PROSPECTUS SUPPLEMENT NO. 3 Filed pursuant to Rule 424(b)(3)
(to prospectus dated July 2, 2021) Registration No. 333-257425

 

 

AST SPACEMOBILE, INC.

 

141,538,066 SHARES OF CLASS A COMMON STOCK

 

This prospectus supplement is being filed to update and supplement the information contained in the prospectus dated July 2, 2021 (the “Prospectus”), related to the possible issuance of up to 141,538,066 shares of Class A common stock, par value $0.0001 per share (the “Class A Common Stock”), of AST SpaceMobile, Inc., a Delaware corporation, in exchange for units of ownership interest (“AST Common Units”) in AST & Science, LLC, a Delaware limited liability company (“AST”), tendered for redemption by one or more of the members of AST, including those who become members of AST upon exercise of AST Incentive Equity Options (as defined below), pursuant to their contractual rights, and including the possible resale from time to time of some or all of such shares of common stocks by the selling stockholders named in the Prospectus, with the information contained in Quarterly Report on Form 10-Q, filed with the Securities and Exchange Commission (“SEC”) on August 16, 2021 (the “Quarterly Report”). Accordingly, we have attached the Quarterly Report to this prospectus supplement.

 

This prospectus supplement updates and supplements the information in the Prospectus and is not complete without, and may not be delivered or utilized except in combination with, the Prospectus, including any amendments or supplements thereto. This prospectus supplement should be read in conjunction with the Prospectus and if there is any inconsistency between the information in the Prospectus and this prospectus supplement, you should rely on the information in this prospectus supplement.

 

Our shares of Class A Common Stock are listed on The Nasdaq Capital Market LLC (“Nasdaq”) under the symbol “ASTS.” On August 16, 2021, the closing sale price per share of our Class A Common Stock was $9.08.

 

Investing in shares of our Class A Common Stock involves risks that are described in the “Risk Factors” section beginning on page 5 of the Prospectus.

 

Neither the SEC nor any state securities commission has approved or disapproved of the securities to be issued under the Prospectus or determined if the Prospectus or this prospectus supplement is truthful or complete. Any representation to the contrary is a criminal offense.

 

The date of this prospectus supplement is August 17, 2021.

 

 

 

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One) 

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

 

For the quarterly period ended June 30, 2021

 

OR

 

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

 

For the transition period from to

 

Commission File No. 001-39040

 

AST SPACEMOBILE, INC.
(Exact name of registrant as specified in its charter)

 

Delaware   84-2027232

(State or other jurisdiction of 

incorporation or organization)

 

(I.R.S. Employer 

Identification No.)

 

Midland Intl. Air & Space Port    

2901 Enterprise Lane 

Midland, Texas

  79706
(Address of principal executive offices)   (Zip Code)

 

(432) 276-3966
(Registrant’s telephone number, including area code)

 

New Providence Acquisition Corp. 

10900 Research Blvd 

Ste 160C PMB 1081 

Austin, TX 78759 

(Former name, former address and former fiscal year, if changed since last report)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class   Trading Symbol(s)   Name of each exchange on which registered
Class A common stock, par value $0.0001 per share   ASTS   The Nasdaq Stock Market LLC
Warrants exercisable for one share of Class A common stock at an exercise price of $11.50   ASTSW   The Nasdaq Stock Market LLC

 

 

 

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

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer Accelerated filer
Non-accelerated filer Smaller reporting company
  Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes ☐ No

 

As of August 13, 2021, there were 51,729,704 shares of Class A common stock, $0.0001 per value, 51,636,922 shares of Class B common stock, $0.0001 par value, and 78,163,078 shares of Class C common stock, $0.0001 par value, issued and outstanding.

 

 

 

 
 

 

AST SPACEMOBILE, INC.

FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2021

 

TABLE OF CONTENTS

 

    Page
Part I. Financial Information   1
Item 1. Interim Financial Statements   1
Condensed Consolidated Balance Sheets as of June 30, 2021 and December 31, 2020 (Unaudited)   1
Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2021 and 2020 (Unaudited)   2
Condensed Consolidated Statements of Comprehensive Loss for the three and six months ended June 30, 2021 and 2020 (Unaudited)   3
Condensed Consolidated Statements of Stockholders’ Equity for the three and six months ended June 30, 2021 and 2020 (Unaudited)   4
Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2021 and 2020 (Unaudited)   5
Notes to Unaudited Condensed Financial Statements   6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations   29
Item 3. Quantitative and Qualitative Disclosures Regarding Market Risk   39
Item 4. Controls and Procedures   39
Part II. Other Information   40
Item 1. Legal Proceedings   40
Item 1A. Risk Factors   40
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds   49
Item 3. Defaults Upon Senior Securities   49
Item 4. Mine Safety Disclosures   49
Item 5. Other Information   50
Item 6. Exhibits   50
Part III. Signatures   51

 

i 
 

 

PART I - FINANCIAL INFORMATION

 

Item 1. Interim Financial Statements.

 

AST SPACEMOBILE, INC. 

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) 

(dollars in thousands, except per share data) 

 

   June 30, 2021   December 31, 2020 
         
ASSETS          
Current assets:          
Cash and cash equivalents  $402,612   $42,777 
Accounts receivable   1,273    2,081 
Inventory   3,655    2,591 
Prepaid expenses   5,578    1,249 
Other current assets   1,474    2,234 
Total current assets   414,592    50,932 
           
Property and equipment:          
BlueWalker 3 Satellite - construction in progress   38,659    27,013 
Property and equipment, net   15,657    10,057 
Total property and equipment, net   54,316    37,070 
           
Other non-current assets:          
Operating lease right-of-use assets, net   6,661    7,045 
Intangible assets, net   398    526 
Goodwill   3,792    3,912 
Other assets and deposits   

2,891

    160 
Total other non-current assets, net   13,742    11,643 
           
TOTAL ASSETS  $482,650   $99,645 
           
LIABILITIES AND STOCKHOLDERS’ EQUITY          
Current liabilities:          
Accounts payable  $6,284   $4,990 
Accrued expenses and other current liabilities   3,746    4,222 
Deferred revenue   5,104    3,401 
Current operating lease liabilities   470    504 
Total current liabilities   15,604    13,117 
           
Warrant liabilities   115,509    - 
Non-current operating lease liabilities   6,340    6,541 
Total liabilities   137,453    19,658 
           
Commitments and Contingencies (Note 6)        
           
Stockholders’ Equity          
Preferred stock, $.0001 par value, 100,000,000 shares authorized, 0 shares issued and outstanding as of June 30, 2021   -    - 
Class A common stock, $.0001 par value, 800,000,000 shares authorized, 51,729,704 shares issued and outstanding as of June 30, 2021   5    - 
Class B common stock, $.0001 par value, 200,000,000 shares authorized, 51,636,922 shares issued and outstanding as of June 30, 2021   5    - 
Class C common stock, $.0001 par value, 125,000,000 shares authorized, 78,163,078 shares issued and outstanding as of June 30, 2021   8    - 
Additional paid-in capital   168,297    - 
Common equity (pre-combination)   -    117,573 
Accumulated other comprehensive loss   (373)   (168)
Accumulated deficit   (71,466)   (39,908)
Noncontrolling interest   248,721    2,490 
Total stockholders’ equity   345,197    79,987 
           
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY  $482,650   $99,645 

 

See accompanying notes to the condensed consolidated financial statements

  

 1 
   

 

AST SPACEMOBILE, INC. 

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) 

(dollars in thousands, except per share data) 

 

   2021   2020   2021   2020 
   Three Months Ended June 30,   Six Months Ended June 30, 
   2021   2020   2021   2020 
                 
Revenues  $2,773   $402   $3,735   $1,175 
                     
Cost of sales (exclusive of items shown separately below)   (1,112)   (772)   (2,019)   (1,801)
                     
Gross profit (loss)   1,661    (370)   1,716    (626)
                     
Operating expenses:                    
Engineering services   6,321    2,775    11,978    4,924 
General and administrative costs   9,157    2,635    14,693    4,813 
Research and development costs   9,052    -    9,356    43 
Depreciation and amortization   567    185    1,182    305 
Total operating expenses   25,097    5,595    37,209    10,085 
                     
Other income and expense:                    
Changes in fair value of warrant liabilities   (41,677)   -    (41,677)   - 
Interest income   6    17    8    53 
Interest expense   -    13    -    (9)
Other expense, net   (6)   (3)   (36)   (6)
Total other (expense) income   (41,677)   27    (41,705)   38 
                     
