ASTRA SPACE, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF aSTRA
The following discussion and analysis of the financial condition and results of
operations of Astra Space, Inc. should be read together with our audited
consolidated financial statements as of and for the years ended December 31,
2020 and 2019 and unaudited interim condensed consolidated financial statements
as of and for the three and nine months ended September 30, 2021 and 2020,
together with related notes thereto. This discussion may contain forward-looking
statements based upon current expectations that involve risks and uncertainties.
Our actual results may differ materially from those projected in these
forward-looking statements as a result of various factors, including those set
forth under "Risk Factors". Certain amounts may not foot due to rounding. Unless
the context otherwise requires, all references in this section to "the Company"
"Astra," "us," "our" or "we" refer to Astra Space, Inc. prior to the Business
Combination, and to New Astra following the consummation of the Business
Combination on June 30, 2021 .
Overview
Our mission is to launch a new generation of space services to improve life on
Earth. These services are enabled by new constellations of small satellites in
Low Earth Orbit ("LEO"), which have rapidly become smaller, cheaper, and more
numerous than legacy satellites. Launch vehicles, however, have not evolved in
the same way - most rockets remain focused on serving legacy satellites and
human spaceflight missions. As a result, we believe most existing launch
vehicles are too large, expensive, infrequently launched, and insufficiently
responsive to meet the needs of the evolving space market.
We aim to solve this problem with the world's first mass-produced orbital launch
system. Our system consists of a small launch vehicle and mobile ground
infrastructure that can fit inside standard shipping containers for rapid
deployment anywhere in the world. Our rocket requires a launch site with little
more than a concrete pad and only six Astra employees on-site, leveraging our
highly automated launch operations, and our production system is designed to
scale efficiently to hundreds of launches per year. Our rocket's payload
capacity is tailored for the needs of modern LEO satellite constellations,
allowing precise and rapid placement of individual satellites into their
required orbits. We believe this makes Astra's system more responsive and
affordable than other launch alternatives, for thousands of LEO satellites
planned in the coming decade.
While our primary focus remains the growth and development of our launch
services business, we continue to develop other product and service offerings to
support our overall mission to Improve Life on Earth from Space. On November 4,
2021 , we announced the filing of an application with the Federal Communications
Commission for V-band spectrum access, which, if approved, would allow us to
offer a satellite constellation in the future.
Holicity Business Combination and Public Company Costs
We entered into a business combination agreement withHolicity Inc. ("Holicity") onFebruary 2, 2021 . OnJune 30, 2021 (the "Closing Date"), the previously announced business combination was consummated. Upon the consummation of the business combination,Holicity Merger Sub Inc. ("Merger Sub"), a wholly owned subsidiary of Holicity, merged with and into Astra with Astra surviving the merger as a wholly owned subsidiary of Holicity (the "Business Combination"). Astra became a wholly owned subsidiary of Holicity, which renamed toAstra Space, Inc. ("New Astra"), and Astra renamed toAstra Space Operations, Inc. upon the consummation of the Business Combination. The Business Combination was accounted for as a reverse recapitalization. Astra was the predecessor and New Astra is the successorSEC registrant, meaning that Astra's financial statements for previous periods will be presented in New Astra's future periodic reports filed with theSEC . Holicity was treated as the acquired company for financial statement reporting purposes. The most significant change in the post-combination Company's reported financial position and results was a net increase in cash of$463.6 million . We paid$25.2 million in transaction costs relating to the Business Combination at the closing. We recorded a liability related to the Public and Private Placement Warrants of$56.8 million in the condensed consolidated balance sheet on Closing Date.
As a consequence of the Business Combination, the Company trades under the ticker symbol "ASTR" on the Nasdaq. We anticipate that we will need to hire additional personnel and implement procedures and processes to address public company regulatory requirements and customary practices. We expect to incur additional annual expenses as a public company for, among other things, directors' and officers' liability insurance, director fees and additional internal and external accounting and legal and administrative resources, including increased audit and legal fees.
COVID-19 Impact
OnMarch 11, 2020 , theWorld Health Organization declared the novel strain of coronavirus ("COVID-19") a global pandemic and recommended containment and mitigation measures worldwide. The extent of the impact of the coronavirus pandemic on Astra's operational and financial performance will depend on various future developments, including the duration and spread of the outbreak 37 -------------------------------------------------------------------------------- and impact on its customers, suppliers, and employees, all of which is uncertain at this time. Astra expects the COVID-19 pandemic to adversely impact revenue and results of operations, but Astra is unable to predict at this time the size and duration of this adverse impact. Astra has seen some signs of positive effects for its long-term business prospects and partnerships as a result of the pandemic. The COVID-19 pandemic has created an even greater need for broadband internet access from anywhere in the world, and businesses are thinking differently about how their workforce can stay connected. There have also been recent government and commercial announcements about continuous investments in this area and we believe this will continue to support the growth of the small satellite market for the foreseeable future.
