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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2023

 

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from __________ to __________

 

Airspan Networks Holdings Inc.

(Exact name of registrant as specified in its charter)

 

Delaware   001-39679   85-2642786
(State or other jurisdiction of
incorporation or organization)
  (Commission
File Number)
  (I.R.S. Employer
Identification Number)

 

777 Yamato Road, Suite 310, Boca Raton, Florida   33431
(Address of principal executive offices)   (Zip Code)

 

Registrant’s telephone number, including area code: (561) 893-8670

 

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:
Common stock, par value $0.0001 per share   MIMO   NYSE American, LLC
Warrants, exercisable for shares of common stock at an exercise price of $12.50 per share   MIMO WSA   NYSE American, LLC
Warrants, exercisable for shares of common stock at an exercise price of $15.00 per share   MIMO WSB   NYSE American, LLC

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒   No ☐

 

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). Yes ☒   No ☐

 

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 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 ☐   No ☒

 

As of August 4, 2023, 74,582,992 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

 

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS   ii
     
PART I. FINANCIAL INFORMATION    
     
Item 1.   Financial Statements   1
         
    Unaudited Condensed Consolidated Balance Sheets as of June 30, 2023 and December 31, 2022   1
         
    Unaudited Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2023 and 2022   2
         
    Unaudited Condensed Consolidated Statements of Changes in Stockholders’ Deficit for the Three and Six Months Ended June 30, 2023 and 2022   3
         
    Unaudited Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2023 and 2022   4
         
    Notes to Unaudited Condensed Consolidated Financial Statements   6
         
Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations   28
         
Item 3.   Quantitative and Qualitative Disclosures About Market Risk   43
         
Item 4.   Controls and Procedures   44
         
PART II. OTHER INFORMATION    
     
Item 1.   Legal Proceedings   45
         
Item 1A.   Risk Factors   45
         
Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds   46
         
Item 3.   Defaults Upon Senior Securities   46
         
Item 4.   Mine Safety Disclosures   46
         
Item 5.   Other Information   46
         
Item 6.   Exhibits   47
         
SIGNATURES   49

 

i

 

 

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

 

This Quarterly Report on Form 10-Q (“Quarterly Report”) contains statements reflecting assumptions, expectations, projections, intentions or beliefs about future events that are intended as “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. All statements included in this Quarterly Report, other than statements of historical fact, that address activities, events or developments that we expect, believe or anticipate will or may occur in the future are forward-looking statements. These statements appear in a number of places, including, but not limited to “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” These statements represent our reasonable judgment of the future based on various factors and using numerous assumptions and are subject to known and unknown risks, uncertainties and other factors that could cause our actual results and financial position to differ materially from those contemplated by the statements. You can identify these statements by the fact that they do not relate strictly to historical or current facts, and use words such as “anticipate,” “believe,” “estimate,” “expect,” “forecast,” “may,” “should,” “plan,” “project” and other words of similar meaning. In particular, these include, but are not limited to, statements relating to the following:

 

our expected financial and business performance;

 

  changes in our strategy, future operations, financial position, estimated revenues and losses, forecasts, projected costs, prospects and plans;

 

  the implementation, market acceptance and success of our products;

 

  demand for our products and the drivers of that demand;

 

  our estimated total addressable market and other industry projections, and our projected market share;

 

  competition in our industry, the advantages of our products and technology over competing products and technology existing in the market, and competitive factors including with respect to technological capabilities, cost and scalability;

 

  our ability to scale in a cost-effective manner and maintain and expand our manufacturing relationships;

 

  our ability to enter into production supply agreements with customers, the terms of those agreements, and customers’ utilization of our products and technology;

 

  our expected reliance on our significant customers;

 

  developments and projections relating to our competitors and industry, including with respect to investment in 5G networks;

 

  our expectation that we will incur substantial expenses and continuing losses for the foreseeable future and that we will incur increased expenses as a public company;

 

  the impact of health epidemics, including the COVID-19 pandemic, on our business and industry and the actions we may take in response thereto;

 

  our expectations regarding our ability to obtain and maintain intellectual property protection and not infringe on the rights of others;

 

  expectations regarding the time during which we will be an emerging growth company as defined in Section 2(a)(19) of the Securities Act of 1933, as amended (the “Securities Act”), as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”);

 

  our future capital requirements and sources and uses of cash;

 

  our ability to obtain funding for our operations;

 

ii

 

 

  our business, expansion plans and opportunities;

 

  anticipated financial performance, including gross margin, and the expectation that our future results of operations will fluctuate on a quarterly basis for the foreseeable future;

 

  expected capital expenditures, cost of revenue and other future expenses, and the sources of funds to satisfy our liquidity needs; and

 

  the outcome of any known and unknown litigation and regulatory proceedings.

 

These forward-looking statements are based on information available as of the date of this Quarterly Report and current expectations, forecasts and assumptions, and involve a number of judgments, risks and uncertainties. Accordingly, forward-looking statements should not be relied upon as representing our views as of any subsequent date, and we do not undertake any obligation to update forward-looking statements to reflect events or circumstances after the date they were made, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.

 

You should not place undue reliance on these forward-looking statements. As a result of a number of known and unknown risks and uncertainties, our actual results or performance may be materially different from those expressed or implied by these forward-looking statements. Some factors that could cause actual results to differ include:

 

  the ability to maintain the listing of our securities on the NYSE American or any other exchange;

 

  the price of our securities may be volatile due to a variety of factors, including changes in the industries in which we operate, variations in performance across competitors, changes in laws and regulations affecting our business and changes in our capital structure;

 

  the risk of downturns and the possibility of rapid change in the highly competitive industry in which we operate;

 

  our substantial indebtedness and our ability to secure additional liquidity;

 

  the risk that we and our current and future collaborators are unable to successfully develop and commercialize our products or services, or experience significant delays in doing so;

 

  the risk that we do not achieve or sustain profitability;

 

  the risk that we will need to raise additional capital to execute our business plan, which may not be available on acceptable terms or at all;

 

  the risk that we experience difficulties in managing our growth and expanding operations;

 

  the risk that third-party suppliers and manufacturers are not able to fully and timely meet their obligations;

 

  the risk of product liability or regulatory lawsuits or proceedings relating to our products and services; and

 

  the risk that we are unable to secure or protect our intellectual property.