Loss before income tax expense   (65,113)   (5,938)   (77,198)   (10,673)
Income tax expense   (56)   -    (57)   - 
Net loss   (65,169)   (5,938)   (77,255)   (10,673)
                     
Add: Net loss attributable to noncontrolling interests   45,191    349    45,697    677 
Net loss attributable to common shareholders  $(19,978)  $(5,589)  $(31,558)  $(9,996)
                     
Basic and diluted net loss per share(1)   $(0.39)   N/A   $(0.39)   N/A 
                     
Basic and diluted weighted-average shares used in computing net loss per share(1)   51,729,704    N/A    51,729,704    N/A 

 

 

(1) Earnings per share information has not been presented for periods prior to the Business Combination (as defined in Note 1), as it resulted in values that would not be meaningful to the users of these unaudited condensed consolidated financial statements. Refer to Note 12 for further information.

 

See accompanying notes to the condensed consolidated financial statements

 

 2 
   

 

AST SPACEMOBILE, INC. 

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (UNAUDITED) 

(dollars in thousands) 

 

   2021   2020   2021   2020 
   Three Months Ended June 30,   Six Months Ended June 30, 
   2021   2020   2021   2020 
                 
Net loss  $(65,169)  $(5,938)  $(77,255)  $(10,673)

Other comprehensive loss

                    
Foreign currency translation adjustments   (16)   (212)   (281)   (40)

Total other comprehensive loss

   (16)   (212)   (281)   (40)
Total comprehensive loss   (65,185)   (6,150)   (77,536)   (10,713)
Add: Comprehensive loss attributable to noncontrolling interest   

45,199

    

463

    

45,773

    

689

 
Comprehensive loss attributable to common shareholders  $(19,986)  $(5,687)  $(31,763)  $(10,024)

 

See accompanying notes to the condensed consolidated financial statements

 

 3 
   

 

AST SPACEMOBILE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)

(dollars in thousands, except per share data)

 

Three Months Ended June 30, 2021

 

   Shares   Values   Shares   Values   Shares   Values   Capital   Shares   Values   Loss   Deficit   Interest   Equity 
  

Class A

Common Stock

  

Class B

Common Stock

  

Class C

Common Stock

  

Additional

Paid-in

  

Common Equity

(Pre-Combination)

  

Accumulated Other

Comprehensive

   Accumulated   Noncontrolling   Total 
   Shares   Values   Shares   Values   Shares   Values   Capital   Shares   Values   Loss   Deficit   Interest   Equity 
                                                     
Balance, March 31, 2021 (1)   -   $-    -   $-    -   $-    -    129,800,000   $117,943   $(365)   (51,488)   1,916   $68,006 
Stock-based compensation pre Business Combination                                                    
Recapitalization transaction, net of transaction costs of $45.7 million   51,729,704    5    51,636,922    5    78,163,078    8    168,234    (129,800,000)   (117,943)   -    -    291,811    342,120 
Issuance of Series B Convertible Preferred Stock, net of issuance costs of $5,958                                                    
Issuance of Series B Convertible Preferred Stock, net of issuance costs of $5,958, shares                                                    
Stock-based compensation   -    -    -    -    -    -    -    -    -    -    -    256    256 
Adjustment to Noncontrolling interest upon issuance of Incentive Units at AST LLC   -    -    -    -    -    -    63    -    -    -    -    (63)   - 
Stock-based compensation post Business Combination                                                    
Unrealized foreign currency translation adjustments   -    -    -    -    -    -    -    -    -    (8)   -    (8)   (16)
Net income (loss)  -    -   -    -   -    -    -   -    -    -    (19,978)   (45,191)   (65,169)
Balance, June 30, 2021   51,729,704   $5    51,636,922   $5    78,163,078   $8   $168,297    -   $-   $(373)  $(71,466)  $248,721   $345,197 

 

Six Months Ended June 30, 2021

 

  

Class A

Common Stock

  

Class B

Common Stock

  

Class C

Common Stock

  

Additional

Paid-in

  

Common Equity

(Pre-Combination)

  

