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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
Amendment No. 1
(Mark One)
| | | | | |
x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2022
OR
| | | | | |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ______ to ______
Commission file number 001-40031
BigBear.ai Holdings, Inc.
(Exact name of registrant as specified in its charter)
| | | | | | | | |
Delaware | | 85-4164597 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
6811 Benjamin Franklin Drive, Suite 200, Columbia, MD | | 21046 |
(Address of Principal Executive Offices) | | (Zip Code) |
(410) 312-0885 |
Registrant's telephone number, including area code |
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class | | Trading Symbol(s) | | Name of each exchange on which registered |
Common stock, $0.0001 par value | | BBAI | | New York Stock Exchange |
Redeemable warrants, each full warrant exercisable for one share of common stock at an exercise price of $11.50 per share | | BBAI.WS | | New York Stock Exchange |
Securities registered pursuant to section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No x
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 x No o
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 x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or and 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:
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Large accelerated filer | o | Accelerated filer | o |
Non-accelerated filer | x | Smaller reporting company | o |
| | Emerging growth company | x |
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. o
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No x
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. o
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). o
The aggregate market value of voting stock held by non-affiliates of the Registrant on June 30, 2022, based on the closing price of $5.66 per share for shares of the Registrant’s common stock as reported by the New York Stock Exchange, was approximately $37.8 million. Shares of common stock beneficially owned by each executive officer, director, and holder of more than 10% of our common stock have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.
There were 142,834,513 shares of our common stock, $0.0001 par value per share, outstanding as of April 3, 2023.
DOCUMENTS INCORPORATED BY REFERENCE
None.
EXPLANATORY NOTE
BigBear.ai Holdings, Inc. (“BigBear,” the “Company,” “we,” “our” or “us”) is filing this Amendment No. 1 on Form 10-K/A (this “Amendment”) to amend the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022, originally filed with the Securities and Exchange Commission (the “SEC”) on March 31, 2023 (the “2022 10-K”), to include the information required by Items 10 through 14 of Part III of Form 10-K. This information was previously omitted from the 2022 10-K in reliance on General Instruction G(3) to Form 10-K, which permits the information in the above referenced items to be incorporated in the Form 10-K by reference from the Company’s definitive proxy statement if it is filed no later than 120 days after the Company’s fiscal year-end (or, if such definitive proxy statement or information statement is not filed with the SEC in the l20-day period, the Items comprising the Part III information must be filed as part of the Form 10-K, or as an amendment to the Form 10-K, not later than the end of the 120-day period). We are filing this Amendment to provide the information required in Part III of Form 10-K because a definitive proxy statement containing such information will not be filed by the Company within 120 days after the end of the fiscal year covered by the 2022 10-K.
This Amendment amends and restates in their entirety Items 10, 11, 12, 13 and 14 of Part III of the 2022 10-K and the exhibit index set forth in Part IV of the 2022 10-K and includes certain exhibits as noted thereon. Additionally, this Amendment amends and restates Item 8 solely to correct the dates in the first paragraph of the report of the independent registered public accounting firm.
Except as described above, no other changes have been made to the 2022 10-K, and this Amendment does not modify, amend or update in any way any of the financial or other information contained in the 2022 10-K. This Amendment does not reflect events occurring after the date of the filing of our 2022 10-K. Accordingly, this Amendment should be read in conjunction with our 2022 10-K and with our filings with the SEC subsequent to the filing of our 2022 10-K.
Pursuant to Rule 12b-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), this Form 10-K/A also contains certifications pursuant to Section 302 and Section 906 of the Sarbanes-Oxley Act of 2002, which are attached hereto. Terms used but not defined herein are as defined in our 2022 10-K.
BIGBEAR.AI HOLDINGS, INC.
Amendment No. 1 on FORM 10-K/A
TABLE OF CONTENTS
Part II
Item 8. Financial Statements and Supplementary Data
BigBear.ai Holdings, Inc. and Subsidiaries
Index to Consolidated Financial Statements
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
BigBear.ai Holdings, Inc.
Opinion on the financial statements
We have audited the accompanying consolidated balance sheets of BigBear.ai Holdings, Inc. (a Delaware corporation) and subsidiaries (formerly BigBear.ai Holdings, LLC, collectively the “Company” or “Successor”) as of December 31, 2022 and 2021, the related consolidated statements of operations, changes in stockholders’ (deficit) equity, and cash flows for the years ended December 31, 2022 and December 31, 2021 and the period from May 22, 2020 through December 31, 2020 (Successor) and the consolidated statements of operations, changes in equity, and cash flows of PCI Strategic Management, LLC (Predecessor) for the period from January 1, 2020 through October 22, 2020, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for the years ended December 31, 2022 and December 31, 2021 and the period from May 22, 2020 through December 31, 2020 (Successor) and the period from January 1, 2020 through October 22, 2020 (Predecessor), in conformity with accounting principles generally accepted in the United States of America.
Basis for opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ GRANT THORNTON LLP
We have served as the Company’s auditor since 2021.
Arlington, Virginia
March 31, 2023
BIGBEAR.AI HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
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| Successor |
| December 31, 2022 | | December 31, 2021 |
Assets | | | |
Current assets: | | | |
Cash and cash equivalents | $ | 12,632 | | | $ | 68,900 | |
Restricted cash | — | | | 101,021 | |
Accounts receivable, less allowance for doubtful accounts of $98 as of December 31, 2022 and $43 as of December 31, 2021 | 30,091 | | | 28,605 | |
Contract assets | 1,312 | | | 628 | |
Prepaid expenses and other current assets | 10,300 | | | 7,028 | |
Total current assets | 54,335 | | | 206,182 | |
Non-current assets: | | | |
Property and equipment, net | 1,433 | | | 1,078 | |
Goodwill | 48,683 | | | 91,636 | |
Intangible assets, net | 85,685 | | | 83,646 | |
Right-of-use assets | 4,638 | | | — | |
Deferred tax assets | 51 | | | — | |
Other non-current assets | 483 | | | 780 | |
Total assets | $ | 195,308 | | | $ | 383,322 | |
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Liabilities and equity | | | |
Current liabilities: | | | |
Accounts payable | $ | 15,422 | | | $ | 5,475 | |
Short-term debt, including current portion of long-term debt | 2,059 | | | 4,233 | |
Accrued liabilities | 13,366 | | | 10,735 | |
Contract liabilities | 2,022 | | | 4,207 | |
Current portion of long-term lease liability | 806 | | | — | |
Derivative liabilities | — | | | 44,827 | |
Other current liabilities | 2,085 | | | 541 | |
Total current liabilities | 35,760 | | | 70,018 | |
Non-current liabilities: | | | |
Long-term debt, net | 192,318 | | | 190,364 | |
Long-term lease liability | 5,092 | | | — | |
Deferred tax liabilities | — | | | 248 | |
Other non-current liabilities | 10 | | | 324 | |
Total liabilities | 233,180 | | | 260,954 | |
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Commitments and contingencies (Note O) | | | |
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Stockholders’ (deficit) equity: | | | |
Common stock, par value $0.0001; 500,000,000 shares authorized and 127,022,363 shares issued at December 31, 2022 and 135,566,227 at December 31, 2021 | 14 | | | 14 | |
Additional paid-in capital | 272,528 | | | 253,744 | |
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Treasury stock, at cost 9,952,803 shares at December 31, 2022 and 0 shares at December 31, 2021 | (57,350) | | | — | |
Accumulated deficit | (253,064) | | | (131,390) | |
Total stockholders’ (deficit) equity | (37,872) | | | 122,368 | |
Total liabilities and stockholders’ (deficit) equity | $ | 195,308 | | | $ | 383,322 | |
The accompanying notes to the consolidated financial statements are an integral part of these statements.