 

There are a number of risks and uncertainties that could cause our actual results to differ materially from the forward-looking statements contained in or contemplated by this report. Any forward-looking statements should be considered in light of the risks set forth in “Part II. Item 1A. Risk Factors” of the Quarterly Report and our other filings with the Securities and Exchange Commission, including our most recently filed Annual Report on Form 10-K.

 

iii

 

 

PART I – FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

AIRSPAN NETWORKS HOLDINGS INC.

UNAUDITED CONDENSED consolidated BALANCE SHEETS

(in thousands, except for share data)

 

                 
    June 30,
2023
    December 31,
2022
 
ASSETS                
Current assets:                
Cash and cash equivalents   $ 10,102     $ 7,253  
Restricted cash     35       34  
Accounts receivable, net of allowance of $478 and $647 at June 30, 2023 and December 31, 2022, respectively     22,790       46,565  
Inventory     10,592       18,556  
Prepaid expenses and other current assets     16,159       17,289  
Assets held for sale – current     15,352       -  
Total current assets     75,030       89,697  
Property, plant and equipment, net     5,686       7,351  
Goodwill     -       13,641  
Intangible assets, net     -       5,302  
Right-of-use assets, net     3,711       5,697  
Other non-current assets     3,059       3,407  
Assets held for sale – non-current     20,913       -  
Total assets   $ 108,399     $ 125,095  
                 
LIABILITIES AND STOCKHOLDERS’ DEFICIT                
Current liabilities:                
Accounts payable   $ 17,393     $ 26,173  
Accrued expenses and other current liabilities     31,247       32,243  
Deferred revenue     1,547       2,892  
Senior term loan, current portion     4,179       40,529  
Subordinated debt     11,396       11,119  
Subordinated term loan – related party     -       41,528  
Convertible debt     -       43,928  
Current portion of long-term debt     265       259  
Liabilities held for sale – current     12,015       -  
Total current liabilities     78,042       198,671  
Subordinated term loan – related party     43,402       -  
Senior term loan     59,045       -  
Convertible debt     47,749       -  
Other long-term liabilities     9,561       7,223  
Liabilities held for sale – non-current     375       -  
Total liabilities     238,174       205,894  
                 
Commitments and contingencies (Note 13)                
                 
Stockholders’ deficit:                
Common stock, $0.0001 par value; 250,000,000 shares authorized; 74,582,992 and 74,283,026 shares issued and outstanding at both June 30, 2023 and December 31, 2022     7       7  
Additional paid-in capital     775,947       770,427  
Accumulated deficit     (905,729 )     (851,233 )
Total stockholders’ deficit     (129,775 )     (80,799 )
Total liabilities and stockholders’ deficit   $ 108,399     $ 125,095  

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

1

 

 

AIRSPAN NETWORKS HOLDINGS INC.

UNAUDITED CONDENSED consolidated STATEMENTS OF OPERATIONS

 

                                 
    Three Months Ended
June 30,
    Six Months Ended
June 30,
 
    2023     2022     2023     2022  
Revenues:                                
Products and software licenses   $ 28,855     $ 44,028     $ 49,788     $ 77,604  
Maintenance, warranty and services     3,268       2,917       7,108       6,905  
Total revenues     32,123       46,945       56,896       84,509  
                                 
Cost of revenues:                                
Products and software licenses     23,998       26,864       37,292       51,337  
Maintenance, warranty and services     1,392       1,253       2,524       2,275  
Total cost of revenues     25,390       28,117       39,816       53,612  
Gross profit     6,733       18,828       17,080       30,897  
                                 
Operating expenses:                                
Research and development     13,416       16,720       27,607       33,241  
Sales and marketing     5,310       9,010       10,992       18,340  
General and administrative     5,746       11,089       13,411       22,247  
Amortization of intangibles     -       284       189       568  
Restructuring costs     3,023       -       3,283       -  
Total operating expenses     27,495       37,103       55,482       74,396  
                                 
Loss from operations     (20,762 )     (18,275 )     (38,402 )     (43,499 )
                                 
Interest expense, net     (5,153 )     (4,207 )     (9,687 )     (8,775 )
Loss on extinguishment of debt     (8,281 )     -       (8,281 )     -  
Change in fair value of warrant liability and derivatives, net     588       3,479       1,230       3,936  
Other income (expense), net     (153 )     (2,126 )     408       (2,632 )
                                 
Loss before income taxes     (33,761 )     (21,129 )     (54,732 )     (50,970 )
                                 
Income tax benefit (expense), net     154       112       236       215  
                                 
Net loss   $ (33,607 )   $ (21,017 )   $ (54,496 )   $ (50,755 )
                                 
Loss per share - basic and diluted   $ (0.45 )   $ (0.29 )   $ (0.73 )   $ (0.70 )
                                 
Weighted average shares outstanding - basic and diluted     74,582,992       72,335,952       74,528,668       72,335,952  

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

2

 

 

AIRSPAN NETWORKS HOLDINGS INC.

UNAUDITED CONDENSED consolidated STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT

 

                                         
    Six Months Ended June 30, 2023  
    Common Stock     Additional
Paid-In
    Accumulated        
    Shares     Amount     Capital     Deficit     Total  
Balance as of December 31, 2022     74,283,026     $ 7     $ 770,427     $ (851,233 )   $ (80,799 )
Net loss     -       -       -       (20,889 )     (20,889 )
Issuance of restricted shares, net of cash withheld for payment of taxes     299,966       -       (161 )     -       (161 )
Share-based compensation expense     -       -       1,939       -       1,939  
Balance as of March 31, 2023     74,582,992     $ 7     $ 772,205     $ (872,122 )   $ (99,910 )
Net loss     -       -       -       (33,607 )     (33,607 )
Warrants issued     -       -       1,744       -       1,744  
Share-based compensation expense     -       -       1,998       -       1,998  
Balance as of June 30, 2023     74,582,992     $ 7     $ 775,947     $ (905,729 )   $ (129,775 )

 

    Six Months Ended June 30, 2022  
    Common Stock     Additional
Paid-In
    Accumulated        
    Shares     Amount     Capital     Deficit     Total  
Balance as of December 31, 2021     72,335,952     $ 7     $ 749,592     $ (765,851 )   $ (16,252 )
Net loss     -       -       -       (29,738 )     (29,738 )
Share-based compensation expense     -       -       6,564       -       6,564  
Balance as of March 31, 2022     72,335,952     $ 7     $ 756,156     $ (795,589 )   $ (39,426 )
Net loss     -       -       -       (21,017 )     (21,017 )
Share-based compensation expense     -       -       6,972       -       6,972  
Balance as of June 30, 2022     72,335,952     $ 7     $ 763,128     $ (816,606 )   $ (53,471 )

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

3

 

 

AIRSPAN NETWORKS HOLDINGS INC.

