NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2021
(Unaudited)
1.
Organization and Nature of Operations
AST
SpaceMobile, Inc., collectively with its subsidiaries (“SpaceMobile” or the “Company”), is an innovative
satellite designer and manufacturer. SpaceMobile is currently in the process of assembling, integrating, and testing its BlueWalker
3 (“BW3”) test satellite. In addition, the Company is in the design, development, and procurement process
for the SpaceMobile constellation satellites in advance of manufacturing and launching the first space-based global cellular
broadband network distributed through a constellation of Low Earth Orbit Satellites (the “AST Satellite Constellation”).
Once deployed and operational, the AST Satellite Constellation is designed to provide connectivity directly to standard/unmodified
cellular phones or any 2G/3G/4G LTE and 5G enabled device (the “SpaceMobile Service”). At that point, we intend to offer
the SpaceMobile Service to cellular subscribers and others through wholesale commercial roaming agreements with cellular service
providers on a global basis. The Company
operates from six locations that include its corporate headquarters and 85,000 square foot satellite assembly, integrating and
testing facility in Midland, Texas, and engineering and development locations in Maryland, Spain, the United Kingdom, and Israel. In
addition, its 51% owned and controlled subsidiary, NanoAvionika UAB (“Nano”), is headquartered in
Lithuania.
On
April 6, 2021 (the “Closing Date”), the Company completed a business combination (“Business Combination”) pursuant
to that certain equity purchase agreement, dated as of December 15, 2020 (the “Equity Purchase Agreement”), by and among
AST & Science LLC (“AST LLC”), New Providence Acquisition Corp. (“NPA”), the existing equityholders of AST
LLC (“Existing Equityholders”), New Providence Acquisition Management LLC (“Sponsor”), and Mr. Abel Avellan,
as representative of the Existing Equityholders. Immediately, upon the completion of the Business Combination, NPA was renamed AST SpaceMobile,
Inc. and AST LLC became a subsidiary of the AST SpaceMobile, Inc. The Business Combination is documented in greater detail in Note 3.
Following
the consummation of the Business Combination (the “Closing”), the combined company is organized in an “Up-C”
structure in which the business of AST LLC and its subsidiaries is held by AST SpaceMobile, Inc. and continues to operate through the
subsidiaries of AST LLC, and in which SpaceMobile’s only direct assets consist of equity interests in AST LLC. The Company’s
common stock and warrants are listed on the Nasdaq Capital Market under the symbols “ASTS” and “ASTSW”, respectively.
As the managing member of AST LLC, SpaceMobile has full, exclusive and complete discretion to manage and control the business of AST
LLC and to take all action it deems necessary, appropriate, advisable, incidental, or convenient to accomplish the purposes of AST LLC
and, accordingly, the financial statements are being prepared on a consolidated basis with SpaceMobile.
The
Company is an “emerging growth company,” as defined in Section 2(a) 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”), and the Company may take advantage
of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth
companies, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the
Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and
exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden
parachute payments not previously approved.
There
continues to be uncertainties regarding the pandemic of the novel coronavirus (“COVID-19”), and the Company is closely monitoring
the impact of COVID-19 on all aspects of its business, including how it will impact its customers, employees, suppliers, vendors, and
business partners. Any estimates made herein may change as new events occur and additional information is obtained, and actual results
could differ materially from any estimates made herein under different assumptions or conditions. The Company has evaluated the impact
of the COVID-19 pandemic for the period ended September 30, 2021 and has not realized a material impact to the Company’s technology
development efforts or operations. The Company is unable to predict the impact that COVID-19 may have on its financial position and operations
moving forward due to the numerous uncertainties. The Company will continue to assess the evolving impact of COVID-19.
2.
Summary of Significant Accounting Policies
Basis
of Presentation and Principles of Consolidation
The
accompanying unaudited condensed consolidated financial statements and related notes have been prepared by the Company in accordance
with accounting principles generally accepted in the United States (“U.S. GAAP”) and the requirements of the Securities
and Exchange Commission (“SEC”) for interim reporting. Certain information and footnote disclosures normally included
in annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations
relating to interim financial statements. The consolidated financial statements include the accounts of AST SpaceMobile, Inc. and its
subsidiaries. Intercompany transactions and balances have been eliminated upon consolidation. Certain comparative amounts have been
reclassified to conform to the current period presentation. These reclassifications had no effect on the reported results of operations.
The December 31, 2020 balances reported herein are derived from the audited consolidated financial statements of AST LLC. In the
opinion of management, these unaudited condensed consolidated financial statements contain all adjustments (consisting only of normal
and recurring adjustments) necessary to fairly state the condensed consolidated financial statements.
Pursuant
to the Business Combination, the transaction between the Company and AST LLC was accounted for as a reverse recapitalization in accordance
with U.S. GAAP. Under this method of accounting, NPA was treated as the “acquired” company for financial reporting purposes.
Accordingly, for accounting purposes, the Business Combination was treated as the equivalent of AST LLC issuing stock for the net assets
of the Company, accompanied by a recapitalization. The net assets of AST LLC are stated at historical cost and net assets of NPA are
stated at fair value, with no goodwill or other intangible assets recorded. The consolidated assets, liabilities and results of operations
prior to the Business Combination are those of AST LLC. The shares and corresponding capital amounts prior to the Business Combination
have been retroactively restated as shares reflecting the exchange ratio established in the Equity Purchase Agreement.
The
accompanying unaudited condensed consolidated financial statements and related notes should be read in conjunction with the Company’s
annual audited financial statements for the year ended December 31, 2020 contained in our Form 8-K dated April 12, 2021. The results
of operations for the periods presented are not indicative of the results to be expected for the year ending December 31, 2021 or for
any other interim period or other future year.
Use
of Estimates
The
preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the
amounts reported in the unaudited condensed consolidated financial statements and accompanying notes. The Company bases its estimates
and assumptions on historical experience when available and on other market-specific or other relevant assumptions that it believes to
be reasonable under the circumstances. Significant estimates and assumptions reflected in these financial statements include, but are
not limited to, useful lives assigned to property and equipment, the fair values of warrant liabilities, valuation and potential impairment
of goodwill and long-lived assets, and equity-based compensation expense. The Company assesses estimates on an ongoing basis; however,
actual results could materially differ from those estimates.
Cash
and Cash Equivalents
The
Company’s cash consists of cash maintained within standard bank accounts at Federal Deposit Insurance Corporation (“FDIC”)
insured financial institutions. The Company’s cash equivalents consist of short-term money market funds. The Company considers
all highly liquid investments with a maturity date of 90 days or less at the date of purchase to be cash equivalents.
Fair
Value of Financial Instruments
The
Company measures certain assets and liabilities at fair value, either upon initial recognition or for subsequent accounting or reporting.
The fair value of the financial instruments disclosed herein is not
necessarily representative of the amount that could be realized or settled, nor does the fair value amount consider the tax consequences
of realization or settlement.
In
assessing the fair value of financial instruments, the Company uses a variety of methods and assumptions, which are based on estimates
of market conditions and risks existing at the time. For certain instruments, including cash, accounts receivable, accounts payable,
and accrued expenses, it was estimated that the carrying amount approximated fair value because of the short maturities of these instruments.
Inventories
Inventories
are carried at the lower of cost or net realizable value. Cost is determined by the first-in first-out (FIFO) method. The cost of work-in-progress
comprises raw materials, satellite componentry, direct labor, and other direct engineering costs. No reserve for excess and/or obsolete
inventory was recognized in the periods presented. The Company’s inventory balance was $2.7
million and $2.6
million as of September 30, 2021 and December
31, 2020, respectively.
Property
and Equipment
The
Company records property and equipment at cost. Repairs and maintenance costs that do not extend the useful life or enhance the productive
capacity of an asset are expensed as incurred and recorded as part of general and administrative operating expenses in the accompanying
condensed consolidated statements of operations. Upon retirement or disposal of property and equipment, the Company derecognizes
the cost and accumulated depreciation balance associated with the asset, with a resulting gain or loss from disposal included in the
determination of net income or loss. Maintenance and repairs are charged to expense as incurred and any additions or improvements which
extend the useful life of an asset or increase its productive capacity are capitalized. Depreciation expense is computed using the straight-line
method over the estimated useful lives which the Company has assigned to its underlying asset classes, which are as follows:
Schedule
of Estimated Useful Lives
|
|
|
Estimated
Useful Life
|
|
Computers,
software, and equipment
|
|
2
to 5
years
|
|
Leasehold
improvements
|
|
Shorter
of estimated useful life or lease term
|
|
Satellite
antenna
|
|
5
years
|
|
Test
and lab equipment
|
|
5
years
|
|
Phased
array test facility
|
|
5
years
|
|
Assembly
and integration equipment
|
|
5
years
|
|
Furniture
and fixtures
|
|
7
years
|
|
Vehicles
|
|
5
years
|
Long-Lived
Assets
Long-lived
assets, except for goodwill, consist of property and equipment and definite lived acquired intangible assets, such as developed technology
and tradenames. Long-lived assets, except for goodwill, are tested for recoverability whenever events or changes in business circumstances
indicate that the carrying amount of the asset may not be fully recoverable. The Company continually evaluates whether events or circumstances
have occurred that indicate that the estimated remaining useful life of long-lived assets and definite lived intangible assets may warrant
revision or if events or circumstances indicate that the carrying value of these assets may be impaired. To compute whether assets have
been impaired, the estimated undiscounted future cash flows for the estimated remaining useful life of the assets are compared to the
carrying value. To the extent that the future cash flows are less than the carrying value, the assets are written down to the estimated
fair value of the asset. There were no
impairment charges for
long-lived assets recognized for the periods ended September
30, 2021 and 2020.
Goodwill
The
Company evaluates goodwill for impairment annually, or more frequently if events or changes in circumstances indicate that the goodwill
may be impaired. Goodwill is tested at the reporting unit level, which is considered an operating segment or one level below an operating
segment. The Company has two reporting units: AST LLC and Nano. However, given no goodwill has been allocated to the AST LLC reporting
unit, the Company identifies Nano as the sole reporting unit for purposes of goodwill impairment testing.
The
annual goodwill impairment test is based on either a qualitative or quantitative assessment. We have the option to perform a qualitative
assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount.
If management determines this is the case, we are required to perform a quantitative assessment. A quantitative assessment is an analysis
of the fair value of the reporting unit compared to its carrying value. A goodwill impairment charge is recorded for the amount by which
the carrying amount exceeds the reporting unit’s fair value. The Company performs the annual
goodwill impairment test during the fourth quarter each year. There were no
impairment charges
for goodwill recognized for the periods ended September
30, 2021 and 2020.
Warrant
Liabilities
The
Company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s
specific terms and applicable authoritative guidance in the Accounting Standards Codification (“ASC”) 480 - Distinguishing
Liabilities from Equity (“ASC 480”) and ASC 815 - Derivatives and Hedging (“ASC 815”). Management’s
assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, whether they meet the definition
of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including
whether the warrants are indexed to the Company’s own common stock and whether the warrant holders could potentially require “net
cash settlement” in a circumstance outside of the Company’s control, among other conditions for equity classification. This
assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly
period-end date while the warrants are outstanding.