For more information on Astra's operations and risks related to health epidemics, including the COVID-19 pandemic, please see the section entitled "Risk Factors."
Key Factors Affecting Our Results and Prospects
We believe that our performance and future success depend on a number of factors that present significant opportunities for us but also pose risks and challenges, including competition from better known and well-capitalized companies, the risk of actual or perceived safety issues and their consequences for our reputation and the other factors discussed under "Risk Factors." We believe the factors discussed below are key to our success.
Commencing and Expanding Commercial Launch Operations
We are on track to monthly production of our launch vehicles, with a goal of reaching a regular launch cadence in the future. When we refer to a "commercial launch," we mean a launch conducted under an FAA commercial launch license. With binding agreements for over 50 launches (as ofSeptember 30, 2021 ), our contracted revenue is significant, and we are in active discussions with numerous potential customers, including government agencies and private satellite companies, to add to our contracted revenue. InDecember 2020 , we successfully launched Rocket 3.2 to an altitude of 380 km, demonstrating orbital launch capability. We improved propellant depletion controls to address the findings from theDecember 2020 flight. InAugust 2021 , we launched Rocket LV0006 of which engine was aborted. During liftoff, fuel and liquid oxygen leaked from the propellant supply system attached to the rocket. The leaked propellants mixed and ignited, which disabled one of the five first-stage engines. We analyzed the cause of the anomaly and implemented certain design changes to avoid having this issue in future. Prior to commencing commercial launches, we must secure launch licenses with theFederal Aviation Administration (FAA). OnAugust 18, 2021 , the FAA issued us a license to launch the current version of our launch vehicle (Rocket 3) from our spaceport inKodiak, Alaska throughMarch 9, 2026 . Any delays in commencing our commercial launch operations, including due to delays or cost overruns in obtaining FAA licenses or other regulatory approvals for future versions of our launch vehicles or at future spaceports, could adversely impact our results and growth plans.
Lowering Manufacturing Costs and Increasing Payloads
We aim to be the most cost-efficient dedicated orbital launch system provider. We plan to increase the maximum payload capability of our rockets from approximately 50 kg for our first commercial flight to up to 500 kg for a mid-inclination 500 km orbit, which we believe will make Astra a compelling option for low Earth orbit constellation deployment and replenishment. Our affordable manufacturing processes use normally readily available materials and are highly scalable, while we believe our ongoing improvements in design and manufacturing will further reduce our per rocket manufacturing costs. We have invested approximately$19.3 million in our manufacturing facility throughSeptember 30, 2021 and we expect the facility will be at full capacity by the end of 2024, which we believe will enable us to increase the pace of launch vehicle construction and our launch cadence. While we believe that our estimate is reliable, the development of our manufacturing facility may take longer than planned, including due to delays in obtaining federal and state regulatory approvals of our final construction plans or any changes that are required to be made to those plans. Any delays in our achieving full manufacturing capacity could adversely impact our results and growth plans.
Expand Our Space Products and Services Offerings
We are in the preliminary stages of developing our Space Services offering
(which we previously referred to as "Satellite Services"), providing a modular
configurable satellite buses for customers, leveraging both in-house and
partner-provided subsystem components and in-house design and integration
services, as well as operational support of satellites on orbit, to turn-key
provision of entire constellations, offering "concept to constellation" in
months instead of years. Specifically, our Space Services encompass all aspects
of hosted satellite and constellation services, including hosting customer
payloads onto our satellites, and delivering services, such as communication and
other services, to customers from our space platform. These services are
expected to allow customers to focus on developing innovative payloads rather
than having to design or develop complete satellite buses or satellites or
constellations, which we will provide, along with ancillary services that are
likely to include telemetry, tracking and control ("TT&C"), communications,
processing, as well as software development and maintenance.
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On
We also expect to launch our Spaceport Services offering, which may provide turn-key spaceports with the capability to launch Astra rockets or contracting launch services through these spaceports. We envision that our spaceports will require minimal on-site infrastructure, will leverage our highly automated launch operations and can be installed for an initial cost of between approximately$10 million and$20 million . We anticipate this offering will lead to important additional opportunities, such as providing launch services for customers, both government and commercial, interested in launching out of a specific locale. We expect to make significant investments in our Space Services and Spaceport Services programs. Although we believe that our financial resources, including the proceeds of the Business Combination and the related private placement, will be sufficient to meet our capital needs, our timeline and budgeted costs for these offerings are subject to substantial uncertainty, including due to compliance requirements ofU.S. federal export control laws and applicable foreign and local regulations, the impact of political and economic conditions, and, particularly in the case of our anticipated Spaceport offering, the need to identify opportunities and negotiate long-term agreements with customers for these services, among other factors. Please see the section entitled "Risk Factors".