Accumulated Other

Comprehensive

   Accumulated   Noncontrolling   Total 
   Shares   Values   Shares   Values   Shares   Values   Capital   Shares   Values   Loss   Deficit   Interest   Equity 
                                                     
Balance, December 31, 2020 (1)   -   $-    -   $-    -   $-    -    129,800,000   $117,573   $(168)   (39,908)   2,490   $79,987 
Stock-based compensation pre Business Combination   -    -    -    -    -    -    -    -    370    -    -    -    370 
Recapitalization transaction, net of transaction costs of $45.7 million   51,729,704    5    51,636,922    5    78,163,078    8    168,234    (129,800,000)   (117,943)   -    -    291,811    342,120 
Adjustment to Noncontrolling interest upon issuance of Incentive Units at AST LLC   -    -    -    -    -    -    63    -    -    -    -    (63)   - 
Stock-based compensation post Business Combination   -    -    -    -    -    -    -    -    -    -    -    256    256 
Unrealized foreign currency translation adjustments   -    -    -    -    -    -    -    -    -    (205)   -    (76)   (281)
Net income (loss)  -    -   -    -   -    -    -   -    -    -    (31,558)   (45,697)   (77,255)
Balance, June 30, 2021   51,729,704   $5    51,636,922   $5    78,163,078   $8   $168,297    -   $-   $(373)  $(71,466)  $248,721   $345,197 

 

Three Months Ended June 30, 2020

 

  

Class A

Common Stock

  

Class B

Common Stock

  

Class C

Common Stock

  

Additional

Paid-in

  

Common Equity

(Pre-Combination)

  

Accumulated Other

Comprehensive

   Accumulated   Noncontrolling   Total 
   Shares   Values   Shares   Values   Shares   Values   Capital   Shares   Values   Loss   Deficit   Interest   Equity 
                                                     
Balance, March 31, 2020 (1)   -   $-    -   $-    -   $-   $-    129,787,819   $117,203   $(259)  $(20,254)  $2,387   $99,077 
Stock-based compensation   -    -    -    -    -    -    -    -    147    -    -    -    147 
Unrealized foreign currency translation adjustments   -    -    -    -    -    -    -    -    -    (98)   -    (114)   (212)
Net income (loss)  -    -   -    -   -    -    -   -    -    -    (5,589)   (349)   (5,938)
Balance, June 30, 2020   -   $-    -   $-   -   $-   $-    129,787,819   $117,350   $(357)  $(25,843)  $1,924   $93,074 

 

Six Months Ended June 30, 2020

 

  

Class A

Common Stock

  

Class B

Common Stock

  

Class C

Common Stock

  

Additional

Paid-in

  

Common Equity

(Pre-Combination)

  

Accumulated Other

Comprehensive

   Accumulated   Noncontrolling   Total 
   Shares   Values   Shares   Values   Shares   Values   Capital   Shares   Values   Loss   Deficit   Interest   Equity 
                                                     
Balance, December 31, 2019 (1)   -   $-    -   $-    -   $-   $-    100,905,894   $43,312   $(329)  $(15,847)  $2,613   $29,749 
Issuance of Series B Convertible Preferred Stock, net of issuance costs of $5,958   -    -    -    -    -    -    -    28,881,925    73,870    -    -    -    73,870 
Stock-based compensation   -    -    -    -    -    -    -    -    168    -    -    -    168 
Unrealized foreign currency translation adjustments   -    -    -    -    -    -    -    -    -    (28)   -    (12)   (40)
Net income (loss)  -    -   -    -   -    -    -   -    -    -    (9,996)   (677)   (10,673)
Balance, June 30, 2020   -   $-    -   $-   -   $-   $-    129,787,819   $117,350   $(357)  $(25,843)  $1,924   $93,074 

 

 

(1) Previously reported amounts have been adjusted for the retroactive application of the recapitalization related to the Business Combination. Refer to Note 3 for further information.