UNAUDITED CONDENSED consolidated STATEMENTS OF CASH FLOWS

 

                 
   

Six Months Ended

June 30,

 
    2023     2022  
Cash flows from operating activities:                
Net loss   $ (54,496 )   $ (50,755 )
Adjustments to reconcile net loss to net cash used in operating activities:                
Depreciation and amortization     1,772       2,275  
Foreign exchange loss (gain) on long-term debt     6       (16 )
Bad debt expense     172       7  
Change in fair value of warrants and derivatives, net     (1,230 )     (3,936 )
Loss on extinguishment of debt     8,281       -  
Non-cash debt amendment fee     -       463  
Inventory impairment charge     7,215       -  
Share-based compensation     3,937       13,536  
Total adjustments     20,153       12,329  
Changes in operating assets and liabilities:                
Decrease in accounts receivable     12,539       9,706  
Increase in inventory     (1,496 )     (302 )
Decrease in prepaid expenses and other current assets     975       2,221  
Decrease in other non-current assets     238       181  
Increase (decrease) in accounts payable     1,611       (3,040 )
(Decrease) increase in deferred revenue     (1,118 )     1,686  
Decrease in accrued expenses and other current liabilities     (623 )     (65 )
Increase in other long-term liabilities     4,220       151  
Increase in accrued interest on long-term debt     5,825       5,394  
Net cash used in operating activities     (12,172 )     (22,494 )
                 
Cash flows from investing activities:                
Purchase of property, plant and equipment     (1,122 )     (1,632 )
Net cash used in investing activities     (1,122 )     (1,632 )
                 
Cash flows from financing activities:                
Borrowings from senior term loan     19,981       -  
Repayment of senior term loan     (1,760 )     (2,640 )
Payment of debt issuance costs     (1,916 )     -  
Payment of taxes withheld on stock awards     (161 )     -  
Net cash provided by (used in) financing activities     16,144       (2,640 )
                 
Net increase (decrease) in cash, cash equivalents and restricted cash     2,850       (26,766 )
Cash, cash equivalents and restricted cash, beginning of year     7,287       63,122  
Cash, cash equivalents and restricted cash, end of period   $ 10,137     $ 36,356  

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

4

 

 

AIRSPAN NETWORKS HOLDINGS INC.

UNAUDITED CONDENSED consolidated STATEMENTS OF CASH FLOWS

(CONTINUED)

 

                 
   

Six Months Ended

June 30,

 
    2023     2022  
Supplemental disclosures of cash flow information                
Cash paid for interest   $ 3,873     $ 2,852  
Cash (refunded) paid for income taxes   $ 18     $ (146 )
                 
Supplemental disclosure of non-cash financing activities:                
Non-cash debt amendment fee   $ 4,658     $ 463  
Warrants issued for convertible debt   $ 1,744     $ -  

 

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the unaudited condensed consolidated balance sheets that sum to the total of the same such amounts shown in the unaudited condensed consolidated statements of cash flows:

 

                 
    June 30,  
    2023     2022  
Cash and cash equivalents   $ 10,102     $ 36,305  
Restricted cash   $ 35     $ 51  
Total cash, cash equivalents and restricted cash shown in the unaudited condensed consolidated statement of cash flows   $ 10,137     $ 36,356  

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

5

 

 

AIRSPAN NETWORKS HOLDINGS INC.

NOTES TO UNAUDITED CONDENSED Consolidated FINANCIAL STATEMENTS

 

1. BUSINESS

 

Airspan Networks Holdings Inc. (the “Company”) designs and produces wireless network equipment for 4G and 5G networks for both mainstream public telecommunications service providers and private network implementations. Airspan provides Radio Access Network (“RAN”) products based on Open Virtualized Cloud Native Architectures that support technologies including 5G new radio (“5G NR”) and Long-Term Evolution (“LTE”), and Fixed Wireless standards, operating in licensed, lightly-licensed and unlicensed frequencies.

 

The market for the Company’s wireless systems includes mobile carriers, other public network operators and private and government network operators for command and control in industrial and public safety applications such as smart utilities, defense, transportation, mining and oil and gas. The Company’s strategy applies the same network technology across all addressable sectors.

 

The Company’s main operations are in Slough, United Kingdom; Mumbai and Bangalore, India; Tokyo, Japan; Airport City, Israel; Santa Clara, California; and the Company’s corporate headquarters are in the United States (“U.S.”) in Boca Raton, Florida.

 

On August 13, 2021 (the “Closing”), the Company (formerly New Beginnings Acquisition Corp.) (the “Company”) consummated its previously announced business combination transaction (the “Business Combination”) pursuant to the business combination agreement (the “Business Combination Agreement”), dated March 8, 2021, by and among the Company, Artemis Merger Sub Corp., a Delaware corporation and wholly-owned direct subsidiary of the Company (“Merger Sub”), and Airspan Networks Inc., a Delaware corporation (“Legacy Airspan”). In connection with the Closing of the Business Combination, the Company changed its name to Airspan Networks Holdings Inc. Unless the context otherwise requires, references to “Airspan”, the “Company”, “us”, “we”, “our” and any related terms prior to the Closing of the Business Combination are intended to mean Legacy Airspan and its consolidated subsidiaries, and after the Closing of the Business Combination, Airspan Networks Holdings Inc. and its consolidated subsidiaries. In addition, unless the context otherwise requires, references to “New Beginnings” and “NBA” are references to New Beginnings Acquisition Corp., the Company’s name prior to the Closing.

 

In connection with the Closing of the Business Combination, NBA sold 11,500,000 warrants each exercisable for one share of the Company’s common stock (the “Common Stock”) at a price of $11.50 per share, subject to adjustment (the “Public Warrants”), and 545,000 warrants each exercisable for one share of Common Stock at a price of $11.50 per share, subject to adjustment (the “Private Placement Warrants” and, together with the Public Warrants, the “Common Stock Warrants”).