Acquisition of Apollo Fusion
OnJuly 1, 2021 , the Company completed its acquisition ofApollo Fusion, Inc. ("Apollo"), a designer and builder of thruster propulsion systems for satellite programs. The acquisition-date fair value of the consideration transferred totaled$75.4 million , net of cash acquired, consisting of approximately 2,558,744 shares of the Company's Class A common stock worth$33.0 million which was determined based on the closing market price of the Company's common stock on the acquisition date,$19.9 million in cash and$23.0 million of the fair value of contingent consideration. The contingent consideration arrangement requires the Company to pay up to$75.0 million payable in$15.0 million of cash and$60.0 million of the Company's Class A common stock, at a reference price per share equal to the then volume weighted average trading price over a five-day trading period prior to the business day prior to issuance, provided certain customer revenue-based milestones are achieved prior toDecember 31, 2023 . In addition, an additional$10.0 million of cash ("Cash Payment") and options to purchase shares of the Company's Class A Common Stock, having a value of$10.0 million ("Incentive Shares"), at a reference price per share equal to the then volume weighted average trading price over a five day trading period prior to the business day prior to issuance, will be issued or issuable to employees of Apollo that join Astra, subject to certain performance-based milestones and other vesting provisions. This consideration is accounted for as compensation expense over the requisite service period in the post-acquisition period as the cash payment and vesting of Incentive Shares is subject to continued employment with the company until the satisfaction of certain performance-based milestones and other vesting provisions. As ofSeptember 30, 2021 , no Incentive Shares were granted to employees of Apollo that joined the Company subsequent to the acquisition as certain key terms and conditions of the Incentive Shares were not finalized. The Company assessed the probability of success of performance milestones related to the Cash Payment and determined that it is probable that certain milestones will be met. Therefore, the Company recognized$1.4 million compensation costs which was included in research and development expense for the three months and nine months endedSeptember 30, 2021 and$1.4 million was accrued in accrued expenses and other current liabilities as ofSeptember 30, 2021 .
Key Components of Results of Operations
We are an early-stage company and our historical results may not be indicative of our future results for reasons that may be difficult to anticipate. Accordingly, the drivers of our future financial results, as well as the components of such results, may not be comparable to our historical or future results of operations. Revenues We have not generated any revenue to date. Following the commercial launch of our services, we expect to generate a significant portion of our revenues in Launch Services from delivering payloads into orbit. We also expect to generate revenues by providing design and delivery of propulsion systems, Space Services and Spaceport Services to our customers. Over time, we expect Space Services to grow more quickly and to represent a significant portion of our revenues beyond 2025. Expenses
Research and Development Expense
Our research and development expenses consist primarily of internal and external
expenses incurred in connection with our research activities and development
programs. These expenses include, but are not limited to, development supplies,
testing materials, personnel costs (including salaries and benefits),
depreciation expense, overhead allocation, (consisting of various support and
facility costs), stock-based compensation and consulting fees. Research and
development costs are expensed as incurred.
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We allocate research and development costs by function rather than by project,
as a significant majority of our historical research and development spending
was related to the initial development and testing of our underlying technology,
including preparation for multiple test launches.
Our current primary research and development objectives focus on the development
and finalization of our offerings. The successful development of these offerings
involves many uncertainties, including:
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timing in finalizing launch and space systems design and specifications;
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successful completion of analyses and ground test programs to validate that new
or changed designs perform as expected;
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successful completion of flight test programs, including flight safety tests;
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our ability to obtain additional applicable approvals, licenses or
certifications from regulatory agencies, if required, and maintaining current
approvals, licenses or certifications;
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performance of our manufacturing facilities despite risks that disrupt
productions, such as natural disasters and hazardous materials;
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performance of a limited number of suppliers for certain raw materials and
components;
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performance of our third-party contractors that support our research and
development activities;
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our ability to maintain rights from third parties for intellectual properties
critical to research and development activities; and
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our ability to continue funding and maintain our current research and
development activities.
A change in the outcome of any of these variables could delay the development of
our rockets, which in turn could impact when we are able to commercialize our
offerings.
As we are currently still in our final development and testing stage of our
launch services, we have expensed all research and development costs associated
with developing and building our launch services offering. We expect that our
research and development expenses will increase in the short-term as we invest
in improving and further reducing the costs of our launch system as well as
developing and improving our Space Services offering.
Sales and Marketing Expense
Sales and marketing expenses consist of personnel and personnel-related expenses, including stock-based compensation for our business development team as well as advertising and marketing expenses. We expect to increase our sales and marketing activities in order to grow our customer base and increase market share. We also expect that our sales and marketing expenses will increase over time as we continue to hire additional personnel to scale the business. We did not begin incurring sales and marketing expenses until 2021.
