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) |
(I.R.S. 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: | ||
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 required to submit such files).
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 by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐
As of November 3, 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; | |
| ● | actions the Company may take to improve operating and financial results, regain compliance with our debt covenants and maintain compliance with the listing standards of the NYSE American LLC (“NYSE American”); |
| ● | 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; |
| ● | 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:
| ● | our ability to continue as a going concern; |
| ● | our ability to regain compliance with our debt covenants; |
| ● | 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)
| September 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 | ||||||||
| 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’ DEFICIT | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses and other current liabilities | ||||||||
| Deferred revenue | ||||||||
| Senior term loan | ||||||||
| Subordinated debt | ||||||||
| Subordinated term loan – related party | ||||||||
| Convertible debt | ||||||||
| Current portion of long-term debt | ||||||||
| Total current liabilities | ||||||||
| Other long-term liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies (Note 13) | ||||||||
| Stockholders’ deficit: | ||||||||
| Common stock, $ par value; shares authorized; and shares issued and outstanding at both September 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 September 30, | Nine Months Ended September 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 | ( | ) | ||||||||||||||
| Gain on sale of Mimosa business | ||||||||||||||||
| Other income (expense), net | ( | ) | ( | ) | ||||||||||||
| Income (loss) before income taxes | ( | ) | ( | ) | ( | ) | ||||||||||
| Income tax benefit (expense), net | ( | ) | ||||||||||||||
| Net income (loss) | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| Income (loss) per share - basic | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| Income (loss) per share - diluted | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| Weighted average shares outstanding - basic | ||||||||||||||||
| Weighted average shares outstanding - 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
| Nine Months Ended September 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 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
| Net income | - | |||||||||||||||||||
| Issuance of restricted shares | ||||||||||||||||||||
| Share-based compensation expense | - | |||||||||||||||||||
| Balance as of September 30, 2023 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
| Nine Months Ended September 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 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||
| Issuance of restricted shares, net of shares withheld for taxes | ( | ) | ( | ) | ||||||||||||||||
| Share-based compensation expense | - | |||||||||||||||||||
| Balance as of September 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
Nine Months Ended September 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 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 | ||||||||
| Gain on sale of Mimosa business | ( | ) | ||||||
| Share-based compensation | ||||||||
| Total adjustments | ( | ) | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Decrease in accounts receivable | ||||||||
| (Increase) decrease in inventory | ( | ) | ||||||
| (Increase) decrease in prepaid expenses and other current assets | ( | ) | ||||||
| Decrease in other non-current assets | ||||||||
| Decrease in accounts payable | ( | ) | ( | ) | ||||
| (Decrease) increase in deferred revenue | ( | ) | ||||||
| (Decrease) increase in accrued expenses and other current liabilities | ( | ) | ||||||
| Increase (decrease) 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 | ( | ) | ( | ) | ||||
| Proceeds from sale of Mimosa business | ||||||||
| Net cash provided by (used in) investing activities | ( | ) | ||||||
| Cash flows from financing activities: | ||||||||
| Borrowings from senior term loan | ||||||||
| Repayment of senior term loan | ( | ) | ( | ) | ||||
| Repayment of convertible note | ( | ) | ||||||
| Payment of debt issuance costs | ( | ) | ||||||
| Payment of taxes withheld on stock awards | ( | ) | ( | ) | ||||
| Net cash 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)
Nine Months Ended September 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:
| September 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”), 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; 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.) (defined above) 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
On August 11, 2023, the Company closed on the previously disclosed sale of Mimosa Networks, Inc. (“Mimosa”) (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; |
7
| ● | continuing to develop 5G product offerings that will expand the market for the Company’s products; |
| ● | focusing the Company’s efforts to improve days sales outstanding to provide additional liquidity; and |
| ● | continuing to implement cost reduction initiatives to reduce non-strategic costs in operations and expand the Company’s labor force in lower cost geographies, with headcount reductions in higher cost geographies. |
There can be no assurance that the above actions will be successful. Without additional financing or capital, the Company’s current cash balance would be insufficient to satisfy repayment demands from its lenders if the lenders elect to declare the senior term loan and the senior secured convertible notes due prior to the maturity date. In addition, as of September 30, 2023, the Company was not in compliance with applicable covenants under the Fortress Credit Agreement and Fortress Convertible Note Purchase Agreement. There is no assurance that any 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.
The Company is seeking a waiver with respect to current breaches. However, there can be no assurance that the lenders under the Fortress Credit Agreement and the agreement governing the Company’s senior secured convertible notes will agree to waive the existing covenant breaches. Even if the Company receives a waiver with respect to such existing covenant breaches, based on management’s current forecast, absent of additional financing or capital raising, the Company has concluded it is probable that the Company will not be in compliance with certain of the prospective financial covenants under the Fortress Credit Agreement and the agreement governing the Company’s senior secured convertible notes during certain periods of the next twelve months. Accordingly, while the Company 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 Fortress Credit Agreement 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, and (ii) elect to apply the default interest rate under the Fortress Credit Agreement and the Fortress Convertible Note Agreement and related agreements. 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 a result, the Company has classified its senior term loan, convertible debt, subordinated term loan and subordinated debt as current at September 30, 2023 and December 31, 2022.
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, Hamas’ attack against Israel and the ensuing conflict, 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.
8
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.
9
| 3. | REVENUE RECOGNITION |
The following is a summary of revenue by category (in thousands):
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Products sales | $ | $ | $ | $ | ||||||||||||
| Non-recurring engineering (“NRE”) | ||||||||||||||||
| Product maintenance contracts | ||||||||||||||||
| Professional service contracts | ||||||||||||||||
| Software licenses | ||||||||||||||||
| Other products | ||||||||||||||||
| Total revenue | $ | $ | $ | $ | ||||||||||||
There was
The opening and closing balances of our contract asset and liability balances from contracts with customers as of September 30, 2023 and December 31, 2022 were as follows (in thousands):
| Contracts Assets | Contracts Liabilities |
|||||||
| Balance as of December 31, 2022 | $ | $ | ||||||
| Balance as of September 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 September 30, 2023 and December 31, 2022, deferred revenue (both current and noncurrent) of $
Revenues for the three and nine months ended September 30, 2023 and 2022, include the following (in thousands):
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Amounts included in the beginning of year contract liability balance | $ | $ | $ | $ | ||||||||||||
10
| 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 were completed by the end of the third 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 nine-month periods ended September 30, 2023.
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| 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:
| September 30, 2023 | ||||
| Balance, December 31, 2022 | $ | |||
| Current period charges | ||||
| Payments | ( | ) | ||
| Balance, September 30, 2023 | $ | |||
11
| 5. | GOODWILL AND INTANGIBLE ASSETS, NET |
The Company had
Intangible assets, net consists of the following at December 31, 2022 (in thousands):
| 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 $
| 6. | ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES |
Accrued expenses and other current liabilities consist of the following (in thousands):
| September 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 | ||||||||
| Inventory purchases | ||||||||
| Product warranty liabilities | ||||||||
| Product marketing | ||||||||
| Manufacturing subcontractor costs | ||||||||
| Legal and professional services | ||||||||
| Other | ||||||||
| Other accrued expenses | $ | $ | ||||||
12
| 7. | SALE OF MIMOSA BUSINESS |
On March 8, 2023 the Company entered into the a purchase agreement with the Company, Mimosa, and Radisys Corporation (“Buyer”), pursuant to which the Seller sold all of the issued and outstanding shares of common stock of Mimosa to Buyer for an
aggregate purchase price of approximately $
The assets and liabilities of the disposal group, Mimosa and its subsidiaries, 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 was 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 was not recorded during the period in which the disposal group met the criteria for held for sale.
The gain on the sale of Mimosa was calculated as follows (in 000’s):
| Aggregate purchase price, including working capital adjustment and closing cash | $ | |||
| Less transaction costs | ( | ) | ||
| Less net assets less liabilities of Mimosa | ( | ) | ||
| Gain on sale of Mimosa | $ |
The Company expects the gain on the sale of Mimosa to be fully covered by its net operating losses for income tax purposes.
| 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 $
13
| 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 Company borrowed $
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 $
15
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.
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 was an event of default under those agreements. The Company did not timely 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 were waived pursuant to the May 2023 Fortress Credit Agreement Amendment and the May 2023 Fortress Convertible Note Agreement Amendment and the missed payments were paid at a later date. The Company was not in compliance with the minimum last three-month revenue covenants and the minimum Adjusted EBITDA covenants under the Fortress Credit Agreement and the Fortress Convertible Note Agreement as of the September 30, 2023 measurement date, each of which is an event of default under those agreements. Subsequent to September 30, 2023, 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 since October 26, 2023, which is an event of default under those agreements. Additionally, the Company did not make the principal and interest payments due under the Fortress Credit Agreement on October 31, 2023, which was an event of default under the Fortress Credit Agreement and the Fortress Convertible Note Agreement.
