MOMENTUS INC. The following discussion and analysis provides information which our management believes is relevant to an assessment and understanding of our results of operations and financial condition. This discussion and analysis should be read together with our audited and unaudited financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q (this "Form 10-Q"). This discussion and analysis should also be read together with our financial information for the period ended and as ofMarch 31, 2022 . In addition to historical financial information, this discussion and analysis contains forward-looking statements that reflect our plans, estimates, and beliefs that involve risks, uncertainties and assumptions. As a result of many factors, such as those set forth under the "Risk Factors" in the Annual Report on Form 10-K filed by the Company onMarch 9, 2022 and "Cautionary Statement Regarding Forward-Looking Statements" elsewhere in this Form 10-Q, our actual results may differ materially from those anticipated in these forward-looking statements. Certain figures, such as interest rates and other percentages, included in this section have been rounded for ease of presentation. Percentage figures included in this section have not in all cases been calculated on the basis of such rounded figures but on the basis of such amounts prior to rounding. For this reason, percentage amounts in this section may vary slightly from those obtained by performing the same calculations using the figures in our financial statements or in the associated text. Certain other amounts that appear in this section may similarly vary slightly due to rounding.
Overview
Momentus plans to offer transportation and infrastructure services to help enable the commercialization of space. Satellite operators are our principal customers and target customers. Services that we plan to provide include "last mile" satellite transportation, payload-hosting, on-orbit satellite refueling, on-orbit inspection, on-orbit satellite maintenance, de-orbiting, debris removal, and other satellite-to-satellite service offerings. We believe our planned service offerings will increase deployment options for satellite operators and lower their operating costs relative to traditional approaches while also minimizing environmental impact given our choice of water as a propellant. Our transportation service offering will focus on delivering our customers' satellites to precision orbits of their choosing. To accomplish this, we plan to create a hub-and-spoke transportation network in partnership with leading launch service providers, such asSpaceX . Under this model, our customers' satellites would "ride share" from Earth to space on a midsized or large rocket. Our Orbital Transfer Vehicles ("OTVs") would then provide "last mile" transportation services from the rocket's drop-off orbit to a custom orbit of the satellite operator's choosing. We believe our hub-and-spoke model has the potential to expand our customers' deployment options relative to what they would be able to achieve with ride share launch alone, while reducing their costs relative to what they could achieve with a dedicated small launch vehicle. Over time, we plan to begin introducing additional services beyond "last mile" transportation. Since our founding in 2017, we have been working to develop, test and enhance our vehicles and supporting technologies, particularly our water plasma propulsion technology, and have signed contracts for approximately$69 million in backlog (potential revenue), as ofApril 30, 2022 . These agreements contain firm orders as well as options, allowing customers to opt-in to launches on shorter notice without requiring a separate agreement. The breadth of these signed contracts spans across 25 companies. In general, our customers have the right to cancel their contracts with the understanding that they will forgo their deposits. If a customer cancels a contract before it is required to pay non-refundable deposits, we may not receive revenue from these orders, except for an initial deposit which is paid at the time the contract is signed. Refer to "Risk Factors - We may not be able to convert our orders in backlog into revenue," in our Annual Report on Form 10-K filed by the Company onMarch 9, 2022 . Our first launch with customers is currently anticipated to occur as early asMay 2022 , subject to receipt of licenses and government approvals, and successful completion of our current efforts to get the system ready for flight. Prior planned launches were cancelled due to not receiving required licenses and other governmental approvals and other factors, and we can offer no assurances that our first launch will occur inMay 2022 or that we will ever receive the required licenses and other governmental approvals. OnMay 4, 2022 , as a subsequent event, the Company received a favorable determination from theFederal Aviation Administration (the "FAA") of its application for payload review in support of the Company's inaugural flight of the Vigoride orbital transfer vehicle on the launch targeted forMay 2022 . Together with a license from theFederal Communications Commission (the "FCC") received onApril 28, 2022 , and updates to existing licenses from theNational Oceanic and Atmospheric Administration (the "NOAA"), the Company has received all required government approvals required for its inaugural flight. See Note 14. 32
--------------------------------------------------------------------------------
Table of Contents
Our services are made possible by the space industry's rapid technological
developments over the past two decades, driven predominantly by significant
decreases in launch costs, as well as the advent of smaller, lower-cost
satellites. This convergence of these trends has resulted in substantial growth
in the commercial space market, rooted in higher accessibility for companies
entering the new space economy that aim to offer communication, earth
observation and data collection services, and other satellite services
We anticipate there could be considerable growth over the coming years in the
space transportation segment as companies continue to seek versatile and
low-cost ways to deliver single satellites to specific orbits or deploy their
satellite constellations. We anticipate that the need for small satellite
transportation to low-Earth orbit ("LEO") will continue to drive overall demand
growth for space transportation services in the short-term as technology
advancements continue to make space more accessible to new market entrants,
although new applications beyond LEO are also emerging. We also believe that
over the next decade, new space-based businesses may emerge, for example the
generation of solar energy in space, space manufacturing or space data
processing. The advent of these new business models could substantially increase
demand for space transportation and other space infrastructure services.
Beyond transportation, we anticipate that growth of the satellite constellations
market may drive demand for our Hosted Payload, on-orbit satellite refueling,
on-orbit inspection, on-orbit satellite maintenance, de-orbiting, debris
removal, and other satellite-to-satellite service offerings, if we are
successful in executing on our business plan, including fully developing and
validating our technology in space. Satellite constellations have relatively
short lifespans and, in our view, will require maintenance, de-orbiting, and
other general servicing with higher frequency.
We expect our expenses to increase substantially in connection with our ongoing
activities, particularly as we continue to advance the development of our
vehicles, build corporate infrastructure and enhance our sales and marketing
functions.
The technology underlying our anticipated service offerings is still in the
process of being developed, and has not been fully tested or validated in space.
Our ability to execute on our business plan is dependent on the successful
development and commercialization of the technologies described in this
Quarterly Report on Form 10-Q. Although we believe our water plasma propulsion
technology will be a key differentiator of our product offerings, we have to
date only conducted one test of this technology in space. Although we believe
our test unit generated plasma in space and validated the theoretical basis of
our technology, we have yet to experimentally confirm the unit's ability to
generate thrust in space, which is crucial to our ability to conduct actual
spacecraft maneuvers in orbit. Until we can accomplish this, the technology will
remain in the experimental stages. Moreover, even if the unit generates thrust,
there can be no assurance that it can be operated in a manner that is
sufficiently reliable and efficient to permit full commercialization of the
technology. Our statements and beliefs about the viability of our technology are
primarily based on theoretical analyses and experimentally observed results
during ground testing and our single test of this technology in space.
Development of space technologies is extremely complex, time consuming, and
expensive, and there can be no assurance that our predicted theoretical and
ground-based results will translate into operational space vehicles that operate
within the parameters we expect, or at all. This Quarterly Report on Form 10-Q
describes Momentus' current business plans for continuing to develop its
technology and marketing and commercializing its products, however there can be
no assurance that Momentus will be able to successfully develop its technologies
and implement them in commercially viable vehicles. Refer to "Risk Factors - A
key component of our business model is the delivery of satellites using our
vehicles from low earth orbit to other orbits. The technology for this maneuver
is still in the development stage..." in our Annual Report on Form 10-K filed by
the Company on March 9, 2022 .