General and Administrative Expense
General and administrative expenses consist primarily of personnel-related costs (including salaries, bonuses, benefits, and stock-based compensation expense) for personnel in executive, finance, accounting, corporate development and other administrative functions. General and administrative expenses also include legal fees, professional fees paid for accounting, auditing, consulting, tax, and investor relations services, insurance costs, and facility costs not otherwise included in research and development expenses and costs associated with compliance with the rules and regulations of theSEC and the stock exchange.
Income Tax (Benefit) Expense
Our income tax provision consists of an estimate for
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--------------------------------------------------------------------------------Results of Operations
Comparison of the Three Months and Nine Months EndedSeptember 30, 2021 and 2020 Three Months Ended Period over Nine Months Ended Period over September 30, period change September 30, period change (in thousands, except percentages) 2021 2020 ($) (%) 2021 2020 ($) (%) Operating expenses: Research and development$ 21,724 $ 5,423 $ 16,301 301 %
44,159 20,955
- 1,090 n.m. 2,229 - 2,229 n.m.
General and
administrative 19,730 2,358 17,372 737 50,712 9,341 41,371 443
Total operating
expenses (42,544 ) (7,781 ) (34,763 ) 447 (97,100 ) (30,296 ) (66,804 ) 221 Loss from operations (42,544 ) (7,781 ) (34,763 ) 447
(97,100 ) (30,296 ) (66,804 ) 221 Interest (expense) income, net
18 (1,312 ) 1,330 (101 ) (1,194 ) (3,564 ) 2,370 (66 ) Other income, net 25,895 3,891 22,004 566
25,177 7,852 17,325 221
Loss on
extinguishment of
convertible notes - - - n.m. (131,908 ) - (131,908 ) n.m.
Loss on
extinguishment of
convertible notes
attributable
to related parties - - - n.m. (1,875 ) - (1,875 ) n.m.
Loss before taxes (16,631 ) (5,202 ) (11,429 ) 220 (206,900 ) (26,008 ) (180,892 ) 696
Income tax (benefit)
expense (383 ) - (383 ) n.m. (383 ) - (383 ) n.m.
Net loss $ (16,248 ) $ (5,202 ) $ (11,046 ) 212 % $ (206,517 ) $ (26,008 ) $ (180,509 ) 694 %
____________
n.m. = not meaningful.
Research and Development
Research and development costs were $21.7 million for the three months September
30, 2021 , compared to $5.4 million for the three months ended September 30,
2020 . The $16.3 million increase mainly reflected a $9.8 million increase in
personnel-related costs and recruiting expenses for personnel in research and
development departments, a $1.3 million increase in stock compensation expense,
a $1.7 million increase in research and development materials expense, a $1.6
million increase in Technology licensed and software subscription licenses
related expenses, a $0.7 million increase in depreciation and amortization
expense with the remainder due to changes in freight and other research and
development related expenses.
Research and development costs were $44.2 million for the nine months September
30, 2021 , compared to $21.0 million for the nine months ended September 30,
2020 . The $23.2 million increase mainly reflected a $12.4 million increase in
personnel-related costs and recruiting expenses for personnel in research and
development departments, a $4.4 million increase in stock compensation expense,
a $2.4 million increase in research and development materials expense, a $1.8
million increase in Technology licensed and software subscription licenses
related expenses and a $1.0 million increase in depreciation and amortization
expense with the remainder due to changes in freight and other research and
development expenses.
Sales and Marketing
Sales and Marketing expenses were
Sales and Marketing expenses were$2.2 million for the nine months endedSeptember 30, 2021 . There were no sales and marketing expenses in the nine months endedSeptember 30, 2020 as the Company was primarily focused on research and development activities. The sales and marketing expenses primarily consists of personnel-related costs and consulting charges.
General and Administrative
General and administrative expenses were$19.7 million for the three months endedSeptember 30, 2021 , compared to$2.4 million for the three months endedSeptember 30, 2020 . The$17.4 million increase was primarily due to a$5.7 million increase in employee-related costs, a$1.3 million increase in stock-based compensation expense, a$3.1 million increase from transaction costs incurred and expensed by the Company in relation to the Apollo Merger, a$1.5 million increase in third-party consulting and recruitment costs, a$2.1 million increase in accounting and legal related expenses, a$1.7 million increase in insurance related expenses with the remainder due to changes in facilities costs, software subscription fees and other general and administrative related expenses. General and administrative expenses were$50.7 million for the nine months endedSeptember 30, 2021 , compared to$9.3 million for the nine months endedSeptember 30, 2020 . The$41.4 million increase was primarily due to a$15.4 million increase in stock-based 41 -------------------------------------------------------------------------------- compensation expense, a$6.2 million increase from transaction costs incurred and expensed by the Company in relation to the business combination andApollo Merger , a$7.9 million increase in employee costs, a$4.2 million increase in third-party consulting and recruitment costs, a$3.1 million increase in accounting, audit and legal related fees, a$1.8 million increase in insurance related expenses and a$1.5 million increase in facility and rent, with the remainder due to changes in facilities costs, IT equipment fees, and software subscription fees.