 

See accompanying notes to the condensed consolidated financial statements

 

 4 
   

 

AST SPACEMOBILE, INC. 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) 

(dollars in thousands)

 

   2021   2020 
   Six Months Ended June 30, 
   2021   2020 
         
Cash flows from operating activities:          
Net loss  $(77,255)  $(10,673)
Adjustments to reconcile net loss to cash used in operating activities:          
Depreciation   1,074    200 
Amortization of intangible assets   108    105 
Change in fair value of warrant liabilities   41,677    - 
Change in the carrying amount of right-of-use assets   371    141 
Stock-based compensation   598    168 
Changes in operating assets and liabilities:          
Accounts receivable   748    (323)
Prepaid expenses and other current assets   (3,519)   (674)
Inventory   (1,163)   (743)
Accounts payable and accrued expenses   112    736 
Operating lease liabilities   (220)   (141)
Deferred revenue   1,828    1,838 
Other assets and liabilities   (2,731)   (23)
Net cash used in operating activities   (38,372)   (9,389)
           
Cash flows from investing activities:          
Purchase of property and equipment   (6,998)   (1,269)
BlueWalker 3 Satellite - construction in process   (11,600)   (8,008)
Net cash used in investing activities   (18,598)   (9,277)
           
Cash flows from financing activities:          
Proceeds from Business Combination   456,420    - 
Direct and incremental costs incurred for the Business Combination   (39,542)   - 
Repayment for founder bridge loan   -    (1,750)
Proceeds from issuance of Series B Preferred Stock   -    79,833 
Issuance costs from issuance of Series B Preferred Stock   -    (7,745)
Net cash provided by financing activities   416,878    70,338 
           
Effect of exchange rate changes on cash   (73)    (42)
           
Net increase in cash and cash equivalents   359,835    51,630 
Cash and cash equivalents, beginning of period   42,777    26,498 
Cash and cash equivalents, end of period  $402,612   $78,128 
           
Supplemental disclosure of cash flow information:          
Non-cash investing activities:          
Purchases of construction in process in accounts payable 

$

1,813   $945 
Purchases of property and equipment in accounts payable   517    219 
Right-of-use assets obtained in exchange for operating lease liabilities as of January 1, 2020 upon adoption of ASC 842   -    6,472 

 

See accompanying notes to the condensed consolidated financial statements

 

 5 
   

 

AST SPACEMOBILE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 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 and the design and development 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 will 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 offices located in Maryland, Spain, the United Kingdom, and Israel. In addition, its 51% owned and controlled subsidiary, NanoAvionika (“Nano”), is located 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, New Providence Acquisition Management LLC, a Delaware limited liability company (“Sponsor”), and Mr. Abel Avellan. 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 will continue to operate through the subsidiaries of AST LLC, and in which SpaceMobile’s only direct assets will consist of equity interests in AST LLC. The Company’s common stock and warrants are now listed on the Nasdaq Capital Market under the symbols “ASTS” and “ASTSW”, respectively. As the managing member of AST LLC, SpaceMobile will have 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 will be prepared on a consolidated basis with SpaceMobile.

 

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 June 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.

 

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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”) for interim reporting and in accordance with the instructions to Form 10-Q and Article 8 of Regulation S-X of the Securities and Exchange Commission (“SEC”). 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. 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 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 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.

 

Emerging Growth Company

 

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 we 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. If some investors find our securities less attractive as a result, there may be a less active trading market for our securities and the prices of our securities may be more volatile.

 

Use of Estimates

 

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and the disclosure of contingent assets and liabilities as of and during the reporting period. 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, intangible assets, 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.

 

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Cash and Cash Equivalents

 

The Company’s cash consists of cash maintained within standard bank accounts at 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

 

U.S. GAAP requires disclosing the fair value of financial instruments to the extent practicable for financial instruments which are recognized or unrecognized in the balance sheet. 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 $3.7 million and $2.6 million as of June 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 Consolidated Statement 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

 

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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 June 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 June 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 a non-cash gain or loss in the statement 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 BW3 satellite is currently targeted to launch during a launch window beginning in March 2022. However, the exact timing of such launch is contingent on a number of factors, including satisfactory and timely completion of construction and testing of BW3. Additionally, the Company has established alternative uses (separate economic value) for BW3 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 developments are capitalized to its construction in progress (“CIP”) account, and presented on its condensed consolidated balance sheets.

 

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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 research and development.

 

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 manufacturers, 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 June 30, 2021 and 2020.

 

 

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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 financial statements 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 June 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 also entered into a Tax Receivable Agreement (the “TRA”) with AST LLC. Pursuant to the TRA, the Company is required to pay the sellers (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, (B) tax basis adjustments resulting from taxable exchanges of AST LLC Common Units acquired by the Company, (C) tax deduction 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 June 30, 2021, there have been no exchanges of AST LLC units for Class A common stock of the Company and, accordingly, no TRA liabilities currently exist.