Services Overview
When our technology is fully developed and validated in the future, we currently plan to provide the following infrastructure services to the space economy:
Space Transportation. We are designing a space transportation service based on a hub-and-spoke model, which combines ride share launch on a medium or large rocket with last-mile delivery using one of our OTVs. Under this model, our customers will deliver their payload to us a few months prior to launch for integration onto our vehicle. Once we have integrated our customers' payloads, we will then ship our vehicle, holding the customer payload fixture, to the launch site, where it will be integrated onto the rocket. The rocket will then transport our vehicle to the drop-off orbit. After separation from the rocket, our vehicle will transport our customers' payloads to their chosen final orbit.
We are designing our water plasma thrusters to enable our vehicle to efficiently transport each customer payload to its respective orbit. We believe our hub-and-spoke model has the potential to expand our customers' deployment
33--------------------------------------------------------------------------------
Table of Contents
options relative to what they could achieve with ride share launch alone, while reducing their costs relative to what they could achieve with a dedicated small launch vehicle. Initially, after delivering our customer payloads to their final orbits, our vehicles will de-orbit. However, our plan is to develop the capability for our vehicles to be reusable, such that, upon delivery of the payload, they will be capable of remaining in space to conduct additional missions. Hosted Payload. We are designing our transfer vehicles for modularity and ease of integration with customer payloads, and with a full suite of capabilities that our customers will need on orbit. Under our Hosted Payload model, our vehicle, after transporting a customer payload to a specific orbit, would stay connected to the payload for the duration of its mission to provide continuous power, orbit maintenance, orientation, and communications to support telemetry, commanding, and downlinking of payload data. Our objective is to offer a higher degree of modularity which we believe has the potential to significantly increase orbital accessibility and/or lower manufacturing costs for a wide range of satellite operators. In-Orbit Servicing. We view in-orbit servicing of satellites as a quickly growing business opportunity. As the number of satellites in space increases, so does their need to be serviced. We plan to designMomentus' future reusable vehicles to be capable of performing in-orbit servicing and are pursuing development activities that support this objective. Although we are still in very preliminary stages for developing this technology, our aim is to equip future vehicles with robotic arms and the ability to maneuver in close proximity to other spacecraft and dock or berth with them. Once fully developed, we believe these capabilities could allow us to offer a suite of different in-orbit services, such as inspection, refueling, life extension, re-positioning, salvage missions, maintenance and repair, and de-orbiting.
Factors Affecting Our Performance
We believe that our performance and future success depend to a substantial extent on our ability to capitalize on the following opportunities, which in turn is subject to significant risks and challenges, including those discussed below and in the section titled "Risk Factors" in our Annual Report on Form 10-K filed by the Company onMarch 9, 2022 .
Our primary research and development objectives focus on the development of our existing and future in-space transfer and service vehicles and related water plasma propulsion technology. Vigoride is the first vehicle thatMomentus is developing. Once fully developed, tested and validated in space, we expect Vigoride will be sufficient to meet our initial operating plan of offering in-space transportation in LEO to small satellites. Vigoride is intended to transport up to 750 kg of customer payload in LEO, although our payload capacity will likely be lower in most common configurations. We have set the delta-v and host power objectives for Vigoride at 2 km/sec and 1 kW, respectively, which we believe we can achieve a few years into our product roadmap. We have entered into a launch services agreement withSpaceX that secures space for Vigoride on a launch vehicle thatSpaceX currently targets operating as early asMay 2022 . This would represent the inaugural launch of a completeMomentus vehicle into space and would allow us to further validate Vigoride's capabilities. While securing space on the manifest is an important step, our plan to launch inMay 2022 remains subject to the receipt of licenses and other government approvals, and successful completion of our current efforts to get the system ready for flight. OnMay 4, 2022 , as a subsequent event, the Company received a favorable determination from theFederal Aviation Administration (the "FAA") of its application for payload review in support of the Company's inaugural flight of the Vigoride orbital transfer vehicle on the launch targeted forMay 2022 . Together with a license from theFederal Communications Commission (the "FCC") received onApril 28, 2022 , and updates to existing licenses from theNational Oceanic and Atmospheric Administration (the "NOAA"), the Company has received all required government approvals required for its inaugural flight. See Note 14. Beyond our plannedMay 2022 launch, we are planning to fly Vigoride again in the second half of 2022, subject to receipt of licenses and government approvals, and successful completion of our current efforts to get the system ready for flight. Early Vigoride vehicles will not be reusable, meaning that we will de-orbit them following delivery of their customer payloads. However, around the middle of this decade, we plan to make our vehicles capable of reuse such that, upon delivery of their payloads, they will be able to remain in space to conduct follow-on missions. Establishing reusable vehicles will require significant additional research and technological developments. We 34
--------------------------------------------------------------------------------
Table of Contents
believe our choice of water as a propellant will help with the creation of reusable vehicles because water can be stored without special conditions, other than ensuring lines and tanks do not freeze or become obstructed with ice, for an indefinite amount of time and pumped easily. Additionally, water is safe and non-hazardous relative to commonly used propellants such as cryogenic components and hypergolic toxic fuels for chemical propulsion, or highly pressurized noble gases (such as xenon or krypton) for electrical propulsion. We believe that if we are able to achieve reusability, it will allow us to lower manufacturing and launch costs on a per-ride basis and achieve higher margins and returns for our investors while also reducing our environmental impact. Beyond Vigoride, we envision bringing two progressively larger vehicles to market, which we call Ardoride and Fervoride. These vehicles will be similar to our Vigoride vehicle, but with larger structures, larger solar arrays, and more powerful propulsion systems in order to carry progressively larger payloads progressively further from Earth
The successful development of our vehicles with water plasma propulsion technology involves uncertainties, including:
•timing in finalizing systems design and specifications;
•successful completion of test programs and demonstration missions;
•whether we will receive and the timing of receipt of licenses and government approvals that will allow us to fly our vehicles in space and gather valuable data that will assist in further development of our vehicles;
•meeting stated technological objectives and goals for the design on time, on budget and within target cost objectives;
•our ability to obtain additional applicable approvals, licenses or certifications from regulatory agencies and maintaining current approvals, licenses or certifications;
•our ability to secure slots on our launch providers' manifests;
•performance of our manufacturing facility despite risks that disrupt productions, such as natural disasters;
•performance of our third-party contractors that support our research and development activities;
•performance of a limited number of suppliers for certain raw materials and supplied components and their willingness to do business with us;
•our ability to protect our intellectual property critical to the design and function of our orbital transfer vehicles;
•our ability to continue funding and maintaining our current research and development activities;
•the impact of the COVID-19 pandemic on us, our customers, suppliers and distributors, and the global economy; and
•our ability to comply with the terms of the
A change in the outcome of any of these variables could delay the development of our vehicles which in turn could impact our business and results of operations. Refer to "Risk Factors," in our Annual Report on Form 10-K filed by the Company onMarch 9, 2022 .