16
On August 11, 2023, as part of the sale of the Mimosa business, the Company repaid $
As of September 30, 2023, the Company was not in compliance with all applicable covenants under the Fortress Credit Agreement and therefore, the debt was classified as current. Subsequently, as of October 26, 2023, the Company is not in compliance with the minimum liquidity covenant under the Fortress Credit Agreement and Fortress Convertible Note Purchase Agreement, and the Company did not make the principal and interest payments due under the Fortress Credit Agreement on October 31, 2023.
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.
The Company’s senior term loan balance was $
17
| 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 $52.5 million aggregate principal amount of Convertible Notes. On August 11, 2023, the Company and certain of its subsidiaries who are party to the Fortress Convertible Note Agreement entered into a Consent and Partial Release and Fourth Amendment to Note Documents relating to the Fortress Convertible Note Agreement and the Convertible Notes (the “August 2023 Fortress Convertible Note Agreement Amendment”) pursuant to which the parties agreed to, among other things, certain consents, releases, and conforming amendments related to the Company’s previously disclosed divestiture of Mimosa.
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 $
On August 11, 2023, as part of the sale of the Mimosa business, the Company repaid $
18
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.
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 September 30 2023, the Company had convertible debt outstanding as shown below (in thousands):
| September 30, 2023 | ||||
| Convertible Notes | $ | |||
| Accrued interest, less loan discount costs | ||||
| Total Convertible Notes | $ | |||
As of September 30, 2023, the Company was not in compliance with all applicable covenants under the Fortress Convertible Note Agreement. The Company was not in compliance with all applicable covenants at September 30, 2023, March 31, 2023 and December 31, 2022, therefore, the convertible notes were classified as current liabilities.
19
| 12. | FAIR VALUE MEASUREMENTS |
The Company’s assets and liabilities recorded at fair value are categorized based upon a fair value hierarchy that ranks the quality and reliability of the information used to determine fair value.
The Company has certain non-financial assets that are measured at fair value on a non-recurring basis when there is an indicator of impairment, and they are recorded at fair value only when impairment is recognized. These assets include property, plant and equipment, goodwill and intangible assets, net. The Company did not record impairment to any non-financial assets in the three and nine months ended September 30, 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 | September 30, 2023 | December 31, 2022 | |||||||||||||||||
| Fair Value | Carrying | Fair | Carrying | Fair | |||||||||||||||
| Hierarchy | Amount | Value | Amount | Value | |||||||||||||||
| Assets: | |||||||||||||||||||
| Cash and cash equivalents | 1 | $ | $ | $ | $ | ||||||||||||||
| Restricted cash | 1 | ||||||||||||||||||
| Cash and investment in severance benefit accounts | 1 | ||||||||||||||||||
| Liabilities: | |||||||||||||||||||
| Subordinated term loan(a) | 2 | $ | $ | $ | $ | ||||||||||||||
| Subordinated debt(a) | 2 | ||||||||||||||||||
| Senior term loan(a) | 2 | ||||||||||||||||||
| Convertible debt | 2 | ||||||||||||||||||
| Public Warrants | 1 | ||||||||||||||||||
| Warrants(b) | 3 | ||||||||||||||||||
| (a) |
| (b) |
| Private Placement Warrants | ||||
| Assumptions: | ||||
| Stock price | $ | |||
| Exercise price | $ | |||
| Risk free rate | % | |||
| Expected volatility | % | |||
| Dividend yield | % | |||
20
The conversion option derivative and call and contingent put derivative are considered a Level 3 measurement due to the utilization of significant unobservable inputs in the valuation. The Company utilized a binomial model to estimate the fair value of the embedded derivative features requiring bifurcation associated with the Convertible Notes payable at the issuance date and as of the September 30, 2023 reporting date. The key inputs to the valuation models that were utilized to estimate the fair value of the convertible debt derivative liabilities include:
| September 30, 2023 | December 31, 2022 | |||||||
| Assumptions: | ||||||||
| Stock price | $ | $ | ||||||
| Conversion strike price | $ | $ | ||||||
| Volatility | % | % | ||||||
| Dividend yield | % | % | ||||||
| Risk free rate | % | % | ||||||
| Debt discount rate | % | % | ||||||
| Coupon interest rate | % | % | ||||||
| Face amount (in thousands) | $ | $ | ||||||
| Contingent put inputs and assumptions: | ||||||||
| Probability of fundamental change | % | % | ||||||
The following table presents a roll-forward of the Level 3 instruments:
| (in thousands) | Warrants | Convertible Debt Derivative | ||||||
| Beginning balance, December 31, 2022 | $ | $ | ||||||
| Change in fair value | ( | ) | ( | ) | ||||
| Ending balance, September 30, 2023 | $ | $ | ||||||
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.
21
| 13. | COMMITMENTS AND CONTINGENCIES |
The Company had commitments with its main subcontract manufacturers under various
purchase orders and forecast arrangements of $
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. On January 3, 2023, the parties settled this matter. The Company had previously provided for a reserve for an estimated amount of exposure related to this matter in a prior year.
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.
22
| 14. | COMMON STOCK AND WARRANTS |
Common Stock
As of September 30, 2023, 260,000,000 shares, $ par value per share are authorized, of which, shares are designated as Common Stock and shares are designated as preferred stock. As of September 30, 2023, there were shares of Common Stock issued and outstanding and shares of preferred stock issued or outstanding.
Holders of our Common Stock are entitled to receive dividends when, as and if declared by the board of directors of the Company (the “Board”), payable either in cash, in property or in shares of capital stock. As of September 30, 2023, the Company had not declared any dividends.
Common Stock Warrants
As of September 30, 2023, there are
As part of NBA’s initial public offering,
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
Post-Combination Warrants
The Post-Combination Warrants expired in accordance with their terms on August 13, 2023.
Fortress Warrants
In connection with the May 2023 Credit Agreement Amendment relating to the Fortress Credit Agreement with Fortress,
the Company issued warrants to purchase shares of the Company’s common stock Warrants. 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
23
| 15. | SHARE-BASED COMPENSATION |
2021 Stock Incentive Plan
Prior to the Business Combination, the Company maintained its 2009 Omnibus Equity
Compensation Plan (the “2009 Plan” and together with the 2021 Plan, the “Plans”).
Upon Closing of the Business Combination, awards under the 2009 Plan were converted
at the exchange ratio calculated in accordance with the Business Combination Agreement
and the 2021 Plan became effective. On June 21, 2022, the 2021 Plan was amended and restated to, among other things, increase the
number of shares of Common Stock authorized for issuance under the 2021 Plan by
shares. As of September 30, 2023, there were shares of Common Stock authorized for issuance under the amended and restated 2021
Plan, plus any shares of Common Stock subject to awards under the 2009 Plan that are
forfeited or reacquired by the Company due to termination or cancellation. As of September 30, 2023, there were
The following table summarizes share-based compensation expense for the three and nine months ended September 30, 2023 and 2022 (in thousands):
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Research and development | $ | $ | $ | $ | ||||||||||||
| Sales and marketing | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Cost of sales | ||||||||||||||||
| Total share-based compensation | $ | $ | $ | $ | ||||||||||||
Common Stock Options
The following table sets forth the activity for all 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, 2022 | $ | $ | ||||||||||||||
| Granted | - | |||||||||||||||
| Forfeited | ( | ) | - | |||||||||||||
| Expired | ( | ) | - | |||||||||||||
| Outstanding, September 30, 2023(a) | $ | $ | ||||||||||||||
| Exercisable, September 30, 2023(b) | $ | $ | ||||||||||||||
| (a) |
| (b) |
As of September 30, 2023, there was $ million of unrecognized compensation expense related to stock options to be recognized over a weighted average period of years.
24
Restricted Stock Units
As part of the consideration in the Business Combination, RSUs with respect to 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 $ per RSU. The RSUs granted in connection with the MIP vested one year after the date of the grant. There were restricted stock units granted to the directors during the nine months ended September 30, 2023. There were restricted stock units granted to the employees during the nine months ended September 30, 2023.
The following table sets forth the activity for all RSUs:
| Number of RSUs | Weighted Average Grant Date Fair Value | |||||||
| Outstanding (nonvested), December 31, 2022 | $ | |||||||
| Granted | ||||||||
| Released | ( | ) | ||||||
| Forfeited | ( | ) | ||||||
| Outstanding (nonvested), September 30, 2023 | $ | |||||||
Because the Company maintained a full valuation allowance on its U.S. deferred tax assets, it did not recognize any tax benefit related to share-based compensation expense for the three and nine months ended September 30, 2023 and 2022. As of September 30, 2023, there was $ million of unrecognized compensation expense related to RSUs to be recognized over a weighted average period of years.
25
| 16. | NET INCOME (LOSS) PER SHARE |
Net income (loss) per share is computed using the weighted average number of shares of Common Stock outstanding.