 

Mimosa Sale

 

On March 8, 2023 (the “Closing Date”), the Company entered into a Stock Purchase Agreement (the “Mimosa Purchase Agreement”) with Airspan Networks Inc., a Delaware corporation and a direct wholly-owned subsidiary of the Company (“Seller”), Mimosa Networks, Inc., a Delaware corporation and a direct wholly-owned subsidiary of Seller (“Mimosa”), and Radisys Corporation, an Oregon corporation (“Buyer”), pursuant to which Seller will sell all of the issued and outstanding shares of common stock of Mimosa to Buyer for an aggregate purchase price of approximately $60.0 million in cash (subject to customary adjustments as set forth in the Mimosa Purchase Agreement) on the terms and subject to the conditions set forth in the Mimosa Purchase Agreement (the “Mimosa Sale”). On July 22, 2023, the parties to the Mimosa Purchase Agreement entered into Amendment No. 1 to Stock Purchase Agreement to amend the Mimosa Purchase Agreement to extend the Termination Date (as defined in the Mimosa Purchase Agreement), which is the date that the Mimosa Purchase Agreement may be terminated by either the Buyer or the Seller, by giving written notice of such termination to the other party, if the closing shall not have occurred on or prior to such date, to August 15, 2023. We anticipate that the closing will occur in August 2023.

 

The accounting requirements for reporting the Mimosa business as held for sale were met, however, the requirements for discontinued operations were not met. Accordingly, the consolidated financial statements and notes to the consolidated financial statements reflect the assets and liabilities of the Mimosa business as held for sale for the periods presented. (See Note 7).

 

6

 

 

2. BASIS OF PRESENTATION AND ACCOUNTING POLICIES

 

Basis of Presentation, Principles of Consolidation and Use of Estimates

 

The accompanying condensed consolidated financial statements include the accounts of the Company, its wholly-owned subsidiaries and Airspan IP Holdco LLC (“Holdco”) – 99.8% owned by Airspan. Non-controlling interest in the results of operations of consolidated subsidiaries represents the minority stockholders’ share of the profit or loss of Holdco. The non-controlling interest in net assets of this subsidiary, and the net income or loss attributable to the non-controlling interest, were not recorded by the Company as they are considered immaterial. All significant inter-company balances and transactions have been eliminated in consolidation. The accompanying condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”).

 

The Company’s interim condensed consolidated financial statements and related notes are unaudited. In the opinion of management, all adjustments (including normal recurring adjustments) and disclosures necessary for a fair presentation of these interim financial statements have been included. The results reported in these interim financial statements are not necessarily indicative of the results that may be reported for the entire year. Certain information and footnote disclosures required by GAAP have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes thereto included in the Company’s Annual Report on Form 10-K as of and for the year ended December 31, 2022.

 

The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

 

Liquidity

 

The Company has historically incurred losses from operations. In the past, these losses have been financed through cash on hand or capital raising activities including borrowings or the sale of newly issued shares.

 

The Company had $75.0 million of current assets and $78.0 million of current liabilities as of June 30, 2023. During the six months ended June 30, 2023, the Company used $12.2 million in cash flow from operating activities. The Company is investing heavily in 5G research and development and the Company expects to continue to use cash from operations during the remainder of 2023 and through the first half of 2024. Cash on hand and borrowing capacity under our Assignment Agreement, Resignation and Assignment Agreement and Credit Agreement (as amended, restated, and otherwise supplemented and modified, the “Fortress Credit Agreement”) with DBFIP ANI LLC (“Fortress”) (see Notes 8 and 10) may not allow the Company to reasonably expect to meet its forecasted cash requirements.

 

In order to address the need to satisfy the Company’s continuing obligations and realize its long-term strategy, management has taken several steps and is considering additional actions to improve its operating and financial results, including the following:

 

focusing the Company’s efforts to increase sales in additional geographic markets;

 

continuing to develop 5G product offerings that will expand the market for the Company’s products;

 

focusing the Company’s efforts to improve days sales outstanding to provide additional liquidity;

 

 

selling the Mimosa business for approximately $60.0 million; and

 

  continuing to implement cost reduction initiatives to reduce non-strategic costs in operations and expand the Company’s labor force in lower cost geographies, with headcount reductions in higher cost geographies.

 

There can be no assurance that the above actions will be successful. Without additional financing or capital, the Company’s current cash balance would be insufficient to satisfy repayment demands from its lenders if the lenders elect to declare the senior term loan and the senior secured convertible notes due prior to the maturity date. There is no assurance that the new or renegotiated financing will be available, or that if available, will have satisfactory terms. These conditions raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that these financial statements are issued. The accompanying condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result from the outcome of this uncertainty.

 

7

 

 

Global Economic Conditions

 

The Company has experienced supply chain disruptions and inflationary impacts across our businesses, driven by the impact of the COVID-19 pandemic, the war in Ukraine and resulting economic sanctions, and general macroeconomic factors. These factors have increased our operating costs. While the Company is taking actions to respond to the supply chain disruptions, inflationary environment, and global demand dynamics, we may not be able to enact these measures in a timely manner, or the measures may not be sufficient to offset the increase in costs, which could have a material adverse impact on our results of operations.

 

Significant Concentrations

 

Financial instruments, which potentially subject the Company to concentration of credit risk, consist primarily of cash and cash equivalents, restricted cash and accounts receivable. The Company places its cash and cash equivalents in highly rated financial instruments. The Company maintains certain of its cash balances in various U.S. banks, which at times, may exceed federally insured limits. The Company has not experienced any losses on such accounts.