 

Stock-Based Compensation

 

The Company estimates the grant date fair value of stock options granted to employees and to 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. 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 nonemployees in a similar fashion to the way it accounts for stock-based compensation awards to employees.

 

The Company’s less than wholly owned subsidiary, AST LLC, issues stock-based compensation awards to its employees. 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).

 

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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, at times, may exceed federally insured limits. The cash balances in these financial institutions are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000. The Company may deposit cash at institutions that are not insured by the FDIC, which is limited to its foreign subsidiaries. The Company manages credit risk by reviewing the counterparties’ credit at least quarterly.

 

The Company’s subsidiary, Nano, which accounted for 100% of the Company’s revenue for the three and six month periods ended June 30, 2021, derives its revenue from a small number of customers. Four customers accounted for approximately 61% of the Company’s trade receivables as of June 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 74% of the Company’s revenue for the six months ended June 30, 2021, and one customer accounted for approximately 20% of the Company’s revenue for the six months ended June 30, 2020. Credit risk on accounts receivable is minimized given the research and development stage of the Company, and the fact that its primary business focus is to manufacture and launch its test satellites as opposed to entering into revenue transactions with customers in the short term.

 

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 for the Company’s foreign subsidiaries is considered to be 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 consolidated statements of operations. Foreign currency translation gains and losses are recorded to accumulated other comprehensive loss on the Company’s condensed consolidated balance sheets.

 

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.

 

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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 financial statements as of June 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 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 “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.

 

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On the closing date of the Business Combination, the Company completed the acquisition of AST LLC and in return AST LLC and the AST LLC existing equityholders (“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, AST SpaceMobile, Inc., 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. In addition, 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, noncontrolling interest are held by the AST 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 a special redemption committee (“the Special Redemption 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 a Tax Receivable Agreement (the “TRA”) with AST LLC. Pursuant to the TRA, the Company is required to pay the sellers (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, (B) tax basis adjustments resulting from taxable exchanges of AST LLC Common Units acquired by the Company, (C) tax deduction 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 June 30, 2021, there have been no exchanges of AST LLC units for Class A common stock of the Company and, accordingly, no TRA liabilities currently exist.

 

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.

 

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  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 June 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  

June 30,

2021

  

December 31,

2020

 
Assets:               
Cash equivalents   1   $397,006   $- 
Liabilities:               
Public warrant liability   1   $65,550   $- 
Private placement warrant liability   2   $49,959   $- 

 

As of June 30, 2021, the Company had $402.6 million of cash and cash equivalents, of which $397.0 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 June 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 June 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 June 30, 2021 was 78%.

 

 15 
   

 

5.    Property and Equipment

 

Property and equipment, net consisted of the following at June 30, 2021 and December 31, 2020 (in thousands):

 Schedule of Property and Equipment, Net

  

June 30,

2021

  

December 31,

2020

 
Satellite testing and lab equipment  $9,298   $5,324 
Computers, software, and equipment   2,211    1,707 
Leasehold improvements   5,653    3,537 
Other   470    404 
Property and equipment   17,632    10,972 
Accumulated depreciation   (1,975)   (915)
Property and equipment, net   15,657    10,057 
           
BlueWalker 3 Satellite - construction in progress   38,659    27,013 
Total property and equipment, net  $54,316   $37,070 

 

Depreciation expense for the six months ended June 30, 2021 and 2020 was approximately $1.1 million and $0.2 million, respectively. Depreciation expense for the three months ended June 30, 2021 and 2020 was approximately $0.5 million and $0.1 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 Midland International Air & Space Port in Midland, Texas.

 

The rentable spaces 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 the lease asset, liability and rent expense for the related reimbursable month when the contingency is probable of being resolved.

 

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The Company’s other outstanding 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). For the Texas sublease, which is greater than 10 years, the Company elected to use a 15% discount rate. The weighted average discount rate at June 30, 2021 is 15%.