The following table sets forth the computation of basic and diluted net income (loss) per share for the periods indicated (in thousands, except share data):
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Numerator: | ||||||||||||||||
| Net income (loss) | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| Denominator - basic: | ||||||||||||||||
| Weighted average common shares outstanding | ||||||||||||||||
| Denominator – diluted: | ||||||||||||||||
| Weighted average common shares outstanding | ||||||||||||||||
| Net income (loss) per share - basic | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| Net income (loss) per share - diluted | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
The following table sets forth the amounts excluded from the computation of diluted net income (loss) per share as of September 30, 2023 and 2022 because their effect was anti-dilutive.
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Stock options outstanding | ||||||||||||||||
| Non-vested shares of restricted stock | ||||||||||||||||
| Warrants(a) | ||||||||||||||||
| Convertible notes(a) | ||||||||||||||||
| (a) |
26
| 17. | RELATED PARTY TRANSACTIONS |
As disclosed in Note 9, as of September 30, 2023 and December 31, 2022, 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
The Company had an outstanding receivable from and payable to a related party, a stockholder,
amounting to $
In addition, the Company has an outstanding accounts receivable from a separate related
party, also a stockholder, amounting to $
| 18. | EQUITY METHOD INVESTMENT |
Prior to March 7, 2022, the Company accounted for its investment in Dense Air, as an equity method investment. Dense Air has been funded by its sole lender through convertible debt with various restrictions and requirements including a conversion option on substantially all of the ownership interest in Dense Air. On March 22, 2021, an investor acquired the sole lender to Dense Air’s rights and obligations under a convertible loan agreement and on March 7, 2022 converted the outstanding amount of the loan into shares. The Company retained an approximate 4% holding of Dense Air Networks L.P. This conversion did not have a significant effect on the Company’s consolidated balance sheets, statements of operations or cash flows.
The investments had
27
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
References to “we,” “us,” “our” or the “Company” after the Closing of the Business Combination are to Airspan Networks Holdings Inc. and its consolidated subsidiaries, and prior to the Closing of the Business Combination are to Legacy Airspan and its consolidated subsidiaries, in each case, except where the context requires otherwise. The following discussion should be read in conjunction with our unaudited condensed consolidated financial statements and related notes thereto included elsewhere in this Quarterly Report on Form 10-Q (this “Quarterly Report”).
See the discussion of forward-looking statements and risk factors in Part I Item 1 and Item 1A of this report.
Overview
We are a U.S. headquartered, award-winning technical leader, in the 4G and 5G Radio Access Network (“RAN”) and broadband access solutions market. We offer a broad range of software defined radios, broadband access products and network management software to enable cost-effective deployment and efficient management of mobile, fixed and hybrid wireless networks. Our customers include leading mobile communications service providers (“CSPs”), large enterprises, military communications integrators and internet service providers (“ISPs”) working to deliver high-capability broadband access to numerous markets. Our mission is to disrupt and modernize network total cost of ownership (“TCO”) models. We aim to lower costs for customers throughout the product lifecycle, from procurement through commissioning and ongoing operating costs. We have been pioneering wireless technology for over 20 years and are distinguished by our deep customer relationships, innovative product design capabilities and expertise in solving technical challenges at the network edge, where a device or local network interfaces with the Internet or other networks.
In 4G mobile networks, we established ourselves as an expert in network densification by focusing on solving the problems associated with physically locating, installing and commissioning networks consisting of hundreds of thousands of small cells as an alternative and supplement to macro cell-based networks. Software-defined and cost-optimized radio platforms, self-organizing/optimization algorithms and minimum power consumption have been critical to our 4G business and are expected to be even more critical to the deployment and expansion of new 5G networks. As an early leader in 5G OPEN-RAN standards, we have worked to unbundle the monolithic network architectures previously dominated by large incumbent suppliers such as Telefonaktiebolaget LM Ericsson (“Ericsson”), Huawei Technologies Co., Ltd. (“Huawei”), and Nokia Corporation (“Nokia”). As a foundational member of the 5G ecosystem, we work closely with wireless operators, chipset suppliers and infrastructure vendors around the world on 5G developments, trials, pilots and initial 5G deployments.
Our main operations are in: Slough, United Kingdom; Mumbai and Bangalore, India; Tokyo, Japan; Airport City, Israel; and our corporate headquarters is in Boca Raton, Florida.
Recent Developments
Covenant Violations and Going Concern
At September 30, 2023, the Company was not in compliance with certain of the financial covenants under the Fortress Credit Agreement and the Fortress Convertible Note Agreement. On October 31, 2023, the Company did not make the principal and interest payments due under the Fortress Credit Agreement. Each of the foregoing defaults is an event of default under the Fortress Credit Agreement and the Fortress Convertible Note Agreement. In the absence of waivers or remedies of existing breaches or any additional breaches that may arise in the future, the lenders under the Fortress Credit Agreement and the agreement governing our 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, and (ii) elect to apply the default interest rate under the Fortress Credit Agreement and the Fortress Convertible Note Agreement and related agreements. As a result of any of these actions, we could be forced into bankruptcy or liquidation. In addition, our subordinated term loan – related party (see Note 9) and subordinated debt (see Note 8) could be accelerated or required to be paid due to provisions contained within those instruments. As a result, we have classified our senior term loan, convertible debt, subordinated term loan and subordinated debt as current at September 30, 2023 and December 31, 2022.
28
Mimosa Sale
On August 11, 2023, we closed on the previously disclosed sale of Mimosa.
Global Economic Conditions
We have 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, Hamas’ attack against Israel and the ensuing conflict, and general macroeconomic factors. These factors have increased our operating costs. While we are 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.
How We Assess the Performance of Our Business
In assessing the performance of our business, we consider a variety of performance and financial measures. The key indicators of the financial condition and operating performance of our business are revenue, cost of revenue, research and development, sales and marketing, general and administrative, interest expense, income taxes and net income. To further help us assess our performance with these key indicators, we use Adjusted EBITDA as a non-GAAP financial measure. We believe Adjusted EBITDA provides useful information to investors and expanded insight to measure our revenue and cost performance as a supplement to our GAAP consolidated financial statements. See the “Non-GAAP Financial Measures” section below for a reconciliation to net income (loss), the most directly comparable GAAP measure.
Revenues
We derive the majority of our revenues from sales of our networking products, with the remaining revenue generated from software licenses and service fees relating to non-recurring engineering, product maintenance contracts and professional services for our products. We sell our products and services to end customers, distributors and resellers. Products and services may be sold separately or in bundled packages.
Our top three customers accounted for 69.7% and 50.8% of revenue for the three months ended September 30, 2023 and 2022, respectively. For the nine months ended September 30, 2023 and 2022, the Company had three customers and two customers, respectively, whose revenue was greater than 10% of the period’s total revenue.
Our sales outside the U.S. and North America accounted for 81.2% and 54.7% of our total revenue in the three months ended September 30, 2023 and 2022, respectively, and 78.7% and 55.4% of our total revenue in the nine months ended September 30, 2023 and 2022, respectively. The following table identifies the percentage of our revenue by customer geographic region in the periods identified.
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| Geographic Area | 2023 | 2022 | 2023 | 2022 | ||||||||||||
| United States | 19 | % | 43 | % | 21 | % | 43 | % | ||||||||
| Other North America | - | % | 2 | % | - | % | 2 | % | ||||||||
| North America | 19 | % | 45 | % | 21 | % | 45 | % | ||||||||
| India | 49 | % | 24 | % | 34 | % | 18 | % | ||||||||
| Japan | 17 | % | 11 | % | 31 | % | 26 | % | ||||||||
| Other Asia | 3 | % | 1 | % | 3 | % | 1 | % | ||||||||
| Asia | 69 | % | 36 | % | 68 | % | 45 | % | ||||||||
| Europe | 4 | % | 8 | % | 5 | % | 5 | % | ||||||||
| Africa and the Middle East | 4 | % | 6 | % | 3 | % | 3 | % | ||||||||
| Latin America and the Caribbean | 4 | % | 5 | % | 3 | % | 2 | % | ||||||||
| Total revenue | 100 | % | 100 | % | 100 | % | 100 | % | ||||||||
29
Cost of Revenues
Cost of revenues consists of component and material costs, direct labor costs, warranty costs, royalties, overhead related to manufacture of our products and customer support costs. Our gross margin is affected by changes in our product mix both because our gross margin on software and services is higher than the gross margin on base station related equipment, and because our different product lines generate different margins. In addition, our gross margin is affected by changes in the average selling price of our systems and volume discounts granted to significant customers. The COVID-19 pandemic continues to have an impact with disruptions to our supply chains, which have caused extended component lead times, increased component costs, as well as disruption and increased expenses in logistics. We expect the average selling prices of our existing products to continue to decline and we intend to continue to implement product cost reductions and develop and introduce new products or product enhancements in an effort to maintain or increase our gross margins. Further, we may derive an increasing proportion of our revenue from the sale of our integrated systems through distribution channels. Revenue derived from these sales channels typically carries a lower gross margin than direct sales.
Operating Expenses
Research and Development
Research and development expenses consist primarily of salaries and related costs for personnel and expenses for design, development, testing facilities and equipment depreciation. These expenses also include costs associated with product development efforts, including consulting fees and prototyping costs from initial product concept to manufacture and production as well as sub-contracted development work. We expect to continue to make substantial investments in research and development.