For
issued or modified warrants that meet all of the criteria for equity classification, they are recorded as a component of additional paid-in
capital at the time of issuance. For issued or modified warrants that do not meet all the criteria for equity classification, they are
recorded at their initial fair value on the date of issuance and subject to remeasurement each balance sheet date with changes in the
estimated fair value of the warrants to be recognized as an unrealized gain or loss in the condensed consolidated statements
of operations.
Engineering
Costs
Engineering
costs are charged to expense as incurred. Engineering costs consist primarily of the expenses associated with our ongoing engineering
efforts to establish feasibility of our satellites, as well as the cost of internal staff (such as engineers and consultants) to support
these efforts. Currently, major engineering activities include the manufacturing and assembly of the satellite components required for
the BW3 test satellite at the Company’s Midland, Texas facility and the development and design of the first commercial satellite
launches for a first constellation phase of 20 satellites (the “BB1 Satellites”). The Company has established alternative
uses (separate economic value) for BW3 test satellite and therefore, the hard costs (i.e., test equipment, antennas, sensors,
cables, launch vehicles) and other nonrecurring costs solely associated with the Company’s BW3 test satellite developments
are capitalized to its construction in progress (“CIP”) account, and presented on its condensed consolidated balance sheets.
Research
and Development Costs
Research
and development costs are charged to expense as incurred. Research and development costs consist principally of non-recurring engineering
development efforts in which the Company typically engages third-party vendors, including engineering, design, and development for the
BB1 Satellites materials and supplies, license costs, contract services, and other outside expenses. Costs for certain research and development
activities are recognized in line with the completion of specific tasks using information from the Company’s vendors on their actual
costs incurred. Payments for these activities are based on the terms of the individual arrangements, which may differ from the pattern
of costs incurred, and reflected in the financial statements as prepaid or accrued expenses.
Revenue
Recognition
The
Company recognizes revenue related to sales of manufactured small satellites and their components as well as launch related services.
The Company recognizes revenue in accordance with Accounting Standards Update (“ASU”) No. 2014-09 - Revenue from Contracts
with Customers (Topic 606) and its related amendments (collectively known as “ASC 606”). In accordance with ASC 606,
revenue is recognized when a customer obtains control of promised goods or services. The amount of revenue reflects the consideration
to which the Company expects to be entitled to receive in exchange for these goods or services. To achieve this core principle, the Company
applies the following five steps: (1) identify the contract with the customer, (2) identify the performance obligations in the contract,
(3) determine the transaction price, (4) allocate the transaction price to performance obligations in the contract, and (5) recognize
revenue when or as the Company satisfies a performance obligation.
Costs
to obtain the Company’s contracts are capitalized and amortized over the expected customer benefit period, and typically include
commissions paid to external parties or distributors. Sales commissions are considered incremental costs in obtaining a new contract
and thus are appropriately capitalized. Costs to fulfill the Company’s contracts, such as our overhead costs and third-party costs
to manufacture, do not meet the specified capitalization criteria (i.e., do not generate or enhance resources of the Company) and as
such are expensed as incurred. Costs to obtain and fulfill the Company’s contracts were immaterial
as of September 30, 2021 and 2020.
Income
Taxes
The
Company follows the asset and liability method of accounting for income taxes under ASC 740 - Income Taxes (“ASC 740”).
Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the
financial statements carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected
to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the
period that included the enactment date.
In
assessing the realizability of deferred tax assets, management considered whether it is more likely than not that some portion or all
of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of
future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal
of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment.
ASC
740 prescribes a recognition threshold and a measurement attribute for the recognition and measurement of tax positions taken or expected
to be taken in a tax return. For those benefits to be recognized, a tax position must be more likely than not (i.e., a likelihood of
more than 50%) to be sustained upon examination by taxing authorities. A recognized tax position is then measured at the largest amount
of benefit with greater
than 50% likelihood of being realized upon ultimate
settlement. The Company recognizes accrued interest and penalties related to uncertain tax positions as income tax expense. There were
no uncertain
tax positions and no
amounts accrued for interest and penalties as of September
30, 2021 and December 31, 2020. The Company is currently not aware of any issues under review that could result in significant payments,
accruals or material deviation from its position.
Tax
Receivable Agreement
In
conjunction with the Business Combination, the Company entered into a Tax Receivable Agreement (the “TRA”) with AST LLC.
Pursuant to the TRA, the Company is required to pay the Existing Equityholders (i) 85% of the amount of savings, if any, in U.S. federal,
state, local and foreign income tax that the Company actually realizes as a result of (A) existing tax basis of certain assets of AST
LLC and its subsidiaries attributable to AST LLC Common Units acquired by the Company, (B) tax basis adjustments resulting from
taxable exchanges of AST LLC Common Units acquired by the Company, (C) tax deductions in respect of portions of certain payments made
under the TRA, and (D) certain tax attributes that are acquired directly or indirectly by the Company pursuant to a reorganization transaction.
All such payments to the Existing Equityholders of AST LLC are the obligations of the Company, and not that of AST LLC. As of September
30, 2021, there have been no exchanges of AST LLC units for Class A common stock of the Company and, accordingly, no TRA liabilities
have been recognized.
Stock-Based
Compensation
The
Company accounts for equity awards, including grants of stock options and restricted stock units, in accordance with ASC 718, Compensation
– Stock Compensation (“ASC 718”). ASC 718 requires all equity-based payments to employees, which includes
grants of employee equity awards, to be recognized in the condensed consolidated statements of operations and comprehensive income (loss)
based on their grant date fair values. The Company estimates the grant date fair value of stock options granted to employees, non-employees,
and non-employee members of the Board of Directors using the Black-Scholes option-pricing model. Use of the Black-Scholes model
requires the Company to make assumptions with respect to the expected term of stock options, the expected volatility of the common stock
consistent with the expected life of the option, risk-free interest rates and expected dividend yields of the common stock. The fair
value of restricted stock units granted to employees, non-employees and non-employee members of the Board of Directors is based
on the fair value of the Company’s stock on the grant date. For awards that vest based solely on achievement of a service condition,
the Company recognizes expense on a straight-line basis over the period during which the award holder provides such services. For awards
that vest based on both service and performance conditions, the Company recognizes expense using a graded method for such awards only
to the extent it believes achievement of the performance conditions are probable. The Company recognizes forfeitures as they occur and
reverses any previously recognized compensation cost associated with forfeited awards. The Company accounts for stock-based compensation
for awards granted to non-employees in a similar fashion to the way it accounts for stock-based compensation awards to employees.
The
Company issues stock-based compensation awards to the employees, non-employees, and non-employee directors of its subsidiaries.
The Company accounts for the compensation associated with these awards by offsetting expense with additional paid-in capital.
The
Company’s less than wholly owned subsidiary, AST LLC, issues stock-based compensation awards to its employees, non-employees,
and non-employee directors. The exercise of these awards would decrease SpaceMobile’s ownership interest in AST LLC. The Company
accounts for the compensation associated with these awards similarly to the awards described above; however, the offset to the expense
is recorded to noncontrolling interest rather than additional paid-in capital.
Collaboration
Agreements
The
Company considers the nature and contractual terms of an arrangement and assess whether the arrangement involves a joint operating activity
pursuant to which it is an active participant and exposed to significant risks and rewards with respect to the arrangement. If the Company
is an active participant and exposed to the significant risks and rewards with respect to the arrangement, it accounts for these arrangements
pursuant to ASC Topic 808 - Collaborative Arrangements, as amended by ASU 2018-18 (“ASC 808”), and applies a systematic
and rational approach to recognize revenue (unless parts of the arrangement are within the scope of other authoritative accounting literature
or can be appropriately analogized to other authoritative accounting literature).
Net
Income (Loss) per Share
The
Company reports both basic and diluted earnings per share. Basic earnings per share is calculated based on the weighted average number
of shares of common stock outstanding and excludes the dilutive effect of warrants, stock options, and other types of convertible securities.
Diluted earnings per share is calculated based on the weighted average number of shares of common stock outstanding and the dilutive
effect of stock options, warrants and other types of convertible securities are included in the calculation. Dilutive securities are
excluded from the diluted earnings per share calculation if their effect is anti-dilutive, such as in periods where we report a net loss.
Concentration
of Credit Risk
Financial
instruments that potentially subject the Company to significant concentration of credit risk consist primarily of cash and cash equivalents
and trade receivables. The Company maintains its cash in accounts at financial institutions that the Company believes are of high
credit quality. At times, the cash balance may exceed federally insured limits. The Company’s foreign subsidiaries
may deposit cash at institutions that are not insured by the FDIC. Cash and cash equivalents at September 30, 2021 are subject
to minimal credit risk.
The
Company’s subsidiary, Nano, which accounted for 100%
of the Company’s revenue for the three and nine month periods ended September 30, 2021, derives its revenue from a small number
of customers. Four customers accounted for approximately 67%
of the Company’s trade receivables as of September
30, 2021, and two customers accounted for approximately 76%
of the Company’s trade receivables as of December 31, 2020. Three customers accounted
for approximately 36%
of the Company’s revenue for the nine months ended
September 30, 2021, and four customers accounted for approximately 74%
of the Company’s revenue for the nine months ended
September 30, 2020. The Company manages credit risk by reviewing the counterparties’ credit at least quarterly.
Foreign
Currency Translation and Transaction Gains and Losses
The
financial statements of the Company’s foreign subsidiaries are translated from local currency into reporting currency, which is
U.S. dollars, using the current exchange rate at the balance sheet date for assets and liabilities, and the weighted average exchange
rate prevailing during the period for revenues and expenses. The functional currency of the Company’s foreign subsidiaries
is the local currency for each entity and, accordingly, translation adjustments for these subsidiaries are included in accumulated other
comprehensive loss within stockholders’ equity.
Realized
and unrealized gains and losses resulting from foreign currency transactions denominated in currencies other than the functional currency
are reflected as other income (expense), net in the condensed consolidated statements of operations.
Segments
Operating
segments are defined as components of an entity for which separate financial information is available and that is regularly reviewed
by the Chief Operating Decision Maker (“CODM”) in deciding how to allocate resources to an individual segment and in assessing
performance. The Company’s CODM is its Chief Executive Officer. The Company has determined that it operates in one operating segment,
as the CODM reviews financial information presented on a combined basis for purposes of making operating decisions, allocating resources,
and evaluating financial performance.
Recently
Adopted Accounting Pronouncements
In
August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-06,
Debt – Debt with Conversion and Other Options (Subtopic 470- 20) and Derivatives and Hedging – Contracts in Entity’s
Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, to reduce complexity
in applying U.S. GAAP to certain financial instruments with characteristics of liabilities and equity. The guidance in ASU 2020-06 simplifies
the accounting for convertible debt and convertible preferred stock by removing the requirements to separately present certain conversion
features in equity. The amendments in ASU 2020-06 are effective for public entities that meet the definition of an SEC filer, excluding
smaller reporting companies as defined by the SEC, for fiscal years beginning after December 15, 2021. Early adoption is permitted, but
no earlier than fiscal years beginning after December 15, 2020. Entities should adopt the guidance as of the beginning of the fiscal
year of adoption and cannot adopt the guidance in an interim reporting period. The Company adopted the new standard on January 1, 2021.