 

Operating Leases

 

The components of lease expense were as follows (in thousands):

 Schedule of Lease Expense

   June 30, 2021   June 30, 2020   June 30, 2021   June 30, 2020 
   Three Months Ended   Six Months Ended 
   June 30, 2021   June 30, 2020   June 30, 2021   June 30, 2020 
Short-term operating lease expense  $31   $6   $55   $11 
Operating lease expense   129    59    229    101 
Total lease expense  $160   $65   $284   $112 

 

Supplemental cash flow information related to leases for the six months ended June 30, 2021 was as follows (in thousands):

 Schedule of Supplemental Cash Flow Information Related to Leases

    Six Months Ended 
    June 30, 2021   June 30, 2020 
Cash paid for amounts included in the measurement of operating lease liabilities   $221   $112 
Operating lease right-of-use assets obtained in exchange for lease obligations   $-   $6,472 

 

 

Supplemental balance sheet information related to leases as of June 30, 2021 was as follows:

 

 Schedule of Supplemental Balance Sheet Information Related to Leases

Weighted-average remaining lease term - operating leases (years)   11.2 
Weighted-average discount rate - operating leases   15%

 

 

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As of June 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)  $722 
2022   1,295 
2023   1,312 
2024   1,260 
2025   1,158 
Thereafter   7,701 
Total lease payments   13,448 
Less effects of discounting   (6,638)
Present value of lease liabilities  $6,810 

 

Net rent expense under operating lease arrangements at the Company was approximately $0.3 million and $0.1 million for the six months ended June 30, 2021 and 2020, respectively. Net rent expense under operating lease arrangements at the Company was approximately $0.2 million and less than $0.1 million for the three months ended June 30, 2021 and 2020, respectively.

 

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 June 30, 2021 and December 31, 2020.

 

7.    Goodwill and Intangible Assets

 

Goodwill

 

The change in the carrying amount of goodwill for the six months ended June 30, 2021 and for the year ended December 31, 2020 is summarized as follows (in thousands):

 Summary of Changes in Carrying Amount of Goodwill

  

June 30,

2021

  

December 31,

2020

 
Balance at beginning of the period  $3,912   $3,593 
Translation adjustments   (120)   319 
Balance at end of the period  $3,792   $3,912 

 

Intangible Assets

 

Identified intangible assets are comprised of the following as of June 30, 2021 and December 31, 2020 (in thousands):

 Schedule of Intangible Assets

   Useful Lives  

June 30,

2021

  

December 31,

2020

 
             
Intangible assets subject to amortization:               
Developed technology   5   $1,126   $1,161 
Trademarks and domain name   15    23    23 
Total gross intangible assets subject to amortization        1,149    1,184 
Accumulated amortization        (751)   (658)
Total net intangible assets subject to amortization       $398   $526 

 

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The aggregate amortization expense for the six months ended June 30, 2021 and 2020 was approximately $0.1 million and $0.1 million, respectively. The aggregate amortization expense for the three months ended June 30, 2021 and 2020 was approximately less than $0.1 million and less than $0.1 million, respectively. Based on the carrying value of identified intangible assets recorded at June 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)  $113 
2022   226 
2023   39 
2024   2 
2025 and Thereafter   18 
 Total  $398 

 

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. 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 June 30, 2021 and 2020 was as follows (in thousands):

 Schedule of Disaggregation of Revenue

   2021   2020   2021   2020 
   Three Months Ended June 30,   Six Months Ended June 30, 
   2021   2020   2021   2020 
Revenue from performance obligations recognized over time  $714   $189   $1,155   $665 
Revenue from performance obligations recognized at point-in-time transfer   2,059    213    2,580    510 
Total  $2,773   $402   $3,735   $1,175 

 

Contract Balances

 

Contract assets relate to our conditional right to consideration for our completed performance under the contract. Contract liabilities relates 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 six months ended June 30, 2021, the Company recognized approximately $1.1 million of revenue related to its deferred revenue balance at January 1, 2021. During the three months ended June 30, 2021, the Company recognized approximately $0.9 million of revenue related to its deferred revenue balance at January 1, 2021.

 

As of June 30, 2021, the Company had deferred revenue of $5.1 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 for the six months ended June 30, 2021 or year ended December 31, 2020 given historical experience and management’s evaluation of outstanding accounts receivable at period end.

 

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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, 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 NCI in the accompanying balance sheet. As of June 30, 2021, the Existing Equityholders’ equity ownership percentage in AST LLC was approximately 71.5%.