Initial and Successive Launches
Our water plasma propulsion technology (that we are developing) is based on the use of microwave electrothermal or "MET," thrusters, which we believe could ultimately provide safe, affordable, reliable, and regular in-space services, including Space Transportation, Hosted Payload, and In-Orbit Servicing. To accomplish this, we currently intend to: Launch our commercial program for in-space transportation. We currently plan to fly our Vigoride vehicle on aSpaceX Transporter flight as early asMay 2022 , subject to receipt of licenses and government approvals, and successful completion of our current efforts to get the system ready for flight. OnMay 4, 2022 , as a subsequent event, the Company received a favorable determination from theFederal Aviation Administration (the "FAA") of its application for payload review in support of the Company's inaugural flight of the Vigoride orbital transfer vehicle on the launch targeted forMay 2022 . Together with a license from theFederal Communications Commission (the "FCC") received onApril 28, 2022 , and updates to existing licenses from theNational Oceanic and Atmospheric Administration (the "NOAA"), the Company has received all required government approvals required for its inaugural flight. See Note 14. 35
--------------------------------------------------------------------------------
Table of Contents
Launch our commercial program for Hosted Payload. If in the future our vehicles are operationalized for their intended in-space transport uses, we plan to develop a modular approach to satellite systems through our hosted payload model. For missions that require significant power for the payload and/or specific orbits, our objective is forMomentus to be able to provide a unique combination of a low-cost service model, in-orbit flexibility, and high electrical power generation. Launch our commercial program for In-Orbit Servicing. If we develop reusability for our vehicles as currently contemplated, we believe we will be able to begin offering a suite of different in-orbit services to our clients. Although we have not yet developed these capabilities or the technology that would be required to provide these services, such services may include inspection, refueling, life extension, re-positioning, salvage missions, maintenance and repair, and de-orbiting. As the quantity of satellites sent into space continues to increase, we anticipate growing demand from such services. The success of our in-space infrastructure services business will depend on our ability to successfully and regularly deliver customer satellites into custom orbits. Our planned inaugural launch is intended to be a demonstration mission. While we plan to transport a few paying customer payloads, the primary goals of our inaugural mission are to test Vigoride on orbit and learn from any issues that we may encounter. The lessons learned from this initial flight will help inform changes we can make to future missions as we seek to ultimately certify a design for production. Depending on the nature of issues we encounter, our schedule for future launches and other planned activities could be adversely affected. There can be no assurance that we will not experience operational or process failures and other problems during our inaugural mission or on any other mission. Any failures or setbacks, particularly on our inaugural mission, could harm our reputation and have a material adverse effect on our business, financial condition and results of operation.
Customer Demand
Ahead of our first Vigoride launch, we have received significant interest from a range of satellite operators, satellite manufacturers, satellite aggregators, launch service providers, and others. While we have not recognized any revenue from completed commercial launches throughMarch 31, 2022 , we had collected approximately$1.7 million in customer deposits related to future launches. While our standard contracts do not contain refunds or recourse provisions that enable our customers to recover any non-refundable deposits that have been paid, we issued refunds totaling$1.4 million to customers during the year endedDecember 31, 2021 due to cancelled launches for 2021 in order to foster future business relationships and customer goodwill. Because our technologies have not yet been fully tested, our service offering to our customers on our inaugural mission will be limited. To reflect this, we expect to provide discounts to customers on this mission relative to the price we intend to eventually charge for our transportation services. During our inaugural mission, we plan to demonstrate Vigoride's ability to deploy satellites. Once all customer payloads have been released, we plan to perform certain maneuvers and technology demonstrations to validate our technology and establish the potential commercial viability of our strategy. This approach limits risk for us as well as for our customers. We have signed contracts for approximately$69 million in backlog (potential revenue), as ofApril 30, 2022 . These agreements contain firm orders as well as options, allowing customers to opt-in to launches on shorter notice without requiring a separate agreement. The breadth of these signed contracts spans across 25 companies in 15 countries. In general, our customers have the right to cancel their contracts with the understanding that they will forgo their deposits. If a customer cancels a contract before it is required to pay non-refundable deposits, we may not receive revenue from these orders, except for an initial deposit which is paid at the time the contract is signed. In the three months endedMarch 31, 2022 , we recognized no revenue related to customer contracts. Our backlog is subject to meaningful customer concentration risk. As ofApril 30, 2022 , approximately 70% of the total dollar value of our backlog related to four launch services providers and aggregators of launch services capacity, and their affiliates. The top 10 customers in our backlog represent approximately 95% of the total dollar value of our backlog. In addition, backlog is typically subject to large variations from quarter to quarter and comparisons of backlog from period to period are not necessarily indicative of future revenues. Furthermore, some contracts comprising the backlog are for services scheduled many years in the future, and the economic viability of customers with whom we have contracted is not guaranteed over time. As a result, the contracts comprising our backlog may not result in actual revenue in any particular period, or at all, and the actual revenue from such contracts may differ from our backlog estimates. The timing of receipt of revenues, if any, on projects included in the backlog could change because many factors affect the scheduling of missions and adjustments to contracts may also occur. The failure to realize some portion of our backlog could adversely affect our revenues and gross margins. 36
--------------------------------------------------------------------------------
Table of Contents
COVID-19 Impact
While the COVID-19 pandemic has affected our business and our timeline for our formerly planned launch inApril 2020 , to date, it has not impacted us in a way that we believe will materially affect our future growth outlook. We are currently planning for our first commercial launch as early asMay 2022 , subject to receipt of licenses and government approvals, and successful completion of our current efforts to get the system ready for flight. We do not foresee any delays due to COVID-19. The same applies to launches scheduled for the remainder of 2022 and beyond. OnMay 4, 2022 , as a subsequent event, the Company received a favorable determination from theFederal Aviation Administration (the "FAA") of its application for payload review in support of the Company's inaugural flight of the Vigoride orbital transfer vehicle on the launch targeted forMay 2022 . Together with a license from theFederal Communications Commission (the "FCC") received onApril 28, 2022 , and updates to existing licenses from theNational Oceanic and Atmospheric Administration (the "NOAA"), the Company has received all required government approvals required for its inaugural flight. See Note 14.
We do not anticipate that the COVID-19 pandemic will materially affect our customer backlog and ability to secure new contracts going forward.
Our non-operations personnel began working from home inMarch 2020 as we reduced our in-person operations to prioritize the safety of our employees. We have begun to gradually bring essential personnel back to the office, while adhering toCenters for Disease Control and Prevention , federal, state and local protective standards. Subject to local regulations and the effectiveness of vaccination initiatives, we intend to gradually bring all employees back to the office; until then, we will continue to support our employees working from home. While remote working arrangements have affected our manufacturing and development timelines, the overall impact of this arrangement has not materially adversely affected the timeline of future launches. InMay 2020 , to strengthen our liquidity position, we received a Paycheck Protection Program loan (the "PPP Loan") in the amount of$1.0 million under the Coronavirus Aid, Relief, and Economic Security Act ("the CARES Act"); however, inSeptember 2020 , we repaid the PPP Loan in full. Notwithstanding the foregoing, the impact of the COVID-19 pandemic on the Company's business, results of operations and overall financial performance will ultimately depend on future developments, including the duration of the pandemic, possible recurrent outbreaks, the appearance of variants and the effectiveness of vaccines and other mitigation measures against variants, all of which are highly uncertain and cannot be predicted. See "Risk Factors" in our Annual Report on Form 10-K filed by the Company onMarch 9, 2022 , for additional discussion of the potential impact of the COVID-19 pandemic on our business.