The new standard did not have a material effect on the condensed consolidated financial statements as of September 30, 2021.
In
December 2019, the FASB issued ASU 2019-12, Income Taxes (ASU 2019-12), which amended
the accounting for income taxes. ASU 2019-12 eliminates certain exceptions to the guidance
for income taxes related to the approach for intraperiod tax allocation, the methodology
for calculating income taxes in an interim period and the recognition of deferred tax liabilities
for outside basis differences as well as simplifying aspects of the accounting for franchise
taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions
that result in a step-up in the tax basis of goodwill. The Company adopted ASU 2019-12 on
January 1, 2021 and it did not have a material impact on its condensed consolidated
financial statements.
Accounting
Standards Recently Issued but Not Yet Adopted
In
May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt-Modifications and Extinguishments (Subtopic 470-50), Compensation-Stock
Compensation (Topic 718), and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting
for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options (a consensus of the FASB Emerging Issues
Task Force). The guidance clarifies certain aspects of the current guidance to promote consistency among reporting of an issuer’s
accounting for modifications or exchanges of freestanding equity-classified written call options (for example, warrants) that remain
equity classified after modification or exchange. The amendments in this update are effective for all entities for fiscal years beginning
after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted for all entities, including
adoption in an interim period. The Company is evaluating the potential impact of this adoption on its condensed consolidated financial
statements.
All
other new accounting pronouncements issued, but not yet effective or adopted have been deemed to be not relevant to the Company and,
accordingly, are not expected to have a material impact once adopted.
3.
Business Combination
On
April 6, 2021, the Company completed the Business Combination with AST LLC pursuant to the Equity Purchase Agreement. Pursuant to ASC
805 – Business Combinations (“ASC 805”), for financial accounting and reporting purposes, AST LLC was deemed
the accounting acquirer and the Company was treated as the accounting acquiree, and the Business Combination was accounted for as a reverse
recapitalization. Accordingly, the Business Combination was treated as the equivalent of AST LLC issuing stock (“AST LLC Common
Units”) for the net assets of NPA, accompanied by a recapitalization. Under this method of accounting, the pre-Business Combination
consolidated financial statements of the Company are the historical financial statements of AST LLC. The net assets of NPA were stated
at fair value, with no goodwill or other intangible assets recorded in accordance with U.S. GAAP and are consolidated with AST LLC’s
financial statements on the Closing date. As a result of the Business Combination with the Company, the AST LLC Series A and Series B
convertible preferred stock were converted to AST LLC Common Units. The shares and net income (loss) available to holders of the Company’s
common stock, prior to the Business Combination, have been retroactively restated as shares reflecting the exchange ratio established
in the Equity Purchase Agreement.
In
connection with the Business Combination, the Company entered into subscription agreements with certain investors (the Private
Investment in Public Entity Investors, or “PIPE Investors”), whereby it issued 23,000,000 Class
A shares of common stock at $10.00 per
share (the “Private Placement Shares”) for an aggregate purchase price of $230.0 million
(the “Private Placement”), which closed simultaneously with the consummation of the Business Combination.
On
the closing date of the Business Combination, the Company completed the acquisition of AST LLC and in return AST LLC and the Existing
Equityholders received (i) $416.9
million in cash, net of transaction expenses,
(ii) 51.6
million shares of Class B common stock, and (iii)
78.2
million shares of Class C common stock. In connection
with the Business Combination, the Company incurred direct and incremental costs of approximately $45.7
million related to the equity issuance, consisting
primarily of investment banking, legal, accounting and other professional fees, which were recorded as a reduction of additional paid-in
capital in the accompanying condensed consolidated balance sheets.
The
shares of non-economic Class B and Class C common stock of the Company entitle each share to one vote and ten votes per share, respectively.
The non-economic Class B and Class C shares were issued
to the Existing Equityholders to maintain the established voting percentage of SpaceMobile, as determined in the Equity Purchase Agreement.
As
a result of the Business Combination, the Company, organized as a C corporation, owns an equity interest in AST LLC in what is
commonly referred to as an “Up-C” structure. AST LLC is treated as a partnership for U.S. federal and state income tax purposes.
Also, the Company has a controlling ownership interest in a Lithuanian subsidiary that is subject to foreign income taxes and is also
treated as a partnership for U.S. federal and state and local taxes. Accordingly, for U.S. federal and state income tax purposes, all
income, losses, and other tax attributes pass through to the members’ income tax returns, and no U.S. federal and state and local
provision for income taxes has been recorded for these entities in the consolidated financial statements. Certain foreign wholly-owned
entities are taxed as corporations in the jurisdictions in which they operate, and accruals for such taxes are included in the consolidated
financial statements.
As
a result of the Up-C structure, the noncontrolling interest is held by the Existing Equityholders who retained 71.5% of
the economic ownership percentage of AST LLC. The noncontrolling
interest is classified as permanent equity within the condensed consolidated balance sheet as the Company, acting through the redemption
election committee of the Company’s Board of Directors (the “Redemption Election Committee”), may only elect to settle
a redemption request in cash if the cash delivered in the exchange is limited to the cash proceeds to be received from a new permanent
equity offering through issuance of Class A common stock.
In
conjunction with the Business Combination, the Company also entered into the TRA with AST LLC. Pursuant to the TRA, the Company is required
to pay the Existing Equityholders (i) 85% of the amount of savings, if any, in U.S. federal, state, local and foreign income tax that
the Company actually realizes as a result of (A) existing tax basis of certain assets of AST LLC and its subsidiaries attributable
to the AST LLC Common Units, (B) tax basis adjustments resulting from taxable exchanges of AST LLC Common Units acquired by the Company,
(C) tax deductions in respect of portions of certain payments made under the TRA, and (D) certain tax attributes that are acquired directly
or indirectly by the Company pursuant to a reorganization transaction. All such payments to the Existing Equityholders of AST LLC are
the obligations of the Company, and not that of AST LLC. As of September 30, 2021, there have been no exchanges of AST LLC units for
Class A common stock of the Company and, accordingly, no TRA liabilities have been recognized.
The
Company recorded a net deferred tax asset of $71.7
million for the difference
between the book value and tax basis of the Company’s investment in AST LLC at the time of the Business Combination. The Company
has assessed the realizability of their deferred tax assets and in that analysis has considered the relevant positive and negative evidence
available to determine whether it is more likely than not that some portion or all of the deferred tax assets will be realized. As a
result, the Company has recorded a full valuation allowance against its deferred tax asset resulting from the Business Combination.
4.
Fair Value Measurement
The
Company follows the guidance in ASC 820 - Fair Value Measurement (“ASC 820”), for its financial assets and liabilities
that are re-measured and reported at fair value at each reporting period, and non-financial assets and liabilities that are re-measured
and reported at fair value at least annually.
The
fair value of the Company’s financial assets and liabilities reflects management’s estimate of amounts that the Company would
have received in connection with the sale of the assets or paid in connection with the transfer of the liabilities in an orderly transaction
between market participants at the measurement date. In connection with measuring the fair value of its assets and liabilities, the Company
seeks to maximize the use of observable inputs (market data obtained from independent sources) and to minimize the use of unobservable
inputs (internal assumptions about how market participants would price assets and liabilities). The following fair value hierarchy is
used to classify assets and liabilities based on the observable inputs and unobservable inputs used in order to value the assets and
liabilities:
|
|
●
|
Level
1: Quoted prices in active markets for identical assets or liabilities. An active market for an asset or liability is a market in
which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing
basis.
|
|
|
|
|
|
|
●
|
Level
2: Observable inputs other than Level 1 inputs. Examples of Level 2 inputs include quoted prices in active markets for similar assets
or liabilities and quoted prices for identical assets or liabilities in markets that are not active.
|
|
|
|
|
|
|
●
|
Level
3: Unobservable inputs based on our assessment of the assumptions that market participants would use in pricing the asset or liability.
|
The
following table presents information about the Company’s assets and liabilities that are measured at fair value on a recurring
basis as of September 30, 2021 and December 31, 2020 and indicates the fair value hierarchy of the valuation inputs the Company utilized
to determine such fair value (in thousands):
Schedule
of Assets Measured at Fair Value on a Recurring Basis
|
Description
|
|
Level
|
|
|
September
30,
2021
|
|
|
December
31,
2020
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
equivalents
|
|
|
1
|
|
|
$
|
352,011
|
|
|
$
|
-
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Public
warrant liability
|
|
|
1
|
|
|
$
|
45,425
|
|
|
$
|
-
|
|
|
Private
placement warrant liability
|
|
|
2
|
|
|
$
|
30,683
|
|
|
$
|
-
|
|
As
of September 30, 2021, the Company had $360.4
million of cash and cash equivalents,
of which $352.0
million is classified as cash equivalents,
which consists principally of short-term money market funds with original maturities of 90 days or less.
Warrant
liabilities are comprised of both publicly issued warrants (“Public Warrants”) and private placement warrants (“Private
Placement Warrants”), exercisable for shares of Class A common stock of the Company. Warrant liabilities are documented
in greater detail at Note 10. As of September 30, 2021, the Public Warrants are classified as Level 1 due to the use of an observable
market quote in an active market under the ticker “ASTSW”.
The
Private Warrants are valued using a Black-Scholes-Merton Model. As of September 30, 2021, the Private Warrants are classified as Level
2 as the transfer of Private Warrants to anyone outside of a small group of individuals who are permitted transferees would result in
the Private Placement Warrants having substantially the same terms as the Public Warrants. For this reason, the Company determined that
the volatility of each Private Warrant is equivalent to that of each Public Warrant.
The
Company’s Black-Scholes-Merton model to value Private Warrants required the use of the following subjective assumption inputs:
|
|
●
|
The
risk-free interest rate assumption was based on a weighted average of the three and five-year U.S. Treasury rate, which was commensurate
with the contractual term of the Warrants, which expire on the earlier of (i) five years after the completion of the initial business
combination and (ii) upon redemption or liquidation. An increase in the risk-free interest rate, in isolation, would result in an
increase in the fair value measurement of the warrant liabilities and vice versa.
|
|
|
|
|
|
|
●
|
The
expected volatility assumption was based on the implied volatility of the Company’s publicly-traded warrants, which as of September
30, 2021 was 59.1%.
|
5.