BIGBEAR.AI HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share data)
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| | | | | Successor | | | Predecessor |
| | | | | Year Ended December 31, 2022 | | Year Ended December 31, 2021 | | Period from May 22, 2020 through December 31, 2020 | | | Period from January 1, 2020 through October 22, 2020 | | |
Revenues | | | | | $ | 155,011 | | | $ | 145,578 | | | $ | 31,552 | | | | $ | 59,765 | | | |
Cost of revenues | | | | | 112,018 | | | 111,510 | | | 22,877 | | | | 46,755 | | | |
Gross margin | | | | | 42,993 | | | 34,068 | | | 8,675 | | | | 13,010 | | | |
Operating expenses: | | | | | | | | | | | | | | |
Selling, general and administrative | | | | | 84,775 | | | 106,507 | | | 7,909 | | | | 7,632 | | | |
Research and development | | | | | 8,393 | | | 6,033 | | | 530 | | | | 85 | | | |
Restructuring charges | | | | | 4,203 | | | — | | | — | | | | — | | | |
Transaction expenses | | | | | 2,605 | | | — | | | 10,091 | | | | — | | | |
Goodwill impairment | | | | | 53,544 | | | — | | | — | | | | — | | | |
Operating (loss) income | | | | | (110,527) | | | (78,472) | | | (9,855) | | | | 5,293 | | | |
Interest expense | | | | | 14,436 | | | 7,762 | | | 616 | | | | 1 | | | |
Net (decrease) increase in fair value of derivatives | | | | | (1,591) | | | 33,353 | | | — | | | | — | | | |
Loss on extinguishment of debt | | | | | — | | | 2,881 | | | — | | | | — | | | |
Other expense | | | | | 19 | | | — | | | — | | | | | | |
(Loss) income before taxes | | | | | (123,391) | | | (122,468) | | | (10,471) | | | | 5,292 | | | |
Income tax (benefit) expense | | | | | (1,717) | | | 1,084 | | | (2,633) | | | | 3 | | | |
Net (loss) income | | | | | $ | (121,674) | | | $ | (123,552) | | | $ | (7,838) | | | | $ | 5,289 | | | |
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Basic net loss per share | | | | | $ | (0.95) | | | $ | (1.15) | | | $ | (0.07) | | | | | | |
Diluted net loss per share | | | | | $ | (0.95) | | | $ | (1.15) | | | $ | (0.07) | | | | | | |
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Weighted-average shares outstanding: | | | | | | | | | | | | | | |
Basic | | | | | 127,698,478 | | | 107,009,834 | | | 105,000,000 | | | | | | |
Diluted | | | | | 127,698,478 | | | 107,009,834 | | | 105,000,000 | | | | | | |
The accompanying notes to the consolidated financial statements are an integral part of these statements.
BIGBEAR.AI HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands, except unit data)
For the Predecessor 2020 Period
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| Period from January 1, 2020 through October 22, 2020 |
| Class A Units | | Class B Units | | Members’ contribution | | Retained earnings | | Total members’ equity |
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As of December 31, 2019 | 900 | | | 10 | | | 4,998 | | | 6,677 | | | 11,675 | |
Net income | — | | | — | | | — | | | 5,289 | | | 5,289 | |
Equity-based compensation expense | — | | | — | | | 80 | | | — | | | 80 | |
Distributions | — | | | — | | | — | | | (9,773) | | | (9,773) | |
As of October 22, 2020 | 900 | | | 10 | | | $ | 5,078 | | | $ | 2,193 | | | $ | 7,271 | |
The accompanying notes to the consolidated financial statements are an integral part of these statements.
BIGBEAR.AI HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ (DEFICIT) EQUITY
(in thousands, except share data)
For the Successor 2022 Period
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| Year Ended December 31, 2022 |
| Common Stock | | Additional | | Treasury | | Accumulated | | Total stockholders’ |
| Shares | | Amount | | paid-in capital | | stock | | deficit | | equity (deficit) |
As of December 31, 2021 | 135,566,227 | | | $ | 14 | | | $ | 253,744 | | | $ | — | | | $ | (131,390) | | | $ | 122,368 | |
Net loss | — | | | — | | | — | | | — | | | (121,674) | | | (121,674) | |
Equity-based compensation expense | — | | | — | | | 10,865 | | | — | | | — | | | 10,865 | |
Repurchase of shares as a result of Forward Share Purchase Agreements | (9,952,803) | | | — | | | — | | | (57,350) | | | — | | | (57,350) | |
Issuance of common stock as consideration for the acquisition of ProModel Corporation | 649,976 | | | — | | | 7,501 | | | — | | | — | | | 7,501 | |
Stock issued upon the exercise of warrants | 51 | | | — | | | 1 | | | — | | | — | | | 1 | |
Issuance of shares purchased under ESPP | 508,062 | | | — | | | 417 | | | — | | | — | | | 417 | |
Issuance of shares vested for RSUs | 250,850 | | | — | | | — | | | — | | | — | | | — | |
As of December 31, 2022 | 127,022,363 | | | $ | 14 | | | $ | 272,528 | | | $ | (57,350) | | | $ | (253,064) | | | $ | (37,872) | |
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For the Successor 2021 Period | | | | | | | | | | | |
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| Year Ended December 31, 2021 |
| Common Stock | | Additional | | Treasury | | Accumulated | | Total stockholders’ |
| Shares | | Amount | | paid-in capital | | stock | | deficit | | equity |
As of December 31, 2020(1) | 105,000,000 | | | $ | 11 | | | $ | 108,224 | | | $ | — | | | $ | (7,838) | | | $ | 100,397 | |
Net loss | — | | | — | | | — | | | — | | | (123,552) | | | (123,552) | |
Equity-based compensation expense | — | | | — | | | 60,615 | | | — | | | — | | | 60,615 | |
GigCapital4 shares net of redemptions, including PIPE, warrant liability, and Merger costs | 30,566,227 | | | 3 | | | 84,905 | | | — | | | — | | | 84,908 | |
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As of December 31, 2021 | 135,566,227 | | | $ | 14 | | | $ | 253,744 | | | $ | — | | | $ | (131,390) | | | $ | 122,368 | |
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(1) The units of the Company prior to the Merger (as defined in Note A—Description of the Business) have been retroactively restated to reflect the exchange ratio established in the Merger (computed as 105,000,000 shares of Common Stock to 100 Company units).
For the Successor 2020 Period
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| Period from May 22, 2020 through December 31, 2020 |
| Common Stock | | Additional | | Accumulated | | Total stockholders’ |
| Shares | | Amount | | paid-in capital | | deficit | | equity |
As of May 22, 2020 | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
Net loss | — | | | — | | | — | | | (7,838) | | | (7,838) | |
Parent’s contributions(2) | 105,000,000 | | | 11 | | | 95,036 | | | — | | | 95,047 | |
Parent’s contributions for acquisitions | — | | | — | | | 13,188 | | | — | | | 13,188 | |
As of December 31, 2020 | 105,000,000 | | | $ | 11 | | | $ | 108,224 | | | $ | (7,838) | | | $ | 100,397 | |
(2) The units of the Company prior to the Merger (as defined in Note A—Description of the Business) have been retroactively restated to reflect the exchange ratio established in the Merger (computed as 105,000,000 shares of Common Stock to 100 Company units).
The accompanying notes to the consolidated financial statements are an integral part of these statements.