 

The Company’s accounts receivable are derived from sales of its products and approximately 74.2% and 50.7% of product sales were to non-U.S. customers for the three months ended June 30, 2023 and 2022, respectively and approximately 78.3% and 57.9% of product sales were to non-U.S. customers for the six months ended June 30, 2023 and 2022, respectively. Two customers accounted for $18.5 million, or 54.7%, of the net accounts receivable balance at June 30, 2023 and two customers accounted for $24.5 million, or 50.9% of the net accounts receivable balance at June 30, 2022. The Company requires payment in advance or payment security in the form of a letter of credit to be in place at the time of shipment, except in cases where credit risk is considered to be acceptable. The Company’s top three customers accounted for 74% and 70% of revenue for the three months ended June 30, 2023 and 2022, respectively, and 71% and 68% of revenue for the six months ended June 30, 2023 and 2022, respectively. For the three months ended June 30, 2023, the Company had three customers whose revenue was greater than 10% of the three-month period’s total revenue. For the six months ended June 30, 2023, the Company had two customers whose revenue was greater than 10% of the six-month period’s total revenue. For the three months ended June 30, 2022, the Company had two customers whose revenue was greater than 10% of the three-month period’s total revenue. For the six months ended June 30, 2022, the Company had three customers whose revenue was greater than 10% of the six-month period’s total revenue.

 

The Company received 96.8% and 94.3% of goods for resale from five suppliers in the three months ended June 30, 2023 and 2022, respectively. The Company received 93.4% and 91.1% of goods for resale from five suppliers in the six months ended June 30, 2023 and 2022, respectively. The Company outsources the manufacturing of its base station products to contract manufacturers and obtains subscriber terminals from vendors in the Asia Pacific region. In the event of a disruption to supply, the Company would be able to transfer the manufacturing of base stations to alternate contract manufacturers and has alternate suppliers for the majority of subscriber terminals.

 

Recent Accounting Pronouncements

 

In March 2020, the FASB issued ASU No. 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting” which provides optional expedient and exceptions for applying generally accepted accounting principles to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. In response to the concerns about structural risks of interbank offered rates (“IBORs”) and, particularly, the risk of cessation of the LIBOR, regulators in several jurisdictions around the world have undertaken reference rate reform initiatives to identify alternative reference rates that are more observable or transaction based and less susceptible to manipulation. This ASU provides companies with optional guidance to ease the potential accounting burden associated with transitioning away from reference rates that are expected to be discontinued. This new standard must be adopted by the Company no later than December 1, 2024, with early adoption permitted. The potential adoption of this standard is not expected to have a material impact on the Company’s consolidated financial statements.

 

In June 2016, the FASB issued ASU No. 2016-13 (amended by ASU 2019-10), “Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, regarding the measurement of credit losses for certain financial instruments.” which replaces the incurred loss model with a current expected credit loss (“CECL”) model. The CECL model is based on historical experience, adjusted for current conditions and reasonable and supportable forecasts. The new guidance was adopted by the Company on January 1, 2023, and it did not have a material impact on the Company’s condensed consolidated financial statements.

 

8

 

 

3. REVENUE RECOGNITION

 

The following is a summary of revenue by category (in thousands):

 

                               
    Three Months Ended
June 30,
    Six Months Ended
June 30,
 
    2023     2022     2023     2022  
Products sales   $ 27,505     $ 42,792     $ 47,583     $ 74,769  
Non-recurring engineering (“NRE”)     610       -       1,394       1,156  
Product maintenance contracts     2,074       911       4,216       1,809  
Professional service contracts     584       2,006       1,498       3,940  
Software licenses     1,260       1,162       2,079       2,546  
Other     90       74       126       289  
Total revenue   $ 32,123     $ 46,945     $ 56,896     $ 84,509  

 

There was $0.6 million and $0.9 million revenue recognized at a point in time for NRE services for the three and six months ended June 30, 2023, respectively. There was no revenue recognized at a point in time for NRE services for the three and six months ended June 30, 2022. For services performed on a customer’s owned asset, since the customer controls the asset being enhanced, revenue is recognized over time as services are rendered. There was no revenue recognized over time for NRE services using a cost-based input method for the three months ended June 30, 2023. There was no revenue recognized over time for NRE services using a cost-based input method for the three months ended June 30, 2022. Revenue recognized over time for NRE services using a cost-based input method amounted to $0.5 million and $1.2 million for the six months ended June 30, 2023 and 2022, respectively. The Company is allowed to bill for services performed under the contract in the event the contract is terminated.

 

The opening and closing balances of our contract asset and liability balances from contracts with customers as of June 30, 2023 and December 31, 2022 were as follows (in thousands):

 

  Contracts
Assets
    Contracts
Liabilities
 
Balance as of December 31, 2022   $ 9,001     $ 2,892  
Balance as of June 30, 2023     9,512       1,774  
Change   $ 511     $ (1,118 )

 

Remaining performance obligations represent the revenue that is expected to be recognized in future periods related to performance obligations included in a contract that are unsatisfied, or partially satisfied, as of the end of a period. As of June 30, 2023 and December 31, 2022, deferred revenue (both current and noncurrent) of $1.8 million and $2.9 million, respectively, represents the Company’s remaining performance obligations, of which $1.6 million and $2.8 million, respectively, is expected to be recognized within one year, with the remainder to be recognized thereafter.

 

Revenues for the three and six months ended June 30, 2023 and 2022, include the following (in thousands):

 

                       
    Three Months Ended
June 30,
    Six Months Ended
June 30,
 
    2023     2022     2023     2022  
Amounts included in the beginning of year contract liability balance   $ 411     $ 835     $ 1,910     $ 1,880  

 

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4.RESTRUCTURING ACTIVITIES

 

In the second quarter of 2023, as part of a strategic review of our operations, the Company implemented a cost reduction and restructuring program (the “2023 Restructuring Program”). The 2023 Restructuring Program was primarily comprised of entering into severance and termination agreements with employees. Formal announcements to the relevant employees were made in May, June and July 2023 and activities will be ongoing throughout the third and fourth quarter of 2023. The payments related to severance costs should be completed by March 31, 2024 and the payments related to the building costs should be completed by December 31, 2024.

 

Restructuring costs are presented separately on the consolidated statements of operations.

 

The following table presents the restructuring costs recognized by the Company under the 2023 Restructuring Program during the three and six-month periods ended June 30, 2023. The Company did not incur any costs for restructuring during the six months ended June 30, 2022.

 

    Three Months Ended     Six Months Ended  
    June 30,
2023
    June 30,
2023
 
Severance costs   $ 2,312     $ 2,572  
Other     711       711  
Total restructuring costs   $ 3,023     $ 3,283  

 

The following table represents the restructuring liabilities, which are presented within other accrued expenses in the consolidated balance sheet:

 

    June 30,
2023
 
Balance, December 31, 2022   $ 231  
Current period charges     3,283  
Payments     (580 )
Balance, June 30, 2023   $ 2,934  

 

The Company also recorded an inventory impairment charge of $7.2 million in the three months ended June 30, 2023 which is included in cost of revenues in the consolidated statement of operations. 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.