Property and Equipment
Property
and equipment, net consisted of the following at September 30, 2021 and December 31, 2020 (in thousands):
Schedule
of Property and Equipment, Net
|
|
|
September
30,
2021
|
|
|
December
31,
2020
|
|
|
Satellite
testing and lab equipment
|
|
$
|
13,617
|
|
|
$
|
5,324
|
|
|
Computers,
software, and equipment
|
|
|
2,435
|
|
|
|
1,707
|
|
|
Leasehold
improvements
|
|
|
6,101
|
|
|
|
3,537
|
|
|
Other
|
|
|
531
|
|
|
|
404
|
|
|
Property
and equipment
|
|
|
22,684
|
|
|
|
10,972
|
|
|
Accumulated
depreciation
|
|
|
(2,775
|
)
|
|
|
(915
|
)
|
|
Property
and equipment, net
|
|
|
19,909
|
|
|
|
10,057
|
|
|
|
|
|
|
|
|
|
|
|
|
BlueWalker
3 Satellite - construction in progress
|
|
|
56,677
|
|
|
|
27,013
|
|
|
Total
property and equipment, net
|
|
$
|
76,586
|
|
|
$
|
37,070
|
|
Depreciation
expense for the three months ended September 30, 2021 and 2020 was approximately $0.8
million and $0.1
million, respectively. Depreciation expense
for the nine months ended September 30, 2021 and 2020 was approximately $1.9
million and $0.3
million, respectively.
6.
Commitments and Contingencies
Leases
On
November 13, 2018, AST LLC entered into both an Economic Development Agreement (the “EDA”) and a sublease agreement with
Midland Development Corporation. The premise of the EDA was to create jobs in the Midland, Texas area, as well as, to have AST LLC improve
the land, office and hangar spaces at the leased facility located at the Midland International Air & Space Port in Midland, Texas.
The
leased facility included office space (44,988 SF), hangar A (28,480 SF), hangar B (11,900 SF), and land (approximately 238,000
SF). The term of the lease commenced on November 21, 2018 and extends through November 20, 2033. Pursuant to the agreement, the base
rental payments for the first five years will be abated, provided that the Company prepays the rent in each period and achieves an increasing
level of financial commitments, measured annually on March 31st of each of the first five years of the lease. The Company can qualify
for an additional five years (years six through ten of the term) of abatements which are contingent upon the Company achieving its commitments
through the first five years of the lease and maintaining or exceeding those year five commitment levels in years six through year ten
of the term. These commitments include 1) the total number of full-time jobs and the related annual payroll costs and 2) cumulative capital
investments in personal property and improvements to the existing land/structures. The Company
recognizes the lease reimbursements as an offset to rent expense for the related reimbursable month when the contingency is probable
of being resolved.
The
Company’s other operating leasehold obligations include additional office space in Maryland, Spain, Israel, United Kingdom and
Lithuania. The Company’s leases have established fixed payment terms which are subject to annual rent increases throughout the
term of each lease agreement. The Company’s lease agreements have varying non-cancellable rental periods which include options
for the Company to extend portions of its lease terms. The Company early adopted ASU 2016-02 – Leases (“ASC 842”)
as of January 1, 2020 (“the adoption date”) using the modified retrospective method which did not require it to restate prior
periods and did not have an impact on retained earnings. Management considered that it was not reasonably certain to exercise any extension
options present in its lease arrangements that are outstanding as of the adoption date, with the exception of the Texas sublease. In
addition, the Company’s leases have similar terms in which they may terminate the lease prior to the end date but must provide
advanced notice. The Company is not reasonably certain to exercise the right to terminate their agreements.
The
Company also elected to apply a practical expedient provided in ASC 842, which provides that leases with an initial term of 12 months
or less and no purchase option that the Company is reasonably certain of exercising will not be included within the lease right-of-use
assets and lease liabilities on its condensed consolidated balance sheets. The Company also elected to apply a practical expedient to
combine the non-lease components (which include common area maintenance, taxes and insurance) with the related lease component. The Company
applies these practical expedients to all asset classes.
Incremental
Borrowing Rate
The
Company derives its incremental borrowing rate from information available at the lease commencement date in determining the present value
of lease payments. The incremental borrowing rate represents a collateralized rate of interest the Company would have to pay to borrow
over a similar term an amount equal to the lease payments in a similar economic environment. The Company’s lease agreements do
not provide implicit rates. As the Company did not have any external borrowings at the adoption date with comparable terms to its lease
agreements, the Company estimated its incremental borrowing rate based on the lowest grade of debt available in the marketplace for the
same term as the associated lease(s). The Company elected to use an 11.9%
discount rate for its main, shorter-term operating leases (generally two (2)
to five (5)
year leases), with the exception of a shorter-term lease entered into during the three months ended September 30, 2021,
in which the Company elected to use an 8% discount rate. For
the Texas sublease, which is greater than 10 years, the Company elected to use a 15% discount rate.
Operating
Leases
The
components of lease expense were as follows (in thousands):
Schedule
of Lease Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
|
|
|
September
30,
2021
|
|
|
September
30,
2020
|
|
|
September
30,
2021
|
|
|
September
30,
2020
|
|
|
Short-term
operating lease expense
|
|
$
|
15
|
|
|
$
|
13
|
|
|
$
|
70
|
|
|
$
|
24
|
|
|
Operating
lease expense
|
|
|
123
|
|
|
|
79
|
|
|
|
352
|
|
|
|
180
|
|
|
Total
lease expense
|
|
$
|
138
|
|
|
$
|
92
|
|
|
$
|
422
|
|
|
$
|
204
|
|
Supplemental
cash flow information related to leases for the nine months ended September 30, 2021 was as follows (in thousands):
Schedule
of Supplemental Cash Flow Information Related to Leases
|
|
|
|
|
|
|
|
|
|
|
Nine
Months Ended
|
|
|
|
|
September
30,
2021
|
|
|
September
30,
2020
|
|
|
Cash
paid for amounts included in the measurement of operating lease liabilities
|
|
$
|
334
|
|
|
$
|
207
|
|
|
Operating
lease right-of-use assets obtained in exchange for lease obligations
|
|
$
|
269
|
|
|
$
|
635
|
|
Supplemental
balance sheet information related to leases as of September 30, 2021 was as follows:
Schedule
of Supplemental Balance Sheet Information Related to Leases
|
Weighted-average
remaining lease term - operating leases (years)
|
|
|
10.8
|
|
|
Weighted-average
discount rate - operating leases
|
|
|
14
|
%
|
As
of September 30, 2021, the maturities of the Company’s operating lease liabilities were as follows (in thousands):
Schedule
of Maturities of Operating Lease Liabilities
|
Year
ending December 31,
|
|
Amount
|
|
|
2021
(Remaining 3 months)
|
|
$
|
378
|
|
|
2022
|
|
|
1,364
|
|
|
2023
|
|
|
1,370
|
|
|
2024
|
|
|
1,282
|
|
|
2025
|
|
|
1,183
|
|
|
Thereafter
|
|
|
7,886
|
|
|
Total
lease payments
|
|
|
13,463
|
|
|
Less
effects of discounting
|
|
|
(6,535
|
)
|
|
Present
value of lease liabilities
|
|
$
|
6,928
|
|
Legal
Proceedings
The
Company is not a party to any material litigation and does not have contingency reserves established for any litigation liabilities as
of September 30, 2021 and December 31, 2020.
7.
Goodwill and Intangible Assets
Goodwill
The
change in the carrying amount of goodwill for the nine months ended September 30, 2021 is summarized as follows (in thousands):
Summary
of Changes in Carrying Amount of Goodwill
|
|
|
Nine
Months Ended
September
30,
2021
|
|
|
Balance
at beginning of the period
|
|
$
|
3,912
|
|
|
Translation
adjustments
|
|
|
(208
|
)
|
|
Balance
at end of the period
|
|
$
|
3,704
|
|
Intangible
Assets
Identified
intangible assets are comprised of the following as of September 30, 2021 and December 31, 2020 (in thousands):
Schedule
of Intangible Assets
|
|
|
Useful
Lives
|
|
|
September
30,
2021
|
|
|
December
31,
2020
|
|
|
Intangible
assets subject to amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Developed
technology
|
|
|
5
|
|
|
$
|
1,100
|
|
|
$
|
1,161
|
|
|
Trademarks
and domain name
|
|
|
15
|
|
|
|
23
|
|
|
|
23
|
|
|
Total
gross intangible assets subject to amortization
|
|
|
|
|
|
|
1,123
|
|
|
|
1,184
|
|
|
Accumulated
amortization
|
|
|
|
|
|
|
(788
|
)
|
|
|
(658
|
)
|
|
Total
net intangible assets subject to amortization
|
|
|
|
|
|
$
|
335
|
|
|
$
|
526
|
|
The
aggregate amortization expense for each of the three months ended September 30, 2021 and 2020 was less than $0.1
million. The aggregate amortization expense
for each of the nine months ended September 30, 2021 and 2020 was approximately $0.2
million.
Based on the carrying value of identified intangible assets recorded at September 30, 2021, and assuming no subsequent impairment of
the underlying assets, the amortization expense is expected to be as follows (in thousands):
Schedule
of Intangible Assets Future Amortization Expense
|
Fiscal
Year
|
|
Amortization
Expense
|
|
|
2021
(remaining 3 months)
|
|
$
|
55
|
|
|
2022
|
|
|
221
|
|
|
2023
|
|
|
38
|
|
|
2024
|
|
|
2
|
|
|
2025
and Thereafter
|
|
|
19
|
|
|
Total
|
|
$
|
335
|
|
8.
Revenue
Disaggregation
of Revenue
The
Company’s subsidiary, Nano, recognizes revenue related to sales of manufactured small satellites and their components, as well
as launch related services. Currently, this is the Company’s only source of revenue. In general, the Company recognizes revenue
for services provided over time as the Company’s performance does not result in an asset with an alternative use and the Company
is entitled to be compensated for performance completed to date. The Company recognizes revenue for services provided over time based
on an output method, under which the total value of revenue is recognized based on each contract’s deliverable(s) as they are completed
and when value is transferred to a customer. Certain of the Company’s performance obligations do not meet the criteria for over
time recognition such as satellite hardware and subsystems. In these scenarios, the Company recognizes revenue upon transfer of control
of the performance obligation to the customer. Revenue recognized over time versus revenue recognized upon transfer for the periods ending
September 30, 2021 and 2020 was as follows (in thousands):
Schedule
of Disaggregation of Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended
September
30,
|
|
|
Nine
Months Ended
September
30,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
Revenue
from performance obligations recognized over time
|
|
$
|
2,189
|
|
|
$
|
1,871
|
|
|
$
|
4,769
|
|
|
$
|
2,538
|
|
|
Revenue
from performance obligations recognized at point-in-time transfer
|
|
|
261
|
|
|
|
219
|
|
|
|
1,416
|
|
|
|
727
|
|
|
Total
|
|
$
|
2,450
|
|
|
$
|
2,090
|
|
|
$
|
6,185
|
|
|
$
|
3,265
|
|
Contract
Balances
Contract
assets relate to our conditional right to consideration for our completed performance under the contract. Contract liabilities relate
to payments received in advance of performance under the contract. Contract liabilities (i.e., deferred revenue) are recognized as revenue
as (or when) the Company performs under the contract. During the three months ended September 30, 2021, the Company recognized approximately
$0.4 million
of revenue related to its deferred revenue balance at January 1, 2021. During the nine months ended September 30, 2021, the Company recognized
approximately $1.5
million of revenue related to its deferred
revenue balance at January 1, 2021.