Interest (Expense) Income, Net
There was no interest expense for the three months endedSeptember 30, 2021 , compared to$1.3 million for the three months endedSeptember 30, 2020 . The$1.3 million decrease in interest expense was primarily due to the settlement of convertible notes onJanuary 28, 2021 , therefore we incurred no interest expense related to convertible notes for three months endedSeptember 30, 2021 while we incurred$1.3 million interest expense related to convertible notes for three months endedSeptember 30, 2020 . Interest expense, net was$1.2 million for the nine months endedSeptember 30, 2021 , compared to$3.6 million for the nine months endedSeptember 30, 2020 . The$2.3 million decrease in interest expense was primarily due to the settlement of convertible notes onJanuary 28, 2021 , therefore we incurred$0.5 million and$3.5 million interest expense related to convertible notes for nine months endedSeptember 30, 2021 and 2020, respectively, offset by an increase of$0.6 million in interest expense related toBridge Loan and SVB loan for nine months endedSeptember 30, 2021 . Other Income, Net Other income, net was$25.9 million for the three months endedSeptember 30, 2021 , compared to$3.9 million for the three months endedSeptember 30, 2020 . The$22.0 million increase in other income was primarily due to a$20.4 million in income from change in fair value of warrant liability, a$4.9 million in income from a gain on forgiveness of PPP Note and a$0.6 million in income from government research and development contracts for the three months endedSeptember 30, 2021 offset by a$2.6 million in income from a gain on the mark to market derivative liability related to convertible notes and a$1.2 million in income from government research and development contracts for the three months endedSeptember 30, 2020 . The remaining$0.1 million was due to other nonrecurring income for three months endedSeptember 30, 2021 . Other income, net was$25.2 million for the nine months endedSeptember 30, 2021 , compared to$7.9 million for the nine months endedSeptember 30, 2020 . The$17.3 million increase in other income was primarily due to a$20.4 million in income from change in fair value of warrant liability, a$4.9 million in income from a gain on forgiveness of PPP Note and a$0.6 million in income from government research and development contracts for the nine months endedSeptember 30, 2021 offset by$0.8 million due to a nonrecurring payment to one of our investors for the nine months endedSeptember 30, 2021 and a$5.4 million in income from a gain on the mark to market derivative liability related to convertible notes and a$2.2 million in income from government's research and development contracts for the nine months endedSeptember 30, 2020 .
Loss on Extinguishment of Convertible Notes
There was no such loss for the three months ended
Loss on extinguishment of convertible notes of$131.9 million for the nine months endedSeptember 30, 2021 was due to the settlement of convertible notes onJanuary 28, 2021 . There was no such loss for the nine months endedSeptember 30, 2020 .
Loss on Extinguishment of Convertible Notes Attributable to Related Parties
There was no such loss for the three months ended
Loss on extinguishment of convertible notes attributable to related parties of$1.9 million for the nine months endedSeptember 30, 2021 was due to the settlement of convertible notes attributable to related parties onJanuary 28, 2021 . There was no such loss for the nine months endedSeptember 30, 2020 .
Income Tax (Benefit) Expense
We recorded an income tax benefit of
Adjustment to redemption value on Convertible Preferred Stock
There was no adjustment to redemption value on Convertible Preferred Stock for
the three months ended
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Adjustment to redemption value on Convertible Preferred Stock of $1,011.7
million for the nine months ended September 30, 2021 , was due to the
remeasurement of Convertible Preferred Stock to its redemption value due to the
likelihood of a redemption event becoming probable. There was no such adjustment
for the nine months ended September 30, 2020 .
Liquidity and Capital Resources
Liquidity
We measure liquidity in terms of our ability to fund the cash requirements of our research and development activities and our current business operations, including our capital expenditure needs, contractual obligations and other commitments. Our current liquidity needs relate to research and development activities, mainly in connection with the ongoing development of our rocket technology, lease obligations and capital expenditures, which primarily relate to the development of our manufacturing facility. We had$378.7 million in cash and cash equivalents as ofSeptember 30, 2021 (compared to$10.6 million as ofDecember 31, 2020 ). We had no debt as ofSeptember 30, 2021 (compared to$71.1 million as ofDecember 31, 2020 , of which$59.8 million represented outstanding principal on the Company's convertible notes). OnJanuary 28, 2021 , we settled the outstanding convertible notes into convertible preferred shares as part of the Series C financing, from which we also received$30.0 million in cash proceeds. InJune 2021 , we closed the Business Combination and private placement, from which we received$463.6 million in net cash proceeds. We believe our operating cash flows, together with our cash on hand and the net proceeds from the Business Combination and the related private placement will be sufficient to meet our working capital and capital expenditure requirements for a period of at least twelve months from the date of these financial statements. While we expect to begin generating positive cash flows from our operating activities in 2024 (based on our anticipated Launch Services offering only), we may need additional cash due to changing business conditions or other developments, including unanticipated regulatory developments and competitive pressures.