Recent Developments
Consummation of Business Combination
OnAugust 12, 2021 , the Company consummated a merger pursuant to certain Agreement and Plan of Merger, datedOctober 7, 2020 , and as amended onMarch 5, 2021 ,April 6, 2021 , andJune 29, 2021 (the "Merger Agreement"), by and amongStable Road Acquisition Corp ("SRAC"),Project Marvel First Merger Sub, Inc. , aDelaware corporation and a direct, wholly owned subsidiary of SRAC ("First Merger Sub"), andProject Marvel Second Merger Sub, LLC , aDelaware limited liability company and a direct, wholly owned subsidiary of SRAC ("Second Merger Sub"), pursuant to which First Merger Sub merged with and intoMomentus Inc. , aDelaware corporation ("Legacy Momentus") with Legacy Momentus as the surviving corporation of the First Merger Sub, and immediately following which LegacyMomentus merged with and into the Second Merger Sub, with the Second Merger Sub as the surviving entity (the "Business Combination"). In connection with the closing of the Business Combination (the "Closing"), the Company changed its name fromStable Road Acquisition Corp. toMomentus Inc. , and Legacy Momentus changed its name toMomentus Space, LLC .
The Business Combination is accounted for as a reverse recapitalization in
accordance with GAAP. Under this method of accounting, SRAC is treated as the
"acquired" company for financial reporting purposes. We are deemed the
accounting predecessor of the combined business, and
The Business Combination will have a significant impact on our future reported financial position and results as a consequence of the reverse recapitalization. The most significant changes inMomentus's future reported financial 37
--------------------------------------------------------------------------------
Table of Contents
position and results are an increase in cash of
As a result of the Business Combination, we became the successor to anSEC -registered and Nasdaq-listed company, which will require us to hire additional personnel and implement procedures and processes to address public company regulatory requirements and customary practices. We have begun to incur additional recurring expenses as a public company for, among other things, directors' and officers' liability insurance, director fees, and additional internal and external accounting, legal and administrative resources.
Term Loan and Security Agreement
OnFebruary 22, 2021 , the Company entered into a Term Loan and Security Agreement (the "Term Loan") which provided the Company with up to$40.0 million in borrowing capacity at an annual interest rate of 12%.$25.0 million of the Term Loan was immediately available for borrowing by the Company at the inception of the agreement, the Company borrowed this amount onMarch 1, 2021 . The remaining$15.0 million of borrowing capacity is no longer available as the Company did not achieve certain milestones needed by theJune 30, 2021 deadline. Under the terms of the loan, if certain operating cash ratios are not met, the lender is granted a lien on the Company's intellectual property while the loan is outstanding. Prior to the Business Combination, the lien was granted but was subsequently released as a result of the proceeds from the Business Combination. The repayment terms of the Term Loan provide for interest-only payments beginningMarch 1, 2021 throughFebruary 28, 2022 . Under the original terms of the loan, the principal amount was due and payable onMarch 1, 2022 , however, duringJanuary 2022 , the Company exercised its option to pay back the Term Loan over 24 months. The extended payment term resulted in a recast schedule with a lower effective interest rate. See Note 10. In conjunction with the Term Loan, warrants to purchase preferred stock up to 1% of the fully diluted capitalization (including allowance for conversion of all outstanding convertible notes, SAFE notes and such warrants) of the Company were granted to the lender exercisable at the lender's option. 80% of the 1% of the warrants were earned by the lender upon execution of the agreement. The additional 20% of the warrants was forfeited as ofJune 30, 2021 . OnAugust 12, 2021 the lender exercised the warrant; see Note 11 for discussion on the valuation and conversion of the warrants.
In addition, the lender will have certain rights to participate in future
private equity offerings (including convertible notes or bridge financings) of
SEC Settlement and CFIUS Review
We have incurred significant expenses in connection with the CFIUS review described below and have incurred and expect to incur significant expenses in connection with the implementation of theNSA described below. We have also incurred significant expenses related to theSEC settlement discussed below. As ofMarch 31, 2022 , the Company had incurred legal expenses of approximately$8.3 million related to these matters.
SEC Settlement
OnJuly 13, 2021 , the Company agreed to a settlement with theSEC on a "neither admit nor deny" basis, in anticipation of cease-and-desist proceedings relating to certain violations of antifraud provisions of the federal securities laws alleged by theSEC . As a result of the settlement, the Company agreed to a civil penalty of$7.0 million ,$2.0 million of which was paid immediately and$5.0 million of which is payable within one year of the settlement order, and outstanding as ofMarch 31, 2022 .
CFIUS Review and
InFebruary 2021 ,Momentus and its co-founderMikhail Kokorich , with support from SRAC, submitted a joint notice to CFIUS for review of the historical acquisitions of interests inMomentus byMr. Kokorich , his wife, and entities that they control in response to concerns of theU.S. Department of Defense (the "DoD") regardingMomentus' foreign ownership and control. OnJune 8, 2021 , the Company entered into a National Security Agreement withMr. Kokorich , on behalf of himself andNortrone Finance S.A. (an entity controlled byMr. Kokorich ),Lev Khasis andOlga Khasis , each in their respective individual capacities and on behalf ofBrainyspace LLC (an entity controlled byOlga Khasis ), and theU.S. government, represented by theDoD and the U.S Department of the Treasury (the "NSA"). In accordance with theNSA ,Mr. Kokorich ,Nortrone Finance S.A. ,Lev Khasis and his wifeOlga Khasis , andBrainyspace LLC divested all the equity interests inMomentus owned or beneficially owned by them by selling such equity interests to the Company onJune 8, 2021 (see below "Co-Founder Divestment"). TheNSA also establishes various requirements and restrictions on the Company in order to 38
--------------------------------------------------------------------------------
Table of Contents
protect national security, certain of which may materially and adversely affect our operating results due to uncertainty associated with and the cost of compliance with security measures, and limitations on our control over certainU.S. facilities, contracts, personnel, vendor selection and operations.