Sales and Marketing
Sales and marketing expenses consist of salaries and related costs for personnel, sales commissions, consulting and agent’s fees and expenses for advertising, travel, technical assistance, trade shows, and promotional and demonstration materials. We expect to continue to incur substantial expenditures related to sales and marketing activities.
General and Administrative
General and administrative expenses consist primarily of salaries and related expenses for our personnel, audit, professional and consulting fees and facilities costs.
Restructuring costs
Restructuring costs consist primarily of employee termination benefits.
Non-Operating Expenses
Interest Expense, Net
Interest expense, net consists primarily of interest associated with the Convertible Notes, two subordinated loan facilities and our senior secured credit facility, which consists of a term loan and delayed draw commitment. Interest on the term loan was determined based on the highest of a LIBOR rate, the commercial lending rate of the collateral agent and the federal funds rate, plus an applicable margin. Interest on the delayed draw commitment was based on the LIBOR rate plus an applicable margin. The LIBOR rates were replaced with SOFR rates pursuant to the May 2023 Fortress Credit Agreement Amendment and the May 2023 Fortress Convertible Note Agreement Amendment.
Loss on Extinguishment of Debt
The senior term loan and convertible debt were amended with the May 2023 Fortress Credit Agreement Amendment and the May 2023 Fortress Convertible Note Agreement Amendment. Due to the increased interest rates and maturity amounts, the modification of terms was accounted for as debt extinguishment and all fees from the prior agreement were expensed as loss on extinguishment of debt in the consolidated statement of operations.
30
Change in fair value of warrant liability and derivatives, net
Change in fair value of warrant liability and derivatives, net represents the revaluations each quarter of the warrant liabilities and derivatives.
Gain on sale of Mimosa business
Gain on the sale of the Mimosa business represents the proceeds less the costs and net assets and liabilities to calculate the gain on the sale.
Income Tax Benefit, Net
Our provision for income tax benefit, net includes the expected benefit of all deferred tax assets, including our net operating loss carryforwards. Some of our net operating loss carryforwards will begin to expire in 2025 and continue to expire through 2037. Our income tax benefit, net has been impacted by non-deductible expenses, including equity compensation and research and development amortization.
Net Loss
Net loss is determined by subtracting operating and non-operating expenses from revenues.
Adjusted EBITDA
Adjusted EBITDA is defined as net income before depreciation and amortization, interest expense and income taxes, and also adjusted to add back share-based compensation costs, changes in the fair value of the warrant liability and embedded derivatives and one-time costs related to the Business Combination, as these costs are not considered a part of our core business operations and are not an indicator of ongoing, future company performance. We use Adjusted EBITDA to evaluate our performance, both internally and as compared to our peers, because these measures exclude certain items that may not be indicative of our core operating results, as well as items that can vary widely among companies within our industry. For example, share-based compensation costs can be subject to volatility from changes in the market price per share of our Common Stock or variations in the value and number of shares granted.
Adjusted EBITDA is one of the primary metrics used by management to evaluate the financial performance of our business because it excludes, among other things, the effects of certain transactions that are outside the control of management, while other measures can differ significantly depending on long-term strategic decisions regarding capital structure, the jurisdictions in which we operate and capital investments.
We present this non-GAAP financial measure because we believe it is frequently used by analysts, investors and other interested parties to evaluate companies in our industry. Further, we believe it is helpful in highlighting trends in our operating results by focusing on our core operating results and is useful to evaluate our performance in conjunction with our GAAP financial measures. Adjusted EBITDA is a non-GAAP financial measure and should not be considered as an alternative to operating income, net income or earnings per share, as a measure of operating performance, cash flows or as a measure of liquidity. Non-GAAP financial measures are not necessarily calculated the same way by different companies and should not be considered a substitute for or superior to GAAP measures.
In particular, Adjusted EBITDA is subject to certain limitations, including the following:
| ● | Adjusted EBITDA does not reflect interest expense, or the amounts necessary to service interest or principal payments under the Fortress Credit Agreement; |
| ● | Adjusted EBITDA does not reflect income tax provision (benefit), and because the payment of taxes is part of our operations, tax provision is a necessary element of our costs and ability to operate; |
| ● | Although depreciation and amortization are eliminated in the calculation of Adjusted EBITDA, the assets being depreciated and amortized will often have to be replaced in the future, and Adjusted EBITDA does not reflect any costs of such replacements; |
31
| ● | Adjusted EBITDA does not reflect the non-cash component of share-based compensation; |
| ● | Adjusted EBITDA does not reflect the impact of earnings or charges resulting from matters we consider not to be reflective, on a recurring basis, of our ongoing operations; and |
| ● | Other companies in our industry may calculate Adjusted EBITDA or similarly titled measures differently than we do, limiting its usefulness as a comparative measure. |
We adjust for these limitations by relying primarily on our GAAP results and using Adjusted EBITDA only as supplemental information.
Segments
Our business is organized around one reportable segment, the development and supply of broadband wireless products and technologies. This is based on the objectives of the business and how our chief operating decision maker, the Chief Executive Officer, monitors operating performance and allocates resources.
Results of Operations
The following table summarizes key components of our results of operations for the periods indicated:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| (in thousands) | 2023 | 2022 | 2023 | 2022 | ||||||||||||
| Revenues | $ | 14,259 | $ | 41,094 | $ | 71,155 | $ | 125,603 | ||||||||
| Cost of revenues | 9,028 | 24,758 | 48,844 | 78,370 | ||||||||||||
| Gross profit | 5,231 | 16,336 | 22,311 | 47,233 | ||||||||||||
| Operating expenses: | ||||||||||||||||
| Research and development | 9,294 | 15,003 | 36,901 | 48,244 | ||||||||||||
| Sales and marketing | 4,896 | 7,219 | 15,888 | 25,559 | ||||||||||||
| General and administrative | 1,932 | 9,644 | 15,343 | 31,891 | ||||||||||||
| Amortization of intangibles | - | 284 | 189 | 852 | ||||||||||||
| Restructuring costs | - | 944 | 3,283 | 944 | ||||||||||||
| Total operating expenses | 16,122 | 33,094 | 71,604 | 107,490 | ||||||||||||
| Loss from operations | (10,891 | ) | (16,758 | ) | (49,293 | ) | (60,257 | ) | ||||||||
| Interest expense, net | (9,944 | ) | (4,296 | ) | (19,631 | ) | (13,071 | ) | ||||||||
| Loss on extinguishment of debt | - | - | (8,281 | ) | - | |||||||||||
| Change in fair value of warrant liability and derivatives, net | 1,913 | (920 | ) | 3,143 | 3,016 | |||||||||||
| Gain on sale of Mimosa business | 28,631 | - | 28,631 | - | ||||||||||||
| Other income (expense), net | 122 | (1,177 | ) | 530 | (3,809 | ) | ||||||||||
| Income (loss) before income taxes | 9,831 | (23,151 | ) | (44,901 | ) | (74,121 | ) | |||||||||
| Income tax benefit (expense), net | 57 | (163 | ) | 293 | 52 | |||||||||||
| Net income (loss) | $ | 9,888 | $ | (23,314 | ) | $ | (44,608 | ) | $ | (74,069 | ) | |||||
32
Three Months Ended September 30, 2023 Compared to the Three Months Ended September 30, 2022
Revenues
Revenues for the above periods are presented below:
| Three Months Ended September 30, | ||||||||||||||||
| ($ in thousands) | 2023 | % of Revenue | 2022 | % of Revenue | ||||||||||||
| Revenues: | ||||||||||||||||
| Products and software licenses | $ | 11,335 | 79.5 | % | $ | 36,521 | 88.9 | % | ||||||||
| Maintenance, warranty and services | 2,924 | 20.5 | % | 4,573 | 11.1 | % | ||||||||||
| Total revenues | $ | 14,259 | 100.0 | % | $ | 41,094 | 100.0 | % | ||||||||
Revenue from products and software licenses of $11.3 million for the three months ended September 30, 2023 decreased by $25.2 million from $36.5 million for the three months ended September 30, 2022. This change was primarily due to decreases in sales of products to four customers in the U.S. of $12.2 million, other customers in North America of $1.9 million, customers in Asia Pacific of $4.9 million, customers in Latin America of $2.3 million, customers in Europe of $2.2 million, and customers in the Middle East and Africa of $1.7 million.
Revenue from maintenance, warranty and services of $2.9 million for the three months ended September 30, 2023 decreased by $1.7 million from $4.6 million for the three months ended September 30, 2022. This decrease was primarily due to a decrease in service revenue of $2.3 million and NRE revenue of $0.7 million, offset by an increase in maintenance revenue of $1.3 million.