Summary Statement of Cash Flows for the Nine Months Ended
The following table sets forth the primary sources and uses of cash and cash equivalents for the periods presented below:
Nine months ended September 30, Period over Period Change
(in thousands) 2021 2020 $ %
Net cash used in operating
activities $ (79,576 ) $ (24,896 ) $ (54,680 ) 220 %
Net cash used in investing
activities (41,280 ) (2,223 ) (39,057 ) 1,757
Net cash provided by financing
activities 488,897 21,850 467,047 2,138
Net increase (decrease) in cash
and cash equivalents and
restricted cash $ 368,041 $ (5,269 ) $ 373,310 (7085 )%
Cash Flows used in Operating Activities
For the nine months endedSeptember 30, 2021 , net cash used in operating activities was$79.6 million . The primary factors affecting the Company's operating cash flows during this period were net loss of$206.5 million and a non-cash gain of$20.4 million due to change in fair value of warrant liability and$4.9 million due to a gain on forgiveness of PPP Note, offset by non-cash charges including a non-cash loss on extinguishment of convertible notes of$133.8 million , stock-based compensation expense of$20.5 million , depreciation and amortization expense of$3.9 million , and amortization of convertible note debt discounts of$0.4 million . Changes in operating working capital items primarily reflect the increase in inventories of$4.2 million , prepaid and other current assets of$13.9 million , accounts payable of$1.3 million , accrued expenses and other current liabilities of$11.3 million and decrease in other non-current liabilities of$0.2 million . For the nine months endedSeptember 30, 2020 , net cash used in operating activities was$24.9 million , which was comprised of net loss of$26.0 million and a non-cash gain on mark to market derivatives of$5.4 million , offset by non-cash charges including stock-based compensation expense of$0.6 million , depreciation expense of$2.5 million , and amortization of convertible note debt discounts of$2.7 million . Changes in operating working capital items primarily reflect the increase in accrued expenses and other current liabilities of$1.6 million and decreases in accounts payable of$0.7 million .
Cash Flows used in Investing Activities
For the nine months endedSeptember 30, 2021 , net cash used in investing activities was$41.3 million , which was comprised mainly of cash paid as purchase price consideration in the acquisition ofApollo Fusion, Inc. , net of cash acquired of$19.4 million , acquisition of an indefinite-lived intangible trademark asset of$3.2 million and purchases of property, plant and equipment of$18.7 million . 43
-------------------------------------------------------------------------------- For the nine months endedSeptember 30, 2020 , net cash used in investing activities was$2.2 million , which was comprised mainly of purchases of tooling equipment, manufacturing equipment and furniture and fixtures of$1.0 million and leasehold improvements of$1.2 million .
Cash Flows from Financing Activities
For the nine months endedSeptember 30, 2021 , net cash provided by financing activities amounted to$488.9 million and consisted primarily of proceeds from the Business Combination and private offering, net of transaction costs, of$463.6 million , proceeds from the issuance of Series C of$30.0 million and borrowings of$10.0 million , proceeds from the issuance of stock under equity plans of$1.8 million , offset by repayments on borrowings of$16.4 million . For the nine months endedSeptember 30, 2020 , net cash provided by financing activities amounted to$21.9 million and consisted primarily of proceeds from the issuance of convertible notes of$17.9 million and borrowings of$5.4 million , partially offset by repayments on borrowings of$1.4 million .
Commitments and Contractual Obligations
We are a party to operating leases primarily for land and buildings (e.g.,
office buildings, manufacturing and testing facilities and spaceport) and
certain equipment (e.g., copiers) under non-cancellable operating leases. The
following table summarizes our lease commitments as of
Minimum Lease
Year Ending December 31 Commitment
(in thousands)
2021 (excluding the nine months ended September 30, 2021) $ 458
2022 1,761
2023 1,655
2024 1,655
2025 1,655
Thereafter 4,481
Total future undiscounted minimum lease payments $ 11,665
Less: Imputed Interest (2,486 )
Total reported lease liability $ 9,179
On May 25, 2021 , the Company entered a contract with a supplier to purchase
components. The Company is obligated to purchase $22.5 million of components
over 60 months. The Company may terminate the supply agreement by paying 50% of
the remaining purchase commitment at any point during the contract term. No
purchases were made under the contract for the three months ended September 30,
2021 . For the nine months ended September 30, 2021 , the Company made total
purchases of $0.4 million .