BIGBEAR.AI HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASHFLOWS
(in thousands)
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| Successor | | | Predecessor |
| Year Ended December 31, 2022 | | Year Ended December 31, 2021 | | Period from May 22, 2020 through December 31, 2020 | | | Period from January 1, 2020 through October 22, 2020 | | |
Cash flows from operating activities: | | | | | | | | | | |
Net (loss) income | $ | (121,674) | | | $ | (123,552) | | | $ | (7,838) | | | | $ | 5,289 | | | |
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities: | | | | | | | | | | |
Depreciation and amortization expense | 7,758 | | | 7,262 | | | 1,028 | | | | 52 | | | |
Amortization of debt issuance costs | 2,302 | | | 679 | | | 17 | | | | — | | | |
Equity-based compensation expense | 10,865 | | | 60,615 | | | — | | | | 80 | | | |
Goodwill impairment | 53,544 | | | — | | | — | | | | — | | | |
Impairment of right-of-use assets | 901 | | | — | | | — | | | | — | | | |
Non-cash lease expense | 174 | | | — | | | — | | | | — | | | |
Provision for doubtful accounts | 55 | | | — | | | 43 | | | | — | | | |
Deferred income tax (benefit) expense | (1,757) | | | 1,042 | | | (2,637) | | | | (8) | | | |
Loss on extinguishment of debt | — | | | 2,881 | | | — | | | | — | | | |
Net (decrease) increase in fair value of derivatives | (1,591) | | | 33,353 | | | — | | | | — | | | |
Loss on sale of property and equipment | — | | | 14 | | | — | | | | — | | | |
Changes in assets and liabilities: | | | | | | | | | | |
(Increase) decrease in accounts receivable | (798) | | | (7,179) | | | (4,000) | | | | 6,818 | | | |
(Increase) decrease in contract assets | (286) | | | 1,947 | | | 3,868 | | | | (4,300) | | | |
Increase in prepaid expenses and other assets | (1,702) | | | (6,437) | | | (453) | | | | (29) | | | |
Increase in accounts payable | 9,942 | | | 2,744 | | | 1,111 | | | | 51 | | | |
(Decrease) increase in accrued liabilities | (5,121) | | | 2,845 | | | 1,224 | | | | 504 | | | |
(Decrease) increase in contract liabilities | (3,740) | | | 3,666 | | | 40 | | | | — | | | |
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Increase in other liabilities | 2,210 | | | 338 | | | 181 | | | | 157 | | | |
Net cash (used in) provided by operating activities | (48,918) | | | (19,782) | | | (7,416) | | | | 8,614 | | | |
Cash flows from investing activities: | | | | | | | | | | |
Acquisition of businesses, net of cash acquired | (4,465) | | | (224) | | | (184,714) | | | | — | | | |
Purchases of property and equipment | (769) | | | (645) | | | (155) | | | | (121) | | | |
Proceeds from disposal of property and equipment | — | | | 6 | | | — | | | | — | | | |
Net cash used in investing activities | (5,234) | | | (863) | | | (184,869) | | | | (121) | | | |
Cash flows from financing activities: | | | | | | | | | | |
Proceeds from term loan | — | | | — | | | 107,249 | | | | — | | | |
Repurchase of shares as a result of forward share purchase agreements | (100,896) | | | — | | | — | | | | — | | | |
Repayment of term loan | — | | | (110,000) | | | — | | | | — | | | |
Proceeds from promissory notes | — | | | — | | | 91,283 | | | | — | | | |
Repayment of promissory notes | — | | | — | | | (91,283) | | | | — | | | |
Proceeds from short-term borrowings | 2,059 | | | 9,233 | | | 4,000 | | | | 2,000 | | | |
Repayment of short-term borrowings | (4,233) | | | (5,000) | | | (4,000) | | | | (2,000) | | | |
Proceeds from issuance of convertible notes | — | | | 200,000 | | | — | | | | — | | | |
Proceeds from the Merger | — | | | 101,958 | | | — | | | | — | | | |
Payment of Merger transaction costs | — | | | (9,802) | | | — | | | | — | | | |
Payment of debt issuance costs to third parties | — | | | (5,527) | | | (307) | | | | — | | | |
Payments for taxes related to net share settlement of equity awards | (67) | | | — | | | — | | | | — | | | |
Distributions to members | — | | | — | | | — | | | | (9,773) | | | |
Parent’s contribution | — | | | — | | | 95,047 | | | | — | | | |
Net cash (used in) provided by financing activities | (103,137) | | | 180,862 | | | 201,989 | | | | (9,773) | | | |
Net (decrease) increase in cash and cash equivalents and restricted cash | (157,289) | | | 160,217 | | | 9,704 | | | | (1,280) | | | |
Cash and cash equivalents and restricted cash at the beginning of period | 169,921 | | | 9,704 | | | — | | | | 1,644 | | | |
Cash and cash equivalents and restricted cash at the end of the period | $ | 12,632 | | | $ | 169,921 | | | $ | 9,704 | | | | $ | 364 | | | |
| | | | | | | | | | |
BIGBEAR.AI HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASHFLOWS
(in thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Successor | | | Predecessor |
| Year Ended December 31, 2022 | | Year Ended December 31, 2021 | | Period from May 22, 2020 through December 31, 2020 | | | Period from January 1, 2020 through October 22, 2020 | | |
Cash paid during the period for: | | | | | | | | | | |
Interest | $ | 12,409 | | | $ | 6,241 | | | $ | 384 | | | | $ | 1 | | | |
Income taxes | $ | 9 | | | $ | 68 | | | $ | — | | | | $ | 9 | | | |
| | | | | | | | | | |
Supplemental schedule of non-cash investing and financing activities: | | | | | | | | | | |
Issuance of common stock as consideration for the acquisition of ProModel Corporation | $ | 7,501 | | | $ | — | | | $ | — | | | | $ | — | | | |
Merger transaction costs paid included in accrued liabilities | $ | — | | | $ | 259 | | | $ | — | | | | $ | — | | | |
Merger costs settled through issuance of common stock | $ | — | | | $ | 10,153 | | | $ | — | | | | $ | — | | | |
Debt issuance costs settled through issuance of common stock | $ | — | | | $ | 4,800 | | | $ | — | | | | $ | — | | | |
Initial fair value of written put option at closing | $ | — | | | $ | 11,371 | | | $ | — | | | | $ | — | | | |
Initial fair value of private warrants at closing | $ | — | | | $ | 421 | | | $ | — | | | | $ | — | | | |
Parent units issued for acquisitions | $ | — | | | $ | — | | | $ | 13,188 | | | | $ | — | | | |
| | | | | | | | | | |
| | | | | | | | |
Reconciliation of cash and cash equivalents and restricted cash: | December 31, 2022 | | December 31, 2021 | | | | | | | |
Cash and cash equivalents | $ | 12,632 | | | $ | 68,900 | | | | | | | | |
Restricted cash | — | | | 101,021 | | | | | | | | |
Cash and cash equivalents and restricted cash at end of the period | $ | 12,632 | | | $ | 169,921 | | | | | | | | |
The accompanying notes to the consolidated financial statements are an integral part of these statements.
BIGBEAR.AI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of U.S. dollars unless stated otherwise)
Note A—Description of the Business
BigBear.ai Holdings, Inc.’s (“BigBear.ai”, “BigBear.ai Holdings”, or the “Company”) mission is to help deliver clarity for clients as they face their most complex decisions. BigBear.ai’s artificial intelligence (“AI”)-powered decision intelligence solutions are leveraged across our Cyber & Engineering and Analytics reportable segments and in three primary markets—global supply chains & logistics, autonomous systems and cybersecurity. The Company’s customers, including federal defense and intelligence agencies, manufacturers, third party logistics providers, retailers, healthcare, and life sciences organizations, rely on BigBear.ai’s solutions to empower leaders to decide on the best possible course of action by creating order from complex data, identifying blind spots, and building predictive outcomes. Unless otherwise indicated, references to “we”, “us” and “our” refer collectively to BigBear.ai Holdings, Inc. and its consolidated subsidiaries.
On December 7, 2021, the previously announced merger (“Merger”) with GigCapital4, Inc. (“GigCapital4”) was consummated pursuant to the business combination agreement (the “Agreement”) dated June 4, 2021, as amended in July 2021 and December 2021, by and between GigCapital4 Merger Sub Corporation (the “Merger Sub”), a wholly owned subsidiary of GigCapital4, BigBear.ai Holdings, and BBAI Ultimate Holdings (“Parent”). Immediately prior to the stockholder vote for the Merger, GigCapital4 executed a series of Forward Share Purchase Agreements (“FPAs”) with certain investors (the “Investors”). Included within the FPAs was a provision that each of the Investors would not redeem their shares and instead would hold the shares for a period of up to three months following the consummation of the Merger, at which time they would have the right to sell the shares to the Company for $10.15 per share. During the three months ended March 31, 2022, the Company repurchased all 9,952,803 shares of its common stock at the Investors’ request (refer to Note P—Written Put Option for detail).