 

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5. GOODWILL AND INTANGIBLE ASSETS, NET

 

The Company had goodwill of $13.6 million as of June 30, 2023 and December 31, 2022 resulting from a prior acquisition. Goodwill and Intangible assets, net are classified as Assets Held for Sale – Noncurrent at June 30, 2023.

 

Intangible assets, net consists of the following (in thousands):

 

  Weighted     June 30, 2023  
    Average
Useful Life
(in years)
    Gross
Carrying
Amount
    Accumulated
Amortization
    Net
Carrying
Amount
 
Internally developed technology   10     $ 7,810     $ (3,319 )   $ 4,491  
Customer relationships   6       2,130       (1,509 )     621  
Trademarks   2       720       (720 )     -  
Non-compete   3       180       (180 )     -  
Total acquired intangible assets         $ 10,840     $ (5,728 )   $ 5,112  

 

    Weighted     December 31, 2022  
    Average
Useful Life
(in years)
    Gross
Carrying
Amount
    Accumulated
Amortization
    Net
Carrying
Amount
 
Internally developed technology   10     $ 7,810     $ (3,189 )   $ 4,621  
Customer relationships   6       2,130       (1,449 )     681  
Trademarks   2       720       (720 )     -  
Non-compete   3       180       (180 )     -  
Total acquired intangible assets         $ 10,840     $ (5,538 )   $ 5,302  

 

Amortization expense related to the Company’s intangible assets amounted to $0 and $0.3 million for the three months ended June 30, 2023 and 2022, respectively, and $0.2 million and $0.6 million for the six months ended June 30, 2023 and 2022, respectively.

 

There will be no further amortization expense for the remainder of 2023 and thereafter related to the Company’s intangible assets as the long-lived assets in the disposal group should be recorded at the carrying amount at the time the assets are accounted as held for sale.

 

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6. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

 

Accrued expenses and other current liabilities consist of the following (in thousands):

 

    June 30,
2023
    December 31,
2022
 
Payroll and related benefits and taxes   $ 7,356     $ 8,081  
Fair value of embedded derivatives related to Convertible Debt     -       5,353  
Royalties     3,377       3,610  
Loan success fee related to Convertible Debt     2,858       2,858  
Agent and sales commissions     1,078       1,224  
Right-of-use lease liability, current portion     2,367       2,923  
Tax liabilities     1,130       1,301  
Restructuring costs     2,934       231  
Product warranty liabilities     1,203       1,478  
Product marketing     1,276       376  
Manufacturing subcontractor costs     2,928       1,787  
Legal and professional services     2,896       1,282  
Other     1,844       1,739  
Other accrued expenses   $ 31,247     $ 32,243  

 

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7. HELD FOR SALE

 

As discussed in Note 1, on March 8, 2023 the Company entered into the Purchase Agreement with Seller, Mimosa, and Buyer, pursuant to which the Seller will sell all of the issued and outstanding shares of common stock of Mimosa to Buyer for an aggregate purchase price of approximately $60,000,000 in cash (subject to customary adjustments) on the terms and subject to the conditions set forth in the Purchase Agreement (the “Transaction”). The Purchase Agreement contains customary representations, warranties and covenants by the parties subject to specified exceptions and qualifications. Each party’s obligations to consummate the Transaction pursuant to the Purchase Agreement are subject to customary closing conditions as set out in the Mimosa Purchase Agreement, including, among others, approval of the Transaction by the Committee on Foreign Investment in the United States, approval of the Transaction by the Competition Authority of the Republic of Turkey, and approval of the Transaction by the senior lenders. The approval by the Committee on Foreign Investment in the United States and the approval of the Competition Authority of the Republic of Turkey have been received, and the closing is anticipated to occur in August 2023.

 

The Company met the criteria for recording the Mimosa assets and liabilities as “held for sale” at June 30, 2023. Since the Company did not meet the criteria for held for sale at December 31, 2022, the assets and liabilities of the Mimosa group are recorded in their respective categories.

 

The assets and liabilities of the disposal group, Mimosa, were evaluated to determine whether the carrying amounts should be adjusted in accordance with other GAAP standards. After adjusting the assets and liabilities of the disposal group, the disposal group as a whole is measured at the lower of carrying amount or fair value less costs to sell. Depreciation and amortization of long-lived assets in the disposal group will not be recorded during the period in which the disposal group meets the criteria for held for sale.

 

The unaudited condensed balance sheet of Mimosa at June 30, 2023 is as follows:

 

  June 30,
2023
    December 31,
2022
 
ASSETS                
Current assets:                
Accounts receivable, net of allowance of $103 and $123 as of June 30, 2023 and December 31, 2022, respectively   $ 11,064     $ 7,413  
Inventory     4,133       3,759  
Prepaid expenses and other current assets     155       410  
Total current assets     15,352       11,582  
Property, plant and equipment, net     1,204       1,107  
Goodwill     13,641       13,641  
Intangible assets, net     5,112       5,302  
Right-of-use assets, net     845       916  
Other non-current assets     111       109  
Total assets   $ 36,265     $ 32,657  
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY                
Current liabilities:                
Accounts payable   $ 10,391     $ 5,545  
Accrued expenses and other current liabilities     1,397       1,517  
Deferred revenue     227       253  
Total current liabilities     12,015       7,315  
Other long-term liabilities     375       449  
Total liabilities     12,390       7,764  
Total liabilities and stockholders’ equity   $ 36,265     $ 32,657  

 

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8. SUBORDINATED DEBT

 

On August 6, 2015, Legacy Airspan issued Golden Wayford Limited a $10.0 million subordinated Convertible Promissory Note (the “Golden Wayford Note”) pursuant to a Subordinated Convertible Note Purchase Agreement. The Golden Wayford Note was amended and restated on November 28, 2017, to reduce the interest rate thereon and to reflect the application of the payment of $1.0 million of principal on such note. The Golden Wayford Note had an original maturity date of February 16, 2016, which through subsequent amendments was extended to June 30, 2020. The conversion rights related to this agreement expired on its maturity date, June 30, 2020, and on this date the loan was reclassified from subordinated convertible debt to subordinated debt.