Apart from the aforementioned leases and purchase commitments, we do not have any other material contractual obligations, commitments or contingent obligations.
Off-Balance Sheet Arrangements
As ofSeptember 30, 2021 , we did not have any off-balance sheet arrangements, as defined in the rules and regulations of SEC Regulation S-K, such as the use of unconsolidated subsidiaries, structured finance, special purpose entities or variable interest entities.
Critical Accounting Policies and Estimates
Our consolidated financial statements have been prepared in accordance withU.S. generally accepted accounting principles, orU.S. GAAP. Preparation of the financial statements requires our management to make a number of judgments, estimates and assumptions relating to the reported amount of expenses, assets and liabilities and the disclosure of contingent assets and liabilities. We consider an accounting judgment, estimate or assumption to be critical when (1) the estimate or assumption is complex in nature or requires a high degree of judgment and (2) the use of different judgments, estimates and assumptions could have a material impact on our consolidated financial statements. Our significant accounting policies are described in Note 2 to our consolidated financial statements included elsewhere in this quarterly report on Form 10-Q. Our critical accounting policies are described below.
Research and Development
We conduct research and development activities to develop existing and future
technologies that advance our space platform offerings towards
commercialization. Research and development activities include basic research,
applied research, concept formulation studies, design, development, and related
test program activities. Costs incurred for developing our spaceflight system
and flight profiles
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primarily include equipment, material, and labor hours used for development and
testing. Costs incurred for performing ground tests and test flights primarily
include rocket or spacecraft components, propellants and other consumables,
shipping and transport costs, shipping and transport costs, and payroll and
benefits for employees and ground crew. Research and development costs also
include rent, maintenance, and depreciation of facilities and equipment and
other allocated overhead expenses. We expense all research and development costs
as incurred.
Stock-Based Compensation
We recognize compensation expense for time-based restricted stock units ("RSUs")
using the straight-line amortization method based on the fair value of RSUs on
the date of grant. The fair value of RSUs is the closing market price of Astra
common stock on the date of grant. We recognize compensation expense for
time-based stock options and employee stock purchase plan rights under the 2021
Employee Stock Purchase Plan, based on the estimated grant-date fair value
determined using the Black-Scholes valuation model with a straight-line
amortization method. We determine the fair value of stock options, which is
impacted by the following assumptions:
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Expected Term - We use the midpoint between the vesting term and the original
contractual term (contractual period to exercise). If the option contains graded
vesting, then the vesting term is based on the vesting pattern.
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Expected Volatility - The volatility is based on a benchmark of comparable
companies.
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Expected Dividend Yield - The dividend rate used is zero as we have never paid
any cash dividends on common stock and do not anticipate doing so in the
foreseeable future.
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Risk-Free Interest Rate - The interest rates used are based on the implied yield
available on U.S. Treasury zero-coupon issues with an equivalent remaining term
equal to the expected life of the award.
Certain equity awards include service, market and performance conditions ("Performance-based awards"). The fair value of Performance-based awards is estimated on the date of grant using the Monte Carlo simulation technique. Compensation expense for Performance-based awards is amortized based upon a graded vesting method over the requisite service period.
We reverse previously recognized costs for unvested options in the period that forfeitures occur.
Income Taxes We follow the asset and liability method of accounting for income taxes under ASC 740, Income Taxes. Deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between consolidated financial statement carrying amounts and the tax basis of assets and liabilities and net operating loss and tax credit carryforwards. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. We determine whether it is more likely than not that a tax position will be sustained upon examination. If it is not more likely than not that a position will be sustained, no amount of benefit attributable to the position is recognized. The tax benefit to be recognized for any tax position that meets the more likely than not recognition threshold is calculated as the largest amount that is more than 50% likely of being realized upon resolution of the contingency. Changes in recognition or measurement are reflected in the period in which judgment occurs. Our policy is to include interest and penalties related to the underpayment of income taxes as a component of the provision for income taxes. To date, there have been no interest or penalties recorded in relation to unrecognized tax benefits.
Derivative Instruments
We recognize all derivative instruments as either assets or liabilities in the
balance sheet at their respective fair values. We evaluate our debt and equity
issuances to determine if those contracts or embedded components of those
contracts qualify as derivatives requiring separate recognition in our financial
statements. The result of this accounting treatment is that the fair value of
the embedded derivative is revalued as of each reporting date and recorded as a
liability, and the change in fair value during the reporting period is recorded
in other income (expense), net in the Condensed Consolidated Statements of
Operations. In circumstances where the embedded conversion option in a
convertible instrument is required to be bifurcated and there are also other
embedded derivative instruments in the convertible instrument that are required
to be bifurcated, the bifurcated derivative instruments are accounted for as a
single, compound derivative instrument. The classification of derivative
instruments, including whether such instruments should be recorded as
liabilities or as equity, is reassessed at the end of each reporting period.