Cost of Revenues
Cost of revenues for the above periods are presented below:
| Three Months Ended September 30, | ||||||||||||||||
| ($ in thousands) | 2023 | % of Revenue | 2022 | % of Revenue | ||||||||||||
| Cost of revenues: | ||||||||||||||||
| Products and software licenses | $ | 8,153 | 57.2 | % | $ | 23,462 | 57.1 | % | ||||||||
| Maintenance, warranty and services | 875 | 6.1 | % | 1,296 | 3.2 | % | ||||||||||
| Total cost of revenues | $ | 9,028 | 63.3 | % | $ | 24,758 | 60.3 | % | ||||||||
Cost of revenues from products and software licenses of $8.2 million for the three months ended September 30, 2023 decreased by $15.3 million from $23.5 million for the three months ended September 30, 2022. This change was primarily due to the decrease in revenue and indirect costs.
Cost of revenues from maintenance, warranty and services of $0.9 million for the three months ended September 30, 2023 decreased by $0.4 million from $1.3 million for the three months ended September 30, 2022, primarily driven by the decrease in revenue.
33
Operating Expenses
Operating expenses for the above periods are presented below:
| Three Months Ended September 30, | ||||||||||||||||
| ($ in thousands) | 2023 | % of Revenue | 2022 | % of Revenue | ||||||||||||
| Operating expenses: | ||||||||||||||||
| Research and development | $ | 9,294 | 65.2 | % | $ | 15,003 | 36.5 | % | ||||||||
| Sales and marketing | 4,896 | 34.3 | % | 7,219 | 17.6 | % | ||||||||||
| General and administrative | 1,932 | 13.5 | % | 9,644 | 23.5 | % | ||||||||||
| Amortization of intangibles | - | - | % | 284 | 0.7 | % | ||||||||||
| Restructuring costs | - | - | % | 944 | 2.3 | % | ||||||||||
| Total operating expenses | $ | 16,122 | 113.0 | % | $ | 33,094 | 80.6 | % | ||||||||
Research and development — Research and development expenses were $9.3 million for the three months ended September 30, 2023, a decrease of $5.7 million from $15.0 million for the three months ended September 30, 2022. The decrease was primarily due to decreased headcount-related expenses of $4.7 million, decreased share-based compensation of $0.6 million, and decreased materials and supplies of $0.4 million.
Sales and marketing — Sales and marketing expenses were $4.9 million for the three months ended September 30, 2023, a decrease of $2.3 million from $7.2 million for the three months ended September 30, 2022, primarily due to decreased headcount-related expenses of $2.1 million and decreased share-based compensation of $0.2 million.
General and administrative — General and administrative expenses of $1.9 million for the three months ended September 30, 2023 decreased by $7.7 million from $9.6 million for the three months ended September 30, 2022. The decrease was primarily due to decreased share-based compensation of $2.9 million, decreased other outside services of $1.1 million, decreased headcount and related costs of $1.0 million, and decreased facilities of $0.3 million.
Amortization of intangibles — There was no amortization of intangibles for the three months ended September 30, 2023 in comparison to amortization of intangibles of $0.3 million for the three months ended September 30, 2022.
Restructuring costs — There were no restructuring costs for the three months ended September 30, 2023, compared to $0.9 million for the three months ended September 30, 2022. We do not expect to incur further restructuring costs in 2023.
Non-Operating Expenses
Interest expense, net — Interest expense, net was $9.9 million for the three months ended September 30, 2023, an increase of $5.6 million from $4.3 million for the three months ended September 30, 2022. The increase was primarily due to $4.3 million in fees related to the paydown of the Fortress Senior Term Loan and Convertible Note, a higher average debt outstanding and the increase in the base interest rates charged in the three months ended September 30, 2023 compared to the same period in 2022.
Loss on extinguishment of debt — There was no loss on extinguishment of debt for the three months ended September 30, 2023 or for the three months ended September 30, 2022.
Change in fair value of warrant liability and derivatives — Change in fair value of warrant liability and derivatives was a gain of $1.9 million for the three months ended September 30, 2023, a change of $2.8 million from a loss of $0.9 million for the three months ended September 30, 2022.
34
Gain on sale of Mimosa business – The gain on sale from the Mimosa business was $28.6 million for the three months ended September 30, 2023 compared to no gain for the three months ended September 30, 2022 which we expect to be fully covered by our net operating losses for income tax purposes.
Other income (expense), net — Other income (expense), net was income of $0.1 million for the three months ended September 30, 2023, an increase of $1.3 million from expense of $1.2 million for the three months ended September 30, 2022, primarily due to $1.3 million in foreign currency gains in the three months ended September 30, 2023.
Income tax benefit, net — Income tax benefit, net was a benefit of $0.1 million and an expense of $0.2 million for the three months ended September 30, 2023 and 2022, respectively.
Net Income (Loss)
We had a net income of $9.9 million for the three months ended September 30, 2023 compared to a net loss of $23.3 million for the three months ended September 30, 2022, a change of $33.2 million due to the same factors described above.
Adjusted EBITDA
Adjusted EBITDA for the three months ended September 30, 2023 was a loss of $7.9 million, representing a change of $2.1 million from a loss of $10.0 million for the three months ended September 30, 2022. The decrease in Adjusted EBITDA was primarily due to the decrease in net loss discussed above and certain higher adjusting items detailed in the table below.
The following table presents the reconciliation of net loss, the most directly comparable GAAP measure, to Adjusted EBITDA:
| Three Months Ended September 30, | ||||||||
| ($ in thousands) | 2023 | 2022 | ||||||
| Net income (loss) | $ | 9,888 | $ | (23,314 | ) | |||
| Adjusted for: | ||||||||
| Interest expense, net | 9,944 | 4,296 | ||||||
| Income tax (benefit) expense, net | (57 | ) | 163 | |||||
| Depreciation and amortization | 735 | 1,173 | ||||||
| EBITDA | 20,510 | (17,682 | ) | |||||
| Share-based compensation expense | 2,107 | 5,863 | ||||||
| Change in fair value of warrant liability and derivatives | (1,913 | ) | 920 | |||||
| Loss on extinguishment of debt | - | - | ||||||
| Gain on sale of Mimosa | (28,631 | ) | - | |||||
| Restructuring costs | - | 944 | ||||||
| Adjusted EBITDA | $ | (7,927 | ) | $ | (9,955 | ) | ||
35
Nine Months Ended September 30, 2023 Compared to the Nine Months Ended September 30, 2022
Revenues
Revenues for the above periods are presented below:
| Nine Months Ended September 30, | ||||||||||||||||
| ($ in thousands) | 2023 | % of Revenue | 2022 | % of Revenue | ||||||||||||
| Revenues: | ||||||||||||||||
| Products and software licenses | $ | 61,120 | 85.9 | % | $ | 114,128 | 90.9 | % | ||||||||
| Maintenance, warranty and services | 10,035 | 14.1 | % | 11,475 | 9.1 | % | ||||||||||
| Total revenues | $ | 71,155 | 100.0 | % | $ | 125,603 | 100.0 | % | ||||||||
Revenue from products and software licenses of $61.1 million for the nine months ended September 30, 2023, decreased by $53 million from $114.1 million for the nine months ended September 30, 2022. This change was primarily due to decreases in sales of products to three customers in the U.S. of $36.4 million, other customers in North America of $4.6 million, customers in Asia Pacific of $8.2 million, customers in Europe of $3.3 million, customers in Latin America of $2.8 million, and customers in the Middle East and Africa of $1.4 million. The reductions in revenue were offset by an increase in sales to one customer in the U.S. of $3.7 million.
Revenue from maintenance, warranty and services of $10.0 million for the nine months ended September 30, 2023, decreased by $1.5 million from $11.5 million for the nine months ended September 30, 2022. This decrease was primarily due to a decrease in service revenue of $4.7 million and NRE revenue of $0.5 million, offset by an increase in maintenance revenue of $3.7 million.
Cost of Revenues
Cost of revenues for the above periods are presented below:
| Nine Months Ended September 30, | ||||||||||||||||
| ($ in thousands) | 2023 | % of Revenue | 2022 | % of Revenue | ||||||||||||
| Cost of revenues: | ||||||||||||||||
| Products and software licenses | $ | 45,443 | 63.9 | % | $ | 74,747 | 59.5 | % | ||||||||
| Maintenance, warranty and services | 3,401 | 4.8 | % | 3,623 | 2.9 | % | ||||||||||
| Total cost of revenues | $ | 48,844 | 68.7 | % | $ | 78,370 | 62.4 | % | ||||||||
Cost of revenues from products and software licenses of $45.4 million for the nine months ended September 30, 2023, decreased by $29.3 million from $74.7 million for the nine months ended September 30, 2022. This change was primarily due to the decrease in revenue and indirect costs, offset by an inventory impairment charge of $7.2 million. A charge of $5.3 million relates to certain product initiatives that were eliminated or reduced as a result of the headcount reductions in the 2023 Restructuring Program and $1.9 million relates to an accrual for inventory on order for these eliminated or reduced product initiatives.
Cost of revenues from maintenance, warranty and services of $3.4 million for the nine months ended September 30, 2023 decreased by $0.2 million from $3.6 million for the nine months ended September 30, 2022.