 

The principal and accrued interest under the Golden Wayford Note would have been automatically converted into common shares at the time of the next equity financing and consummated prior to, on or after the maturity date (June 30, 2020). Such conversion right expired in accordance with its term. Interest accrues at 5.0% per annum and is payable quarterly, however, because such payment is prohibited by the terms of the subordination, interest is (in accordance with the terms of the related promissory note) paid in kind.

 

The Golden Wayford Note is subordinate to the obligations under the Fortress Credit Agreement (see Note 10). A limited waiver under the Fortress Credit Agreement waives each actual and prospective default and event of default existing under the Fortress Credit Agreement directly as a result of the non-payment of the Golden Wayford Note. The Company had subordinated debt outstanding of $9.0 million, plus $2.4 million and $2.1 million of accrued interest as of June 30, 2023 and December 31, 2022, respectively.

 

9. SUBORDINATED TERM LOAN – RELATED PARTY

 

On February 9, 2016, Legacy Airspan entered into a $15.0 million subordinated term loan agreement with a related party (the “Subordinated Term Loan Agreement”) that was due to mature on February 9, 2018. On July 12, 2016, Legacy Airspan entered into an additional $15.0 million Amendment No. 1 to the Subordinated Term Loan Agreement that was due to mature on February 9, 2018. On July 3, 2017, Legacy Airspan entered into Amendment No. 2 to the Subordinated Term Loan Agreement that extended the maturity date to June 30, 2019. On May 23, 2019, Legacy Airspan entered into Amendment No. 3 to the Subordinated Term Loan Agreement that extended the maturity date to December 31, 2020. On March 30, 2020, Legacy Airspan entered into Amendment No. 4 to the Subordinated Term Loan Agreement that extended the maturity date to December 31, 2021. On December 30, 2020, Legacy Airspan entered into Amendment No. 5 to the Subordinated Term Loan Agreement that extended the maturity date to the later of (a) December 30, 2024 and (b) 365 days after the maturity date of the Fortress Credit Agreement (as in effect on December 30, 2020) (see Note 10). The term loan is subordinate to the Fortress Credit Agreement (see Note 10).

 

Prior to May 23, 2019, interest accrued at 2.475% per annum and was payable quarterly. In accordance with the amendments below, the interest rate changed as follows:

 

(a) Amendment No. 3, on May 23, 2019, the interest rate changed to 9.0% per annum to be accrued;

 

  (b) Amendment No. 4, on March 30, 2020, the interest rate changed to 9.0% per annum through December 31, 2020 and from and after January 1, 2021, at a rate of 12.0% per annum to be accrued; and

 

  (c) Amendment No. 5, on December 30, 2020, the interest rate from January 1, 2021 and thereafter changed to 9.0% per annum to be accrued, subject to reversion to 12.0% if a condition subsequent is not satisfied. The subsequent condition was satisfied.

 

The principal and accrued interest may be repaid early without penalty.

 

The Company had a subordinated term loan outstanding of $30.0 million, plus $13.4 million and $11.5 million of accrued interest as of June 30, 2023 and December 31, 2022, respectively. The subordinated term loan is classified as long-term at June 30, 2023 as the Company is in compliance with the Fortress covenants. At March 31, 2023 and December 31, 2022, the subordinated term loan was classified as current as the Company had breached covenants with Fortress.

 

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 5,912,040 warrants to purchase shares of the Company’s common stock (collectively, the “Warrants”), (vi) amend certain financial covenants, (vii) provide for additional fees related to the Fortress Credit Agreement, and (viii) amend and restate the Fortress Credit Agreement. The Warrants provided for under the Fortress Credit Agreement were issued to certain lenders or their designees and will be exercisable to purchase one share of the Company’s common stock at an exercise price of $0.01 per share. The Warrants have a term of 7.5 years and will become exercisable upon the earliest to occur of (i) the third anniversary of the issuance of the warrants, (ii) an “Acquisition” as defined in the Warrant, (iii) any debt financing or issuance of equity or instruments convertible into equity interests of the Company in which the Company receives in excess of $50 million in one or a series of related transactions, and (iv) any other strategic transactions, joint ventures, financings or combinations between the Company and one or more investors or third parties in which the Company or its subsidiaries receive in excess of $50 million in one or a series of related transactions.

 

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 $5.1 million is related to the senior term loan.

 

The Fortress Credit Agreement initial term loan total commitment of $34.0 million and a term loan commitment of $10.0 million were both funded to Legacy Airspan on December 30, 2020. Pursuant to the Fortress Credit Agreement, the Company may expand the term loan commitment by $25.0 million subject to the terms and conditions of the Fortress Credit Agreement. The maturity date of the total loan commitment is December 30, 2024. The Fortress Credit Agreement contains a prepayment premium of 5.0% if the prepayment occurs during the period from December 30, 2021 through December 29, 2022, and 3.0% if the prepayment occurs during the period from December 30, 2022 through December 29, 2023. The Fortress Credit Agreement also contained a prohibition on prepayment during the period from December 30, 2020 through December 29, 2021.

 

To secure its obligations under the Fortress Credit Agreement, Fortress was assigned PWB’s security interest under the PWB Facility and the Company and certain of its subsidiaries granted Fortress as security for the obligations a security interest in (a) all of the real, personal and mixed property in which liens are granted or purported to be granted pursuant to any of the collateral documents as security for the obligations, (b) all products, proceeds, rents and profits of such property, (c) all of each loan party’s book and records (d) all of the foregoing whether now owned or existing, in each case excluding certain excluded assets.