As
of September 30, 2021, the Company had deferred revenue of $4.9
million
classified in current liabilities related to performance obligations that have not yet been satisfied. The Company expects to recognize
the revenue associated with satisfying these performance obligations within the next 12 months.
Accounts
Receivable
The
Company receives payments from customers based on a billing schedule as established in our contracts. Accounts receivable includes amounts
billed and currently due from customers. Accounts receivable are recorded when the right to consideration becomes unconditional. The
Company did not reserve an allowance for doubtful accounts as of September 30, 2021 or December 31, 2020 given historical experience
and management’s evaluation of outstanding accounts receivable at period end.
9.
Stockholders’ Equity
Prior
to the Business Combination, NPA was a Special Purpose Acquisition Company or a “blank check company”, defined as a development
stage company formed for the sole purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization
or similar business combination with one or more businesses. As of the closing of the Business Combination, the Company held a 28.5%
ownership interest in AST LLC. The Company also became the managing member of AST LLC, allowing it to control the operating decisions
of AST LLC. This resulted in the Company obtaining a controlling financial interest in AST LLC. The Company’s sole operating assets
consists of the business operations, intellectual property, and other assets of AST LLC and its subsidiaries.
Noncontrolling
Interest
Noncontrolling
interest represents the equity interest in AST LLC held by holders other than the Company. On April 6, 2021, upon the close of the Business
Combination, the Existing Equityholders’ equity ownership percentage in AST LLC was approximately 71.5%.
The Company has consolidated the financial position and results of operations of AST LLC and reflected the proportionate interest held
by the Existing Equityholders as noncontrolling interest in the accompanying condensed consolidated balance sheet. As of September 30,
2021, the Existing Equityholders’ equity ownership percentage in AST LLC was approximately 71.5%.
Class
A Common Stock
At
September 30, 2021, there were 51,729,704
million shares of Class A common stock issued
and outstanding. Holders of Class A common stock are entitled to one vote for each share. The Company is authorized to issue 800,000,000
shares of Class A common stock with a par value
of $0.0001
per share.
Class
B Common Stock
At
September 30, 2021, there were 51,636,922
shares of Class B common stock issued and outstanding.
Shares of Class B common stock were issued to the Existing Equityholders of AST LLC (other than Mr. Abel Avellan) in connection with
the Business Combination and are non-economic, but entitle the holder to one vote per share. The Company is authorized to issue 200,000,000
shares of Class B common stock with a par value
of $0.0001
per share.
The
Existing Equityholders (other than Mr. Abel Avellan) own economic interests in AST LLC which are redeemable into either shares of Class
A common stock on a one-for-one basis or cash at the option of the Redemption Election Committee. Upon redemption of the AST LLC Common
Units by the Existing Equityholders (other than Mr. Abel Avellan), a corresponding number of shares of Class B common stock held by such
Existing Equityholders will be cancelled. The Class B common stock is subject to a lock-up, during which the shares cannot be transferred
until April 6, 2022, the first anniversary of the closing of the Business Combination.
Class
C Common Stock
At
September 30, 2021, there were 78,163,078
million shares of Class C common stock issued
and outstanding. Shares of Class C common stock were issued to Mr. Abel Avellan in connection with the Business Combination and are non-economic,
but entitle the holder to ten votes per share (the “Super-Voting Rights”). The Company is authorized to issue 125,000,000
shares of Class C common stock with a par value
of $0.0001
per share.
Mr.
Abel Avellan owns economic interests in AST LLC which are redeemable into either shares of Class A common stock on a one-for-one basis
or cash at the option of the Redemption Election Committee. Upon redemption of the AST LLC Common Units by Mr. Avel Avellan, a corresponding
number of shares of Class C common stock held by Mr. Abel Avellan will be cancelled. Correspondingly, the Super-Voting Rights associated
with the Class C common stock will be terminated. The Class C common stock is subject to a one-year lock-up, during which the shares
cannot be transferred until April 6, 2022, the first anniversary of the closing of the Business Combination.
Preferred
Stock
At
September 30, 2021, there were no
shares of preferred stock issued or outstanding. The Company
is authorized to issue 100,000,000
shares of preferred stock with a par value of $0.0001
per share with such designation, rights and preferences
as may be determined from time to time by the Company’s Board of Directors.
10.
Warrant Liabilities
At
September 30, 2021, there were 11,500,000
Public Warrants and 6,100,000
Private Placement Warrants outstanding. Each
whole Public Warrant entitles the registered holder to purchase one whole share of Class A common stock at a price of $11.50
per share. Pursuant to the warrant agreement,
a holder of Public Warrants may exercise its warrants only for a whole number of shares of Class A common stock. This means that only
a whole warrant may be exercised at any given time by a warrant holder. The Public Warrants expire on April
6, 2026, five
years after the Business Combination, at 5:00
p.m., New York City time, or earlier upon redemption or liquidation.
The
Company may redeem the Public Warrants under the following conditions:
|
|
●
|
In
whole and not in part;
|
|
|
●
|
At
a price of $0.01
per warrant;
|
|
|
●
|
Upon
not less than 30 days’ prior written notice of redemption (the “30-day redemption period”) to each warrant holder;
and
|
|
|
●
|
If, and only if, the reported last sale price of the Class A common stock equals or exceeds $18.00
per share for any 20 trading days within a 30-trading day period ending three business days before the Company sends the notice of redemption to the warrant holders.
|
The
redemption criteria discussed above prevent a redemption call unless there is at the time of the call a significant premium to the warrant
exercise price. If the foregoing conditions are satisfied and SpaceMobile issues a notice of redemption of the warrants, each warrant
holder will be entitled to exercise its warrant prior to the scheduled redemption date. However, the price of the Class A common stock
may fall below the $18.00
redemption trigger price (as adjusted for stock
splits, stock dividends, reorganizations, recapitalizations and the like) as well as the $11.50
warrant exercise price after the redemption notice
is issued.
The
Private Placement Warrants are identical to the Public Warrants, except that the Private Placement Warrants are exercisable on a cashless
basis and are non-redeemable so long as they are held by the initial purchasers or their permitted transferees. If the Private Placement
Warrants are held by someone other than the initial purchasers or their permitted transferees, the Private Placement Warrants will be
redeemable by the Company and exercisable by such holders on the same basis as the Public Warrants.
As
of September 30, 2021, the Company recorded warrant liabilities of $76.1
million in the condensed consolidated
balance sheets. For the three and nine month periods ended September 30, 2021, the Company recognized a gain of $39.4
million and a loss of $2.3 million, respectively, on the change in the fair value of the warrant liabilities in the condensed consolidated
statements of operations.
11.
Stock-Based Compensation
Stock-Based
Compensation Expense
Stock-based
compensation, measured at the grant date based on the fair value of the award, is typically recognized ratably over the requisite services
period, using the straight-line method of expense attribution. The Company recorded stock-based compensation expense in the following
categories of its condensed consolidated statements of operations and balance sheets (in thousands):
Schedule
of Share-Based Compensation Expense
|
|
|
Three
Months Ended
September
30,
|
|
|
Nine
Months Ended
September
30,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
Engineering
services
|
|
$
|
546
|
|
|
$
|
147
|
|
|
$
|
1,085
|
|
|
$
|
275
|
|
|
General
and administrative costs
|
|
|
755
|
|
|
|
94
|
|
|
|
814
|
|
|
|
134
|
|
|
BlueWalker
3 Satellite - construction in progress
|
|
|
6
|
|
|
|
-
|
|
|
|
34
|
|
|
|
-
|
|
|
Total
|
|
$
|
1,307
|
|
|
$
|
241
|
|
|
$
|
1,933
|
|
|
$
|
409
|
|
The
Company estimates the fair value of the stock option awards to employees, non-employees and non-employee members of the Board
of Directors using the Black-Scholes option pricing model, which requires the input of subjective assumptions, including (i) the
expected volatility of our stock, (ii) the expected term of the award, (iii) the risk-free interest rate, and (iv) any expected dividends.
Due to the lack of company-specific historical and implied volatility data, the Company based the estimate of expected volatility on
the estimated and expected volatilities of a representative group of publicly traded companies. For these analyses, the Company selects
companies with comparable characteristics including enterprise value, risk profiles, position within the industry, and with historical
share price information sufficient to meet the expected life of the stock-based awards. The Company computes the historical volatility
data using the daily closing prices for the selected companies’ shares during the equivalent period of the calculated expected
term of the stock-based awards. The Company will continue to apply this process until a sufficient amount of historical information regarding
the volatility of the Company’s stock price becomes available. For awards that qualify as “plain-vanilla” options,
the Company estimates the expected life of the employee stock options using the “simplified” method, whereby, the expected
life equals the average of the vesting term and the original contractual term of the option. The expected term of stock options granted
to non-employees is equal to the contractual term of the option award. The risk-free interest rate is determined by reference to the
U.S. Treasury yield curve in effect at the time of grant of the award for time periods approximately equal to the expected term of the
award. Expected dividend yield is based on the fact that the Company has never paid cash dividends and does not expect to pay any cash
dividends in the foreseeable future. The Company elects to account for forfeitures as they occur rather than apply an estimated forfeiture
rate to stock-based payment expense.
The
fair value of restricted stock units granted to employees, non-employees, and non-employee members of the Board of Directors is
based on the fair value of the Company’s stock on the grant date. The Company elects to account for forfeitures as they occur rather
than apply an estimated forfeiture rate to stock-based payment expense.
AST
LLC 2019 Equity Incentive Plan
Prior
to the Business Combination, under the 2019 Equity Incentive Plan (“AST LLC Incentive Plan”), AST LLC was authorized to issue
ordinary shares, as well as options exercisable for ordinary shares, as incentives to its employees, non-employees, and non-employee
members of its Board of Directors. The issuance of share options and ordinary shares is administered by the Board of Directors using
standardized share option and share subscription agreements. Following the Business Combination, no further grants will be made under
the AST LLC Incentive Plan. However, the AST LLC Incentive Plan will continue to govern the terms and conditions of the outstanding awards
granted under it.
There
were two types of options granted under the AST LLC Incentive Plan: (1) service-based options and (2) performance-based options. Service-based
options typically vest over a five
year service period with 20%
of the award vesting on the first anniversary of the employee’s commencement date, and the balance thereafter in 48 equal monthly
installments. Certain service-based options also provide for accelerated vesting if there is a change in control or other performance
condition as defined by the AST LLC Incentive Plan. Performance-based options typically vest on the earliest date that any of the following
occurs: (i) AST LLC effects an initial public offering and becomes a reporting company, (ii) AST LLC experiences a change of control,
or (iii) other specified performance conditions. Both service-based and performance-based options typically expire no later than 10 years
from the date of grant.