36
Operating Expenses
Operating expenses for the above periods are presented below:
| Nine Months Ended September 30, | ||||||||||||||||
| ($ in thousands) | 2023 | % of Revenue | 2022 | % of Revenue | ||||||||||||
| Operating expenses: | ||||||||||||||||
| Research and development | $ | 36,901 | 51.9 | % | $ | 48,244 | 38.4 | % | ||||||||
| Sales and marketing | 15,888 | 22.3 | % | 25,559 | 20.3 | % | ||||||||||
| General and administrative | 15,343 | 21.6 | % | 31,891 | 25.4 | % | ||||||||||
| Amortization of intangibles | 189 | 0.3 | % | 852 | 0.7 | % | ||||||||||
| Restructuring costs | 3,283 | 4.6 | % | 944 | 0.7 | % | ||||||||||
| Total operating expenses | $ | 71,604 | 100.7 | % | $ | 107,490 | 85.5 | % | ||||||||
Research and development — Research and development expenses were $36.9 million for the nine months ended September 30, 2023, a decrease of $11.3 million from $48.2 million for the nine months ended September 30, 2022. The decrease was primarily due to decreased headcount expenses of $9.6 million and decreased share-based compensation of $1.7 million.
Sales and marketing — Sales and marketing expenses were $15.9 million for the nine months ended September 30, 2023, a decrease of $9.7 million from $25.6 million for the nine months ended September 30, 2022. The decrease was the result of decreased headcount related costs of $6.4 million, decreased other costs of $1.7 million, and decreased share-based compensation of $1.6 million.
General and administrative — General and administrative expenses were $15.3 million for the nine months ended September 30, 2023, a decrease of $16.6 million from $31.9 million for the nine months ended September 30, 2022. The decrease was primarily due to a decrease of $10.1 million in share-based compensation, decreased headcount related costs of $2.3 million, decreased other costs of $1.3 million, and decreased other outside services of $0.5 million.
Amortization of intangibles — Amortization of intangibles of $0.2 million was lower for the nine months ended September 30, 2023 in comparison to $0.9 million the nine months ended September 30, 2022.
Restructuring costs — Restructuring costs related to employee termination costs of $3.3 million for the nine months ended September 30, 2023 increased $2.4 million from $0.9 million for the nine months ended September 30, 2022. We do not expect to incur further restructuring costs in 2023. The increase is a result of our announced 2023 Restructuring Program.
Non-Operating Expenses
Interest expense, net — Interest expense, net was $19.6 million for the nine months ended September 30, 2023, an increase of $6.5 million from $13.1 million for the nine months ended September 30, 2022. The increase was primarily due to $4.3 million in fees related to the paydown of the Fortress Senior Term Loan and Convertible Note, a higher average debt outstanding and the increase in the base interest rates charged in the nine months ended September 30, 2023 than the same period in 2022.
Loss on extinguishment of debt — Loss on extinguishment of debt was $8.3 million for the nine months ended September 30, 2023, compared with $0 million for the nine months ended September 30, 2022. There was a $5.1 million loss on the extinguishment of the senior term loan and $3.2 million loss on the extinguishment of the convertible debt.
37
Change in fair value of warrant liability and derivatives, net — Change in fair value of warrant liability and derivatives, net was a gain of $3.1 million for the nine months ended September 30, 2023, a change of $0.1 million from a gain of $3.0 million for the nine months ended September 30, 2022.
Gain on sale of Mimosa business – The gain on sale from the Mimosa business was $28.6 million for the nine months ended September 30, 2023 compared to no gain for the nine months ended September 30, 2022, which we expect to be fully covered by our net operating losses for income tax purposes.
Other income (expense), net — Other income (expense), net was income of $0.5 million for the nine months ended September 30, 2023, an increase of $4.3 million from expense of $3.8 million for the nine months ended September 30, 2022 due to an increase in foreign exchange gains in the nine months ended September 30, 2023.
Income tax benefit, net — Income tax benefit, net was a benefit of $0.3 million for the nine months ended September 30, 2023 and $0.1 million for the nine months ended September 30, 2022.
Net Loss
We had a net loss of $44.6 million for the nine months ended September 30, 2022 compared to a net loss of $74.1 million for the nine months ended September 30, 2022, a decrease of $29.5 million due to the same factors described above.
Adjusted EBITDA
Adjusted EBITDA for the nine months ended September 30, 2023 was a loss of $36.9 million, representing a change of $3.4 million from a loss of $40.3 million for the nine months ended September 30, 2022. The increase in Adjusted EBITDA was primarily due to the decrease in net loss discussed above and certain higher adjusting items detailed in the table below.
The following table presents the reconciliation of net loss, the most directly comparable GAAP measure, to Adjusted EBITDA:
| Nine Months Ended September 30, | ||||||||
| ($ in thousands) | 2023 | 2022 | ||||||
| Net loss | $ | (44,608 | ) | $ | (74,069 | ) | ||
| Adjusted for: | ||||||||
| Interest expense, net | 19,631 | 13,071 | ||||||
| Income tax (benefit) expense, net | (293 | ) | (52 | ) | ||||
| Depreciation and amortization | 2,507 | 3,448 | ||||||
| EBITDA | (22,763 | ) | (57,602 | ) | ||||
| Share-based compensation expense | 6,044 | 19,399 | ||||||
| Change in fair value of warrant liability and derivatives | (3,143 | ) | (3,016 | ) | ||||
| Loss on extinguishment of debt | 8,281 | - | ||||||
| Gain on sale of Mimosa | (28,631 | ) | - | |||||
| Restructuring costs | 3,283 | 944 | ||||||
| Adjusted EBITDA | $ | (36,929 | ) | $ | (40,275 | ) | ||
38
Liquidity and Capital Resources
The March 2023 failures of Silicon Valley Bank and Signature Bank, and subsequent bank failures in 2023, created significant market disruption and uncertainty for those who bank with those institutions. These failures have raised significant concern regarding the stability of the banking system in the United States. While we do not hold our cash at any of these banks, if the banks and financial institutions at which we hold our cash enter receivership or become insolvent in the future in response to financial conditions affecting the banking system and financial markets, our ability to access our cash and cash equivalents may be threatened and such events could have a material adverse effect on our business and financial condition.
To date, our principal sources of liquidity have been our cash and cash equivalents and cash generated from operations, proceeds from the issuance of long-term debt, preferred and common stock, and the sale of certain receivables. Our capital requirements depend on a number of factors, including sales, the extent of our spending on research and development, expansion of sales and marketing activities and market adoption of our products and services.
We had $47.8 million of current assets and $172.3 million of current liabilities as of September 30, 2023. During the nine months ended September 30, 2023, we used $29.4 million in cash flows from operating activities, primarily from the net loss offset by non-cash adjustments. We are investing heavily in 5G research and development and expect to use cash from operations during the remainder of 2023 and through the first half of 2024 to fund research and development activities. At the closing of the Mimosa sale, the Company received $10.5 million in cash after debt, debt related fees and interest of approximately $45.0 million were paid to the lender and approximately $4.5 million of transaction costs which were paid with the proceeds. An additional $1.2 million of transaction costs were accrued and $0.6 million is due on January 1, 2024 with the balance owed at the earlier of a Company transaction closing or August 11, 2024. Cash on hand will not allow us to meet our ongoing cash requirements and we are dependent on additional financing by Fortress to finance our current cash shortfalls until a suitable strategic transaction or other financing options come to fruition.
In order to address the need to satisfy our continuing obligations and realize our long-term strategy, management has taken several steps and is considering additional actions to improve our operating and financial results, including the following:
| ● | focusing our efforts to increase sales in additional geographic markets; |
| ● | continuing to develop 5G product offerings that will expand the market for our products; |
| ● | focusing our efforts to improve days sales outstanding to provide additional liquidity; and |
| ● | continuing to implement cost reduction initiatives to reduce non-strategic costs in operations and expand our 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.
Days sales outstanding (“DSO”) is a measurement of the time it takes to collect receivables. DSO is calculated by dividing accounts receivable, net as of the end of the quarter by the average daily revenue for the quarter. Average daily revenue for the quarter is calculated by dividing the quarterly revenue by ninety days. All customer accounts are actively managed, and no losses in excess of amounts reserved are currently expected. DSO can fluctuate due to the timing and nature of contracts, as well as the payment terms of individual customers. DSO was 70 days and 101 days as of September 30, 2023 and December 31, 2022, respectively.
39
On August 6, 2015, we issued Golden Wayford Limited a $10.0 million subordinated Convertible Note Promissory Note (the “Golden Wayford Note”) pursuant to a subordinated convertible note purchase agreement, also dated August 6, 2015. The Golden Wayford Note, in the amount of $9.0 million plus interest, matured on June 30, 2020. We were not able to agree to an extended maturity date and the Golden Wayford Note remained outstanding as of September 30, 2023 and in default under the terms of the arrangement. We were granted a limited waiver under the Fortress Credit Agreement which 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 for so long as the Golden Wayford Note remains in effect. The waiver is limited to the actual and prospective defaults under the Fortress Credit Agreement as they existed on December 30, 2020 and not to any other change in facts or circumstances occurring after December 30, 2020. The waiver does not restrict Fortress from exercising any rights or remedies they may have with respect to any other default or event of default under the Fortress Credit Agreement or the related loan documents.