 

Class A Common Stock

 

At June 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 June 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 Special Redemption 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 June 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 Special Redemption 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 June 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.

 

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10.  Warrant Liabilities

 

As of June 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 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 will expire on April 6, 2026, five years after the Closing, 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 June 30, 2021, the Company recorded warrant liabilities of $115.5 million in the condensed consolidated balance sheets. For the three and six months ended June 30, 2021, the Company recognized a loss on the change in the fair value of the warrant liabilities of $41.7 million, in the condensed consolidated statements of operations. The loss on the change in the fair value of the warrant liabilities is the same for both the three and six months ended June 30, 2021 as the warrant liabilities were recorded as part of the opening balances as a result of the Business Combination as of April 6, 2021.

 

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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

   2021   2020   2021   2020 
   Six Months Ended June 30,   Three Months Ended June 30, 
   2021   2020   2021   2020 
Engineering services  $539   $110   $215   $98 
General and administrative costs   59    40    27    31 
BlueWalker 3 Satellite - construction in progress  28   -    14   - 
Total  $626   $150   $256   $129 

 

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, consultants, and 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.

 

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As of June 30, 2020, AST LLC was authorized to issue a total of 12,812,959 ordinary service-based and performance-based shares under a reserve set aside for equity awards. As of June 30, 2021, there were 12,445,664 options outstanding under the AST LLC Incentive Plan.

 

The following table summarizes AST LLC’s option activity for the period ended June 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    - 
Granted   806,283    10.00    - 
Exercised   (15,227)   0.06    - 
Cancelled or forfeited   (167,492)  0.17    - 
Outstanding at June 30, 2021   12,445,664   $0.84    1.81 
Options exercisable as of June 30, 2021   6,500,408   $0.15    1.70 
Vested and expected to vest at June 30, 2021   12,445,664   $0.84    1.81 

 

The following table summarizes the Company’s unvested option activity for the period ended June 30, 2021:

 Schedule of Unvested Option Activity

    Number of Shares   Weighted-Average Grant Date Fair Value 
Unvested at December 31, 2020    6,526,494   $2.37 
Granted     806,283    60.15 
Vested     (1,281,875)   2.78 
Forfeited     (105,670)  1.82 
Unvested at June 30, 2021    5,945,232   $10.13 

 

For the period ended June 30, 2021, total unrecognized compensation expense related to the unvested employee and director stock-based awards was $3.3 million, which is expected to be recognized over a weighted average period of 1.81 years.

 

The Company estimates the fair value of the stock-based awards to employees and non-employees 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.

 

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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. As of June 30, 2021, the Company had not issued any awards under this plan.

 

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 June 30, 2021, the Company had not issued any awards under this plan.

 

12.  Net Loss per Share

 

Basic earnings per share of Class A common stock is computed by dividing net income attributable to common shareholders 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 shareholders 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. Diluted loss per share for all period presented is the same as basic loss per share as the inclusion of the potentially issuable shares would be anti-dilutive.

 

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 users 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 six months ended June 30, 2021 represent only the period of April 6, 2021 to June 30, 2021.

 

 24 
   

 

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

   June 30, 2021   June 30, 2021 
   Three months ended   Six months ended 
   June 30, 2021   June 30, 2021 
   (dollars in thousands, except per share amounts) 
         
Numerator - basic and diluted:          
Net loss  $(65,169)  $(77,255)
Less: Net loss attributable to AST LLC pre-Business Combination   -    (11,580)
Less: Net loss attributable to the noncontrolling interest post Business Combination   (45,191)   (45,697)
Net income attributable to common shareholders  $(19,978)  $(19,978)
Denominator – basic and diluted:          
Weighted-average shares of Class A common stock outstanding   51,729,704    51,729,704 
           
Earnings per share of Class A common stock - basic and diluted  $(0.39)  $(0.39)

 

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 June 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 the 12,445,664 AST LLC Incentive Equity 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 intends 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.

 

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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 $0.1 million in consulting services for the three and six month periods, respectively, ended June 30, 2021, which were included within the general and administrative expenses on the condensed consolidated statement 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 less than $0.1 million for the three and six month periods ended June 30, 2021, which were included within the general and administrative expenses on the condensed consolidated statement 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.

 

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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