In
connection with the Closing, AST LLC entered into the Fifth Amended and Restated Limited Liability Operating Agreement (the “A&R
Operating Agreement”), which, among other things, restructured the capitalization of AST LLC to reclassify all of the existing
AST LLC options into AST LLC incentive equity units (the “AST LLC Incentive Equity Units”). In connection with the reclassification
of the AST LLC options into AST LLC Incentive Equity Units, the maximum number of AST LLC Incentive Equity Units which may be issued
under the AST LLC Incentive Plan were proportionately adjusted to be equal to (a) the share limit under the AST LLC Incentive Plan as
of the effective date of the A&R Operating Agreement, multiplied by (b) 14.50149869 (rounded down to the nearest whole number of
AST LLC Incentive Equity Units). Additionally, each unexpired and unexercised outstanding AST LLC option, whether vested or unvested,
was proportionately adjusted such that (a) each AST LLC option will be exercisable for that number of AST LLC Incentive Equity Units
equal to the product determined by multiplying (x) the number of AST LLC options that were issuable upon exercise immediately prior to
the Closing by (y) 14.50149869 (rounded down to the nearest whole number of AST LLC Incentive Equity Units) and (b) the per unit exercise
price for the AST LLC Incentive Equity Units issuable upon exercise of such AST LLC option shall be equal to the quotient of (x) the
exercise price per AST LLC option immediately prior to the Closing divided by (y) 14.50149869 (rounded down to the nearest millionth).
Each AST LLC option continues to be subject to the terms of the AST LLC Incentive Plan and the applicable award agreement evidencing
such AST LLC option, and is further subject in all regards to the terms and conditions of the A&R Operating Agreement. Additionally,
pursuant to the terms of the A&R Operating Agreement, each AST LLC Incentive Equity Unit is redeemable for one share of Class A Common
Stock on the later of the (i) 24-month anniversary of the consummation of the Business Combination and (ii) six-month anniversary from
the vesting date. As a result of the Business Combination, there was no incremental compensation cost and the terms of the outstanding
awards, including fair value, vesting conditions and classification, were unchanged.
As
of September 30, 2021, AST LLC was authorized to issue a total of 12,812,959
ordinary shares under a reserve set aside for
equity awards. As of September 30, 2021, there were 12,402,116
options outstanding under the AST LLC Incentive
Plan. Following the Business Combination on April 6, 2021, no further equity award grants were made under the AST LLC Incentive
Plan.
The
following table summarizes AST LLC’s option activity for the nine months ended September 30, 2021:
Schedule
of Stock Options Activities
|
|
|
Options
|
|
|
Weighted-Average
Exercise Price
|
|
|
Weighted-Average
Remaining Contractual Term (years)
|
|
|
Outstanding
at December 31, 2020
|
|
|
11,822,100
|
|
|
$
|
0.20
|
|
|
|
2.04
|
|
|
Granted
|
|
|
806,283
|
|
|
|
10.00
|
|
|
|
|
|
|
Exercised
|
|
|
(15,227
|
)
|
|
|
0.06
|
|
|
|
|
|
|
Cancelled
or forfeited
|
|
|
(211,040
|
)
|
|
|
0.92
|
|
|
|
|
|
|
Outstanding
at September 30, 2021
|
|
|
12,402,116
|
|
|
$
|
0.83
|
|
|
|
1.60
|
|
|
Options
exercisable as of September 30, 2021
|
|
|
7,096,395
|
|
|
$
|
0.23
|
|
|
|
1.53
|
|
|
Vested
and expected to vest at September 30, 2021
|
|
|
12,402,116
|
|
|
$
|
0.83
|
|
|
|
1.60
|
|
The
following table summarizes the Company’s unvested option activity for the nine months ended September 30, 2021:
Schedule
of Unvested Option Activity
|
|
|
Number
of Shares
|
|
|
Weighted-Average
Grant Date Fair Value
|
|
|
Unvested at December 31, 2020
|
|
|
6,526,494
|
|
|
$
|
0.16
|
|
|
Granted
|
|
|
806,283
|
|
|
|
4.15
|
|
|
Vested
|
|
|
(1,877,862
|
)
|
|
|
0.29
|
|
|
Forfeited
|
|
|
(149,175
|
)
|
|
|
0.56
|
|
|
Unvested at September 30, 2021
|
|
|
5,305,740
|
|
|
$
|
0.71
|
|
The
weighted-average grant-date fair value per share of stock options granted during the nine months ended September 30, 2021 and 2020 was
$4.15
and $0.33,
respectively.
As
of September 30, 2021, total unrecognized compensation expense related to the unvested stock options was $3.0
million, which is expected to be recognized
over a weighted average period of 1.6
years.
The
fair value of each stock option is estimated on the date of grant using a Black-Scholes option-pricing model, with the assumptions
used for the nine months ended September 30, 2021, presented on a weighted average basis:
Schedule
of Option Award Estimated Using a Black-scholes Option-pricing Model Assumptions
|
|
|
Nine
Months Ended
September 30, 2021
|
|
|
Exercise
price
|
|
$
|
10.00
|
|
|
Fair market value
|
|
$
|
4.15
|
|
|
Expected
dividend yield
|
|
|
0.0
|
%
|
|
Expected
term (in years)
|
|
|
6.3
|
|
|
Expected
volatility
|
|
|
42.24
|
%
|
|
Weighted-average
risk-free rate
|
|
|
0.55
|
%
|
SpaceMobile
2020 Incentive Award Plan
In
connection with the Business Combination, the Company adopted the 2020 Incentive Award Plan (the “2020 Plan”). Awards may
be made under the 2020 Plan covering an aggregate number of Class A common stock shares equal to 10,800,000.
Any shares distributed pursuant to an award may consist, in whole or in part, of authorized and unissued Common Stock, treasury Common
Stock or Common Stock purchased on the open market. The 2020 Plan provides for the grant of stock options, restricted stock, dividend
equivalents, restricted stock units, incentive unit awards, stock appreciation rights, and other stock or cash-based awards. Each incentive
unit issued pursuant to an award, if any, shall count as one share for purposes of calculating the aggregate number of shares available
for issuance under the 2020 Plan.
Two
types of equity awards have been granted under the 2020 Plan: (1) service-based options and (2) service-based and performance-based restricted
stock units. Service-based options typically vest over a four
year service period with 25%
of the award vesting on the first anniversary of the employee’s commencement date, and the balance thereafter in 36 equal monthly
installments. Service-based restricted stock units typically vest over a four year service period with 25% of the award vesting on each
anniversary of the employee’s vesting commencement date. Performance-based restricted stock units typically vest on the earliest
date that any of the following occurs: (i) the Company attains an incremental capital investment, or (ii) other specified performance
conditions. Options typically expire no later than 10 years from the date of grant.
Stock
Options
As
of September 30, 2021, there were 1,146,454
service-based options outstanding under the 2020
Plan.
The
following table summarizes the Company’s option activity under the 2020 Plan for the nine months ended September 30, 2021:
Schedule
of Stock Options Activities
|
|
|
Options
|
|
|
Weighted-Average
Exercise Price
|
|
|
Weighted-Average
Remaining Contractual Term (years)
|
|
|
Outstanding at December
31, 2020
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
Granted
|
|
|
1,146,454
|
|
|
|
9.95
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
Cancelled
or forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
Outstanding
at September 30, 2021
|
|
|
1,146,454
|
|
|
$
|
9.95
|
|
|
|
3.47
|
|
|
Options
exercisable as of September 30, 2021
|
|
|
27,893
|
|
|
$
|
10.00
|
|
|
|
2.85
|
|
|
Vested
and expected to vest at September 30, 2021
|
|
|
1,146,454
|
|
|
$
|
9.95
|
|
|
|
3.47
|
|
The
following table summarizes the Company’s unvested option activity for the period ended September 30, 2021:
Schedule
of Unvested Option Activity
|
|
|
Number
of Shares
|
|
|
Weighted-Average
Grant Date Fair Value
|
|
|
Unvested at December
31, 2020
|
|
|
-
|
|
|
$
|
-
|
|
|
Granted
|
|
|
1,146,454
|
|
|
|
4.14
|
|
|
Vested
|
|
|
(27,893
|
)
|
|
|
4.16
|
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
Unvested at September
30, 2021
|
|
|
1,118,561
|
|
|
$
|
4.13
|
|
The
weighted-average grant-date fair value per share of stock options granted during the nine months ended September 30, 2021 was $4.14.
There were no stock options granted in the nine months ended September 30, 2020. There were no exercises during the nine months ended
September 30, 2021.
As
of September 30, 2021, total unrecognized compensation expense related to the unvested stock options was $4.4
million, which is expected to be recognized over
a weighted average period of 3.5
years.
The
fair value of each stock option is estimated on the date of grant using a Black-Scholes option-pricing model, with the assumptions
used for the nine months ended September 30, 2021, presented on a weighted average basis:
Schedule
of Option Award Estimated Using a Black-scholes Option-pricing Model Assumptions
|
|
|
Nine
Months Ended
September 30, 2021
|
|
|
Exercise
price
|
|
$
|
9.95
|
|
|
Fair market value
|
|
$
|
4.14
|
|
|
Expected
dividend yield
|
|
|
0.0
|
%
|
|
Expected
term (in years)
|
|
|
6.1
|
|
|
Expected
volatility
|
|
|
42.34
|
%
|
|
Weighted-average
risk-free rate
|
|
|
0.97
|
%
|
Restricted
Stock Units
As
of September 30, 2021, there were 1,804,051
restricted stock units outstanding under
the 2020 Plan.
The
following table summarizes the Company’s unvested restricted stock unit activity for the nine months ended September 30, 2021:
Schedule
of Unvested Restricted Stock Units Activity
|
|
|
Number
of Shares
|
|
|
Weighted-Average
Grant Date Fair Value
|
|
|
Unvested at December
31, 2020
|
|
|
-
|
|
|
$
|
-
|
|
|
Granted
|
|
|
1,804,051
|
|
|
|
10.11
|
|
|
Vested
|
|
|
-
|
|
|
|
-
|
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
Unvested at September
30, 2021
|
|
|
1,804,051
|
|
|
$
|
10.11
|
|
For
the period ended September 30, 2021, total unrecognized compensation expense related to the unvested restricted stock units was $12.6
million, which is expected to be recognized
over a weighted average period of 3.6
years.
SpaceMobile
2020 Employee Stock Purchase Plan
In
connection with the Business Combination, the Company adopted the 2020 Employee Stock Purchase Plan (the “ESPP”). The aggregate
number of common stock shares that may be issued pursuant to rights granted under the ESPP is 2,000,000
shares. If any right granted under the ESPP shall
for any reason terminate without having been exercised, the shares not purchased under such right shall again become available for issuance
under the ESPP. As of September 30, 2021, the Company had not issued any awards under this
plan.
12.