Derivative instrument liabilities are classified in the Condensed Consolidated
Balance Sheet as current or non-current based on whether or not net-cash
settlement of the derivative instrument is expected within twelve months of the
balance sheet date. When a derivative instrument is sold, terminated, exercised
or expires, the gain or loss is recorded in the Condensed Consolidated
Statements of Operations.
45
--------------------------------------------------------------------------------Public and Private Placement Warrants
The Company accounts for Public Warrants and Private Placement Warrants as
liability-classified instruments based on an assessment of the warrant's
specific terms and applicable authoritative guidance in FASB ASC 480,
Distinguishing Liabilities from Equity ("ASC 480") and ASC 815, Derivatives and
Hedging ("ASC 815"). Specifically, the exercise of the Public and Private
Placement Warrants may be settled in cash upon the occurrence of a tender offer
or exchange that involves 50% or more of the Company's Class A stockholders.
Because not all of the Company's stockholders need to participate in such tender
offer or exchange to trigger the potential cash settlement and the Company does
not control the occurrence of such an event, the Company concluded that the
Public Warrants and Private Placement Warrants do not meet the conditions to be
classified in equity. Since the Public and Private Placement Warrants meet the
definition of a derivative under ASC 815, the Company recorded these warrants as
liabilities on the balance sheet at fair value upon the closing of the Business
Combination, with subsequent changes in their respective fair values recognized
in the consolidated statement of operations at each reporting date.
Revenue Recognition
Astra adopted the requirements of the new revenue recognition standard, known as ASC 606, effectiveJanuary 1, 2020 , utilizing the modified retrospective method. Revenue for Launch Services is recognized at a point in time when the Company has delivered the promised services to customers. At contract inception, an assessment of the goods and services promised in the contracts with customers is expected to be performed and a performance obligation is identified for each distinct promise to transfer to the customer a good or service (or bundle of goods or services). To identify the performance obligations, the Company considers all the goods or services promised in the contract regardless of whether they are explicitly stated or are implied by customary business practices. The transaction price will be defined as the amount of consideration in a contract to which an entity expects to be entitled in exchange for transferring promised goods or services to a customer, which is a fixed price stated in the contract. When a contract involves multiple launches, the Company accounts for each launch as a separate performance obligation, because the customer can benefit from each launch on its own or with other readily available resources and the launch is separately identifiable. The transaction price is allocated to each performance obligation on an estimated relative standalone selling price basis. The Company's process to estimate standalone selling prices involves management's judgment and considers multiple factors such as prices charged for similar goods and services and the Company's ongoing pricing strategy and policies.
Changes in judgments with respect to these assumptions and estimates could impact the timing or amount of revenue recognition.
Emerging Growth Company Accounting Election
Section 102(b)(1) of the Jumpstart Our Business Startups Act of 2012 ("JOBS
Act") exempts emerging growth companies from being required to comply with new
or revised financial accounting standards until private companies are required
to comply with the new or revised financial accounting standards. The JOBS Act
provides that a company can elect not to take advantage of the extended
transition period and comply with the requirements that apply to non-emerging
growth companies, and any such election to not take advantage of the extended
transition period is irrevocable. We are an "emerging growth company" as defined
in Section 2(a) of the Securities Act of 1933, as amended, and has elected to
take advantage of the benefits of this extended transition period and expect to
remain an emerging growth company at least through the end of 2021, thereby
having the benefit of the extended transition period. This may make it difficult
to compare our financial results with the financial results of other public
companies that are either not emerging growth companies or emerging growth
companies that have chosen not to take advantage of the extended transition
period.
Astra will remain an emerging growth company under the JOBS Act until the
earliest of (a) August 7, 2025 , the fifth anniversary of our IPO, (b) the last
date of Astra's fiscal year in which it has total annual gross revenue of at
least $1.07 billion , (c) the date on which Astra is deemed to be a "large
accelerated filer" under the rules of the SEC or (d) the date on which Astra has
issued more than $1.0 billion in non-convertible debt securities during the
previous three years.
Recent Accounting Pronouncements
See Note 4 to our condensed consolidated financial statements included elsewhere in this quarterly report on Form 10-Q for more information about recently adopted accounting pronouncements and recently issued accounting pronouncements not yet adopted, including the timing of their adoption, and our assessment, to the extent we have made one yet, of their potential impact on our financial condition and our results of operations.
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