Co-Founder Divestment
In accordance with theNSA and pursuant to certain Repurchase Agreements entered into with the Company, effective as ofJune 8, 2021 , each ofMr. Kokorich ,Nortrone Finance S.A. andBrainyspace LLC (collectively " the Co-Founders") sold 100% of their respective equity interests in the Company onJune 30, 2021 . In exchange for their equity interests, the Company initially paid each entity$1 , but will additionally pay up to an aggregate of$50,000,000 , out of funds legally available therefor, to the Co-Founders, on a pro rata basis, as follows: (i) an aggregate of$40,000,000 to be paid out of funds legally available therefor, within 10 business days after the earlier of (A) a business combination or capital raising transaction or series of transactions (whether in the form of debt or equity) resulting in cash proceeds of no less than$100,000,000 and (B) the Business Combination (the "First Payment Date"); and (ii) an aggregate of$10,000,000 to be paid out of funds legally available therefor, within 10 business days after a business combination or capital raising transaction or series of transactions (whether in the form of debt or equity) resulting in cash proceeds of no less than$250,000,000 (determined without any reduction for the$100,000,000 previously received in respect of the First Payment Date). As a result of the Business Combination, which generated$247.3 million of gross proceeds (as described in Note 3), the Company paid the Co-Founders$40.0 million in addition to the initial consideration paid of$3 . The Company recorded the consideration paid as a reduction of common stock and additional paid in capital. Pursuant to theNSA , a portion of those divestment proceeds were placed in escrow accounts, and may not be released to the divested investors until after completion of audit by a third party auditor of the investors compliance with theNSA and the lapse of a 15 day period without an objection from the CFIUS Monitoring Agencies. Following the third party audit of the investors'NSA compliance, all of the escrowed divestment proceeds were released to the Co-Founders as ofMarch 1, 2022 in accordance with theNSA . If the Company were to undertake a business combination or capital raising transaction or series of transactions (whether in the form of debt or equity) resulting in cash proceeds of approximately$2.7 million or more, the Company would need to pay an aggregate of$10.0 million to the Co-Founders (see Note 11). The Company evaluated this potential consideration as a liability under ASC 480 utilizing a probability-weighted approach. Certain factors which would enable successful fundraising were considered, including progress toward compliance with theNSA , research and development progress, and agreements with launch providers, resulting in an estimated liability of$6.0 million expected to be paid to the Co-Founders with a corresponding offset to additional paid in capital, as ofMarch 31, 2022 . The payment came from proceeds of the Business Combination andPIPE Investment and therefore reduce the proceeds available toMomentus to fund its operations and capital expenditures going forward. As part of the Repurchase Agreements, both Messrs. Kokorich and Khasis agreed to a broad waiver and release of all claims (broadly defined) against the Company. The Company has maintained that this release is effective as to various advancement or indemnification claims either individual may have against the Company. Both Messrs. Kokorich and Khasis have, through counsel, disagreed with the Company's position. Absent a negotiated resolution, there is a chance that the parties may litigate the matter. The total cumulative potential exposure for the disputes with both Messrs. Kokorich and Khasis is presently unknown but exceeds$1 million . We express no opinion on the probable outcome of these matters. See "Risk Factors - We may require substantial additional funding to finance our operations, but adequate additional financing may not be available when we need it, on acceptable terms or at all," in our Annual Report on Form 10-K filed by the Company onMarch 9, 2022 .
Components of Results of Operations
Service Revenue
We enter into contracts for 'last-mile' satellite and cargo delivery, payload hosting and in-orbit servicing options with customers that are primarily in the aerospace industry. From inception toMarch 31, 2022 , we have not yet completed a commercial launch of customer cargo. However, as ofMarch 31, 2022 we have signed contracts with customers and have collected approximately$1.7 million in customer deposits, which are recorded as non-current contract liabilities in our consolidated balance sheets. The Company's first launch with customers is currently anticipated to occur as early asMay 2022 , subject to receipt of licenses and government approvals, and successful 39
--------------------------------------------------------------------------------
Table of Contents
completion of our current efforts to get the system ready for flight. While a portion of the deposit balance relates to performance obligations that may be satisfied over the next 12 months, the Company will classify customer deposits as non-current until the inaugural launch date is reasonably assured. OnMay 4, 2022 , as a subsequent event, the Company received a favorable determination from theFederal Aviation Administration (the "FAA") of its application for payload review in support of the Company's inaugural flight of the Vigoride orbital transfer vehicle on the launch targeted forMay 2022 . Together with a license from theFederal Communications Commission (the "FCC") received onApril 28, 2022 , and updates to existing licenses from theNational Oceanic and Atmospheric Administration (the "NOAA"), the Company has received all required government approvals required for its inaugural flight. See Note 14. The Company will recognize revenue (along with any other fees that have been paid) upon the earlier of the satisfaction of our performance obligation or when the customer cancels the contract. While the Company's standard contracts do not contain refund or recourse provisions that enable its customers to recover any non-refundable fees that have been paid, the Company may issue full or partial refunds to customers on a case-by-case basis as necessary to preserve and foster future business relationships and customer goodwill. As a result of the Company's inability to complete any launches in 2021 (refer to Note 4 for additional information), the Company issued customer refunds of$1.4 million to customers during the year endedDecember 31, 2021 .
Cost of Revenue
Cost of revenue consists primarily of expenses associated with the cost of the orbital transfer vehicle and third-party launch costs. Until the orbital transfer vehicle design is completed and released for production, the cost of these orbital transfer vehicles is being expensed as research and development costs as materials and services are received. The current design and technology allow for a single use of the orbital transfer vehicle.
Research and Development
Research and development expenditures consist primarily of the cost for the following activities for developing existing and future technologies for our vehicles. Research and development activities include basic research, applied research, design, development, and related test program activities. Costs incurred for developing our vehicles primarily include equipment, material, and labor hours (both internal and subcontractors). As ofMarch 31, 2022 , we have expensed all research and development costs associated with developing and building our vehicles. Once we have achieved technological feasibility and released the design for volume production, we will capitalize the costs to construct any additional components for the vehicles. We expect to continue to see an increase in our research and development expenses as we develop our next generation of vehicles.
Selling, General and Administrative
Selling, general and administrative expenses consist of human capital related expenses for employees involved in general corporate functions, including executive management and administration, accounting, finance, tax, legal, information technology, security, sales, marketing, and human resources; depreciation expense and rent relating to facilities, and equipment; professional fees; and other general corporate costs. Headcount-related expenses primarily include salaries, bonuses, equity compensation expense and benefits. As we continue to grow as a company, we expect that our selling, general and administrative costs will increase on an absolute dollar basis. We also have begun to incur additional expenses as a result of operating as a public company, including expenses necessary to comply with the rules and regulations applicable to companies listed on a national securities exchange and related to compliance and reporting obligations pursuant to the rules and regulations of theSEC as well as to comply with theNSA .
Interest Income
Interest income consists of interest earned on investment holdings in interest bearing bank accounts.
Interest Expense
Interest expense includes interest incurred related to our loan payables as well as the amortization of warrant discount and debt issuance costs.
40--------------------------------------------------------------------------------
Table of Contents
Other Income/Expense
Other income/expense primarily relates to the change in the estimated fair value of our SAFE notes and warrants, and non-recurring fees incurred in conjunction with the SAFE and Term Loan financing,SEC settlement cost, and the Business Combination. Income Tax Provision We are subject to income taxes inthe United States . Our income tax provision consists of an estimate of federal and state income taxes based on enacted federal and state tax rates, as adjusted for allowable credits, deductions, uncertain tax positions, changes in the valuation of our deferred tax assets and liabilities, and changes in tax laws. The effective tax rate may vary significantly from period to period and can be influenced by many factors. These factors include, but are not limited to, changes to the statutory rates in the jurisdictions where the Company has operations and changes in the valuation of deferred tax assets and liabilities. The difference between the effective tax rate and the federal statutory rate of 21% primarily relates to certain nondeductible items, state and local income taxes and a full valuation allowance for deferred tax assets.
Results of Operations
The following tables set forth our results of operations for the periods presented. The period-to-period comparisons of financial results is not necessarily indicative of future results.