Net Income (Loss) per Share
Basic
earnings per share of Class A common stock is computed by dividing net income attributable to common stockholders by the weighted-average
number of shares of Class A common stock outstanding during the period. Diluted earnings per share of Class A common stock is computed
by dividing net income attributable to common stockholders adjusted for the assumed exchange of all potentially dilutive securities,
by the weighted-average number of shares of Class A common stock outstanding adjusted to give effect to potentially dilutive elements.
Prior
to the Business Combination, the membership structure of AST LLC included units which shared in the profits and losses of AST LLC. The
Company analyzed the calculation of earnings per unit for periods prior to the Business Combination and determined that it resulted in
values that would not be meaningful to the readers of these unaudited condensed consolidated financial statements. Therefore,
earnings per share information has not been presented for periods prior to the Business Combination on April 6, 2021. The basic and diluted
earnings per share for the three and nine months ended September 30, 2021 represent only the period of April 6, 2021 to September 30,
2021.
The
following table sets forth reconciliations of the numerators and denominators used to compute basic and diluted earnings per share of
Class A common stock:
Schedule
of Basic and Diluted Earnings Per Share
|
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
|
|
|
September
30, 2021
|
|
|
September
30, 2021
|
|
|
|
|
(dollars
in thousands except per share amounts)
|
|
|
Numerator
|
|
|
|
|
|
|
|
Net
income (loss) before allocation to noncontrolling interest
|
|
$
|
16,804
|
|
|
$
|
(60,458
|
)
|
|
Net
loss attributable to AST LLC pre Business Combination
|
|
|
-
|
|
|
|
(11,580
|
)
|
|
Net
income (loss) attributable to the noncontrolling interest post Business Combination
|
|
|
12,689
|
|
|
|
(33,015
|
)
|
|
Net
income (loss) attributable to common stockholders - basic
|
|
$
|
4,115
|
|
|
$
|
(15,863
|
)
|
|
Effect
of dilutive securities:
|
|
|
|
|
|
|
|
|
|
Noncontrolling
interest
|
|
|
(278
|
)
|
|
|
-
|
|
|
Net
income (loss) attributable to common stockholders - diluted
|
|
$
|
3,837
|
|
|
$
|
(15,863
|
)
|
|
Denominator
|
|
|
|
|
|
|
|
|
|
Weighted-average
shares of Class A common stock outstanding - basic
|
|
|
51,729,704
|
|
|
|
51,729,704
|
|
|
Effect
of dilutive securities:
|
|
|
|
|
|
|
|
|
|
Employee
stock options
|
|
|
110,137
|
|
|
|
-
|
|
|
Weighted-average
shares of Class A common stock outstanding - diluted
|
|
|
51,839,841
|
|
|
|
51,729,704
|
|
|
Earnings
per share of Class A common stock - basic
|
|
$
|
0.08
|
|
|
$
|
(0.31
|
)
|
|
Earnings
per share of Class A common stock - diluted
|
|
$
|
0.07
|
|
|
$
|
(0.31
|
)
|
Shares
of the Company’s Class B and Class C common stock do not participate in the earnings or losses of the Company and are therefore
not participating securities. As such, separate presentation of basic and diluted earnings per share of Class B and Class C common stock
under the two-class method has not been presented.
At
September 30, 2021, the Company excluded from the calculation of diluted earnings per share 51,636,922
shares of Class B common stock, 78,163,078
shares of Class C common stock, 11,500,000
Public Warrants outstanding, 6,100,000
Private Warrants outstanding, and 485,000
unvested performance-based restricted stock units
as their effect would have been anti-dilutive.
13.
Related Parties
Founder
Bridge Loan
On
July 11, 2019, the Company entered into a promissory note agreement with the founder and Chief Executive Officer of AST LLC (the “Founder
Note”). Under the terms of the original and amended agreement dated September 10, 2019, the principal amount borrowed by the Company
was $1.75
million bearing interest at 2.37%
per annum. The interest expense related to the Founder Note was less than $0.1
million for the year ended December 31, 2020.
AST LLC repaid all amounts outstanding relating to the Founder Note on March 3, 2020.
CFO
Note
On
December 15, 2017, AST LLC issued 110,000
Existing AST LLC Common Units to its Chief Financial
and Operating Officer, Thomas Severson, in exchange for a $100,000
promissory note in favor of AST LLC (the “CFO
Note”). The CFO Note accrued interest monthly at a rate of 2.0%
and was payable on the earlier of (1) December
15, 2027 and (2) the occurrence of any of the
following with respect to AST LLC: (i) a sale, (ii) merger, (iii) other transaction where AST LLC is not the majority, by voting power,
of the surviving or resulting company, or (iv) the sale, lease, transfer, exclusive license or other disposition by AST LLC of all or
substantially all of its assets. Mr. Severson repaid all principal and interest amounts under the CFO Note in December 2020.
InMotion
Holdings LLC
AST
owns 51%
of and controls NanoAvionika UAB, a private limited liability company organized and existing under the law of the Republic of Lithuania
(“Nano Lithuania”). Pursuant to that certain Investment Agreement dated November 7, 2017 (the “Investment Agreement”)
by and among Nano Lithuania, InMotion Holdings, LLC, a Delaware limited liability company wholly-owned by the Company’s Chief Executive
Officer and Chairman of the Board, Mr. Abel Avellan (“InMotion”), and the other parties to the Investment Agreement, InMotion
owns one share of Nano Lithuania. Pursuant to the terms of a Service Agreement between Nano Lithuania and InMotion dated March 1, 2018
(the “Services Agreement”), InMotion is to provide consulting services including but not limited to marketing, sale support
and general management support to Nano Lithuania. In connection with the Service Agreement, InMotion is entitled to receive an option
to acquire 2,919
newly issued shares of Nano Lithuania at EUR
305.64
per share (the “Option”) and a management
fee totaling $15,000
per month; however, during the term of the Service
Agreement, no management fees have been billed to, or collected from, Nano Lithuania, and InMotion intend to enter into an amendment
to the Service Agreement to provide that its sole compensation under the Service Agreement will be the Option. In addition, AST LLC owns
51% of and controls NanoAvionics US LLC, a Delaware limited liability company (“Nano US”). Pursuant to that certain Limited
Liability Company Operating Agreement dated February 21, 2020 (the “Operating Agreement”) by and among Nano US, InMotion,
and the other parties to the Operating Agreement, InMotion owns one share of Nano US and an option to acquire 2,919
newly issued shares of Nano US at an equivalent
price per share as the option in Nano Lithuania, representing collectively with such one share, a 13%
interest on a fully-diluted basis.
Support
Services Agreement and Production Services Agreement
On
January 20, 2020, the Company entered into the Support Services Agreement with Finser Corporation (“Finser”), which is part
of the Cisneros Group of Companies, of which Ms. Adriana Cisneros, a member of the Board of Directors is the Chief Executive Officer,
whereby Finser will provide the Company consulting and administrative support services. The Company incurred less than $0.1
million and $0.2
million in consulting services for the three
and nine month periods, respectively, ended September 30, 2021, which were included within the general and administrative expenses on
the condensed consolidated statements of operations.
On
January 28, 2021, AST LLC entered into a production services agreement (the “Production Services Agreement”) with Cisneros
Media Distribution LLC (“Cisneros Media”), which is part of the Cisneros Group of Companies. Under the terms of the Production
Services Agreement, Cisneros Media serves as a producer of a series of 12 videos for AST LLC. For such services, Cisernos Media is entitled
to a fee of $180,000,
comprised of $36,000,
which was payable upon signing of the Production Services Agreement, and installments of $12,000
for each video produced by Cisneros Media and
accepted by AST LLC. Either party may terminate the Production Services Agreement. The Company
incurred expenses of $0.1
million for both
the three and nine month periods ended September 30, 2021, respectively, which were included within the general and administrative
expenses on the condensed consolidated statements of operations.
Vodafone
Agreement
In
connection with that certain Amended and Restated Series B Preferred Shares Purchase Agreement dated as of February 4, 2020 (the “Series
B Purchase Agreement”), AST LLC and Vodafone agreed to enter into one or more definitive agreements for a commercial partnership
that is anticipated to use the SpaceMobile Service (the “Vodafone Commercial Agreements”). Under the Series B Purchase Agreement,
AST LLC agreed that it, its subsidiaries, and affiliates would not enter into any agreement, term sheet, or letter of intent that grants
another party the rights related to the provision of mobile services in the Vodafone markets or Vodafone partner markets prior to the
execution of the Vodafone Commercial Agreements.
The
Vodafone Commercial Agreements are to include mutual exclusivity, conditioned upon Vodafone making the SpaceMobile Service available
to all of its customers and certain promotional efforts, within all Vodafone markets for five years commencing on the launch of a commercial
service based on Phase 3 of the SpaceMobile Service; preferential commercial terms in Vodafone partner markets; 50/50 revenue share for
the SpaceMobile Service in Vodafone exclusivity markets; and the procurement, building and operating of mobile network ground stations
at a mutually agreed cost by Vodafone. No payments have been made to date between us and Vodafone pursuant to the anticipated Vodafone
Commercial Agreements.
Also,
AST LLC entered into a side letter with Vodafone dated December 15, 2020, under which AST LLC has agreed (i) not to enter into any material
corporate strategic relationship or material commercial agreement with a party other than Vodafone and its affiliates that would be reasonably
expected to materially frustrate its ability to satisfy the obligations under the Vodafone Commercial Agreements with certain exceptions,
(ii) to allocate sufficient funds in the capital budget to facilitate compliance with the obligations under the Vodafone Commercial Agreements;
and (iii) not to alter the business plan in a manner that is materially detrimental to AST LLC’s ability to satisfy the obligations
under the Vodafone Commercial Agreements.
American
Tower Agreement
In
connection with the Series B Preferred Shares Purchase Agreement (the “Purchase Agreement”), AST LLC and American Tower entered
into a side letter agreement that was subsequently amended and restated on December 15, 2020 to reflect the transactions and agreements
contemplated by the Equity Purchase Agreement between AST LLC and NPA (the “Amended and Restated Letter Agreement”). The
Amended and Restated Letter Agreement contemplates that we and American Tower will enter into commercial agreements to use American Tower
facilities for the terrestrial gateway facilities in certain markets. The term of the operational agreement between us and American Tower
is five years after the initial launch of commercial mobile services by AST LLC.
In
markets in which Vodafone operates, AST LLC will work with Vodafone and American Tower to evaluate and plan deployments with preferred
vendor status. The usage of any American Tower services in a Vodafone market will be memorialized in a commercial agreement among all
three parties. In markets where Vodafone does not operate (“Carrier Neutral Markets”), AST LLC and American Tower may enter
into an agreement for American Tower to manage the operation of the deployed gateway facility in such market. In Carrier Neutral Markets
where AST LLC requires a third party to provide a gateway facility or services, AST LLC agrees to not accept any bid that is inferior
to American Tower’s best and final proposal for such gateway facility or services. AST LLC also agrees to use commercially reasonable
efforts to utilize American Tower facilities in (i) Vodafone markets where Vodafone decides to not use its facilities, (ii) in Carrier
Neutral Markets, and (iii) instances where AST LLC requires a third-party vendor.