Upon the closing of the Merger, GigCapital4 was renamed to BigBear.ai, Holdings Inc., the U.S. Securities and Exchange Commission (“SEC”) registrant. As a result of the Merger, the Company received aggregate gross proceeds of $101,958 from GigCapital4’s trust account and PIPE Proceeds, and issued $200,000 of unsecured convertible notes that were convertible into 17,391,304 shares of the Company’s common stock at the initial Conversion Price of $11.50, subject to adjustment (refer to Note K—Debt for detail). Proceeds from the Merger were partially used to fund the $114,393 repayment of the Antares Loan and Merger transaction costs and other costs paid through the funds flow of $9,802, consisting of marketing, legal and other professional fees.
The Merger is accounted for as a reverse recapitalization in which GigCapital4 is treated as the acquired company. For accounting purposes, the Merger is treated as the equivalent of BigBear.ai Holdings issuing equity for the net assets of GigCapital4 followed by a recapitalization. A reverse recapitalization does not result in a new basis of accounting, and the consolidated financial statements of the combined entity (BigBear.ai) represent the continuation of the consolidated financial statements of BigBear.ai Holdings in many respects.
Immediately prior to the closing of the Merger, but following the consummation of GigCapital4’s domestication to a Delaware corporation, the authorized capital stock of GigCapital4 consisted of 501,000,000 shares, including (i) 500,000,000 shares of common stock and (ii) 1,000,000 shares of preferred stock. 135,566,227 shares of common stock and no shares of the preferred stock were outstanding as of December 31, 2021. At the effective time of the Merger, 100 units of BigBear.ai Holdings were cancelled and automatically deemed for all purposes to represent the Parent’s right to receive, in the aggregate, $75 million in cash and shares in GigCapital4, and Parent exchanged its 100 units of BigBear.ai Holdings for 105,000,000 shares of BigBear.ai’s common stock. In addition, 8,000,000 shares of PIPE financing were issued and 1,495,320 shares were issued to certain advisors. AE Industrial Partners, LP (“AE”) became the majority stockholder of the Company, via its ownership of PCISM Ultimate Holdings, LLC (subsequently renamed to BBAI Ultimate Holdings, LLC), following the close of the Merger (83.5%).
Note B—Summary of Significant Accounting Policies
Basis of Presentation
The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and all intercompany balances and transactions have been eliminated in consolidation. Amounts presented within the consolidated financial statements and accompanying notes are presented in thousands of U.S. dollars unless stated otherwise, except for percentages, units, shares, per unit, and per share amounts.
The period from May 22, 2020 (inception) through December 31, 2020 and as of December 31, 2020 (the “Successor 2020
BIGBEAR.AI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of U.S. dollars unless stated otherwise)
Period”), the year ended December 31, 2021 (the “Successor 2021 Period”), and the year ended December 31, 2022 (the “Successor 2022 Period”) relate to activity of BigBear.ai Holdings and its subsidiaries. The period from January 1, 2020 to October 22, 2020 (the “Predecessor 2020 Period”) relate to the predecessor period. The Successor 2020 Period begins before the Predecessor 2020 Period ended due to the acquisitions that took place prior to the acquisition of PCI.
The PCI, NuWave, Open Solutions, and ProModel acquisitions were accounted for as business combinations in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 805, Business Combinations (“ASC 805”), and the resulting new basis of accounting is reflected in the Successor 2020 Period as of each acquisition date. As a result, financial information of the Predecessor and Successor periods has been prepared under two different bases of accounting and therefore are not comparable.
PCI was identified as the Predecessor through an analysis of various factors, including the size, financial characteristics, and ongoing management.
The audited consolidated financial statements are presented as described below:
•The consolidated financial statements for the Predecessor 2020 Period, which includes the operating results of PCI from January 1, 2020 to October 22, 2020.
•The combined financial statements for the Successor 2020 Period, which includes the operating results of BigBear.ai Holdings and its subsidiaries from each of their respective acquisition dates through December 31, 2020.
•The consolidated financial statements for the Successor 2021 Period and the Successor 2022 Period, which includes the operating results of BigBear.ai Holdings and its subsidiaries for the years ended December 31, 2021 and December 31, 2022, respectively.
Use of Estimates
The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods.
Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the consolidated financial statements, which management considered in formulating its estimate, could change in the near term due to one or more future confirming events. Accordingly, actual results could differ materially from those estimates. Accounting policies subject to estimates include valuation of goodwill, intangible assets, impairments, revenue recognition, income taxes, business combinations and equity-based compensation.
Business Combinations
The Company utilizes the acquisition method of accounting under ASC 805, for all transactions and events in which it obtains control over one or more other businesses (even if less than 100% ownership is acquired), to recognize the fair value of all assets and liabilities assumed and to establish the acquisition date fair value as of the measurement date.
While the Company uses its best estimates and assumptions as part of the purchase price allocation process to accurately value assets acquired and liabilities assumed as of the acquisition date, the estimates and assumptions are inherently uncertain and subject to refinement. As a result, during the measurement period, which may be up to one year from the acquisition date, the Company records adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. For changes in the valuation of intangible assets between the preliminary and final purchase price allocation, the related amortization is adjusted in the period it occurs. Subsequent to the measurement period, any adjustment to assets acquired or liabilities assumed is included in operating results in the period in which the adjustment is determined. Transaction expenses that are incurred in connection with a business combination, other than costs associated with the issuance of debt or equity securities, are expensed as incurred.
Revenue Recognition
The Company’s revenues from contracts with customers are from offerings including artificial intelligence and machine learning, data science, advanced analytics, offensive and defensive cyber, data management, cloud solutions, digital engineering, and
BIGBEAR.AI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of U.S. dollars unless stated otherwise)
systems integration, primarily with the U.S. Government and its agencies. The Company also serves various commercial customers.
The Company organizes its solutions into three markets:
i.Supply Chain & Logistics Solutions: Data Conflation at Scale (providing a full view of operations, enabling real-time tracking of inventory, and facilitating predictive analytics to optimize functions like routes and delivery times), Discrete Event Simulation (Course of Action Analysis & Digital Twins), and Next-Gen Decision Support (e.g. Macroeconomic & Geopolitical Forecasting)
ii.Cybersecurity Solutions: AI-powered / machine-accelerated binary analysis, Cyber-Physical systems vulnerability testing & evaluation, Vulnerability assessment as a Service, and Specialized services for the Department of Defense and Intelligence Community
iii.Autonomous Systems Solutions: AI/machine learning (“ML”) decision intelligence solutions (conflate millions of data points to provide situational awareness, predictive forecasts, and anomaly detection), AI Orchestration as a Service, and specialized consulting services
Each of the Company’s solutions can be sold individually or combined and sold together. Regardless of whether a customer is procuring only one of the Company’s solutions or a combination of solutions, the Company’s contracts generally include a significant service of integrating the solutions with the Company’s customer’s existing solutions and information systems. After the Company implements the solutions, the Company may also enter into contracts with the customers to further refine or customize these solutions to either enhance the functionality or adjust for changes in the customer’s requirements. These post-implementation service contracts are generally performed on a time-and-materials basis.
The Company accounts for a contract when it has approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable. The Company performs under various types of contracts, which generally include firm-fixed-price (“FFP”), time-and-materials (“T&M”), and cost-reimbursable contracts.
Under fixed-price contracts, the Company agrees to perform the specified work for a pre-determined price. To the extent the Company’s actual costs vary from the estimates upon which the price was negotiated, the Company will generate more or less profit or could incur a loss. Under T&M contracts, the Company agrees to perform the specified work for a pre-determined rate per hour, as well as the reimbursement of other direct billable costs which are presented on a gross basis. Cost-reimbursable contracts provide for the payment of allowable costs incurred during performance of the contract plus a fee up to a ceiling based on the amount that has been funded. The majority of our cost-reimbursable contracts are cost-plus-fixed-fee, which provide a fixed fee that is negotiated at the inception of the contract and does not vary with actual costs.
For T&M contracts and cost-reimbursable contracts, the Company has a right to consideration from the customer in an amount that corresponds directly with the value of the Company’s performance and recognizes revenue in the amount to which the Company has a right to invoice (the “right to invoice” practical expedient).
The Company assesses each contract at its inception to determine whether it should be combined with other contracts. When making this determination, the Company considers factors such as whether two or more contracts were negotiated and executed at or near the same time or were negotiated with an overall profit objective. If combined, the Company treats the combined contracts as one single contract for revenue recognition purposes.