Comparison of Financial Results for the Three Months EndedMarch 31, 2022 and 2021 Three Months Ended March 31, (in thousands) 2022 2021 $ Change % Change Service revenue $ -$ 130 $ (130) N/A Cost of revenue - 48 (48) N/A Gross margin - 82 (82) N/A Operating expenses: Research and development expenses 9,971 9,906 65 1 % Selling, general and administrative expenses 14,853 14,005 848 6 % Operating loss (24,824) (23,829) (995) 4 % Other income (expense): Decrease (increase) in fair value of SAFE notes - 81,564 (81,564) N/A Decrease (increase) in fair value of warrants (451) 8,083 (8,534) Not meaningful Interest income - 1 (1) (100 %) Interest expense (1,492) (968) (524) 54 % Other income (expense) 3 (179) 182 (102 %) Net income (loss)$ (26,834) $ 64,671 (91,505) (141 %) Service revenue The revenue recognized during the three months endedMarch 31, 2021 was due to a customer contract cancellation, resulting in the forfeiture of$0.1 million of non-refundable customer deposits.
Cost of revenue
The cost of revenue recorded during the three months ended
Research and development expenses
Research and development expenses increased from$9.9 million to$10.0 million . The increase was primarily due to additional payroll costs, despite an 11 person decrease in headcount, of$1.1 million (including an increase of$0.3 million in non-cash stock based compensation) due to higher compensation packages related to the transition from start-up to a publicly traded company. Spending on components, materials, and other costs also increased by$0.4 million . The increase was offset by a$0.8 million reduction in subcontracted research and development as well as an$0.8 million impairment of a prepaid launch deposit specific to the three months endedMarch 31, 2021 . 41
--------------------------------------------------------------------------------
Table of Contents
Selling, general and administrative expenses
Selling, general and administrative expenses increased from$14.0 million to$14.9 million . Non-stock based compensation payroll increased by$1.1 million , while total headcount remained the same, due to higher compensation packages for senior employees related to the transition from a start-up to a publicly traded company. Additional insurance costs of$0.7 million and additional general corporate costs of$0.8 million were incurred due to the extra requirements of operating as a publicly traded company. Increased spending of$4.3 million on non-legal professional fees was offset by a reduction of$2.2 million in legal spending as the Company's activity related to theNSA andSEC topics discussed in Note 12 shifted from legal proceedings to compliance. Stock based compensation cost decreased by$3.9 million due to the non-recurring stock modification in the prior period.
Decrease (increase) in fair value of SAFE notes
The decrease in the calculated fair value of SAFE notes during the three months endedMarch 31, 2021 was primarily due to an decrease in the estimated fair value of the Company's stock, which at that time was driven by its relation to the market price of SRAC. All outstanding SAFE notes were converted to common stock upon completion of the Business Combination (see Note 9). Prior to conversion, our SAFE notes were classified as marked-to-market liabilities pursuant to ASC 480 and gains or losses were recorded as other income or expense.
Increase in fair value of warrants
For the three months endedMarch 31, 2021 , the decrease in the calculated fair value of the private loan-related warrants was due to the decrease in the estimated fair value of the Company's stock. All outstanding warrants in the prior period were exercised in connection with the Business Combination. For the three months endedMarch 31, 2022 , the increase in the calculated fair value of the Company's currently outstanding warrants, which were assumed from the Business Combination, was primarily driven by the observable market price of the publicly listed warrants to purchase the Company's stock under comparable terms. See Note 11. Interest expense Interest expense of$1.0 million for the three months endedMarch 31, 2021 relates to one month of cash and amortization interest under the original one year term of the Term Loan. During the three months endedMarch 31, 2022 , the Company exercised its option to extend repayment of the loan, resulting in a decrease of the effective interest rate and$1.5 million of cash and amortization interest for the three month period. See Note 10.
Other income (expense)
Other expense in the three months endedMarch 31, 2021 was due to banking fees related to SAFE financing raised during the period. Other expense for the three months endedMarch 31, 2022 was immaterial.
Liquidity and Capital Resources
Since inception, we have financed our operations primarily by issuing equity and debt, including the proceeds of the Business Combination and PIPE. As ofMarch 31, 2022 , our principal sources of liquidity were our cash and cash equivalents in the amount of$135.6 million , which are held in cash or invested in money market funds. Historical Cash Flows Three Months Ended March 31, (in thousands) 2022 2021 Net cash provided by (used in) Operating activities$ (23,062) $ (21,199) Investing activities (521) (431) Financing activities (938) 55,702 Net change in cash and cash equivalents$ (24,521) $ 34,072 Operating Activities Net cash used in operating activities for the three months endedMarch 31, 2022 was$23.1 million , driven primarily by headcount costs, research and development activities, and professional fees related to theSEC andNSA compliance costs, as well as net cash changes in operating assets and liabilities. Headcount related payroll costs, excluding accrued bonus and stock-based compensation, were$9.3 million . Research and development activity expenses, including materials, components, and subcontractor costs were$3.9 million . Professional fees for 42
--------------------------------------------------------------------------------
Table of Contents
compliance related to theSEC andNSA topics discussed in Note 12, business development, accounting and audit, and other services, were$5.8 million . Legal fees, related to public company costs as well as the class action complaints discussed in Note 12 were$2.5 million . Office overheads, other general corporate expenses, and cash interest were$4.0 million . Additionally, cash used in net working capital decreased by$2.4 million . Net cash used in operating activities for the three months endedMarch 31, 2021 was$21.2 million , driven primarily by headcount costs, research and development activities, and selling, general, and administrative costs. Headcount related payroll costs, excluding accrued bonus and stock-based compensation, were$5.6 million . Research and development activity expenses, including materials, components, and subcontractor costs were$4.4 million . Legal fees, related to theSEC and CFIUS review topics, discussed in Note 12, were$4.6 million . Professional fees for recruiting, accounting and audit, and other services were$1.5 million . Office overheads, other general corporate expenses, and cash interest were$1.9 million . Additionally, cash used in net working capital increased by$3.1 million .
Investing Activities
Net cash used in investing activities was$0.5 million and$0.4 million for the three months endedMarch 31, 2022 , and 2021, respectively, which consisted primarily of purchases of machinery and equipment, build-outs in our facility, and capitalized implementation costs for cloud computing software.
Financing Activities
Net cash used in financing activities was$(0.9) million for the three months endedMarch 31, 2022 , due to the first month of principal repayment under the Term Loam. Net cash provided by financing activities was$55.7 million for the three months endedMarch 31, 2021 , consisting of proceeds from the issuance of SAFE notes and the Term Loan. Funding Requirements We expect our expenses to increase substantially in connection with our ongoing activities, particularly as we continue to advance the development of our vehicles, build corporate infrastructure and enhance our sales and marketing functions.
Specifically, our operating expenses will increase as we:
•scale up our corporate infrastructure, people, processes and systems;
•enhance and scale our sales and marketing function;
•scale up our manufacturing capabilities increasing facility footprint, purchasing additional manufacturing equipment;
•pursue further research and development related to developing our next generation vehicles;
•seek regulatory approvals for changes or updates to our vehicles;
•hire additional personnel;
•implement measures required under the
•maintain, expand and protect our intellectual property portfolio; and
•comply with public company reporting requirements.
We expect that our current cash and cash equivalents, our projected gross profit
(revenue less cost of revenue), and additional funding from equity or debt
financings will enable us to fund an anticipated operating expenses, research
and development expenses and capital expenditures beyond the next 12 months.
