01—Abstract
Summary
Summary of the 10-K/A filed May 6, 2021. Cited figures are marked; the original filing is the authoritative source.
This is Amendment No. 1 (Form 10-K/A) to the 2020 annual report of New Providence Acquisition Corp., a Delaware blank check company (SPAC) that became AST SpaceMobile, Inc. (ASTS) after its business combination with AST & Science, LLC closed on April 6, 2021.
The filing is a restatement, not a new operating report. The SEC's April 12, 2021 staff statement on SPAC warrants led management to reclassify 17.6 million warrants (11.5 million public and 6.1 million private, exercisable at $11.50a) from equity to liabilities measured at fair value. At December 31, 2020, warrant liabilities were $68.1 million, up from $16.0 million a year earlier.
The restatement turned the originally reported 2020 net income of $191,177b into a net loss of $51,960,823, driven by a non-cash $52.2 million fair value loss. Accumulated deficit rose by $55.7 million. The company says there was no effect on cash, revenue, operating costs or liquidity.
The pre-merger SPAC itself had little operating substance. It held $232.2 millionc in its trust account (U.S. Treasury bills), had $131,151 in cash outside the trust, and a working capital deficit of $337,484. Its auditor, Marcum LLP, included a going concern paragraph.
Management identified a material weakness in internal control over accounting for equity instruments, and disclosure controls were concluded to be not effective as of December 31, 2020. Investors should treat the restated figures as historical SPAC accounting. Because the warrants are now liabilities, the company will record non-cash fair value gains or losses each period, so reported earnings will move with the warrant price, which may be volatile.
For investors, the forward-looking importance lies in the post-closing AST SpaceMobile structure described in the filing. The business combination was an Up-C structure in which substantially all operating assets sit in AST & Science, LLC, with a $230 milliond PIPE of 23 million Class A shares committed. The filing does not describe AST's satellite business in detail, so the operating thesis must come from other filings.
02—Key points
Key Highlights
- Restatement of warrant accounting: 11.5M public and 6.1M private warrants (17.6M total, $11.50 strike) reclassified from equity to derivative liabilities following the SEC's April 12, 2021 SPAC warrant staff statement.
- Warrant liabilities rose to $68,114,000 at December 31, 2020 from $15,962,000 at December 31, 2019, producing a $52,152,000 non-cash loss in 2020.
- Restated 2020 net loss of $(51,960,823) versus originally reported net income of $191,177; accumulated deficit increased by $55,689,024. Cash, revenue and operating costs were unaffected.
- Trust account held $232,196,027 in U.S. Treasury bills at year-end 2020, with $131,151 cash outside the trust and a working capital deficit of $337,484.
- Going concern doubt raised by the auditor; the company had to complete a business combination by March 15, 2021 (or obtain a charter extension). Sponsor provided $700,000 in non-interest-bearing loans, of which $300,000 was drawn as of February 26, 2021.
- Material weakness in internal control over financial reporting identified; disclosure controls and procedures concluded not effective as of December 31, 2020. Additional risk factors on warrant volatility and potential litigation were added.
- Business combination with AST & Science, LLC closed April 6, 2021, creating AST SpaceMobile; post-closing Up-C structure with a $230 million PIPE (23 million Class A shares) committed.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-K/AFY2020filed May 6, 2021Financial Statements
FY2020 against FY2019
| Line item | FY2020FY2019 | Change |
|---|---|---|
| Revenue | $5.97M— | — |
| Cost of Revenue | $3.02M— | — |
| Gross Profit | $2.94M— | — |
| R&D Expenses | $1.01M— | — |
| Operating Expenses | $27.30M$385K | +6993.3% |
| Operating Income | -$1.12M-$385K | −192.2% |
| Net Income | -$24.41M-$2.88M | −747.0% |
| EPS (Basic) | $-6.13$-0.61 | −904.9% |
| Shares Outstanding (Basic) | 8.60M6.11M | +40.7% |
05—Questions
Frequently Asked Questions
Why was this 10-K amended, and does the restatement affect the company's cash or operations?
The company restated its financials after the SEC's April 12, 2021 staff statement concluded that certain SPAC warrant provisions require liability classification. The restatement is non-cash. Management states there was no impact on cash, liquidity, revenue, operating expenses or operating loss. The change affects only the balance sheet classification of warrants, other income/expense, equity and EPS.
How much could the warrant liabilities move future earnings?
The 17.6 million warrants are now marked to fair value each reporting period, with changes flowing through the income statement. In 2020, the fair value of the warrants rose sharply, producing a $52.2 million loss. The filing warns that future gains or losses could be material and fluctuate with factors outside management's control, such as the share price and volatility assumptions.
What was the financial position of the SPAC at year-end 2020?
At December 31, 2020, the company had $232.2 million in marketable securities held in trust, $131,151 in operating cash, and total assets of $232.4 million. Total liabilities were $76.8 million, including $68.1 million in warrant liabilities and an $8.05 million deferred underwriting fee. Class A shares subject to redemption were $150.6 million. Stockholders' equity was set at $5,000,001, as is customary for SPACs.
What does the material weakness and going concern language mean for investors?
The material weakness relates to the accounting for warrants and indicates that internal controls over complex equity instruments did not prevent a material misstatement. Management is pursuing remediation, such as more access to accounting literature and third-party consultation, but these measures may take time and cost money. The going concern paragraph reflects that the SPAC's cash was insufficient to fund its planned activities without completing a business combination. The AST business combination closed on April 6, 2021, after this period.
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