The Company generally uses internally developed and third-party applications, which the Company integrates, when implementing solutions to meet specific customer requirements. The Company evaluates the solutions or services promised in each contract at inception to determine whether the contract should be accounted for as having one or more performance obligations. Each of the Company’s solutions is capable of being distinct as the customer can benefit from each individual solution on its own or with other resources that are readily available. When customer contracts include a significant service of integrating the solutions to provide a set of integrated or highly interrelated tasks, the Company accounts for these arrangements as a single performance obligation. While the contracts provide customers access to the Company’s solutions, the contracts generally do not contain separate licensing provisions for independent use of the underlying internally developed software. Additionally, these components are highly interdependent and highly interrelated into the solutions delivered to the Company’s customers. Therefore, these components are not capable of being distinct and are not separately identifiable from the other
BIGBEAR.AI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of U.S. dollars unless stated otherwise)
promises in the contract. In cases where customer contracts have an explicit licensing provision to the underlying software, such software is generally accounted for as a separate performance obligation.
The Company determines the transaction price for each contract based on the consideration the Company expects to receive for the solutions or services being provided under the contract. For contracts where a portion of the price may vary, the Company estimates variable consideration at the most likely amount, which is included in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur. The Company analyzes the risk of a significant revenue reversal and if necessary, constrains the amount of variable consideration recognized in order to mitigate this risk.
At the inception of a contract, the Company estimates the transaction price based on its current rights and does not contemplate future modifications (including unexercised options) or follow-on contracts until they become legally enforceable. Contracts are often subsequently modified to include changes in specifications, requirements or price, which may create new or change existing enforceable rights and obligations. Depending on the nature of the modification, the Company considers whether to account for the modification as an adjustment to the existing contract or as a separate contract. The Company’s contracts with the U.S. Government often contain options to renew existing contracts for an additional period of time (generally a year at a time) under the same terms and conditions as the original contract, and generally do not provide the customer any material rights under the contract. Therefore, such modifications are accounted for as if they were part of the existing contract and may result in a cumulative adjustment to revenue recognized. The Company accounts for renewal options as separate contracts when they include distinct goods or services at standalone selling prices.
For contracts with multiple performance obligations, the Company allocates the transaction price to each performance obligation based on the estimated standalone selling price of the solution or service underlying each performance obligation. The standalone selling price represents the amount for which the Company would sell the solution or service to a customer on a standalone basis (i.e., not bundled with any other solutions or services). The Company’s contracts with the U.S. government are subject to the Federal Acquisition Regulation (“FAR”) and priced on estimated or actual costs of providing the goods or services. The FAR provides guidance on types of costs that are allowable in establishing prices for goods and services provided to the U.S. government and its agencies. Each contract is competitively priced and bid separately. Pricing for non-U.S. government agencies and commercial customers is based on specific negotiations with each customer. In circumstances where the standalone selling price is not directly observable, the Company estimates the standalone selling price using the expected cost-plus margin approach.
The Company recognizes revenue as performance obligations are satisfied and the customer obtains control of the solutions and services. In determining when performance obligations are satisfied, the Company considers factors such as contract terms, payment terms and whether there is an alternative future use of the solution or service. Substantially all of the Company’s revenue is recognized over time as the Company performs under the contract because control of the work in process transfers continuously to the customer. For most contracts with the U.S. Government, this continuous transfer of control of the work in process to the customer is supported by clauses in the contract that give the customer ownership of work in process and allow the customer to unilaterally terminate the contract for convenience and pay the Company for costs incurred plus a reasonable profit. For most non-U.S. Government contracts, continuous transfer of control to the customer is supported because the Company delivers solutions that do not have an alternative use to the Company and if the Company’s customer were to terminate the contract for reasons other than the Company’s non-performance, the Company would have the right to recover damages which would include, among other potential damages, the right to payment for the work performed to date plus a reasonable profit.
For performance obligations to deliver solutions with continuous transfer of control to the customer, revenue is recognized based on the extent of progress towards completion of the performance obligation, generally using the percentage-of-completion cost-to-cost measure of progress for the Company’s contracts because it best depicts the transfer of control to the customer as the Company incurs costs on the contracts. Under the percentage-of-completion cost-to-cost measure of progress, the extent of progress towards completion is measured based on the ratio of costs incurred to date to the total estimated costs to complete the performance obligation(s). For T&M contracts, revenue is recognized over time based on costs incurred or the right to invoice method (in situations where the value transferred matches the Company’s billing rights) as the customer receives and consumes the benefits.
For arrangements with the U.S. Government, the Company generally does not begin work on contracts until funding is appropriated by the customer. Billing timetables and payment terms on the Company’s contracts vary based on a number of factors, including the contract type. Cost-reimbursable and T&M contracts are generally billed on a monthly basis. FFP contracts are generally billed based on milestones, which are the achievement of specific events as defined in the contract. Amounts billed and due from customers are classified as receivables on the combined balance sheets. On some contracts, the Company may be
BIGBEAR.AI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of U.S. dollars unless stated otherwise)
entitled to receive an advance payment, which is not considered a significant financing component because it is used to facilitate inventory demands at the onset of a contract and to safeguard the Company from the failure of the other party to abide by some or all of their obligations under the contract.
In some cases where a portion of payment retained by the customer is not considered a significant financing component; the Company expects, at contract inception, that the lag period between the transfer of a promised good or service to a customer and when the customer pays for that good or service will not constitute a significant financing component.
Sale of Products
Revenue from sale of products to customers purchased from third parties is recognized at a point in time when control has transferred to the customer. Control is transferred to the customer upon customer acceptance or receipt of the product. At this point in time, the Company has a present right to payment, and the customer has legal title and physical possession of the product as well as the risks and rewards of ownership.
Contract Balances
Contract balances result from the timing of revenue recognized, billings and cash collections, and the generation of contract assets and liabilities.
Contract assets represent revenue recognized in excess of amounts invoiced to the customer and the right to payment is not subject to the passage of time. Contract liabilities consist of billings in excess of revenues and customer advances. Billings in excess of revenues represents milestone billing contracts where the billings of the contract exceed recognized revenues
Cash and Cash Equivalents
Cash and cash equivalents are comprised of cash on hand, cash balances with banks and similar institutions and all highly liquid investments with an original maturity of three months or less when purchased.
Restricted Cash
The Company’s restricted cash consists of cash deposited into escrow accounts reflecting the full obligation to certain investors related to the FPAs. The funds held in the escrow accounts as at December 31, 2021 were not available to the Company for three months following the consummation of the Merger unless and until any of the Investors sold these shares in the market or the investors redeemed their shares under FPAs by March 7, 2022. The Company settled its obligations under the FPAs during the year ended December 31, 2022.
Property and Equipment
Property and equipment are the long-lived, physical assets of the Company acquired for use in the Company’s normal business operations and not intended for resale by the Company. These assets are recorded at cost. Renewals and betterments that increase the useful lives of the assets are capitalized. Repair and maintenance expenditures that increase the efficiency of the assets are expensed as incurred. Assets under capital leases are recorded at the present value of the minimum lease payments required during the lease period. Depreciation is based on the estimated useful lives of the assets using the straight-line method and is included in selling, general and administrative or cost of revenues based upon the asset. Expected useful lives are reviewed at least annually. Estimated useful lives are as follows:
| | | | | |
Property and equipment | Estimate useful life in years |
Computer equipment | 3 |
Furniture and fixtures | 7 |
Laboratory equipment | 5-10 |
Software | 3-5 |
Leasehold improvements | 5 or lease term |
BIGBEAR.AI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of U.S. dollars unless stated otherwise)
As assets are retired or sold, the related cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is included in the results of operations.
The Company regularly evaluates its property and equipment for impairment when events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable, in accordance with ASC 360, Property, Plant, and Equipment. If the Company determines that the carrying amount of an asset or asset group is not recoverable based upon the undiscounted expected future cash flows of the asset or asset group, the Company records an impairment loss equal to the excess of carrying amount over the estimated fair value of the asset or asset group.