Additionally, we believe that the payments in the form of non-refundable
deposits we receive from our customers prior to launch will provide sufficient
funding and liquidity to support costs incurred related to that mission.
We have based these estimates on assumptions that may prove to be wrong, and we
could utilize our available capital resources sooner than we expect. For
example, the research and development, volume production, launch and in orbit
operation of our vehicles have unpredictable costs and are subject to
significant risks, uncertainties and contingencies, many of which are beyond our
control, that may affect the timing and magnitude of these anticipated
expenditures. Some of these risks and uncertainties are described in more detail
in our Annual Report on Form 10-K
43
--------------------------------------------------------------------------------
Table of Contents
filed by the Company on March 9, 2022 , under the heading "Risk Factors - Risks
Related to the Business and Industry of Momentus ."
Although we believe that our current capital is adequate to sustain our
operations for a period of time, changing circumstances may cause us to expend
capital significantly faster than we currently anticipate, or we may need to
spend more money than currently expected because of circumstances beyond our
control. We may be required to seek additional equity or debt financing. In the
event that additional financing is required from outside sources, we may not be
able to raise it on terms acceptable to us, or at all. If we are unable to raise
additional capital when desired, our business, results of operations, and
financial condition would be adversely affected.
Commitments and Contingencies
We are a party to operating leases primarily for facilities (e.g., office buildings, warehouses and spaceport) under non-cancellable operating leases. These leases expire at various dates through 2028. Refer to Note 7.
We have principal of
We enter into purchase obligations in the normal course of business. These obligations include purchase orders and agreements to purchase goods or services that are enforceable, legally binding, and have significant terms and minimum purchases stipulated. Refer to Note 12.
Per the
In addition, we enter into agreements in the normal course of business with vendors for research and development services and outsourced services, which are generally cancellable upon written notice. These payments are not included in this table of contractual obligations.
Co-Founder Divestment and Share Repurchase
In accordance with theNSA and pursuant to certain Repurchase Agreements entered into with the Company, effective as ofJune 8, 2021 , each ofMr. Kokorich ,Nortrone Finance S.A. andBrainyspace LLC (collectively "the Co-Founders") sold 100% of their respective equity interests in the Company onJune 30, 2021 . In exchange for their equity interests, the Company initially paid each entity$1 , but will additionally pay up to an aggregate of$50,000,000 , out of funds legally available therefor, to the Co-Founders, on a pro rata basis, as follows: (i) an aggregate of$40,000,000 to be paid out of funds legally available therefor, within 10 business days after the earlier of (A) a business combination or capital raising transaction or series of transactions (whether in the form of debt or equity) resulting in cash proceeds of no less than$100,000,000 and (B) the Business Combination (the "First Payment Date"); and (ii) an aggregate of$10,000,000 to be paid out of funds legally available therefor, within 10 business days after a business combination or capital raising transaction or series of transactions (whether in the form of debt or equity) resulting in cash proceeds of no less than$250,000,000 (determined without any reduction for the$100,000,000 previously received in respect of the First Payment Date). As a result of the Business Combination, which generated$247.3 million of gross proceeds (as described in Note 3), the Company paid the Co-Founders$40.0 million in addition to the initial consideration paid of$3 . The Company recorded the consideration paid as a reduction of common stock and additional paid in capital. Pursuant to theNSA , a portion of those divestment proceeds were placed in escrow accounts, and may not be released to the divested investors until after completion of audit by a third party auditor of the investors compliance with theNSA and the lapse of a 15 day period without an objection from the CFIUS Monitoring Agencies. Following the third party audit of the investors'NSA compliance, all of the escrowed divestment proceeds were released to the Co-Founders as ofMarch 1, 2022 in accordance with theNSA . If the Company were to undertake a business combination or capital raising transaction or series of transactions (whether in the form of debt or equity) resulting in cash proceeds of approximately$2.7 million or more, the Company would need to pay an aggregate of$10.0 million to the Co-Founders. The Company evaluated this potential consideration as a liability under ASC 480 utilizing a probability-weighted approach. Certain factors which would enable successful fundraising were considered, including progress toward compliance with theNSA , research and development progress, and agreements with launch providers, resulting in an estimated liability of$6.0 million expected to be paid to the Co-Founders with a corresponding offset to additional paid in capital, as ofMarch 31, 2022 . Refer to Note 11.
Off-Balance Sheet Arrangements
44--------------------------------------------------------------------------------
Table of Contents
We do not engage in any off-balance sheet activities or have any arrangements or relationships with unconsolidated entities, such as variable interest, special purpose, and structured finance entities.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with GAAP. The preparation of our financial statements and related disclosures requires us to make estimates, assumptions and judgments as of the balance sheet date that affect the reported amounts of assets, liabilities, revenues, costs and expenses and related disclosures. Our actual results may differ from these estimates under different assumptions and conditions.
Revenue Recognition
We enter into short-term contracts for 'last-mile' satellite and cargo delivery, payload hosting and in-orbit servicing options with customers that are primarily in the aerospace industry. From inception toMarch 31, 2022 , we have not completed a commercial launch of customer cargo and as a result, have not recognized revenue related to performance obligations to date. However, as ofMarch 31, 2022 we have signed contracts with customers and have collected approximately$1.7 million in customer deposits, which are recorded as non-current contract liabilities in our consolidated balance sheet and will be recognized as revenue (along with any other fess that have been paid) upon the earlier of the satisfaction of our performance obligation or when the customer cancels the contract.
We account for customer contracts in accordance with ASC Topic 606, Revenue from Contracts with Customers, which includes the following five-step model:
•Identification of the contract, or contracts, with a customer.
•Identification of the performance obligations in the contract.
•Determination of the transaction price.
•Allocation of the transaction price to the performance obligations in the contract.
•Recognition of revenue when, or as, the Company satisfies a performance obligation.
Our contracts are cancellable for convenience by the customer and typically do not contain variable consideration. However, the full transaction price is collected in advance of the scheduled launch and all fees that are paid are non-refundable (and are not limited to deposits), regardless if the contract is cancelled by the customer or in the event a performance obligation is not satisfied by us. While the Company's standard contracts do not contain refund or recourse provisions, the Company may issue full or partial refunds to customers on a case-by-case basis as necessary to preserve and foster future business relationships and customer goodwill. As a result of the Company's inability to complete any launches in 2021 (refer to Note 4 for additional information), the Company issued customer refunds of$1.4 million to customers during the year endedDecember 31, 2021 . Our services are considered a single performance obligation, to transport the customers' payload to a specified orbit in space. We recognize revenue at a point in time when control is transferred, which is considered to be upon the release of the customers' payload into its specified orbit. We will calculate the weight distribution of each transfer vehicle at the customer level, and we will estimate the delivery date for each customer's payload based on the relative weight of payloads released to determine the point in time to recognize revenue for each payload release.
In periods in which we recognize revenue, we will disclose the amounts of revenue recognized that was included as a contract liability balance at the beginning of the reporting period in accordance with ASC 606-10-50-8(b).