On December 30, 2020, we and certain of our subsidiaries as guarantors, entered into the Fortress Credit Agreement with Fortress. On August 13, 2021, the Company, Legacy Airspan and certain of our subsidiaries who are party to the Fortress Credit Agreement entered into 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 and provide updated procedures for replacement of LIBOR. On March 29, 2022, the Company, Legacy Airspan and certain of our subsidiaries who are party to the Fortress Credit Agreement entered into the March 2022 Fortress Credit Amendment 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 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 5,912,040 warrants to purchase shares of the Company’s common stock, (vi) amend certain financial covenants and (vii) provide for additional fees related to the Fortress Credit Agreement, and (viii) amend and restate the Fortress Credit Agreement. The Company borrowed $20.0 million of this facility in the second quarter of 2023. As of September 30, 2023, this facility no longer has borrowing capacity that is available to the Company. On August 11, 2023, the Company, Legacy Airspan and certain of the Company’s subsidiaries who are party to the Fortress Credit Agreement entered into the August 2023 Fortress Credit Agreement Amendment relating to the Fortress Credit Agreement with Fortress pursuant to which the parties agreed to, among other things, certain consents, releases, and conforming amendments related to the Company’s previously disclosed divestiture of Mimosa. As further discussed below, as of September 30, 2023, we were not in compliance with all applicable covenants under the Fortress Credit Agreement. See Note 10 of the notes to the unaudited condensed consolidated financial statements included in this Quarterly Report for further discussion on this agreement.
On August 13, 2021, we closed the 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, and Airspan Networks Inc. (prior to the Business Combination, “Legacy Airspan”). In connection with the closing of the Business Combination, we issued 7,500,000 shares of Common Stock to certain investors that entered into subscription agreements concurrent with the Business Combination, at a price of $10.00 per share, for aggregate consideration of $75.0 million, and $50.0 million in aggregate principal amount of Convertible Notes. On May 18, 2023, the Company and certain of its subsidiaries who are party to the Fortress Convertible Note Agreement entered into 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 $52.5 million aggregate principal amount of Convertible Notes.
40
On August 11, 2023, the Company and certain of its subsidiaries who are party to the Fortress Convertible Note Agreement entered into the August 2023 Fortress Convertible Note Agreement Amendment pursuant to which the parties agreed to, among other things, certain consents, releases, and conforming amendments related to the Company’s previously disclosed divestiture of Mimosa. As further discussed below, as of September 30, 2023, we were not in compliance with all applicable covenants under the Fortress Convertible Note Purchase Agreement. Subsequently, as of October 26, 2023, we are not in compliance with the minimum liquidity covenant under the Fortress Convertible Note Agreement. See Note 11 of the notes to the unaudited condensed consolidated financial statements included in this Quarterly Report for further discussion on this agreement.
The Company is seeking a waiver with respect to current breaches. However, there can be no assurance that the lenders under the Fortress Credit Agreement and the agreement governing the Company’s senior secured convertible notes will agree to waive the existing breaches. Even if the Company receives a waiver with respect to such existing breaches, based on management’s current forecast, absent of additional financing or capital raising, the Company has concluded it is probable that the Company will not be in compliance with certain of the prospective financial covenants under the Fortress Credit Agreement and the agreement governing the Company’s senior secured convertible notes during certain periods of the next twelve months. Accordingly, while the Company 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 breaches or any additional breaches that may arise in the future, the lenders under the Fortress Credit Agreement and the agreement governing the Company’s senior secured convertible notes could (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, and (ii) elect to apply the default interest rate under the Fortress Credit Agreement and the Fortress Convertible Note Agreement and related agreements. 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 a result, the Company has classified its senior term loan, convertible debt, subordinated term loan and subordinated debt as current at September 30, 2023.
As of September 30, 2023, we had commitments with our main subcontract manufacturers under various purchase orders and forecast arrangements of $17.3 million. Most of the commitments have expected delivery dates during the remainder of 2023 and early 2024.
Cash Flows
The following table summarizes the changes to our cash flows for the periods presented:
| For the Nine Months Ended September 30, | ||||||||
| (in thousands) | 2023 | 2022 | ||||||
| Statement of Cash Flows Data: | ||||||||
| Net cash used in operating activities | $ | (29,374 | ) | $ | (29,625 | ) | ||
| Net cash provided by (used in) investing activities | 54,063 | (2,156 | ) | |||||
| Net cash used in financing activities | (23,790 | ) | (4,033 | ) | ||||
| Net increase (decrease) in cash, cash equivalents and restricted cash | 899 | (35,814 | ) | |||||
| Cash, cash equivalents and restricted cash, beginning of period | 7,287 | 63,122 | ||||||
| Cash, cash equivalents and restricted cash, end of period | $ | 8,186 | $ | 27,308 | ||||
41
Operating Activities
Net cash used in operating activities was $29.4 million for the nine months ended September 30, 2023, a decrease of $0.2 million from net cash used in operating activities of $29.6 million for the nine months ended September 30, 2022. The decrease is a result of $29.5 million more from results of our operations, offset by $1.4 million less generated from working capital and $27.8 million increase in non-cash adjustments.
Investing Activities
Net cash provided by investing activities was $54.1 million for the nine months ended September 30, 2023, an increase of $56.3 million from $2.2 million used for the nine months ended September 30, 2022 primarily due to the sale of Mimosa.
Financing Activities
Net cash used in financing activities was $23.8 million for the nine months ended September 30, 2023 and was related to repayments of the senior term loan of $24.9 million and the convertible debt of $16.8 million, offset by $20.0 million of borrowings under the senior term loan in the second quarter of 2023.
Net cash used in financing activities was $4.0 million for the nine months ended September 30, 2022 and was related to the repayment of borrowings under the senior term loan.
Critical Accounting Estimates
The discussion and analysis of our financial condition and results of operations is based upon our unaudited condensed consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an on-going basis, we evaluate the effectiveness of our estimates and judgments, including those related to revenue recognition, allowance for doubtful accounts, intangible assets, net, impairment of long-lived assets, share-based compensation and income taxes.
We base our estimates and judgments on historical experience and on various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions and may change as future events occur.
Critical accounting policies are those policies that management believes are very important to the portrayal of our financial position and results of operations, and that require management to make estimates that are difficult, subjective or otherwise complex. Our critical accounting policies and estimates disclosed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Estimates” in our Annual Report on Form 10-K for the year ended December 31, 2022, for which there were no material changes during the nine months ended September 30, 2023 except for goodwill which is no longer on our balance sheet after the sale of the Mimosa business, included the following:
| ● | Goodwill; | |
| ● | Share-based compensation; | |
| ● | Revenue recognition; and | |
| ● | Convertible Notes. |
42
Recent Accounting Pronouncements
Refer to Note 2 of our unaudited condensed consolidated financial statements included in this Quarterly Report for further information on recent accounting pronouncements.
JOBS Act
The Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”) contains provisions that, among other things, relax certain reporting requirements for qualifying public companies. We qualify as an “emerging growth company” and under the JOBS Act are allowed to comply with new or revised accounting pronouncements based on the effective date for private (not publicly traded) companies. We are electing to delay the adoption of new or revised accounting standards, and as a result, we may not comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies. As a result, the financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.
Additionally, we have chosen to rely on certain reduced reporting requirements applicable to emerging growth companies, including, among other things, that we are not required to (i) provide an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act, (ii) provide all of the compensation disclosure that may be required of non-emerging growth public companies under the Dodd-Frank Wall Street Reform and Consumer Protection Act, (iii) comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (auditor discussion and analysis) and (iv) disclose certain executive compensation related items such as the correlation between executive compensation and performance and comparisons of the Chief Executive Officer’s compensation to median employee compensation. These exemptions will apply for a period of five years following the completion of NBA’s initial public offering or until we are no longer an “emerging growth company,” whichever is earlier.
We will remain an “emerging growth company” under the JOBS Act until the earliest of: (i) the last day of the fiscal year (a) following the fifth anniversary of the closing of NBA’s initial public offering, (b) in which we have total annual gross revenue of at least $1.235 billion, or (c) when we are deemed to be a “large accelerated filer” under the Exchange Act, which would occur if the market value of our common equity held by non-affiliates exceeds $700.0 million as of the last business day of our most recently completed second fiscal quarter; or (ii) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are a smaller reporting company as defined in Rule 12b-2 of the Exchange Act and are not required to provide the information under this item.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed by us in our Exchange Act reports is recorded, processed, summarized, and reported, within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Exchange Act), as of September 30, 2023. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of that date, our disclosure controls and procedures were effective.