Finite-lived Intangible Assets
Finite-lived intangible assets result from the Company’s various business combinations and consist of identifiable finite-lived intangible assets, including technology and customer relationships. These finite-lived intangible assets are reported at cost, net of accumulated amortization, and are either amortized on a straight-line basis over their estimated useful lives or over the period the economic benefits of the intangible asset are consumed.
The Company regularly evaluates its intangible assets other than goodwill for impairment when events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable, in accordance with ASC 350, Intangibles–Goodwill and Other. If the Company determines that the carrying amount of an asset or asset group is not recoverable based upon the undiscounted expected future cash flows of the asset or asset group, the Company records an impairment loss equal to the excess of carrying amount over the estimated fair value of the asset or asset group.
Leases
The Company determines whether an arrangement is a lease at inception. An arrangement is or contains a lease if it conveys the right to control the use of an asset for a period of time in exchange for consideration. The Company has operating leases for office space, automobiles, and other equipment that expire at various dates through 2040. These lease terms may include optional renewals, terminations or purchases, which are considered in the Company’s assessments when such options are reasonably certain to be exercised.
The Company measures right-of-use assets and related lease liabilities based on the present value of remaining lease payments. Lease contracts may include fixed payments for non-lease components, such as common area maintenance, which are included in the measurement of lease liabilities for certain asset classes based on the Company’s election to combine lease and non-lease components. The Company does not recognize short-term leases, those lease contracts with durations of twelve months or less, on the consolidated balance sheets.
As applicable borrowing rates are not typically implied within the lease arrangements, the Company discounts lease payments based on its estimated incremental borrowing rate at lease commencement, or modification, which is based on the Company’s estimated credit rating and the lease term at commencement.
Warrants
As part of GigCapital4’s Initial Public Offering, public and private warrants were issued, which were assumed by BigBear.ai upon consummation of the Merger. Warrants are accounted for in accordance with the guidance of ASC 815, Derivatives and Hedging (“ASC 815”), under which private warrants do not meet the criteria for equity treatment and are classified as liabilities measured at fair value. Public warrants meet the criteria for equity classification. The Company measured the private warrant liability at fair value at the closing of the Merger and then at each reporting period with changes in fair value recognized in the consolidated statements of operations.
Written Put Option
The Written Put Option is a liability under ASC 480, Distinguishing Liabilities from Equity, because it embodies an obligation to
repurchase the Company’s shares by paying cash. Furthermore, the Written Put Option meets the definition of derivative under ASC 815. Therefore, the Written Put Option is classified as a current liability measured at fair value and is presented in Derivative liabilities on the Company’s consolidated balance sheets as of December 31, 2021. The unrealized gains and losses from changes
BIGBEAR.AI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of U.S. dollars unless stated otherwise)
in the fair value of the Written Put Option is reflected in the consolidated statements of operations. The Company settled the derivative liability associated with the Written Put Option during the first quarter of 2022.
Fair Value of Financial Instruments
The Company measures certain financial assets and liabilities at fair value. ASC 820, Fair Value Measurement and Disclosures (“ASC 820”), specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions. These two types of inputs have created the following fair-value hierarchy:
Level 1—Quoted prices for identical instruments in active markets;
Level 2—Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets; and
Level 3—Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.
These inputs are based on Company’s own assumptions about current market conditions and require significant management judgement or estimation. Financial instruments consist of cash equivalents, accounts receivable, accounts payable, accrued liabilities, private warrants, written put options, and debt. Cash equivalents are stated at fair value on a recurring basis. Accounts receivable, accounts payable and accrued liabilities are stated at their carrying value, which approximates fair value due to the short time to the expected receipt of payment date. Private warrants and written put options are marked to fair value on a periodic basis.
Income Taxes
The Company estimates its current tax expense together with assessing temporary differences resulting from differing treatment of items not currently deductible for tax purposes. These differences result in deferred tax assets and liabilities on the Company’s consolidated balance sheets, which are estimated based upon the difference between the financial statement and tax bases of assets and liabilities using the enacted tax rates that will be in effect when these differences reverse. In general, deferred tax assets represent future tax benefits to be received when certain expenses previously recognized in the Company’s consolidated statements of operations become deductible expenses under applicable income tax laws or loss or credit carry forwards are utilized. Accordingly, the realization of the Company’s deferred tax assets are dependent on future taxable income against which these deductions, losses, and credits can be utilized.
The Company evaluates the realizability of its deferred tax assets and recognizes a valuation allowance when it is more likely than not that a future benefit on such deferred tax assets will not be realized. Changes in the valuation allowance, when recorded, would be included in the Company’s consolidated statements of operations. Management’s judgment is required in determining the Company’s valuation allowance recorded against its net deferred tax assets.
The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position. The tax benefits recognized in the financial statements from such positions are then measured based on the largest benefit that has a greater than 50% likelihood of being realized upon settlement. The Company recognizes interest and penalties related to uncertain tax positions in its provision (benefit) for income taxes. As of December 31, 2022, the Company accrued $785 for uncertain tax positions.
Concentration of Credit Risk
Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash and cash equivalents, restricted cash, certificates of deposit, and accounts receivable. The Company places its cash and cash equivalents with financial institutions of high credit quality. At times, such amounts may exceed federally insured limits. Cash and cash equivalents and restricted cash on deposit or invested with financial and lending institutions was $12,632 and $169,921, as of December 31, 2022 and December 31, 2021, respectively.
The Company provides credit to customers in the normal course of business. The carrying amount of current accounts receivable
BIGBEAR.AI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of U.S. dollars unless stated otherwise)
is stated at cost, net of an allowance for doubtful accounts. The Company performs ongoing credit evaluations of its customers’ financial condition and limits the amount of credit extended when deemed necessary. The Company maintains an allowance for doubtful accounts to provide for the estimated amount of accounts receivable that will not be fully collected. The allowance is based on the assessment of the following factors: customer creditworthiness, historical payment experience, and age of outstanding accounts receivable and any applicable collateral.
Segment Information
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 and in assessing performance. The Company’s CODM is its Chief Executive Officer. The Company has determined that it operates in two operating and reportable segments, Cyber & Engineering and Analytics, as the CODM reviews financial information presented for both segments on a disaggregated basis for purposes of making operating decisions, allocating resources, and evaluating financial performance.
Cyber & Engineering
The Cyber & Engineering segment provides high-end technology and management consulting services to its customers. This segment focuses in the areas of cloud engineering and enterprise IT, cybersecurity, computer network operations and wireless, systems engineering, strategy and program planning. The segment’s primary solutions relate to the identification of cyber-attack risks and the development and deployment of customized solutions to mitigate those risks.
Analytics
The Analytics segment provides high-end technology and consulting services to its customers. This segment focuses on the areas of big data computing and analytical solutions, including predictive and prescriptive analytic software solutions. The segment’s primary solutions assist customers in aggregating, interpreting, and synthesizing data to enable real-time decision-making capabilities.
The Predecessor operated as a single reportable operating segment of Cyber & Engineering.
Goodwill
Goodwill is the amount by which the purchase price exceeded the fair value of the net identifiable assets acquired and liabilities assumed in a business combination on the date of acquisition. Goodwill is assessed for impairment at least annually as of October 1, on a reporting unit basis, or when events and circumstances occur indicating that the recorded goodwill may be impaired. The Company assesses impairment first on a qualitative basis to determine if a quantitative assessment is necessary. In circumstances where the qualitative analysis indicates that it is more likely than not that the fair value of a reporting unit does not exceed its carrying value, the Company performs a quantitative impairment test by which the goodwill impairment loss is measured as the amount by which a reporting unit’s carrying amount exceeds its fair value, not to exceed the carrying amount of goodwill. All indefinite-lived assets are reviewed for impairment annually, and as necessary if indicators of impairment are present.
Internal-Use Software
Costs incurred in developing internal-use software are either capitalized or expensed, depending on both the nature of the costs and the phase of development in which they are incurred. Costs incurred for implementation activities during the preliminary and post-implementation phases of a project are expensed as incurred, while costs incurred during the application development phase are generally capitalized. Costs incurred to upgrade or enhance existing software are capitalized if the changes result in additional functionality, but these costs are expensed if the software’s functionality is not improved. No costs were capitalized during the Successor 2022 Period, Successor 2021 Period, Successor 2020 Period, and Predecessor 2020 Period.