Loss Contingencies
We are subject to the possibility of various loss contingencies arising in the ordinary course of business, including product-related and other litigation. We consider the likelihood of loss or impairment of an asset or the incurrence of a liability, as well as our ability to reasonably estimate the amount of loss in determining loss contingencies. An estimated loss contingency is accrued when it is probable that an asset has been impaired or a liability has been incurred and the amount of loss can be reasonably estimated. We regularly evaluate current information available to us to determine whether such accruals should be adjusted and whether new accruals are required. Refer to Note 12.
Deferred Fulfillment and Prepaid Launch Costs
We prepay for certain launch costs to third party providers that will carry the
orbital transfer vehicle to orbit. Prepaid costs allocated to the delivery of a
customer's payload are classified as deferred fulfillment costs and recognized
as
45--------------------------------------------------------------------------------
Table of Contents
cost of revenue upon delivery of the customer's payload. Prepaid costs allocated to our payload are classified as prepaid launch costs and are amortized to research and development expense upon the release of our payload. The allocation is determined based on the distribution between customer and our payload weight on each launch. OnMay 21, 2021 , the Company received notification from one of its launch service providers that it was terminating 2 launch service agreements for flights scheduled during calendar year 2021 and that they considered the Company to be in default of prior payments totaling$8.7 million . The Company believed the prepayments would be non-recoverable as this was the third time the payload was rescheduled. As a result of the notification from one of its launch service providers, the Company recorded an impairment charge of$8.7 million of prepaid launch costs during the three months endedJune 30, 2021 . There was an unrelated impairment of$0.8 million the three months endedMarch 31, 2021 . OnOctober 12, 2021 , the Company began discussions with the same launch service provider about reestablishing a future launch schedule. As a result of the discussion, the Company signed a Launch Services Agreement onOctober 19, 2021 that reserves space on an upcoming launch, which is targeted forMay 2022 . While securing space on the manifest is an important step, our plan to launch inMay 2022 remains subject to the receipt of licenses and other government approvals, and successful completion of our current efforts to get the system ready for flight. The Company determined that$2.7 million of the impaired deposits were potentially recoverable in connection with the reestablished schedule. The Company did not record any adjustments as a result of the discussions. See Note 4. OnMay 4, 2022 , as a subsequent event, the Company received a favorable determination from theFederal Aviation Administration (the "FAA") of its application for payload review in support of the Company's inaugural flight of the Vigoride orbital transfer vehicle on the launch targeted forMay 2022 . Together with a license from theFederal Communications Commission (the "FCC") received onApril 28, 2022 , and updates to existing licenses from theNational Oceanic and Atmospheric Administration (the "NOAA"), the Company has received all required government approvals required for its inaugural flight. See Note 14. Contract Liabilities Customer deposits collected prior to the release of the customer's payload into its specified orbit are recorded as current and non-current contract liabilities in our condensed consolidated balance sheets as the amounts received represent a prepayment for the satisfaction of a future performance obligation that has not yet commenced. Each non-refundable deposit is determined to be a contract liability upon cash collection. Prior to making this determination, we ensure that a valid contract is in place that meets the definition of the existence of a contract in accordance with ASC 606-10-25-1 and 2.
Stock-based Compensation
We have various stock incentive plans under which incentive and non-qualified stock options and restricted stock awards are granted to employees, directors, and consultants. All stock-based payments to employees, including grants of employee stock options are recognized in the financial statements based on their respective grant date fair values. We recognize stock-based compensation expense using a fair value-based method for costs related to all stock-based payments. We estimate the fair value of stock-based payments on the date of grant using the Black-Scholes-Merton option pricing model. The model requires management to make a number of assumptions, including expected volatility of our stock, expected life of the option, risk-free interest rate, and expected dividends. The fair value of the stock is expensed over the related service period which is typically the vesting period. The stock-based compensation expense that is reported in our financial statements is based on awards that are expected to vest. We account for forfeitures as they occur. Estimating the fair value of equity awards as of the grant date using valuation models, such as the Black-Scholes-Merton option pricing model, is affected by assumptions regarding a number of variables as disclosed above, and any changes in the assumptions can materially affect the fair value and ultimately how much stock-based compensation expense is recognized. These inputs are subjective and generally require significant analysis and judgment to develop. See Note 11 for the specific assumptions we used in applying the Black-Scholes-Merton option pricing model to determine the estimated fair value of our stock options and awards granted during the three months endedMarch 31, 2022 . We expect our share-based compensation cost will increase to the extent that we grant additional stock option awards to employees and non-employees. If there are any modifications or cancellations of the underlying unvested securities, we may be required to accelerate any remaining unearned share-based compensation cost or incur 46
--------------------------------------------------------------------------------
Table of Contents
incremental cost. Share-based compensation cost affects our research and development expenses and selling, general, and administrative expenses.
SAFE Notes
We issued SAFE notes to investors which were converted to shares of common stock in connection with the Business Combination. Prior to conversion, we determined that the SAFE notes were not a legal form of debt (i.e., no creditors' rights). The SAFE notes included a provision allowing for cash redemption upon the consummation of a change of control, the occurrence of which is outside the control of the Company. Therefore, we classified SAFE notes as liabilities as they were redeemable upon a change of control event which is not within the control of the Company. SAFE notes were recorded at fair value, and were subject to remeasurement through earnings at each balance sheet date until the date of their respective settlement and classified as marked-to-market liabilities pursuant to ASC 480. We determined the estimated fair value of the SAFE notes by applying a Backsolve method within the Black-Scholes-Merton Option Pricing model. This methodology effectively allowed us to solve for the implied value of the business based on the terms of the SAFE investments (i.e. the value of the company, such that when allocated to the various securities, the value allocated to the SAFE investment equals the price the investor paid for such SAFE instrument).
Income Taxes
We account for income taxes in accordance with authoritative guidance, which requires the use of the asset and liability method. Under this method, deferred income tax assets and liabilities are determined based upon the difference between the financial statement carrying amounts and the tax basis of assets and liabilities and are measured using the enacted tax rate expected to apply to taxable income in the years in which the differences are expected to be reversed. Significant judgment is required in determining any valuation allowance recorded against deferred tax assets. In assessing the need for a valuation allowance, management considers all available evidence, including past operating results, estimates of future taxable income, and the feasibility of tax planning strategies. In the event that management changes its determination as to the amount of deferred tax assets that can be realized, we will adjust our valuation allowance with a corresponding impact to the provision for income taxes in the period in which such determination is made. We are required to evaluate the tax positions taken in the course of preparing its tax returns to determine whether tax positions are "more likely than not" of being sustained by the applicable tax authority. Tax benefits of positions not deemed to meet the "more likely than not" threshold would be recorded as a tax expense in the current year. The amount recognized is subject to estimate and management judgment with respect to the likely outcome of each uncertain tax position. The amount that is ultimately sustained for an individual uncertain tax position or for all uncertain tax positions in the aggregate could differ from the amount that is initially recognized.
Recent Accounting Pronouncements
From time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies that are adopted by us as of the specified effective date. Unless otherwise discussed, we believe that the impact of recently issued standards that are not yet effective will not have a material impact on our financial position or results of operations upon adoption. Please refer to Note 2 in our financial statements included in Form 10-Q for a description of recently adopted accounting pronouncements and recently issued accounting pronouncements not yet adopted, the timing of their adoptions and our assessment, to the extent we have made one, of their potential impact on our financial condition and results of operations.
© Edgar Online, source