Changes in Internal Control over Financial Reporting
There was no change in our internal controls over financial reporting that occurred during the quarter ended September 30, 2023, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
43
PART II—OTHER INFORMATION
Item 1. Legal Proceedings
Reference is made to Note 13 – Commitments and Contingencies in the notes to the unaudited condensed consolidated financial statements contained elsewhere in this Quarterly Report for information regarding certain litigation to which we are a party.
Item 1A. Risk Factors
Other than as set forth below, as of the date of this filing, there have been no material changes in our risk factors from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2022, in response to Item 1A., “Risk Factors,” of Part I of the Annual Report.
Material changes to the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2022 are listed below:
There is substantial doubt about our ability to continue as a going concern and we need to raise additional funding to meet our obligations. We may not secure funding on a timely basis or on acceptable terms to satisfy our debt covenants or to attain profitable operations.
We have not yet established an ongoing source of revenue sufficient to cover operating costs and allow us to continue as a going concern. Our ability to continue as a going concern is dependent on obtaining adequate capital to fund operating losses until we become profitable.
As of September 30, 2023, we were not in compliance with all applicable covenants under the Fortress Credit Agreement and Fortress Convertible Note Purchase Agreement. Subsequently, as of October 26, 2023, we are not in compliance with the minimum liquidity covenant under the Fortress Credit Agreement and Fortress Convertible Note Purchase Agreement, and we did not make the principal and interest payments due under the Fortress Credit Agreement on October 31, 2023. See Note 10 and Note 11 of the notes to the unaudited condensed consolidated financial statements included in this Quarterly Report for further discussion on these agreements.
The Company is seeking a waiver with respect to current breaches. However, there can be no assurance that the lenders under the Fortress Credit Agreement and the agreement governing the Company’s senior secured convertible notes will agree to waive the existing breaches. Even if the Company receives a waiver with respect to such existing breaches, based on management’s current forecast, absent of additional financing or capital raising, the Company has concluded it is probable that the Company will not be in compliance with certain of the prospective financial covenants under the Fortress Credit Agreement and the agreement governing the Company’s senior secured convertible notes during certain periods of the next twelve months. Accordingly, while the Company 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 Fortress Credit Agreement 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, and (ii) elect to apply the default interest rate under the Fortress Credit Agreement and the Fortress Convertible Note Agreement and related agreements. 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 a result, the Company has classified its senior term loan, convertible debt, subordinated term loan and subordinated debt as current at September 30, 2023.
44
In order to address the need to satisfy the Company’s continuing obligations and realize its long-term strategy, management has taken several steps and is considering additional actions to improve its operating and financial results, including the following:
| ● | focusing the Company’s efforts to increase sales in additional geographic markets; |
| ● | continuing to develop 5G product offerings that will expand the market for the Company’s products; |
| ● | focusing the Company’s efforts to improve days sales outstanding to provide additional liquidity; and |
| ● | continuing to implement cost reduction initiatives to reduce non-strategic costs in operations and expand the Company’s labor force in lower cost geographies, with headcount reductions in higher cost geographies. |
There can be no assurance that the above actions will be successful. Without additional financing or capital, the Company’s current cash balance would be insufficient to satisfy repayment demands from its lenders if the lenders elect to declare the senior term loan and the senior secured convertible notes due prior to the maturity date. There is no assurance that any 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.
Our failure to meet the continued listing requirements of the NYSE American could result in a delisting of our common stock.
If we fail to satisfy the continued listing requirements of the NYSE American, such as the corporate governance requirements or the minimum closing bid price requirement, the exchange may take steps to delist our common stock. Such a delisting would likely have a negative effect on the price of our common stock and would impair your ability to sell or purchase our common stock when you wish to do so. In the event of a delisting notification, we anticipate that we would take actions to restore our compliance with applicable exchange requirements, such as stabilize our market price, improve the liquidity of our common stock, prevent our common stock from dropping below such exchange’s minimum bid price requirement, or prevent future non-compliance with such exchange’s listing requirements.
On June 9, 2023, the Company received a letter (the “Letter”) from the NYSE American stating that we are not in compliance with the continued listing standards set forth in Sections 1003(a)(i) and (ii) of the NYSE American Company Guide (the “Company Guide”). Section 1003(a)(i) requires a listed company to have stockholders’ equity of $2 million or more if the listed company has reported losses from continuing operations and/or net losses in two of its three most recent fiscal years. Section 1003(a)(ii) requires a listed company to have stockholders’ equity of $4 million or more if the listed company has reported losses from continuing operations and/or net losses in three of its four most recent fiscal years. The Company reported a stockholders’ deficit of $99.9 million as of March 31, 2023, and has had losses from continuing operations and/or net losses in each of its three most recent fiscal years.
However, Section 1003(a) states that the NYSE American will not normally consider suspending dealings in, or removing from the list, the securities of a listed company which is below standards (i) and (ii) of Section 1003(a) if the listed company is in compliance with the following two standards: (1) total value of market capitalization of at least $50 million; or total assets and revenue of $50 million each in its last fiscal year, or in two of its last three fiscal years; and (2) the listed company has at least 1.1 million shares publicly held, a market value of publicly held shares of at least $15 million and 400 round lot shareholders. As of June 9, 2023, the Company was in compliance with the first standard because it had total assets and total revenue of at least $50 million in its last fiscal year and was in compliance with the second standard, except that the current market value of publicly held shares was below $15 million.
Accordingly, the Letter stated that the Company must submit a plan of compliance (the “Plan”) by July 9, 2023 addressing how it intends to regain compliance with Sections 1003(a)(i) and (ii) of the Company Guide by December 9, 2024. The Company submitted the Plan by the deadline and on August 23, 2023, the Company received a letter from NYSE American stating that NYSE American reviewed and accepted the Plan, providing an extension for compliance with Sections 1003(a)(i) and (ii) of the NYSE American Company Guide until December 9, 2024. The NYSE American staff will review the Company periodically for compliance with the initiatives outlined in the Plan. If the Company is not in compliance with the continued listing standards by December 9, 2024, or if the Company does not make progress consistent with the Plan during the Plan period, the NYSE American staff will initiate delisting proceedings as appropriate.
45
In addition, on July 10, 2023, the Company received written notice (the “Notice”) from the NYSE American stating that we are not in compliance with the continued listing standard set forth in Section 1003(f)(v) of the Company Guide because the Company’s common stock was selling for a substantial period of time at a low price per share, which NYSE American determined to be a 30-trading day average of less than $0.20 per share. The Notice stated that the Company’s continued listing is predicated on it effecting a reverse stock split of its common stock or otherwise demonstrating sustained price improvement within a reasonable period of time, which NYSE American has determined to be no later than January 10, 2024.
However, NYSE American may take an accelerated delisting action that would pre-empt the cure period in the event that the common stock trades at a level viewed to be abnormally low.
In addition, upon Dominique Trempont’s resignation as a Chair of the Audit Committee and Michael Leibowitz’s resignation as a member, each as set forth in Item 5 below, the Company has only one Audit Committee member and requires an “audit committee financial expert.” The Company will be seeking to regain compliance with audit committee requirements as soon as practicable.
The Company’s common stock will continue to be listed on the NYSE American while the Company evaluates its various alternatives. The Company will also continue to be included in the list of NYSE American noncompliant issuers, and the below compliance (“.BC”) indicator will continue to be disseminated with the Company’s ticker symbol.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Mine Safety Disclosure
Not applicable.
Item 5. Other Information.
Item 5.02. Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.
Resignation of Michael Liebowitz
On November 6, 2023, Michael Liebowitz resigned from the board of directors of the Company effective immediately as well as a member of the Audit Committee and the Nominating and Corporate Governance Committee. Mr. Liebowitz’s resignation was not due to a disagreement with the Company on any matter relating to the Company’s operations, policies or practices.
Resignation of Dominique Trempont
On November 8, 2023, Dominique Trempont resigned from the board of directors of the Company effective immediately as well as a Chair of the Audit Committee and a member of the Nominating and Corporate Governance Committee. Mr. Trempont’s resignation was not due to a disagreement with the Company on any matter relating to the Company’s operations, policies or practices.
46
Item 6. Exhibits.
The following exhibits are filed as part of, or incorporated by reference into, this Quarterly Report on Form 10-Q.
| 101.INS | XBRL Instance Document | |
| 101.SCH | XBRL Taxonomy Extension Schema Document | |
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | |
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document | |
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document | |
| 104 | Cover Page Interactive Data File (Formatted as Inline XBRL and contained in Exhibit 101) | |
| * | These certifications are furnished to the SEC pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and are not deemed to be filed for purposes of Section 18 of the Exchange Act, nor shall they be deemed incorporated by reference in any filing under the Securities Act, except as shall be expressly set forth by specific reference in such filing. |
47
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized on November 8, 2023.
| AIRSPAN NETWORKS HOLDINGS INC. | ||
| By: | /s/ Glenn Laxdal | |
| Name: | Glenn Laxdal | |
| Title: |
Chief Executive Officer (Principal Executive Officer) |
|
| By: | /s/ David Brant | |
| Name: | David Brant | |
| Title: |
Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) |
|
48