Equity-based Compensation
Pursuant to ASC 718, Compensation – Stock Compensation, stock-based awards are measured at fair value on the grant date. For equity classified equity-based awards without performance conditions, the Company recognizes equity-based compensation cost on a straight-line basis over the vesting period of the award. For equity classified equity-based awards with performance conditions, the Company recognizes equity-based compensation cost using the accelerated attribution method over the requisite
BIGBEAR.AI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of U.S. dollars unless stated otherwise)
service period when the Company determines it is probable that the performance condition will be satisfied. The Company recognizes forfeitures of equity-based awards in the period they occur.
Research and Development Costs
Research and development costs are primarily made up of labor charges, prototype material, and development expenses. Research and development costs are expensed in the period incurred.
Advertising Costs
All advertising, promotional and marketing costs are expensed when incurred and are included in selling, general and administrative expenses within the consolidated statements of operations. The table below presents advertising costs for the following periods:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Successor | | | Predecessor |
| Year Ended December 31, 2022 | | Year Ended December 31, 2021 | | Period from May 22, 2020 through December 31, 2020 | | | Period from January 1, 2020 through October 22, 2020 | | |
Advertising Costs | $ | 339 | | | $ | 763 | | | $ | 35 | | | | $ | 57 | | | |
Net (Loss) Income per Share
Basic net (loss) income per share is computed by dividing net (loss) income applicable to stockholders by the weighted average number of shares outstanding for the period. Diluted net (loss) income per share assumes conversion of potentially dilutive shares, such as stock options. The Company’s consolidated statements of operations include a presentation of net loss per share for the Successor 2022 Period, the Successor 2021 Period, and the Successor 2020 Period.
Recent Accounting Pronouncements
Recent Accounting Pronouncements Not Yet Adopted
In June 2016, the FASB issued Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments–Credit Losses: Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), an amendment of the FASB Accounting Standards Codification. Subsequent to the issuance of ASU 2016-13, there were various updates that amended and clarified the impact of ASU 2016-13. ASU 2016-13 broadens the information that an entity must consider in developing its expected credit loss estimate for assets measured either collectively or individually. The amendments in ASU 2016-13 will require an entity to record an allowance for credit losses for certain financial instruments and financial assets, including accounts receivable, based on expected losses rather than incurred losses. The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. An entity must use judgment in determining the relevant information and estimation methods that are appropriate in its circumstances. The use of forecasted information incorporates more timely information in the estimate of expected credit losses. The new guidance will be effective for the years beginning after December 15, 2022. The Company does not expect this guidance to have a material impact to its consolidated financial statements or related disclosures.
Recent Accounting Pronouncements Adopted
The FASB issued ASU No. 2016-02, Leases (“ASC 842”) (“ASU 2016-02”), which supersedes the current lease requirements in ASC 840, Leases (“ASC 840”). ASU 2016-02 requires lessees to recognize a right-of-use asset and related lease liability for all leases, with a limited exception for short-term leases. Leases will be classified as either finance or operating, with the classification affecting the pattern of expense recognition in the consolidated statements of operations. Under ASC 840, leases were classified as either capital or operating, with any capital leases recognized on the consolidated balance sheets. The reporting of lease-related expenses in the consolidated statements of operations and cash flows will be generally consistent with ASC 840.
The Company adopted ASC 842 utilizing the modified retrospective method on January 1, 2022 and elected the package of practical expedients permitted under the transition guidance within the new standard which among other things, allowed the Company to carry forward the historical lease classification. The Company did not elect the hindsight practical expedient to determine the lease term for existing leases. Adoption of the new standard resulted in the recognition of a $4,533 right-of-use
BIGBEAR.AI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of U.S. dollars unless stated otherwise)
asset and $4,622 lease liability on the Company’s consolidated balance sheets upon adoption. Refer to Note L—Leases for more information.
In October 2021, the FASB issued ASU No. 2021-08, Business Combinations (“ASC 805”), Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (“ASU 2021-08”). Upon the issuance of ASU No. 2014-09, Revenue from Contracts with Customers (“ASC 606”), which provides a single comprehensive accounting model on revenue recognition for contracts with customers, stakeholders indicated that there are differing views on whether the concept of a performance obligation introduced by ASC 606 should be used to determine whether a contract liability is recognized in a business combination from revenue contracts. Before the adoption date of ASC 606, a liability for deferred revenue was generally recognized in an acquirer’s financial statements if it represented a legal obligation. The amendments in ASU 2021-08 address how to determine whether a contract liability is recognized by the acquirer in a business combination. Additionally, stakeholders raised questions about how to apply ASC 805 to contracts with a customer acquired in a business. Under current practice, the timing of payment for a revenue contract may subsequently affect the amount of post-acquisition revenue recognized by the acquirer. For example, if two revenue contracts with identical performance obligations are acquired but one contract is paid upfront before the acquisition and the other contract is paid over the contract term after the acquisition, the amount of revenue recognized by the acquirer after the business combination likely would differ between the two acquired contracts. The amendments in ASU 2021-08 resolve this inconsistency by providing specific guidance on how to recognize and measure acquired contract assets and contract liabilities from revenue contracts in a business combination. The new guidance will be effective for the years beginning after December 15, 2022. The Company prospectively adopted ASU 2021-08 as of January 1, 2022.
Note C—Restructuring Charges
The Company initiated a restructuring action in the third quarter of 2022 and an additional restructuring action in the fourth quarter of 2022, both of which were completed as of December 31, 2022. The restructuring charges resulted from a strategic review of the Company’s capacity and future projections, with the purpose being to better align our organization and cost structure and improve the affordability of our products and services. During the year ended December 31, 2022, the Company recorded employee separation costs of $3,302, net of tax benefits. As of December 31, 2022, $1,767 of these cost had been settled. A liability reflecting unpaid employee separation costs of $1,535 is presented on the consolidated balance sheets within other current liabilities. In addition, the Company vacated certain underutilized real estate leases and as a result recognized an impairment of the associated right-of-use assets of $901. Refer to Note L—Leases for more information on the impairment.
The table below summarizes total restructuring charges by reportable segment for the year ended December 31, 2022:
| | | | | | | | | | | | | | | | | |
| Cyber & Engineering | | Analytics | | Total |
Employee separation costs | $ | 417 | | | $ | 2,885 | | | $ | 3,302 | |
Impairment of right-of-use assets | 90 | | | 811 | | | 901 | |
Total restructuring charges | $ | 507 | | | $ | 3,696 | | | $ | 4,203 | |
Note D—Business Combinations
NuWave Acquisition
On June 19, 2020, the Successor acquired 100% of the equity interest of NuWave for cash and 2,900,000 units of the Successor’s Parent’s equity (“Parent Units”). The acquisition supports the Company’s growth in its offering of advanced data analytics.
The purchase agreement with the sellers of NuWave also stipulated that certain funds would be held in escrow (“Indemnification Escrow Deposit” and “Adjustment Escrow Deposit”), for the benefit of the seller. Pursuant to and subject to the terms and conditions of the Escrow Agreement, the Indemnification Escrow Amount of $300 and the Adjustment Escrow Amount of $150 shall be held in escrow until released in accordance with the purchase agreement and the Escrow Agreement.
BIGBEAR.AI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of U.S. dollars unless stated otherwise)
The following table summarizes the fair value of the consideration transferred and the estimated fair values of the major classes of assets acquired and liabilities assumed as of the acquisition date.
| | | | | |
| June 19, 2020 |
Cash paid | $ | 27,881 | |
Equity issued | 2,900 | |
Purchase consideration | $ | 30,781 | |
Assets: | |
Cash | $ | 1,038 | |
Accounts receivable | 3,018 | |
Other current assets | 112 | |
Contract assets | 1,095 | |
Deposits | 27 | |
Property and equipment | 77 | |
Intangible assets | 16,200 | |
Total assets acquired | $ | 21,567 | |
Liabilities: | |
Accounts payable | 365 | |
Accrued liabilities | 364 | |
Deferred tax liability | 476 | |
Total liabilities acquired | $ | 1,205 | |
Fair value of net identifiable assets acquired | 364 | |
Goodwill | $ | 10,419 | |
The following table summarizes the intangible assets acquired by class:
| | | | | |
| June 19, 2020 |
Technology | 5,400 | |
Customer relationships | 10,800 | |
Total intangible assets | 16,200 | |
The fair value of the acquired technology was determined using the relief from royalty (“RFR”) method. The fair value of the acquired customer relationships was determined using the excess earnings method.