Additionally,
AST LLC will work with American Tower to evaluate and plan gateway facility and radio access network data center deployments with preferred
vendor status to offer carrier-neutral hosting facilities in certain equatorial markets. American Tower will serve as the preferred vendor
for carrier neutral hosting facilities. AST LLC will pay American Tower a monthly connection fee for use of a carrier neutral hosting
facility, which will be charged back to each applicable mobile network operator. If AST LLC and American Tower agree to construct a new
carrier neutral hosting facility or improve an existing one and American Tower elects to fund all such capital expenditures, American
Tower will provide AST LLC with a fair-market, long-term lease to such facility.
Rakuten
Commercial Agreement
On
February 4, 2020, AST LLC entered into a commercial agreement with Rakuten, for the development of exclusive network capabilities in
Japan compatible with the mobile network of Rakuten and its affiliates, which agreement was amended and restated as of December 15, 2020
(the “Rakuten Agreement”). Under the terms of the Rakuten Agreement, AST LLC agreed to make investments in building network
capabilities in Japan that are compatible with the mobile network of Rakuten and its affiliates. Furthermore, AST LLC will collaborate
with Rakuten to ensure network capability with Rakuten’s licensed frequencies, including full coverage in Japan with 3GPP Band
3 frequencies with multiple input multiple output (“MIMO”) capability. Upon the launch of such coverage, Rakuten will receive
unlimited, exclusive rights and usage capacity in Japan in exchange for a $500,000
annual maintenance fee payable to AST LLC or
our successors. Furthermore, AST LLC agreed to make $5
million (or such lesser amount as mutually agreed
upon the parties) in capital investments towards the design, construction, acquisition and implementation of ground communication assets.
AST LLC and Rakuten will receive unlimited rights and usage of the ground assets for their respective operations, including, but not
limited to, satellite and other telecommunication communications. The Rakuten Agreement includes a commercial roadmap for the satellite
launches with key performance indicators (“KPIs”) that AST LLC must meet. If the applicable KPIs are not met for the last
two phases of the satellite launch program in accordance with such commercial roadmap or if AST LLC become subject to any bankruptcy
proceeding or becomes insolvent, AST LLC shall be required to pay to Rakuten a penalty amount of $10
million.
The
term of the Rakuten Agreement shall remain in effect until AST LLC or our successor fulfill our obligations under the Rakuten Agreement.
No payments have been made to date between AST LLC and Rakuten under the Rakuten Agreement.
14.
Income Taxes
The
consolidated effective tax rate for the three and nine months ended September 30, 2021 was 0.10%
and (0.12)%,
respectively, and the consolidated effective tax
rate for the three and nine months ended September 30, 2020 was 0%.
The difference in the effective rates between periods
is driven by income tax expense assessed against non-U.S earnings as a result of the change in structure from the Business Combination.
AST LLC has elected to be treated as a partnership for U.S. federal and state income tax purposes and does not pay any U.S. federal income
taxes since its income and losses are included in the returns of the members. The difference between the federal statutory tax rate of
21%
and the effective tax rate is primarily driven by the Company’s Up-C organizational structure and allocation of AST LLC results
to noncontrolling interest holders and the valuation allowance recorded against the Company’s net deferred tax assets.
The
Company recorded a net deferred tax asset of $71.7
million
for the difference between the book value and tax basis of the Company’s investment in AST LLC at the time of the Business Combination.
The Company has assessed the realizability of their deferred tax assets and in that analysis has considered the relevant positive and
negative evidence available to determine whether it is more likely than not that some portion or all of the deferred tax assets will
be realized. As a result, the Company has recorded a full valuation allowance against its deferred tax asset resulting from the Business
Combination.
The
Company had no
uncertain
tax positions as of September 30, 2021 and December 31, 2020.
In
connection with the Closing, the Company entered into the Tax Receivable Agreement. Pursuant to the Tax Receivable Agreement, the Company
is generally required to pay the TRA Holders 85% of the amount of savings, if any, in U.S. federal, state, local, and foreign taxes that
are based on, or measured with respect to, net income or profits, and any interest related thereto that the Company and any applicable
consolidated, unitary, or combined Subsidiaries (the “Tax Group”) realize, or are deemed to realize, as a result of certain
“Tax Attributes,” which include:
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existing
tax basis in certain assets of AST LLC and certain of its direct or indirect Subsidiaries, including assets that will eventually
be subject to depreciation or amortization, once placed in service, attributable to AST LLC Common Units acquired by the Company
from a TRA Holder (including AST LLC Common Units held by a Blocker Corporation acquired by us in a Reorganization Transaction (as
defined in the Tax Receivable Agreement)), each as determined at the time of the relevant acquisition;
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tax
basis adjustments resulting from taxable exchanges of AST LLC Common Units (including any such adjustments resulting from certain
payments made by us under the Tax Receivable Agreement) acquired by the Company from a TRA Holder pursuant to the terms of the A&R
Operating Agreement;
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tax
deductions in respect of portions of certain payments made under the Tax Receivable Agreement; and
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certain
tax attributes of Blocker Corporations holding AST LLC Common Units that are acquired directly or indirectly by the Company pursuant
to a Reorganization Transaction.
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Payments
under the Tax Receivable Agreement generally will be based on the tax reporting positions that the Company determines (with the amount
of subject payments determined in consultation with an advisory firm and subject to the TRA Holder Representative’s review and
consent), and the IRS or another taxing authority may challenge all or any part of a position taken with respect to Tax Attributes or
the utilization thereof, as well as other tax positions that the Company takes, and a court may sustain such a challenge. In the event
that any Tax Attributes initially claimed or utilized by the Tax Group are disallowed, the TRA Holders will not be required to reimburse
the Company for any excess payments that may previously have been made pursuant to the Tax Receivable Agreement, for example, due to
adjustments resulting from examinations by taxing authorities. Rather, any excess payments made to such TRA Holders will be applied against
and reduce any future cash payments otherwise required to be made by the Company to the applicable TRA Holders under the Tax Receivable
Agreement, after the determination of such excess. However, a challenge to any Tax Attributes initially claimed or utilized by the Tax
Group may not arise for a number of years following the initial time of such payment and, even if challenged earlier, such excess cash
payment may be greater than the amount of future cash payments that we might otherwise be required to make under the terms of the Tax
Receivable Agreement. As a result, there might not be future cash payments against which such excess can be applied and the Company could
be required to make payments under the Tax Receivable Agreement in excess of the Tax Group’s actual savings in respect of the Tax
Attributes.
Moreover,
the Tax Receivable Agreement provides that, in the event (such events collectively, “Early Termination Events”) that (i)
the Company exercises its early termination rights under the Tax Receivable Agreement, (ii) certain changes of control of the Company
or AST LLC occur (as described in the A&R Operating Agreement), (iii) the Company, in certain circumstances, fails to make a payment
required to be made pursuant to the Tax Receivable Agreement by its final payment date, which non-payment continues for 60 days following
such final payment date or (iv) the Company materially breaches (or are deemed to materially breach) any of the material obligations
under the Tax Receivable Agreement other than as described in the foregoing clause (iii) and, in the case of clauses (iii) and (iv),
unless certain liquidity related or restrictive covenant related exceptions apply, the obligations under the Tax Receivable Agreement
will accelerate (if the TRA Holder Representative so elects in the case of clauses (ii)-(iv)) and, the Company will be required to make
a lump-sum cash payment to all the TRA Holders equal to the present value of all forecasted future payments that would have otherwise
been made under the Tax Receivable Agreement, which lump-sum payment would be based on certain assumptions, including those relating
to there being sufficient future taxable income of the Tax Group to fully utilize the Tax Attributes over certain specified time periods
and that all AST LLC Common Units (including AST LLC Common Units held by Blocker Corporations) that had not yet been exchanged for Class
A Common Stock or cash are deemed exchanged for cash. The lump-sum payment could be material and could materially exceed any actual tax
benefits that the Tax Group realizes subsequent to such payment.
Payments
under the Tax Receivable Agreement will be the obligations of the Company and not obligations of AST LLC. Any actual increase in the
Company’s allocable share of AST LLC and its relevant subsidiaries’ tax basis in relevant assets, as well as the amount and
timing of any payments under the Tax Receivable Agreement, will vary depending upon a number of factors, including the timing of exchanges,
the market price of the Class A Common Stock at the time of an exchange of AST LLC Common Units by a TRA Holder pursuant to the terms
of the A&R Operating Agreement and the amount and timing of the recognition of the Tax Group’s income for applicable tax purposes.
While many of the factors that will determine the amount of payments that the Company will be required to make under the Tax Receivable
Agreement are outside of the Company’s control, the Company expects that the aggregate payments it will be required to make under
the Tax Receivable Agreement could be substantial and, if those payments substantially exceed the tax benefit we realize in a given year
or in the aggregate, could have an adverse effect on the financial condition, which may be material.
Any
payments made by the Company under the Tax Receivable Agreement will generally reduce the amount of overall cash flow that might have
otherwise been available to the Company. To the extent that the Company is unable to make timely payments under the Tax Receivable Agreement
for any reason, the unpaid amounts will be deferred and will accrue interest until paid. Additionally, nonpayment for a specified period
and/or under certain circumstances may constitute a material breach of a material obligation under the Tax Receivable Agreement and therefore
accelerate payments due under the Tax Receivable Agreement. Furthermore, the future obligation to make payments under the Tax Receivable
Agreement could make the Company a less attractive target for an acquisition, particularly in the case of an acquirer that cannot use
some or all of the Tax Attributes that may be deemed realized under the Tax Receivable Agreement. Changes in income tax rates, changes
in income tax laws or disagreements with tax authorities can adversely affect the Company’s, AST LLC’s or its subsidiaries’
business, financial condition or results of operations.
The
TRA holders did not acquire any Class A common stock in an Exchange or Reorganization Transaction, as defined in the Tax Receivable Agreement
during the reporting period. As a result, no Tax Receivable Agreement liability has been recorded as of September 30, 2021.
As
of September 30, 2021, there have been no exchanges of AST LLC units for Class A common stock of the Company and, accordingly, no TRA
liabilities have been recognized.
15.
Subsequent Events
On
October 14, 2021, the Company’s wholly owned subsidiary, AST & Science Texas LLC, entered into an agreement for purchase
and sale of improved real property (the “Agreement”) with Black & Dillard Property Management LTD and Eagle Rig
Manufacturing & Service LTD. The property includes offices, industrial warehouse buildings and paint booths consisting of eight
single-story industrial buildings totaling 99,372 square
feet, as well as all related intangible property, inclusive of, but not limited to, rights in the architectural plans for
improvements, guaranties and warranties from contractors, building permits and licenses, and advertising and promotional materials.
In accordance with the terms of the Agreement, the purchase price to be paid by AST & Science Texas LLC for the property is
$8.0 million,
of which AST & Science Texas LLC has paid an upfront deposit of $0.5 million, which
is held in an interest-bearing account. The Company intends to utilize
the facility for the assembly and testing of the SpaceMobile constellation satellites.