 

15

 

 

The Fortress Credit Agreement and the Fortress Convertible Note Agreement each contains representations and warranties, events of default and affirmative and negative covenants, which include, among other things, certain restrictions on the ability to pay dividends, create liens, incur additional indebtedness, make investments, dispose of assets, consummate business combinations (except for permitted investment, as defined in the Fortress Credit Agreement and the Fortress Convertible Note Agreement, respectively), and make distributions. In addition, financial covenants apply. Prior to the May 2023 Fortress Credit Agreement Amendment and the May 2023 Fortress Convertible Note Agreement Amendment, these financial covenants included (a) minimum liquidity of an amount between $15.0 million and $20.0 million, depending on EBITDA performance levels and whether a default or event of default existed under the Fortress Credit Agreement, (b) minimum last twelve-month revenue and (c) minimum last twelve-month Earnings before Interest, Taxes, Depreciation, and Amortization (“EBITDA”). Pursuant to the May 2023 Fortress Credit Agreement Amendment, the financial covenants included in the Fortress Credit Agreement and the Fortress Convertible Note Agreement were amended to (i) decrease the required minimum liquidity to $2.0 million and, from and after the Closing Date, $4.0 million, (ii) modify the minimum revenue covenant levels and change to a three-month test period, and (iii) modify the minimum EBITDA covenant levels and change to a three-month test period. Revenue and EBITDA financial covenants are tested quarterly.

 

The Company was not in compliance with the minimum last twelve-month EBITDA covenant and the minimum last twelve-month revenue covenant under the Fortress Credit Agreement and the agreement governing the Company’s senior secured convertible notes as of the December 31, 2022 and the March 31, 2023 quarterly measurement dates, and the Company was not in compliance with the minimum liquidity covenant under the Fortress Credit Agreement and the Fortress Convertible Note Agreement at all times from November 29, 2022, until the date of the May 2023 Fortress Credit Agreement Amendment and the May 2023 Fortress Convertible Note Agreement Amendment, each of which is an event of default under those agreements. The Company did not make the payments due under the Fortress Credit Agreement and the Fortress Convertible Note Agreement on March 31, 2023, which was an event of default under the Fortress Credit Agreement and the Fortress Convertible Note Agreement. Each of these defaults was waived pursuant to the May 2023 Fortress Credit Agreement Amendment and the May 2023 Fortress Convertible Note Agreement Amendment.

 

Based on management’s current forecast, absent of additional financing or capital raising, the Company has concluded it may not be in compliance with certain of the prospective financial covenants under the May 2023 Credit Agreement Amendment and the agreement governing the Company’s senior secured convertible notes during certain periods of the next twelve months. Accordingly, while the Company may seek future waivers from compliance with the applicable covenants in connection with such anticipated breaches, or amendments of existing financial covenants included in the Fortress Credit Agreement and the agreement governing the Company’s senior secured convertible notes, the Company is also pursuing alternative sources of capital so that it would be able to satisfy its prospective minimum liquidity obligations under the Fortress Credit Agreement and the agreement governing the Company’s senior secured convertible notes. There can be no assurance that the lenders under the Fortress Credit Agreement and the agreement governing the Company’s senior secured convertible notes will agree to waive any breaches thereunder that may arise in the future or that we will otherwise be able to remedy such breaches.

 

In the absence of waivers or remedies of existing covenant breaches or any additional breaches that may arise in the future, the lenders under the May 2023 Credit Agreement Amendment and the agreement governing the Company’s senior secured convertible notes could (i) elect to declare all the funds borrowed thereunder to be due and payable, together with accrued and unpaid interest and other premiums, and institute foreclosure proceedings against the Company’s assets, (ii) elect to apply the default interest rate under the Fortress Credit Agreement and the Fortress Convertible Note Agreement and related agreements, and (iii) with respect to the Fortress Credit Agreement, elect to terminate their delayed draw commitments thereunder and cease making further loans. As a result of any of these actions, the Company could be forced into bankruptcy or liquidation. In addition, the Company’s subordinated term loan – related party (see Note 9) and subordinated debt (see Note 8) could be accelerated or required to be paid due to provisions contained within those instruments.

 

As of June 30, 2023, the Company was in compliance with all applicable covenants under the Fortress Credit Agreement. Prior to June 30, 2023, the Company had breached certain covenants, but they were waived by the lender when the May 2023 Credit Agreement Amendment was executed.

 

The Company’s senior term loan balance was $65.9 million and $44.1 million, inclusive of accrued interest of $6.4 million and $5.0 million, as of June 30, 2023 and December 31, 2022, respectively. Deferred financing fees of $2.7 million and $3.6 million are reflected as reductions of the outstanding senior term loan balance as of June 30, 2023 and December 31, 2022, respectively.

 

16

 

 

11. CONVERTIBLE DEBT

 

On August 13, 2021, the Company, together with Legacy Airspan, Holdco, Airspan Networks (SG) Inc., Mimosa Networks, Inc., Mimosa Networks International, LLC, Airspan Communications Limited, Airspan Networks LTD, and Airspan Japan K.K., as guarantors, and Fortress, entered into a Senior Secured Convertible Note Purchase and Guarantee Agreement (the “Fortress Convertible Note Agreement”), in order to meet the available cash requirement of the reverse recapitalization described in Note 3. Pursuant to the Fortress Convertible Note Agreement, $50.0 million was funded to the Company in exchange for the issuance of $50.0 million aggregate principal amount of Convertible Notes on August 13, 2021, the date of the reverse recapitalization, which amount was increased to $52.5 million under the May 2023 Fortress Convertible Note Agreement Amendment. The Convertible Notes bear interest, prior to May 18, 2023, at 7.0% per annum, and from and after May 18, 2023, at 10.0% per annum (the “Base Rate”), payable quarterly in arrears on March 31, June 30, September 30 and December 31 of each year, beginning on September 30, 2021. The Convertible Notes will mature on December 30, 2024, unless earlier accelerated, converted, redeemed or repurchased. Under certain circumstances, a default interest will apply following an event of default under the Convertible Notes at a per annum rate equal to the lower of (i) the Base Rate plus 3.75% and (ii) the maximum amount permitted by law. The Convertible Notes are pari passu in right of payment and lien priority with the obligations under the Fortress Credit Agreement and are secured by a security interest in (a) all of the real, personal and mixed property in which liens are granted or purported to be granted pursuant to any of the collateral documents as security for the obligations, (b) all products, proceeds, rents and profits of such property, (c) all of each loan party’s book and records and (d) all of the foregoing whether now owned or existing, in each case excluding certain excluded assets.

 

On March 29, 2022, the Company and certain of its subsidiaries who are party to the Fortress Convertible Note Agreement entered into a First Amendment and Waiver to Senior Secured Convertible Note Purchase and Guarantee Agreement and Other Note Documents relating to the Fortress Convertible Note Agreement and the Convertible Notes (the “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