The acquisition was accounted for as a business combination, whereby the excess of the purchase consideration over the fair value of identifiable net assets was allocated to goodwill. The goodwill reflects the potential synergies and expansion of the Company’s offerings across product lines and markets complementary to its existing products and markets. For tax purposes, the goodwill related to the asset purchase is deductible.
The results of operations of NuWave for the period from June 19, 2020 to December 31, 2020 have been included in the results of operations for the Successor 2020 Period; the post-acquisition net revenues and net loss included in the Successor 2020 Period were $13,725 and $118, respectively. The acquisition-related costs included in transaction expenses in the consolidated statements of operations for the Successor 2020 Period were $1,662.
PCI Acquisition
On October 23, 2020, the Successor acquired 100% of the equity interest of PCI for cash and 8,142,985 units of the Successor’s Parent’s equity. The acquisition supports the Company’s growth in its offering of cybersecurity, cloud and system engineering.
The purchase agreement with the sellers of PCI also stipulated that certain funds would be held in escrow (“Adjustment Escrow Deposit” and “Indemnity Escrow Amount”), for the benefit of the sellers. Pursuant to and subject to the terms and conditions of the Escrow Agreement, the Indemnification Escrow Amount of $325 and the Adjustment Escrow Amount of $650 shall be held in escrow until released in accordance with the purchase agreement and the Escrow Agreement.
BIGBEAR.AI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of U.S. dollars unless stated otherwise)
The following table summarizes the fair value of the consideration transferred and the estimated fair values of the major classes of assets acquired and liabilities assumed as of the acquisition date.
| | | | | |
| October 23, 2020 |
Cash paid | $ | 55,932 | |
Equity issued | 8,143 | |
Purchase consideration | $ | 64,075 | |
Assets: | |
Cash | $ | 364 | |
Accounts receivable | 6,710 | |
Contract assets | 4,569 | |
Prepaid expenses and other current assets | 383 | |
Property and equipment | 218 | |
Other non-current assets | 5 | |
Intangible assets | 22,800 | |
Total assets acquired | $ | 35,049 | |
Liabilities: | |
Accounts payable | $ | 1,131 | |
Deferred tax liability | 1,033 | |
Accrued liabilities | 3,776 | |
Total liabilities acquired | $ | 5,940 | |
Fair value of net identifiable assets acquired | 29,109 | |
Goodwill | $ | 34,966 | |
The following table summarizes the intangible assets acquired by class:
| | | | | |
| October 23, 2020 |
Customer relationships | $ | 22,800 | |
A measurement period adjustment increasing accrued liabilities and goodwill by $286 was recognized during the year ended December 31, 2021.
The fair value of the acquired customer relationships was determined using the excess earnings method.
The acquisition was accounted for as a business combination, whereby the excess of the purchase consideration over the fair value of identifiable net assets was allocated to goodwill. The goodwill reflects the potential synergies and expansion of the Company’s offerings across product lines and markets complementary to its existing products and markets. For tax purposes, the goodwill related to the asset purchase is deductible.
The results of operations of PCI for the period from October 23, 2020 to December 31, 2020 have been included in the results of operations for the Successor 2020 Period; the post-acquisition net revenues and net income included in the Successor 2020 Period were $15,584 and $288, respectively. The acquisition-related costs included in transaction expenses in the consolidated statements of operations for the Successor 2020 Period were $3,484.
Open Solutions Acquisition
On December 2, 2020, the Company acquired 100% of the equity interest of Open Solutions for cash and 2,144,812 units of the Successor’s Parent’s equity. The acquisition supports the Company’s growth in its offering of advanced data analytics.
The purchase agreement with the sellers of Open Solutions also stipulated that certain funds would be held in escrow (“Indemnification Escrow Deposit,” “Adjustment Escrow Deposit” and “Representative Expense Fund”), for the benefit of the sellers. Pursuant to and subject to the terms and conditions of the Escrow Agreement, the Indemnification Escrow Amount of
BIGBEAR.AI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of U.S. dollars unless stated otherwise)
$285, the Adjustment Escrow Amount of $372 and Representative Expense Fund $150 shall be held in escrow until released in accordance with purchase agreement and the Escrow Agreement.
The following table summarizes the fair value of the consideration transferred and the estimated fair values of the major classes of assets acquired and liabilities assumed as of the acquisition date.
| | | | | |
| December 2, 2020 |
Cash paid | $ | 60,715 | |
Equity issued | 2,145 | |
Purchase consideration | $ | 62,860 | |
Assets: | |
Cash | $ | 63 | |
Accounts receivable | 6,127 | |
Prepaid expenses and other current assets | 89 | |
Property and equipment | 305 | |
Other non-current assets | 48 | |
Intangible assets | 30,800 | |
Total assets acquired | $ | 37,432 | |
Liabilities: | |
Accounts payable | $ | 122 | |
Accrued liabilities | 946 | |
Deferred tax liability | 334 | |
Other non-current liabilities | 27 | |
Total liabilities acquired | $ | 1,429 | |
Fair value of net identifiable assets acquired | 36,003 | |
Goodwill | $ | 26,857 | |
The following table summarizes the intangible assets acquired by class:
| | | | | |
| December 2, 2020 |
Technology | $ | 10,300 | |
Customer relationships | 20,500 | |
Total intangible assets | $ | 30,800 | |
The fair value of the acquired technology was determined using the RFR method. The fair value of the acquired customer relationships was determined using the excess earnings method.
The acquisition was accounted for as a business combination, whereby the excess of the purchase consideration over the fair value of identifiable net assets was allocated to goodwill. The goodwill reflects the potential synergies and expansion of the Company’s offerings across product lines and markets complementary to its existing products and markets. For tax purposes, the goodwill related to the asset purchase is deductible.
The results of operations of Open Solutions for the period from December 2, 2020 to December 31, 2020 have been included in the results of operations for the Successor 2020 Period; the post-acquisition net revenues and net income included in the Successor 2020 Period were $1,855 and $64, respectively. The acquisition-related costs included in transaction expenses in the consolidated statements of operations for the Successor 2020 Period were $2,432.
ProModel Acquisition
On December 21, 2020, the Successor acquired 100% of the equity interest of ProModel for cash. The acquisition supports the Company’s growth in its offering of advanced data analytics.
BIGBEAR.AI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of U.S. dollars unless stated otherwise)
The purchase agreement with the sellers of ProModel also stipulated that certain funds would be held in escrow (“Adjustment Escrow Deposit” and “PPP Escrow Amount”), for the benefit of the sellers. Pursuant to and subject to the terms and conditions of the Escrow Agreement, the Adjustment Escrow Amount of $425 and PPP Escrow Amount $2,557 shall be held in escrow until released in accordance with purchase agreement and the Escrow Agreement.
The following table summarizes the fair value of the consideration transferred and the estimated fair values of the major classes of assets acquired and liabilities assumed as of the acquisition date.
| | | | | |
| December 21, 2020 |
Cash paid | $ | 43,718 | |
Assets: | |
Cash | 1,843 | |
Accounts receivable | 907 | |
Other receivables | 707 | |
Contract assets | 779 | |
Prepaid expenses and other current assets | 64 | |
Property and equipment | 134 | |
Other non-current assets | 18 | |
Intangible assets | 21,700 | |
Total assets acquired | $ | 26,152 | |
Liabilities: | |
Accounts payable | $ | 2 | |
Contract liabilities | 501 | |
Accrued liabilities | 960 | |
Total liabilities acquired | $ | 1,463 | |
Fair value of net identifiable assets acquired | 24,689 | |
Goodwill | $ | 19,029 | |
The following table summarizes the intangible assets acquired by class:
| | | | | |
| December 21, 2020 |
Technology | $ | 7,000 | |
Customer relationships | 14,700 | |
Total intangible assets | $ | 21,700 | |