosed divestiture of Mimosa, (ii) waive certain existing events of default under the Fortress Convertible Note Agreement
in the limited manner set forth therein, (iii) imposed a $2.5 million fee, which was capitalized to increase the aggregate principal
amount of the Convertible Notes to $52.5 million, (iv) increase the interest rate applicable to the Convertible Notes to 10.00%, and
(v) provide for additional fees related to the Fortress Convertible Note Purchase Agreement and the Convertible Notes. On May 28,
2023, the Company reissued $
With
the May 2023 Fortress Convertible Note Agreement Amendment, the interest rates were increased to 10.0%. The maturity of the loan
did not change. The Company accounted for the May 2023 Fortress Convertible Note Agreement Amendment as a loss on debt extinguishment
of which $
Prior to the March 2022 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 March 2022 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 March 2022 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 March 2022 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 March 2022 Fortress Convertible Note Agreement Amendment.
17
The following is the allocation among the freestanding instruments (in thousands) at the issuance date:
| August 13, 2021 |
||||
| Convertible Notes | $ | |||
| Conversion option derivative | ||||
| Call and contingent put derivative | ||||
| Total Convertible Notes | $ | |||
As of June 30 2023, the Company had convertible debt outstanding as shown below (in thousands):
| June 30,
2023 |
||||
| Convertible Notes | $ | |||
| Accrued interest, less loan discount costs | ||||
| Total Convertible Notes | $ | |||
As of June 30, 2023, the Company was in compliance with all applicable covenants under the Fortress Convertible Note Agreement. The Company was not in compliance with all applicable covenants at March 31, 2023 and December 31, 2022, therefore, the convertible notes were classified as current liabilities.
See Note 10 for further information related to the Fortress Convertible Note Agreement.
18
| 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 six months ended June 30, 2023 and 2022.
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):
| Level in | June 30, 2023 |
December 31, 2022 |
|||||||||||||||||
| Fair Value | Carrying | Fair | Carrying | Fair | |||||||||||||||
| Hierarchy | Amount | Value | Amount | Value | |||||||||||||||